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June 11, 2009

 

DiNapoli: East Hampton Improperly Used Millions

Former Budget Director Arrested; Audit Contains Good News for Other Towns

The Town of East Hampton improperly advanced at least $8 million from its Community Preservation Fund (CPF) to finance government operations, according to an audit released today by State Comptroller Thomas P. DiNapoli at a Hauppauge press conference. East Hampton also transferred at least $1.5 million from the CPF to the town’s general fund as reimbursement for expenses allegedly incurred on behalf of the CPF. However, the town had no evidence that these expenses were CPF- related. Suffolk County District Attorney Thomas Spota is bringing charges against the town’s former budget director as a result of the audit.

“The CPF’s goal is to preserve open spaces and farmland in the five towns, a goal which includes purchasing open space and environmentally sensitive lands,” said DiNapoli. “The fund was never meant to be used to cover operating expenses that have little or nothing to do with this mission. District Attorney Spota used our audit to identify this improper use of public money, and his criminal investigation is a wake up call to local officials: Don’t break the rules.

“The CPF is for environmental protection, not to cover up a hole in a town’s budget. When it’s used right, the fund is a great tool for protecting the environment of Suffolk County’s East End.”

The audit covered the period of April 1999 to March 2008 for the towns of East Hampton, Riverhead, Shelter Island, Southampton and Southold. DiNapoli’s office conducted the audit at the request of State Senator Kenneth LaValle, and Assemblymen Marc Alessi and Fred Thiele.

“Despite the town attorney’s explicit warning that it would be illegal to use open space and farmland preservation money to pay town bills, the defendant schemed to conceal, for political reasons, a fiscal crisis in the town of East Hampton,” District Attorney Spota said. “Mr. Hults is charged with defrauding the government, falsifying business records, official misconduct and other charges and the investigation is ongoing.”

The audit also found the town of Southampton erroneously used CPF moneys to fund payments in lieu of taxes (PILOT) agreements. The town paid PILOTs totaling $107,650 to a fire district that did not meet the eligibility requirements in 2003 and 2004. The town of Shelter Island also needed to tighten controls over CPF transactions. However, financial controls in the towns of Riverhead and Southold are adequately designed and operating effectively, said DiNapoli.

Auditors also found the following:

  • as of June 2008, East Hampton had not posted approximately $4.8 million in CPF revenue, including interest, to the town’s general ledger;
  • Shelter Island had not adequately segregated duties for individuals involved in the cash receipts process; and
  • in general, each of the towns has a process in place to ensure the prudent and efficient expenditure of funds, and they held referenda for each amendment made to their respective local laws.

DiNapoli recommended that East Hampton town officials:

  • discontinue the practice of advancing CPF moneys to other funds;
  • expend CPF funds for only those purposes authorized by law;
  • implement a system to identify and document the actual costs incurred by other funds on behalf of the CPF; and
  • provide the town’s depository banks with the names of employees and officials authorized to conduct transactions on town bank accounts.

DiNapoli recommended that Southampton town officials:

  • take steps to recover the $107,650 overpayment made to the Flanders Fire District;
  • annually review the assessed values of its special districts to ensure that only those meeting the eligibility requirements receive PILOTs;
  • work with the Riverhead Central School District to recover the $2 million overpayment through adjustments to future PILOT distributions; and
  • take steps to ensure that Hampton Bays and the other five districts receive their fair share of the PILOT overpayment that was inappropriately given to Riverhead Central School District.

And DiNapoli recommended that Shelter Island town officials:

  • ensure that all revenues are recorded when received;
  • issue cash receipts for transactions; and
  • spread cash-handling duties among different individuals, and if that is not feasible, provide periodic oversight of the one person holding that responsibility.

Town officials generally agreed with DiNapoli’s findings and indicated they would take corrective action.

Click here to view the audit.

To view the letters to each town, visit:

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