Audit Report on the Vera Institute of Justice Contract with the Department of Probation

AUDIT REPORT IN BRIEF

This audit determined whether the Vera Institute of Justice (Vera) is complying with the provisions of its contract with the Department of Probation (DOP) to operate the Esperanza/Hope (Esperanza) program. The contract, which was signed in January 2003, requires that Esperanza provide family-based, intensive-treatment services to juvenile delinquents who would otherwise be placed in a State facility by Family Court. In addition to providing direct services to delinquent youths, the Esperanza contract calls for the contractor to aid DOP in implementing structural changes within the agency. In Fiscal Year 2007, Esperanza provided direct services to 160 youths and was paid a total of $3,199,263.

Audit Findings and Conclusions

The audit revealed that Vera generally complied with the provisions of its contract with DOP to operate the Esperanza program during Fiscal Year 2007. There was evidence that Esperanza’s performance-based claims for reimbursement were generally supported, that field counselors provided direct services to Esperanza clients, and that required technical assistance and reports were provided to DOP.

However, the audit also concluded that there were serious weaknesses in DOP’s Esperanza contract and in its oversight of contract compliance. DOP’s contract lacks sufficient incentives with regard to direct client services. In addition, DOP’s review of Esperanza’s non-performance-based claims for reimbursement was seriously deficient.

With regard to the contract, only 15 percent of payments are for meeting performance measures regarding direct services to clients; another 13 percent of contract payments relate to other deliverables, such as the provision of technical assistance and reports to DOP. (The remaining 72 percent is to reimburse Esperanza for staff salaries, executive support, and overhead costs.) With regard to performance incentive measures, Esperanza consistently fell short of meeting the target of 54 client enrollments per quarter in Fiscal Year 2007. Although Esperanza exceeded DOP’s target rate of 70 percent for clients avoiding placement in a State facility (placement) within nine months of enrollment, the audit questions whether the 70 percent target is adequate. The audit also questions Esperanza’s methodology for estimating the City cost savings attributable to Esperanza’s placement-avoidance efforts.

Regarding Esperanza’s non-performance-based claims for reimbursement, the audit identified significant deficiencies in DOP’s oversight of contract compliance. DOP does not require supporting documentation from Esperanza for its staff salary, executive-support, or overhead cost claims, nor does it periodically visit Esperanza to review any of this documentation. Although Esperanza generally maintained adequate records on staff salaries and benefits, it was unable to provide a clear accounting for its executive-support costs (of over $80,000) and overhead costs (of over $125,000) and failed to provide any documentation to support its overhead costs. As a result, DOP and Esperanza were unable to demonstrate that these funds were used in an appropriate manner. By failing to properly monitor executive-support and overhead expenses, DOP is increasing the risk that City funds will be misused.

Audit Recommendations

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

• Expand the performance-based component of future contracts providing family-based, intensive-supervision alternatives to placement in State facilities.

• Strengthen the placement-avoidance performance measure in the contract.

• Recoup all funds relating to special compensation, executive-support, and overhead costs in Fiscal Year 2007 for which Esperanza is unable to provide adequate supporting documentation.

The audit also recommends that Esperanza:

• Improve its cost-savings report by (a) adjusting its placement-avoidance savings estimate to account for clients who are sentenced to incarceration by an adult court within three years of exiting the Esperanza program, and (b) subtracting Esperanza’s costs from the placement-avoidance savings estimate.

• Improve support for its cost-savings reports by providing credible evidence for the discount rate it uses to adjust estimated savings to account for projected future placements.

• Account for and maintain adequate documentation on its special compensation, executive-support, and overhead expenses.

Agency Response

In its response, DOP agreed or partially agreed with four recommendations and disagreed with four, but stated that the successor contract will address the audit’s concerns as is consistent with the purpose and mission of the Esperanza program.