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Archive for the ‘Auditor’ Category

Notable Quotables (In their own words)

Posted in Auditor, Contract, Contracts, Governor's Office, Notable Quotables, Retirement on March 30, 2012| 1 Comment »

“The former notion that pension benefits were a voluntary gift from the employer (and thus subject to revision or termination at the employer’s sole discretion) has since yielded to an understanding that pension benefits comprise an essential component of public employee compensation and that public employees have a significant contractual interest in these benefits.”

–Legal analysis of pending retirement bills by the Dallas law firm Strasburger & Price commissioned by the Legislative Auditor’s office, citing a Louisiana court case (Bowen v. Board of Trustees Police Pension fund) which contradicts the philosophy of the administration that it has carte blanche to trifle with state employee pensions without regard to the resultant devastation inflicted upon thousands of lives.

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Legislative Auditor commissions study of proposed retirement bills and the news is not good for Jindal

Posted in Auditor, Governor's Office, House, Senate, Legislature, Legislators, Retirement, Teague on March 30, 2012| 16 Comments »

A comprehensive legal analysis commissioned by Legislative Auditor Daryl Purpera concludes there is substantial legal precedent for successful litigation against the state should Gov. Bobby Jindal’s sweeping retirement bills be passed by the legislature and subsequently signed into law.

That, of course, raises yet another issue altogether: will Purpera be “Teagued” for having the audacity to order such a study that takes issue with the governor who has already demonstrated in no uncertain terms that dissent will not be tolerated.

Purpera works for the legislature, which would normally indicate that he is protected from the wrath of the governor but in light of Jindal’s curiously dominating stranglehold on a weak-willed, spineless and compliant legislature, who knows?

The report also said that any litigation “would likely ensue in state as opposed to federal court due to Eleventh Amendment restrictions upon suing states in federal court.” It did, however, note that exceptions to the Eleventh Amendment restrictions could allow plaintiffs to bring suit in federal court “under certain circumstances.”

The analysis was performed by the Strasburger & Price law firm of Dallas and which also has offices in Houston, San Antonio, Austin, New York and Washington, D.C.

It cites case law in no fewer than 18 other states where courts overturned legislative efforts to alter state retirement programs in mid-stream.

It also cited the Louisiana Constitution, which says, “Membership in any retirement system of the state or of a political subdivision thereof shall be a contractual relationship between employee and employers, and the state shall guarantee benefits payable to a member of a state retirement system or retiree or to his lawful beneficiary upon his death.”

It also said that Louisiana courts employ a four-part test in determining whether a contract violates the state and U.S. constitutional prohibitions on impairing the obligations of contracts:

• The reviewing court must determine whether the state law would, in fact, impair a contractual relationship;

• If the court finds impairment, it must determine whether the impairment is of constitutional dimensions;

• If the state regulation constitutes a substantial impairment, the court must determine whether a significant and legitimate public purpose justifies the regulation, and

• If a significant and legitimate public purpose exists, the court then determines whether the adjustment to the rights and responsibilities of the contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation’s adoption.

Courts, the report said, generally defer to the legislature when dealing with economic regulation between private parties but “such complete deference is not appropriate when the state is a party to a contract because its own self-interest is at stake” as is the case of contracts with state employees.

The U.S. Supreme Court ruled that the state “must overcome a significant burden to justify drastic changes in contractual pension benefits. Simple presumptions of reasonableness or necessity, which are at the core of legislative deference, cannot stand.”

It also has held that if contract rights are taken for some public benefit, “there must be just compensation.” That ruling would seem to apply to the bill to increase employee contributions by 3 percent, the proceeds of which would go into the general fund and not to help erase the pension’s unfunded accrued liability or to increase retirement benefits.

That same U.S. Supreme Court ruling said, “A state may not refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”

The 38-page report, released Wednesday by Purpera’s office, says the proposed legislation “poses issues under both the United States and Louisiana Constitutions” which protects public pension benefits from impairment caused by diminished benefits, from depriving employees of property rights without due process, from the divesting of public employee benefits without just compensation and against public officials for enforcing unconstitutional laws.

It also said the state “must overcome a significant burden to justify drastic changes in contractual pension benefits. Simple presumptions of reasonableness or necessity, which are at the core of legislative deference, cannot stand.

“The pending public pension bills are most vulnerable to both U.S. and Louisiana constitutional Contract Clause scrutiny, though the other potential challengers have significant merit, as well,” the report’s executive summary said.

HB 56 and SB 52, which would increase employee contributions by 3 percent, “face an initial potential state constitutional challenge as tax bills,” the report said, in that the State Constitution prohibits the legislature from enacting tax bills during a regular session convened in even-numbered years. “These bills seeking to increase employee contribution rates may be characterized as ‘tax’ bills—a ‘tax’ being defined as a monetary charge imposed by government on persons and others to yield public revenue.

“If the state deposits funds from increased employee contributions into the state general fund, a stronger argument exists that they yield public revenue and thus that the legislation constitutes a ‘tax’ bill prohibited in the 2012 session (and) may also violate IRS rules for qualified benefit plans,” the report said. “Any legislative attempt to increase employee contribution rates faces almost certain litigation and a reasonable likelihood of being held unconstitutional.”

While the Strasburger paper did not say so, the imposition of the additional 3 percent contribution as a condition of continued employment doesn’t seem too far removed from the nasty words kickback and extortion: “I’ll pay you X dollars, but you gotta give back Y dollars to go into the company bank account, or we’ll just hire someone else.”

“As currently drafted, each bill, except the one merging two pension systems (The Louisiana Teachers Retirement System, LTRS, and the Louisiana School Employees’ Retirement System, LSERS), retroactively impairs or diminishes accrued pension benefits contrary to the guarantees” contained in the U.S. Constitution.

The bills addressed by the Strasburger study include those which would:

• Increase the minimum retirement age;

• Increase employee contributions;

• Iincrease the number of years used to calculate final employee average compensation, and,

• Merge the two independent public retirement systems.

The executive summary said challenges would most likely allege violations under Article X, Paragraph 29 of the Louisiana Constitution which protects public pension benefits, the Contract Clause within both the Louisiana and U.S. Constitutions (which prohibits contract impairment due to diminished benefits), the Taking Clause of both the state and U.S. constitutions (prohibiting the reduction of public employee benefits without just compensation), and the Due Process clauses of both documents for depriving employees of property rights without due process.

The report said that while the bills proposing to merge LTRS and LSERS appear benign on the surface in that they seek “only a merger of administrative functions,” they also “contain a directive to study a future merger of plan assets, suggesting the legislature’s intent to merge the funding aspects of the two systems in the not too distant future.

“Any such merger attempt could, in contrast, raise the likelihood of being challenged as unconstitutional,” it said. “This would have a negative effect on the actuarial soundness of the disparately-funded system,” which, it said, is constitutionally “guaranteed.”

Specifically cited in the report were, other than in Louisiana, cases in Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Illinois, Kansas, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, Pennsylvania, Rhode Island, Tennessee, Washington and West Virginia. In each state, courts overturned attempts to alter state employee retirement benefits, deeming them to be contracts that could not legally or constitutionally be impaired.

“Therefore, we conclude that House Bills 53, 55 and 56 and Senate Bills 51, 52, 42 and 47, in their current form, face a likelihood of being challenged in the courts,” the executive summary said.

“If such challenges occur, we think it more likely than not that a court will rule each then-adopted bill as unconstitutional to the degree such bills affect the accrued benefits of current members and retirees.”

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Vendetta or legitimate investigation? Legislative Auditor spends a dime to recover a nickel from LDWF employee

Posted in Auditor, Governor's Office on January 12, 2012| Leave a Comment »

BATON ROUGE (CNS)—Did the Legislative Auditor’s office allow itself to be used to build a case against an employee of the Louisiana Department of Wildlife and Fisheries (LDWF) as part of a political vendetta?

If not, investigators certainly went to great lengths to build a case against Wayne Sweeney, manager of the White Lake Wetlands Conservation Area.

An investigation by the auditor’s office indicates that Sweeney was paid $505, excluding benefits, for hours he did not work and that he used a state vehicle to run personal errands.

The audit report, however, has all the overtones of a personal dispute between Sweeney and his supervisor, LDWF Biologist Director Osborne Baker.

And the case could also be made that the state spent considerably more on its investigation of Sweeney than the amount for which he is accused of being overpaid.

In his cover letter, Legislative Auditor Daryl Pupera said the audit was conducted “to determine the credibility of certain allegations regarding the management of White Lake Wetlands Conservation area.

“Our audit consisted primarily of inquiries and the examination of selected financial records and other documentation. The scope of our audit was significantly less than that required by Governmental Auditing Standards,” he added.

The audit noted that on Friday, Aug. 19, 2011, Sweeney submitted his time sheet for the two weeks ended Aug. 21. State work weeks run Monday through Sunday. Sweeney’s time sheet reflected that he worked 83.5 hours for the two week period. That included 80 regular hours and 3.5 hours of compensatory time.

However, from Aug. 15 to Aug. 18, the audit said, “we monitored Mr. Sweeney’s daily activities and found he worked 22.5 of the 32.5 hours he recorded on his time sheet for these days.” Accordingly, Sweeney should not have claimed nor been paid for the additional 10 hours and was not entitled to 3.5 hours of compensatory time. Sweeney is an unclassified employee earning a salary of $105,040 per year. That computes to an hourly rate of $50.50 per hour.

“By claiming hours for which he did not work, Mr. Sweeney may have violated state law,” the audit said.

LDWF provides Sweeney with a 2005 Toyota Sequoia and a Fueltrac card with which to purchase fuel. He was allowed to keep the vehicle at his home when it is not in use for state business. The audit report says that Sweeney used the vehicle to run personal errands for the four days he was observed by auditors.

Sweeney, who lives in Lake Charles, was allowed to maintain an office in Lake Charles in order that he would not have to make the 138-mile round trip to and from the White Lake property in Vermilion Parish.

Because of this, Baker said that even though he suspected that Sweeney was not working 40-hour weeks, he still approved his time sheets because he did not have the resources to verify his hours.

Around Aug. 15, when surveillance was first begun, Sweeney commented to a neighbor that he believed he was being followed. The neighbor, Scott Baily, an investigator for the attorney general’s office confirmed that he observed a vehicle in a nearby parking lot that appeared to be surveilling someone.

By assigning an auditor to follow Sweeney around for four eight-hour days and then compiling the written audit report, it would appear that the amount spent on the investigation more than doubled the $505 for which the report said he was not entitled.

Gov. Bobby Jindal, by contrast, took numerous out-of-state trips during 2011 to promote his book and to attend fund-raisers for himself and others, all while continuing to draw his salary.

Legislators do not generally convene on Fridays, Saturdays and Sundays during legislative sessions even though they are paid per diem for those days.

All of which begs the question of whether the audit report was requested as a means of building a case against Sweeney.

White Lake was owned and managed by British Petroleum America Production (BP) until July 8, 2002, when the property was donated to the State of Louisiana. On that same date, the state entered into a cooperative endeavor agreement with White Lake Preservation, Inc., a 501(c) 3 corporation, for management of the property.

Sweeney, as an employee of BP since 1980, was manager of White Lake and his employment was transferred to White Lake Preservation, Inc., once the cooperative endeavor agreement was executed.

On Jan. 1, 2005, Act 613 of the 2004 regular legislative session became effective whereby management of White Lake was transferred from White Lake Preservation, Inc., to LDWF, effective July 1, 2005.

At that time, Sweeney became an employee of LDWF.

Baker told auditors he attempted to move Sweeney’s office from Lake Charles, take away Sweeney’s vehicle and to restructure the management of White Lake. He said his efforts, if successful, would have resulted in better management of White Lake by Sweeney and would allowed Baker to better supervise Sweeney.

Baker and LDWF Assistant Secretary Jimmy Anthony each said that LDWF management initially support Baker’s plan but subsequently denied the plan after Sweeney spoke to LDWF Secretary Robert Barham who allowed him to keep his Lake Charles office and his vehicle.

Barham confirmed the conversation with Sweeney, according to the audit report. He said he made his decision after being told moving Sweeney to White Lake could result in the loss of some of the White Lake corporate hunters.

Sweeney subsequently reimbursed the state the $505 but his attorney, Thomas Lorenzi of Lake Charles, said he did so while not admitting to not performing work for the pay received. Moreover, Sweeney has been reassigned to the White Lake office and is no longer allowed home storage of his state vehicle.

In a five-page response, Lorenzi noted that Sweeney emailed documents to his home in July of last year so that he could review them that night at his home. Lorenzi provided copies of emails to substantiate his claim.

On Aug. 15, one of the days auditors observed Sweeney, Lorenzi said that Sweeney had two telephone conversations with whooping crane biologist Tandy Perkins. These conversations occurred at 8:34 p.m. and 8:40 p.m. but were not recorded on Sweeney’s time sheet. Lorenzi also cited several occasions in which Sweeney performed work for his office outside normal work hours.

One of William Shakespeare’s plays was entitled Much Ado About Nothing.

That somehow seems an appropriate way to describe Mr. Sweeney’s case.

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State audit shoots down OGB privatization but this time administration unable to prevent its release à la Chaffe

Posted in Auditor, Governor's Office, OGB, Office of Group Benefits, Privatization on August 30, 2011| Leave a Comment »

BATON ROUGE (CNS)—A state audit of the Office of Group Benefits (OGB) released Monday by the Legislative Auditor’s Office would appear to validate fears expressed by opponents of privatization of the agency.

The 22-page audit report represents a substantial setback to the administration’s plan to sell off the agency and its $500 million surplus even though it’s not likely to change its position on selling off OGB, state prisons and Medicaid operations.

Among the findings of the audit:

• A private company may incur marketing costs that are higher than OGB;

• As a state agency, OGB is exempt from paying premium taxes while other (private) health insurance companies are required to pay premium taxes according to R.S. 22:838(B);

• OGB does not have a profit motivation because it is a state agency whose goals are to provide a service and pay claims. A private company will most likely build a profit margin into the premium structure;

• If the contractor assumes all risk (fully insured), the contractor will most likely purchase reinsurance. Currently, OGB does not have reinsurance. These cost considerations are dependent on the premium and/or benefit structure restrictions that are placed on the contract;

• If the state sells the business, the incurred liabilities, up to the date of the sale, must be paid by either the state or the new owner. If the state remains responsible for the incurred liabilities, there should be a provision in the contract to address payment of these liabilities. If not, there would be no revenue stream after the sale to pay the outstanding claims;

• The sale of the business would diminish the legislative and/or state administrative control over cost, benefits, or changes to the plans;

• Cost savings may result from the efficiencies gained by using an established health care provider with well-structured administrative processes. The contract would be the vehicle for establishing cost parameters.

The audit also mentioned the administration’s contract with Chaffe and Associates to establish the fair market value of the operations of OGB as of Jan. 31, 2011, apparently so that Gov. Jindal could include the proposed sale of the agency in his Executive Budget.

“According to the 2012 OGB Executive Budget initially submitted, OGB estimated a savings of $10,155,906 resulting from personnel reductions of 149 positions,” the audit report said. “It was explained to us that the reduction would be result of the PPO (Preferred Provider Organization) being privatized. Those positions were restored in the budget process.”

The audit also mentioned the administration’s contract with Chaffe and Associates to establish the fair market value of the operations of OGB as of Jan. 31, 2011, apparently so that Gov. Jindal could include the proposed sale of the agency in his Executive Budget. That information, however, was not included in the Executive Budget, leading many to believe the report did not contain information the administration desired.

Fueling that speculation was the reluctance of the administration to release the Chaffe report, even in a faceoff between Commissioner of Administration Paul Rainwater, Assistant Commissioner Mark Brady and the legislature.

A report was eventually leaked to the media but that only prompted more skepticism because Rainwater on May 31 and Division of Administration (DOA) attorney Paul Holmes four days earlier, on May 27, each indicated the Chaffe report was received by DOA on May 25 but could not be release because it was still in the “deliberative process.”

Chaffe officials, however, did not sign off on the report’s signature page until June 3. Moreover, none of the leaked report’s pages were date stamped even though all documents received by DOA are routinely date stamped.

There was speculation that there may have been two reports—one that said the only advantage to selling OGB would be if the buyer retained the agency’s $500 million surplus (a clause that at least one person who saw the report prior to its being leaked said it contained) and the leaked report which did not contain such language.

Moreover, the report said, the Chaffe report, which was performed under a $49,999.99 contract—one cent below the amount requiring statutory review—placed a value of $217 million on OGB, assuming a five-year privatization term.

The report, however, failed to take several considerations into account, according to the audit report. “The valuation range:

• does not assume any increased costs as a result of the Patient Protection and Affordable Care Act;

• does not consider the impact, if any, of increased premium costs incurred by the state as a result of the privatization;

• does not consider the value of the existing fund balance, which was $499.2 million as of the valuation date of Jan. 31, 2011.

In effect, the audit report indicated the $49,999.99 paid Chaffe was money wasted.

The audit report did not address the discrepancies mentioned above nor did it attempt to reconcile the significant difference in bids on two separate but virtually identical requests for proposals (RFPs) issued by DOA.

The first RFP was issued on Feb. 4 that called for the services of a financial advisor to determine OGB’s assets and determine a fair market value and to actively recruit bidders to purchase the agency.

Prior to the date of that RFP, as early as October of 2010, Goldman Sachs was brought in to help draft the RFP. Goldman Sachs subsequently was the lone bidder on that RFP with a bid of $6 million. Negotiations broke down over Goldman Sachs’s insistence on the state’s indemnifying the Wall Street banking firm in any ensuing litigation.

A second RFP was then issued on May 6 and three firms submitted bids. They were Goldman Sachs, Barclays Capital and Morgan Keegan. On July 15, Rainwater announced that Morgan Keegan had been chosen for the contract on the basis of its bid of $900,000–$5.1 million lower than Goldman Sachs’s bid on the first RFP.

In the interim between the issuance of the first RFP and the acceptance of Morgan Keegan as the contractor on the second RFP, OGB lost two directors.

On April 15, Tommy Teague, who had taken the agency from a $60 million deficit to the $500 million surplus in a period of only six years, was terminated by Rainwater, who never gave any reason for Teague’s firing.

Teague was replaced on that same day by Scott Kipper, who was brought over from the Louisiana Department of Insurance. Kipper resigned on June 24, just over two months after his appointment.

The audit report says any plan to sale OGB must be approved by the Legislature under the provisions of R.S. 49:968(C). “Any substantial changes to the function and role of OGB in regard to the administration and management of group insurance policies would require legislative action to amend applicable substantive laws addressing the resulting reorganization of the Executive Branch,” the report said. “This reorganization is, by Constitution, with the exclusive authority of the Legislature.”

State Sen. Butch Gautreaux (D-Morgan City) said he had not fully reviewed the audit “but it appears that the auditor agrees that there are a lot of unanswered questions and that the buyer would have to agree to keeping the plan pretty much as it is. I seriously doubt that a for-profit (company) would agree to those terms,” he added.

Rainwater, in his response to the audit, fell back on the same argument the administration has used throughout the debate: the number of employees at OGB–309–which he insists is excessive.

He also denied that the wholesale privatization of OGB is under consideration. even though he expressly listed that as an option in testimony earlier that that was indeed an option, even going so far as to say in April that that the OGB surplus would be “an attractive selling point” because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims initially.

Rainwater noted that the report said state auditors were unable to identify any states that had “fully” privatized their state employee health insurance agencies. “Given that this administration itself has never proposed the complete privatization of OGB, the relevance of this research point is not exactly clear,” Rainwater said.

In April, however, he expressly listed that as an option in testimony before the Senate Insurance Committee that full privatization was indeed an option, even going so far as to say that that the OGB surplus would be “an attractive selling point” because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims initially.

Rainwater took the same stance with auditors’ observation that the “wholesale privatization” of OGB would require approval by the full Legislature. “I wonder, again, about the practical usefulness of the point since it is based on a premise—the ‘full’ or ‘wholesale’ privatization of OGB—that is not even under consideration.

In his testimony before the Senate Insurance Committee, however, he said, “We’re taking OGB out of the day-to-day business of running an insurance company.”

He downplayed speculation in the audit that privatization might result in higher insurance premiums, saying such speculation cannot be supported based on the research contained in the report.

Despite a record of fast turnaround of claims payments, Rainwater said, “The possibility of providing quality service in a manner that’s also more efficient is precisely why we have begun this evaluation of OGB, and we owe it to the taxpayers to evaluate it fully.”

Even though he has stated publicly that OGB was being taken “out of the day-to-day business of running an insurance company,” he said in his letter, “OGB’s administrative oversight will continue, securing the continued success of all the plans.”

Administrative oversight has already resulted in DOA’s approval in May of this year of a $7 million amendment to the $68 million paid F.A. Richard and Associates (FARA) by the state a year ago to take over the operations of another state agency, the Office of Risk Management. A week after that contract was amended, FARA was sold to an Ohio company.

So much for administrative oversight.

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Most ethical governor accepts $11,000 from non-profit in apparent violation of federal campaign laws

Posted in Auditor, Campaign Contributions, Ethics, Governor's Office, Politicians, Transparency on May 12, 2011| 3 Comments »

Federal law prohibits tax-exempt organizations from donating money to a political campaign or endorsing a candidate verbally or in writing.

So how is it that Gov. Bobby Jindal’s campaign accepted contributions totaling $11,000 from the medical trust fund of the Louisiana Horsemen’s Benevolent and Protective Association (LHBPA), whose former top two officers are currently under a 29-count federal indictment?

The association, created by the Louisiana Legislature in 1993, is considered as a non-profit, public body that receives funding from proceeds derived from slot machines at racing facilities, pari-mutuel horse racing, off-track wagering, and video draw poker.

The funds are used to negotiate contracts for horsemen relative to purses, hospitalization, medical benefits, and other matters of concern to horse trainers, jockeys, and owners.

The association is charged with bookkeeping at Louisiana’s four racetracks and pays out purses, retaining 6 percent of the cut, or about $5 million per year, for pension, workers’ compensation, and medical funds. Following Hurricane Katrina, LHBPA also contributed money to horse owners and trainers to help them to deal with losses and medical costs.

A state audit by the Legislative Auditor’s office was released earlier this week that revealed that LHBPA improperly raided more than $1 million from its medical trust account while funneling money into political lobbying and travel to the Cayman Islands, Aruba, Costa Rica, and Los Cabos, Mexico.

The audit report said the association may have violated state law by borrowing from its medical trust while spending $760,000 on political lobbying and $11,000 in contributions to the Jindal campaign fund.

LHBPA also set up its own workers’ compensation insurance firm and domiciled it in the Cayman Islands.

The questionable expenditures surfaced because of internal fights, led by members Stanley Seelig and Arthur Morrell. Seelig is president of the association’s board of directors and Morrell, a state representative for 23 years and father of current State Sen. J.P. Morrell, is first vice-president.

Both men fought the practices of former board president Sean Alfortish and former executive director Mona Romero. Both Alfortish and Romero have 29-count indictments pending against them in connection with alleged attempts to rig elections to the board. Their trial has been scheduled for Sept. 6.

Alfortish, an attorney who was paid $116,000 per year to serve as director of the association’s workers’ compensation and simulcasting operations, and Romero both refused to meeting with state auditors who said LHBPA also paid nearly $347,000 from its medical and pension trust funds to three law firms without a contract “or evidence of work performed.”

A spokesman for Jindal’s campaign headquarters, when asked why the governor would accept contributions from a non-profit against federal prohibitions of such practices, professed to know nothing about the $11,000 contribution but promised to look into the matter and get back to us.

That was on Monday.

We’re still waiting for the phone to ring.

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