Audits: Long Beach Overpaid On Separation, Failed On Oversight

New York State Comptroller Thomas DiNapoli released two audits of the City of Long Beach today, one detailing the the city's financial condition and the other on the city's retirement payouts. Both audits found lapses in the city's fiscal management and questioned the practices the city used.

The audit of the separation payouts questioned more than a half million dollars that was paid to just 10 employees, as well as another $229,000 in "drawdown payments" the city made to eight employees.

The second audit faulted the City Council for the city's current financial state, citing lax oversight on the council's part and a failure of the City Manager to develop a fiscal plan for the city.

"Our auditors found severely lax oversight and excessively poor fiscal practices led to a rapid decline in the city’s fiscal condition," said Tania Lopez, spokeswoman for DiNapoli's office. "Auditors identified nearly $750,000 in questionable leave payments made to employees. It is time for city officials to work together and address the fiscal issues that could weigh down the city’s future for years to come. Our auditors offered several recommendations, including recovering any unlawful separation payments, and stand ready to provide additional technical assistance. Our office also continues to work with Nassau County District Attorney Madeline Singas in her investigation into these matters."

Separation Payments

According to the audit, the city's bargaining agreements state that employees will receive payouts equal to 30 percent of their accrued and unused sick and vacation time when leaving the city's employ. However, 10 employees — including former City Manager Jack Schnirman — received far more than that.

When he left the city to become Nassau County Comptroller, Schnirman was paid for all of his 878 accrued sick days, as well as 52.4 days of vacation time, when he was only entitled to be paid for 50. In total, the audit questions $52,780 of Schnirman's payout — nearly half of his $108,022 total. Schirman has since returned the money in question.

The audit claims that the city overpaid 10 employees for more than 1,600 hours of accrued sick time that should not have been eligible for payouts. It did note, however, that there is no maximum amount of sick time that can be accrued, but payouts should be capped at 30 percent.

When asked why, the audit says that city employees claimed it was past practice to payout 100 percent of the sick time accrued, despite the contracts only specifying 30 percent. The 30 percent number was interpreted by city employees to be the minimum payout that would be given.

The audit also called into question drawdown payments the city authorized. A drawdown is when an employee is paid for a portion of their accrued time. But the auditors said they could not find any official record of the practice being allowed, but were told by city officials that it was a long-standing practice.

The auditors said that, during the one-year period they were looking at, the city paid $229,494 in drawdowns to eight employees. The audit questioned nearly the entire amount of the drawdowns.

The audit also took the city to task for more than two decades of inaction. Two previous audits (one in 1992 and another in 1996) identified payment practices the city was making that was inconsistent with the city charter.

"Although the City did amend City Code sections addressing personnel code in 1997 in an apparent attempt to address our concerns, similar conditions continue to exist more than 25 years after the first report," the audit reads, "with City officials still saying they paid employees for leave based on long-standing policy instead of adhering to the City Code."

In the city's official response to the audit, it laid most of the blame for overpayments at the feet of the city manager, whom they say should have only approved payouts of 30 percent, as per contracts.

"In the matter at hand, nearly all exempt employees would financially benefit at some time by adherence to the alleged 'past practice,' the city wrote. "This apparent conflict of interest or at least appearance of impropriety raises the question whether the argument asserting the existence of a suspect past practice taken together with the failure to extinguish such a claim was motivated by personal interest."

The city also said that, once Nassau County District Attorney Madeline Singas finishes her investigation into the payouts, it would likely try to recoup the money from past employees.

"The Council intends to continue its investigation into the overpayment of terminal leave to exempt, CSEA and PBA employees and will evaluate whether to seek recoupment of the payments that were made in direct contradiction to the respective Collective Bargaining Agreements, City Charter, and City Personnel Code," the city council wrote.

Financial Condition

The audit of the city's overall financial condition found a severe lack of oversight on the part of the city council, leading to the city having a general fund balance of $9.9 million on July 1, 2014 to $3.2 million on June 30, 2018 — a 68 percent decrease.

The audit also found that the city would often fund recurring payments — such as separation payouts — with bonds, increasing the city's debt service to 12.27 percent of its 2017-18 revenue.

A continuous decline in fund balance, as well as using debt to pay for recurrent expenditures, are signs of a "deteriorating fiscal condition," the audit reads.

The audit also takes the City Council to task, claiming that council members do not have a working knowledge of the city's finances and do not provide proper oversight. The city's charter states that the comptroller has to provide monthly statements on the city's finances to the council, yet council members told the auditors that they never receive those statements. They said the only financial statements they see are the proposed budget.

"While the Council has overall responsibility for the City’s operations, the former Council President dismissed this responsibility, saying that the Council is strictly a policy-making body and has nothing to do with day-to-day operations," the audit reads. "At least three of the five Council members did not know the City had experienced operating deficits for five years straight until they demanded the City’s financial advisor prepare a report analyzing the budget."

By failing to provide proper oversight of the budget, the audit claims, the City Council cannot properly address shortfalls or overspending, and it has less way of knowing if the budgets the city manager proposes are fiscally sound.

The auditors also faulted the city manager for not preparing a multi-year financial plan. This plan, the auditors say, would have helped the city address shortfalls in its budget and take better steps to get control of its finances.

"Because the City Manager did not prepare a multiyear financial plan, including a fiscal improvement plan, there is no assurance that the City’s financial condition will improve," the audit reads.

In response to these claims, the city said that it disagrees with the auditors finds about the council's oversight role, stating that the city charter specifically delegates responsibilities like that to the city manager.

"The City Charter imbues all administrative authority in the City Administration — specifically in the hands of the unelected, and appointed City Manager," the city wrote. Because of this "lopsided authority," the council wrote that it would "consider" studying reforms to the city charter to improve the city's checks and balances.

You can read the comptroller's audits — which include the city council's response — for yourself. Click here for the financial condition audit and click here for the separation payment audit.