Overview
During our analysis of the Spinelli invoices, we noted that 17 hotels and motels were receiving food deliveries from Spinelli but were not on the list of hotels and motels provided to us by EOHLC. Said another way, in analyzing Spinelli’s invoices, we detected 17 hotels and motels housing people under the Emergency Assistance (EA) Family Shelter Program that were not reviewed or approved in writing by EOHLC. Upon requesting the contracts for these 17 hotels and motels, EOHLC officials clarified that EOHLC did not directly contract with these hotels and motels. Instead, they are subcontractors managed by SKS Management, Inc. (SKS), which contracted with EOHLC to provide emergency shelters. EOHLC did not approve in writing the use of the subcontracts by SKS but reports that it was aware of the use of these subcontractors by SKS. This is in direct violation of the terms and conditions of EOHLC’s contract with SKS, which requires EOHLC to review and approve the contractor’s description of services and budget for these subcontracts. Further, we requested documentation for these subcontracts but were told by EOHLC officials that they do not have the contracts between the 17 hotels and motels and SKS. For this audit, we could not provide an estimate of the cost of housing, food, and delivery for these 17 hotels and motels due to the lack of documentation by EOHLC. The hotels and motels used by EOHLC were allowed to subcontract to other hotels and motels, but EOHLC was required to amend these contracts to allow each subcontractor. EOHLC admitted that it knew that these subcontractors were being used but that the contracts were not amended to allow their use. We conclude that the failure to properly contract for the use of these facilities rests with EOHLC, as it should have required that the subcontractors be properly reviewed and contracted for.
The lack of documentation raises concerns regarding the transparency and accountability of the subcontracting process. Further, this also raises a concern about the legality of the contract because the terms and conditions were being ignored. Without proper records, EOHLC cannot verify whether services were provided according to contractual terms, nor can it ensure that payments were appropriate and aligned with the agreed-upon budgets. This situation jeopardizes the funding and contractual integrity of the EA Family Shelter Program. Additionally, it increases the risk of improper use of public funds and a lack of accountability for the services provided.
Authoritative Guidance
Subsection K of Section III of Attachment A of the Executive Office of Housing and Livable Communities Division of Housing Stabilization Emergency Assistance (EA) Family Shelter contract states:
The Contractor must inform the Contract Manager if they intend to subcontract out any services, and any subcontracting agreement must be approved by EOHLC in writing prior to execution. The subcontract agreement must include a detailed description of services and budget for EOHLC’s review and approval.
Reasons for Noncompliance
EOHLC failed to adhere to the terms of the contract and failed to detect that it was not in compliance with the contract.
Recommendations
- EOHLC should review and approve all subcontractors in accordance with the terms and conditions of its contracts.
- Because of the violation of the contracts’ terms and conditions by SKS, regarding the use of unapproved subcontractors, EOHLC should pursue repayment from SKS for unapproved expenses charged to EOHLC.
Auditee’s Response
EOHLC did properly supervise SKS Management Corporation’s use of subcontractors, limiting use to approved subcontractors only.
EOHLC agrees on the importance of documenting approval of subcontractors and acknowledges that more records could have been maintained to document approval of subcontractors. In the case of SKS, SKS did not book hotels without EOHLC’s approval. The approval process at the time was designed to allow EOHLC to nimbly respond to the daily fluctuating need to find hotel rooms for families eligible to be placed into shelter. Documents submitted to the SAO show that EOHLC approved the hotels booked by SKS. For example, SKS invoices itemize the names of the subcontracted hotels, their nightly rates, and total costs during the billing period. EOHLC was in regular contact with SKS as they located hotels in geographic locations requested by EOHLC and, in some cases, SKS took over the payment for hotels originally booked by EOHLC. The Commonwealth controlled the placement of families in subcontracted hotels and carefully tracked where each family was placed. EOHLC connected these families to EA shelter providers for general support, transportation services, and food delivery.6
EOHLC agrees with the SAO about the importance of documenting approval of subcontracts. EOHLC is committed to updating its internal policies and procedures to include clearer guidelines on documenting review and approvals of subcontracts.
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6. The documents that EOHLC provided to the SAO demonstrate these facts. For example, SKS invoices clearly identify the families placed in SKS’s subcontracted hotels, including the room numbers occupied by those families and the number of nights those families occupied the rooms.
Auditor’s Reply
EOHLC stated that it will update its internal policies and procedures regarding documenting the approval of subcontractors. As part of our post-audit review process, we will follow up on this matter in approximately six months.
| Date published: | May 20, 2025 |
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