A new report on a fraud scam against the Nassau comptroller's office found controls were "not effective" in preventing a scheme in which $2.1 million in payments were approved for transfer to a fraudster's bank account.
Comptroller Jack Schnirman's office quickly accused the county inspector general's office, which published the audit, of conducting the review at the request of the Republican-controlled County Legislature.
The allegation by Schnirman, a Democrat, prompted a sharp exchange Wednesday between the county's two independent watchdog agencies.
In January, Schnirman's office disclosed that $710,000 in county funds had been paid to a fraudulent bank account. Comptroller officials said they later were able to recover the money.
The fraudster impersonated an employee of an actual county vendor, nearly matching the employee's email address, to request a change in the vendor's "banking information," a report by Inspector General Jodi Franzese said.
The report disclosed that Schnirman's office also approved the transfer of nearly $1.4 million more to the fake account. The funds never were transmitted because a bank froze the fraudulent account, Franzese said.
Comptroller spokesman Brett Spielberg questioned the "independence" of the inspector general.
"The largest question this report raises is the independence — or lack thereof — of the Inspector General, who released a benign report solely at the behest of the politicians in the majority of the Legislature who have warped a tool of reform into a political weapon that does nothing but waste tax dollars," Spielberg said.
In response, Franzese called her office "nonpolitical and impartial."
She said it was "deeply disappointing and unfortunate that the Comptroller’s Office, after receiving a very fair, balanced and impartial report, has chosen to make spurious accusations against our office; to address our report by impugning the very independence" of the inspector general.
"We acknowledge that the review might have placed the Comptroller’s Office, an office that conducts its own reviews and audits of other entities, in an unaccustomed and perhaps unsettling position," Franzese said. "It is nonetheless surprising that the Comptroller’s Office does not acknowledge that our review concerning safeguards of County funds was entirely appropriate and consistent with our statutory mission."
Franzese, hired by the legislature as Nassau's first inspector general after a series of county contracting scandals, said her office had been planning to review the matter before the legislature requested her review.
"This fraud, and the County’s preventive controls, fall squarely within our mandate and focus," she said. "Indeed the subject of our report was a fully legitimate and compelling topic for OIG oversight, and in the public interest."
Approving claims is a key function for the comptroller's office. The agency each year approves about $1.5 billion in payments to county vendors, according to Spielberg.
Franzese's 65-page report, dated Nov. 19, provided a detailed account of how the comptroller's office was duped and suggested anti-fraud controls to prevent future scams.
Franzese said a crucial step occurred when a bank detected fraud involving the impostor account, although the flagged activity was unrelated to county business. The bank froze the account, preventing the transfer of $1.384 million that the comptroller's office already had approved, Franzese said.
The report said "the vendor detected the fraud." It notes that a county public works employee emailed a representative of the vendor, to notify the company of the frozen account. The company representative said the account was not frozen, and later replied to county officials: "STOP all payments ... that is a fraudulent account."
Ultimately, Franzese found the scam "did not constitute a technological cyber-attack" on the county's information technology infrastructure.
Legislative Republicans in January held hearings into the theft and then asked Franzese to review the matter.