Resignation call follows ‘absolutely scathing’ audit by Hampden County Regional Pension Council

HAMPDEN – Board chairman Don Davenport calls on county pension board members to step down after audit reported issues ranging from questionable spending on website services to a ‘very unusual’ contract who paid over $ 250,000 in health insurance premiums to two lawyers.

The Hampden County Regional Pension System Audit, released last week by the Public Employees’ Pension Administration Commission, looked at a three-year period from January 1, 2014 to December 31, 2017. The final report contained several important findings regarding violations of law, regulation and state best business practices, said John Parsons, executive director of the pension administration.

“The PERAC Commission, at its February meeting, made formal referrals to the appropriate law enforcement agencies. We applaud the work of our audit staff in identifying these issues. PERAC will follow up on outstanding issues and intends to conduct additional audit work at the pension board in the future, ”Parsons said in a statement. “We look forward to the full cooperation of the HCRRS Board of Trustees to rectify these issues and establish additional internal controls to prevent future transgressions. In fact, some practices have already been stopped and changes instituted. PERAC will continue to closely monitor and evaluate the practices of the system and its board of directors.

In a statement to the Republican, the board of directors – which oversees a public employee retirement system of 3,100 active members and 1,700 retirees – pledged to improve the system “by being fully transparent and implementing best practices in areas where the audit is critical. . “

The statement continued, “The board anticipates further collaboration with PERAC over the coming months, so that all aspects of the audit are reviewed and addressed.”

The header of the statement included Richard M. Theroux, Chairman and Treasurer of the Board, and Executive Director Julianne Bartley. The other board members are Laurel A. Placzek, Patricia C. Donovan, Karl J. Schmaelzle and Patrick E. O’Neil, according to the organization’s website. The site says Schmaelzle’s term ended in December.

Davenport said he was “surprised, disappointed and outraged” that the pension council, which is responsible for the funds of the city’s taxpayers, retirees and employees, “is managing funds so cavalierly and engaging in questionable activities. while making their own nest “.

“The audit paints a picture of blatant and lax management, as well as waste and abuse of taxpayer money,” he said in a statement. “The members of the pension council have failed miserably in their duties and responsibility to the cities, retirees and members. They are expected to resign and PERAC should take over the administration of the fund until a new reform council is elected.

Bob Markel, interim Hampden city administrator and former mayor of Springfield, called the report “absolutely scathing.” Markel hosted a meeting of city administrators across the county on Monday to discuss the matter. Participants included representatives from Wilbraham, Longmeadow and East Longmeadow.

“This is a total mismanagement of public funds,” said Markel.

Longmeadow Town Manager Lyn Simmons said Longmeadow Select’s board of directors has been seeking a thorough review of the pension board for some time and has often noted that the procedures seem very ‘behind closed doors’ and questionable .

“This report completely confirms for us that we should be concerned,” Simmons said at the meeting.

Bob Markel, Interim Hampden City Administrator. (Don Treeger / The Republican)

Challenged expenses

In the 32-page audit report, reviewers Scott Henderson and Richard Wrona outline six areas of concern.

The first section notes that the board of directors paid more than $ 235,000 to more than 50 entities from 2013 to 2018 for services generally described as “search engine optimization” or “online directory listings. “.

According to the report, the services “appear to have been scams” – but the pension board continued to approve the spending. The audit indicated that the board had no contracts for the services, no documentation to monitor vendor performance, and no evidence of any vendor work products.

The report recommended that the pension board “follow appropriate procurement procedures, improve its due diligence exercise and more closely monitor the actions of its suppliers.” He also recommended to the pension council to pursue recovery actions against the sellers.

The report included a response from the pension board that said its website was hosted by a third party and the services were “believed to be in direct correlation and based on this website.”

The board also said it had “a long-standing practice of disputing bogus invoices.” But auditors, citing 119 questionable transactions, said payments were still made on invoices full of problems. “For invoices that referred to a contract or order number, these numbers were fictitious, like most references to corporate websites; a simple online search would have shown that these do not exist, ”says the report.

In its statement to the Republican, the pensions board said a new system had been put in place in recent years, requiring the executive director to contact legal counsel to review and dispute invoices deemed fraudulent.

Another problem concerned payments for banking services. The pension board paid $ 87,229 in bank charges during the audit period, while other boards with similar or higher monthly balances paid none.

In its statement, the board said it “recognized the same concern” before the audit report and moved its accounts to a new bank at no charge in July 2019.

The auditors also found that during the three-year period, the Hampden County Regional Retirement Council employed two lawyers. Under their contracts, they were considered part-time employees and allowed to join the health insurance program. They received $ 179,266 in legal fees, but the pension commission also paid 90% of their health insurance premiums, for a total of $ 269,144.

Davenport and Markel both called the practice “outrageous”.

“Nobody does that. Nobody. It’s outrageous, ”Markel said of the 90% health insurance benefit. “These are funds that belong to the public employees in the cities of this county and they represent the contributions of the cities themselves.”

In Hampden, city employees pay 50% of their health insurance and the city pays the other half, Markel said. The breakdown of the state’s Group Insurance Commission is 75/25, he added.

The report states that although state law allows a county pension council to “employ an attorney from time to time”, the attorney “does not have to be a service member of the system or a board member. of retirement”.

The pension council said its agreement with legal counsel would be terminated and a request for proposals would be issued no later than the end of this week.

The audit also highlighted concerns about conflict of interest violations and alleged violations of state law, such as the enrollment of three pension council members with Social Security. The retirement council said the practice ended in October 2020.

Markel and his fellow municipal administrators from Wilbraham, Longmeadow and East Longmeadow have agreed to contact other communities in the county linked to the regional pension council to set up a meeting to discuss new measures.

Noting the depth of the audit, City of East Longmeadow Director Mary McNally said she wondered if any of the issues lasted longer than the three-year audit period.

The Hampden County Regional Retirement Council does not currently have the audit on the agenda for its next meeting, scheduled for Wednesday, February 24.

Markel said the report gave him a slight case of déjà vu. He described the mismanagement of the pension system in Essex County when he was city manager in Ipswich about 10 years ago. After the county administrators got together and called for changes, the majority of the board members and the director were fired, he said.

“I guess I can believe everything that’s going on in government, but I have to say I’m not easily shocked. And this report is shocking, ”said Markel.

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