Missed targets, full payment: Austin mayor calls nonprofit audit ‘troubling’

Mayor Kirk Watson and several Austin City Council members raised concerns Monday about a recent city audit that found  nonprofit contractors missed nearly half of their performance targets but were still paid in full by the city. 

The audit, released July 15, examined 25 contracts worth about $30 million and found that 76% failed to meet at least one performance measure. Overall, contractors missed 44% of the measurable targets reviewed, including benchmarks for the number of residents served and whether services improved clients' health or circumstances.

"Let's be candid - the findings are troubling," Watson said during a meeting of the council's Audit and Finance Committee. Watson said the findings could indicate that vulnerable residents did not receive services the city paid nonprofit organizations to provide.

Social services cuts under consideration

The audit comes as the council considers cutting millions of dollars from social service contracts while attempting to close a projected $26 million budget shortfall.

Watson acknowledged that providers may have faced staffing shortages or circumstances beyond their control. He also said the city must take responsibility if it imposed unrealistic requirements or failed to manage contracts effectively. But "none of those possibilities supports a system in which expectations can be missed repeatedly without consistent review, without corrective action or without consequences," Watson said.

He added that providers should have an opportunity to explain and address performance problems but said that "when performance doesn't improve, we should be willing to redirect public money so that the promised services are actually provided."

Council Member Ryan Alter cautioned against using the findings to condemn every nonprofit that contracts with the city, but agreed that performance should factor into decisions about which organizations receive city funding. 

"This is first and foremost about the people we're trying to serve, but it is really an indictment of our ability to manage that service," Alter said. 

"When we are trying to decide who is worthy of funding and who is not," he added, "I think we need to start that conversation with those who are not meeting the expectation."

Nonprofit leaders respond 

Some nonprofit leaders warned that the report's limited scope did not justify broader conclusions about all organizations that contract with the city.

"The report identifies concerns related to reporting delays, communication practices, and inconsistent contract management processes that are more a reflection of the city's own contracting system, than a performance of any single nonprofit," Lifeworks CEO Liz Schoenfeld told the committee Monday. 

"These details matter, especially in the middle of a budget process where millions of social service contracts are already under consideration for elimination."

One Voice Texas sent a letter to the mayor and City Council on Monday noting that a separate nonprofit audit last year found city staff monitored contracts and leases in 19 of the 20 agreements reviewed. The group also questioned the timing of the latest report, which was released during the city's budget process, and asked officials to identify any low-performing organizations and give them an opportunity to respond "before public conclusions are drawn."

In the audit, staff from one nonprofit said performance expectations were written in a way that made them impossible to meet. Other providers said communication varied depending on which city department or employee administered the contract. They also said that when nonprofits identified problems, changes often were not made until new contracts were executed.

City Auditor Jason Hadavi said his office did not intend for the report to cover every nonprofit. He said the 25 contracts represented several city departments and provided a sufficiently large sample to identify consistent problems in the city's contract management.. 

The report did not identify the contracts that were reviewed, but Hadavi told committee members that the majority came from Austin Public Health. 

The city's contracting system allows providers to explain when they miss a performance target by more than 10%. Auditors found that those explanations were not consistently submitted or documented.

"There was, I would say, inconsistent usage of that," Hadavi said. "There were times where reasoning was given, and there were times where we didn't see that information."

What happens next

Assistant City Manager Stephanie Hayden-Howard told the committee the city contracts with nonprofits because the organizations have specialized expertise and because providing the same services with city employees would cost more.

Auditors recommended that the city designate a lead department to oversee evaluations after contracts are completed and reconsider its contracting process for family and social services. 

They also called for consistent performance standards, consequences for failing to meet expectations and a system that would allow departments to review a nonprofit's past performance before awarding additional work.

In his response to the audit, City Manager T.C. Broadnax said the city would expand its contractor evaluation program, establish clearer distinctions between grants and contracts, and centralize contract oversight in the city's financial services department and move grant compliance oversight to the government relations department. 

Broadnax also recommended extending competitive bidding and anti-lobbying requirements to social service awards. That change would require council approval. 

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