Office of Alcoholism and Substance Abuse Services

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NYS Comptroller


Office of Alcoholism and Substance Abuse Services
Phoenix Houses of New York, Inc.

(Issued: 04/24/2013)

The objectives of our examination were to determine if the Office of Alcoholism and Substance Abuse Services (OASAS) properly reimbursed Phoenix Houses of New York, Inc. (PHNY) for gambling and chemical dependency treatment services under contract C003716 and to determine if PHNY claimed only those costs allowed by the contract.

OASAS entered into a net deficit-funded contract with PHNY to allow it to provide a wide range of chemical dependency and gambling treatment services.  As a net deficit-funded contract, OASAS reimburses PHNY the difference between the revenues it collects from non-OASAS sources and its expenditures.  For the year ended June 30, 2010, PHNY reported approximately $26.7 million in program-related expenditures and $18.2 million in revenues. As a result, OASAS reimbursed PHNY the $8.5 million difference between the revenues and expenditures. If revenues equal or exceed expenditures, PHNY would not receive any reimbursement from OASAS.

Key Findings

  • An Administrative Assistant for PHNY Yorktown Program diverted New York State funds intended for program-related expenses for her own self-enrichment. The Administrative Assistant, who was also a part-time Walmart employee, purchased Walmart gift cards totaling $3,953 with New York State funds then used those gift cards along with her Walmart employee discount to purchase personal items totaling $2,312 including items prohibited by OASAS such as alcohol, cigarettes and weight loss supplements.  We referred this finding to law enforcement for further investigation. 
  • PHNY’s Deputy Director of Marketing and Communications forged bid documents in an attempt to conceal her failure to follow required procurement procedures and competitive bidding requirements. The Deputy Director admitted to contacting the vendors, obtaining new bid documents for two procurements, and altering the dates and formats on those bids to deceive auditors into thinking the bids were obtained prior to selecting the paid vendor.  We referred this finding to law enforcement for further investigation.
  • According to Appendix X in the Manual, fringe benefit expenses that are not available to all employees are not allowable.  Appendix X also states that expenses that are not reasonable and/or necessary for providing services are not allowable. During our examination period, we found OASAS reimbursed PHNY $60,843 for direct expenses not allowed and additional direct costs that may not be allowed under the Manual.  These include:
    • $21,402 for “Officer’s Supplemental” expense.  We found “Officer’s Supplemental” is a fringe benefit available to PHNY officers, but not available to PHNY staff.
    • $12,441 for vehicle leases assigned to executive staff.  We found PHNY could not substantiate the vehicles were necessary and used for OASAS program-related purposes.  Furthermore, direct costs claimed by PHNY for gasoline, maintenance and repairs for these vehicles are not allowed.
    • $27,000 for executive bonuses. Based on the evidence available we question the validity of the justification for theses bonuses. We also question if the PHNY Board of Directors (Board) approved the bonus payments.
  • OASAS reimburses PHNY for administrative costs based on a percentage of direct costs rather than reimbursing total actual administrative costs.  PHNY uses the federally approved indirect cost rate of 22.7 percent. During our examination we identified inappropriate direct costs reimbursed by OASAS totaling $63,155, including: $27,000 for executive bonuses, $21,402 for fringe benefits not available to all employees, $12,441 for unsubstantiated vehicle leases, and $2,312 in fraudulent Walmart purchases.  Therefore, OASAS overpaid administrative costs by $14,336 (22.7 percent of $63,155).
  • PHNY officials admitted to underreporting Medicaid revenue received during our scope period by $109,153. By underreporting Medicaid revenue, PHNY inappropriately increased its reimbursement from OASAS by $109,153 for the year ended June 30, 2010.  Since the inception of the contract, PHNY officials stated they underreported approximately $290,000 in Medicaid revenue to OASAS. 
  • We found the following benefits paid to PHNY employees may not be reasonable and jeopardize PHNY Not-for-Profit status because the benefits are for the betterment of the individual not PHNY:
    • PHNY purchased a car totaling $15,586 and gave that car to a director when he resigned from the organization.  This car had special equipment installed, including an ignition lock designed to prevent someone under the influence of alcohol from starting the car.
    • PHNY entered into a separation agreement with the same director that included a contract for consulting services.  The consulting contract paid $2,000 a week for 13 weeks, even if the contract was terminated by either PHNY or the former director.  After 13 weeks, if the former director had not found other employment, PHNY would extend the contract for an additional 12 weeks or until the former director found employment.  In total, PHNY paid the former director $40,400 under this separation agreement.  The separation agreement also contained a clause which paid for an employment service to help the former director find employment after he resigned.
    • PHNY leased vehicles totaling $35,996 for executive staff but could not substantiate the vehicles were used for program-related activities.
    • PHNY provided fringe benefits to PHNY officers totaling $40,447 which are not allowed pursuant to the New York State Consolidated Fiscal Reporting and Claiming Manual (including charges as direct expenses and administration costs).
    • Six PHNY executive staff received bonuses totaling $91,050 (paid as both direct expenses and as administration costs) that were based on questionable justification and may have been approved after they were paid.

We referred these finding to law enforcement for further investigation. 

Key Recommendations

  • Strengthen existing controls to monitor and evaluate PHNY compliance with the terms and conditions of contract C003716.
  • Recover $2,312 for improper and potentially fraudulent Walmart purchases.
  • Determine if bonuses paid to PHNY officials were justified.  Recover any overpayments identified.
  • Recover $21,402 for Officer’s Supplemental expense not allowed under Appendix X of the Manual.
  • Determine if vehicles leased for executive staff were necessary and used for program-related activities.  Recover any overpayments identified, including direct costs claimed for gasoline, maintenance and repairs for unsubstantiated vehicles and recover that amount.
  • Recover $14,336 for inappropriate administrative costs.
  • Determine and recover all Medicaid revenue that went unreported by PHNY.

For a complete copy of Report 2010-0417, click here.

Division of Contracts and Expenditures
Bernard J. McHugh, Director of State Expenditures

Phone: (518) 474-4868 Email:
Address: Office of the State Comptroller, Division of Contracts and Expenditures
110 State Street, 10th Floor; Albany, NY 12236