Audit Report on the Department of Housing Preservation and Development’s Administration of Its Relocation Shelter Account

HPD operates its own shelter system to assist people who are vacated from their homes as a result of emergencies such as fires. Families are placed in one of three government-funded shelters (Ruth Fernandez Family Residence, Convent House Shelter, and H.E.L.P. USA), while single adults are placed in government-funded hotels.¹  HPD also contracts with American Red Cross (ARC) for temporary relocation services.  In 1987, HPD received permission from the New York City Department of Finance (DOF) to establish the Relocation Shelter account in order to pay capital expenditures associated with the shelters.

As of October 2010, HPD maintained $9.8 million in the Relocation Shelter account. According to HPD records, the balance of the account is composed of seven subledgers. Five of the subledgers include funds derived from agreements with the contractors hired to provide shelter and hotel services. In addition, HPD has a “Hotels” subledger, which has not been used since 2005, and a “Vacate” subledger designated to provide moving expense reimbursements to individuals ordered to vacate their homes. During the period of July 2009 through October 2010, the only subledger with more than one recorded disbursement was Vacate.

Audit Findings and Conclusions

HPD does not properly administer its Relocation Shelter account in accordance with City regulations. As of October 2010, HPD maintained over $9.8 million in Relocation Shelter funds that have accumulated and have essentially remained unused since 2007. Approximately $8.9 million of these funds originated from five contracts that have expired. At least $3.1 million of the $8.9 million from one of the contracts should not have been directed to this account. Furthermore, HPD accumulated nearly $5.7 million of the $8.9 million through a clause in four of the five contracts that allowed HPD to indefinitely retain reserve funds.  This clause is particularly questionable because agencies are usually not permitted to keep funds leftover from expired contracts. The remaining $933,654 has not been used since 2005. Regardless of whether HPD should have retained the $9.8 million in funds, the funds are unused, the amounts are excessive, and they should be promptly appropriated to the City’s FY 2012 budget.

In addition, HPD is using this account for purposes other than those for which it received permission. HPD received permission to use the account to pay capital expenditures, but now uses the account to pay vacate order reimbursements and other shelter expenses.

Audit Recommendations

HPD should:

• Transfer and appropriate the $9.8 million, less any funds claimed by another funding source, from the Relocation Shelter account to the general fund and adjust the Relocation Shelter account ledgers to reflect the disbursement, and

• Decide if the Relocation Shelter account should remain open and, if so, submit a revised City bank account request form to DOF that establishes the new business purpose for the account.

Agency Response

In its response, HPD disagreed with the audit’s conclusion that the Relocation Account is essentially unused.  HPD stated that it worked with the Office of Management and Budget to use the funds to support the original programmatic intent – emergency shelter for households vacated from their homes.  HPD further stated that it agreed to work with DOF to modify the business purpose of the Relocation Shelter account.

We acknowledge the HPD officials’ response but continue to affirm our recommendations. This account was established so HPD could pay for capital expenditures at the shelters and not as a private reserve to fund HPD’s shelter operations at a later date. As of October 2010, the $9.8 million sat largely unused since 2007 as well as after the contracts expired in 2009. HPD claims that the current use of these funds as Other Categorical grants was approved by the City Council. However, the extent of the Council’s knowledge of the source, contents, and/or existence of the Shelter Relocation account is unclear. Accordingly, we reiterate that HPD should immediately return all funds to the City’s general fund in one Fiscal Year, and seek program funding through conventional means.