Court-ordered audit finds major flaws in L.A.’s homeless services

Homeless services provided by the city of Los Angeles and the Los Angeles Homeless Services Authority are disjointed and lack adequate data systems and financial controls to monitor contracts for compliance and performance, leaving the system vulnerable to waste and fraud, an audit ordered by a federal judge has concluded.

The audit by the global consulting firm Alvarez & Marsal found that the city was unable to track exactly how much it spent on homeless programs and did not rigorously reconcile spending with services provided, making it impossible to judge how well the services worked or whether they were even provided.

Contracts written by LAHSA were vague, allowing wide variations in the services provided and their cost, it said.

Those findings echoed a November report by the Los Angeles County Auditor-Controller that found lax accounting procedures resulted in the failure to reclaim millions of dollars in cash advances to contractors and to pay other contractors on time, even when funds were available.

The audit, posted on the website of U.S. District Judge David O. Carter Thursday arose from a 2020 lawsuit filed by the L.A. Alliance for Human Rights, a group representing business owners, residents and property owners, which alleged that the city and county were failing in their duty to provide shelter and services for people living on the streets.

Both the city and county reached settlements providing for thousands of new shelter beds and additional mental health and substance use treatment.

But under continuing monitoring of that settlement, Carter repeatedly said that he wanted more transparency for homelessness spending and insisted that the city also fund an outside audit.

An attorney for the plaintiffs, Elizabeth Mitchell, said the audit validates the core allegations in the lawsuit, reinforcing the urgent need for systemic reform.

“These finding are not just troubling — they are deadly,” Mitchell said. “The failure of financial integrity, programmatic oversight, and total dysfunction of the system has resulted in devastation on the streets, impacting both housed and unhoused.

“Billions have been squandered on ineffective bureaucracy while lives are lost daily. This is not just mismanagement; it is a moral failure.”

LAHSA issued a statement acknowledging the “siloed and fragmented nature of our region’s homeless response for driving poor data quality and integration, lack of contractual clarity, and disjointed services as major impediments to success and oversight.”

It said it had come to the same conclusion in 2021 and has since “advocated for creating a regional body to mandate collaboration between the City, County, and LAHSA, just as proposed in the court’s audit.”

Los Angeles Councilmember Nithya Raman issued a statement saying the audit reinforced the need for a motion she introduced last month proposing a new city division to centralize oversight of the city’s homelessness spending.

“This work must happen now: this is about more than just metrics — this is about saving people’s lives by bringing them indoors into safety,” she said.

The audit pointed to no examples of fraud or proven waste, but highlighted numerous missing or overlapping controls that left programs open to abuse.

LAHSA, for example, had no standardized method to determine when a shelter bed was available and its funding was not adjusted based on the number of beds occupied, a dynamic that “may have contributed to discrepancies in data, potentially inequitable fund distribution, and moreover, decreased motivation to maximize occupancy for the benefit of unsheltered” people.

Lack of specificity in contracts could lead to cascading problems such as insufficient locked storage space, which could dissuade unsheltered people from accepting shelter, discourage those in the shelter from leaving to seek work and exacerbate the insecurity of those with hoarding tendencies.

The auditors faulted LAHSA’s oversight structure for using the same team that approved invoices and cash requests to monitor performance.

“Within this arrangement, impartial judgment may have been compromised, particularly if payment approvals conflicted with findings that indicated service deficiencies,” it said.

Overall, the audit found the county’s system of direct contracting with service providers offered “more efficient coordination and clearer accountability” than the city’s indirect contracting through LAHSA.

Alvarez and Marsal which said it could conduct the audit for between $2.8 million to $4.2 million, was selected from among three bidders.

The city originally agreed in April to pay for the audit but limited its contribution to $2.2 million. That amount has since been increased as the scope expanded.

The audit was initially set to include not just shelters the city committed to create under the settlement, but Mayor Karen Bass’ Inside Safe program, the city’s controversial anti-camping law and the street cleanups by the Sanitation Bureau’s CARE+ teams. It was later expanded to include LAPD homeless-related activities and county services to city shelters, while enforcement of the anti-camping law was dropped.

In follow-up hearings, representatives of Alvarez & Marsal reported to Carter it was having difficulty obtaining records necessary for its work from the city, the county and the Los Angeles Homeless Services.

In October, Diane Rafferty, an Alvarez & Marsal managing director, described “heart-breaking” experiences in field visits to shelters and street encampments.

“Every day that goes by there’s people on the street that are not receiving the services that the city is paying for,” Rafferty said in court.

She described one shelter resident with traumatic brain injury who frequently missed meal cutoff time and “was prostituting themselves on the street to get food.”

One shelter budgeted for four case managers had only two on site for 130 clients.

After street visits, she said, she was concerned about her team having PTSD.

“The emotion that came out seeing what they were seeing and how these people are living, with all the money going to the service providers was heart-breaking.”

But detail provided in the 161-page audit sometimes softened the sharp tone of the conclusions with recognition of the challenge frontline workers face serving a difficult clientele within a fractured system.

Noting the 31% substance use disorder and 24% serious mental illness reported by unsheltered homeless people in the most recent count, it found that service provider morale was strained by “crisis situations involving aggressive behavior or self-harm,” for which they “lacked the necessary training, expertise, and resources to adequately address these needs.”