DENVER – The City of Denver and the Caring for Denver program — a new tax-funded initiative to support mental health programs — are leaving millions of dollars unused, and the program lacks a clear strategy and goals, according to a new audit from Denver Auditor Timothy M. O’Brien, CPA.
“The city, Caring for Denver, and many other community-based groups are working hard to find solutions for people most in need by addressing addiction and mental health issues and keeping people out of jail,” Auditor O’Brien said. “Caring for Denver should be using its large fund balance to move these programs ahead, as the voters intended.”
The Caring for Denver Foundation was created after voters approved a 0.25% increase in sales and use taxes in 2018 specifically to fund behavioral health services for city residents. At least 10% of the tax revenue comes back to the city for funding alternatives to jail, including the city’s co-responder program. Additionally, the ordinance directs another 10% of revenue in the first two years to the city to develop a facility that creates alternatives to jail for people with mental health and/or substance use disorder needs.
The foundation receives substantial taxpayer funding, much of which it has yet to distribute. As of May 31, 2020, the foundation had accumulated almost $41.5 million in unspent tax revenue that city ordinance and the city’s contract with Caring for Denver designates for public services addressing mental health, suicide prevention, and substance misuse, among other issues.
By that same time, the foundation had awarded about $2.5 million in grants, which largely went toward city-specific funding required by the program’s authorizing ordinance. A grant for almost $2 million was awarded to the Denver Police Department in partnership with the Mental Health Center for Denver for the co-responder program and to pilot an alternative response program. Outside entities and service providers have received very little grant funding from this program so far.
“Look at what the city is doing with $2 million, and then consider what community groups could be doing with the other millions in unawarded grant funds,” Auditor O’Brien said. “Caring for Denver needs a plan and better oversight from the city to get the money out the door, so organizations can try new initiatives and do more good work.”
Some of the issues we identified could be improved if Denver’s Department of Public Health and Environment provided better oversight of the foundation and if the foundation had a strategic plan as the voter-approved ordinance required.
A strategic plan requirement was added to the ballot measure in 2018, because of concerns during the ballot review process about vague descriptions for how the foundation could use the tax dollars to award grants. Although the foundation developed a funding priorities report in January 2020 to fulfill this requirement, it was missing clear goals, objectives, strategies, performance indicators, and timelines.
As noted in the report, not yet having a strategic plan resulted in the Caring for Denver Foundation inadequately using its significant financial resources to carry out the purposes of the ordinance. Although Caring for Denver officials say they recently approved a new strategic plan, future follow-up audit work is needed to confirm all key elements were included.
“This is not the first time we have noted taxpayer funds accumulating in the bank accounts of city-affiliated nonprofits,” Auditor O’Brien said. “The city needs to ensure new nonprofits linked to voter-approved ballot measures are set up with clear direction.”
Officials told us the Caring for Denver program and contract were modeled after another nonprofit supported by voter-approved sales and use taxes: the Denver Preschool Program. We audited in this program in 2019. In that audit, we found similar concerns with large fund balances. However, we note in this report that the Denver Preschool Program had a stronger framework for its strategic planning, city oversight, and accountability.
Our Caring for Denver audit found a lack of clarity regarding Public Health’s oversight role for the Caring for Denver Foundation. The foundation is independent of the city; however, the city is still financially responsible for it. The city uses a special revenue fund to support the program and money does not come directly from the General Fund. But Public Health officials said they were uncertain about their oversight role because they still may seek their own grant funding from the foundation.
The Department of Public Health and Environment’s executive director is an appointed member of the Caring for Denver Foundation’s board of directors. The executive director designated another department employee to serve on the board instead because of conflict-of-interest concerns. Specifically, the Public Health executive director expressed concerns about having authority over releasing tax dollars to the foundation, while also being in charge of requesting funds from the foundation and also serving on the board that decides where to award grant funding.
Our office recommends Public Health should propose updates to both the ordinance and the Caring for Denver Foundation contract to clarify its oversight. Public Health disagreed with our recommendation to clarify the ordinance, saying that the needed changes can be made by revising only the contract terms.
Public Health, as well as the Caring for Denver Foundation, agreed with all other recommendations in the audit.
Other areas of concern with recommended corrective action included:
- How Caring for Denver uses unrestricted funds and carries over unspent funds.
- Bank accounts used to hold Caring for Denver funds exceeded FDIC insurance limits.
- Ensuring Caring for Denver grants to city programs supplement existing funding instead of replacing it.
- The lack of a competitive bid for the Caring for Denver contract.
- And, inconsistent board member conflict-of-interest disclosures.
The report notes that a strong and transparent governance culture is critical for the Caring for Denver Board of Directors’ credibility, as well as the foundation itself.
“Denver voters passed the Caring for Denver ordinance based on the urgency of the opioid crisis, supporting people experiencing homelessness, and other behavioral health concerns facing our community,” Auditor O’Brien said. “Once our recommendations are implemented and proper oversight is in place, Caring for Denver has the potential to do a lot of good in our community for the people who need it most.”
Read more about all our recommendations in the complete audit report below.