Groups That Run N.Y.C. Shelters Are Riddled With Problems, Report Finds

An extensive review by New York City’s Department of Investigation identified hundreds of issues, including financial mismanagement, nepotism and conflicts of interest.

Self-dealing, nepotism and conflicts of interest are widespread at dozens of the nonprofit groups that run New York City’s $4 billion network of homeless shelters, according to a sweeping report released on Thursday.

The comprehensive review, which was conducted by the city’s Department of Investigation, found that some shelter operators were enriching themselves as homelessness climbed to record levels.

They were paid more than $700,000 a year, hired their family members and simultaneously held jobs at other companies, like security firms, that did business with their nonprofit groups and received city money, the report found.

One nonprofit group awarded millions of dollars in city business to a security company tied to one of the group’s executives, allowing him to collect nearly $200,000. Another group employed at least five relatives of senior employees, including the child and niece of its executive director.

In total, the review identified hundreds of problems, including financial mismanagement and conflicts of interest, at 51 of the nonprofit groups that run New York City’s shelters. (When the review began, there were about 70 such groups contracted by the city — that number has since grown.)

“When it comes to protecting the vast taxpayer resources that city-funded nonprofits receive, prevention is key,” Jocelyn E. Strauber, the commissioner of the Department of Investigation, said in a statement.

“City-funded nonprofit service providers pose unique compliance and governance risks, and comprehensive city oversight is the best way to stop corruption, fraud and waste before it starts,” she said.

Diane Struzzi, a spokeswoman for the Department of Investigation, said the agency’s examination had not resulted in any criminal charges. She added that the review was continuing.

The report called on the city’s Department of Social Services, which oversees homeless shelters in the city, to increase its oversight of its nonprofit contractors.

“As the numbers of people receiving shelter and related services reaches historic levels, calling for even greater expenditures than prior periods,” the report said, “it is now more important than ever that the city implement improved controls to safeguard these public funds.”

In a statement, Neha Sharma, a spokeswoman for the Department of Social Services, said the agency took the report’s findings seriously and had already begun making changes.

She said the department had ceased working with some problematic providers, reformed its contracting system, beefed up its auditing and changed the way it reviews invoices.

“We always strive to improve our practices,” she said, adding that the report “does not reflect our current contracting and oversight processes.”

The city began its inquiry into the nonprofit shelter groups three years ago, shortly after a New York Times investigation revealed that shelter executives were enriching themselves at taxpayers’ expense.

The Times exposed how a prominent homeless shelter operator named Victor Rivera, whose organization had grown into one of the largest shelter providers in New York, had amassed more than $274 million in city funding while treating his nonprofit as his personal fief.

Ten women — including employees and women who lived in shelters run by Mr. Rivera’s organization, the Bronx Parent Housing Network — had accused him of sexual assault or harassment, The Times found.

Mr. Rivera also hired his family members, steered contracts to close associates and intertwined his nonprofit organization with other for-profit ventures he ran.

Mr. Rivera was criminally charged in a bribery and kickback scheme, pleaded guilty and was sentenced to more than two years in prison.

New York City’s homeless shelter system is the largest and most expensive to run in the country, thanks in part to a unique right-to-shelter mandate, which requires the city to provide temporary emergency housing to anyone who needs it.

The city currently spends about $4 billion a year to house an average of about 86,000 homeless people per night — a significant increase from the $2.7 billion it spent in 2022, due in large part to the influx of migrants who have come to the city seeking asylum over the past two years.

The city outsources the operations of its sprawling shelter network to about 90 nonprofit groups that handle day-to-day operations.

But as homelessness has risen and city spending on shelters has ballooned, some nonprofit operators have found ways to abuse the system and line their pockets, the investigation found.

The report found that from 2019 to 2022, executives at 13 of the groups each made more than $500,000 per year from their nonprofits and related organizations. In five cases, nonprofit executives made more than $700,000 per year.

Shelter officials also enriched themselves by having their nonprofit groups rent buildings from or do business with companies that they had a personal financial interest in, the review found.

The city paid more than $11 million for security services at shelters run by one nonprofit group, called SEBCO Development Inc., which hired a for-profit security company that was owned by SEBCO and tied to at least one of its executives. In 2020 alone, the nonprofit’s chief operating officer, Salvatore Gigante, made more than $194,000 from his role at the security firm.

SEBCO also hired four companies affiliated with the husband of one of its executives to perform extermination, maintenance and cleaning services at city-funded homeless shelters.

The review pointed to financial improprieties at another nonprofit group that was the subject of a previous Times investigation, CORE Services Group. The Times reported that Jack A. Brown III, CORE’s chief executive, made $1 million a year and had steered $32 million to a host of for-profit companies — including maintenance, security and food service businesses — that were tied to him.

Mr. Brown also owned two companies that rented buildings to CORE, and his mother, sister, brother, aunt and niece all worked at the nonprofit. After the Times article was published, the city severed ties with CORE.

The Department of Investigation found that such nepotism was rampant among shelter groups, with a number of them employing immediate family members of senior executives and board members, most likely in violation of city rules.

One nonprofit group, Black Veterans for Social Justice, has been hiring its chief executive’s children since at least 2007, the report said. Another group, the South Bronx Overall Economic Development Corporation, has employed at least five relatives of senior employees without approval from the city, including the child and niece of its executive director and the children and cousin of its chief administrative officer.

The report also found that shelter groups often did not comply with competitive bidding requirements, and that they awarded multimillion-dollar contracts for building maintenance services to companies affiliated with the buildings’ landlords.

The Times previously reported that one prominent shelter landlord, David Levitan, required nonprofit groups that rented his buildings to hire his for-profit maintenance company, also a likely violation of city rules.