NY Tax Revenue Down / SUNY Research Foundation Employee Fired for Abuse

DiNapoli: State Tax Revenue Short of Targets

Tax revenue through the first six months of the state’s fiscal year was 0.2 percent lower than last year and $213 million short of projections, according to a mid-year state revenue analysis released today by State Comptroller Thomas P. DiNapoli. Collections would have to grow 6.4 percent for the remainder of the year to make up for the lower-than-expected revenue thus far.

“Tax collections continue to lag behind expectations. We are not seeing the level of growth in tax revenues that is needed to meet year-end projections even though targets were lowered,” DiNapoli said. “The economic recovery continues to be weak and financial risks remain. The state must proceed with caution and carefully monitor revenue and spending.”

All Funds tax collections of $31.6 billion through Sept. 30 were $213 million below Financial Plan projections revised downward in June and $436 million below initial projections from the Enacted Budget Financial Plan. Collections were 0.2 percent, or $72.1 million, lower than last year for the same period.

All Funds Miscellaneous receipts totaled $11.7 billion through September, which is $837.7 million higher than last year for the same period and $508.1 million higher than updated Financial Plan projections. This includes a $340 million civil-penalty settlement from Standard Chartered Bank.

The General Fund ended the first half of the year with a balance of $4.3 billion, or $184.3 million higher than projected in the Financial Plan updated in July.

Key findings in the Mid-Year revenue report include:

• Tax Revenues are not Meeting Projections. General Fund tax collections through Sept. 30 were $21.5 billion, or $116.4 million lower than projected in the First Quarter Update to the Enacted Budget Financial Plan and $315.4 million lower than initial projections from the Enacted Budget.
• Personal Income Tax (PIT) Collections are Slightly Below Plan. General Fund PIT collections were $13.9 billion through the month of September, a decline of 0.5 percent, or $64.5 million, from last year for the same period. This is $6 million less than projected, although collections in the month of September exceeded projections by $15.7 million. Withholding collections (the state’s largest single source of revenue outside of federal receipts) declined $31.4 million in the April-September period, or 0.2 percent, from the first half of last year. To meet current year-end projections, General Fund PIT will have to grow 9.6 percent and withholding will have to increase 5.7 percent in the second half of the fiscal year.
• Consumption Taxes Show Small Growth. General Fund Consumption taxes totaled $4.5 billion, an increase of 0.3 percent, or $14.3 million, from the same period last year. Collections through the first half of the fiscal year were $24.8 million above updated projections through Sept. 30, but $107.2 million below initial projections from the Enacted Budget Financial Plan. General Fund Sales tax collections increased $26 million, or 0.6 percent, from the first half of last year. To meet year-end projections, General Fund consumption and use tax collections will have to increase 2.8 percent and sales tax 2.7 percent in the remaining six months of the fiscal year.
• Business Taxes Up, but Below Plan. General Fund business tax collections increased 2.8 percent, or $67.4 million, over the first six months compared to last year for the same period, but were $106.7 million below estimates for the same period. Collections will have to increase 6.2 percent over the next six months to meet year-end projections.
• Risks. Volatile economic conditions and uncertainty in the financial sector threaten current revenue projections. The Financial Plan anticipates other revenues that may not materialize, including $250 million in health insurance plan privatization proceeds and $129 million from Native American casinos. The state also faces the potential loss of federal funds because of automatic sequestration under current law enacted by Congress in 2011. Unanticipated settlement revenue will offset some risk, but for the sixth consecutive year, the state is unlikely to reach the tax collection projections in the Enacted Budget Financial Plan.

DiNapoli also released the September Cash Report which found:

• The General Fund ended the month of September with a balance of $4.3 billion, $184.3 million higher than projected, primarily due to miscellaneous receipts, including the settlement from Standard Chartered Bank. General Fund disbursements were over projections by $152.5 million, primarily due to the timing of payments of General State Charges.
• All Funds receipts totaled $62.6 billion, a decline of $2.6 billion, or 4 percent, and $338.8 million above projections, primarily due to miscellaneous receipts, which were over Plan by $508.1 million. All Funds disbursements totaled $59.9 billion, which was $2.1 billion or 3.4 percent below the same period last year and $704.5 million below projections, primarily due to the timing of education and Medicaid payments

DiNapoli: Abuse Uncovered at SUNY Research Foundation

Audit Finds Conflicts of Interest, Overpayments, Improper Use of Credit Cards

A wide-ranging audit released today by State Comptroller Thomas P. DiNapoli uncovered numerous cases of abuse of taxpayer dollars at the SUNY Research Foundation over a number of years. Auditors found improper credit card use, conflicts of interest related to contracts and overpayment of a senior counsel, among other problems.

In light of the findings, DiNapoli announced a new audit of how the Research Foundation charges SUNY campuses for overhead costs, the financial impacts of those charges on the campuses and the administration of overhead dollars administered by the foundation.

“For too long, SUNY Research Foundation employees took advantage of lax oversight to cheat taxpayers, skirt state laws and violate the foundation’s own policies,” DiNapoli said. “The Research Foundation needs to vastly improve its internal controls, budgetary oversight, and ensure compliance with all relevant laws and policies. The foundation needs to recover all misspent funds immediately and fundamentally change how it operates.”

DiNapoli’s investigators and auditors found a senior SUNY Research Foundation official at Buffalo State College, Edgar H. Turkle III, used his foundation-provided credit card to personally enrich himself. A review of 424 of Turkle’s credit card transactions for the 48-month period November 2007 through November 2011 found 348 purchases totaling $130,887 that were not business-related. Turkle charged the Research Foundation $22,225 for Buffalo Sabres hockey tickets and other personal expenses such as a birthday party for his wife, an Apple computer, iPad and iPhones, chocolates, and groceries. He also traveled to foreign countries, primarily in Asia, in 29 out of the 48 months reviewed, incurring $125,342 in related costs paid through travel vouchers that had no trip itineraries or agendas.

Several of the problems cited took place with the knowledge and understanding of high level officials. Turkle’s travel vouchers were approved and processed by employees that Turkle supervised, and not by Turkle’s supervisor, while the provost at Buffalo State approved $50,000 in inappropriate extra service payments for Turkle.

Turkle has been terminated by the Research Foundation and the audit’s findings have been referred to law enforcement.

Auditors reviewed 13 central office contracts awarded on a sole or single source basis, finding 10 of the contracts, totaling almost $3 million, violated foundation policy.

One contract involved a potential conflict of interest. Michael Barone secured successive extensions of his existing consulting contract with the foundation, through Oct. 31, 2010, as the interim vice president of internal audit. Subsequently, Barone was awarded a new sole source contract with the Research Foundation that added staff from Barone’s company, Barone & Associates, to perform further audit services. In total, Barone and his company received $469,700 from December 2009 through May 2011.

Auditors also found:

The Research Foundation paid $913,500 on a single source contract with Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates to perform an investigation and legal analysis of the men’s basketball program at Binghamton University for the SUNY Board of Trustees. Auditors determined the contract was let and the work was performed before the justification for sole source was documented.

• Documentation justifying a sole source contract to O’Connell & Aronowitz for legal services for which the Research Foundation had paid $908,437 was not dated or signed.
• The Central Office entered into six sole source contracts with law firms totaling $348,916. Officials justified using a sole source because of the firms’ expertise in the given area of need and a request for proposal was not practical because of the sensitivity and urgency of the matters. However, there was no documentation to support this.

The Central Office compensated the former general counsel and secretary $345,034, plus a severance package, for less than a year of service. This person was the most highly compensated employee at the Research Foundation for fiscal year 2010-11. DiNapoli’s auditors calculated the total cost of hiring and employing this individual was $665,356 for an 11-month period. The general counsel also received a severance package totaling $308,546. This included a payment of $260,000 for one year’s salary, $30,000 in accrued vacation leave, and $18,546 in COBRA health insurance benefits through Dec. 31, 2011. It is unclear why the Research Foundation agreed to these payments and other benefits in the employment contract with this person.

In each of these instances, the foundation did not adhere to its policies, which are considerably less stringent than what state agencies and even the State University of New York itself are required to follow.

After conducting fieldwork, auditors also questioned the time and attendance of Research Foundation employee Susan Bruno. Auditors asked the State Attorney General’s Office to look into that matter separately.

Auditors also found:

• Three contracts totaling $95,574 at Buffalo State College were procured without required written or verbal bids. One of these procurements went to a professor who was awarded a $30,000 contract to work as a consultant on a project to improve the quality of service that the Research Foundation provides to its constituents. The other two contracts, which totaled $30,389 and $35,185, were to rebuild a piano and to pay for a research microscope system, respectively;
• The chancellor’s account was charged $27,968 for questionable items, including $13,172 for beverages (mostly alcohol) and $9,822 for the initiation fee and dues for the chancellor’s membership in a private club.
• In September 2010, a state retiree, who had returned to employment at SUNY Stony Brook, was hired by the Research Foundation and placed on the Research Foundation payroll when the retiree’s compensation on the Stony Brook payroll neared the $30,000 cap. It appears that the hiring by the Research Foundation was to enable the retiree to avoid the retirement and Social Security law limitations.

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