Changes in enforcement priorities dictate when grant irregularities are referred to enforcement agencies. This case involving People for People (PFP) provides a good example of that principal. In reviewing the reports and correspondence, it appears that the matter remained bottled up in DOJ OIG-Audit. Had it been referred to the investigative agents within the agency you can see how the alleged conduct referenced in the 2013 audit report could have stimulated investigation perhaps with the support of a US Attorney’s Office. Here are the report’s conclusions:
“PFP did not fully comply with the grant requirements we tested. We found material weaknesses in PFP’s internal controls, expenditures, drawdowns, FFRs, progress reports, budget, and program performance resulting in the questioned costs totaling $893,445. These weaknesses resulted in PFP providing multiple sets of accounting records during the audit, even though the grants had ended. We found that PFP charged $420,729 to the grant for personnel and fringe benefit costs that were unallowable. We found that PFP charged direct costs of $34,834 to the grant for unallowable expenditures, and $9,631 to the grant that could not be adequately supported. PFP also charged indirect costs of $232,754 to the grant for unallowable expenditures. PFP drew down $195,497 in grant funds in excess of the accounting records. We found PFP could not support the amounts drawn down or reported on the Federal Financial Reports. PFP could also not provide a correct account of grant charges per grant budget category to ensure proper budget management. Additionally, we found that PFP did not have procedures in place to ensure the timely submission of Federal Financial Reports and progress reports, nor did it ensure that progress reports provided supported information. We also determined that PFP did not meet the goals and objectives of the grants.”
The Grantee here received grant payments from the government for $893,445 based on unallowable and unsupported grant expenditures. This would have been seen by agents as a major problem. The “multiple sets of accounting records” (whether or not ultimately defensible) would have attracted attention. Agents might have seen another red flag and opportunity in what seems to be a reference in the audit report to a redacted executive who abruptly exited the grantee. A quick interview of this exited executive or some interviews around the subject of the exit would be seen as possibly carrying a beneficial reward risk ratio. We can’t know for sure, but the file doesn’t seem to indicate that agents were copied on the correspondence or reports so they may not have known about it.
Under many enforcement regimes the conclusions above might have caused an immediate referral from audit to investigative agents within the OIG and likely to a US Attorney’s Office. Instead, People for People was permitted to implement what looks like an informal corporate integrity agreement drafted by the government while it was permitted to pay back one half million dollars over a period of years. As someone who represents grantees I understand how honest, ethical and well-intentioned grantees can find themselves in situations comparable to this one, but investigative agents within enforcement agencies are rarely persuaded by benign explanations for otherwise suspicious conduct. I also can see how this result may have been extraordinarily evolved while it maximized public welfare benefits. It is just I know from first hand experience that agents and prosecutors rarely seem to be motivated by such notions.
It would be interesting to understand the factors that were considered within DOJ-OIG that dictated that this matter to remain “in house” within an audit component rather than being referred to the US Attorney’s Office or USDOJ Criminal Division. While patience and forgiveness are wonderful traits we don’t often see those traits exhibited as strongly as they seem to have been exhibited here and matters like these when reviewed by new leadership could contribute to a view that there was somewhat lax enforcement of grant spending in recent years.
Update: DOJ OIG Audit of People for People, Inc., Results in Repayments Totaling More Than $554,000 Department of Justice (DOJ) Inspector General Michael E. Horowitz announced today that People for People, Inc., of Philadelphia, PA, has made cash repayments of more than $554,000 to the DOJ as a result of a DOJ Office of the Inspector General (OIG) grant audit. The OIG’s audit report, which we released in 2013, assessed People for People’s management of two grants from the DOJ Office of Justice Programs (OJP). These grants were intended to fund mentoring programs for children of prisoners. We concluded that People for People had not complied with various grant requirements, and we identified $893,445 in unallowable and unsupported grant expenditures. The report included 13 recommendations to improve People for People’s grant management and address these questioned costs. Since the audit, People for People has worked closely with OJP to implement all of our recommendations for management improvements and provided us with additional documentation sufficient to address approximately $339,000 of the questioned costs. The more than $554,000 in cash repayments announced today were made to address the balance of the questioned costs, which primarily related to expenses for which accounting records were insufficient, salary payments that were unallowable, and payments for rent, telephone bills, and other indirect costs that had not been approved by OJP. The OIG’s August 2013 report is available on the OIG’s website at the following link: https://www.oig.justice.gov/reports/2013/g7013007r.pdf.