Audit Report on the New York City Human Resources Administration’s Controls over Its Miscellaneous, Employee, and Imprest Fund Accounts

Executive Summary

The New York City Human Resources Administration (HRA) is responsible for providing temporary help to individuals and families with financial and social service needs.  It provides assistance to help clients address their needs and to enable them to reach self-sufficiency.  HRA serves more than 3 million New Yorkers through programs that include temporary cash assistance, Medicaid, food stamps, home health care, child care, adult protective services, assistance to victims of domestic violence, HIV/AIDS support services and child support enforcement.  In connection with its operations, HRA administers 16 bank accounts that it uses to disburse public assistance funds and other client-related expenditures, categorized as “programmatic expenses.”

This audit focuses on 3 of these 16 accounts: (1) the Miscellaneous Expense Account (MEA account), established to pay for certain client-related programmatic expenses ranging from $250 to $50,000; (2) the Imprest Fund Account (Imprest account), established to pay for agency-related expenses of up to $250; and (3) the Employee Expense Account (EEA account), established to reimburse employees for out-of-pocket expenses, generally with no dollar limit[1].  In Fiscal Year 2015, the audit scope period, expenditures related to those three accounts totaled approximately $19 million.

This audit examined whether HRA properly administers its MEA account, Imprest account and EEA account in accordance with Comptroller’s Directive #11, Cash Accountability and Control; Comptroller’s Directive #3, Procedures for the Administration of Imprest Funds; Comptroller’s Directive #6, Travel, Meals, Lodging and Miscellaneous Agency Expenditures; Comptroller’s Directive #24, Agency Purchasing Procedures and Controls; and with regard to employee incentive and recognition program activities the New York City Department of Citywide Administrative Services’ (DCAS) Agency Guidelines for Incentive Programs.

Audit Findings and Conclusion

HRA failed to properly administer the activities of its MEA account, which it used to disburse more than $18 million in Fiscal Year 2015, much of it inappropriately.  Our audit revealed that HRA lacked adequate controls over the MEA account and allowed it to be used for inappropriate expenditures that were contrary to its stated purposes, some of which lacked adequate documentation. HRA also improperly used the MEA account as an imprest fund to issue more than 200 replenishment checks totaling over $22,000 in amounts of $250 or less and thereby circumvented the specific controls set forth in Comptroller’s Directive #3, and improperly issued 14 Electronic Funds Transfers (EFTs) and checks from the MEA account, totaling $2,711,716, that were above the $50,000 limit that HRA itself established for the account[2].

Further, HRA mismanaged the MEA account’s cash flow, maintained a negative book balance for 7 out of 12 months during Fiscal Year 2015, and left a year-end account deficit of $1,218,432.  The repeated negative balances in the MEA account resulted primarily from HRA’s failure to voucher sufficient funds in time to cover account expenditures.  HRA instead covered the MEA account’s deficits by drawing on City funds that had been allocated to another account for a different purpose.  Finally, HRA also funded more than $11 million in postage and intra-City expenditures with Miscellaneous Payment Vouchers in violation of Comptroller’s Directive #24.

With respect to the two other accounts we audited, the Imprest account and the EEA account, HRA generally complied with provisions of the Comptroller’s Directives that call for segregation of duties, the recording of transactions, custody of the funds, and periodic account reconciliations.  However, HRA used its Imprest account for expenditures that were contrary to Comptroller’s Directive #3, and did not ensure that all of its Imprest account expenditures were adequately supported with appropriate documentation.  Finally, HRA misclassified its MEA and EEA accounts as imprest funds in its Active Agency Bank Account filings submitted to the Comptroller’s Office.

Audit Recommendations

To address these issues, we make a total of 11 recommendations, including that HRA should:

• Establish proper fiscal controls and independent oversight to: (a) prevent the disbursement of checks and EFTs that are not in compliance with the authorized purpose of the MEA account; and (b) prevent expenditures from the account outside of pre-established monetary limits;
• Update and replace its existing, inaccurate Agency Bank Account Request form with a new, authoritative document that clearly delineates all authorized purposes and uses of the MEA account, with appropriate monetary limits and a list of prohibitions, and provide a copy to the New York City Department of Finance (DOF);
• Review its practice of using the MEA account for large, recurring purchases of goods and services, such as postage, and ensure compliance with Comptroller’s Directive #24;
• Review the validity of using the MEA account for intra-City expenditures and ensure that any such expenditures comply with applicable rules and directives, including Comptroller’s Directive #24;
• Cease HRA’s practice of using its MEA and Imprest accounts interchangeably; implement controls to restrict the use of all agency-administered accounts to their authorized purposes and monetary limits, and ensure that all such uses are consistent with applicable Comptroller’s Directives; and
• Determine the causes for the chronic negative book balances incurred in the MEA account and take the necessary steps to voucher for all MEA expenses and ensure adequate funding is available in the account.

Agency Response

HRA responded to each of the report’s findings and recommendations.  It disagreed with most of the report’s findings, agreed with one recommendation, partially agreed with three recommendations and disagreed with seven recommendations.  HRA stated that “[a]lthough there may be other payment vehicles available for [questioned] purchases, none of the expenditures were inappropriate.”

However, contrary to HRA’s assertion that none of its expenditures were inappropriate, the audit found that more than $11 million (60 percent) of the $18.2 million that HRA spent from the MEA account in Fiscal Year 2015 involved HRA’s prohibited use of Miscellaneous Payment Vouchers, mostly for postage, in direct violation of Comptroller’s Directive #24.  Directive #24 specifically identifies “payments to postal and phone service providers” and “intra-City expenditures” as “unallowable uses” of Miscellaneous Payment Vouchers.  An additional $4.8 million (26 percent) was spent on bulk purchases of MetroCards in violation of Directive #24’s prohibition against expending funds prior to the submission of payment vouchers.  In sum, 86 percent of HRA’s spending from the MEA account was for foreseeable, recurring purchases totaling millions of dollars annually that HRA, with proper planning, could have executed directly and transparently through the City’s Financial Management System (FMS).  Instead, HRA inappropriately used its MEA account to make those and other purchases without vouchering or recording them in FMS—sometimes for months—using funds that had been allocated for other purposes to cover many of them, a practice that is directly contrary to Comptroller’s Directive #24.

In addition, HRA used the MEA account for expenditures outside of the minimum and maximum dollar limits that HRA itself established for the account.  Finally, although HRA cited the time-sensitive needs of its underprivileged clients as justification for establishing its own agency-controlled MEA bank account, our audit found that HRA also used that account for administrative purposes, for example, to pay for food, beverages, and gift cards for its employees, expenses that the agency never mentioned in its written justification.

[1]  As discussed further in this report, HRA established an MEA account sometime in the 1970s.  In 2009, HRA requested that a second MEA account be opened to replace the pre-existing MEA account but then maintained both accounts simultaneously.  As used in this report “MEA account” or “the older MEA account” means the account that predated 2009, and “the newer MEA account” or “second MEA account” means the account opened in 2009.

[2] An “imprest fund” allows for small purchases under $250 subject to the rules set out in Comptroller’s Directive #3, Procedures for the Administration of Imprest Funds.