Audit Report

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Caring for Denver 

Objective: To assess the Denver Department of Public Health and Environment’s ability to oversee the Caring for Denver Foundation based on city ordinance and contract terms, and to assess how the foundation’s strategic plan and its operations align with Public Health and Environment’s strategic plans, city rules and regulations, and leading practices in nonprofit management.

In 2018, Denver voters approved a 0.25% increase in sales and use tax to fund behavioral health services for city residents. As part of the ordinance, supporters created a nonprofit organization called the Caring for Denver Foundation. Under a contract with the city, the foundation awards grants to
city agencies and community-based organizations supporting behavioral health.

The Denver Department of Public Health and Environment oversees the city’s contract with Caring for Denver. The foundation received an estimated $37 million in 2019 to fund its operations and continues to receive monthly distributions from the city based on estimated tax revenues.

The Department of Public Health and Environment Needs to Provide Better Oversight of the Caring for Denver Foundation

 

  • The Caring for Denver Foundation has not developed a strategic plan to carry out the voter-approved ordinance and determine funding priorities as the ordinance requires it to do. As of May 31, 2020, the foundation had accumulated almost $41.5 million in unspent tax revenue that city ordinance designates for public services that address mental health, suicide prevention, and substance misuse, among others.

    Although the foundation developed a report of its strategic funding priorities, that document lacks clear goals, objectives, strategies, key performance indicators, and timelines to help ensure the foundation implements city ordinance by awarding grants using the designated tax revenue.

  • Some of the foundation’s key policies do not fully align with city ordinance, contract terms, or leading nonprofit management practices. Two policies critical to Caring for Denver’s purpose — its grant policy and its use-of-fund-balance policy — included terms and activities that were not addressed in the ordinance or the contract, and in some cases, aspects were not consistent with leading practices.

  • The Caring for Denver Foundation needs to improve how it designs and implements its board policies and governing documents. Caring for Denver’s practices were inconsistent with adopted policies, and we identified gaps regarding the board of directors’ conflict-of-interest and gift disclosure policies, proper authorization of board committees, and a lack of performance evaluations.

1.1 Amend City Ordinance – The Department of Public Health and Environment, in conjunction with the Department of Finance and the City Attorney’s Office, should propose amendments to the Caring for Denver ordinance to clarify and affirm Public Health and Environment’s oversight responsibilities and to clarify spending and funding limitations and other sections, as needed.

Agency Response: Disagree

1.2 Revise Contract Terms – The Department of Public Health and Environment — in conjunction with the City Attorney’s Office and, as needed, the Department of Finance — should negotiate revisions to the Caring for Denver Foundation’s contract and affirm Public Health and Environment’s oversight responsibilities; specify the department’s ability to review, comment, and approve policies; and clarify other provisions, as needed.

Agency Response: Agree, Implementation Date June 30, 2021

1.3 Develop Strategic Plan – The Caring for Denver Foundation Board of Directors should develop a strategic plan and submit the plan to the Department of Public Health and Environment for the department’s review, comment, and approval. In addition, the Caring for Denver Foundation should incorporate an annual work plan to supplement its strategic plan; this should incorporate specific objectives, measurable metrics, a timeline, and clear linkage to the ordinance’s purposes.

Agency Response: Agree, Implementation Date Dec. 31, 2020

1.4 Review and Revise Key Policies for Alignment with Requirements – The Department of Public Health and Environment should review the Caring for Denver Foundation’s policies and procedures in accordance with its authority to monitor performance. This review should ensure that all financial policies and procedures comply and align with the Caring for Denver ordinance, contract terms, and leading nonprofit management practices including the carry forward and treatment of administrative expenses and investment income.

This should include a review of methods, procedures, and practices for the grant policy, the investment policy, and the reserve policy to identify any gaps between the written policies and the ordinance and contract requirements. If the review identifies discrepancies, Public Health and Environment should work with Caring for Denver to ensure revisions are made.

Agency Response: Agree, Implementation Date June 30, 2021

1.5 Conduct Segregation-of-Duties Assessment – The Caring for Denver Foundation should conduct a full segregation-of-duties assessment of operations to ensure segregation-of-duties risks are identified and that policies are designed to appropriately limit any associated risk. Specifically, this should include identifying and mitigating risks regarding the executive director’s authority to approve grant awards of $50,000 or less.

Agency Response: Agree, Implementation Date March 31, 2021

1.6 Review and Revise Financial Management Policies for Strategic Consistency – Once the Caring for Denver Foundation develops a strategic plan as directed in Recommendation 1.3, it should review strategic goals and its financial policies to ensure that these policies are appropriate to its goals. This review should include the investment policy and associated strategies, as well as the minimum and maximum targets outlined in the reserve policy. As warranted, the Caring for Denver Foundation should revise its financial management policies based on the organization’s strategic goals, investment risk, and cash flow position.

Agency Response: Agree, Implementation Date March 31, 2021

1.7 Clarify and Reinforce Expectations for Conflicts of Interest – The Caring for Denver Foundation’s leadership should clarify its expectation regarding dual interests and reinforce this by listing the types of relationships it expects members to disclose on its annual conflict-of-interest disclosure form. Leadership should also provide additional and ongoing training to board members as recommended in leading practices.

Agency Response: Agree, Implementation Date March 31, 2021

1.8 Review and Amend Board Policies and Procedures – The Caring for Denver Foundation should review its board policies and the procedures intended to demonstrate compliance with those policies to ensure they align with the intended purpose. At a minimum, this review should include the conflict-of-interest and gift disclosure policies. If either does not align with the organization’s purpose for having the policies, the foundation should consider amending its policy, its compliance procedures, or both to better address the organization’s intended purpose.

The Caring for Denver Foundation should consider similar review and amend processes as it develops and implements other board policies to ensure consistency with and relevance to intended purpose.

Agency Response: Agree, Implementation Date March 31, 2021

1.9 Duly Authorize Executive Committee – The Caring for Denver Foundation Board of Directors should duly authorize its board committees and follow procedures in accordance with the organization’s bylaws and leading practices as they relate to authorizing committees. Specifically, the board should amend its bylaws to authorize the executive committee, outline the committee’s membership requirements, and place limits on its authority to act on behalf of the board.

Agency Response: Agree, Implementation Date Dec. 31, 2020

1.10 Promote and Conduct Evaluations – The Caring for Denver Foundation Board of Directors should ensure it promotes a culture of evaluation through periodic and regular self-evaluations of board performance, and it should develop and implement evaluation procedures to assess the annual performance of the foundation’s executive director.

Agency Response: Agree, Implementation Date Dec. 31, 2020

The objective of our audit of Caring for Denver was to determine the effectiveness of the Department of Public Health and Environment’s oversight of the Caring for Denver Foundation and what the foundation does with the city’s designated tax dollars. This included evaluating contract compliance and overall program effectiveness, reviewing the city’s role in developing the Caring for Denver ballot measure, assessing the nonprofit foundation and its board of directors, and assessing both the foundation’s progress in granting awards and the consistency of its key policies and operations. I am pleased to present the results of this audit.

The Caring for Denver Foundation operates independently but the city is still financially responsible for it. We found the foundation had accumulated over $41.5 million, as of May 31, 2020, in unspent tax revenue designated for public services that address mental health, suicide prevention, and substance misuse, among others. The audit also found the Department of Public Health and Environment needs to provide better oversight of Caring for Denver tax revenue to ensure the nonprofit foundation distributes the money strategically and in a timely manner for Denver residents’ benefit. Additionally, the Caring for Denver Foundation has existed for almost a year and a half, but it still does not have a strategic plan; this hinders its ability to operationalize key processes, fund its priorities, and fulfill its voter-approved mandate.

By amending the Caring for Denver ordinance and revising contract terms, the Department of Public Health and Environment should gain more clarity about its responsibilities to provide better oversight. The Caring for Denver Foundation’s development of a strategic plan — as well as updating policies so they align with city ordinance and revising some governance practices — should also help ensure the efficient and effective use of designated tax dollars.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor.” We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We extend our appreciation to the personnel at the Department of Public Health and Environment and at the Caring for Denver Foundation who assisted and cooperated with us during the audit. For any questions, please feel free to contact me at 720-913-5000.

Follow-up report

A follow-up report is forthcoming. 

Audit Team: Katja E. V. Freeman, Jared Miller, Catherine Friday, Ronald F. Keller, Kristin McCormack