Audit Report on the Contract of Basic Housing, Inc., with the Department of Homeless Services to Provide Shelter and Support Services

AUDIT REPORT IN BRIEF

The audit determined whether Basic Housing, Inc. (Basic Housing), complied with the key financial and programmatic provisions of its contract with the Department of Homeless Services (DHS) to provide services to homeless clients. DHS is responsible for providing emergency shelter and social services to homeless families and individuals in New York City. DHS provides services through 11 City-run and 205 privately-run shelters, consisting of 49 adult and 167 family facilities.

DHS refers clients to shelters such as Basic Housing, a non-profit organization that runs shelters for homeless families in Manhattan, the Bronx, and Brooklyn (Basic Housing is an affiliate of Basics, Inc.). In 2004, DHS issued a four-year, 11-month contract to Basic Housing to provide 143 families with transitional housing and social services, such as arranging for childcare services, assistance in the search for permanent housing and employment, and health screening. On January 1, 2007, the contract was amended to provide only social services to an additional 178 families located in the Bronx and Manhattan, increasing the total contract amount to $26,410,637. On September 5, 2008, the contract was amended again to increase by $21,830,253 for a new total of $48,240,890 to expire on June 30, 2009. With this amendment, Basic Housing would pay the rent and provide shelter services for up to an additional 500 homeless families.

DHS paid Basic Housing $7,224,802 in Fiscal Year 2008, as recorded in the City’s Financial Management System (FMS).

Audit Findings and Conclusions

Basic Housing did not adequately comply with certain administrative and financial provisions of its contract with DHS to provide services to the homeless. We found significant noncompliance issues with Basic Housing concerning the funds it received from DHS, such as noncompliance with documentation requirements, insufficient evidence that all funds received were used appropriately, and inadequate accounting practices. As a result, $1.19 million (31%) of the $3.86 million we reviewed represents overpayments and unsupported costs that should be recouped. The City would be entitled to 39 percent of the recoupment, or $463,721. The audit identified an additional $78,752 in unallocated costs for which a portion should be recouped. Also, there were questionable transfers of almost $1.3 million from Basic Housing to Basics, Inc., that DHS should reconcile or, if unreconcilable, recover.

Basic Housing also did not consistently provide required social services to clients. Consequently, some clients were compromised in their efforts to obtain permanent housing and become self-sufficient.

Basic Housing has established an accounting system to record its transactions and a client-tracking system to track client services. Basic Housing has also developed a comprehensive set of procedures for providing social services, which enables it to help families obtain permanent housing.

Audit Recommendations

To address these issues, the audit recommends, among other things, that Basic Housing:

• Obtain and maintain the required documentation as per the contract.

• Reexamine its Fiscal Year 2008 close-out request and identify and remove any expenses not related to the contract in order to accurately report all expenses incurred under the contract. Ensure that future close-out requests include only those expenses incurred in relation to the service of the contract.

• Ensure that clients’ files contain documentation and evidence of the provision of all required assistance to clients to address their needs.

To address these issues, the audit also recommends, among other things, that DHS:

• Conduct a periodic examination of Basic Housing books and accounting records to ensure that all funds are exclusively used for Basic Housing’s contract operations and ensure that Basic Housing develops appropriate cost-allocation plans relative to its affiliate and to other vendors or programs served by Basic Housing.

• Recover the $1.19 million in overpayments and unsupported costs and the appropriate portion of the $78,752 in unallocated costs.

• Require Basic Housing to provide a corrective action plan to correct the problems noted in this audit.

Agency Response

In their responses, DHS officials agreed or partially agreed with 10 of the 12 recommendations addressed to them and disagreed with 2, and Basic Housing officials agreed or partially agreed with 9 of the 11 recommendations addressed to them and disagreed with 2.