Audit White Paper

THE COMPTROLLER’S AUDITING AUTHORITY – HOW TO USE IT
TO FIX NEW YORK

October 2010
The Comptroller’s Auditing Authority – How to Use It to Fix New

York
Introduction
The Comptroller’s auditing responsibilities are rooted in New York’s Constitution and laws, which
outline a duty to scrutinize the State’s financial practices. These powers extend to agencies and public
authorities as well as local governments and school districts, and they depend upon the Comptroller
functioning as an objective, independent watchdog, whose responsibility it is to hold State and local
governments – and all public funds – accountable to everyday taxpayers.
Authorization
The constitutional authority granting the Office of the State Comptroller (OSC) its auditing powers can be
found in Article 5, which states in part:
“The comptroller shall be required: (1) To audit all vouchers before payment and all
official accounts; (2) to audit the accrual and collection of all revenues and receipts; and
(3) to prescribe such methods of accounting as are necessary for the performance of the
foregoing duties. The payment of any money of the state, or of any money under its
control, or the refund of any money paid to the state, except upon audit by the
comptroller, shall be void….”
The New York State Constitution also places the Comptroller at the head of a statewide Department of
Audit and Control that assists him in the exercise of these duties, and there are a number of State laws that
further expand the Comptroller’s auditing functions. The following are some of the most important
statutes, although there are literally scores of provisions anticipating an audit role for the Comptroller
over various State spending streams:
 Article 2 of the State Finance Law requires the Comptroller to superintend the fiscal concerns of
the State; keep, audit and publish all accounts in which the State is interested and maintain
accurate and proper books, showing their conditions at all times.
 New York State Finance Law section 101 requires the Comptroller to countersign with the
Commissioner of Taxation and Finance all checks to be paid by the State. Section 101 also
makes the Comptroller responsible for keeping accounts “between the state and the commissioner
of taxation and finance” that will keep track of the balance of funds in the treasury, and all
moneys entered and paid out from the same.
 State Finance Law section 109 further empowers the Comptroller. Subject to certain narrow
exceptions, he is required to audit all expenditures and may not approve them “except upon audit
of such vouchers and other documents as are necessary to insure that such payment is lawful and
proper.” Finance Law sections 109(3) – (4). While section 109(1) requires certain documentation
to be provided in support of claims for payment from the State, section 109(8) leaves open broad
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power for the Comptroller to “demand such other proofs as he shall deem necessary”
when conducting his audits of State expenditures.
 State Finance Law section 111 is an even broader provision declaring that “no moneys of the
state, including moneys collected in its behalf, and no moneys in the possession, custody or
control of any officer, agent or agency of the state, . . .shall . . . be paid, expended or refunded
except upon audit by the comptroller.”1
 The Comptroller is assisted in carrying out these duties by several other provisions of the State
Finance Law. Notably, section 112(1) empowers the comptroller to “prescribe a system of
accounting and a form of accounts to be installed and observed in every state department and in
every state institution.” All State agencies and departments must every month furnish the
comptroller “a detailed and itemized account of all receipts and expenditures” accompanied by
proper documentation. (See State Finance Law section 113.)
 Section 112 (2)(a) of State Finance Law provides that any State contract in excess of $15,000
"shall first be approved by the comptroller" before it can be executed or become effective. Courts
have read 112(2)(a) as a very broad grant based in fiscal responsibility.2
 State Finance Law section 116 authorizes the Comptroller to “require all public officers and other
persons receiving moneys or securities, or having the care and management of any property of the
state . . . to render statements thereof to him” and to compel “any one” presenting an account or
claim “to be examined upon oath . . . touching such account or claim, as to any facts relating to its
justness or correctness.”
1
In 1939, the Legislature passed State Finance Law § 111, the statutory counterpart to article V, § 1 of the New
York State Constitution, to further delineate and designate the Comptroller's pre-audit authority. That provision in
full states that: "No moneys of the state, including moneys collected in its behalf, and no moneys in the
possession, custody or control of any officer, agent, or agency of the state in his or her representative capacity,
and no moneys in or belonging to any fund or depository, title to which is vested in the state, shall hereafter be
paid, expended or refunded except upon audit by the comptroller." In addition, courts have ruled that the
aforementioned constitutional pronouncement (article V, § 1) designates the Comptroller as the "independent
auditing official for the affairs of the State" (Patterson v Carey, 41 NY2d 714, 723 [1977]). As such, all of the duties
delineated in article V, § 1, "whether required or discretionary, are in furtherance of the [Comptroller's]
fundamental duty of the office, to 'superintend the fiscal concerns of the State'" (Blue Cross and Blue Shield v
McCall, 89 NY2d 160, 166 [1996], quoting State Finance Law § 8; 4 Report of the 1938 New York State
Constitutional Convention Committee on State and Local Government in New York, at 337).
2
See, e.g., Deverho Construction Co. v. State, 407 N.Y.S.2d 399, 403 (Court of Claims, 1978) (explaining that "[t]he
purpose of subdivision 2 of section 112 of the State Finance Law is to prevent officers and agents of the State from
creating liabilities for which there is no appropriation and to provide a check upon the making of improvident or
extravagant contracts to the detriment of the State"). See also id. ("The public policy underlying the rule is sound
and of great benefit to the State, although its application may have harsh consequences. It sometimes happens,
for example, that a State agency solicits and accepts substantial benefits from a contractor in advance of the
Comptroller's approval. If the contract is subsequently rejected, the contractor may suffer substantial loss. In such
a case, there is no recourse to the equitable remedies of quantum meruit and estoppel."). (internal citations
omitted). See also City of New York v. State, 642 N.Y.S.2d 611 (1996) (purpose is to "protect public from
governmental misconduct and improvidence"); 230 Park Ave. Assocs. v. State, 630 N.Y.S.2d 855 (1995) ("prevent
state employees from making improvident or extravagant contracts and from creating liabilities for which there
was no appropriation").
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 Article 7 of the Executive Law authorizes the Comptroller to audit State agencies, departments,
bureaus, boards, commissions or authorities.
 Article 3 of the General Municipal Law assigns the Comptroller the duty to oversee the fiscal
affairs of local governments, including every municipal corporation and school, fire,
improvement and special district.
 Section 34 of the General Municipal Law grants the Office of the State Comptroller (OSC)
subpoena powers within the context of its auditing duties.
Comptroller & the Commanding Heights
In theory and law, the OSC’s auditing power affords the Comptroller independent, constitutional
authority to investigate all aspects of State government operations and spending; a tremendous amount of
potential public good is connected to its effective use. In light of this formidable mandate, the incumbent
has both underutilized and misapplied the auditing function since taking office and subsequently
squandered opportunities to play a key role in repairing New York State’s broken fiscal condition.
Meanwhile, the commanding heights of New York State’s finances remain in dire straits:
 Albany was 125 days late passing this year’s budget;

 This year’s revenues are coming in short of their initial unrealistic projections; 3
 The Legislature executed a Comptroller initiated pension raid to close the State’s budget gap; 4-5
 New York’s Pension Fund is woefully underperforming and running a huge deficit (billions
larger than the Comptroller now admits to); 6 and
 The deficit for fiscal year 2012 is projected to be $8.2 billion. 7
There are many important ways in which the OSC can help New York with the structural reforms
required to fix these fundamental problems, and much of the OSC’s powers to do that stem from its
auditing authority. But first, let’s briefly examine how New York’s current Comptroller has performed his
role as chief auditor.
3
Office of the State Comptroller. “Current Status of the State Fiscal Budget.” Albany, NY, 2010.
<http://www.osc.state.ny.us/reports/budget/2011/budget10-11status.pdf>.
$4.8 billion in revenue and spending actions have been classified as “risky.”
4
Hakim, Danny. “State Plan Makes Fund Both Borrower and Lender.” New York Times. 11 June 2010. 27 September
2010.
<http://www.nytimes.com/2010/06/12/nyregion/12pension.html?scp=3&sq=hakim%20and%20dinapoli%20and%
20pension&st=cse>
5
Hakim, Danny. “Comptroller Backflips on Pension Borrowing.” New York Times. 11 June 2010. 27 September
2010. <http://cityroom.blogs.nytimes.com/2010/06/15/comptroller-backflips-on-pension-borrowing/>
6
Taxpayers for Wilson. “Public Pensions: Averting New York’s Looming Tax Catastrophe.” September 2, 2010. 27
September 2010. <http://wilsonfornewyork.com/images/uploads/Ethics_White_Paper_Final.pdf>
7
State of New York. Division of the Budget. “Annual Information Statement.” Albany, NY, 2010. 8.
<http://www.budget.state.ny.us/investor/ais/2010AISFinal-Reissued.pdf>
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The Current Administration
A Master of the “Drop in the Bucket”
New York State’s largest All Funds expenditure is its $45.3 billion Medicaid expense.8 We will address
how the OSC can help control outsized Medicaid costs later in this white paper. For now, consider that
the current Comptroller has conducted roughly 90 audits of the New York State Department of Health,
the primary State agency for administering Medicaid. This is by far the largest number of audits of any
single agency Comptroller DiNapoli has conducted, and roughly 40 of them focused specifically on
Medicaid-related matters.
Critically, though, these audits focused on procedural operations and particular practices where there were
inefficiencies, waste and small-scale fraud. These include individual doctors and dentists who
overcharged for services, the qualifications of physical therapists, questions of eligibility and problems
with duplicative reimbursements, overpayments and double billings, but largely small-scale recovery
opportunities. To be sure, setting right improper practices at all levels is, inarguably, important to
monitor. At the same time, the Comptroller seems to harp on them at the expense of Medicaid’s
fundamental problem and the chance to use his audit function to find systematic ways to restructure
Medicaid and bring down costs to reasonable, sustainable levels. Nowhere – ever – has the current
Comptroller addressed the core structural problems at issue. Without structural reform, the massive
annual increases in Medicaid costs far outstrip the sum total of all of the audits performed under the
current Comptroller.
By comparison, consider the work of the Office of the Medicaid Inspector General. Five years ago, The
New York Times ran a series on New York’s Medicaid program that revealed the "misspending [of]
billions of dollars annually.”9 New York created a new Office of the Medicaid Inspector General (OMIG)
8
New York State’s All Funds expenditures exclude local contributions. New York’s Medicaid total spending is
projected to total approximately $52.6 billion in 2010-11, including the local contribution. Expected contributions
are $14.2 billion from the State, $31.1 billion from the Federal government and $7.3 billion from local
governments. State of New York Division of the Budget, “2010-11 Enacted Budget Financial Plan.” Albany, NY. p66.
20 August 2010. 1 October 2010. <http://publications.budget.state.ny.us/budgetFP/2010-
11FinancialPlanReport.pdf>
9
See the following articles on the subject:
-- Levy, Clifford J. and Luo, Michael. “New York Medicaid Fraud May Reach Into Billions.” New York Times. 18 July
2005. 27 September 2010. <http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html>
-- Levy, Clifford J. and Luo, Michael. “As Medicaid Balloons, Watchdog Force Shrinks.” New York Times. 19 July
2005. 27 September 2010. <http://www.nytimes.com/2005/07/19/nyregion/19medicaid.html>
--Perez-Peña, Richard. “At Clinic, Hurdles to Clear Before Medicaid Care.” New York Times. 17 October 2005. 27
September 2010. <http://www.nytimes.com/2005/10/17/nyregion/nyregionspecial4/17clinic.html>
--Perez-Peña, Richard. “Trying to Get, and Keep, Care Under Medicaid.” New York Times. 18 October 2005. 27
September 2010. <http://www.nytimes.com/2005/10/18/nyregion/nyregionspecial4/18jennifer.html>
--Luo, Michael. “Drug Costs Run Free Under New York Medicaid.” New York Times. 23 November 2005. 27
September 2010. <http://www.nytimes.com/2005/11/23/nyregion/23medicaid.html>
--Luo, Michael and Perez-Peña, Richard. “As Medicaid Rolls Grow, Costs Take a Local Toll.” New York Times. 23
December 2005. 27 September 2010.
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in November 2006 in response to combat fraud, waste and abuse and recover inappropriate payments to
providers.10 In 2007, OMIG recovered $130 million.11 In fiscal 2008-2009, recoveries jumped to $304
million, while the Attorney General’s Medicaid Fraud Recovery Unit (MFCU)12 brought in another $227
million, bringing the total funds recovered by the State to more than $550 million. That amounts to
approximately 1.2% of New York Medicaid's total expenditures, which is the highest recovery rate in the
nation, although still substantially below FBI estimates that between 3% and 10% of total health spending
in the United States, including Medicaid, is fraudulent.13
OMIG is still going strong and has become a repository of expertise devoted specifically to Medicaid
recoveries. Going forward, the State has budgeted for recoveries of $300 million a year. As a practice,
though, OMIG considers actions for recoveries of less than $5 million to be an inefficient use of time and
resources. While it may be simple to find evidence of small-scale waste, focusing on it distracts resources
from the larger goal of maximizing the recovery of taxpayer dollars (including the State’s target of $300
million a year or more).14 This logic doesn’t seem to faze the current Comptroller, as 26 of his audits into
Medicaid-related matters were for values under $5 million, while only 15 were for values of more than
that.
Given the stark contrast in the effectiveness of OMIG relative to the OSC, a reasonable question might be
whether the OSC’s efforts are duplicative, a waste of resources or a distraction from the work done by
OMIG. We believe the OSC must always consider the core question of how it can be the most effective
watchdog and act in order to maximize savings of taxpayer’s money.
By that measure, the current Comptroller has failed miserably, with his audits identifying a miniscule
percentage of total Medicaid spending, both in absolute terms and in comparison to other State efforts and
outside estimates.
Furthermore, the OSC has shown no willingness or ability to tackle the broader structural problems of
Medicaid. None of the Comptroller’s audits and none of the resources of the OSC’s audit bureau have
been tasked with addressing any foundational flaws. There have been no audits of our cost-for-services
relative to other states or national norms. There have been no reports suggesting cost benchmarks that the
OSC believes are achievable. There have been no recommendations based on case studies and best
practices as to what other states have done to keep their Medicaid price tag in check. Based on the OSC’s
<http://select.nytimes.com/gst/abstract.html?res=F30D13FE3E540C708EDDAB0994DD404482&fta=y&incamp=arc
hive:article_related>
10
New York State. Office of the Medicaid Inspector General. “Responsibilities of the Office of the Medicaid
Inspector General.” 27 September 2010. <http://www.omig.state.ny.us/data/content/view/48/36/>
11
Buntin, John. “A Medicaid Fraud-Stopping Mold.” Governing Magazine. July 2010. 27 September 2010.
<http://www.governing.com/topics/health-human-services/A-Medicaid-Fraud-Stopping-Mold.html>
12
The Attorney General’s MFCU is the oldest operation in the nation dedicated exclusively to the investigation and
prosecution of health care crime. “Medicaid Fraud Control Unit (MFCU).” The Criminal Division,
<http://criminaldivision.com/articles/30/1/New-York-State-Attorney-General.html>
13
Morris, Lewis. “Combating Fraud in Health Care: An Essential Component of Any Cost Containment Strategy.”
Health Affairs 28.5 (2009): 1351-1356.
14
State of New York. Division of the Budget. “2010-11 Enacted Budget Financial Plan.” Albany, NY. 20 August 2010,
17. 27 September 2010.
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complete lack of focus on any of these structural problems, one would not even realize that New York has
the most expensive Medicaid program in the nation or that these excessive costs pose a problem for
taxpayers.
As any good manager, restructuring specialist or auditor will attest, such analyses – all of which could be
included in a full performance audit of our Medicaid program – would help focus relevant stakeholders on
the root causes of runaway Medicaid costs. At the same time, the bully pulpit of the Comptroller’s office
could help garner “buy-in” from the various public interests that are usually required to push major
government reform. A full, comprehensive assessment of our Medicaid system is badly needed and part
of what will be required to implement change. We lay out our own approach for this later.
The same point can be made about the State’s education expenditures: New York State’s All Funds
spending on education for fiscal year 2011 is $33 billion, an increase of $5.2 billion (16%) from fiscal
year 2010.15 We believe there is an imperative for the Comptroller to do everything possible to locate
savings, while determining how the State can realize efficiencies without diminishing the quality of
education for New York’s public school children.
By contrast, since taking office in February of 2007, Comptroller DiNapoli has performed 31 audits of the
State Department of Education; much like the OSC’s Medicaid audits, his reports focus on compliance
matters, testing records, reimbursements and issues of school safety (which is very important, to be sure).
But no resources from the OSC’s audit bureau have been directed at examining why New York State’s
per-pupil costs are so much higher than the national average or what New York should do to reduce the
disparity. Nor does the Comptroller’s office anywhere attempt to determine a reasonable and sustainable
level of education spending.
Most importantly, there has been no attempt by the OSC to perform a cost-benefit analysis of our
education spending. The core question here must be: how do we generate the best possible education for
our children, at a reasonable cost? All too often, the education debate is shrouded in a discussion of
overall spending levels, without any cost-benefit analysis. Most well-intentioned New Yorkers would be
comfortable with high levels of education spending, as long as the results were commensurate with the
level of spending. Unfortunately, in New York, spending on education is the second highest in the nation,
15
This figure includes $ 24.2 billion in school aid, a $2.06 billon end-of-year school aid payment delayed from
March 2010 to the statutory deadline of June 1, $3.3 billion in the Student Tax Relief Program, and $3.5 billion in
Other Educational Aid.
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at $15,546 per student16 while New York ranks in the third quartile on national test scores17 and in the
bottom 20% for graduation rates.18
The Comptroller should be seeking to identify best practices, perform cost-benefit analyses and work to
help school districts restructure their operations with the benefit of this work. For example, the
Comptroller could easily survey school districts statewide, identify best-in-class management of non-
classroom expenses for school districts of varying sizes and create a template for the benefit of school
districts.
The implementation of this benefit could be done in a variety of ways. On one end of the spectrum, it
could be strictly voluntary, a pure public benefit for districts. Another alternative would be make it
available on the Comptroller’s website to be used as a checklist by school boards and citizens as they
review new school budgets to see if everything possible is being done to contain spending and thus taxes.
This approach was used effectively in Indiana in recent years as they sought to contain significant
pending property tax increases.
No Accountability
The Comptroller is required by law to issue an annual report that summarizes the results of all State
agency and public authority audits the OSC issued throughout the year.19 In the past year, according to the
Comptroller’s 2009 Audit Report, the OSC “identified more than $385 million in cost savings (costs that
can be reduced and revenues that can be increased if the audit recommendations are implemented), and an
additional $218 million in costs that were questionable because of problems related to internal controls.”20
According to the Comptroller’s 2008 Audit Report, the OSC “identified more than $137 million in cost
savings and an additional $32 million in unnecessary costs or payments.”21 Adding these savings together
directly from the OSC’s own official annual reports, the Comptroller claims responsibility for $772
million in identified savings, which includes $218 million in “costs that were questionable” from 2009,
although not necessarily identified as savings. This raises a number of questions.
16
U.S. Department of Education. National Center of Educational Statistics. "Digest of Educational Statistics: 2009."
Table 183: Total and current expenditures per pupil in fall enrollment in public elementary and secondary
education, by function and state or jurisdiction: 2006-07. 2009.
<http://nces.ed.gov/programs/digest/d09/index.asp>
17
U.S. Department of Education, Institute of Education Sciences, National Center for Education Statistics, National
Assessment of Educational Progress (NAEP). 2010. 10 October 2010.
<http://nces.ed.gov/nationsreportcard/naepdata/>
18
U.S. Department of Education, National Center of Educational Statistics. "Digest of Educational Statistics: 2009."
Table 105: Averaged freshman graduation rates for public secondary schools, by state or jurisdiction: Selected
years, 1990-91 through 2006-07. 2009. 10 October 2010.
<http://nces.ed.gov/programs/digest/d09/tables/dt09_105.asp?referrer=list >
19
Office of the New York State Comptroller. DiNapoli, Thomas. New York State Comptroller’s Annual Audit Report
2009, 11 October 2010. 5. <http://www.osc.state.ny.us/audits/annualreport09.pdf>
20
Ibid
21
Office of the New York State Comptroller. DiNapoli, Thomas. New York State Comptroller’s Annual Audit Report
2008, 11 October 2010. 5. <http://www.osc.state.ny.us/audits/annualreport08.pdf>
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First, the Comptroller has been claiming throughout the campaign and most recently in a debate
sponsored by local cable television stations that “My audits looking out for taxpayer interest have
identified close to $3 billion in waste of taxpayer money, in cost savings opportunities."22 This figure is
clearly at odds with the Comptroller’s official annual audit reports, and there is no publicly available
substantiation for this claim, so it should be highly suspect. Second, there is a critical difference, of
course, between “identified savings” and “achieved savings,” and it remains an open and important
question as to how much of the identified savings through the OSC’s audits, to the extent they exist, were
ever realized.
Finally, the 2008 annual Audit Report claims that 90% of its past year’s audit recommendations were
implemented. But nowhere does it clarify which recommendations these were, or – if among the hundreds
of recommendations contained in OSC audits – how many of the cost-savings recommendations were
implemented and, subsequently, ever achieved real cost-savings.
Of course, it is the case that the Comptroller 2010 Audit Report has yet to be published. Perhaps in the
last year alone, the OSC identified the rest – about $2 billion – in savings the Comptroller now claims.
While that is always possible – and would be wonderful! – it seems unlikely. For instance, whereas the
State’s Office of the Medicaid Inspector General regularly achieves real savings, they are accounted for in
the State’s budget projections. But there is no comparable budget saving line-items in the executive
budget that stems from the OSC’s audit work in an amount that comes close to $2 billion.
In short, there is not a single documented source supporting the Comptroller’s claims, and the
public evidence suggests dramatically lower identified savings with no evidence of implementation.
Even if 100% of the Comptroller’s savings claims were true, the sum would amount to a rounding
error next to the total of State and local government spending during his tenure.
From Misuse to Abuse
In addition to these missed opportunities, there are also cases where the current Comptroller has misused
his audit authority and for seemingly political purposes. This behavior is consistent with the unfortunate
history in New York State of mixing in politics with the official duties of the OSC. Over the course of this
campaign, we have documented how politics continue to play a significant role in awarding Pension Fund
business and favors to the Comptroller’s political donors and allies.23 In our last white paper, “Public
Pensions, Averting New York’s Looming Tax Catastrophe,” released in September and available on our
website,24 we documented how political considerations influence the Comptroller’s mismanagement of
22
The debate in its entirety and Mr. DiNapoli’s claim (3:00-3:02) can be viewed here:
http://capitalregion.ynn.com/content/your_news/capital_region/519605/-comptroller-debate---dinapoli-and-
wilson/
23
Taxpayers for Wilson. “The Office of the State Comptroller—It’s a Question of Ethics.” July 7, 2010. 27
24
www.wilsonfornewyork.com
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the State’s multi-billion dollar Pension Fund, upon which over one million current and former New York
government workers depend upon for their financial security in retirement.25
In the most glaring case related to the OSC’s auditing powers, the Comptroller appears to have leveraged
his office to harass charter schools and simultaneously curry favor with teachers’ unions.
School Bullying
Charter schools are publicly funded, but privately run and operate outside of regulations that apply to
traditional public schools. Their reason for being is to offer increased autonomy in pursuit of better,
results-oriented education outcomes. 26 The autonomy includes freedom from teacher union contracts that
can limit the kinds of reforms from which charter schools seek to benefit. Charter schools are therefore
perceived skeptically by teachers’ unions, which, in turn, have looked favorably upon politicians who
display opposition to the charter movement. Few elected officials in New York have done more to harass
charter schools than the current Comptroller, and his chosen method of hindrance is the audit function of
his office.
The history dates back to the 2004 scandal over the misuse of public funds by employees of the Roslyn
School District. The New York State Legislature responded by enacting the 2005 School Audit Bill,
which mandated that the Comptroller must complete audits within five years of the state’s 821 school
districts, Board of Cooperation Educational Services (BOCES) and charter schools, even though charters
were not involved in the scandal. 27 At first, the audits focused strictly on financial oversight – the intent
and collective understanding of their purpose. Then, soon after Tom DiNapoli was appointed Comptroller
by the Legislature, the OSC notified 31 charter schools on July 1, 2007 that they would be subject to a
full performance audit. Notably, Mr. DiNapoli did not seek to comparably administer performance audits
of district schools.
Moreover, the original authorizing legislation for charters provided for increased oversight. The extra
layers of scrutiny include visits and inspections by local school districts,28 and charter schools must
submit an annual report to both the Board of Regents and to their charter entity, including a report on
comparative academic and fiscal performance.29 The reports must also include certified financial
statements and independent fiscal audits.30
These additional accountability measures were specifically conceived of with the charter school mission
in mind – freeing them from the traditional oversight that they believe restricts innovation,
experimentation and educational progress. Given their required compliance with these additional
25
Taxpayers for Wilson. “Public Pensions: Averting New York’s Looming Tax Catastrophe.” September 2, 2010. 27
26
U.S. Charter Schools. “Overview.” 27 September 2010.
<http://www.uscharterschools.org/pub/uscs_docs/o/index.htm>
27
See L 2005, ch 267; see also Education Law § 2854 [1] [c]; General Municipal Law § 33 [2]
28
See Education Law S2853 [2-a].
29
See Education Law S2857 [2]; [2] [a].
30
See Education Law § 2857 [c].
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accountability measures, charter schools found the new audits both duplicative and distracting, and they
believed them to be an exercise in political gamesmanship in order to appease teachers’ unions at their
expense.
In time, charter schools questioned the OSC’s overall authority over them and put together a sound legal
argument to that effect. Their legal theory covered the OSC’s financial audits as well. But rather than
throw the baby out with the bathwater, charter schools sought to negotiate in good faith with Mr.
DiNapoli and offered to reject their legal options, if the OSC agreed to again limit auditing to financial
oversight.
The OSC showed little interest. Reportedly, Tom DiNapoli didn’t show up to the scheduled negotiation
meeting. So, with the option of a good-faith agreement off the table, charter schools sued and ultimately
won a judgment from The Court of Appeals to prevent the OSC from auditing them at all. The final
chapter to the legal saga came recently in amendments to the May 2010 Charter School Act, where a
provision bestows on the OSC the authority to audit charter schools. The constitutionality of this is very
much in question, but the Comptroller has yet to exercise this intended legislative discretion, irrespective
of its legality.31
Meanwhile, as these legal issues were being resolved, the Comptroller managed to conduct 23 charter
school audits. The executive director of the New York City Charter School Center characterized them as
“shockingly petty.” Here are some examples:
 The OSC audited the Enterprise Charter School in 2007. Its major findings included criticisms
over nominal gift cards for teachers at end-of-year appreciation celebrations; paying the school’s
CEO $30,000 more than the OSC believed was required, even though the charter school’s board
approved the salary in accordance with its defined oversight role; and failing to employ a claims
auditor at an annual cost of over $50,000, at the same time Enterprise insisted its internal control
system made the hiring unnecessary.32
 The OSC audited the Westminster Community Charter School in 2007. Its major findings
included criticisms over nominal credit card purchases, focusing on the lack of itemization for a
line item marked “restaurant expenses.”33
 The OSC audited the Brooklyn Charter School in 2008. Its major findings included criticisms for
the school’s cash disbursements and record keeping in regards to an after-school test prep
31
Interview with James Merriman, executive director of the NEW YORK CITY CHARTER SCHOOL CENTER,
September 17, 2010.
32
Office of the New York State Comptroller. Division of Local Government and School Accountability. “Enterprise
Charter School: Payments to the Former CEO and Claims Processing.” November 2006. 27 September 2010.
<http://www.osc.state.ny.us/localgov/audits/2007/schools/enterprise.pdf>
33
Office of the New York State Comptroller. Division of Local Government and School Accountability. “Westchester
Community Charter School: Internal Controls Over Claims Processing and Payments.” October 2007. 27 September
2010. <http://www.osc.state.ny.us/localgov/audits/2007/schools/westminster.pdf>
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program and its equipment inventory – financial records for ATM withdrawals by teachers for
“class supplies” were cited as insufficiently detailed.34
 The OSC audited the KIPP Academy Charter School in 2007. Its major finding was that the
school sponsored an end-of-the-year working retreat for teachers and staff. The Comptroller
contended that “Having surplus funds is no excuse to spend taxpayer dollars on trips….” But the
school ended the year with a surplus of over $4 million due to raising its own private funding –
the source of the money used for the working retreat. Rather than suggest a clearer distinction
between public education dollars and private funding, the State Comptroller issued a press release
publicly excoriating KIPP Academy, despite its documented and unquestioned education
excellence. 35,36
This is not to imply that these problems are excusable. However, given the scope of our educational
spending problems, the Comptroller should be directing resources to the biggest possible savings, not to
politically-motivated attacks.
Far From an Isolated Case
Many other of the OSC’s audit findings have been met with charges of political favoritism and, as a
result, hostility and protest. In the continuing controversy over the audit of Islip, New York, council
members Trish Bergin and Steven Flotteron charge that the Comptroller deleted passages in the first draft
of the town audit that was critical of the current administration, including a conclusion that the town
deliberately misstated its financial position and suggestions it could have used its surplus to lower taxes.
The current Islip administration shares a party affiliation with the incumbent Comptroller and, in defense
of the omission, Mr. DiNapoli responded, "It's not our place to direct the town board on how to spend the
town's money."37
Yet Mr. DiNapoli has routinely contradicted this statement, as in other instances the OSC has made
recommendations in their audits of towns on what to do with surplus funds. One specific example of this
contradiction is the OSC’s audit of the Town of Berne and the Comptroller’s suggestion that, due to the
size of Berne’s reserve fund, the Town had erred in levying too high a tax on its residents.38 In another
34
Office of the New York State Comptroller. Division of Local Government and School Accountability. “Brooklyn
Charter School: Financial Management Practices.” 4 March 2008. 27 September 2010.
<http://osc.state.ny.us/audits/allaudits/093008/06n9.pdf>
35
Office of the New York State Comptroller. “Kipp Implements Additional Internal Controls
as a Result of Audit.” 6 December 2007. 27 September 2010.
<http://www.osc.state.ny.us/press/releases/dec07/120607.htm>
36
Office of the New York State Comptroller. Division of Local Government and School Accountability. “Kipp
Academy Charter School: Financial Management Practices.” 6 December 2007. 27 September 2010.
<http://osc.state.ny.us/audits/allaudits/093008/06n9.pdf>
37
Maloney, Jennifer, “Taking Islip to Account,” Newsday, August 10, 2010, p. A2.
38
Hale, Melissa. “The Comptroller Should Have Regs That Town Can Bank on.” The Altamont Enterprise. 10 June
2010. <http://www.altamontenterprise.com/Weekly%20Archives/2010/06-10-10/Editorial1.html>
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example regarding an audit of the town of Wales, the OSC wrote: "We found that the vast majority of real
property taxes raised in the past 10 years were not needed."39
The Root of the OSC’s Audit Problems
The public nature of the OSC’s auditing process gears it towards finding “gotcha” mistakes that are often
petty by any relative measures to the State’s significant financial shortcomings; that is, by conducting
audits in public and releasing the results along with a press release, there appears to be more of a focus on
commanding headlines rather than achieving substantive reforms. Tellingly, the Comptroller has already
issued at least 179 press releases this year to announce the results of his audits.40
This current system engenders tremendous distrust between the OSC’s auditing bureau and management
under audit. Whereas a private audit process – the results of which could be shared privately with
management in a cooperative effort to come up with and implement strategies for improvement – might
be welcomed and lead to more collaborative and lasting changes. By contrast, here are more illustrative
examples of audit findings that appear aimed at headlines, were received uncooperatively and,
considering the State’s larger fiscal problems, seem like a colossal waste of time.
In auditing the Guilderland School District in 2007, the OSC’s top finding was: “insufficient segregation
of duties in the internal controls over cash receipts and disbursements.” To save money, one person
served both administrative functions. So the school district responded: “We have years of loyal service
[from this individual] and have to spend taxpayer money [now on two employees] to prevent a risk we
never felt was here.” Guilderland officials were especially frustrated because the OSC provided no
template to guide school districts on how the duties could best be structured for efficiency and safety. The
OSC also criticized Guilderland for not having “a formal disaster recovery plan for its computerized
data.” But Guilderland’s business administrator said he could find no templates for a disaster recovery
plan recommended for a high school and complained, “They only tell you when you do something
wrong.”41
Indeed, OSC audits are short on providing solutions, even for relatively small problems like data
recovery. But they sure are quick to point them out publicly.
The Proper Application of the OSC’s Audit Powers and Responsibilities: Developing a Restructuring
Plan for New York
Our view of this office is far different than the current officeholder’s. We believe it is imperative for the
OSC to focus its resources and attention on the most significant threats to the State’s wellbeing. The
Comptroller’s audit function is a powerful tool for measuring the full scope of the State’s major financial
39
Office of the New York State Comptroller. Division of Local Government and School Accountability. “Town of
Wales Financial Management.” July 2010. 11 October 2010.
http://www.osc.state.ny.us/localgov/audits/towns/2010/wales.pdf
40
Office of the State Comptroller. “State Comptroller Newsroom”. 15 October 2010. <
http://www.osc.state.ny.us/press/index.htm>
41
Hale, Melissa. “The Comptroller Should Have Regs That Town Can Bank on.” The Altamont Enterprise. 10 June
2010. <http://www.altamontenterprise.com/Weekly%20Archives/2010/06-10-10/Editorial1.html>.
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troubles and identifying solutions. Our goal is to transform this office from an irrelevant backwater when
it comes to discussions of fiscal reform to the State’s active leader in exposing Albany’s fiscal problems
and proposing workable reforms. This transformation includes a repurposing of the OSC’s auditing
practices, so that instead of issuing public audits aimed at press attention and political favors, audits
instead become a meaningful management tool that, in their conclusions, offer significant restructuring
recommendations and then work with government officials to actually implement those recommendations
and achieve the targeted savings.
This view of the Comptroller’s auditing potential is derived from a solutions-oriented, restructuring
perspective. A nationally recognized restructuring expert who crossed party lines to work for the U.S.
Treasury Department under President Obama and led the restructuring of General Motors, the largest
corporate restructuring in American history, Harry J. Wilson believes that audits should focus on
developing a full restructuring plan for New York State.
What are the hallmarks of a restructuring plan for New York State?
1) A high level review of the organizational structure of New York State government, particularly
identifying areas of overlap and duplication; specifying metrics to measure effectiveness, as
appropriate; assessing the core competencies of key agencies and departments; and benchmarking
New York’s organizational structure to other states.
2) A SWAT team approach to each of the largest areas of spending, starting with Medicaid, and to
identify problem areas, like the MTA.
a. Each SWAT team would then conduct a bottoms-up, line item by line item review of
every dollar of spending in its target area.
b. For each subject area review, the analysis would include a review of wasteful or
fraudulent spending; a cost-benefit analysis for certain programs and leading alternatives;
benchmarking versus other states; establishing quantitative and qualitative objectives to
measure performance in the future; and specific recommendations to reduce spending
and/or improve service delivery.
3) The combination of the top-down review and the bottoms-up analysis of each segment of State
government would form the core of the restructuring plan.
The current Comptroller has argued that such a broad approach is beyond the office’s responsibilities. We
vehemently disagree. The Comptroller’s role as the taxpayer’s watchdog must be pursued to the fullest
extent of the powers of the office. It is unrebutted that the Comptroller has the power to audit every dollar
of state spending. What the office requires is a Comptroller with the vision, the skills and the experience
to apply that power broadly enough to drive a necessary turnaround of our state. Let us illustrate an
example of how this approach would work with a single program, Medicaid.
The high level review we envision would assess all government agencies that administer Medicaid;
benchmark spending (both in total and by major category, ranging from spending on physicians to
facilities to each optional service covered under Medicaid, relative to other states); and assess the quality
of care provided to form a comprehensive overview of the strengths and weaknesses of our current
Medicaid program.
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TO FIX NEW YORK
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Under the SWAT team portion of the analysis, the OSC would deploy staff (and, as necessary, outside
consultants, potentially on a pro bono basis) to do a detailed review of each segment of Medicaid
spending, seeking to create a highly granular assessment of all Medicaid dollars spent. While this will
help identify fraud, the central goal is to create the basis for a thorough restructuring plan to allow for a
far more efficient use of resources.
Combining the fruits of these labors will result in a comprehensive restructuring plan for Medicaid.
Turn the Audit Function on the State Budget and State Spending
New York State’s budget remains relatively unexamined by OSC audits, despite the fact that there is
uniform agreement that Albany’s budget process is horribly broken:
"We need to have our budget process reformed and to produce better results."42
--Comptroller Thomas DiNapoli, speaking on Governor David Paterson’s State of the State
Address on January 8, 2010. Comments made on YouTube.
“If any year demonstrates how fundamentally broken New York State’s budget process is, this is
the year. We have a budget process that allows shady accounting practices and encourages a
model of non-accountability for spending, revenues and borrowing. With this legislation I’m
saying the buck stops here, because the State is getting too close to coming down to its last
buck.”43
--Senator Liz Krueger (D-Manhattan), Chair of the Select Committee on Budget & Tax Reform
and Vice-Chair of the Finance Committee, remarks from the New York State Senate website, in
an April 7, 2010 press release titled “Senate Majority Announce Reforms To Fix New York's
Broken Budget Process”
“For decades taxpayers have paid the price for irresponsible overspending in State government.
Senate Democrats now have the ability to push forward real budget reforms that will mandate
stringent standards of accountability and responsible financial planning. Hard working New
Yorkers deserve to know how their tax dollars are being spent and that they are being spent
wisely to ensure a brighter financial future for the State of New York.”44
--Senator Neil Breslin (D-Albany), on remarks regarding proposed legislation from the State
Senate Democratic Majority aimed at establishing a balanced budget for New York State.
42
DiNapoli, Thomas. “State Comptroller DiNapoli on State of the State.” 8 January 2010. 22 September 2010.
<http://www.youtube.com/watch?v=RTFhg0UIeNY&feature=player_embedded#>
43
New York State Senate. “Senate Majority Announces Reforms To Fix New York’s Broken Budget Process.” 7 April
2010. 22 September 2010.
<https://www.nysenate.gov/press-release/senate-majority-announce-reforms-fix-new-yorks-broken-budget-
process>
44
Ibid.
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TO FIX NEW YORK
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Remarks from the New York State Senate website, in an April 7, 2010 press release titled “Senate
Majority Announce Reforms to Fix New York's Broken Budget Process”
The State’s Executive Budget law is 80 years old and is both outdated and unsound. Budgets are routinely
late,45 and they often rely on accounting gimmicks and one-shots to balance out expenditures using non-
recurring revenue actions. The State therefore maintains a nagging structural imbalance, and this flaw was
on full display during New York’s cash-flow crisis in the second half of fiscal year 2010.46 In March
2010, the current Comptroller published a strategy paper for “ending New York’s fiscal crisis,” which
proposed basic and necessary budget reforms. But mostly these reform proposals echoed those that are
perennially discussed by fiscally responsible advocacy organizations in New York. Where the
Comptroller has truly fallen short is in failing to turn his full auditing capabilities to the State budget. If
he did, he could immediately remedy a number of irresponsible practices on his own, absent political
action or constitutional amendment, on which his current budget reform proposals rely.
For example, the State budget operates on a cash basis, which allows for various timing-related gimmicks,
such as paying Fiscal Year 2010 expenses in Fiscal Year 2011 to balance the 2010 budget. Such
gimmicks are prevented in the corporate world through the use of Generally Accepted Accounting
Principles (GAAP), which, among other things, matches expenses to the period in which they are
incurred.47 While adopting GAAP-based accounting requires legislation,48 the Comptroller has both the
ability and the authority to effectively redraft the budget on a GAAP basis – thus laying bare the
shortcomings of the budget process, increasing the pressure for reform and revealing to taxpayers the true
depth of our State’s fiscal problems.
Audit Every Dollar of State Spending
The OSC should further unleash its auditing arm on the State budget. If elected, we plan to audit every
line-item of State spending to identify specific cost cuts and present them to the legislature and the
governor. We fully intend to identify enough realistic cost cuts within 100 days of taking office to close
the $8.2 billion budget gap for fiscal year 2011, without a single penny in new taxes or borrowings – and
then work with the Governor and the Legislature to implement a realistic budget that incorporates these
cuts. This could be done either through the Governor’s proposed budget, by introducing any cuts that
were not part of the proposed budget through the Legislature or by working with the Governor at the end
of the process through his use of the line-item veto.
The current OSC hasn’t attempted any of this and seems to be satisfied merely paying lip service to
budget reforms, including GAAP-basis accounting, which he nominally supports but doesn’t apply in any
of his “independent” State budget reports and analyses. Of course, it may legitimately be the case that the
45
“State lawmakers have passed an on-time budget six times since 1975, according to the state comptroller’s
office.” Confessore, Nicholas. “Albany Misses Its Deadline on the Budget,” New York Times. 1 April 2010. 10
October 2010. < http://www.nytimes.com/2010/04/01/nyregion/01late.html>
46
Barro, Josh and McMahon, EJ. “Blueprint for a Better Budget.” Empire Center for New York State Policy. Albany,
NY: 2010, 44.
47
Ibid, 45.
48
Legislation has been introduced in both the New York State Assembly (A10637) and Senate (S7284)
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current OSC does not possess the expertise to do much more than what he is mandated to do by law. That
is why the voters of this state must elect a Comptroller with both the skills and convictions to carry out
this work.
To implement this approach, our goal would be to work with the resources available at the OSC, train
personnel as required and develop the skill set at the State level to perform extensive audits on the State
budget in its entirety. Every organization needs pruning, and, since there has not been a broad
reorganization of New York State government in nearly a century, it is even truer for State spending on
programs that no longer work or do not work as intended, programs that are obsolete and programs that
carry a poor cost-benefit tradeoff. In State government, the best agent to identify this waste objectively is
the Comptroller through his auditing mandate. And if there were a Comptroller’s office in New York that
could proactively audit the State budget to identify failed or duplicative programs and could apply a
cost/benefit analysis to potential cuts, the OSC could become the engine for providing New York with
wholesale budget solutions.
Independence is crucial in this regard, as the last to recognize that they are in charge of a failed or broken
system is always management and those close to management – or in this case, politicians in Albany and
the special interests who rely on their largess. The management team at General Motors in 2009 thought
that the company was in fine shape, that they were on the right track and that their financial problems
were solely a result of the financial crisis and the ensuing recession. Virtually all Americans knew that
GM had far deeper problems, including an uncompetitive cost structure, insufficient investment in new
products, especially more fuel-efficient products, and a debt-laden capital structure that left the Company
vulnerable to economic swings. Similarly, while the vast majority of New Yorkers are concerned about
the fiscal health of our state, and most agree that State spending is too high, the current “management”
team does not seem to have any remotely serious plan to deal with it.
It is critical, then, that the Comptroller be an independent outsider with the expertise and authority to
audit State government and establish novel solutions to our State’s financial mess.
Our Approach – The How

In the last six years, State spending is up about 35%.49 Inflation is only up about 12% for that period,
which leaves an excess spending increase of 23%. In other words, if all we did was hold the line on
spending to the rate of inflation for the last six years, New York’s fiscal year 2011 budget would have
been approximately $112 billion, versus the actual budget of $135 billion – a savings of $23 billion. New
York’s increase in State spending has continued over the course of one of the worst economic crises in the
49
From enacted State Budgets between SFY 2005 and 2010.
p.5. 1 October 2010. <http://publications.budget.state.ny.us/budgetFP/2010-11FinancialPlanReport.pdf>
State of New York. Division of the Budget. “2009-10 Enacted Budget Financial Plan.” Albany, NY. 28 April 2009, p.3.
1 October 2010. <http://www.budget.state.ny.us/pubs/archive/fy0910archive/enacted0910/2009-
10EnactedBudget-FINAL.pdf>
State of New York. Division of the Budget. “2004-05 Enacted Budget Report.” Albany, NY. 14 September 2004,
p.17. 1 October 2010.
<http://www.budget.state.ny.us/pubs/archive/fy0405archive/enactedBudgetReport0405.pdf>
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TO FIX NEW YORK
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nation’s history, and General Fund baseline spending will continue to grow next year by a whopping
23%, due in large part to the expiration of Federal stimulus funds.50 Spending is also projected to grow
faster than revenues in the several years that follow.51 The national average for state spending per capita
was $5,446 in 2007, the latest year for which data are available, whereas New York’s was $7,846 in the
same period. 52 By any measure, there is room for large savings.
The Four Questions
Traditionally, New York has balanced its State budget haphazardly, struggling to maintain existing
programs and services by adjusting for revenue changes, inflation and population. What we would
propose, in contrast, is that, with the help of the office’s auditing capacity, the Comptroller outline a
strategic direction that allows the State to focus on its core functions, while cutting back on programs and
services that don’t work, overspend and under-deliver. This directional approach would require the State
to ask itself four fundamental questions meant to focus government on its essential role and capabilities:
1) What is a sustainable tax burden for the State, and what does that translate into for total State
government receipts?
2) What does the State want to accomplish?
3) How will the State measure its progress in meeting its goals?
4) What is the most effective way for the State to accomplish its goals given the funds that will
be available?
These key questions, as commonsensical as they seem, are based largely on four similar questions posed
by former Governor Gary Locke in the budget re-prioritization effort he instituted in Washington State
that ultimately balanced out an almost $3 billion budget deficit (roughly the per-capita equivalent of what
New York State faces in fiscal year 2011).53 Similar approaches have been tried in other states by
governors of both major parties. What successful state governments (New York, of course, is a glaring
omission from that list) across the nation have demonstrated is that there is a common sense, non-
ideological business-oriented approach to restructuring government priorities. New York has failed to
adopt this approach, but we can transform the Comptroller’s role in order to drive such an assessment.
The Answers Will Mean Tax Relief
In asking these questions connected to each area of State spending and carefully considering the answers,
the OSC can drive a thorough reworking of our State’s spending priorities. We see this approach working
in two steps:
50
125. 27 September 2010.
<http://publications.budget.state.ny.us/budgetFP/2010-11FinancialPlanReport.pdf>
51
Ibid, 9.
52
Tax Foundation. “State Spending Per Capita, Fiscal Year 2007.” 5 February 2009. 27 September 2010.
<http://www.taxfoundation.org/research/show/287.html>
53
NY: 2010, 6.
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October 2010
1) The first step will be to tackle the deficit (currently forecast to be $8.2 billion) for fiscal year
2012.54 That gap must be closed without budget gimmicks and without a dollar of tax increases or
borrowing. We will develop, before the March 31 budget deadline, a list of specific cuts to
eliminate the gap and also outline a list of budget gimmicks that, if included in the final budget,
would compel us to not certify the budget. In this way, the Comptroller can provide a responsible
road map to a truly balanced budget, and while the ultimate budget may take a different form, the
threat of not certifying budget gimmicks will at least ensure that the final budget is an honest one.
2) The second step will be to conduct a thorough review of all operations in the State in the first 15
months in order to incorporate specific recommendations for the fiscal year 2013 budget. These
recommendations will reflect the restructuring plan for New York that we discussed earlier in this
paper and will be prepared in concert with the Governor and reform-oriented members of the
Legislature to maximize the probability of passage. While we have a high degree of confidence
that we can identify many billions of dollars in fiscal mismanagement, the ultimate goal must be
to implement these improvements, which will require a collaborative, bipartisan process. We are
highly confident that the end result will both eliminate New York’s growing structural
deficit and also allow for a meaningful reduction in our collective tax burden, so that New
York can once again be more competitive in attracting businesses and jobs.
Performance Metrics
One of the most critical tools for managers is the use of performance metrics, which allow an organization
to monitor performance toward its goals over time.55
During the reinventing government movement of the 1990s, many states attempted to adopt performance
metrics as part of their budgeting process. By establishing these metrics, states sought to define outcomes
and expectations for their agencies, programs and services at a given cost.56 The reinventing government
experiment yielded mixed results, and a large impediment to its success was a legislative reluctance to
incorporate performance information into budgeting.
This is unfortunate because, if done correctly, results-based management is the most powerful tool for
eliminating waste and inefficiency. Implementing performance measures can be tricky, but not
impossible, and it usually requires a customized approach.57 The best known example to New Yorkers is
the New York City Police Department’s “Compstat” program. Governor Locke in Washington sought to
emulate that success by requiring that outcome descriptions be added to the State’s budgeting at each
54
9. 27 September 2010.
55
State of New York. New York State Office for Technology. “New York State Project Management Guidebook,
Release 2.” Albany, NY: 2003. 27 September 2010. <http://www.cio.ny.gov/pmmp/guidebook2/Performance.pdf>
56
NY: 2010, 46.
57
Release 2.” Albany, NY: 2003, 56. 27 September 2010.
<http://www.cio.ny.gov/pmmp/guidebook2/Performance.pdf>
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agency for each of its activities in order to better assess which programs’ funding should be reduced or
increased.58-59
Another example of a success in this regard can be found in New York at the State level. Sometime
around 2000, The New York State Workers’ Compensation Board recognized the need to measure
performance to help improve its operational effectiveness. The first step was to establish appropriate
metrics, which admittedly can be a challenge in the public sector and thus requires particularly deft
expertise. The Board set out to define appropriate performance metrics that would drive process
improvements, recognize best practices and be consistent with the mission of the organization. In the end,
they developed a robust system of 50 measures, a good example of what can be constructed with the
proper focus from public officials. 60
The metrics translated into results in documented ways. For example, the average time required to index a
case at the Board dropped from 31.4 days to 16.5 days; the number of cases resolved through informal
processes increased from 2,100 per month to 3,750 per month and then later to 5,000 per month. In
general, every area of the Board’s operations related to handling claims for benefits saw improvement
almost immediately after implementing performance metrics.61
We should take a moment to point out that the above case study is taken from the New York State Project
Management Guidebook. Despite the lessons learned from the State Workers’ Compensation Board as
well as Compstat, New York does not otherwise regularly measure and report on the performance of its
programs. This means that no one knows where our money is making a difference and where it isn't. The
greatest victims of this scattershot approach are the best public programs – they receive across-the-board
spending cuts during 11th hour budget negotiations when perhaps they should be strengthened instead.
Only by objectively measuring performance and outcomes and applying those metrics to the expenditure
of public dollars can public officials make the best trade-offs.62
An OSC audit of the State budget could assign performance metrics to the State’s agencies and services
and, over time, report on the results. And while the magnitude of the attendant efficiencies and savings
are as yet unknowable, surely they will have more of an impact on State operations and the workings of
government than the myriad petty audits the current Comptroller uses today to disseminate
inconsequential press releases.
58
NY: 2010, 46.
59
State of Washington. General Management Accountability and Performance. 27 September 2010.
<http://www.accountability.wa.gov/>
60
Release 2.” Albany, NY: 2003. 27 September 2010. <http://www.cio.ny.gov/pmmp/guidebook2/Performance.pdf
61
Ibid.
62
Green, Cynthia, “The Way to a Better Budget,” The New York Times, Aug. 4, 2003, p.A13.
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Where to Look for Savings

For the most impact in cutting spending and improving the State’s fiscal position, the Comptroller should
take a cue from Willie Sutton when it comes to his or her auditing authority and focus first on Medicaid
and education spending – because that’s where the greatest amounts of spending are.
Medicaid Reform
All Funds Medicaid Spending in the 2010-11 State budget totals $45.3 billion, and New York’s Medicaid
program is the most costly in the nation. 63 Medicaid amounts to about 34%64 of New York’s State budget
and is about 23% more than California spends on its Medicaid program,65 even though California has
approximately twice the population of New York and Medi-Cal covered 57% more people than New
York State’s Medicaid program in 2008.66 Furthermore, with only about 6.4%67 of the nation’s population
and roughly 9.5%68 of all Medicaid enrollees, New York accounted for a disproportionate 14% of all
Medicaid spending in 2008, the last year for which all these data are available.69 And New York
experienced a 9.1% growth in Medicaid enrollees between December 2008 and December 2009,
outpacing the national average of 8.2% growth in the same period.70
63
State of New York. Division of the Budget. “2010-11 Enacted Budget Five-Year Capital Program and Financing
Plan.” Albany, NY: 2010, 66.
<http://publications.budget.state.ny.us/budgetFP/1011capPlan/FINAL_CPFP_1011.pdf>
64
New York State’s fiscal year 2010 All Funds budget is $133.bn. (Source - FY2010-11 Enacted State Budget, page 5)
and the All Funds Medicaid expenditure is $45.3bn (Source: State of New York. Division of the Budget. “2010-11
Enacted Budget Five-Year Capital Program and Financing Plan.” Albany, NY: 2010, 66.)
65
According to the following two documents:
-- State of New York. Division of the Budget. “2009-10 Enacted Budget Financial Plan.” Albany, NY: 28 April 2009,
64. 27 September 2010. <http://www.budget.state.ny.us/pubs/archive/fy0910archive/enacted0910/2009-
10EnactedBudget-FINAL.pdf>
-- State of California Health and Human Services. Department of Health Care Services. “Governor’s 2009-10
Enacted Budget Detail.” 27 September 2010.
<http://2009-10.archives.ebudget.ca.gov/Enacted/StateAgencyBudgets/4000/4260/department.html>
66
Kaiser Commission on Medicaid Facts. “Medicaid Enrollment: 2009 Snapshot.” Washington, D.C.: February 2010,
2. 27 September 2010. <http://www.kff.org/medicaid/upload/8050.pdf>
67
United States Census Bureau. Population Division. “Annual Estimates of the Resident Population for the United
States, Regions, States, and Puerto Rico: April 1, 2000 to July 1, 2009 (NST-EST2009-01).” 27 September 2010.
<http://www.census.gov/popest/states/NST-ann-est.html>
68
Kaiser Commission on Medicaid Facts. “Medicaid Enrollment: 2009 Snapshot.” Washington, D.C.: February 2010,
2. 27 September 2010. <http://www.kff.org/medicaid/upload/8050.pdf>
69
Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on data from Centers
for Medicare and Medicaid Services HCFA-64 reports, 2010.
<http://www.statehealthfacts.org/profileind.jsp?cat=4&sub=47&rgn=34>
70
Kaiser Commission on Medicaid and the Uninsured. “Medicaid Enrollment: December 2009 Data Snapshot.”
September 2010. 1 October 2010. 3. <http://www.kff.org/medicaid/upload/8050-02.pdf>
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Left unchecked, total Medicaid spending in New York is set to grow by 27% to $63.5 billion between
fiscal years 2010 and 2014, an average annual increase of nearly 7% - well above projected inflation.71
Finally, it is important to note that on a per capita basis, New York spends $2,360 on Medicaid – more
than any other state in the country and more than twice the national average of $1,077.72 Material
improvements in Medicaid could go much of the way in helping to close the State’s projected $8.2 billion
budget deficit in fiscal year 2012.
It is important to note that for all the excess spending on New York’s Medicaid program, health care
outcomes are not appreciably better in New York than in other, comparable states and, according to one
signal study, are relatively mediocre. The Commonwealth Fund rated the best and worst states for health
care using myriad criteria, including health care access, quality of coverage, costs and preventability of
hospital admissions, how the poor and uninsured fare and the overall healthiness of state residents.
Overall, wealthy areas of the country, such as the Northeast, generally have better health care outcomes.
Still, the Commonwealth Fund found much variability by region and, using 32 criteria, rated Hawaii,
Iowa, New Hampshire, Vermont and Maine as the best health care providing states. New York, despite
much higher health care expenditures, ranked only towards the bottom of the second quartile (22nd
overall).73
As the September report issued by Lieutenant Governor Richard Ravitch pointed out, New York’s
Medicaid program has grown to cover the needs of lower-income working families, provide long-term
care services, subsidize safety-net hospitals and is the largest healthcare purchaser in the State, serving
more than 4 million people.74 While Medicaid spending in New York is expected to grow at an average
annual increase of nearly 7% between fiscal year 2010 and 2014, the State’s share of Medicaid costs will
increase much faster – by an average annual increase of nearly 18%, due to the expiration of Federal
stimulus aid. Simultaneously, federal healthcare reform will mean an increased number of New Yorkers
enrolling in Medicaid. All of which makes it even more important to control costs.
But New York’s Medicaid program is currently administered in a manner that makes cost-containments
almost impossible, and none of the OSC’s State Department of Health audits have focused on these
structural problems. It took the Lieutenant Governor – an office with fewer resources and no clear
71
State of New York. Ravitch, Richard. Report on Medicaid in New York. Albany, NY: 20 September 2010, 1. 27
September 2010. <http://www.scribd.com/doc/37784184/Lt-Governor-Medicaid-Report-FINAL>
72
State of New York. Division of the Budget. “2010-11 Executive Budget Briefing Book.” Albany, NY: 19 January
2010, 11. 27 September 2010.
<http://publications.budget.state.ny.us/eBudget1011/fy1011littlebook/BriefingBook.pdf>
73
The Commonwealth Fund. “Aiming Higher: Results from a State Scorecard on Health System Performance.” June
2007. New York, NY: 10. <http://www.commonwealthfund.org/usr_doc/StateScorecard.pdf>
74
2010, 11. 27 September 2010.
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mandate to audit the State’s Medicaid spending – to focus Albany’s attention on the foundational
problems embedded in our Medicaid system. According to the Ravitch report, these include:75
 New York State’s lowest possible Federal reimbursement rate (50%);

 Enrollment that increased by 600,000 during the 2008 and 2009 economic downtown;
 Overly generous long-term care, including extensive personal care;
 Statutory rate-setting mechanisms; and
 Decentralized control at the county level.
The Lieutenant Governor’s report recommends a number of solutions, and the New York State
Comptroller could play a key role in quantifying the impact of each. For example, long-term care
accounts for almost half of the State’s Medicaid spending, and long-term care is purchased on a fee-for-
service basis. At the same time, New York’s Medicaid program has no coordinated cost management
strategy for its fee-for-service expenses. Here, the OSC could help with solutions and implementation,
while simultaneously calculating the potential savings from better managing fee-for-service expenses.
This is something we would immediately pursue.
The Ravitch Report also highlights that New York is virtually alone in its localization of Medicaid’s
administration. The decentralization dates back to when localities shared costs equally with the State. This
makes coordinated cost controls difficult, although under new legislation, the Department of Health is
required to develop a plan for the State’s administrative takeover of Medicaid. Here again, the OSC could
quantify the savings to be had while also helping to calculate what a complete State fiscal takeover would
save for New York. This would help make the case to the Legislature and the Governor that, despite
political opposition, it is very much in the best interests of New York State’s financial future.
Preserving Medicaid Audits and Recoupment
State Senator Craig Johnson introduced legislation (S7821) that would cripple OMIG and increase New
York State’s liability for Medicaid recoveries owed to the Federal government.76 The bill has been
championed by the “Home Care” industry, whereas Senator Johnson has received over $60,000 in
campaign contributions from the health care industry and is considered one of its most loyal supporters.
Moreover, Home Care Medicaid expenditures run notoriously high error rates, meaning they are
particularly subject to OMIG’s scrutiny and recoveries.
At issue is the way Medicaid waste, fraud and abuse is recovered. Specifically, OMIG as well as the U.S.
Department of Health and Human Services Office of Inspector General (OIG) rely on sampling methods
to identify the magnitude of fraud and the dollar figure they assign to recoveries.77 In this way, auditors
may review 200 cases out of 10 million and find an error rate of 50%. Applying that error rate to the full
75
State of New York. Ravitch, Richard. Report on Medicaid in New York. Albany, NY: 20 September 2010, 6-13. 27
September 2010. <http://www.scribd.com/doc/37784184/Lt-Governor-Medicaid-Report-FINAL>
76
New York State Senate. “Open Legislation, S7821: Relates to the office of medicaid inspector general.” 13 May
2010. 27 September 2010. <http://open.nysenate.gov/legislation/api/1.0/html/bill/S7821>
77
United States Department of Health and Human Services. Office of Inspector General. 27 September 2010.
<http://oig.hhs.gov/>
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caseload, and assuming each error amounted to $1 in recoverable waste, OMIG and OIG would seek to
recoup $5 million.
Sampling is integral to OMIG’s investigations and New York’s increased recoveries. It is also the case
that the OIG will use sampling in its audits to measure recoveries it demands directly from states. And
whenever OIG finds that New York State overbilled the Federal government for Medicaid expenditures,
New York first pays back the Federal government, and then must claw back the illicit charges from health
care providers. (This action is referred to as “pay and chase.”) For that, New York must employ sampling
to recoup from providers its Federal payout, otherwise it would be impossible to recover the funds from
the original sources of the abuse.
But State Senator Craig Johnson’s bill would make it more difficult for New York to recover funds from
providers. As a result, whenever New York Medicaid misspending is discovered by the OIG, the State
would bear the burden of paying back the Federal government on its own. This amounts to a huge new
liability the State – in its current, weakened fiscal condition – cannot afford, since recovery numbers can
be staggeringly high (in the billions). As it happens, the State is relying upon its own Medicaid recoveries
to balance its fiscal year budget, and Senator Johnson’s bill would make it harder to do that. Moreover,
while S7821’s drafters purport that their bill would have no applicability to “fraud cases or recoveries
based on findings of fraud” – i.e., that it would not make it harder to recoup funds from Medicaid fraud –
it would for a number of reasons highlighted in Appendix A.
To preserve New York’s capacity to recover Medicaid waste, fraud and abuse, and to protect the State
from a new and unaffordable liability to the Federal government, the OSC would better serve our
financial wellbeing by conducting cost-benefit analyses of legislation that would impair the State’s fiscal
health. The Johnson bill represents a significant threat to the financial position of the State.
There are other large State Medicaid liabilities the OSC’s audit bureau could play a role in monitoring
and reducing.
Emergency Services for Undocumented Residents & the Coming Liability
For example, Medicaid covers emergency services for undocumented residents, but not other healthcare
services.78 As a result, many undocumented residents use emergency services as their only primary care
option. It is also the case that many providers bill Medicaid for health services performed on
undocumented residents that aren’t emergencies. This is a huge national problem, and OIG has issued a
number of warnings and reports to states, demanding reimbursement for the Federal share of Medicaid
funds that went towards non-emergency health care for undocumented residents.
In an OIG report to the State of Texas, the Federal government found that of the $314 million in Texas
claims for emergency care for undocumented residents for the period October 1, 2004, through September
30, 2005 ($191.2 million Federal share), Texas did not have adequate internal controls to restrict
78
Section 401(b)(1)(A) of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996
(P. L. No. 104-193)
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undocumented residents to emergency services.79And of the 854 medical claims, OIG determined that the
services contained on 629 claims totaling $679,588 met the State’s definition of emergency care.
However, services contained on 193 claims totaling $262,366 ($159,702 Federal share) did not meet the
definition.80 This means that for Texas, OIG found over 25% of the cases they submitted for Medicaid
reimbursement and the subsequent funds they received from the Federal government were not, in fact,
eligible for Medicaid.
Invariably it is the case that whenever OIG finds wide-scale waste and abuse like this, New York State,
due to its size, is among the first to be audited. And according to initial informal discussions with
officials, New York State providers have long been aggressive in billing Medicaid for non-emergency
services for undocumented residents. Most obviously, this appears to be rampant among mentally
impaired undocumented residents who receive ongoing care in New York but are not considered
emergencies. In some cases, these individuals have been hospitalized in institutions for years. Were 25%
of New York’s submissions for emergency care for undocumented residents found to be fraudulent or
ineligible, it would mean that New York would have to pay back the Federal government a figure that
would likely be in the billions, since OIG has the statutory authority to go back as many as 6 years in
order to claw back money owed the Federal government through Medicaid abuse.
We believe that the OSC audit bureau could help protect New York State from massive liabilities like
these if it were more comprehensive and performance-oriented with its audits and, subsequently, more
proactive in looking for problematic practices. In the case of undocumented residents and the Federal
government’s current interest in reviewing states’ submissions for Federal Medicaid funds, being
proactive could have protected New York from a huge liability, the magnitude of which will likely be
determined in the coming months as these OIG investigations continue.
Long-term Care Reimbursements
Another example of a significant Medicaid liability borne by New York State is the reimbursement for
long-term care. Long-term care covers a variety of services that includes medical and non-medical care to
people who have a chronic illness or disability, often the elderly or disabled. Much long-term care
comprises support services for daily living, such as dressing, bathing and using the bathroom; this care
can be provided at home, in the community, in assisted living or in nursing homes.81
Among states, there is a wide variation in Medicaid reimbursements for long-term care, largely dependent
upon things like coverage policies and nursing home rates. Also, some states cover disabled, Medicaid
eligible, working adults while other states do not. For those states that do cover this population, the
income threshold for eligibility may differ. Plus, states have the ability to make their own determinations
regarding the amount, duration and scope of eligible services; so 31 states provide personal care services,
23 cover private duty nursing and only 10 cover “religious non-medical institution and practitioner
66
United States Department of Health and Human Services. Office of Inspector General. “Medicaid Payments
Made for Nonemergency Services Provided to Undocumented Aliens and Legal Aliens Restricted to Emergency
Services in Texas.” 31 August 2009, i. 27 September 2010. <http://oig.hhs.gov/oas/reports/region6/60700108.pdf>
80
Ibid, ii.
81
http://www.medicare.gov/longtermcare/static/home.asp
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services.” States also have discretion over the amount of care covered. For example, Maine covers 2 to 4
hours per week of personal care, while Montana and Nebraska cover 40 hours per week. And even though
all states cover home health, Alabama covers 104 home health visits per year while Louisiana, Arkansas,
and Georgia cover only 50.82
A recent report by the Rockefeller Institute, “Medicaid Policy and Long-Term Care Spending: An
Interactive View,” devised a metric for states to compare their long-term reimbursement generosity. Their
index accounts for all of the abovementioned variables, plus others, and New York is far and away first
among all states in this “long-term care generosity index,” while also ranking first in terms of the cost for
nursing home payments as well as other hefty costs associated with long-term care.83
New York State’s Office for People with Developmental Disabilities
Our final example of a significant Medicaid liability can be found in the tremendous waste and abuse in
New York State’s Office for People with Developmental Disabilities (OPWDD). Recently the
Poughkeepsie Journal ran an expose revealing that 1,400 developmentally disabled residents of
institutions run by OPWDD cost Medicaid $4,556 a day – $1.7 million per person per year, or just under
$2.4 billion each year.84 This is the highest rate in the country, by far, and is more than four times higher
than the second-ranking facility, the 120-resident Clover Bottom Developmental Center in Nashville,
Tennessee, with a reimbursement rate of $1,085. For a better comparison, the rate at a developmental
center in Southbury, Conn. is $952, but experts believe the real cost should be no more than a few
hundred dollars a day.
After the Poughkeepsie Journal article came out, OIG followed up with a letter to OPWDD with a series
of requests, including a detailed description of how those daily rates are developed, and it is likely OIG
will seek back payment for what appears to be OPWDD over-charging the Federal government on a
shocking scale.
The reason New York State has been able to jack up its Medicaid reimbursement in this case is because it
has been allowed to set its own rate based on a full variety of system costs. In other words, to maximize
federal funds, New York aggressively includes every State cost even remotely related to disability
services, including capital infrastructure and debt service on its bonds. So in the event that the Federal
government cuts off this funding stream, debt service on bonds dependent upon this revenue will be borne
by New York State.85
82
Health Policy Research Center. “Medicaid Policy and Long-Term Care Spending.” Nelson A. Rockefeller Institute
of Government. Albany, NY: August 2010, 2. 11 October 2010. <http://www.rockinst.org/pdf/health_care/2010-
08-Medicaid_Policy.pdf>
83
Ibid, 1
84
Pfeiffer, Mary Beth. “At $4,556 a day, N.Y. disabled care No. 1 in nation.” Poughkeepsie Journal. 20 June 2010.
27 September 2010. <http://www.poughkeepsiejournal.com/apps/pbcs.dll/article?AID=20106200374>
85
Ibid.
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Finally, not all Medicaid overspending is due to abuse or fraud. There is also significant waste. Here
again there is opportunity for the OSC to aid the State through performance audits that seek efficiencies.
For Medicaid, there are plenty.
For the purposes of this white paper, let us focus on one – the Ambulatory Patient Group (APG)
reimbursement system, a new rate setting methodology that is replacing the State’s old flat per visit
payment methodology.86APG is widely thought to be extremely provider friendly and, therefore, only a
small number of other states use the APG payment methodology. But the system is consistent with New
York’s past practices of erring on the side of being provider-friendly and then relying on pay-and-chase
recoveries to claw back overpayments. This is one among a number of practices the OSC could uncover
and remedy in preventing significant Medicaid misspending.
Education Reform
We also already pointed out that fiscal year 2011 All-Funds spending on Education totals $33 billion.
What’s more, New York State ranks second in spending among the 50 states and spends $15,546 per
student, whereas the national average is $9,683.87
Because Medicaid is divided among different funding sources, the state-only portion of K-12 public
education spending is the largest single budget expense, and over the past ten years, State school aid has
increased 45%,88 whereas the population of students in that time has decreased slightly.89 Moreover, the
State’s current multi-year school aid plan calls for a further spending increase of 37% by fiscal year
2014.90
As we noted earlier, it is not the case that New York State education performance is a function of
spending, and New York’s quality of education lags behind other states that spend less than we do. To
reiterate, New York’s graduation rate ranks 41st out of 51, including Washington DC, according to the last
86
Ingenix. ““New APG-Based Outpatient Payment System for New York Medicaid, Industry Insights 472.” 27
September 2010. <http://www.ingenix.com/content/attachments/insight472.pdf>;
87
U.S. Department of Education. National Center of Educational Statistics. "Digest of Educational Statistics: 2009."
Table 183: Total and current expenditures per pupil in fall enrollment in public elementary and secondary
education, by function and state or jurisdiction: 2006-07. 2009.
<http://nces.ed.gov/programs/digest/d09/index.asp>
88
State of New York. Division of the Budget. Education Unit. “Description of 2001-02 New York State School Aid
Programs.” Albany, NY: 2001, 1. 12 November 2001. 29 September 2010.
89
U.S. Department of Education. National Education Statistics. “Digest of Education Statistics: 2009. Table 34.
Enrollment in public elementary and secondary schools, by state or jurisdiction: Selected years, fall 1990 through
fall 2009” May 2009. 29 September 2010.
<http://nces.ed.gov/programs/digest/d09/tables/dt09_034.asp?referrer=list>
90
State of New York. Division of the Budget. “2010-11 Enacted Budget Five-Year Capital Program and Financing
Plan.” Albany, NY: 2010, 79.
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year for which all states’ graduation rates were compiled and compared,91 while New York ranks in the
third quartile on national test scores.92
There are a number of significant cost-saving education ideas under discussion among budget watchdogs
and fiscally responsible advocacy organizations. What the OSC can do is, again through the auditing
process, conduct cost-benefit analyses to determine which programs and initiatives have the most positive
impact at a given cost. The proposals under public discussion range from compensation to Taylor Law
modifications and Wicks Law reform.93
At this stage, we are not necessarily advocating for any specific provisions, as the Comptroller must first
do the necessary analysis to quantify the costs of these proposals and then offer policymakers a menu of
options that address our educational shortcomings and funding problems. The Comptroller’s part in these
deliberations should be to provide cost-benefit analyses and value measurements on the impact these
changes will have on education spending and quality. In addition, the biggest benefit to State education
policy from OSC audits will be to free up resources from failed education programs and policies that have
not yielded measurable results and redeploying them to those that have shown gains as well as future
promise.
State Workforce
State payroll expenditures for fiscal year 2011 are approximately $13.1 billion in salary plus another $6
billion or so in fringe benefits. With approximately 195,700 State employees, the per-employee cost for
New York State is $98,000 in salary and benefits.94 The rate of increase for State employee salaries and
benefits in the last 2 years has averaged just under 9%,95 which is more than 6 times the rate of inflation
of approximately 1.4% over the same time period. And unlike most other fiscally troubled states, New
York has yet to address these problems. State workers received an average 4% increase in base salaries on
April 1, 2010, 96 the start of a fiscal year during which the inflation rate is projected to be 1.1%.97
91
U.S. Department of Education, National Center of Educational Statistics. "Digest of Educational Statistics: 2009."
Table 105: Averaged freshman graduation rates for public secondary schools, by state or jurisdiction: Selected
years, 1990-91 through 2006-07. 2009. 10 October 2010. <http://nces.ed.gov/programs/digest/d09/index.asp>
92
U.S. Department of Education, Institute of Education Sciences, National Center for Education Statistics, National
Assessment of Educational Progress (NAEP). 2010. 10 October 2010.
<http://nces.ed.gov/nationsreportcard/naepdata/>
93
NY: 2010, 14.
94
2010, 50. 2 October 2010.
95
Calculated from Budget Briefing Books FY10 page 78 and FY11 page 50
96
NY: 2010, 26.
97
http://www.forecast-chart.com/forecast-inflation-rate.html
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Meanwhile, Federal courts have twice upheld state-mandated wage freezes for public employees in New
York.98 Moreover, the State has already increased taxes and fees, cut services and implemented a raid on
New York State’s Pension Fund. Yet, a structurally balanced budget still eludes us. 99
The Comptroller can use his audit powers to show the efficiencies of reasonable changes in workforce
rules like these. Other reforms worth exploring include altering New York State’s work-week. The
majority of New York State employees still have a 37.5 hour weekly schedule. Citizen Budget
Commission estimated that expanding the work week would yield productivity savings worth $227
million a year.100 This would require collective bargaining in the next contract cycle so no savings can be
budgeted from the change until 2011. But the OSC should be front and center in the discussion using its
auditing skills to offer clear, honest appraisals and cost-saving measures to consider to both sides
of the negotiations.101
Holding the line on salaries and work-week changes are first steps. State officials in New York also need
to address our public pension problems, negotiate less expensive health insurance for government
employees and clear away laws that prevent local officials from doing the same.
MTA
As much as New York is dependent upon the MTA, Tom DiNapoli has done little to scrutinize or oversee
its finances. While the Comptroller's office has conducted 15 audits of the MTA since 2007, only 6 are
directly related to financial management (and one of these is a follow up report from an audit released in
2003). The other audits are mostly about compliance and safety issues.102 Moreover, three of those
financial audits only finished this summer, after pressure on the Comptroller from legislators to finally
focus on the financial problems of the MTA.
The Comptroller must work with MTA management to lead a thorough review and restructuring of the
cost structure of the MTA. Inevitably, this will lead to a focus on labor costs and work rules. Much as we
did in negotiating more flexible work rules with the United Auto Workers (UAW) at General Motors, we
will seek to identify the hidden costs of inefficient work practices to develop a win-win solution with a
more flexible workforce, higher quality service and a lower cost. It is critical that the zero-sum game of
labor negotiations does not compromise the core mission of the MTA, to provide a quality service at the
lowest possible cost. The goal of this effort must be to create an MTA that is as self-sufficient as possible
and has predictable and sufficient alternative revenue streams. We do not believe that the MTA tax can be
a part of such a solution, so the goal of our work would be to restructure costs to the point where the
MTA tax can be repealed.
98
Ibid, 38.
99
Ibid, 39.
100
Ibid, 26.
101
Ibid, 26.
102
Office of the State Comptroller. Agency Audits Issued by the Comptroller. 2 October 2010.
http://www.osc.state.ny.us/audits/auditAgencyList.htm#Metropolitan%20Transportation%20Authority
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Member Items
There is no class of expenditure that cries out for OSC auditing more than the Legislature’s member
items. Unfortunately, the incumbent Comptroller was appointed to his position by the Legislature and has
not brought his auditing powers to bear on the most egregious and least scrutinized class of pork in the
State budget.
While member items are not significant enough to have a meaningful impact on the budget, they are
representative of a culture of entitlement and lack of accountability that defines the Albany approach to
spending. A thorough scrutiny of member items is critical to achieving a healthier budget process.
The State Legislature approved over $148 million in “member items” in fiscal year 2010. Member items
include grants to senior citizen centers, civic groups, schools, hospitals, little leagues, arts institutions,
museums, and non-profits of every kind imaginable. They often serve laudable social intentions, but they
lack oversight and competitive bidding processes. Also, not counting member items, the State budget
already includes hundreds of millions of dollars in funding for government programs with goals similar or
even identical to member item recipients.103 A proper audit would likely provide enough scrutiny to
muster the political will to eliminate this method of backdoor pork once and for all. For the 2011 fiscal
year, Governor Paterson wisely vetoed about $190 million in legislative earmarks.104
Key Takeaways
 The Comptroller’s auditing powers are formidable, extensive and independent.
o They are rooted in statute as well as the New York State Constitution (article V).
 The incumbent Comptroller has both underutilized and misapplied the auditing function.
o He has squandered opportunities to play a key role in repairing New York State’s
broken fiscal condition.
 The Comptroller has failed to offer comprehensive reforms to the State’s largest and most
structurally flawed program – Medicaid.
o The Comptroller has conducted roughly 40 audits on Medicaid-related matters.
 Largely, they focused on procedural operations, small-scale recoveries and
practices where there were relatively minor inefficiencies.
 26 of these audits were for values under $5 million, below the threshold
considered by OMIG to be an efficient use of time and resources.
o Never has the Comptroller used his audit function to find systematic ways of
restructuring Medicaid to address core structural problems that could bring down costs to
sustainable levels.
 It is empirically not the case that health care in New York improves
proportionately to State Medicaid spending. Our focus must be on providing the
103
NY: 2010, 19.
104
Spector, Joseph. “Paterson’s vetoes of pet projects take effect.” Ithaca Journal. 16 September 2010. 29
September 2010. <http://www.theithacajournal.com/article/20100916/NEWS01/9160407/1124/Paterson-s-
vetoes-of-pet-projects-take-effect>
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highest quality care at the lowest possible cost, a standard of which we fall
perilously short.
 The same point can be made about the State’s $33 billion education expenditure.
o Comptroller DiNapoli has performed about 31 audits of the State Department of
Education that focus on compliance matters, testing records, reimbursements and issues
of school safety (which is very important, to be sure).
 But no resources from the OSC’s audit bureau have been directed at a cost-
benefit analysis of our education spending to determine how we generate the best
possible education for our children at a sustainable cost.
 It is empirically not the case that education improves proportionately as
State spending on schools increases.
 The incumbent Comptroller claims to have identified close to $3 billion in cost savings
opportunities.
o There are no publicly available details to support these claims.
o The OSC’s Annual Audit Reports suggest dramatically lower identified savings with no
evidence of implementation.
 Even if 100% of the Comptroller’s savings claims were true, the sum would
amount to a rounding error next to the total of State and local government
spending during his tenure.
 It is also the case that the Comptroller has misused his audit authority and for apparent political
purposes.
o Audits have disproportionately targeted charter schools, which are unpopular among the
politically powerful teachers’ unions.
o In the controversy over the audit of Islip, New York, council members charge that the
Comptroller deleted passages in the first draft of the town audit that was critical of the
current administration, run by political allies of the Comptroller.
 The public nature of the OSC’s auditing process gears it towards finding “gotcha” mistakes that
are petty by any relative measures to the State’s financial shortcomings.
o There appears to be more of a focus on commanding headlines than anything else.
 The Comptroller has already issued at least 179 press releases this year to
announce the results of his audits.
 Our view of the OSC’s audit function is far different than the current officeholder’s. We believe it
is imperative for the OSC to focus its resources and attention on the most significant threats to the
State’s wellbeing.
o This includes repurposing the OSC’s auditing practices so they become a meaningful
management tool that offer significant restructuring recommendations and then work
with government officials to implement those recommendations and achieve the targeted
savings.
 The Comptroller should also utilize the audit powers of the OSC to advance a restructuring plan
for New York State. This would include:
o A full review of the organizational structure of State government, particularly identifying
areas of overlap and duplication; specifying metrics to measure effectiveness; assessing
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the core competencies of key agencies and departments and benchmarking New York’s
organizational structure to other states.
o A SWAT team approach to each of the largest areas of spending.
 The current Comptroller has argued that such a broad approach is beyond the
office’s responsibilities; we vehemently disagree and strongly believe that the
beleaguered taxpayers of this state deserve better and more forceful leadership.
 New York State’s budget remains relatively unexamined by OSC audits, whereas the Comptroller
could unilaterally remedy a number of irresponsible practices.
o A prime example: the State budget operates on a cash basis, which allows for various
timing-related gimmicks, such as paying FY 2010 expenses in FY 2011 to balance the
2010 budget. Such gimmicks are prevented in the corporate world through the use of
Generally Accepted Accounting Principles (GAAP), which, among other things, matches
expenses to the period in which they are incurred.
 The Comptroller has both the ability and the authority to effectively redraft the
budget on a GAAP basis – thus laying bare the shortcomings of the budget
process, increasing the pressure for reform.
o Further, the OSC should audit every line-item of State spending to identify cuts.
 We fully intend to identify enough cost cuts within 100 days of taking office to
close the $8.2 billion budget gap for FY 2011, without a single penny in new
taxes or borrowings.
o For the review of our State spending priorities, we would ask four fundamental questions
of each major State expenditure in order to rework spending priorities.
 What is a sustainable tax burden for the State, and what does that translate into
for total State government receipts?
 What does the State want to accomplish?
 How will the State measure its progress in meeting its goals?
 What is the most effective way for the State to accomplish its goals given the
funds that will be available?
o We also would adopt performance metrics as part of the budgeting process.
 Results-based management is the most powerful tool for eliminating waste and
inefficiency and improving the effectiveness of precious resources.
 The most successful and best known example to New Yorkers is the New
York City Police Department’s “Compstat” program.
o It is possible to deploy the same kind of metrics-based tool for
other government services and create measurable outcomes, and
the Comptroller can implement them for State agencies under
audit as well as budget line items.
Conclusion
We hope that we have made patently clear through this white paper that we envision a radically different
approach to the use of the audit power than the current Comptroller does. In short, we believe the
Comptroller can be a key figure in developing the intellectual framework for a turnaround plan for New
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October 2010
York State. We believe that such a process will result in a healthier, leaner and more effective State
government that measures performance and outcomes, allocates tax receipts in the most effective way and
achieves its core goals through a conscious focus on what those goals should be – and a relentless
accountability in seeking to achieve those goals. We believe that set of values is missing from Albany and
a core reason why New York State is in the early stages of a massive fiscal crisis – but we also believe
that strong leadership that embraces these values can save our state, before it’s too late.
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Appendix A
S7821 proposes to add a section to the New York State Public Health Law that would set procedural
standards for OMIG audits. In particular, S7821 section 3 would create a section 37(8)(A) of the Public
Health Law pursuant to which OMIG "shall not apply any extrapolation formula and/or method" in its
review of overpayments to a healthcare provider "unless" several highly onerous provisions are met: "the
inspector shall first determine that the sample is statistically valid" and must be "able to prove that the
particular error in the billing or other practice . . . exceeds a rate of five percent" and that providers must
have "reasonable opportunity to respond to the initial findings, including . . . the initial proposed
sample." A proposed 37(8)(B) would require that OMIG’s written audit findings contain extensive
descriptions of their statistical methodologies "in sufficient detail to permit the provider to test and re-
create the formula and methodology in order to properly and fully defend and determination of
overpayment."
These sorts of requirements would make it more burdensome for OMIG to recover Medicaid
overpayments. Generally, section 8 is a provision that creates countless fallback positions for defense of
an overpayment. Is the sample statistically valid? What is the "particular error" surveyed for? Was the
methodology correct? If the overpayment were significant enough, these could all be fought over. Even if
the agency prevailed in a given case, S7821 would make investigation and administrative enforcement
actions more time consuming and more costly. This would amount to fewer of them and less money
recouped for New York.
There is no question that the bill would make it harder to recoup funds lost to overpayments and
errors. The bill admits as much in its introduction. As for cases of fraud, the introductory summary
language of the bill says that "nothing in this legislation applies to fraud cases or recoveries based on
findings of fraud." This might mean that S7821 would leave OMIG free to still use sampling in fraud
investigations, but it would not likely work out that way in practice.
First, many of the other subdivisions that would appear in the proposed section 37 of the Public Health
Law (setting fair procedures, practices and standards for OMIG audits), explicitly state that they "shall not
apply in the case of fraud." E.g., 37(2), 37(4)(C). The failure to include such language in what would be
section 37(8) (which contains the provisions limiting the use of "extrapolations") might cause the statute
to be read to curtail the use of "extrapolations" in fraud audits as well as overpayment audits. On the
other hand, the proposed 37(8)(B) does link the limits on extrapolations to the need to "permit the
provider to properly and fully defend any determination of overpayment." Of course, investigations of
fraud will often start out as investigations into overpayments before evolving into fraud investigations. If
it's made more difficult to use statistical methods at the outset, many frauds might never be detected (or
even investigated) in the first place.
More fundamentally, S7821 is concerned with defining “due process” in audit proceedings by OMIG. It
would be bizarre if more due process (that is, more protections for audited providers) were accorded when
fraud was not suspected than when it was because an accusation of fraud is so much weightier than one of
mere technical errors resulting in overpayment by Medicaid. This is almost certainly true even in an
administrative context like an OMIG audit. As such, if S7821 became law, it would be very likely that
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October 2010
those audited or suspected of fraud would argue that OMIG should be bound by the restrictions on
statistical methods stated in the law as a matter of procedural due process. Having been accused of fraud
and placed at risk of criminal sanctions, they would claim to be entitled to at least as much “due process”
as those accused of something less serious, especially when the legislature has essentially defined “due
process” with respect to sampling methods. This would be a pretty strong argument.
Thus, even if the intent of S7821 is to set minimum procedural standards in the non-fraud context while
leaving more leeway to OMIG in fraud cases, it is hard to imagine such an inverted system working in
practice or lasting for very long. Courts will be reluctant to afford fewer “due process” protections – as
defined by the legislature – in fraud cases than in overpayment cases. The upshot is serious risk that the
limits on “extrapolations” it proposes would very likely be applied to limit OMIG’s fraud audits. This
might be a matter of judicial enforcement of “due process” guarantees rather than the statutory text, but
the effect is the same.
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THE COMPTROLLER’S AUDITING AUTHORITY – HOW TO USE IT

TO FIX NEW YORK

The Comptroller’s Auditing Authority – How to Use It to Fix New

Comptroller & the Commanding Heights

 Albany was 125 days late passing this year’s budget;

The Current Administration

A Master of the “Drop in the Bucket”

From Misuse to Abuse

Far From an Isolated Case

The Root of the OSC’s Audit Problems

Audit Every Dollar of State Spending

Our Approach – The How

The Four Questions

The Answers Will Mean Tax Relief

Where to Look for Savings

 New York State’s lowest possible Federal reimbursement rate (50%);

Preserving Medicaid Audits and Recoupment

Emergency Services for Undocumented Residents & the Coming Liability

Long-term Care Reimbursements

New York State’s Office for People with Developmental Disabilities

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