FINDINGS and RECOMMENDATIONS
Finding: The County Executive's penchant for government by committee created an environment whereby principal participants in the decision making process either shirked their governmental responsibilities or manipulated the decision making process in such a manner as to ultimately cause serious financial losses to Nassau County. Such a cavalier approach also may have left open the door to corruption, fraud or favoritism.
Recommendations: It is necessary and appropriate for someone in the position of the County Executive to delegate responsibility to others to investigate, analyze and make recommendations regarding policy options. However, that delegation should not absolve the County Executive of the responsibility to probe for the justifications behind the recommendations, including inquiries about the negative aspects of such recommendations, or from making inquiries as to why other options were not pursued. The County Executive should take more of an "hands-on" and active approach in exercising his administrative and executive responsibilities, particularly in matters involving enormous amounts of county funds.
Finding: The County Comptroller is charged with an independent audit function pursuant to Section 402 of the County Charter. That audit and review function was compromised by having Deputy Comptroller Anthony Palmieri serve on the County Executive's Insurance Committee which recommended the decision to enter into the contract with B.P.A. This problem was exacerbated by the fact that Dep. Comptroller Palmieri admittedly had no knowledge or expertise with regard to the subject matter about which the committee had to make a recommendation, and Mr. Palmieri was the member of the committee assigned to analyze and report on the B.P.A. proposal. Additionally, Mr. Palmieri was aware of the Ernst and Young Report, which had concluded that it was against the best interests of the County to transfer all active and retired employees from the Empire Plan into a self-insured program. Furthermore, although the Comptroller is a signatory to the contract between B.P.A. and the County, there was no indication that the Comptroller ever analyzed this contract before signing it, even though it was the largest personal services contract entered into by the County.
Recommendation: Neither the Comptroller nor any member of the Comptroller's Office should be a member of a committee established by the County Executive with the responsibility to make recommendations to the County Executive. The County Comptroller should be totally free to fulfill his responsibility to independently review and audit. This policy would not preclude the County Executive or other County Officials from consulting with the Comptroller in appropriate circumstances.
Finding: The County Attorney failed to fulfill his responsibilities with regard to the 1996 and 1997 agreements between the County and B.P.A. As chief legal officer of the County under the Nassau County charter, he cannot ignore appropriate legal standards and responsibilities and merely rubber stamp decisions made by other county officials, particularly when he has knowledge of factors that have vital bearing on those decisions. In 1996, Mr. Walsh failed to fulfill his responsibility with regard to the contract between B.P.A. and the County which provided for the compulsory removal of the medicare-eligible retirees from the Empire Plan into a self-insured program to be administered by B.P.A. Mr. Walsh knew there was a legal issue as to the ability of the County to remove the medicare-eligible retirees from the Empire Plan without proper notice and consent of those retirees. Instead of performing his duty as chief legal officer and conducting his own investigation and legal research, he chose to rely on a legal opinion drafted by B.P.A.'s counsel, who clearly had a self interest in the County's going forward with B.P.A. The County Attorney's reliance upon the purported legal opinion of B.P.A.'s counsel was an abdication of the fiduciary and legal obligations owed to Nassau County by the County Attorney.
In 1997, Mr. Walsh failed to inform the County Executive and the Rules Committee of the existence and contents of the Oxford and Vytra letters, each of which clearly stated that it would be in the best interests of the County to remain in the Empire Plan rather than to convert to a self-insured program. Mr. Walsh was further remiss and could provide no reasons or excuse for not bringing up the contents of those letters when the insurance committee, of which he was a member, was discussing and deciding to recommend the B.P.A. proposal.
Section 1102 of the County Charter requires the County Attorney to draw up all contracts. Amazingly, Mr. Walsh relied upon counsel for B.P.A. to draft the contract between B.P.A. and Nassau County in 1996 and 1997, rather than having his own office, or an appropriate County Department, or County consultant draft the contract. This failure of responsibility was all the more egregious in view of the fact that the contract as signed differed in several important respects from the R.F.P. and from the original proposal submitted by B.P.A. This failure of responsibility was exacerbated by the fact that this $100 million contract was assigned by Mr. Walsh for review to Deputy County Attorney Richard Leffer, who had played no role whatsoever in the negotiations and who had no knowledge of any of the particulars or of any of the safeguards necessary to protect the County. Furthermore, County Attorney Walsh admitted that he did not even have any conversations with Mr. Leffer about any aspects of the contract. Mr. Leffer testified that he spent a total of approximately an hour and a half reviewing this $100 million dollar contract.
Recommendation: All County contracts should be drafted by the County Attorney's Office, or an appropriate County agency, or by a consultant retained by the County and whose loyalty and responsibility flows solely to the County. County contracts should be reviewed for substance and legal consequences, and not merely approved as to form. It should be made clear to everyone serving in the position of County Attorney that he or she has a responsibility to inform the County Executive and other interested county officials and employees of any information he or she may possess or be aware of which may be relevant in the decision making process, particularly as to those matters which may have a negative impact on the County's best interests.
Finding: Chief Deputy County Executive Robert McDonald's conduct and actions were to put it mildly, inexplicable: his meetings with William "Mike" Blake and Alan Kaplan, President of Island Group Administrators including Mr. Kaplan's raising of the issue of the legality of compelling the exit of the Medicare-eligible retirees from the Empire Plan without appropriate notice and their consent; Mr. McDonald's subsequent meetings with Mr. Isernio; his entry into the 1996 agreement with B.P.A. while ignoring the legal issue pertaining to the removal of the medicare-eligible retirees from the Empire Plan without the required notification and consent; his attempt to evade the consequences of that ill advised course by actively pursuing, along with Mr. Blake and Mr. Isernio, the removal of all county employees and all retirees from the Empire Plan into the self-insured program to be administered, at considerable profit, by B.P.A.; his withholding and his active concealment from the County Executive, from the Rules Committee, and from the members of the "insurance" committee other than Mr. Walsh the fact that both Vytra and Oxford, in response to the R.F.P. had clearly and strongly stated in writing that it would be contrary to the best interests of the County to go forward with the transfer of all active and retired employees from the Empire Plan into a self-insured program; his withholding of information that Mr. Kaplan had similarly stated that it would not be in the best interests of Nassau County to exit all of its employees from the Empire Plan into a self-insured program; and his unconscionable withholding of the Vytra and Oxford letters from Deputy Comptroller Anthony Palmieri, who had been assigned the task of reporting to the "insurance" committee on the feasibility of B.P.A.'s proposal.
Certainly, one does not have to suffer from paranoia to wonder at Mr. McDonald's conduct and motivation in light of some additional facts such as the fact that William Blake first had an agreement with B.P.A. which, after the 1996 Agreement between B.P.A. and the County, paid Mr. Blake's son's agency at the rate of $50,000 a month, or $600,000 for the first year, and which increased, after the 1997 Agreement between B.P.A. and the County to a monthly consultation fee of $100,000 or $1,200,000 annually. Then, one must factor into this sordid sequence of events the additional facts that Mr. McDonald retired shortly after the 1997 Agreement between B.P.A. and the County was signed, and that Mr. McDonald attended some evening insurance courses and suddenly became an insurance "expert" consultant to the W.B.A. (William Blake's agency) and to be paid the amount of $12,500 monthly; Mr. McDonald actually received $112,500 dollars from the W.B.A. before the agreement was terminated.
Finding: The Rules Committee, under pressure from the County Executive's Office, and on the basis of inaccurate testimony and the withholding of important negative factors, acted hastily in approving the Agreement between the County and B.P.A. on September 8, 1997.
Recommendation: The Rules Committee of the Nassau County Legislature should amend its rules and/or procedures to prevent possible recurrence of "speedy" but perhaps unwise approvals of contracts, particularly major contracts such as the B.P.A. contracts. Appropriate time standards should be established so as to enable sufficient inquiries of all involved county agencies, as well as the County Executive, and to enable considered and informed judgment to flourish, with appropriate exceptions for truly emergency circumstances. There should also be a requirement that any subsequent substantive changes in an approved contract must be reviewed and approved by the Rules Committee before such changes can become effective.
Finding: A flawed process - Deputy County Executive, Robert Olden testified that he signed the 1997 contract between B.P.A. and the County on behalf of the County, although he had no knowledge whatsoever about the subject matter of the contract. Prior to signing, he merely examined the signature page to see if the Comptroller and the County Attorney had signed their approval of the contract. The inadequacies underlying their respective approvals have been presented above.
Recommendation: Each official who signs off on contracts entered into by the County should be knowledgeable about the subject matter of the contract and accept responsibility for the decision to sign based on that official's determination as to the best interests of the County.
Finding: It is unknown how much Mr. Isernio benefited financially after the 1996 and 1997 Agreements were signed. It should be noted that after Mr. Isernio had testified once before the Rules Committee and was recalled for further testimony, he refused to answer any further questions and pleaded his rights under the Fifth Amendment. Mr. McDonald also testified initially before the Rules Committee, but when recalled for further testimony, refused to answer any further questions and pleaded his rights under the Fifth Amendment. William Blake when questioned refused to answer any questions and pleaded his rights under the Fifth Amendment.
Recommendation: The United States Attorney's Office and the District Attorney's office of Nassau County have been investigating and reviewing the facts and circumstances pertaining to the 1996 and 1997 contracts between Nassau County and B.P.A. I would recommend that they continue their investigation with a view towards ascertaining whether or not criminal activity was engaged in by one or more of the participants responsible for the financial fiasco insofar as the taxpayers of Nassau County are concerned.