State Department and Agency and Local Government and School District Audits released by New York State Comptroller Thomas P. DiNapoli

State Department and Agency Audits

On January 8, 2024, New York State Comptroller Thomas P. DiNapoli announced the following State Department and Agency audits were issued.

Click on the text highlighted in color to access both the summary and the complete audit report

 

Homes and Community Renewal – Division of Housing and Community Renewal – Physical and Financial Conditions at Selected Mitchell-Lama Developments Located Outside New York City (2022-S-46)
The Mitchell-Lama Housing program (Program) was created to provide affordable rental and cooperative housing to middle-income families. In exchange for low-interest mortgage loans and real property tax exemptions, the Program required limitations on profit, income limits for tenants, and supervision by the Division of Housing and Community Renewal (DHCR). From a sample of five developments, auditors found that DHCR was not adequately overseeing financial and physical conditions. Management at all five sampled developments misspent funds, and management at two of the sampled developments failed to provide a safe and clean living environment for their residents, where auditors observed hazardous conditions.

 

Department of Financial Services – Virtual Currency Licensing (2022-S-18)
The Department of Financial Services (DFS) oversees the activities of nearly 3,000 financial institutions, including 21 virtual currency licensees with assets totaling more than $175 billion. Auditors found limited assurance that DFS is adequately performing its oversight responsibilities related to the application for and supervision of virtual currency licenses in the state, creating the risk that licenses could be granted to applicants whose financial stability has not been thoroughly verified, or that, once licensed, businesses may not maintain financial or cybersecurity standards. Not all license applicants completed a fingerprinting process that DFS uses to assess backgrounds of major shareholder and officers prior to application approval; DFS could not support its verification of applicants’ tax obligations; licensees were not always in compliance with cybersecurity regulations; and DFS did not always ensure that licensees submitted all required financial reports used to assess the safety and soundness of their business operations.

 

Hudson River–Black River Regulating District – Security Over Critical Systems (2023-S-24)
The Hudson River–Black River Regulating District’s (District) mission is to construct, maintain, and operate reservoirs in the upper Hudson River and Black River watershed for the purpose of regulating the flow of streams or rivers when required by public welfare. The District must adhere to the Office of Information Technology Services’ policies, which include applying the correct security controls for information used by the District, monitoring systems, and managing the risks of security exposure or compromise; as well as the Data Security Standards (DSS) established by the Payment Card Industry (PCI) Security Standards Council, which address security measures associated with credit card data. Auditors found that, overall, the District has demonstrated effort and timeliness in addressing security issues as they arise and that the District has generally taken appropriate steps to secure processes and systems used to accept credit card payments but identified that documentation of certain policies and procedures could be improved to better meet PCI DSS requirements.

 

Department of Health – Patient Safety Center Activities and Handling of Revenues (Follow-Up) (2023-F-16)
The Patient Safety Center (PSC) was established within the Department of Health (DOH) for the purpose of maximizing patient safety, reducing medical errors, and improving overall quality of health care. Penalties can be imposed against facilities and individuals in violation of the Public Health Law, a portion of which is deposited into a special revenue PSC account. A prior audit, issued in March 2021, found a lack of formal guidance governing certain enforcement and record-keeping practices as well as a need for improved oversight of PSC revenues and related activities to ensure that the PSC account is receiving all revenue due. The follow-up found DOH implemented all four of the initial recommendations.

 

Department of Civil Service – New York State Health Insurance Program – Payments by Beacon Health Options for Mental Health and Substance Abuse Services for Ineligible Members (Follow-Up) (2023-F-30)
The Department of Civil Service (Civil Service) administers the New York State Health Insurance Program (NYSHIP) and contracts with Carelon Behavioral Health (Carelon), formerly Beacon Health Options, to administer the mental health and substance use (MHSU) program for the Empire Plan, NYSHIP’s primary health insurance plan. Civil Service is responsible for maintaining the New York Benefits and Accountability System (NYBEAS), the system of record for member enrollment and eligibility information. A prior audit, issued in May 2022, identified $3.21 million in overpayments for MHSU services, which resulted primarily from retroactive disenrollments (disenrollments entered into NYBEAS after the date the change in eligibility had taken effect). The follow-up found Carelon had recovered nearly $726,000 of the $3.21 million in overpaid claims identified, and Civil Service and Carelon implemented quarterly reconciliations of eligibility information between NYBEAS and Carelon’s system to help ensure claims are paid only for eligible members. Of the initial report’s four audit recommendations, three were implemented and one was partially implemented.

 

Department of Health – Medicaid Program: Improper Payments for Services Related to Ordering, Prescribing, Referring, or Attending Providers No Longer Participating in the Medicaid Program (Follow-Up) (2023-F-24)
Beginning January 1, 2014, New York’s Medicaid program required that physicians and other health care professionals who order, prescribe, refer, or attend (OPRA) Medicaid services be appropriately screened and enrolled in Medicaid and have an “active” provider status. A prior audit, issued in April 2022, found that the Department of Health’s (DOH) eMedNY claims processing system edits designed to prevent payments for services with an inactive OPRA provider were flawed, and Medicaid made $965 million in payments for 2.3 million OPRA services by physicians and professionals who were no longer actively enrolled in Medicaid on the service date. The follow-up found DOH recovered less than 1% of the $965 million and DOH had not enhanced eMedNY controls to more promptly identify OPRA providers not actively enrolled in Medicaid and deny the related claims. Of the initial report’s six audit recommendations, one was implemented and five were not implemented.

 

Local Government and School District Audits

On January 8, 2024, New York State Comptroller Thomas P. DiNapoli announced the following Local Government and School District audits were issued.

Click on the text highlighted in color to access both the summary and the complete audit report

Cicero Fire District – Financial Condition (Onondaga County) 

The board did not ensure that financial reports it received were timely, accurate, and contained the necessary information it needed to properly monitor the district’s financial condition and fund balance. The board did not: pay the recommended 2022 contribution of $121,981 into the district’s length of service award program; effectively monitor available fund balance, resulting in the unrestricted fund balance deficit increasing to as much as $54,423 during the audit period; or effectively monitor budget-to-actual results as officials spent $300,884 more than budgeted over the last three completed fiscal years. The board also did not develop long-term financial and capital plans or a fund balance policy or obtain an independent audit of the district’s 2021 and 2022 financial statements, as required. 

 

Greenville Fire District – Investment Program (Orange County)

District officials developed a comprehensive investment program but did not effectively manage the program. During the 17-month audit period, the district earned $539 from money on deposit in the district’s checking and money market accounts, which had average available funds for investing of $845,365. Had officials considered other legally permissible investment options, the district may have earned an additional $38,700 more than earned. Officials did not: develop investment procedures to convey management’s expectations for managing the district’s investment program, solicit interest rate quotes; or consider other legally permissible investment options. 

 

Oneida County – Court and Trust

The county commissioner of finance generally established adequate procedures, maintained appropriate records and properly reported court and trust funds. The records maintained by the county clerk and surrogate’s court were up to date and complete and we noted no material discrepancies.   

 

Woodbourne Fire District – Board Oversight (Sullivan County)

The board did not provide adequate oversight of the district’s financial operations. The board did not: ensure the treasurer/secretary maintained basic accounting records and reports or provide regular financial reports to the board; perform a thorough audit of all claims prior to payment; adopt realistic budgets or maintain reasonable levels of fund balance as the district’s Dec. 31, 2022 fund balance was enough to fund nearly two and a half years of expenditures; develop and adopt policies and procedures for the district’s financial operations, including controls for wire transfers, online banking, investments, procurement, travel and conferences, fund balance, reserves, credit card use and capital assets; or transparently set aside funds for future building and equipment needs.

 

Chautauqua County – Financial Condition

The North Chautauqua County Water District (district) board, county legislature and other county officials did not adopt realistic budgets, routinely monitor the district’s financial operations or take appropriate actions to maintain the district’s fiscal stability. Auditors found county officials: overestimated revenues by a total of $1.6 million, an average of $410,000 or 29% each year, from 2019 through 2022; did not enforce collection of water usage billed to Chadwick Bay Intermunicipal Water Works (CBI), resulting in a balance owed of $1.4 million; spent $5.2 million from the general fund for district operations and did not repay the general fund, as required, because the district did not have sufficient funds; and did not thoroughly review budget-to-actual reports and did not prepare cash flow analyses. In addition, the district had a growing negative cash balance totaling over $5 million as of Dec. 31, 2022, was experiencing, on average, $150,000 operating deficits each year, and owed the general fund $5.2 million, plus related interest. 

 

Hamilton Fulton Montgomery Board of Cooperative Educational Services (BOCES) – Investment Program

BOCES officials did not develop and manage a comprehensive investment program. During the 12-month audit period, BOCES held $7.4 million in money market accounts and earned interest totaling $105,000, while also holding $4.6 million in non-interest-bearing accounts. Had officials considered other investment options, BOCES may have earned $448,000 in investment income. Auditors found officials did not: adopt a comprehensive investment policy as required by state law; solicit interest rate quotes or invest available funds in financial institutions that offered a competitive yield; or prepare monthly cash flow forecasts to monitor and estimate funds available for investment. 

 

Saranac Central School District – Investment Program (Clinton County)

District officials did not develop and manage a comprehensive investment program. During the 22-month audit period, the district had an average of $12.4 million in operating and debt service funds available for investing and earned $154,099 in investment earnings. Had officials utilized their investment accounts more effectively, the district may have earned $356,452 in investment earnings during the audit period. Officials did not solicit interest rate quotes or prepare monthly cash flow forecasts to estimate funds available for investment. 

 

Saranac Central School District – Student State Aid (Clinton County)

District officials did not properly claim state aid for special education students who received services in 10-month public and summer placements. As a result, as of April 30, 2023, the district will not benefit from $28,832 in state aid that was not claimed. The district had not claimed an additional $224,976 in aid, of which $195,844 would have already been received if claimed in a timely manner. Officials also claimed and received $57,650 in aid to which the district was not entitled. District officials did not establish adequate procedures to ensure state aid was properly claimed for all eligible special education students or provide oversight of the officials who prepared and submitted state aid claims. 

 

Saranac Central School District – Tuition Billing and Collections (Clinton County)

District officials did not properly bill and collect tuition for nonresident foster care students enrolled in the district. As of March 27, 2023, the district had not collected $59,336 of tuition billed and did not bill $4,345 for tuition due. As a result, the district had not been paid $63,681 of the $107,167 in tuition owed to the district during the 2019-20 through 2021-22 school years. District officials did not establish adequate procedures or provide sufficient oversight to ensure tuition bills were prepared and issued to the school districts of origin in a timely manner for all nonresident foster care students enrolled at the district or maintain a receivable control account in the district’s accounting records to ensure that tuition billed had been paid. 

 

Town of Sheridan – Disbursements (Chautauqua County)

Claims and payroll-related disbursements were not always adequately supported, properly approved or for town purposes. Of the 755 claims totaling $1.2 million auditors reviewed, 225 totaling $590,622 lacked supporting documentation indicating that they were received and for appropriate town purposes; 234 claims totaling $313,112 were not audited or approved by the board; 194 totaling $531,960 lacked supporting documentation and were not audited or approved by the board, and 50 totaling $27,124 were not for a town purpose. In addition, the highway superintendent and a highway employee were paid $12,858 more than the board authorized, and the town clerk was paid an additional $12,775 to perform some of the town supervisor’s financial duties and act as a bookkeeper, which is an incompatible position or duty. Lastly, ten individuals were paid $372,636 to exclusively conduct non-town work related to an intermunicipal agreement, and the former town supervisor was paid $22,500 to supervise these individuals doing the work, all without board approval. 

 

Town of Sheridan – Shared Services Costs (Chautauqua County)

The town was not reimbursed equitably for shared service costs related to an intermunicipal agreement (IMA) that created the Chadwick Bay Intermunicipal Water Works (CBI). Because the board did not monitor the IMA’s operations and labor costs, town taxpayers paid $125,736 to provide services to customers in three other towns and a village. Officials also did not collect about $21,000 from the CBI for town office space the group uses. In addition, the board and former town supervisor donated 6.2 acres of town land to Chautauqua County (county) without conducting a cost-benefit analysis or evaluating whether the conveyance was in the taxpayers’ best financial interest. Although the county installed a water storage tank on the land and installed water lines, there is no existing water district or documented plans to establish a water district near these improvements; therefore, it provides no benefit to town taxpayers. 

 

Village of Wappingers Falls – Board Oversight (Dutchess County)

The board did not provide adequate oversight over financial operations and capital projects. As a result, the board did not have sufficient information to oversee financial operations and capital projects. Auditors found the board did not: ensure it received adequate monthly financial reports or review bank reconciliations; ensure bond anticipation note proceeds were properly used; ensure the village’s Annual Financial Report was properly filed, as required; annually audit the treasurer’s records, as required; adopt a multiyear capital plan; maintain capital project records, including written contractual agreements; or develop mitigating controls for the lack of segregation of financial duties.

 

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Former employee alleges he was terminated from his position in retaliation for his filing a complaint with the Equal Employment Opportunity Commission

A federal district court granted the Federal Aviation Administration's [Defendant] motion for summary judgment dismissing a former employee's [Petitioner] claim that he suffered retaliation within the meaning of Title VII* after he filed a complaint with the Equal Employment Opportunity Commission.** Petitioner, contending the district court failed to properly consider his evidence and improperly credited evidence submitted by Defendant, appealed the district court's ruling.

The Second Circuit Court of Appeals said that in considering Petitioner’s Title VII retaliation claim, it employ the three-step burden-shifting framework set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, explaining that to establish a prima facie case of retaliation the petitioner must demonstrate that:

(1) petitioner engaged in a protected activity;

(2) petitioner's exercise of that right was known to the defendant; and

(3) petitioner showed that there was a causal connection between the protected activity and the adverse employment action suffered.

If the petitioner makes out this prima facie case, the burden then shifts to the defendant to articulate a “legitimate, non-retaliatory reason” for the challenged action. If the defendant satisfies this burden, the petitioner must then present enough evidence so that a jury could find that the reasons offered were a pretext for retaliation and “that retaliation was a ‘but-for’ cause of the adverse action” –  i.e., “that the adverse action would not haveoccurred in the absence of the retaliatory motive".

The Circuit Court agreed with district court's finding [1] that the Defendant  met the step-two burden and [2] that the Petitioner failed to carry his burden at step three of the McDonnell Douglas framework. In addition, the court noted "there can be no doubt that Defendant identified 'legitimate, non-retaliatory reason[s]' for its issuance of a Notice of Proposed Removal following an investigation into [the Petitioner’s] workplace conduct***."

Accordingly, the Circuit Court affirmed the district court’s granting summary judgment in favor of the Defendant.

* Civil Rights Act of 1964, 42 U.S.C. §2000e, et seq.

** The district court also granted summary judgment as to Petitioner’s free-standing constructive-discharge claim. Petitioner did not appeal this aspect of the district court’s judgment.

 *** Defendant submitted documentary evidence of incidents of Petitioner's workplace misconduct including Petitioner's (1) making unauthorized recordings of various work-related meetings; (2) connecting an unauthorized recording device to his government-issued computer; and (3) exhibiting a lack of candor when Plaintiff was questioned about this conduct.

Click HERE to access the Circuit Court of Appeals' decision posted on the Internet.

 

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Appealing the implementation and enforcement of New York City’s COVID-19 Vaccine Mandate

Named plaintiffs and other current and former employees [collectively Plaintiffs] of the New York City Department of Education [DOE] appealed a judgment of a federal district court dismissing their 42 U.S.C. §1983 claims filed against the DOE, Plaintiffs’ unions, and various individuals, challenging the implementation and enforcement of New York City’s COVID-19 Vaccine Mandate.* 

In August 2021, the Commissioner of the New York City Department of Health and Mental Hygiene issued an order requiring all DOE employees to show proof of vaccination against COVID-19 by September 27, 2021. In response, the unions sought to negotiate the terms of the Vaccine Mandate to limit its impact on their members.

Those negotiations were unsuccessful and DOE and two of the unions – the United Federation of Teachers and the Council of Supervisors and Administrators – agreed to enter into binding arbitration to resolve the issues. The Arbitrator, Martin Scheinman, issued two "largely identical arbitration awards". The remaining union – District Council 37 – reached an agreement with the DOE in early October that mirrored Scheinman’s previous arbitration awards. Thus, all Plaintiffs “were subject to similar terms regarding the Vaccine Mandate procedures.”

Plaintiffs, contending that DOE suspended and terminated their employment “without due process,” appealed the federal district court's decision dismissing their 42 U.S.C. §1983 claims. Citing Ashcroft v. Iqbal, 556 U.S. 662, the Circuit Court sustained the district court's decision, noting "the repetition of a legal conclusion does not state a claim" as "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.”

In addition, Plaintiffs had asked the Circuit Court to grant them leave to amend their complaint. The district court had  denied their request for leave to file a second amended complaint. The Circuit Court said "Plaintiffs present no argument at all as to why that decision [by the district court] was wrong". Instead, opined the Circuit Court, Plaintiffs’ request merely “indicate[s] a desire to amend” while failing “to make a showing that the complaint’s defects can be cured.” The Circuit Court denied the Plaintiffs' request.

The Circuit Court decision opines that "Plaintiffs clearly disagree with their unions’ decisions to arbitrate the implementation of the Vaccine Mandate," a decision they insist exceeded the authority of the unions and DOE under state law. But, observed the Circuit Court, "that it is not enough to establish a federal procedural due process violation. Because plaintiffs have presented no facts that would call into question the adequacy of the pre- and post-deprivation process afforded them, their federal due process claims – including their derivative conspiracy claims and class claims – must be dismissed."

As to any "state-law claims" raised by Plaintiffs, the Circuit Court of Appeals, Second Circuit, declined to exercise supplemental jurisdiction over those claims and dismiss them without prejudice.

* Specifically, Plaintiffs argue that the federal district court erred by dismissing their claims against the defendants for violating their Due Process rights by adopting procedures for enforcing the Vaccine Mandate that resulted in the suspension and termination of DOE employees who refused to be vaccinated.

Click HERE to access the Second Circuit's decision posted on the Internet.