Investigation finds ‘deliberate’ overspending in Philly’s Office of Homeless Services

Leaders of the office tasked with sheltering Philadelphia’s homeless “knowingly” overspent millions of dollars in taxpayer funds for several years and were unable to financially keep up with their own growth, according to the city’s inspector general, who released preliminary findings of a probe into the office Monday.

While Inspector General Alexander F. DeSantis said a number of questions remain, he did not report finding evidence of criminal acts or self-enrichment.

Still, the findings described how the Office of Homeless Services incurred expenses exceeding the office’s budget by about $15 million, including by intentionally entering into contracts with third-party housing providers it couldn’t afford.

“Leadership was driven by the mission, and fiscal considerations became an afterthought,” DeSantis wrote in his report. He added that taking on contracts the office didn’t have the budget for was “a deliberate agency action that cannot be ignored and is very clearly evidenced by the department’s internal planning documents.”

Those uncovered documents include a spreadsheet that was circulated to top leaders monthly that repeatedly showed a growing negative balance.

DeSantis’ findings confirm The Inquirer’s earlier reporting, which found that the Office of Homeless Services, despite receiving an infusion of federal pandemic relief dollars, repeatedly contracted shelters and homeless services providers to perform work that, in total, cost more than the office’s yearly budget. Officials in some cases underestimated costs, then delayed paying contractors for months.

The inspector general found gaps in oversight. The city’s Finance Department is responsible for reviewing city contracts, but approvals granted to the Office of Homeless Services were “essentially a perfunctory verification,” DeSantis wrote.

And he said the situation created opportunity for groups that hold city contracts to bill the city for services they never provided, but it remains unclear if that happened.

The investigation into the office is one of several undertaken since last fall, when officials under former Mayor Jim Kenney said they became aware of spending issues. In February, Mayor Cherelle L. Parker commissioned an outside accounting firm to conduct a forensic review, saying she’s committed to rooting out corruption and waste. City Council also authorized hearings on the office’s finances.

DeSantis and members of Parker’s administration briefed lawmakers and reporters on the findings Monday, one week after Council members — led by Majority Leader Katherine Gilmore Richardson — grilled officials from the office during a budget hearing. During one line of questioning, Richardson asked every member of the Homeless Services leadership team to testify that they did not steal money from the city.

Parker alluded to the hearing Monday and defended city employees, saying her administration scheduled the briefing after one Homeless Services employee told her their child watched as Council “question[ed] my integrity.”

“Everyone is entitled to a presumption of innocence,” Parker said, “and that does include our city workforce. No one deserves to do their jobs under a shadow of doubt about their own individual honesty, their integrity, and/or their character.”

» READ MORE: How Philly’s Office of Homeless Services overspent $15 million: ‘Things got away from everybody’

Officials stressed that DeSantis’ findings are preliminary and that his investigation is ongoing. The report says that “the scope of individual accountability” remains unclear.

The report describes the office’s former executive director, Liz Hersh, as the driving force behind the strategy to continue incurring costs outside its budget, saying she was “quite committed to the homeless population and personally driven by the department’s mission, although she was disinterested in the minutia of the OHS budget.”

DeSantis wrote that in the early years of Hersh’s tenure, her approach was “functional and unchallenged,” but the pandemic introduced volatility in funding levels as a result of budget cuts and grant dollars, as well as increased need among the city’s homeless population.

Hersh resigned last year and now works for a national nonprofit. In an interview Monday, she said the report was “fair” and that it confirmed her contention that the office took on debt because it was “providing emergency lifesaving services.”

“The staff of the Office of Homeless Services and the network of nonprofit providers just do extraordinary work,” she said. “We need to modernize city systems to support leaders to be able to carry out their mission and to respond to emergencies when they arise.”

Hersh’s former chief of staff, David Holloman, is now the office’s interim director. In a letter to DeSantis, he thanked the city for the report and said he is developing a plan to ensure overspending doesn’t occur again.

According to the report, Hersh told investigators that the core of the problem could be traced to 2020, when the office saw a $17 million cut amid a massive pandemic-related budget hole. Those dollars were largely offset that year by federal grant money, but by the following year, the office had an estimated $4 million deficit that was “a key inflection point,” the inspector general wrote.

That year, the Office of Homeless Services didn’t cut services. Instead, “Hersh moved forward without adjustment, believing that there would be some future opportunity to retroactively balance the budget.”

» READ MORE: Philly lawmakers slam Homeless Services leaders for mismanaged funds: ‘This is astronomical money’

DeSantis wrote that the $4 million deficit turned into a debt the city owed to providers, and was carried year over year. It meant the office couldn’t absorb any increase in costs on existing contracts or services.

But at the same time, cost increases abounded related to the pandemic, inflation, security needs, and an influx of migrants who were housed in a homeless shelter.

According to DeSantis, the office couldn’t pay invoices sent to the city from contractors, many of which were small nonprofits that operate shelters.

In some cases, the department issued payments the following fiscal year once a new city budget was approved and money flowed into the agency’s coffers. In other cases, the office passed unpaid invoices from an old contract onto a new contract, meaning some payments were for services performed under one contract but paid under another.

“The department may have lost some control over vendor costs on any given contract,” DeSantis wrote.