City Hall halted more than $700,000 to suspect nonprofits last year
The de Blasio administration halted more than $700,000 in funding for nonprofits during fiscal year 2016 after reports of extortion, embezzlement, executive payouts and misuse of funds within the nonprofits, according to City Hall officials and a review of public budget documents.
During the 12-month period that ended on June 30, the city froze $723,798 in funding the City Council had earmarked for five nonprofits after it was revealed that the groups — Northern Manhattan Perinatal, Federation of County Networks, United Block Association, Relief Resources and Hospital Audiences — had checkered finances.
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Although background checks take place before nonprofits are included in the Council’s budget each fiscal year, many groups that are earmarked for funding have not received that money when the budget takes effect each July 1. The background checks continue throughout the year.
But the process often relies on news reports or direct reporting to the Council in order to halt the payments.
In August 2015, Alexandra Dyer was brought on as Hospital Audience’s executive director, and she quickly discovered that an employee was embezzling money from the group. The Queens-based nonprofit connects senior citizens and people with disabilities to arts and sports activities throughout the city.
“[If] I had not found any irregularities, I think the agency had another four to six months before it went under,” Dyer told POLITICO New York in a recent phone interview. “The rate at which this woman was processing bogus payrolls, the rate at which this woman was literally writing checks to herself, it was insatiable.”
After Dyer brought her discovery to the board, the woman she caught embezzling funds hired a man to toss acid on Dyer as she left the nonprofit one night. In September 2015, while still recovering, Dyer said she went to New York State Attorney General Eric Schneiderman, who oversees nonprofits in the state, to report the embezzlement.
ADVERTISINGinRead inveted by TeadsBut there is no protocol for communication between the attorney general’s office and the Council, and transparency records show that in December 2015, Hospital Audiences received additional funding from the Council.
The Council did not raise red flags until April 2016 when, in a letter obtained by POLITICO New York, Dyer contacted Councilman Ben Kallos to explain the situation.
Hospital Audiences had been awarded $123,100 in the 2016 fiscal year through several different grants from seven Council members: Kallos, Peter Koo, Daneek Miller, Karen Koslowitz, Jimmy Van Bramer, Inez Dickens and Mark Treyger.
Kallos, who budgeted $23,500 for the organization, said the process of pulling funding happens with different groups every year and is “par for the course.”
Kallos and the other Council members, reached for comment by POLITICO New York, said they had no prior knowledge of the situation at Hospital Audiences before allocating the money and pulled it at the recommendation of the Council’s compliance division.
Hospital Audiences had received funding from the Council every year from 2011 to 2016.
"All groups undergo thorough and extensive vetting by the Council and by MOCs," said Robin Levine, a spokesperson for the Council speaker. "We reflect all changes in funding allocations in transparency resolutions to provide the public with clarity and work with all City agencies to ensure funding is used as intended. To clarify, the Attorney General does not approve Council funding. The Attorney General oversees the NY State Charities Bureau, which all applicable organizations must be registered with to be cleared by MOCS."
The 51 Council members are each given funding — known as member items — to allocate to nonprofits in their districts, as well as citywide causes, every year. The funding amounted to $381 million in fiscal year 2016
The allocation process came under increased scrutiny after 2008, when federal authorities began investigating a longstanding practice of allocating the discretionary funds to nonexistent charities. That money, which was parked in “holding codes,” would later be dished out to pet projects each year.
The scandal, which former Speaker Christine Quinn discovered and reported to authorities, resulted in weeks of negative news coverage, portraying it as a "slush fund" that the speaker used to funnel money to friends and family of Council members. A subsequent investigation led to the arrests of three former members and two staffers. Quinn was cleared of any wrongdoing.
The legislative body then instituted a stricter process of approving nonprofits, including background checks by the Council, the Mayor’s Office of Contract Services and the city agency with which the nonprofit contracts. In recent years, MOCS has routinely held up contracts for problematic organizations.
“MOCS prequalifies organizations receiving more than $10,000 in discretionary awards before city agencies process the contracts,” a City Hall spokesman said in a statement to POLITICO New York. “If an organization does not have the capacity to provide the resources the city is contracting for, is not compliant with state law, has unresolved IRS or State Tax liens or warrants, or has records of poor performance or other integrity concerns, then the contract is held until those issues are addressed.”
Some organizations do not finish the prequalification process until after the budget is finalized. Many end up not qualifying for clerical reasons, such as incomplete paperwork. Others have lost funding over the course of the fiscal year if they fail to meet standards.
In fiscal year 2016, $6.3 million of the $381 million had not yet been given to groups that were slated to receive funding as of August 2, a Council spokeswoman said.
According to a source at MOCS, when the agency flags an organization, standard practice is to reallocate the group’s funding during a monthly Council meeting. However, funding for two of the five groups who lost funding during the most recent fiscal year — United Block Association and Hospital Audiences — was not reallocated during that time.
In February 2016, The Daily News reported that United Block Association’s executive director and his wife faced corruption charges after using public funding for personal expenses. No one from the organization could be reached for comment for this story.
A spokesperson for Councilman Ydanis Rodriguez, one of the Council members who directed money to the group, said he chose the group to work with a senior center in his district, but asked for the funding to be pulled when charges were filed in February.
None of the group’s earmarked money, which totaled $105,485, was ever reallocated, according to Council budget documents.
The Council did not respond to requests for comment regarding why the funding for Hospital Audiences and United Block Association was not reallocated.
The budget documents show that funding for Northern Manhattan Perinatal Partnership, Federation of County Networks and Relief Resources was reallocated over the course of the fiscal year.
Northern Manhattan Perinatal Partnership had $297,177 pulled. Although the group declined to comment, DNAInfo reported in November 2015 that it lost a city contract after firing its director. DNAInfo also reported in February that executives at the organization were awarding themselves thousands of dollars in bonuses while under contract with the city.
Councilwoman Inez Dickens awarded the group $6,000. The rest of the funding for the group came from initiatives approved by the entire Council. Dickens said she had worked with the organization for years, but discovered issues with the group’s finances and pulled the finding.
“I don’t even remember what [the issue] was,” Dickens told POLITICO New York.
Federation of County Networks, which had $158,063 in funding halted, according to budget documents, could not be reached for comment. Relief Resources, which had $40,000 pulled, did not respond to requests for comment. Both groups were funded under Council-wide initiatives and had their funding reallocated to other nonprofit groups.