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November 21, 2011


DiNapoli: Substance Abuse Provider Misspent $1 Million

A provider of substance abuse prevention and treatment services overcharged the state for services, used taxpayer money to pay for inappropriate perks for the company’s CEO and staffers, including tuition, beauty supplies and jewelry, and provided hundreds of thousands of dollars in interest free loans to an affiliated facility, according to an audit released today by State Comptroller Thomas P. DiNapoli. Auditors called for the state Office of Alcohol and Substance Abuse Services (OASAS) to take immediate steps to recover the money from the provider, Phase Piggy Back Inc.

“Phase Piggy Back provides a needed service for New York state residents, but that doesn’t mean it can feed at the state trough and blatantly misuse public monies,” DiNapoli said. “OASAS must make sure the public’s money is spent where it is needed. Waste and abuse like this cannot be tolerated.”

In July 2004, OASAS entered into a five-year, $11.1 million contract with Phase Piggy Back to provide chemical dependence treatment and prevention services. The contract has been extended annually since 2009. Phase Piggy Back operates a total of seven programs, but only three for its OASAS contract.

Auditors found that as far back as 2004, Phase Piggy Back diverted state contract money to one of its unrelated program facilities, the George and Eva Barbee Family Health Center, which was created by Phase Piggy Back’s executive director. Five years later, the center had not repaid nearly $400,000 for what company officials described as “interest-free loans.” In addition to also  improperly using $30,000 in contract monies for this center’s utility and telephone bills, the company  overcharged the state $258,000 in administrative costs for its three OASAS-contracted programs.

Auditors examined a sample of 67 expenditures by the organization, totaling nearly $180,000, and found that more than half of that total – $93,000 – was either unsupported or improper. The expenditures included $49,000 in tuition payments for staffers, $27,000 in payments to Zales Jewelers, the Home Shopping Network and a beauty aid supplier for items purchased by the CEO and other staff and $17,000 in unaccounted for food purchases.

During the audit period, with a special appropriation provided by the Legislature, OASAS paid $284,000 to Phase Piggy Back for employee cost-of-living salary adjustments and staff recruitment and retention. Instead of using the funds as intended by the Legislature, the provider used over 80 percent to offset its operating deficit. Only $2,500 was used for staff recruitment and retention.

Auditors recommended that OASAS:

  • Enhance monitoring of Phase Piggy Back operations with routine site visits;
  • Immediately stop reimbursing Phase Piggy Back for non-program related expenditures;
  • Require  Phase Piggy Back to properly allocate indirect administrative costs between programs;
  • Seek recovery of: contract funds diverted to non-contract related purposes; indirect costs inappropriately charged to OASAS funded programs; and the special state funding enhancements that were not used for their intended purposes;
  • Investigate the $26,947 in unsupported and unjustified credit card reimbursements;
  • Recover funds paid for the non-program related tuition expenses of Phase Piggy Back personnel.

OASAS officials generally agreed with the audit's recommendations and have begun to implement them.

A copy of the complete audit can be found here:


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