Long Beach officials may be liable for improper payouts

City Council issues new response to state draft audit

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The City Council voted 3-0 at a special meeting on Nov. 22 to issue a new response to a scathing state audit that identified excessive separation overpayments to a number of employees, including some city officials who remained on the city’s payroll.

A preliminary draft audit issued in August by State Comptroller Tom DiNapoli’s office found that the city had overpaid 10 current and former employees more than $500,000 in separation payouts, including former City Manager Jack Schnirman, who is now the Nassau County comptroller, in the 2017-18 fiscal year.

It also noted that the city had failed to take corrective action in response to two prior audits in 1992 and 1996, which found questionable leave payments that were inconsistent with city code — 30 percent of unused sick days and 50 vacation days — or contracts. The state recommended that the city recoup any overpayments identified in its report.

The city issued a response in September, which stated, in part, that employees — including police, fire and Civil Service Employees Association workers — had received $3.1 million in questionable separation payments and “drawdowns” over the past decade, and that attempting to recoup such funds would present significant legal challenges, which city officials claimed DiNapoli’s office did not address in the audit.

Some council members have questioned payouts that were given to Schnirman, former Acting City Manager Rob Agostisi, and other employees shortly before and after the elections in November 2017, including a number of nonunion, or exempt, staff who remained on the payroll. Schnirman returned a $55,000 overpayment to the city in September after the draft audit determined he had been overpaid for his accrued sick time.

Months of wrangling

Last month's special meeting to issue a new response capped two months of wrangling between City Council Vice President John Bendo and Councilman Scott Mandel and the city’s administration over the initial response, with Bendo and Mandel citing a conflict of interest.

They said that an outside attorney, former federal prosecutor Anthony Capozzolo, who wrote the initial response, was retained more than a year ago at a rate of $450 per hour without their knowledge, and was working with some of the employees who received payouts who are now the subject of investigation. The council was expected to vote at Tuesday's meeting to terminate Capozzolo's services and hire new outside legal counsel. The city has denied any conflicts, and maintained that the response did not require council approval.

Bendo, Mandel and Council President Anissa Moore approved the new response at last month's meeting — after voting to rescind the city’s initial response in October — after they recently hired attorney John Gross, of the Hauppauge-based law firm Ingerman Smith, at a rate of $250 per hour to draft the new report.

“It identifies and addresses [Police Benevolent Association] overpayments, [Civil Service Employees Association] alleged overpayments, and exempt employee overpayments,” Gross said of the new report at the Nov. 22 meeting. “It also addresses recoupment as recommended by the comptroller. The City Council has a fiduciary responsibility to undertake that.”

Council members Anthony Eramo and Chumi Diamond did not attend last week’s meeting. Eramo did not return a call requesting comment.

The new response, which was due Nov. 22, stated that certain city officials could be held liable for authorizing improper payments that exceeded city code or contracts, which are now under investigation by Nassau County District Attorney Madeline Singas’s office and the U.S. attorney’s office for the Eastern District of New York.

“If it is determined that the city administration authorized payments and incurred obligations in violation of the provisions of the [City] Charter, and that any such payments and/or obligations were void and illegal . . . the council believes an independent investigation of the propriety of the decisions of certain city managers and acting city managers, and whether they should be held personally and individually liable to the city for any amounts paid, is warranted,” the new response stated.

It also criticized the response by Capozzolo, which claimed that the state comptroller’s office omitted numerous key points, including the practice of allowing employees to roll over vacation days into sick time under a 1997 personnel code. That report also identified a number of employees not included in the state audit who left the city’s employ and received payouts in excess of what was offered by an early-retirement incentive in 2012.

“The seeming basis for the payments to exceed certain caps goes back to 2012,” Gross said, “so the council will have to undertake a review going backward in time to see if those payments should form the basis of any attempt to recoup.”

Ignoring findings?

Some city officials, who declined to be identified, have criticized the new response for looking only at payments dating back to 2012 and ignoring the findings in Capozzolo’s report, saying that a small group of non-union employees were being singled out.

In an email to the council prior to the Nov. 22 special meeting, Acting City Manager John Mirando said that there were several inaccuracies and omissions — including the omission of millions of dollars in overpayments — in Gross’s response that could open the city to potential lawsuits. Mirando declined to comment.

The new response, however, criticized the contention in Capozzolo’s report that the payouts were based on past practices and a legal interpretation of the code.

“There is no evidence to support the city’s contention that a past practice exists with respect to accrued sick time payouts in direct contravention of the express language of the code and CSEA [collective bargaining agreement],” the new response states.

It also criticized the administration for saying that payout practices had been based on an early-retirement incentive in 2012 offered to both CSEA and exempt employees, in which the city had 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.”

“This assertion is severely misguided and demonstrably false,” the new report by Gross stated. “At no point in time was there ever any indication that 30 percent was the floor and not the cap.”

“Nearly all exempt employees would financially benefit at some time by adherence to the alleged ‘past practice,’” the report added. “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 council had said it would discuss hiring outside legal counsel and an independent auditing firm to determine next steps and review payouts that were made prior to the 2017-18 fiscal year at its Dec. 3 meeting. 

“The comptroller’s report urges the council to undertake ‘claw-back’ efforts to recover these overpayments,” the report said. “Once the council is able to secure the pertinent information necessary to support such an effort, it will undertake necessary steps to rectify the overpayments. Certain city officials may be personally liable for authorization of these improper payments.”