Audit Report on the Procurement and Monitoring of CPA Services at the Department of Homeless Services

EXECUTIVE SUMMARY

Audit Report on the Procurement and Monitoring of CPA Services at the Department of Homeless Services

The New York City Department of Homeless Services (DHS) administers programs for homeless families and single adults. DHS provides its services through contracts with community-based organizations (CBOs) throughout New York City. DHS supports a variety of programs, including:

• Adult services, such as single adult residences, outreach programs, drop-in centers, and substance abuse, employment, and homeward bound programs;
• Family programs, including family residences that have reimbursement agreements with DHS;
• Single room occupancy (SRO) housing; and
• Medical services.

DHS monitors the CBOs to ensure that they are delivering the required services and spending DHS funds in accordance with their contracts. This monitoring consists of program-quality reviews by DHS staff workers and fiscal audits by independent Certified Public Accountants (CPAs) hired by DHS. These audits are conducted in accordance with generally accepted government auditing standards (GAGAS) and the New York City Comptroller’s Internal Control Directive #5, Use of Public Accounting Firms for Audits of Delegate Agencies (Directive #5).

DHS issued—for the first time—a Request for Proposal (RFP) in March 1998 to all the firms on the Comptroller’s List of Prequalified CPA Firms. The RFP was for fiscal audits of the DHS human services contracts for the 1998 program year, and at DHS’s discretion, for approximately one-third of its contracts for the 1999 program year. The RFP that was issued sought the services of CPA firms to audit the accounts and reports of the 188 DHS human services contracts for Fiscal Year 1998, but did not identify the specific contracts to be audited for Fiscal Year 1999. DHS grouped the 188 contracts into four categories, according to the types of program involved: adult programs, family programs, single room occupancy housing, and medical services. The contracts were then grouped into 15 lots. DHS awarded the 15 lots to seven CPA firms that responded to its RFP, at a total cost of $885,000. The combined value of the contracts to be audited was approximately $194.5 million.

The DHS Bureau of Audit Services (BAS) is the unit responsible for monitoring the performance of the CPA contractors. BAS receives and reviews CPA progress reports, acts as a liaison between the CBOs and the CPA firms, reviews CPA billings, and reviews the draft and final audit reports submitted by the CPA firms.

The objectives of this audit were to evaluate DHS’s solicitation and award practices for the procurement of CPA services, and its monitoring of CPA audit services.

Audit fieldwork was conducted from December 2001 through April 2002.

• We reviewed the procurement process and administration of CPA audit services acquired under the DHS 1998 Request for Proposal. To gain an understanding of the DHS solicitation and award process, we met with DHS officials, and we reviewed various contract documents
• We analyzed the available data to determine whether DHS procurement practices promoted competition and whether the individual contracts were awarded to the best proposers based on the criteria established in the RFP. To ensure that DHS solicited and awarded contracts to firms that were on the CPA List, we checked the CPA List in effect at the time the RFP was issued. We reviewed the individual rating sheets to determine whether the Technical Ratings were adequately supported and in accordance with the criteria set forth in the RFP. In addition, we reviewed the ratings of the awarded CPA firms to determine whether they had attained the Minimum Average Technical (MAT) score in each of the rating categories, as defined in the RFP. We reviewed the CPA contracts to gain an understanding of the contract requirements. We also met with agency officials to gain an understanding of how DHS monitors and administers the CPA contracts. We reviewed monthly progress reports, several draft and final audit reports, and CPA firm billings relating to the Fiscal Year 1998 programs.

This audit was conducted in accordance with generally accepted government auditing standards (GAGAS) and included tests of the records and other auditing procedures considered necessary. This audit was conducted in accordance with the City Comptroller’s audit responsibilities as set forth in Chapter 5, § 93, of the New York City Charter.

DHS complied with PPB rules and Directive #5 when soliciting CPA firms. However, DHS incorrectly awarded five of the 15 contract lots to a CPA firm that should have been eliminated from consideration. In that instance, DHS could have saved $251,400 by awarding the five contract lots to the highest-rated firm that attained required minimum ratings for each of the proposal evaluation criteria. Moreover, DHS did not evaluate proposals by individual lot, as specified in the RFP. Further some firms, in our opinion, might also have been awarded more work than they were able to complete within the specified time frames. Lastly, CPA firms did not always submit monthly progress reports, inform DHS when key firm personnel were changed, and have their partners or managers attend audit exit conferences, in accordance with the DHS contracts.

Delays in work completion was also a problem. Only 52 of the assigned 186 Fiscal Year 1998 audits (28%) were completed by their original contract due dates. The other 134 audit reports were delivered by the extended due dates that were approved by DHS, but documentation detailing the reasons for granting extensions was lacking for some of the audits.

The DHS monitoring process included reviews of CPA draft and final reports. DHS reviewed reports format and content as indicated in Directive #5, and used a checklist to ensure that each report’s format and content met requirements. However, DHS had no overall tracking system to monitor audit progress and the resolution of audit findings. Moreover, DHS did not always maintain documentation supporting changes that occurred between the draft and final audit reports.

The matters covered in this report were discussed with officials from DHS during and at the conclusion of this audit. A preliminary draft report was sent to DHS officials and discussed at an exit conference on June 6, 2002. On June 7, 2002, we submitted a draft report to DHS officials with a request for comments. We received a written response from DHS on June 21, 2002. DHS agreed to implement six of the report’s eight recommendations. Although DHS disagreed with the recommendation that it develop criteria for the amount of audit work that can be awarded to firms based on the sizes of their staffs, it agreed to consider firm size when awarding its next round of CPA contracts. With regard to the remaining recommendation, DHS indicated that it already evaluates audit lots individually, as recommended.