Audit knocks ServiceNet over $91K in unallowed expenses, undocumented payouts

Staff Writer
Published: 11/6/2019 11:40:53 PM

NORTHAMPTON — A state audit is calling on ServiceNet to improve oversight on how it spends state money after an investigation revealed over $91,000 in expenses and cash disbursements that were improperly documented, missing documentation or not program-related.

A 16-page document released Wednesday by State Auditor Suzanne M. Bump found $38,278 worth of unallowed credit card expenditures billed to the state over a 10-month period between July 1, 2016 and June 30, 2018 that were “not properly documented, not reasonably incurred, or not program-related.” In addition, the audit found two cash disbursements totaling $52,869 for which no records could be found.

ServiceNet is a nonprofit human services agency based in Northampton that provides a variety of social programs, such as vocational, addiction and housing services, to more than 12,000 people across western Massachusetts.

The audit found 223 expenditures against ServiceNet’s state contracts in fiscal years 2017 and 2018 that were nonreimbursable due to state regulations. Among these are a total of $953 in “nonreimbursable luxury items” said to include alcohol and an external retirement party; and a total of $1,246 in “nonreimbursable employee morale expenses” that the audit said included gift cards, prizes and sympathy arrangements.

“This $38,278 could have been used by ServiceNet’s state contracting agencies to pay for program-related expenses of other contractors,” the audit reads.

Concluding that the underlying issue was ServiceNet’s inadequate documentation process for expenses, the audit gave the organization recommendations such as reimbursing the state for costs and amending its documentation policies while also establishing internal controls to ensure policies are adhered to.

“ServiceNet provides critical mental health and addiction services to the western part of the state, but it must diligently manage its state contract to maintain public trust,” Bump said in a statement. “I urge the human service provider to quickly implement our audit recommendations.”

Regarding missing documentation for cash disbursements, the audit also found another four totaling $287 that had not been approved by ServiceNet’s controller or chief financial officer. The audit again recommended ServiceNet establish internal controls to prevent this from happening.

ServiceNet CEO Susan Stubbs said the organization had documentation procedures that meet IRS standards and that many of the credit card expenditures were miscategorized by the organization.

Beyond its state funding, ServiceNet provides outpatient therapy and receives money from private insurance that goes into an unrestricted fund, Stubbs said. Many of the questioned expenses, such as alcohol for a fundraising party, were mistakenly taken out of the restricted fund when it should have instead been taken from the unrestricted account, she said.

Other expenses, such as $9,745 in “meals and travel without adequate documentation” were partially a result of ServiceNet not having itemized receipts from restaurants, which Stubbs said is a state requirement.

In a response featured in the audit, ServiceNet said the organization had enough non-state funds to pay for the expenses in question.

“The Commonwealth has not been harmed, we have not misused state funds and we should not be required to reimburse those amounts for either fiscal year,” ServiceNet said in the audit.

In response, the state offered a contrasting view on ServiceNet’s argument that it had enough non-public money to pay for the expenses.

“ServiceNet’s management is responsible for having controls in place to ensure that any expenses the agency incurs that are nonreimbursable under its state contracts are properly identified, classified, documented in its financial records, and reported in its UFRs (Uniform Financial Reports) that no state funds are used to pay for the expenses,” the audit reads.

Stubbs said the lack of records for the two cash disbursements totaling $52,869 was because they were misplaced as the organization moved offices from 131 King St. to 21 Olander Drive in 2018.

“There was a box with some files that we just didn’t find,” Stubbs said.

In the context of ServiceNet’s two-year budget of $129.1 million, the $38,278 in credit card expenditures totaled about .03 percent of its money, Stubbs said.

“We’re pretty good at this and this is a very small percentage,” Stubbs said. “There’s a margin of error in every organization, I believe.”

Still, Stubbs said the audit presented ServiceNet with the opportunity to nip future issues in the bud with agency-wide training on proper documentation.

“We viewed this process as a learning opportunity to further tighten our policies and procedures relative to the state’s specific standards,” Stubbs said.

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