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Monday, October 6, 2014

NY State Comptroller DiNapoli Audits Past Roosevelt Island Operating Corp Discretionary Spending And Reports $83 Thousand In Questionable Spending - RIOC Says Spending Took Place More Than 2 Years Ago And New Administration Established Procedures To Prevent Waste, Fraud And Abuse

The NY State Comptroller's Office undertook an audit (Page 1):
To determine whether Roosevelt Island Operating Corporation’s discretionary spending complied with its guidelines and expenses were reasonable, adequately supported, and properly approved. Our audit covers from April 1, 2010 through December 31, 2012....
According to the Comptroller's Roosevelt Island Operating Corp (RIOC) discretionary spending audit released on October 3 (Page 1):
... During our audit period, we identified approximately $1.7 million of RIOC spending that was discretionary in nature. Each public authority should have formal policies and procedures specifying the types of discretionary costs that are appropriate and the dollar thresholds, supporting documentation, and formal approvals that are necessary to be accountable for such costs....
and (Pages 4-6):
...we examined 156 payments totaling $ 144,856 for the period April 1, 2010 through December 31, 2012.

We did not question 43 payments totaling $56,834. However, we questioned 98 payments totaling $83,419 because they were not properly approved, were not reasonable, and/or were not adequately documented or because no policy existed to determine the appropriateness of the expense. The remaining 15 payments totaling $4,603 raised other questions related to appropriateness, which are discussed in the section entitled Other Matters.

There were 21 payments where RIOC procedures were not followed:
  • 17 payments totaling $5,612 pertained to employee travel costs for which RIOC could not provide support demonstrating the benefit to the authority. For example, $2,634 related to three employees who attended a conference in the Netherlands where two of them made a presentation. However, RIOC officials could not support why the third employee went to the conference at a cost of $2,279. RIOC also paid $355 for the two employees who made the presentation and extended their stay beyond the conference dates. The two employees did not reimburse RIOC for these additional costs.
  • Four payments totaling $16,219 made to a vendor for public and media relations services were not properly procured through the competitive process. Instead, RIOC obtained these services by twice extending an existing emergency contract and then issuing a backdated contract to cover the services.
There were 77 payments not covered by RIOC’s procedures:
  • Six payments totaling $29,001 were for training costs. However, RIOC lacked a policy to clarify how it determines and documents what training is appropriate for its employees to fulfill its mission. For example, RIOC paid $14,560 for three sessions of “Customer Service” training and $12,000 for 11 sessions of “Horticulture” training. RIOC officials could not demonstrate how these training programs were appropriate or what procedures they used to select the vendors. RIOC also could not document why it paid to send an outside contractor’s employees to the Customer Service training. Finally, we found RIOC paid $3,175 for an employee to obtain a management certification that was required for a potential promotion. However, the employee did not attend the course. RIOC did not request a refund in a timely manner, waiting 667 days, and ultimately received only a partial refund of $734.
  • Three payments totaling $4,143 were for purchases of promotional items such as magnet squares, movie banners, and table throws. RIOC has no procedures related to promotional items, but RIOC officials asserted that these items fell within their General Development Plan (GDP). We found the GDP did provide for certain items, such as tee shirts given to event staff and teams, but there is no mention of the need for these other types of promotional items.
  • Sixty-four payments totaling $27,420 were for food. RIOC had no policy and procedures in place pertaining to discretionary costs for food. For example, seven payments totaling $15,216 were for retirement and holiday parties and staff appreciation luncheons. Generally, high-level employees initiated these food purchases, so that no approval was requested or required. There was no documentation to support that the meals were necessary or that costs were reasonable.
  • Four additional payments totaling $1,024 represented floral arrangements and food purchased for undocumented business meetings. These events were unrelated to RIOC’s primary purpose or mission.
We also identified 15 other payments totaling $4,603 that represent, at a minimum, questionable use of the Authority’s resources.
  • Nine payments were made by a few employees who used the corporate credit card on several occasions to pay for personal purchases from places such as Apple iTunes, Best Buy, and Enterprise, and for personal meals. RIOC’s credit card policy prohibits the use of the card for non-business purchases. A RIOC official stated that these transactions were incidental, were committed by mistake, and eventually repaid by the employees. However, the fact that some staff repeatedly did not follow the policy calls into question whether their acts were unintentional.
  • Three payments totaling $3,638 were for purchases of six high-definition televisions. Officials told us that they purchased these televisions for use in monitoring RIOC’s buses. However, RIOC was unable to locate two of the six televisions, and our auditors found three of the other four were being used for other purposes.
  • Three remaining payments totaling $262 represented gifts, one of which was for a Board member. RIOC officials could not explain why these purchases had been made using the corporate credit card except to say that former RIOC executives had requested them.

1. Exercise increased restraint over discretionary spending and discontinue any spending that is not consistent with RIOC’s primary purpose or mission.
2. Establish written policies and procedures for discretionary costs, including requirements for necessary justifications, cost thresholds, formal approvals, and supporting documentation.
3. Improve accountability for small equipment assets.
RIOC President Charlene Indelicato sent the following letter dated September 10 in reply to the Comptoller's Audit (Pages 10-11) .

Ms. Indelicato adds in a statement today:
The issues mentioned in the Comptroller's report were identified over 2 years ago by the State and as a result, the State and RIOC Board appointed new leadership to reorganize the Corporation and has since taken further internal controls to prevent waste, fraud and abuse. Furthermore, criminal charges and demand for repayment of misused funds were brought on those found to have consistently violated the process.
Click here for the full NY State Comptroller's Audit on RIOC's discretionary spending during 2010 -12 (discretionary spending audits of other NY State Agencies here) and here for NY Post story on subject.
The Comptroller's Report follows the August 2014 NY State Inspector General's report on corruption from 2007 to 2012 at the Roosevelt Island Operating Corp under prior RIOC administrations.