Tuesday, March 24, 2009

No Oversight for Payment of Investment Expenses

Payment of funds from NYCERS is controlled by Section 13-137 of the NYC Administrative Code. Simply stated, the NYC Comptroller is authorized to make payments from NYCERS assets based on written authorization from the NYCERS executive director. Not only is this the law but it is sound accounting practice. It is called "two man" control, excuse the old sexist term. It is much harder to steal when there are two independent parties involved.

In 1996, the former NYC Comptroller, Alan Hevesi, convinced the NYC Law Department and the NYCERS trustees to allow him to pay NYCERS investment expenses without the inconvenience of getting written authorization from the executive director. Needless to say the executive director pointed out the violation of law to the interested parties but to no avail. The NYC Law Department has the final say on legal interpretations. The executive director could have filed an Article 78 action but he would have had a hard time paying the legal costs since he would no longer have been the executive director.

The NYC Comptroller is the official auditor for the city and specifically for NYCERS (Section 13-103.g). With this in mind, we should focus on the fact the auditor for NYCERS is free to make payments to outside vendors without an oversight from NYCERS. We have Alan Hevesi to thank for this truly ludicrous situation.

This situation has become more and more dangerous in recent years. NYCERS Investment expenses have been accelerating upwards in the last five years. The 2003 costs were $29M but the 2008 costs were $115M and 2009 will most likely be $150M. What is truly sickening about this is the billions of dollars NYCERS is currently losing with these high expenses.

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