An audit of a homeless agency found poor accounting and questionable payments

An audit by the Los Angeles Homeless Services Authority (LAHSA) found numerous lapses in the agency’s money management and record-keeping, prompting LAHSA officials to defend years of practice.

LAHSA was established in 1993 as a joint authority of Los Angeles County and the City of Los Angeles to administer funds for the homeless. Last year, County and City of Los Angeles funding for the agency totaled about $500 million. At the request of the District Board of Supervisors, a review of LAHSA’s Finance, Contracts, Risk Management, Grant Management and Compliance units was conducted to identify areas of improvement for future financial leadership and to determine the need for a strategic business process analysis and work plan for LAHSA.

The audit found deficiencies in several areas, including 10 “priority 1” issues relating to payments, contracts and record-keeping.

Repayment problems

The audit found that LAHSA failed to enter into formal agreements with ancillary recipients to repay $82.5 million in Measure H working capital advances issued in fiscal years 2017–18 and 2019–20. Of this amount, $50.8 million was distributed to subrecipients to meet cash flow needs, while $31.7 million was retained by LAHSA for internal operations and additional cash advances.

The audit raised concerns about LAHSA’s ability to recover funds, as only $2.5 million (5%) had been recovered by July 2024. Although LAHSA initiated corrective actions in fiscal year 2023–2024, progress has slowed due to reported cash flow issues among ancillary recipients. The lack of formal contracts documenting repayment terms was identified as a critical gap.

Auditors recommended that LAHSA enter into agreements with secondary recipients for all outstanding advances and provide quarterly updates to the county executive. LAHSA disagreed, saying its operating agreement did not require annual reimbursement or formal agreements. However, auditors stressed the need for improved safeguards to ensure the accountability of public funds.

Recovery of cash advances

The organization will be subject to review of more than $15 million in unrecovered annual cash advances to ancillary recipients, including $8 million carried forward from prior fiscal years dating back to 2016-2017. Of that amount, $409,000 is owed by six subrecipients who no longer have contracts with LAHSA, according to an audit released in July 2024.

Although LAHSA stated that it reconciled cash advances with expenditures through year-end reimbursement claims, auditors determined that the agency did not consistently recover these funds, resulting in a significant cash shortfall. LAHSA agreements state that advance payments must be repaid within the fiscal year, but this is not enforced, raising concerns about the potential loss of funds earmarked for other programs.

The audit recommended that LAHSA take action to recover outstanding cash advances, consult legal counsel regarding noncompliant ancillary recipients, and ensure proper auditing of future cash advances. LAHSA partially disagreed, arguing that funder agreements sometimes allow for reconciliation rather than recovery and emphasize operational improvements. However, auditors maintained that contracts with subcontractors required timely repayment and emphasized the need for stronger supervision.

Cash advance management

The audit found insufficient controls in the Los Angeles Homeless Services Authority’s (LAHSA) management of cash advances, raising concerns about accountability and safeguarding public funds. Auditors found that LAHSA did not follow best practices, such as depositing advances in interest-bearing accounts, assessing subrecipients’ repayment histories, quarterly reconciling advances to expenses and establishing clear recovery policies.

Complicating the issue is the new Measure H funding model, implemented in May 2024, which provides LAHSA with quarterly advances to disburse monthly payments to subrecipients. By September 2024, LAHSA had received more than $115 million under the new system, increasing the need for robust financial controls.

LAHSA partially disagreed with the audit, saying some recommendations went beyond contractual obligations, but acknowledged progress in implementing improved policies. The auditors emphasized that while some funds are not required by contract, they are consistent with best practices outlined in the District Budget Manual and are necessary to ensure proper management of funds.

The audit recommended that LAHSA implement comprehensive controls to prevent misuse of funds and improve transparency. LAHSA committed to partial implementation by November 2024 but rejected specific suggestions, sparking a debate about the agency’s financial oversight.

Misuse of funds

The audit found that LAHSA improperly used funds from one government program to cover expenses from another. A practice that violated financial management principles occurred when LAHSA paid subrecipients before receiving refunds from donors who had not made cash advances.

During the 2023-24 fiscal year, auditors found two instances in which LAHSA used unrelated funding sources to cover payments to subrecipients. This included $126,168 for the federal HUD program and $31,770 for the county program, payable 16 and 14 days, respectively, before LAHSA received reimbursement from its intended funders.

Auditors warned that such practices could jeopardize funding for other programs, cause cash flow problems and subject LAHSA to administrative penalties. They recommended LAHSA ensure that funds are used only for their intended purpose and monitor fund balances before payments are made.

LAHSA disagreed with the findings but said it had implemented corrective measures as of July 2024. However, auditors noted that LAHSA did not provide documentation to support these actions, leaving financial oversight concerns unresolved.

Maintaining records

The audit revealed significant recordkeeping and contracting problems related to working capital advances under Measure H and contract execution.

A review of $34.6 million in working capital advances awarded to 12 subsidiary grantees revealed discrepancies in LAHSA’s accounting records. Two subrecipients were underpaid by $505,591 and missing documentation for $5 million in advance payments. LAHSA attributed these problems to staff turnover and system changes. Auditors warned that inaccurate data could lead to misuse of funds and make it difficult to repay funds to the county.

The audit also revealed delays in the implementation of seven of the eight contracts audited in the 2023-2024 financial year. Contracts were finalized on average 73 days after their start date, with delays ranging from 23 to 170 days. While some delays resulted from funding approval processes, avoidable internal issues within LAHSA, such as slow contract formation and budget finalization, contributed to the delays.

Auditors recommended improving record keeping, improving the timeliness of contract execution and working with funders to minimize delays. LAHSA disagreed, citing external factors, but auditors noted internal delays and inadequate data tracking made it difficult for LAHSA to monitor its contracting processes.

Gaps in LAHSA Contract Monitoring Plan

Poor plans run the risk of waste, misuse of public funds and service delivery failures.

The audit found that LAHSA relied on undocumented internal knowledge rather than a standard method for assessing subcontractor risk, did not monitor the status of contract monitoring reviews, making it difficult to measure progress, and relied on manual processes to identify new contracts, delaying oversight efforts.

More than half of planned reviews (51%) did not check compliance with key program requirements, such as participant eligibility.

The auditors recommended developing a unified risk assessment, improving review tracking, automating contract notifications and ensuring comprehensive subrecipient monitoring.

LAHSA disagreed, saying it already had the systems in place. However, the auditors noted that key data and documentation were not available during the review. Despite the disagreement, LAHSA has partially implemented some recommendations and set an October 31, 2024 improvement target.

Regarding Priority 1 issues, LAHSA agreed with the findings and recommendations that the organization needs better tracking of its contracts, better systems to ensure timely payments to subrecipients, and greater oversight of its efforts.

Lindsey P. Horvath, chairwoman of the Los Angeles County Board of Supervisors, said the audit found a need for increased accountability.

“That’s why I’m introducing a proposal to create a new Los Angeles County department to centralize responsibility and accelerate the implementation of solutions and partnerships we know work. We must take bold steps to ensure that our investments deliver real results for our communities and unhoused neighbors,” she said.

In its overall response to the audit, LAHSA said many of the issues were related to unprecedented problems in the agency’s operations during pandemic shutdowns. The organization said it had undergone significant reorganization since the period under review, including a new leadership team.

“LAHSA has been actively engaging with the county prior to this audit, and many of the issues identified have already been recognized through our ongoing partnership,” said LAHSA CEO Dr. Va Lecia Adamus Kellum. “We have already started to implement most of the recommendations and many of them have already been resolved. We remain committed to continuing to work together and meet the needs of society’s most vulnerable groups.”

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