Audit Report on the Department of Homeless Services Administration of Its Billing System and Miscellaneous Expense Accounts

AUDIT REPORT IN BRIEF

This audit determined whether the Department of Homeless Services (DHS) adequately administered its Billing System account and Miscellaneous Expense Account (MEA). DHS is responsible for providing emergency shelter and social services to homeless families in New York City. The services are designed to help homeless families gain self-sufficiency and move from temporary to permanent housing. Homeless shelters bill DHS to recover the cost incurred in providing these services.

During Fiscal Year 2006, DHS maintained three active bank accounts, including the Billing System account, the MEA account, and an Imprest Fund bank account. The Billing System account is the largest DHS account and is used to pay per diem homeless shelter providers through electronic funds transfers. The total amount paid to the providers through this account during Fiscal Year 2006 was $120,043,627. The MEA is a bank account that is used to replenish imprest funds that were established for shelters that are directly operated by DHS. Fiscal Year 2006 MEA bank account payments amounted to $977,453. A separate Imprest Fund bank account that is used to reimburse DHS employees for small purchases they make on behalf of DHS expended $73,555 in Fiscal Year 2006.

There are three types of family and adult shelter providers: contractual providers, non-contractual providers, and shelters directly operated by DHS. The contractual providers are paid through the Citywide Financial Management System (FMS). Non-contractual providers are paid through the Billing System bank account. DHS uses the Client Tracking System (CTS), the Shelter Care Information Management System (SCIMS), and the Housing Emergency Referral Operation (HERO) system to record and track the services provided to homeless clients.

Audit Findings and Conclusions

DHS has adequate controls in terms of deposits in and withdrawals from the Billing System bank account and the MEA account. DHS also has established accounting systems to record, track, and store transactions made through its Billing System bank account, and the DHS Billing unit, which processes per diem family provider payments, compares shelter invoices to homeless family records stored in CTS prior to initiating payments through this bank account.

However, DHS needs to improve the controls over the administration of its Billing System and MEA accounts. The payment process leading up to the withdrawals exhibited several weaknesses. The deficiencies include a lack of segregation of duties in the Billing unit; a lack of reconciliation of the electronic transfer of funds from the Billing System bank account to the Billing unit’s authorized payments; a failure to properly process recoupments; a lack of controls over the processing of payments to the one per diem adult provider; a lack of controls over disbursements made from the MEA account; and a failure to determine which entities require the issuance of 1099-MISC forms for income tax purposes.

Audit Recommendations

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

• Ensure that the Director of the Billing unit approves the final payment file to be sent to the bank account custodian for the electronic transfer of funds to providers.

• Intensify its efforts to enter into contracts with its per diem providers.

• Establish a process to ensure that all electronic transfers of funds to per diem providers match the amounts authorized by the Director of the Billing unit.

• Establish procedures and computer controls to ensure the proper processing of recoupments.

• Ensure that the determination of overpayments is based on actual rather than allowable expenses and recalculate the closeout statement for Fiscal Year 2006.

• Ensure that its imprest fund Custodian Directory is regularly updated to reflect changes in authorized personnel.

• Report its payments to 1099-reportable per diem providers in a format acceptable to the Financial Information Services Agency (FISA).

Agency Response

In its response, DHS generally agreed with the audit’s findings and recommendations.