Final Audit Letter Report on the Department of Homeless Services’ Controls over Its Hotel Lodging Contract with the Hotel Association of New York City, Inc.

Introduction

This Final Audit Letter Report concerns the Department of Homeless Services’ (DHS’) controls over its contract with the Hotel Association of New York City, Inc. (HANYC) to help facilitate temporary housing for persons impacted by COVID-19. The objective of this audit was to determine whether DHS had adequate controls over: (1) the awarding of the contract to HANYC and (2) the approval and processing of payments to HANYC and participating hotels.

Audit Findings and Conclusions

The auditors found evidence indicating that DHS followed MOCS’ guidance for COVID-19 related emergency procurements in awarding the contract to HANYC. Specifically, they saw evidence that DHS:

• informed MOCS and the Law Department of its intent to initiate the contract;
• obtained approval from the Law Department;
• conducted a review of the vendor’s past performance to ascertain the vendor’s responsibility;
• prepared an agency head determination that the contract was necessary to respond to the COVID-19 emergency;
• prepared a Financial Management System (FMS) Advice of Award; and
• published the notice of contract award in the City Record Online.

The auditors’ review of 434 lodging invoices, totaling $212,551,771, submitted during the period of April 2020 through November 2020, revealed that the requests for lodging payments had the proper supporting documents and were paid in a timely manner. In addition, they found that HANYC submitted the monthly invoices to DHS within one week of receiving them from the hotels, and that DHS generally paid HANYC within one month after receipt of those invoices.

Additionally, their review of the payments that DHS approved relating to damage claims submitted by the hotels revealed that, with a few exceptions, the payments were adequately supported. According to the terms of the hotel agreements, “The City will promptly reimburse the Hotel for the cost of repairing any extraordinary damages caused by misconduct or negligence caused by the Guest.” Based on the contract terms, when submitting a claim for damages, hotels must include an incident report, along with the following: (1) the date the damage was discovered; (2) the location of room(s) affected by the damage; (3) a description of damage, including photographic evidence; (4) affirmation from the hotel and provider acknowledging the damage and its cause; and (5) an itemized estimate of repairs, along with any additional support that validates the claim.  As of November 16, 2021, DHS provided the auditors with 409 claims from 14 hotels requesting a total of $388,784 for damages purportedly caused by DHS clients.5 Of this amount, DHS approved payments for 319 (78 percent) claims for all 14 hotels, totaling $255,573 (66 percent) of the total claimed amount, as itemized below:

• 313 (98 percent) approved claims totaling $252,901 (99 percent) were fully supported as required.
• 6 (2 percent) approved claims from three hotels totaling $2,672 (1 percent) were entirely unsupported (e.g., lacked evidence of the damages claimed). Without such evidence, DHS is hindered in ensuring that the monies paid were for actual damages caused by DHS clients.

The auditors also found that DHS did not always ensure that its mechanism for keeping track of payments—the invoice tracking spreadsheet (tracker)—accurately reflected the contract and payment information associated with the hotels. According to DHS officials, the tracker was designed to organize and coordinate the payments between HANYC and DHS, as well as to “flag and indicate miscalculations and missing submissions.” Nevertheless, the auditors found errors and inconsistencies in all the trackers that they reviewed, such as the following:⁶

• Invoice numbers recorded in the tracker did not match the numbers on the invoices submitted by HANYC. For example:
  1. For the period April through May 2020, of the 56 invoice numbers recorded in the tracker, 15 (27 percent) did not match the numbers on the invoices.
  2. For the month of June 2020, 49 (77 percent) of the 64 invoice numbers recorded did not reconcile with the numbers on the invoices submitted by HANYC.
• Although each hotel had its own contract number, five (seven percent) of the 68 contract numbers on the tracker were each affiliated with two or more hotels, with one contract number being affiliated with four hotels.
• For the period April through November 2020, the tracker indicated that DHS had made payments to 12 hotels for damages; however, the auditors later learned that DHS had erroneously recorded payments for four of those hotels that actually did not receive any payments. DHS admitted that it recorded the payments in error.

The above-noted errors bring into question the degree to which staff reviewed the tracker to ensure that it was accurate. Without a reliable system for tracking payments of invoices, DHS is at increased risk that errors may occur and remain undetected.

Audit Recommendation

Based on the audit we made one recommendation:

• DHS should continue to ensure that transactions for all future contracts are promptly recorded, reviewed, and reconciled prior to approving and processing payments to vendors. This includes a timely review of invoices and ensuring that all supporting evidence is included with requests for payment for lodging and damages.

Agency Response

In its response, DHS agreed with the audit’s findings and recommendation, stating, “Agree. As the auditors acknowledged, DHS followed emergency procurement guidance, mandated appropriate backup, and paid invoices in a timely way. All contracts will be paid through PASSPort shortly.”