Selected reports issued by the Office of the State Comptroller during the week ending July 9, 2016
Source: Office of the State Comptroller
Executive Director of Baychester Youth Council indicted for allegedly stealing more than $100,000 from federal grant monies
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Executive Director of Baychester Youth Council indicted for allegedly stealing more than $100,000 from federal grant monies
N.B. An indictment is an accusatory instrument and not proof of a defendant's guilt.
Earnestine Russell has been charged with grand larceny. Bronx District Attorney Darcel D. Clark and New York State Comptroller Thomas P. DiNapoli announced that the longtime director of a Bronx youth group has been indicted on charges she stole $112,000 from a state-administered, federally funded grant provided to support after-school programs for middle school children.
District Attorney Clark said, "The defendant, Earnestine Russell, allegedly turned the Baychester Youth Council into a façade for her thievery, and enriched herself for years instead of enriching the lives of the children she purported to cherish."
State Comptroller DiNapoli said, "Earnestine Russell allegedly took public money intended to give children a safe and nurturing place to go after school and spent it on personal trips and electronic equipment for herself. After my office found her theft, we worked closely with Bronx County District Attorney Darcel D. Clark and her staff to make certain that Ms. Russell is held accountable."
District Attorney Clark said that Ms. Russell, 66, was indicted on second-degree grand larceny and second-degree criminal possession of stolen property. She was arraigned on July 6, 2016, before Bronx Supreme Court Justice Steven Barrett. Bail was set at $30,000 cash and an examination of surety. Ms. Russell is due back in court on August 9, 2016.
According to the investigation by the Bronx District Attorney's Office and the State Comptroller's Office, in 2008, Ms. Russell--who has run the Baychester Youth Council since the 1980s -- received a federal grant, administered by the New York State Education Department, for more than $2.7 million over five years to create a 21st Century Community Learning Center.
The State Comptroller's Office audited Ms. Russell in 2012 and found she used $250,400 for inappropriate or undocumented expenses-- including a home theater-- and the grant was revoked.
The Bronx DA's Office began investigating and found that Ms. Russell had moved the grant money through numerous bank accounts; made cash withdrawals; wrote checks to cash, herself or family; and made wire transfers from the accounts. When confronted with her gambling records, which showed betting of more than $150,000 during the fraud period of 2009-2011, Ms. Russell denied betting, then explained the figures also showed winnings she bet. Ms. Russell also told investigators that she could "make whatever use of [the money]" she saw fit.
The case is being prosecuted by Assistant District Attorneys Markus Sztejnberg of the Economic Crimes Bureau and Jeffrey Glucksman , Chief of Trial Bureau 70, under the supervision of William Zelenka, Chief of the Economic Crimes Bureau, and Jean T. Walsh, Chief of the Investigations Division.
District Attorney Clark thanked the State Comptroller's Division of Investigations and Bureau of State Expenditures, as well as New York State Police Investigators John Bode and Charles Sands and Senior Investigators Michael Vazquez, Michael Davis and John Vescio for their assistance in the investigation, and retired Assistant Bronx District Attorney Linda Tacoma for her diligent work on the case.
For a copy of the audit, go to http://osc.state.ny.us/audits/allaudits/bseaudits/bse2011-0021.htm
Since taking office in 2007, DiNapoli has committed to fighting public corruption and encourages the public to help fight fraud and abuse. Individuals can report allegations of fraud involving public funds by calling the toll-free Fraud Hotline at 1-888-672-4555, by transmitting an e-mail to investigations@osc.state.ny.us, by filing a complaint online athttp://osc.state.ny.us/investigations/complaintform2.htm or by mailing a complaint to Office of the State Comptroller, Division of Investigations, 14th Floor, 110 State St., Albany, NY 12236.
New York State Comptroller Thomas P. DiNapoli announced the following audits have been issued:
NYC Human Resources Administration (HRA) and the Office of Temporary and Disability Assistance (OTDA): Benefit Eligibility Assessment Process (2015-F-28)
An initial audit issued in May 2014 found that HRA applied a fair and consistent assessment process when determining client eligibility in compliance with governing policies and procedures. Auditors also determined that changes were necessary to reduce the number of overturned HRA determinations and costly, and in some cases unnecessary, OTDA Fair Hearings. Auditors also found that OTDA's closed-case coding system did not always adequately describe the case resolution. In a follow-up report, auditors found OTDA and HRA have made significant progress in addressing the issues identified in the initial report.
An initial audit issued in May 2014 found that HRA applied a fair and consistent assessment process when determining client eligibility in compliance with governing policies and procedures. Auditors also determined that changes were necessary to reduce the number of overturned HRA determinations and costly, and in some cases unnecessary, OTDA Fair Hearings. Auditors also found that OTDA's closed-case coding system did not always adequately describe the case resolution. In a follow-up report, auditors found OTDA and HRA have made significant progress in addressing the issues identified in the initial report.
New York Wine and Grape Foundation: Use of State Appropriations (2015-S-102)
The foundation has appropriately used its state money to fund allowable activities. The foundation has also exceeded its contractual commitment to leverage state money. Although it is only required to obtain outside funding equal to what the state provides, it has obtained nearly double that. The foundation has established effective internal controls over most of its financial operations. However, auditors found that certain revenue payments were being sent directly to an employee's home and not to the foundation's business office. Foundation officials immediately rectified the problem.
The foundation has appropriately used its state money to fund allowable activities. The foundation has also exceeded its contractual commitment to leverage state money. Although it is only required to obtain outside funding equal to what the state provides, it has obtained nearly double that. The foundation has established effective internal controls over most of its financial operations. However, auditors found that certain revenue payments were being sent directly to an employee's home and not to the foundation's business office. Foundation officials immediately rectified the problem.
Department of Health (DOH): Program Oversight and Monitoring of the Maximus Contract for the New York State of Health (Insurance Marketplace) Customer Service Center (2015-S-80)
DOH has an effective system to ensure that Maximus is complying with contract requirements and meeting performance standards. DOH can make improvements noted by actions already taken, such as requiring Maximus to provide a complete sample population for each business function the department reviews; and to increase staffing to complete more quality assurance reviews.
DOH has an effective system to ensure that Maximus is complying with contract requirements and meeting performance standards. DOH can make improvements noted by actions already taken, such as requiring Maximus to provide a complete sample population for each business function the department reviews; and to increase staffing to complete more quality assurance reviews.
Department of Economic Development (ESD): Review of Trivision Tek Group Inc. (2016-BSE01-01)
Auditors found ESD approved three vouchers totaling $350,000 payable to Trivision for services previously paid for and for services never performed. This includes $330,200 for consulting services Trivision performed as a subcontractor at DOH and $19,800 for project management services that were never performed. As a result of the examination, auditors rejected the final $211,109 payment request from Trivision to ESD. In addition, ESD recovered the $138,891 it paid under the grant.
Auditors found ESD approved three vouchers totaling $350,000 payable to Trivision for services previously paid for and for services never performed. This includes $330,200 for consulting services Trivision performed as a subcontractor at DOH and $19,800 for project management services that were never performed. As a result of the examination, auditors rejected the final $211,109 payment request from Trivision to ESD. In addition, ESD recovered the $138,891 it paid under the grant.
New York State Thruway Authority: Contract Participation of Disadvantaged Business Enterprises and Minority- and Women-Owned Business Enterprises (MWBE) (2014-S-76)
The Thruway has not accurately reported its MWBE utilization. For example, the authority consistently reports only a portion of its eligible contract expenses, thereby overstating its MWBE utilization rate. Further, the Thruway did not make adjustments for payments to MWBE prime contractors who, in turn, paid other MWBE contractors as subcontractors, resulting in a double-counting of payments.
The Thruway has not accurately reported its MWBE utilization. For example, the authority consistently reports only a portion of its eligible contract expenses, thereby overstating its MWBE utilization rate. Further, the Thruway did not make adjustments for payments to MWBE prime contractors who, in turn, paid other MWBE contractors as subcontractors, resulting in a double-counting of payments.
State falls short in verifying if companies qualify for tax breaks under Excelsior Program
Empire State Development Corp. (ESD), the entity in charge of doling out millions of dollars in tax credits to companies that pledge to expand in New York state, could not verify that many of the companies participating in the Excelsior Jobs Program met their obligations or even justify giving the businesses tax breaks in the first place, according to an auditreleased by State Comptroller Thomas P. DiNapoli.
DiNapoli’s auditors found a range of problems from lowering job creation goals after companies did not meet expectations to not verifying if jobs were full-time or part-time. ESD also could not produce evidence that several companies actually created jobs and did not simply shift jobs.
“New York state gives away millions of dollars each year in tax breaks for companies that are supposed to create jobs and expand under the Excelsior program, but ESD’s oversight leaves a lot to be desired,” DiNapoli said. “ESD needs to stop lowering the bar and giving companies a pass when they fall short of promises. ESD needs to ensure these businesses are not taking advantage of state taxpayers.”
The Excelsior Jobs Program, established in 2010, provides refundable tax credits to businesses in targeted industries in exchange for creating and maintaining specific numbers of new jobs or making significant capital investments. The program replaced the Empire Zone Program and was aimed at bringing greater accountability to the companies’ for their economic development commitments.
ESD requires companies to submit an annual performance report to account for their annual job creation and investment totals, as well as other supporting documentation such as tax reports and invoice receipts for qualified investments. Companies need to meet at least 75 percent of the agreed-upon commitments to receive any benefits.
According to ESD reports, 1,152 businesses applied to participate in the program from September 2010 through March 2015. Of these, the state accepted 328 businesses (29 percent), and committed over $548 million in tax credits to them in exchange for their commitment to invest nearly $5.8 billion and create 34,472 new jobs in New York.
Auditors examined 25 companies that, as of June 2015, were authorized to receive 39 tax credits totaling $4.84 million.
Specifically, DiNapoli’s auditors found ESD failed to exercise due diligence when approving any of the 25 sampled companies for participation in the program and does not follow its own protocol for scrutiny of applications. ESD did not provide auditors with documentation to verify that the 25 companies met all of the eligibility requirements before being officially admitted into the program and could not verify the companies met the agreed-upon job growth and investment benchmarks for five of the 39 (13 percent) tax credits totaling $214,000.
For 34 of the 39 issued tax credits totaling $4.6 million, ESD provided auditors with worksheets that staff used to compile data to support their tax credit calculations. However, although ESD steadfastly maintains it gave the auditors all the information it had, most of the files lacked the documentation to support that ESD had actually exercised due diligence and taken steps to verify the reported amounts.
For example, on 31 of the worksheets provided, ESD workers made notations indicating they had compared their data with information contained on corroborating state tax forms. Yet, those forms were present for only a very few companies. In one case where information was available, auditors found ESD used a higher wage amount than was actually paid according to the tax forms. This resulted in at least $187,062 in excess tax credits being authorized to this company for 2012.
In addition, 11 of the worksheets were for credits based on promised investments and each indicated that ESD staff had reviewed company invoices to support investments made. However, ESD provided auditors with complete corroborating support for only eight of the 39 tax credits, accounting for just $417,000 (less than 9 percent) of the $4.84 million.
For four of the 34 tax credits for which ESD provided supporting worksheets, auditors found that ESD adjusted the original annual job creation commitment numbers after the fact to align with the lower job creation totals that the companies had actually attained. As a result, the three companies involved received a total of $358,329 in tax credits to which they would otherwise not have been entitled.
For two of the revisions, ESD could not provide evidence from the company justifying the need for the revision – including one company whose 2012 job commitment was reduced from 600 to 363 for no apparent reason. Another company subsequently closed operations after being authorized to receive $556,446 in tax credits.
Auditors also found no evidence that ESD took steps to determine whether companies shifted employees from related companies and counted them as new jobs to the state.
DiNapoli’s auditors found that ESD does not require companies to provide evidence that new jobs met the 35-hour work week criterion, nor does it even collect this data. Instead, ESD accepts companies’ annual performance report certification that the reported employees worked at least 35 hours a week as sufficient validation.
DiNapoli’s auditors found that ESD does not require companies to provide evidence that new jobs met the 35-hour work week criterion, nor does it even collect this data. Instead, ESD accepts companies’ annual performance report certification that the reported employees worked at least 35 hours a week as sufficient validation.
Auditors visited four companies and reviewed various records. At one company, two of the seven new employees – the chief executive officer and the chief financial officer – did not work 35 hours per week in 2013 and 2014. At the second company, a range of 33 to 40 employees, whom the company listed as new hires, actually worked part-time in 2012 and 2013 and did not meet the 35-hour per week work criterion.
DiNapoli recommended ESD:
1. Obtain sufficient corroborating documentation to support that all program participants meet the eligibility requirements for job growth and investments before receiving tax credits;
2. Ensure that all tax credit calculations are correct before issuing any credits;
3. Limit modifications to annual job growth and investment requirements to only unforeseen justifiable circumstances;
3. Limit modifications to annual job growth and investment requirements to only unforeseen justifiable circumstances;
4. Ensure project files contain all required documentation to support that companies met eligibility requirements before being accepted into the program;
5. Establish and use specific, objective and quantifiable criteria for ranking program applications; and
5. Establish and use specific, objective and quantifiable criteria for ranking program applications; and
6. Increase program transparency by including complete and accurate information in quarterly reports.
DiNapoli’s auditors noted that ESD officials were not forthcoming in responding to requests for project files and for other information related to the sampled companies and the program in general.
ESD officials disagreed with the audit’s findings. Their full response is contained in the audit. DiNapoli’s auditors noted that ESD officials did not respond to some of the preliminary findings, addressing certain specific findings and ignoring others. ESD officials also avoided addressing the audit’s overall conclusions.
ESD officials disagreed with the audit’s findings. Their full response is contained in the audit. DiNapoli’s auditors noted that ESD officials did not respond to some of the preliminary findings, addressing certain specific findings and ignoring others. ESD officials also avoided addressing the audit’s overall conclusions.
DiNapoli has cited numerous concerns that ESD provides limited public reporting on the results of economic development programs and often cannot verify if programs are achieving desired results.
In May 2015, DiNapoli released an auditof ESD’s $211 million campaign to promote economic development and tourism in the state and found it delivered no tangible results. His office has also released a series of audits on the state’s minority- and women-owned business enterprises that found inaccurate and significantly inflated reporting.
Read the report Performance of the Excelsior Jobs Program, or go to: http://www.osc.state.ny.us/audits/allaudits/093016/15s15.pdf