Philly’s Office of Homeless Services overspent its budget by almost $15 million and faces an investigation

Philadelphia’s inspector general is investigating why the Office of Homeless Services spent nearly $15 million more than it was budgeted over the last four years.

Top officials in Mayor Jim Kenney’s administration said they became aware of problems with the office’s spending this fall, and Finance Director Rob Dubow requested the investigation.

Inspector General Alexander F. DeSantis confirmed Wednesday that his office received the referral and is looking into the matter. He declined to provide additional details.

The Office of Homeless Services spent $9.6 million more that it was allocated by City Council for fiscal years 2021 through 2023, said Mary Horstmann, the city’s deputy managing director for health and human services. Additionally, it has overspent its budget in the current 2024 fiscal year by $5.1 million, she said.

The inspector general’s office looks into cases of potential fraud or misconduct and examines city spending, and the outcomes of its investigations can range from law enforcement referrals to recommendations to improve city processes.

Dubow and Horstmann said they so far have seen no evidence that self-enrichment or corruption was involved in the budget issues, but added that the inspector general is looking into all possibilities.

Although the amount of money involved is insignificant in the context of the city’s $6.3 billion budget, it is unusual for a city agency to exceed its allocation by nearly $15 million over four years without the overruns being noticed sooner.

The Office of Homeless Services provides emergency housing, such as overnight shelters, as well as programs aimed at preventing people from falling into homelessness.

Horstmann, who oversees the office, said the budget overruns likely resulted from confusion caused by the onset of the coronavirus pandemic.

The office’s budget has skyrocketed since then, jumping from about $80 million in the 2020 fiscal year to nearly $130 million in the current budget. (About two-thirds of its funds comes from the city, with state and federal grants making up almost all of the rest.)

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“During COVID, there were rising costs and grant funding that was coming in, and [the office was] growing to meet the demand,” Horstmann said. “It created confusion about what was going in and what was going out and what grants were going to be available.”

The office pays contractors to provide services like shelter space and security. The overspending, she said, likely had to do with contracts being paid at the wrong time.

“To address outstanding obligations, the office paid prior-year costs with funding from the current fiscal year,” she said. “I don’t think they realized the extent of the deficit that was occurring until this year.”

Dubow said one issue may be that the office tracked its contracts and grants on a calendar year basis, while the city budget process uses a fiscal year that begins July 1.

The office is now reforming its contracting process, including algining its reporting with the city’s fiscal year and requiring the executive director to approve contract increases, Horstmann said.

The overruns occurred during the tenure of former executive director Elizabeth Hersh, who led the office from when it was reorganized at the beginning of Kenney’s administration in 2016 until she stepped down in October.

Attempts to reach Hersh on Tuesday and Wednesday were unsuccessful.

The budget issues did not play a role in Hersh’s departure, Horstmann said. David Holloman, who served as Hersh’s chief of staff, is now leading the agency as interim executive director. Mayor-elect Cherelle Parker has not yet announced who will lead the office under her administration.

To plug the funding gap created by the excess spending, the Office of Homeless Services this year asked Council to give it an additional $14.7 million as part of the midyear budget transfer that lawmakers adopted last week, at their last meeting of the year.

Councilmember Katherine Gilmore Richardson, however, had been probing irregularities with the office’s budget for months. She successfully pushed for Council to fund only the $9.6 million from previous years’ overruns while withholding money to close the $5.1 million gap that opened up this year.

The Office of Homeless Services will close that shortfall by freezing hiring for noncritical staff and delaying the launch of some programs, Horstmann said. Current services should not be affected, she said.

“We received $9.6 million, so we are living within our means now,” Horstmann said. “We take full responsibility.”

Gilmore Richardson’s interest in the office was piqued last year after she received poor customer service while seeking shelter space for constituents and “felt that the office needed to be looked at with a real magnifying glass in the budgeting process.”

She has since been pushing for the office to open a new intake center for families seeking overnight shelter, and her staff is examining nearly 1,000 pages of the office’s financial records. They found red flags, Gilmore Richardson said, including charges from vendors that didn’t match the amount budgeted.

”That’s not out of the norm, but some of the numbers were so far off,” she said. “I continued to ask for additional documentation to try to make sense of how we could get a second intake shelter, and at every turn there were more things that didn’t make sense.”

Staff writer Joseph N. DiStefano contributed to this article.