FIRST ROUND OF SANITARY DISTRICT AUDITS FINDS
INFLATED PAY AND LAVISH EXPENSES

In Town of Hempstead District 1, a Near-total Lack of Financial Controls;
One Official Holds Four Public Jobs; Lack of Controls "An Invitation to Fraud"

An examination of expenses, procurement, and financial practices at three special sanitary districts has found examples of excessive compensation for administrators, extravagant travel and meal spending, and an utter lack of record-keeping in some districts, County Comptroller Howard Weitzman said today.

"At two of the three garbage collection districts we examined, the bottom line is that nobody is minding the store. The lack of control generates abundant opportunities for unscrupulous individuals to line their pockets with taxpayer money," Comptroller Weitzman said at a press conference this morning at which he released reports on the three districts.

In the case of one district, Sanitary District No. 1 in the Town of Hempstead, which serves the Five Towns and Valley Stream South, the examination uncovered excessive and unexplained payments to commissioners and top staff, lavish meals including one steak dinner for four that totaled nearly $700, and an inadequate - and for some employees nonexistent - timekeeping system. The district's treasurer, ostensibly a 20-hour-a-week position, was found to hold three additional public sector jobs, as well as operating a private tax practice. No records are kept of his time spent working for the sanitary district.

The three audits issued today are the first of five special tax districts to be audited by the Comptroller's Office. The reports focus on Town of Hempstead Sanitary District No. 1 and sanitary districts in Syosset and Port Washington. The review of Port Washington found generally good financial practices and modest expenses, in contrast to the other two, particularly SD-1, where serious examples of overspending and lapses of management control were found.

"Considering that these districts have been operating for decades with virtually no oversight, we expected that in some cases we might find poor business practices," Comptroller Weitzman said. "But in two of the districts, and particularly in Hempstead's first sanitation district, what we found was worse than we feared.

"We know that some homeowners in Nassau pay two to three times as much as others for garbage collection," he said. "Now we know why - those who overpay for these services, often by hundreds of dollars per year, are paying to support wasteful spending that may include bloated payrolls, top-heavy management structures, non-competitive contracts, and in the case of District 1, lavish meals and business trips."

"A number of the preliminary audit findings of SD-1 raise the possibility of fraud, as they meet criteria specified in the New York State Comptroller's 2005 report, 'Red Flags for Fraud,'" Comptroller Weitzman said. Copies of the Comptroller's letter to District Chairman Jack Rose outlining the abuses have been sent to the Nassau County District Attorney and the New York State Comptroller, so they may take any further investigative actions they deem appropriate.

Describing them as "a hidden government that drains taxpayers' wallets," Comptroller Weitzman originally announced his intention to begin auditing some of the county's more than 400 special taxing districts in February 2005. The first group to be audited comprises five sanitary districts - districts Nos. 1, 2 and 6 in the Town of Hempstead, and districts in Syosset and Port Washington. The Comptroller plans to release reports on districts 2 and 6 within the next few weeks.

Town of Hempstead Sanitary District 1

"Town of Hempstead Sanitation District No. 1 is, to put it bluntly, totally out of control," Comptroller Weitzman said. "Not coincidently, it also had the highest costs to the taxpayers of the three districts studied."

"After three frustrating months, during which district managers restricted access to documents and personnel, the audit of District 1 was halted due to an unprecedented lack of cooperation. Nevertheless, we were able to make preliminary audit findings that raise serious concerns about the district's administration and operations," Comptroller Weitzman said. A letter detailing the preliminary audit findings were sent today to the chairman of the sanitary district's Board of Commissioners.

Sanitary District 1, with a budget of more than $14 million a year and 129 full and part-time employees, provides service to 16,514 residential and commercial properties. The preliminary audit for the district covers the years 2003 and 2004.

"Our analysis of the district, found excessive and unexplained payments to commissioners and top staff, poor timekeeping, as well as a lack of written contracts, financial policies, or even a list of retired employees receiving health insurance benefits from the district.

"One of the more outrageous cases involves a top official, Sal Evola, who holds the title of district treasurer, ostensibly a 20-hour-a-week position. A review of New York State pension records found that Mr. Evola holds three additional public sector jobs and reported to the state a total of 733 days worked in 2004.

"Remarkably, he also finds time to conduct a private tax consulting business," Comptroller Weitzman added. SD-1 keeps no records of Mr. Evola's time spent working there.

The report also found:

• Extravagant spending on travel and meals. Over the two-year period examined, the district spent a total of $14,610 to send four district managers to a waste conference in New Orleans and three managers to a similar conference in Dallas, "an amount that appears to be unreasonable for government officials exercising official duties." At these conferences, the managers treated themselves to exorbitant dinners. A steak dinner for four at Morton's Steakhouse in New Orleans cost $676; other dinners on the same trip cost $446 and $379. During the two trips, the employees also racked up $536 in limousine charges and $710 in lounge/bar charges. Also, the district spent $4,300 to provide coffee service in its administrative offices as well as $2,300 on catering for board meetings. The district has no written policy on travel or meals.

• Inadequate timekeeping. The district requires no timesheets to be filled out by any of its employees. Instead, the timekeeping process consists of a supervisor checking off employee names on a list when he sees them arrive at work. The auditors observed limited attendance by several highly compensated employees during the three months when Comptroller's staff were on site. In addition, the hours that sanitation workers are required to work are not clear.

• Excessive and unexplained payments. Compensation for commissioners in SD-1 (and other districts with budgets exceeding $800,000 per year) is limited by county law to $7,500 per year. Since commissioners are not regular employees, they do not ordinarily receive paid leave. Yet one SD-1 commissioner received an unexplained $5,000 payroll payment, which was coded as "sick pay." With this payment, the commissioner's total compensation for the year was brought to $4,000 more than the legal limit. Auditors who reviewed a pay period at random also found that that nearly 50 percent of all union members' base salaries exceeded the union pay scale.

• Controls over cash receipts were alarmingly absent, the Comptroller said. "District 1 receives nearly $900,000 a year in fees from contractors seeking to dump construction debris and yard waste. Only cash is accepted," he said. "When we compared 'tip-fee' receipts to cash register records, the books simply didn't add up.

• The lack of proper bookkeeping, and the concentration of such duties in the hands of one individual (the treasurer), with no oversight, represents an invitation to fraud," Comptroller Weitzman said.

Syosset Sanitary District

Unlike Sanitation District No. 1, Syosset contracts with a private hauler to provide refuse collection to its 762 residential and 108 commercial customers. The audit found that more than 25 percent of the district's annual budget ($383,000 in 2004) went to cover administrative expenses, over and above the cost of the private hauling contract. By contrast, such expenses in the Port Washington district, which also uses a private contractor, totaled only 2 percent of that district's budget.

"The $100,000-plus spent by the Syosset commissioners is equivalent to an extra tax of $115 per year on Syosset residents. Our audit shows that the money was used to compensate commissioners for meeting excessively, and to retain a second lawyer, reportedly to second-guess the decisions of their primary counsel" Comptroller Weitzman said.

In 2003 and 2004, the three Commissioners of the Syosset Sanitation District received combined total compensation of $44,640. In 2004 alone, the commissioners, who are paid per meeting, met 128 times, a minimum of 10 times per month. Most of the 128 "meetings" were described as off-site "compliance inspections."

Auditors also found the commissioners incurred legal fees of $67,243 and $55,113 in 2003 and 2004, respectively, representing a relatively high percentage of the district's annual budget. In addition to its law firm of record, Murphy, Bartol & O'Brian, the district also hired a second attorney as special counsel. Details of the second lawyer's work, examined by the auditors, indicate much of it was duplicative of items covered under the retainer agreement with Murphy, Bartol.

"The cost of garbage disposal per parcel in Syosset was surprisingly high, averaging $656 annually. Residents served by Syosset receive back-door pick-up, as do residents of Hempstead's SD-1. Although such service normally costs somewhat more than curb-side service, our auditors determined that residents of this district are paying substantially more than in other similar districts that also feature back-door service . We attribute the disparity to the excessive administrative expenses and the lack of real competitive bidding."

Port Washington Garbage District

In 2004, administrative costs accounted for less than 2 percent of the Port Washington Garbage District's total district expenses. The total cost to tax payers for garbage pickup and disposal was similarly low, averaging only $248 annually, the report found. The only areas of concern found by the auditors, said Comptroller Weitzman, were the lack of an established procurement policy for professional services (e.g. attorneys) and the absence of a written contract specifying the terms and scope of that work.

The preliminary audit of Sanitary District 1, and the reports of the Syosset and Port Washington Sanitary Districts may be read or downloaded by clicking on the approprite link below.