We recently issued an audit report on the New York City (NYC) Department of Social Services’ (DSS) fraud risk management framework, which disclosed that DSS should strengthen controls to prevent, detect, and respond to fraud over its Coronavirus Aid, Relief, and Economic Security (CARES) Act Emergency Solutions Grant (ESG) program funding. This audit builds on that work by determining whether improper payments existed.
NYC DSS made payments with its ESG CARES Act funds that could not be determined as proper or improper—classified as unknown payments. From a sample drawn from $116.5 million in expenses, NYC DSS disbursed more than $10.4 million in unknown payments due to insufficient documentation. Weak internal controls throughout its multi step reimbursement process prevented transaction level verification and contributed to these outcomes. As a result, HUD and NYC DSS lack assurance that federally funded services were delivered as claimed, and the absence of documentation weakened accountability over the use of federal funds. The sample results, combined with the control weaknesses identified in this audit, indicate that similar deficiencies are likely to affect the remaining $369.8 million ESG CARES Act grant. Accordingly, we project at least $52.7 million in unknown payments in the $116.5 million sample universe and similar deficiencies in the remaining $266.8 million in expenses that were outside the sample universe. Although the ESG CARES Act funding has concluded, these systemic weaknesses may pose ongoing risks to accountability and payment integrity should they exist within other HUD CPD funded activities. NYC received annual HUD CPD grants totaling $297.9 million and $296.5 million in fiscal years 2024 and 2025, respectively.
We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct NYC DSS to provide documentation supporting the eligibility of more than $10.4 million in ESG CARES Act funds drawn for unsupported expenses or repay HUD with non federal funds. We also recommend that the Director requires NYC DSS to revise and implement policies and procedures in compliance with City and federal requirements for the ESG program and other applicable HUD CPD programs that use similar multi step reimbursement processes, ensuring an estimated $52.7 million in unsupported ESG CARES Act funds are put to better use and all expenditures are supported and eligible. In addition, the Director should require review of annual ESG grant draws until strengthened procedures are in place and collaborate with HUD’s Office of Program Enforcement to consider administrative action due to NYC DSS’ systemic internal control weaknesses and noncompliance with federal and ESG CARES Act requirements.
