COST-CUTTING CONSULTANT WASTED MONEY?

The State University of New York (SUNY) Downstate Medical Center paid a consultant $34 million for a plan to help the hospital out of financial trouble, but a report released by State Comptroller Thomas P. DiNapoli questions whether $74 million in savings even happened.

A prior DiNapoli audit released in August 2016 found questionable travel and excessive lodging expenses for the contractor, Pitts Management Associates (PMA), which it charged to SUNY Downstate while working on this project.

"SUNY Downstate's fiscal problems were severe and it needed help. But it failed to monitor PMA's $34 million contracts and did not get what it paid for," DiNapoli said. "When my office is precluded from reviewing a contract, poor oversight requirements can lead to empty promises by vendors. This is another example of why proper contract oversight is needed to protect public dollars."

Legislation passed in 2013 authorized SUNY Downstate to obtain services related to its restructuring without following state procurement requirements, including executing contracts without prior approval from DiNapoli's office. The contract failed to clearly define how PMA would measure savings or delineate its responsibilities, nor did it include "claw back" cost recovery provisions for nonperformance. As a result, DiNapoli's auditors found that PMA used unsound calculations and questioned more than $74 million of the $85 million in purported savings reviewed.

The flawed methodologies and magnitude of the discrepancies led DiNapoli's auditors to question the reliability of the remainder of PMA's total claimed savings of $138 million. They also concluded that SUNY Downstate officials did not properly monitor and assess PMA's performance under the contract.

DiNapoli recommended that SUNY Downstate management:

• Establish clear agreements and contracts with vendors using measurable deliverables.
• Include cost recovery provisions in future contracts.
• Establish controls to properly administer future contracts, including:
  • Effectively monitoring contractor progress; and
  • Safeguard against a contractor's failure to meet contract requirements, including monetary retainage, until the contractor meets the terms and conditions.

SUNY generally agreed with the recommendations but noted that under PMA several improvements were realized. The audit report notes where savings were achieved through the PMA contract. The complete response is included in the audit.

For a copy of the report, visit: http://www.osc.state.ny.us/audits/allaudits/bseaudits/bse20180214.htm

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