“NYC Department of Homeless Services Police Toyota Camry,” Jason Lawrence

January 29, 2020; New York Times

Last week, New York City filed suit against Childrens Community Services (CCS), a nonprofit agency, and a half-dozen contractors, alleging breach of contract, fraud, and unjust enrichment.

According to the city’s lawsuit, CCS has received $458.7 million from the city’s Department of Homeless Services since 2017 to provide shelter for roughly 1,900 homeless families, including a number of families with children. As Nikita Stewart details in the New York Times, “Authorities believe that the nonprofit defrauded New York City through a network of at least six subcontractors that did not appear to provide the supplies and services listed on invoices, according to a lawsuit the city filed against the nonprofit on Wednesday.”

Steven Banks, the city commissioner of social services, says the alleged fraud had no direct impact on the homeless families served, but the city nonetheless has taken what Stewart calls the “unusual step” of asking a judge to place CCS under receivership, seeking to take over the nonprofit’s operations of 28 shelters, 25 of which involve leasing commercial hotel space. The city would then look for other nonprofits to run the buildings and continue services. “We’re seeking a remedy that the city has never sought before,” Banks noted.

One of the subcontractors, SASY Enterprises, a staffing company, reportedly included in its invoices to CCS “large lump-sum payments for provisioning and furnishing rooms without explanation, were unclear as to the nature of certain services being provided by SASY, many employee titles were unidentified, and numerous duplicative invoices were submitted for staff training, recruitment, and advertisement.”

Another subcontractor, AZ Security Services, allegedly sold 301 computers to CCS in Fiscal Years 2018 and 2019 for a cost of $118,452.40, but the only contract presented to the city by CCS described AZ as an information technology support vendor, not a computer retailer.

Irregularities, notes Stewart, “were first noticed by Department of Homeless Services staff in the spring of 2018; they saw that the nonprofit was hiring subcontractors without approval from the city and were submitting questionable invoices.” The matter was referred to the Department of Investigation in May 2018, which put CCS on a corrective action plan. According to Banks, however, the city could not simply terminate the contract until the investigation had played out.

At the time, this raised attention in the press, including an April 2018 profile by Zach Williams in New York Nonprofit Media. Williams reported that, “the city will pump $123 million into Childrens Community Services this year.…This amount will cover in its first year more than 300 employees, a $101,000 phone bill, $330,400 in office supplies, $12 million for food and $9.7 million for hotel beds, all of which costs the city $270.62 per unit each night.”

There remain many unanswered questions. The lawsuit and search warrants, notes Stewart, “come as Mayor Bill de Blasio and his administration are struggling to manage the city’s homelessness crisis. Council members and advocates for homeless people have questioned why the mayor has not prioritized building low-income housing over opening new shelters and have chided the city for doing business with unscrupulous landlords and nonprofits.”

Then there is the question of how the nonprofit’s contracts with the city grew so rapidly. Stewart points out that CCS “is one of the city’s newest and best-paid homeless services providers.” The nonprofit only began working for the city in 2014. Since then, it has overseen emergency operations of commercial hotels used as shelters and cluster housing.

Stewart adds, “By 2017, the city had awarded the nonprofit major contracts totaling nearly $700 million,” and further observes that “in 2017, the nonprofit listed assets of about $54 million; three years earlier, it listed $388,000 in its tax forms.”

Certainly, in addition to what happens in the courtroom, one can expect political fallout. Already, David Brand reports in the Queens Daily Legal, a local press outlet, that Queens Assemblymember Stacey Pheffer Amato introduced legislation last week that would require officials to clearly post shelter-hotel contract information on the city’s website. Amato called the investigation into CCS a “perfect coincidence.”

“But we’re not surprised,” she added. “It’s inevitable that something is going to happen because it’s about transparency. It’s not just hotel operators, but anyone that gets a contract.”—Steve Dubb