Several of the nonprofits that New York City pays to run its huge network of homeless shelters have funneled taxpayer dollars toward their own executives and family members, and in some cases paid their leaders inflated salaries thanks to flawed oversight, according to a report released Thursday by the city’s Department of Investigation.

The report, based on three years of interviews, correspondence with the nonprofits and examinations of invoices and financial ledgers, turned up “hundreds of governance and compliance concerns” among the 51 shelter nonprofits studied by DOI, which make up a majority of the roughly 90 nonprofits that run shelters for the city. The city’s Department of Homeless Services spent $4 billion last year to shelter 86,000 people per night.

Many of the problems, and some of the organizations themselves, overlap with issues recently covered by Crain’s in “Shadow government,” a profile of the city’s largest nonprofit contractors. Investigators found repeated conflicts of interest — providers buying goods from companies in which they had a financial stake, “numerous” instances of nepotism in hiring — as well as no-bid purchases that violated city rules.

Black Veterans for Social Justice, which maintains 1,100 shelter beds across 11 facilities, employed its CEO’s two adult sons “since at least 2007” despite claiming otherwise in response to DOI’s initial questions. One of those children worked simultaneously for DHS. One of the sons resigned from the nonprofit during the investigation, while the organization sought city approval for the other hire. The city put BVSJ under a monitorship in 2023, in response to the findings.

BVSJ did not respond to a request for comment. The Bedford-Stuyvesant-based group has been awarded 21 contracts worth a combined $45 million since 2011, city records show.

Another nonprofit, Sebco Development, purchased $11.6 million in security guard services from a for-profit company that it owned. Senior executives at Sebco took in hundreds of thousands of dollars in salary payments from that security company, whose revenues came mostly from the city homeless services contracts.

“That presents a clear risk that a nonprofit is not focused on getting the best possible deal for the city, but possibly on enriching themselves,” DOI Commissioner Jocelyn Strauber said in an interview.

The report lays some blame at the feet of the Department of Homeless Services, which is responsible for reviewing its vendors' spending. But other issues, like high executive salaries, have no clear legal guardrails. Investigators proposed 32 different reforms, including appointing a chief vendor compliance officer to oversee nonprofit contracts, requiring vendors to regularly disclose potential conflicts of interest, and limiting city money for executive pay.

A spokeswoman for the Department of Social Services, which includes DHS, said in a statement that the DOI report “does not reflect our current contracting and oversight processes,” noting that the review began during a different mayoral administration. The agency worked with DOI as it prepared the report, and audited more than 100 contracts last year on its own, spokeswoman Neha Sharma said.

“The Department of Social Services relies on an experienced network of not-for-profit providers that are on the ground every day to ensure the effective delivery of critical services and quality care for millions of New Yorkers each year. We take every instance of non-compliance very seriously, which is why DSS has completely stopped doing business with a number of providers highlighted in the report, enhanced invoice review policies and practices, and reinforced our robust audit and accountability mechanisms,” Sharma said. “We always strive to improve our practices and we have worked closely with DOI to thoroughly review our shelter providers.”

Conflicts of interest

The Department of Investigation began its report in 2021 in response to a scandal in which Victor Rivera, former CEO of the nonprofit city provider Bronx Parent Housing Network, ultimately pleaded guilty to a bribery and kickback scheme. He was sentenced to two years of supervised release and ordered to pay $2.2 million.

Some of the providers in the report were exposed for misdeeds over the course of the investigation. CORE Services Group, for example, had its contracts dropped by the city in 2021 after it emerged that its CEO hired his relatives and steered city money to companies he controlled.

Other nonprofits scrutinized by DOI still do city business. Bronx-based Sebco, founded in the 1960s by famed priest Louis Gigante, directed millions of dollars from 2018 to 2021 to the for-profit company Sentry Security. Sebco Chief Operating Officer Salvatore Gigante reported to the IRS that he received no salary from the nonprofit — but he was separately paid $194,000 in 2020 by Sentry, where he served as executive vice president. (Sentry Security was “significantly, but not fully, funded by work on DHS contracts,” investigators found.)

Another provider, Samaritan Daytop Village, hired the law firm Greenberg Traurig and paid it $400,000 over four years, during which time one of the firm’s shareholders served on Samaritan Daytop’s board. Samaritan also hired the insurance brokerage One Group Risk Management — whose senior vice president also sat on Samaritan’s board — and paid the firm $1.3 million over three years.

Samaritan, in its formal response to DOI, said that both people disclosed the conflicts, and that it picked Greenberg Traurig after a competitive bidding process.

Other conflicts of interest surrounded city leases. Several city-funded shelter providers leased space from landlords to whom they had business ties, including Black Veterans for Social Justice and Bronx Family Network, the report found.

And several nonprofits hired the relatives of executives — including the South Bronx Overall Economic Development Corporation, which employed “at least five relatives of senior employees” without getting city approval, including both the child and niece of its executive director, investigators found.

In October of this year, DSS told investigators that it has “completely ceased” doing business with the group, known as SoBro. SoBro has held at least 200 city contracts worth more than $91 million since 2005, public records show.

In its response to the report, SoBro said it has since instituted a nepotism policy.

High salaries, flawed oversight

The high salaries paid to some leaders of city-funded nonprofits have long attracted scrutiny. The DOI report notes that DHS cannot control nonprofits’ salaries, and official city guidance says little about what pay levels are appropriate — only that they should be “reasonable for the services rendered.”

Still, investigators spotlighted a few instances of “unusually high” compensation by city vendors. Camba, a leading vendor that controls 1,500 beds across 20 shelters, paid its CEO more than $700,000 in three consecutive years, and paid several executive vice presidents more than $500,000 annually. At least some of those salaries came from a city-funded account “intended to pay overhead costs,” the report states.

The nonprofit Acacia Network, as Crain’s has reported, also drew attention for executive pay: Its CEO received a salary of $916,000 in 2021, derived partly from city funds, the investigation found.

Acacia, in its response, told the city that its salaries meet the “reasonable” standard because they are based on the combined revenue, budget and assets of the nonprofit and its affiliates.

The Department of Social Services defended its oversight, saying it builds guardrails into its contracts, puts vendors on improvement plans when audits turn up problems, and relies on a citywide nepotism policy drafted by DSS’s accountability office.

Still, the report called on the city to step up its oversight in several respects. As it stands, shelter providers are not required to tell the city about relationships they have with local landlords; and nonprofit executives are not required to disclose their own conflicts of interest. Only members of vendors’ boards of directors are subject to those annual disclosures.

The Department of Homeless Services’ process for approving invoices leaves something to be desired: over the course of the study, DHS approved more than $117 million in invoices from shelter providers that failed to identify a vendor as required. Some approved invoices listed only placeholders for the vendors, like “various” and “TBD.”

As for salaries, DOI said the city should put limits on the amount of city funds that nonprofits can use to pay their executives.

“The public needs to know exactly how much, and that’s not information that the city is currently collecting,” Strauber said.

Catching potential conflicts of interest early would serve the city a practical purpose, DOI argued. Since just 17 large shelter providers account for 65% of the city’s shelter capacity — not including the emergency beds recently procured for asylum seekers — the city would be left scrambling if a scandal forces it to abruptly cut ties with any of these groups.

Although DSS pushed back on some of the findings, the agency formally agreed to implement the majority of DOI’s recommendations, Strauber noted. The agency promised, among other things, to consolidate vendor oversight into a single unit within its accountability office, including new efforts to monitor contracts and invoices.

“It may be that what they need is more resources from the city, in terms of personnel who can do the deep dives that we’re talking about,” Strauber said. “But the report shows that the work that’s currently being done is simply not enough.”