A Suffolk County committee is expected to vote Wednesday on requests to spend as much as $200,000 on forensic auditors and a law firm to probe an anonymous complaint made to Wall Street rating firms alleging county fiscal irregularities.
The three-member committee can authorize county agencies to bypass the request-for-proposal process and allow the immediate hiring of outside auditor StoneTurn Group and the law firm of Winston & Strawn, both of Manhattan, to undertake an independent audit process to review allegations.
The panel is made up of two county executive’s aides and the presiding officer’s top aide.
Despite the waiver, the comptroller interviewed five audit firms and the county attorney spoke to three law firms before making a selection. While both put a ceiling of $100,000 on the expense, Comptroller John Kennedy expects audit work to cost only $25,000.
The issue first surfaced in July when Standard & Poor’s as well as Moody’s Investor Service and Fitch Ratings received the anonymous letter, officials say. The letter was turned over to the county’s fiscal adviser, who gave it to Kennedy and County Executive Steve Bellone.
The letter, read to Newsday from a high-level county source, claims to come from whistleblowers, who detail no specific wrongdoing but claim various past and present county fiscal officials are “producing misleading financial records” and optimistic county fiscal projections are “sustained by institutionalized, systematic, and creatively planned accounting fraud.” It also claims spending has been understated, revenue overestimated and money “improperly” transferred from restricted funds.
While the letter had no specifics, Kennedy said Suffolk’s new outside auditor, Deloitte and Touche, which for the first time did the county’s year-end 2015 audit, “strongly recommended” a forensic investigation to assure the integrity of the county and the firm. Before this year, Suffolk officials had used Ernst & Young as their outside auditors for the last 15 years.
Kennedy said that the just-completed outside audit “discloses every wrinkle, wart and bump and put it on the table,” but despite the added cost, “We owe it to the public . . . to make sure we absolutely get a clean bill of health, and a USDA stamp of approval.”
“Since the letter makes no specific allegations, unfortunately there is no way to discredit or refute this anonymous complaint other than to act in the most transparent way possible,” said Deputy County Executive Jon Schneider. “We have elected to go through this process of doing a forensic audit with extra independent scrutiny to demonstrate we are a completely transparent county.”
The move for an outside review comes as County Executive Steve Bellone last week filed his proposed $2.96 billion 2017 budget, which calls for borrowing $60 million to pay retiring police for unused vacation and sick time and advances $88 million from the county sewer-stabilization fund to close an expected county budget deficit this year.
The decision also comes only a week after a Miami jury in a civil suit brought by the Securities and Exchange Commission found the city and its former budget director guilty of securities fraud. The SEC alleged budget director Michael Boudreaux “masterminded” a scheme to hide a city financial crisis in 2009 bond offerings by playing a “shell game” with various city accounts.
Concerns about the reliability of government financial data is crucial to Wall Street raters who assess the county’s capacity to repay borrowings, bond firms who sell county bonds and investors who buy them.
In 2005, auditor Andrew Miller was convicted of falsifying records to hide the theft of $11.2 million by top Roslyn school officials. His firm Miller, Lilly & Pearce, which had represented 50 school districts, went out of business, and he was jailed for four months and lost his state accounting license.