Audit Report on the Management and Control of Overtime Costs at the Department of Homeless Services

The New York City Department of Homeless Services (DHS) partners with public agencies and private sector organizations to provide temporary, emergency shelter to homeless families and individuals. Non-managerial DHS employees covered under collective bargaining agreements between the City and municipal labor unions are eligible to earn overtime pay. In accordance with the Citywide Agreement and the Fair Labor Standards Act (FLSA), most non-managerial employees must be paid overtime at a premium of one-and-one-half times the regular rate of pay for all hours worked in excess of 40 hours. For employees whose work week is 35 hours, straight time is paid for hours worked in excess of 35 hours but less than 40 hours. Employees who work overtime may be compensated either by cash payment or in time off (compensatory time).

DHS’ Personal Services (PS) expenditures totaled $122.3 million and $120.3 million for Fiscal Years 2009 and 2010, respectively. For the same years, DHS’ total overtime expenditures represented 7.9 and 7.3 percent, respectively, of its total PS expenditures.¹ According to the City’s Payroll Management System (PMS), DHS paid $9.7 million in overtime wages in Calendar Year 2009 to 1,816 of its approximately 2,000 employees and paid $8.8 million in overtime wages in Calendar Year 2010 to 1,549 of its approximately 1,900 employees.

The audit determined whether DHS: (1) appropriately approved and paid overtime in compliance with its own policies and procedures, labor laws, and other City regulations and guidelines; and (2) effectively manages and controls its overtime costs.

Audit Findings and Conclusions

DHS did not fully comply with its own procedures and other applicable rules and regulations governing the approval and payment of overtime. Such inconsistencies, along with other disclosed control weaknesses, inhibit DHS’ effectiveness in managing and controlling employee overtime costs.

Our tests involved 48 sampled employees, whose 2009 earnings totaled $4,104,449, including regular earnings of $3,044,920 and overtime earnings of $1,059,529. Due to the disclosed control weaknesses regarding these 48 sampled employees, DHS paid overtime wages of: (1) $220,690 to 39 employees without the required levels of senior management signoff; (2) $32,641 to 23 employees who exceeded the City’s overtime cap and did not have required waivers; and (3) $3,579 to four employees without justification for the overtime hours worked.

Tests of compliance with applicable criteria disclosed that DHS employees generally provided justification for overtime requests and all such requests were signed as being reviewed by unit supervisors or lower-level managers as required. However, senior management approvals for overtime exceeding 10 percent or more of employees’ regular earnings were not always obtained. Further, as stated above, DHS did not obtain overtime cap waivers for required employees nor did it have a formal mechanism or procedure to follow up or investigate continuous high-overtime earners.

On a more positive note, DHS paid overtime wages only to eligible employees and paid those wages at straight time for overtime hours worked in excess of 35 hours but less than 40 hours and at premium pay for hours worked in excess of 40 hours. Further, the audit found that the duties of approving and processing payroll were adequately segregated in compliance with Directive #13.

Audit Recommendations

The audit made five recommendations, including that DHS should:

• Ensure that procedures set in place to manage and control overtime (i.e., DHS’ updated overtime control policy, effective March 2011) are implemented, enforced, and appropriately followed by agency management and staff as part of the agency’s normal day-to-day business functions. These procedures should be reviewed periodically and updated as required to reflect changes in management’s policies.
• Going forward, ensure that overtime waivers are obtained each year from OLR for applicable employees when they exceed the overtime cap, currently set at $74,079. For employees who require a waiver but one is not requested and obtained, the employee should receive compensatory time rather than paid overtime wages in accordance with the Citywide Agreement.
• Design and implement a procedure to investigate and follow up on continuous high-overtime earners as a means to mitigate and reduce the risk associated with potential overtime abuse.

DHS Response

We received a written response from DHS officials on September 13, 2011. In their response, DHS officials generally agreed with all five of the audit’s recommendations; however, they disagreed with some of the audit’s findings. After careful review, we found that some of DHS’ arguments were without merit. Further, some of their arguments were unsubstantiated; DHS provided no evidence in support of their assertions. Accordingly, in the absence of credible evidence to the contrary, we are unable to give credence to their arguments.
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