We audited Mental Health Systems, Inc.’s (MHS) Supportive Housing Program and Continuum of Care direct grants from the U.S. Department of Housing and Urban Development (HUD).  We audited MHS as the result of requests from HUD, prompted by a media report and the County of San Diego’s review of MHS in response to whistleblower accusations of improprieties.  The accusations centered on MHS drawing government funds in advance and channeling funds to related entities.  The County identified issues with MHS’ use of its funding; therefore, HUD had concerns about HUD funds.  Our audit objective was to determine whether MHS administered its HUD funding in accordance with grant and program requirements. 

MHS did not allocate its payroll costs to Continuum of Care and Supportive Housing Program grants in accordance with program requirements.  Specifically, MHS did not have sufficient methodology for the allocation of time charged by employees to its HUD grants.  As a result, HUD had no assurance that $142,181 spent on salaries and benefits was appropriately charged to the grants.  We found no evidence that the whistleblower accusations of improprieties applied to the HUD grants reviewed.

We recommend that the Director of HUD’s Los Angeles Office of Community Planning and Development coordinate with the Acting Director of HUD’s San Francisco Office of Community Planning and Development to require MHS to (1) develop and implement a written methodology for employees’ time allocation to its HUD grant programs in accordance with program requirements, (2) provide training on program requirements to employees working on HUD grants, and (3) support $142,181 spent on payroll allocated to HUD grants or repay the program from non-Federal funds.