Objective

To determine the extent of implementation of the three recommendations included in our initial audit report, Oversight of Contract Expenditures of Palladia, Inc. (Report 2020-S-5).

About the Program

The Office of Addiction Services and Supports (OASAS) oversees one of the nation's largest and most diverse programs for the prevention and treatment of alcohol and substance abuse. Its mission is to provide, support, and oversee a data-driven continuum of addiction services delivered with equity, dignity, compassion, and respect.

In 2014, OASAS entered into a 5-year (July 1, 2014 through June 30, 2019) $45.6 million contract with Palladia, Inc. (Palladia), under which Palladia would provide drug and alcohol addiction treatment services. During fiscal year 2017-18, Palladia operated 31 distinct programs, 10 of which are contracted with OASAS. These 10 programs served 603 individuals in the fields of residential treatment, outpatient treatment, and scattered-site housing. According to the contract, OASAS reimburses Palladia for its net operating expenses, up to the maximum budgeted amount, for providing the contracted services. The expenses are reported by Palladia on its annual Consolidated Fiscal Reports (CFRs) and are subject to the requirements in the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual), OASAS’ Administrative and Fiscal Guidelines for OASAS-Funded Providers (Guidelines), and the contract.

In December 2014, Palladia merged with and began operating under Services for the Underserved (SUS), an organization that offers housing, employment, skills-building, treatment, and rehabilitation services. In 2017, Palladia entered into a management agreement with SUS whereby SUS would provide Palladia with administrative services, including organizational strategy and financial services and other services requested by SUS’ Board of Directors. Palladia charged the management fee, which is calculated as a percentage (7.3%) of Palladia’s total direct allowable cost, on the CFR. The management fee for fiscal year 2017-18 was approximately $1.8 million.

The objective of our initial audit, issued on August 18, 2021, was to determine whether OASAS is effectively monitoring its contract with Palladia to ensure reimbursed claims are allowable, supported, and program-related. The audit, which covered the period from July 1, 2015 through June 30, 2018, found that OASAS was not effectively monitoring the expenses reported by Palladia to ensure that reimbursed claims are allowable, supported, and program-related. For the 3 fiscal years ended June 30, 2018, Palladia claimed $2,508,682 in expenses that did not comply with the requirements in the CFR Manual, the Guidelines, and the contract. These expenses included $1,679,913 in personal service expenses, $779,458 in other than personal service expenses, and $49,311 in unallowable and/or unsupported parent agency administration expenses.

Key Findings

OASAS has made limited progress in addressing the problems we identified in our initial audit report. Of the initial report’s three audit recommendations, one was partially implemented and two were not implemented.

Key Recommendation

Officials are requested, but not required, to provide information about any actions planned to address the unresolved issues discussed in this follow-up within 30 days of the report’s issuance.