Purpose

We audited the New York City Department of Health and Mental Hygiene’s (DOHMH) administration of a contract (#113 225 01) with the Center for Urban Community Services (CUCS) for the period July 1, 2010 through July 15, 2015. The audit included a review of costs claimed by CUCS and paid by DOHMH for the year ended June 30, 2013. Our objectives were to determine whether DOHMH provided sufficient oversight to ensure that CUCS rendered the prescribed services, and ensured that CUCS was reimbursed only for appropriate contract expenses.

Background

DOHMH contracts with not-for-profit providers for a range of health and social services, including supportive housing. Supportive housing is designed to help individuals and families use housing as a platform for health and recovery following a period of homelessness, hospitalization, or incarceration, or for youth aging out of foster care. According to DOHMH officials, during the two years ended June 30, 2015, DOHMH had 164 active contracts for supportive housing programs with corresponding payments totaling about $193 million. One of the largest such contracts DOHMH awarded was with CUCS. In 2010, DOHMH signed a three-year contract with CUCS valued at $27.7 million for a variety of mental health services. Subsequently, the contract was increased to $28.7 million for expanded program services. The New York State Office of Mental Health funds about 75 percent of this contract. CUCS receives additional funding from the New York City HIV and AIDS Services Administration and the Department of Homeless Services.

According to the contract, DOHMH reimburses CUCS on a monthly basis, in an amount equal to claimed program costs less any advance payments and not in excess of the total contract amount. DOHMH requires CUCS, as well as its other providers, to file a Quarterly Fiscal Report (QFR). Per the contract, DOHMH bases payments to CUCS on information obtained from the QFRs.

Key Findings

• DOHMH did not effectively administer certain financial aspects of the contract. As a result, CUCS overbilled DOHMH by about $1.06 million during the year ended June 30, 2013. The overbillings include $1.05 million of improperly claimed personal service expenses and $11,889 of unsupported or inappropriate non-personal service costs.
• The improper personal service charges included about $829,000 that was based on unsupported average annual salaries and related fringe benefits instead of actual employee compensation costs incurred by CUCS. For example, a QFR listed $45,774 as the average annual salary for eight social workers, whose average annual salaries were actually $36,806. Thus, on an annual basis, CUCS overbilled DOHMH $8,968 ($45,774 - $36,806) for each of the social workers.
• Reviews conducted by DOHMH’s Claims Verification Unit were inadequate and failed to detect the deficiencies in the QFRs submitted by CUCS for program reimbursements.

Key Recommendations

• Follow up on the unsupported and/or inappropriate expenses (totaling about $1.06 million) as detailed in this report and recover overpayments, as appropriate.
• Work with CUCS officials to develop a financial reporting methodology that uses actual program expenses for QFR preparation and reimbursement purposes.
• Require CUCS to maintain detailed records documenting actual staff work effort between CUCS programs. Further, require CUCS to use actual staff work effort to allocate staff compensation among programs.
• Enhance financial review/audit procedures to ensure DOHMH does not reimburse CUCS for ineligible costs.

Agency Response

In their responses to our draft audit report, DOHMH and CUCS disagreed with our findings and recommendations regarding CUCS’s QFR billings. DOHMH officials also disagreed with our finding regarding their fiscal monitoring of contractor operations. Given the broader magnitude of DOHMH’s supportive housing programs (costing nearly $193 million for the two years ended June 30, 2015) and the extent of this audit’s findings, we are particularly disappointed and concerned with DOHMH’s rejection of our audit recommendations.

Also, with their response, CUCS officials provided an addendum, which includes examples of methodologies they contend should have been used to determine the amounts of costs eligible for reimbursement and QFR reporting. However, CUCS did not use those methodologies to determine the amounts of costs to report on their QFRs, and consequently, the addendum’s analysis does not correspond with or support the amounts of costs claimed by CUCS. Further, CUCS’s revised methodologies rely extensively on annualized pro-rations of costs as opposed to the costs CUCS actually incurred.

Other Related Audits/Reports of Interest

New York City Administration for Children’s Services: Administration of Non-Competitive and Limited-Competition Contracts (2013-N-2)
Office of Mental Health: Sky Light Center Inc. - Supported Housing Program (2012-S-37)