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March 13, 2007

Audit Finds Suffolk-Nassau Chamber of Commerce
was Reimbursed Inappropriately Under
State DED and ESDC Grants

Poor Oversight and Coordination of Grants Noted by Auditors;
Chamber Received Almost $125,000 in Payments for
Items that Were Not Eligible for Reimbursement

Nearly one quarter of payments made through grants from the New York State Department of Economic Development (DED) and the Empire State Development Corporation (ESDC) to the Suffolk-Nassau Chamber of Commerce to promote economic development in and around Huntington were for expenses that were not reimbursable and should not have been paid, according to an audit issued today by State Comptroller Thomas P. DiNapoli.

The audit, which followed a referral from Suffolk County District Attorney Thomas J. Spota, also faulted DED and ESDC for lax oversight of the grants.

“While the findings of our audit are disturbing, I am optimistic that the new management team now in place at ESDC and DED will carefully consider our findings and continue to take steps to address the problems we identified,” DiNapoli said. “I am also pleased that ESDC and DED are already seeking repayment from the Chamber of Commerce for the non-reimbursable expenses.”

The Chamber of Commerce was awarded eight grants from DED and two from ESDC between 1999 and 2005 to support a range of activities including printing promotional brochures and purchasing other promotional materials, establishing a regional tourism and convention bureau, developing job training programs and creating a business “incubator.” For six of the ten grants, the Chamber of Commerce did not achieve the objectives for which the grants were given.

All of the grants from DED and one of the two grants from ESDC were legislative member items. The ten grants were valued at a total of $634,000, and like all such state grant recipients, the Chamber of Commerce was required to submit documentation that expenses had been paid in order to receive reimbursement. The Chamber of Commerce received a total of $496,195 in reimbursements, but auditors determined that $124,872 – nearly 25 percent – was for items that were not reimbursable because they had already been reimbursed under different grants, were submitted after the grant period had ended, exceeded the amount that the Chamber of Commerce had expended or did not include proper documentation.

Auditors found that DED and ESDC did not always require grantees to submit backup materials regarding expenses, such as cancelled checks and vendor invoices or documentation of methods used to calculate the portion of administrative costs covered under the grants. ESDC did not require any progress reports for its six-year $250,000 grant to the Chamber of Commerce, and although DED did require such reports with reimbursement requests, the reports were often not submitted or were too brief – just two or three sentences – to provide any substantive information. In August 2005, the Legislature suspended this grant.

Auditors noted that most of the inappropriate and unsupported expenses ($117,692 of $124,872) were claimed on six grants in which little or no progress was made in accomplishing grant objectives.

Auditors also noted that, despite the close relationship between DED and ESDC, the two agencies did not coordinate grant award and monitoring practices when the same recipient was receiving grants from both entities. In fact, DED officials were unaware of the two grants by the ESDC to the Chamber of Commerce and ESDC officials were unaware of the eight grants by DED to the Chamber of Commerce.

Auditors found the following among the inappropriate and unsupported expenses for which the Chamber of Commerce was reimbursed:

  • $22,042 in claimed expenses were not paid by the Chamber, but by the Huntington Township Chamber Foundation, a separate organization that shares office space with the Chamber.
  • $20,530 in expenses were claimed twice and reimbursed twice under two different DED grants.
  • $11,106 in claimed expenses did not include sufficient documentation that they were related to grant objectives. Most of this amount related to rental of a satellite office in Melville which was to be part of a regional tourism and convention bureau, but the bureau was never established and the office was never functional.
  • $9,648 in claimed expenses did not have supporting documentation indicating that they had in fact been paid.
  • $9,573 in claimed expenses were for payments to vendors that were never actually made.

DED and ESDC share senior managers and regional offices around the state, and often collaborate on projects. The DED commissioner also serves as chair of ESDC’s board of directors. As a state agency, DED is funded by state appropriations. ESDC is a public benefit corporation that receives state appropriations and also issues bonds to finance economic development and job creation programs around the state.

In a written response to the audit, ESDC officials – representing both ESDC and DED – noted that some of the auditors’ recommendations to address problems identified in the audit had already been adopted. Because most of the grants reviewed in the audit were “legislatively-mandated” member items, the response stated that ESDC and DED are “statutorily mandated to provide the funds, and have no discretion regarding either the identity of the grantee or the size of the grant.” The response also stated that “the large number of such grants [ESDC and DED] are directed to administer makes it difficult to undertake the degree of due diligence that would be necessary to ensure that fraudulent payment requests (where the grantee lies about expenses incurred), such as those made by the Chamber, are always caught before disbursement is made.”

The response also noted that ESDC and DED are seeking reimbursement from the Chamber of Commerce for a total of nearly $125,000, and said that the agencies may refer the matter to the Office of the Attorney General if repayment is not received by March 15, 2007. The complete response is included in the audit.

The Suffolk-Nassau Chamber of Commerce has approximately 900 members from the business, industry, financial services, professional services and not-for-profit sectors on Long Island. Its mission is to promote business, economic development and job creation.

Click here for a copy of the audit.



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