NASSAU COMPTROLLER FINDS
ECONOMIC DEVELOPMENT UNITS
SHOWED PATTERN OF MISMANAGEMENT

Audit Cites Negligence And Lack Of
Normal Governmental/ Financial Controls

Nassau County’s Economic Development agencies operated as if they were exempt from the county’s financial and timekeeping policies and procedures, Nassau Comptroller Howard S. Weitzman told county legislators today at a hearing to investigate management practices in the troubled agencies.

The Comptroller also released a comprehensive financial audit of the nine-agency Economic Development Vertical overseen by Deputy County Executive Peter Sylver prior to his resignation in December 2003.

“While much of the mess the Suozzi administration inherited has been cleaned up,” Mr. Weitzman said, “our audit makes it clear that much work remains to be done.

“Specifically, within the Economic Development Vertical, the administration failed to put in place crucial financial and managerial controls where there were virtually none. Indeed, most of the vertical was operated as if it were answerable to no one and exempt from county policies and procedures.

“While we have not uncovered evidence that employees sought substantial personal gain, there was a pattern of laxity and negligence that was so pervasive within the unit that far worse abuses were possible than those we found.”

The complete audit report can be downloaded, viewed and printed by clicking on the report title near the end of this page.

The text of Mr. Weitzman’s remarks before the legislative hearing follows:

Remarks by
Nassau County Comptroller Howard S. Weitzman
at Nassau County Legislature Hearing on
Economic Development Vertical

January 21, 2004

Presiding Officer Jacobs, Minority Leader Schmitt, distinguished legislators: Good morning. Thank you for inviting me to speak to you this morning about the results of my examination of the Nassau County Economic Development Vertical.

Before I present my report, please allow me to share a couple of observations. The Comptroller’s Office originally planned to audit the Office of Housing and Inter-governmental Affairs (or OHIA) as part of its 2004 audit plan.

In view of the resignation of Deputy County Executive Peter Sylver in December 2003, and the discovery that financial transactions were conducted by OHIA outside the Nassau County internal control process, I decided to conduct the audit immediately and expand its scope to include the entire Vertical, including all of its nine component agencies.

When the Suozzi administration took office in January 2002, there is no question that Nassau County was fundamentally broken and in fiscal crisis. No one would seriously argue that the county’s progress since then has been anything less than remarkable. The rating agencies have all expressed their new-found confidence in the county through repeated upgrades of the county’s bond ratings. But while much of the mess the administration inherited has been cleaned up, this report makes it clear that much work remains to be done.

Specifically, within the Economic Development Vertical, the administration failed to put in place crucial financial and managerial controls where there were virtually none. Indeed, most of the vertical was operated as if it were answerable to no one and exempt from county policies and procedures.

While we have not uncovered evidence of substantial personal gain by vertical officials, I will outline for you a pattern of laxity and negligence that was so pervasive within the unit that far worse abuses were possible than those we found.

I will give you many examples of this in my report. The administration has promised to institute broad reforms to make sure these problems are corrected, and I commend them for that.

The Nassau County Economic Development Vertical was created by County Executive Suozzi soon after he took office in 2002, as part of a reorganization of county government. Mr. Suozzi organized county departments and agencies that perform related functions into “verticals,” each overseen by a Deputy County Executive. He designated then-Deputy County Executive Peter Sylver to oversee the Economic Development Vertical.

The Vertical includes departments, agencies, and related independent corporations whose mission includes furthering the economic growth and community development of Nassau County. My auditors focused most of their attention on the Office of Housing and Intergovernmental Affairs; the Nassau County Economic Development Corporation (EDC), the Nassau County Local Development Corporation (LDC); the Nassau County Industrial Development Agency (IDA) and the Nassau County Public Utility Agency (NCPUA). Other agencies in the Vertical include the Planning Department, Minority Affairs, the Coordinating Agency for Spanish Americans; and the Human Rights Commission.

The objective of the audit was to determine, throughout the Vertical, whether:

• Expenses were subject to appropriate reviews and controls;
  
• Goods and services were procured properly and with appropriate approvals, and provided in compliance with contract terms;
  
• Revenues were properly controlled and accounted for, received in accordance with contract terms, and deposited on a timely basis;
  
• Time and leave was subject to appropriate controls; and
  
• Payroll expenses were properly authorized, incurred, and charged to the appropriate program.

Auditors observed a pattern of mismanagement, negligence and lack of normal governmental and financial controls throughout the Vertical, which operated as if it were exempt from county procedures with respect to revenues, expenses, and time and leave records.

Although some of the observed problems were apparently inherited by, and pre-dated, the Suozzi administration, the new administration failed to implement financial and managerial controls in the vertical where there were none in place. Our examination of the vertical included the following major findings:

• Without any authority to do so, county employees opened corporate checking and credit card accounts in the name of Nassau County OHIA.

Misstatements were made on the applications for the checking and credit card accounts. The manner in which the accounts were opened and operated was at best negligent, and at worst a deliberate attempt to circumvent county controls. The account was closed on January 15, 2004. We have referred the matter to the Commissioner of Investigations and the District Attorney for further investigation.

• During 2000-2001, the board of the IDA approved over one hundred thousand dollars in expenditures for golf outings, parties, attendance at fund-raising events, and charitable contributions.

In approving these expenditures, the IDA did not state their economic development purpose, nor how the expenditures were within the authority granted to the IDA by its state-enabling legislation. In March 2002, the IDA board authorized its executive director to incur expenses and spend funds as long as they are within the budget, without requiring board approval for individual expenditures. In our opinion this is an insufficient level of oversight.

• Following this delegation of spending authority at the IDA, the agency made a number of questionable expenditures – some without conducting a competitive procurement process; some appeared to be primarily for the benefit of a different department or corporation within the vertical; and some appeared to lack an economic development purpose.
  
• The component agencies commingled their expenses, even though three of the agencies are not-for-profit public corporations that are fiscally independent of the county and of each other.

Expenses should be allocated and apportioned to the proper entities.

• We discovered that the LDC, NCPUA and the newly-formed EDC kept no accounting books at all.
  
• At some agencies within the vertical there was a failure to follow procurement policies; at others there was no procurement policy.

We found that the independent corporations have no effective conflict of interest policies.

• The Vertical leased automobiles in a manner that was not cost-effective.

OHIA leases 11 Ford Tauruses at $518 per month and one Crown Victoria for $725 per month for use by its employees. Although the vehicles were properly procured through the county purchasing department, more economical alternatives should have been pursued.

• An outside law firm was selected, according to county documents, based on the firm’s “broad knowledge and expertise,” without evidence of any competitive procurement process.

The same law firm retained by OHIA, Crowe Deegan, also did work for the three independent corporations, with a similar lack of evidence of competitive procurement. Billings totaled more than $707,000. For procurement of personal services contractors such as law firms, county rules generally require that at least three firms be considered prior to a contract award. A better practice, however, is the issuance of a request for proposals. With respect to OHIA, there is no evidence that three firms were considered before Crowe Deegan was hired; with respect to the corporate entities, they have no rules in place governing such procurement.

Throughout the Vertical, we found a lack of internal controls over expenditures. Questionable expenditures included:

• Various charges to the OHIA credit card, authorized by the Deputy County Executive. These included $707 for window tinting on Mr. Sylver’s county-leased automobile; $940 for a computer monitor and printer that should have been purchased through the county’s information technology department; a $944 charge for a hotel suite for one day that was never used, but not cancelled; business meals incurred without documented justification; and various purchases for other units, including the independent corporations, that should have been paid for by those units.
  
• Besides the credit card, OHIA paid some expenses by check that were inappropriate and/or not subject to normal financial controls. These included $5,176 for office furniture for the Executive Director of EDC; $126 for softball equipment that was apparently neither used nor donated; and meals for which insufficient justification was provided.

At the IDA, unjustified expenditures included:

• Approximately $25,000 for golf outings authorized during 2000 and 2001 by the IDA board. The board minutes did not mention the purpose of these expenditures, the anticipated economic development benefits, or the authorized attendees.
  
• Also in 2000-2001, the IDA spent approximately $8,800 on holiday and retirement parties for its employees.
  
• Between 2000 and 2001, the IDA board authorized payments of approximately $85,000 for charitable contributions and sponsorships of not-for-profit organizations, again with no supporting justification or explanation as to the economic development purpose.

The IDA also made the following purchases on behalf of other units within the Vertical:

• $10,384 on office construction to be used by, or shared with, the Deputy County Executive, the Director of Planning; the Deputy Director of Planning; the Special Assistant to the Director of OHIA and the Director of NCPUA. A significant portion of the work performed was not competitively bid.
  
• $10,000 for the purchase of used furniture from an investment banking firm, and an additional cost of $24,143 – 2.5 times the purchase price – to move it to Nassau County. There was no evidence that the IDA obtained bids for the purchase or performed any analysis to determine whether the total acquisition cost was reasonable. The amount of furniture purchased, including 18 desks and credenzas, 256 chairs, 4 loveseats, a couch, and 102 file cabinets, is far in excess of that needed for a public benefit corporation with only six employees.
  
• $3,462 for the Deputy County Executive to attend a conference in London entitled “Modernising Criminal Justice” that had little apparent connection to the IDA’s mission. This amount included $820 of expenses reimbursed to Mr. Sylver for the cost of his wife’s conference registration as a spouse, and for an additional three-night stay in London after the conference ended. Mr. Sylver reimbursed the IDA for the total expense in January 2004.
  
• $6,747 for the purchase and installation of a digital plasma television for the County Executive’s conference room at 1 West street, rather than in the IDA offices at 400 County Seat Drive. If this equipment was primarily for the use of the administration, it should have been purchased using the county’s procurement process, with sufficient justification provided.
  
• The IDA hired consultants without any discernable procurement process and, in some cases, with no contracts. Some of the “consultants” appear to have really been employees. The IDA may have circumvented IRS regulations by treating the individuals as consultants.

There is an absence of internal controls over revenues and cash receipts throughout the Vertical:

• Revenues deposited into OHIA’s outside checking account were not subject to proper accounting controls and were not deposited in a timely manner. OHIA was unable to provide the contractual agreements upon which the revenues were based.
  
• The IDA showed revenue of $749,000 in 2003 (11 months), $537,000 in 2002, $321,000 in 2001 and $224,000 in 2000. Revenue has been enhanced through increased activities and fee initiatives in recent years. However, the agency has no comprehensive record of amounts earned or billed. No fees were collected in 2000, and almost none in 2001.

In their examination of salaries and time and leave, auditors observed instances of sloppy or non-existent timekeeping, unauthorized leave, or leave taken but not posted to the county’s payroll system, in every unit in the Vertical.

• OHIA had no auditable time and leave records; standard county timesheets were not used; and the agency’s own records were poorly maintained or in some cases nonexistent.
  
• One employee was absent for 13 days, apparently due to an injury sustained in a car accident, but no leave time was used. The employee’s paychecks showed the time recorded as regular time worked.
  
• Another OHIA employee was paid for a five-day workweek at a salary of $45,000, but in reality had worked three days a week since September 2003.

When the Comptroller’s Office notified OHIA that the employee’s paycheck might be held to recoup the overpayments, OHIA responded by authorizing a 67-percent pay increase for this employee retroactive to September 2, bringing the annual salary to $75,000 and, concurrently, reducing the employee’s work schedule to three days a week, also retroactive to September 2. In so doing, OHIA frustrated efforts by the Comptroller’s Office to recoup money owed to the county.

• Another employee listed on OHIA’s time sheets is actually employed by the EDC as Assistant to the Executive Director. The employee’s salary should be charged to EDC, but is instead being charged to the county.

Within the County Human Rights Commission, the Minority Affairs office and the independent corporations, auditors noted failures to enter absences into the county payroll system, and/or employees who work for one unit but are paid by another. Prior to 2002, the IDA did not have its own employees; instead it used county employees who were paid stipends above their county salaries. No records of hours worked were maintained.

• The IDA pays only $300 per month to lease office space from the county. EDC and NCPUA pay no rent to the county, despite an allocation in EDC’s budget for annual rent payments of $24,000.
  
• NCPUA, which resells discount power to seven Nassau County businesses, does not maintain basic accounting records. The NCPUA board authorized the imposition of a 4 percent fee for all its customers on March 13, 2003, but provision for the fee is not included in its contracts. NCPUA and the county should examine the feasibility of using NCPUA-provided energy to reduce county energy costs.

In conclusion, the evidence is overwhelming that the entire vertical has been mismanaged. Many of the management practices that led to this finding have been prevalent in the county for years.

Although the new administration has made much progress in its first two years, it failed to ensure that normal, common-sense managerial and financial controls were instituted in a large and important division of county government.

We urge the county executive to appoint a new Deputy County Executive Position swiftly to put in place the urgent reforms that are necessary.

The complete audit report can be downloaded, viewed and printed by clicking on the report title below.

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Comptroller Howard Weitzman's Audit of the Nassau County Economic Development Vertical
( ~ 623 kB - 59 pages "pdf" file )

Corrective Action Plan ( ~ 44 kB - 7 page "pdf" file)