Purpose

To determine whether the Office of Alcoholism and Substance Abuse Services (OASAS) is effectively monitoring funding provided under its contract with the Puerto Rican Organization to Motivate, Enlighten and Serve Addicts, Inc. (PROMESA) to ensure that claims are allowable, properly supported, and consistent with contract terms.

Background

OASAS oversees programs for the prevention and treatment of alcohol and substance abuse. OASAS entered into a five-year contract with PROMESA covering the period July 1, 2009 through June 30, 2014, totaling $12.5 million, to in part conduct a Methadone to Abstinence Residential Treatment program (MTAR program). PROMESA is one of 21 individual entities organized under the parent corporation Acacia Network, Inc. (see Exhibit), which provides various community services in the New York City metropolitan area. Under the MTAR program, PROMESA administers methadone by prescription, in conjunction with a variety of other rehabilitative assistance that seeks to control the physical problems associated with heroin dependence and to provide the opportunity for clients to make major lifestyle changes over time. According to the contract, OASAS reimburses PROMESA for the net costs it incurs to provide the services for each contracted program, up to the maximum budgeted amount. Costs are reported via an annual Consolidated Fiscal Report (CFR), which is a common system used by several New York State agencies to monitor and oversee contract activity. Between July 1, 2012 and June 30, 2014, for the MTAR program, PROMESA reported about $6.5 million in costs, which were offset by $3.7 million in revenues. The MTAR program incurred a reported deficit of $2.8 million, of which OASAS funded $2.3 million.

Key Findings

• We found that despite two relatively recent audits by OASAS, claims submitted by PROMESA for the two years ended June 30, 2014 continued to include costs that were not valid or consistent with the CFR Manual and OASAS guidelines. PROMESA reported about $23 million in costs associated with contracted OASAS programs during the period. Our audit examined about $9 million of these expenses and identified problems with over 90 percent – $8.2 million.
• About one-quarter of these expenses ($2.1 million) were clearly unallowable under OASAS and CFR guidelines, including over $940,000 charged to the State-funded MTAR program. This included almost $600,000 of “bad debt expense,” the majority of which actually represented funds paid to OASAS for audit disallowances it imposed as a result of its most recent audit of PROMESA.
• The remaining $6.1 million represents expenses that we deemed questionable, in large part because they either: (1) involve related-party transactions for which required competition was not sought and PROMESA was unable to demonstrate that the costs were reasonable or, in some cases, that the services were actually provided; or (2) represent portions of costs allocated to PROMESA from other parts of the Acacia Network, Inc., which are not readily verifiable without also auditing the records of those entities. Over $1.8 million of these questionable costs were charged to the MTAR program.
• Although we found OASAS has made reasonable efforts to monitor and oversee the PROMESA contract through its risk-based audit approach, we concluded that complete and adequate oversight within the confines of the current funding systems is beyond its capacity, in large part because of the nature and complexity of the organizations with which it contracts. Net-deficit funded contracts, like the one with PROMESA, require a significant commitment of resources to adequately address the scope of work required to ensure that claimed costs are both program related and allowable. These tasks are especially difficult when assessing the reasonableness of costs that have been allocated to a provider by other parts of complex entities like the Acacia Network, Inc., which is composed of more than 20 affiliated entities, including PROMESA. Portions of these costs, in turn, are then allocated again – and in the case of PROMESA among at least 10 programs, including the MTAR program. As a result, as this audit illustrates, as organizational complexity increases, it becomes much more difficult to definitively audit providers’ requests for program funding under cost-based contracts.
• OASAS officials recognize the difficulties inherent in the fiscal oversight of the current system and report that they have already begun in-house consideration of alternative program funding methods, indicating they are planning for a statewide expansion of the Medicaid Managed Care model and are evaluating changing over to a more traditional flat-rate fee for service system. Such a change could reduce the challenges posed by the current systems and therefore lead to efficiencies in OASAS’ management and oversight of programs. However, officials do not expect wholesale changes to begin for several years, and then only incrementally. In the meantime, the agency’s ability to properly oversee the fiscal aspects of many of its provider service contracts will continue to be significantly hampered.

Key Recommendations

• Establish additional monitoring controls to ensure that PROMESA only claims expenses that are reasonable, necessary, allowable, supported, and consistent with both the CFR Manual and OASAS guidelines.
• Recover from PROMESA the $940,493 in expenses claimed that are not allowable, and take steps to ensure the organization does not re-claim these costs for funding in the future.
• Follow up with PROMESA to formally assess the $6,109,916 of questioned expenses discussed in this report which were not competitively bid, with special focus on related-party transactions, to determine if additional disallowances are warranted.
• Require that PROMESA consistently use a documented, competitive process to provide assurance that reasonable prices are being paid for services that are actually rendered.
• Continue to explore alternative funding methods to more efficiently manage and oversee contracted service programs.

Other Related Audit/Report of Interest

Office of Alcoholism and Substance Abuse Services: Samaritan Village, Inc. - Chemical Dependency Services Program (2011-S-38)