Audit: $750K in questionable Long Beach payouts

State comptroller's office tells city to recover ‘unlawful’ payments

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The state audit identified nearly $750,000 in questionable leave payments to 18 employees that were inconsistent with city code or contracts, as well as payments for unused leave accruals for employees who remained employed by the city.
The state audit identified nearly $750,000 in questionable leave payments to 18 employees that were inconsistent with city code or contracts, as well as payments for unused leave accruals for employees who remained employed by the city.
Christina Daly/Herald

In a scathing final audit report, State Comptroller Tom DiNapoli’s office blasted Long Beach officials for their mismanagement of the city’s finances, which led to a fiscal crisis and a payout scandal that triggered two criminal investigations at the county and federal levels last year.

On Wednesday, DiNapoli’s office released its last two reports on the city’s “deteriorating” finances and separation payout practices for the 2017-18 fiscal year. The audits echo findings in a preliminary report issued by DiNapoli in August that was equally critical of city leadership under former City Manager Jack Schnirman, citing “lax oversight and excessively poor fiscal practices” that led to a rapid decline in the city’s financial condition. Auditors added that the city failed to take corrective action in response to two prior audits in 1992 and 1996.

In the latest audit, the state identified nearly $750,000 in questionable leave payments to 18 employees that were inconsistent with city code or contracts, as well as payments for unused leave accruals for employees who remained employed by the city. The state again recommended that the city recoup “unlawful” payouts that were inconsistent with the code or contracts.

“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,” Tania Lopez, a spokeswoman for DiNapoli, said in a statement. “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.”

Singas launched the criminal investigation into the city’s payout practices more than a year ago in conjunction with DiNapoli’s office after council members questioned whether separation payments to employees shortly before and after the elections in November 2017 had exceeded city code and contracts, including a number of exempt, or non-union employees, who remained on the payroll.

“We concur with Comptroller DiNapoli’s findings, and encourage the City of Long Beach to promptly adopt the recommendations in these and prior audits," Miriam Sholder, a spokeswoman for Singas, said in a statement. "Though our criminal investigation into separation payouts remains ongoing, it should not deter city officials from reading and following the city code, modifying it as needed to improve fiscal responsibility and accountability, and ensuring that those working in service to the people of the City of Long Beach are held to the high standards of competence and professionalism that the taxpayers deserve.”

State questions payouts

The state questioned the appropriateness of payments for vacation leave in excess of 50 days and sick leave in excess of 30 percent of the total days accrued at the time of separation from service that is stated in the city code.

Schnirman, for example, was overpaid by $52,000 when he received a $108,000 after he was elected county comptroller in 2017.

Schnirman — who returned the money in September and said he agreed with the state’s findings — was paid $73,113 for 100 percent of his 878 unused sick hours — more than the city code’s stated rate of 30 percent, which auditors calculated to be 263 sick hours totaling $21,934. Schnirman’s employment contract also specified that he should be paid 30 percent. Additionally, Schnirman received $34,910 for 419 unused vacation hours, more than the 50-day cap in the City Code. The final audit again questioned Schnirman’s payment.

“I now understand that the methods Long Beach has been using to calculate payout amounts for at least the last 25 years are different than the stricter formula originally set out in the City Code,” Schnirman said in September. “What the state comptroller’s draft audit tells us is that the City of Long Beach has paid many types of employees more than necessary for separation pay for at least 25 years, including myself.”

During the audit period, the state said that the city approved separation payments totaling $260,894 to seven exempt employees; $112,131, or 43 percent, of which of appeared “to exceed the amounts set forth in the city code and/or council-approved employment contracts for either accrued vacation leave or accrued sick leave.”

Among them were Schnirman, former Comptroller Kristie Hansen-Hightower and former Public Works Commissioner Jim LaCarrubba, who received a payout in 2017 after he was rehired as secretary to labor relations.

According to the audit, city officials said that leave payments were based on an early retirement incentive approved in 2012 that was given to both Civil Service Employees Association workers and exempt staff, in which city officials “interpreted the 30 percent sick leave entitlement in the city code to mean that exempt employees shall be entitled to no less than 30 percent of the total number of sick days accrued, multiplied by the rate of pay at the time of separation.” Additionally, corporation counsel staff “said that there was nothing restricting the city manager from providing exempt employees with more than the minimum entitlement set forth in the code.”

But the state criticized such explanations, saying that the council should have amended the City Code to specify the new terms for leave payments and questioned their appropriateness.

It was just one of several examples of separation payments that could not be supported by local policy or contracts, including $471,799 in separation payments to retiring police officers last year for all accrued vacation and compensatory time. The audit did not address payouts to CSEA members or career firefighters.

Auditors also questioned the appropriateness of nearly $225,000 in drawdowns of accumulated time to eight employees who remained on the payroll, including former Corporation Counsel Rob Agostisi, who was appointed acting city manager in January and resigned in September.

Agostisi, who worked for the city for 12 years, received a $128,000 payout in 2017 because he had intended to leave for another job, but he said he tried to return the payment when he decided to continue working for the city. According to the audit, Agostisi received $119,855, or 80 percent of his unused leave accruals, in November 2017, which the audit attributed to the terms of an agreement he reached with the city in exchange for delaying his proposed resignation. The remaining 20 percent would be paid when he left the city’s employment.

“It is unclear,” they wrote, “whether the city could enter into this agreement with corporation counsel to provide a ‘terminal payout’ that appears inconsistent with the City’s Code for exempt employees’ separation from service payments.”

Other payouts ignored?

Some city officials, who declined to be identified, criticized the state for ignoring findings in an initial response to the draft audit by the city in September, which determined that employees — including police, fire and CSEA workers — had received $3.1 million in questionable separation payments and “drawdowns” over the past decade, and claimed that recouping such funds would present significant legal challenges.

Additionally, the initial response contended that the state appeared to omit several additional non-union, or exempt, employees who received drawdown payouts, including Police Commissioner Mike Tangney, who received a $52,000 payment in 2017 but remained employed by the city.

"Payments to the police commissioner were not within our sample audit timeline but as we state in the audit, this has been an ongoing issue and has been the subject of several audits over the past couple of decades," Lopez said in an email. "As the audit recommends, the city should seek reimbursement for any money improperly paid."

The council voted to rescind that response in October after council members John Bendo and Scott Mandel cited a conflict of interest, saying that the city’s outside legal counsel who drafted the response, former federal prosecutor Anthony Capozzolo, had been hired without their knowledge and was working with some of the employees who received payouts who are now the subject of investigation or are considered witnesses in the case.

The council submitted a new response and voted to retain a new outside law firm last month to represent the city during the investigations and help recoup overpayments. Mandel and Bendo did not immediately respond to requests for comment.

"The city's official response is included in the audit," Lopez said. "There are a few notes from the auditors related to the city's response, but overall nothing that impacts the findings or recommendations included in the audit."