use of foreign fire insurance tax money · 2018-01-12 · disburse foreign fire insurance (ffi) tax...

Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

2017-MS-5

Use of Foreign Fire Insurance Tax Money

In the cities of: Buffalo, Rochester, Syracuse and Yonkers

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

EXECUTIVE SUMMARY 2

INTRODUCTION 5 Background 5 Objective 7 Scope and Methodology 7 CommentsofOfficials 7

USE OF FOREIGN FIRE INSURANCE TAX MONEY 8 Recommendations 12

APPENDIX A FFI Use Requirements by Entity 14APPENDIX B ResponseFromOfficials 16APPENDIX C Audit Methodology and Standards 17APPENDIX D How to Obtain Additional Copies of the Report 18APPENDIX E LocalRegionalOfficeListing 19

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability January 2018

DearOfficials:

TheOfficeoftheStateComptroller’sgoalsincludeenablingandencouragingentitiesthatreceiveanddisburseforeignfireinsurance(FFI)taxmoneytoproperlyaccountfor,useandprotectthismoney.

Followingisareportofouraudit,entitledUseofForeignFireInsuranceTaxMoney.ThisauditwasconductedpursuanttotheStateComptroller’sauthorityassetforthinArticleV,Section1oftheStateConstitutionandArticle3,Section33-a1oftheNewYorkStateGeneralMunicipalLaw.

Thisaudit’sresultsandrecommendationsareresourcesforofficials touseineffectivelymanagingoperations.Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontacttheStatewideAuditsoffice,aslistedattheendofthisreport.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

1 ThissectiongenerallyauthorizestheComptrollertoinspectandexaminetherecordsandaccountsofanyentityreceivinganddisbursingFFItaxmoney,withrespecttofundsreceivedafterJanuary1,1976.

2 Office Of the New YOrk State cOmptrOller2

Office of the State ComptrollerState of New York

EXECUTIVE SUMMARY

NewYorkStateimposesa2percenttaxrateonthepremiumsoffireinsurancepolicieswrittenbycertainout-of-stateinsurersagainstlossordamagebyfireonpropertylocatedintheState.2Ingeneral,these“foreign”fireinsurance(FFI)fundsareremittedannuallytotheNewYorkStateDepartmentofFinancialServices(DFS),anddistributedtoentities.3 AccordingtotheDFSwebsite,recipientsofFFImoney includefiredepartments,firecompanies,benevolentassociationsand theFiremen’sAssociationoftheStateofNewYork(FASNY).In2016,DFSdisbursedover$44millionofFFItaxmoney.4Exceptasotherwiseprovided,theFFItaxmoneymaybeusedforanypurpose,whichthemembersofthefiredepartmentorcompanydeterminetobefortheuseandbenefitofthedepartmentorcompanyasawhole.

Unless a special lawenactedby theStateLegislatureor apre-1989 local lawprovidesotherwise,thedistributionanduseofFFI taxmoneyisgovernedbyInsuranceLawSections9104and9105.Generally,InsuranceLawprovidesthattheFFItaxmoneymaybeusedforanypurpose,whichthemembersofthefiredepartmentorcompanydeterminetobefortheuseandbenefitofthedepartmentorcompanyasawhole.However,eachentity’suseofFFI taxmoneydependsonthespecificlawapplicabletoit.

The treasurerorotherfiscalofficerof thefiredepartmentaffordingfireprotectioncoverage to theinsuredpropertiesreceivestheFFItaxmoney.5OurauditfocusedontheuseofFFItaxmoneybysixentities:theCityofBuffalo(Buffalo),theCityofRochester(Rochester),theSyracuseFireDepartmentAssociationInc.(Syracuse),theBuffaloFirefightersTwoPercentFund(BuffaloTPF),theRochesterFirefightersTwoPercentCommittee(RochesterTPC)andtheMutualAidAssociationofthePaidFireDepartmentoftheCityofYonkers,NewYork,Inc.(Yonkers).Allfirecompaniesrepresentedbythesixentitiesauditedwerestaffedbypaidfirefighters.

2 InsuranceLawSections9104and9105,SpecialActs,pre-1989locallawandCityCharter3 Not all FFI money is remitted to DFS for distribution to entities; some funds are remitted directly to the City of Buffalo bytheinsurancecompanies.Insurancecompaniesremitted$2.1milliontotheCityofBuffalodirectly,asperInsuranceLaw9104andCityCharterArticle25duringourauditperiod.

4 TotalexcludesNewYorkCity.ThefiredepartmentsintheStatemaintainlistsofstreetsthattheyserve,whichdeterminestheallocationoffunds.

5 Ifthefiredepartmentdoesnothaveatreasurerorotherfiscalofficer,thentheFFItaxmoneyispaidtothefiscalofficeroftheauthoritieshavingjurisdictionorcontrolofthefiredepartment.Inamulti-companyfiredepartment,thetreasurerorfiscalofficerreceivingtheFFItaxmoneyistodistributetheamountreceivedtothecompaniesconstitutingthefiredepartment,proportionatetothenumberofactivemembersineachfirecompany.However,InsuranceLawdoesnotprecludethefirecompaniesfrompayingallorpartofthe2percentmoneytothefiredepartment.TheproprietyofaCitytransferringcustodyoftheFFItaxmoneytoaTrustisoutsidethescopeofthisaudit.


Historically,theseentitiesorthecitiesinwhichtheyarelocatedwerereceivingFFItaxmoneyandgenerallysupposedtobeusingittofundfirefighterpensionfundsorcareforindigentanddisabledfirefighters.TheStateLegislaturehasnotenactedchanges to thespecialactsgoverninghowtheseentities use their foreign fire insurance taxmoney for decades,while in contrast there have beenchanges in pension benefits aswell as provisions for firefighterswith disabilities. (Subsequent tothe issuance of the draft audit report, an amendmentwasmade that provides that FFI taxmoneyreceivedbytheMutualAidAssociationofthePaidFireDepartmentoftheCityofYonkersInc.beusedinaccordancewithInsuranceLawSections9104and9105.)6 We note that in the past the unions representingthepaidfirefightersinBuffalo,SyracuseandRochesterhavecommencedlegalactionsagainsttheirrespectivelocalcitiesforaccesstoanduseoftheFFItaxmoneyforthebenefitoftheirmembers.

Scope and Objective

TheobjectiveofourauditwastodeterminewhetherFFItaxmoneywasspent inaccordancewithspecialactlegislation,citychartersorotherapplicablelaws,fortheperiodJanuary1,2014throughOctober5,2016.

Audit Results

FFItaxmoneywasnotalwaysusedinaccordancewiththelaws.WhileallsixentitieshadaprocessinplaceforadministeringFFItaxmoney,officialsinYonkers,SyracuseandBuffalodidnotalwaysuseitaccordingtotheirspecificspecialact,citycharterorotherapplicablelaws.Positively,RochesterappearedtouseitsallocationofFFItaxmoneyproperly.TheRochesterTCPandBuffaloTPFalsoappearedtousetheirFFItaxmoneyproperly,butdidnotalwaysmaintainadequatedocumentationforexpenditures.

Duringtheauditperiod,thesixentitiesauditedreceivedalmost$8millioninforeignfireinsurancetaxmoney.Ofthat,over$1.9million,or24percent,wasnotusedinaccordancewithstatutoryauthorityorpreviousOSCopinions.Forexample:

• Yonkers did not use FFI taxmoney totaling $1.4million for the audit period for the careof indigent and disabledfiremen and their families, as required by its special act, becausethe officials told us theywere unaware of the legislation. Rather, themoneywas used toreimbursecostsrelatedtoactivefiremenandfamilymembers’healthbenefits,socialeventsandadministrativecosts.

• Syracusepaid$390,826 inFFI taxmoney to “TheSyracuseFireDepartmentAssociationSupplementalRetirementFundInc.,”whichsubsequentlydisbursed themoneyasone-timecashpaymentstoindividuals.ThisOfficehaslongexpressedtheviewthatSections9104and9105ofInsuranceLawdonotauthorizeafiredepartmentorcompanytomakeFFItaxmoneyavailableforthepersonaluseofindividualfirefighters.7IndividualCityfirefighters,incertain

6 Chapter308oftheLawsof1912,asamendedbychapter920oftheLawsof1962,waslastamendedonDecember18,2017,byChapter499oftheLawsof2017.

7 Seee.g.OSCOpnNo.2000-6andcitationstherein.


instances,mayhavereceivedasmuchas$27,000fromFFItaxmoneyuponretirement,withpaymentstotaling$610,848to33individualsfortheauditperiod.8

• Buffalopaid$26,180inFFItaxmoneyduringourauditperiodtoabeneficiarywhodiedin1983.Paymentswerefraudulentlycollectedbythedaughterofthedeceased.WhilefundingoffiremenpensionshadbeenprovidedforbytheCityCharter,allpaymentstothisbeneficiaryshould have endeduponher death, 34years ago.Over time, the daughter of the deceasedbeneficiaryfraudulentlycollectedpaymentstotaling$291,070fromtheCity.

Officialsindicatedtheywerefollowingpastpracticeoragreements,orwereunawareofthespecificrequirementsrelatedtotheuseoftheFFItaxmoney.WithouteffortsbyofficialsandtrusteestouseFFItaxmoneyconsistentwithStatelaw,thepurposeofthelawisnotenforced.

Comments of Officials

Theresultsofourauditandrecommendationshavebeendiscussedwithofficialsandtheircomments,whichappearinAppendixB,havebeenconsideredinpreparingthisreport.

8 As determined by vendor records


Background

Introduction

The recipients of foreign fire insurance (FFI) money include firedepartments, fire companies, benevolent associations and theFiremen’s Association of the State of New York (FASNY). FFIis generated from a tax that is imposed on the premiums of fireinsurance policies written by certain out-of-state insurers againstlossordamagebyfireonpropertylocatedintheState.9 The insurer willcollectandremitthetaxmoneygenerallytoNYSDepartmentofFinancialServices(DFS)which,inturn,distributestheproceedstotheproperrecipients.ThestatewideFFItaxmoneydisbursedbyDFSfor2014throughJune2016totaledapproximately$126million(Figure1).10

9 ThefiredepartmentsintheStatemaintainlistsofstreetsthattheyserve,whichdeterminestheallocationoffunds.

10Insurancecompaniesremitted$2.1milliontotheCityofBuffalodirectly,asperInsuranceLaw9104andCityCharterArticle25

Figure 1: FFI Tax Money Disbursed by DFSa

Year Number of Disbursements Dollar Amount

2014 1,984 $37,071,312

2015 1,985 $44,506,325

2016 1,984 $44,417,199

Total 5,953 $125,994,836

a Excludes New York City

Thetaxesimposedareintendedtodirectlybenefitthefiredepartmentmembership or fire companies providing the service. Except asotherwiseprovided,theFFItaxmoneymaybeusedforanypurposethat themembers of thefire department or company determine tobefortheuseandbenefitofthedepartmentorcompanyasawhole,providedtheexpenditureisnotillegalorcontrarytopublicpolicy.

UnlessaspeciallawenactedbytheStateLegislatureorapre-1989locallawprovidesotherwise,thedistributionanduseofFFItaxmoneyisgovernedbyInsuranceLawSections9104and9105.ThetreasurerorotherfiscalofficerofthefiredepartmentaffordingfireprotectioncoveragetotheinsuredpropertyreceivestheFFItaxmoney.Ifthefiredepartmentdoesnothaveatreasurerorotherfiscalofficer,thentheFFItaxmoneyispaidtothefiscalofficeroftheauthoritieshavingjurisdictionorcontrolofthefiredepartment.Inamulti-companyfiredepartment,thetreasurerorfiscalofficerreceivingtheFFItaxmoneyis to distribute the amount received to the companies constituting the


firedepartment,proportionate to thenumberof activemembers ineachfirecompany.However,InsuranceLawdoesnotprecludethefirecompaniesfrompayingallorpartofthe2percentmoneytothefiredepartment.11

WeauditedsixentitiestodeterminewhethertheyusedFFItaxmoney12 appropriatelyduringtheperiodJanuary1,2014throughOctober5,2016.Ourauditfocusedonthepotentialuseofabout$8millioninFFItaxmoneyreceived13(Figure2).

11TheproprietyoftheCitytransferringcustodyoftheFFItaxmoneytoaTrustisoutsidethescopeofthisaudit.

12IncludesanyunspentFFItaxmoneynotpreviouslyspentandremainingintheentities’bankaccount,andspentduringtheauditperiod

13DFSremittedFFItaxmoneyin2014,2015andthroughtheendoffieldworkin2016.TotalsincludeamountsfrominsurerswhoremittedFFItaxmoneydirectlytotheCityofBuffalo,pertheCityCharter.TheTownofBrightonremittedFFItaxmoney to theCityofRochester in theamount received fromDFS, as theCityofRochesterprovidesfireprotectionservicesfortheTown.RochesterTPCFFItaxmoneyrevenueisreceivedfromtheCityofRochesterand,assuch,isincludedintherevenueanddisbursementtotalsoftheCityofRochester.

Figure 2: Revenues and Stipulation of Use Requirements

EntityFFI Tax Money Revenues (January 1, 2014 through

October 5, 2016)

Stipulation of Use Requirementsa

City of Buffalo (Buffalo) $ 2,181,392 City Charter

Buffalo Firefighters Two Percent Fund (Buffalo TPF) $ 605,392 Insurance Law 9105

Syracuse Fire Department Association Inc. (Syracuse) $ 952,719 Insurance Law 9104 and

9105

City of Rochester (Rochester) $ 1,832,349 Court-Approved Agreement

Rochester Firefighters Two Percent Committee (Rochester TPC)

$ 620,000 Court-Approved Agreement

Mutual Aid Association of the Paid Fire Department of the City of Yonkers, New York, Inc. (Yonkers)

$ 1,795,567 Special Act of 1912, amended in 1962

Totals $ 7,987,419

a See Appendix A for detail.

Each entity’s use of FFI tax money depends on the specific lawapplicable to it.All fire companies represented by the six entitiesauditedwerestaffedbypaidfirefighters.Historically,theseentitiesorthecitiesinwhichtheyarelocatedwerereceivingFFItaxmoneyandgenerallysupposedtobeusingittofundfirefighterpensionfundsorcareforindigentanddisabledfirefighters.TheStateLegislaturehas


Comments ofOfficials

Objective

Scope andMethodology

not enacted changes to the special acts governing how these entities usetheirforeignfireinsurancetaxmoneyfordecades,whileincontrastthere have been changes in pension benefits aswell as provisionsforfirefighterswithdisabilities. (Subsequent to the issuanceof thedraft audit report, an amendmentwasmade that provides thatFFItaxmoneyreceivedbytheMutualAidAssociationofthePaidFireDepartmentoftheCityofYonkersInc.beusedinaccordancewithInsuranceLawSections9104and9105.)14 We note that in the past theunionsrepresentingthepaidfirefightersinBuffalo,SyracuseandRochester have commenced legal actions against their respective localcitiesforaccesstoanduseoftheFFItaxmoneyforthebenefitoftheirmembers.

TheobjectiveofourauditwastodeterminewhetherFFItaxmoneywasspentinaccordancewithspecialactlegislation,citychartersorotherapplicablelaws.

WeexaminedtheuseofFFItaxmoneyreceivedbythesixauditedentitiesfortheperiodJanuary1,2014throughOctober5,2016.

We conducted this performance audit in accordance with generally acceptedgovernmentauditingstandards(GAGAS).Moreinformationon the standards and the methodology used in performing this audit areincludedinAppendixBofthisreport.Unlessotherwiseindicatedinthisreport,samplesfortestingwereselectedbasedonprofessionaljudgment,asitwasnottheintenttoprojecttheresultsontotheentirepopulation.Where applicable, information is presented concerningthe value and/or size of the relevant population and the sample selectedforexamination.

The results of our audit and recommendations have been discussed withofficialsandtheircomments,whichappearinAppendixB,havebeenconsideredinpreparingthisreport.

14Chapter308of theLawsof1912,asamendedbychapter920of theLawsof1962,waslastamendedonDecember18,2017,byChapter499oftheLawsof2017.


Use of Foreign Fire Insurance Tax Money

FFI tax money is a benefit to members of fire departments, firecompanies, benevolent associations and FASNY.The intent of thebenefitisspecifiedbylegislativeactions,suchasspecialacts(over250prescribing theuseofFFI taxmoney),State laws, local laws,municipal charters or court-approved agreements (seeAppendixAforrequireduseforthesixentitiesweaudited).

As previously mentioned, the six entities (Buffalo, Syracuse,Rochester,RochesterTPC,BuffaloTPFandYonkers)receivedabout$8millionofFFItaxmoneyduringourauditperiod,anddisbursedover$6.6millionofitduringthatsameperiod(asshowninFigure3below).

Figure 3: Uses of FFI Tax MoneyEntity Used By Amount Used Examples of Uses (Expenditures)

Buffalo City $2,181,392 City’s general fund; 10% FASNY; sole beneficiary of Firemen's Pension Fund

Buffalo TPF Firefighters $543,536 Cable service, furniture, coffee, exercise equipment, donations, boots, uniforms, appliances, newspapers and water service

Syracuse Firefighters $701,857

Administration (salaries and taxes), supplemental retirement, functions, professional fees, service awards, calendars, crisis management, intervention team training, catastrophic, beverages at fires, station subsidies (coffee and condiments) and miscellaneous

Rochester City $739,608 Reimbursement to City for linen services, firehouse repairs, small equipment, snowplow services and uniforms, audit services

Rochester TPC Firefighters $996,652a

Coffee, spices, tea, condiments, small utensils, kitchen supplies, water, televisions, exercise equipment, newspapers, cable service and furniture; legal and accounting, and building-related such as purchases related to land, engineer and design service and legal fees

Yonkers Firefighters $1,482,139

Health benefit costs for members and family: vision exams, maternity/adoption benefits, reimbursements for medical and prescription, gym membership, group life insurance, administrative payroll and operational costs, bank service costs, parties, races and sports teams, dinner dance, newsletter, hospitality, professional fees, coffee, condiments and calendars

Totals $ 6,645,184a Total includes $226,902 specific to the Building Fund expenditures

ThelargestannualexpendituresofFFItaxmoneyincluded:

• The transfer of about $650,000 to the City of Buffalo forgeneralfundexpenditures;


• Reimbursementof healthbenefit costs of activefirefightersand their family members in Yonkers for items such as vision exams, medical and prescription copays and deductiblereimbursements,physicalincentiveprogramsandmaternity/adoptionbenefits,whichaveragedabout$320,000peryear;

• AnannualsupplementalretirementbenefitdisbursementpaidinSyracuseofabout$195,000.

Wereviewedtheentities’expendituresofFFItaxmoneytodeterminewhether theyhadused it inaccordancewithuse requirements.Wefound inconsistencies such as not following the requirements of an entity’s special act, cash paymentsmade to individual firefighters,disbursementstoadeceasedpensionbeneficiaryandgiftsthatwerenotnominalinvalue. Inconsistent With Use Requirements – Disbursements made by three entities(Buffalo,SyracuseandYonkers), totaling$1,900,467,werenotusedinaccordancewiththerequiredspecialact,citycharterorotherapplicablelawspecifictotheentity(Figure4).Forexample:

• YonkersdidnotuseFFI taxmoneyfor thecareof indigentanddisabledfiremenandtheirfamiliesinaccordancewithitsspecialact.Rather,itexpendedover$1.4milliontoreimbursecosts related to active firemen and familymembers’ healthbenefits, social events and administrative costs for theAssociation’s operation and payroll. Officials told us theywereunawareofthelegislation.

• Syracusepaid$390,826inFFItaxmoneyto“TheSyracuseFire Department Association Supplemental Retirement Fund Inc.,”whichsubsequentlydisbursed themoneyasone-timecash payments to individuals. Individual City firefighters,incertaininstances,mayhavereceivedasmuchas$27,000fromFFItaxmoneyuponretirement,withpaymentstotaling$610,848to33individualsfortheauditperiod.15ThisOfficehas long expressed the view that Sections 9104 and 9105of Insurance Law do not authorize a fire department orcompanytomakeFFI taxmoneyavailablefor thepersonaluseof individualfirefighters.16 Asaresult,wequestion theappropriatenessoftheuseofFFItaxmoneypaid.

15Pervendorrecords16Seee.g.OSCOpnNo.2000-6andcitationstherein.


• Buffalopaid$26,180inFFItaxmoneyduringourauditperiodtoadeceasedbeneficiarywhodiedin1983.Paymentswerefraudulentlycollectedbythedaughterofthedeceased.WhilefundingfiremenpensionshadbeenprovidedforbytheCityCharter,allpayments to thisbeneficiaryshouldhaveendeduponherdeath,34yearsago.Overtime,thedaughterofthedeceasedbeneficiaryfraudulentlycollectedpaymentstotaling$291,070fromtheCity.17

• Syracuse purchased gifts18 totaling $1,322 (net ofreimbursement)forsuchitemsasringsandwatches.Thegiftswereforindividualmembersbasedonyearsofservice.Thesegiftswerenot nominal in value,which is inconsistentwithInsuranceLaw.

17The family member admitted that she had stolen benefits from the City ofBuffalo'sFiremen'sPensionFundthatwasintendedforherlatemother,whohaddiedin1983.InApril2017,thefamilymemberpledguiltyandwasconvictedofthecrimeofGrandLarcenyintheThirdDegree,aclassDfelony.Inaddition,shesignedaconfessionofjudgmentfortheentireamountstolen.

18Officialstoldusthatthememberisallowed$200forthegift;anyvalueoverthatamountistobereimbursedbythemember.

Lack of Supporting Documentation – To determine whether the use ofFFItaxmoneywasappropriate,weexamined439disbursements,totaling over $2 million, of which 73 disbursements (Syracuse,RochesterTPC,BuffaloTPFandYonkers),totalingover$644,000,lacked supporting documentation and information to help ensure accurateuseofFFImoney.

Figure 4: Use of FFI Money Inconsistent With Requrirements

$26,180 $0

$392,148

$0 $0

$1,482,139

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Buffalo Rochester Syracuse Rochester TPC Buffalo TPF Yonkers

Figure 4: Use of FFI MoneyInconsistent With Requirements

FFI Money Received Inconsistent Use


Figure 5: Lack of Adequate Supporting Documentation

EntityTested

No or Inadequate Supporting Documentation

for Expenditure

Number Dollars Number Dollars

Buffalo TPF 187 $141,422 15 $7,299

Rochester 65 $806,403 0 0

Syracuse 33 $573,648 9 $542,826

Rochester TPC 82 $304,468 29 $57,564

Yonkers 72 $230,277 20 $36,831

Totals 439 $2,056,218 73 $644,520

Note: Buffalo does not track FFI directly to expenditures. See Appendix A regarding firemen’s

pension fund assets used in the City’s general fund.

Disbursements should be sufficiently supported to provide enoughinformationforanapprovertoreviewtherequestforappropriateness,accuracyandconsistencywithallowedusesofFFItaxmoney.

We found that 366 disbursements totaling $1,411,698 wereappropriately documented. However, there was no supportingdocumentationfor33disbursementstotaling$566,348atfourentities(Syracuse,RochesterTPC,BuffaloTPF andYonkers). Further, 40disbursements, totaling $78,172, had inadequate documentation(RochesterTPCandYonkers).Statementsorsummarysheetswithoutinvoices or receipts to show the reason for the purchase or detail of services or goods limits the ability of an approver to determine whetherexpendituresareforanappropriateFFItaxmoneyuse.Forexample,a$6,090disbursement(Yonkers)bycreditcard,reportedas“Good&Welfare,”wasbrokendownamongmultipleentitiesbutdidnotincludesupportingdocumentationoftheitemspurchased.Figure6 shows the dollar value of disbursements tested for supportingdocumentation.

Insomeinstances,disbursementswereatransferofFFItaxmoneytoathirdpartyforsubsequentdisbursementbythatthirdparty,whichis inconsistent with Insurance Law. For example, Syracuse’s ninedisbursementswerepayabletotheLocalUnion($142,500),SyracuseFireDepartmentSupplementalRetirementFundInc.($390,826)andtwoindividuals($5,000and$4,500).Toassesstheuse,wereconciledmost of the disbursements to vendor records showing the payments wereforaportionofannualevents,one-timeretirementpayments,beveragesatfirescenesandtrainingforcounselors.


Officialsindicatedtheywerefollowingpastpracticeoragreementsorwereunawareof the specific requirements related to theuseoftheFFI taxmoney.Withoutsufficientdocumentation, transparencyiscompromised.Further,officialsandtrusteescannotensurethatFFItaxmoneyisusedinamannerconsistentwithStateandlocallaws,municipalchartersorcourt-approvedagreements.

Statepolicymakersshould:

1. Revisit the intent and structure of the FFI tax program todetermineifitisoperatingasintended.

Officialsshould:

2. Ensure thatall foreignfire insurancemoney isdisbursed inaccordancewithStatelaw,specialactlegislation,municipalcharterorcourt-approvedagreement.

3. DisburseFFItaxmoneyonlyaftersupportingdocumentationis provided, reviewed and approved as a benefit to themembership.

Figure 6: Supporting Documentation (Dollar Value of Disbursements)

$1,411,698

$566,348

$78,172

Figure 6: Supporting Documentation(Dollar Value of Disbursements)

Appropriate Documentation No Documentation Inadequate Documentation

Recommendations


4. Consultwithcounsel,asappropriate,torecoupFFItaxmoneyinappropriatelypaid.


APPENDIX A

FFI USE REQUIREMENTS BY ENTITY

CityofBuffaloandBuffaloTPF(BuffaloFirefightersTwoPercentFund) – The City Charter requires aforeignfireinsurancetax,similartoInsuranceLawSection9104,tobepaidto“thedirectorofthetreasuryofthefiremen’spensionfundofthecityfortheuseandbenefitofthedepartmentoffire.”19 AccordingtotheCityCharter,theCitymustusetheFFItaxtopay10percentoftheamountitreceivestotheFiremen’sAssociationoftheStateofNewYork(FASNY)forthesupportormaintenanceoftheVolunteerFiremen’sHomeatHudson,andspecificallyrequiresthedirectorofthetreasury(CityTreasury)tocredittheremaining90percentoftheproceedstothe“firemen’spensionfundoftheCityofBuffalo.”20Whenthefinalobligationsofthefiremen’spensionfundtoitsbeneficiarieshavebeenmet–i.e.,presumableuponthedeathofthelastpensionbeneficiary–thebalanceoftheassetswouldbeturnedovertotheCity’sgeneralfund.21ABuffaloFirefighters“TwoPercentFund”wasestablishedpursuanttoan“AgreementandDeclarationofTrustoftheBuffaloFirefightersTwoPercentFund”(TrustAgreement)22 forthepurposeofreceivingmoneyfromtheCitygeneratedbySection9105ofInsuranceLaw.Thisfundisadministeredbythreetrustees,whoareresponsibleforthereceiptanddisbursementoftheFFItaxmoneytothecompaniesoftheBuffaloFireDepartmentforthebenefitofthemembers.TheTrustAgreementprovidesthattheTrusteesapproveanddisbursepaymentsthattheybelieveareconsistentwithInsuranceLawSection9105.

Syracuse(SyracuseFireDepartmentAssociationInc.)–ThespecialStatelegislationenactedin1905generally provided that FFI taxmoney received by theCity be paid to theCity’sComptroller astreasurerofthe“firemen’spensionfund.”23However,notwithstandingthisspecialStatelegislation,asaresultof1991litigation,membersoftheCityFirefighters’Union(paidfirefighters)areentitledtoshareinthedistributionoftheFFItaxmoney.24Subsequenttothelitigation,theCityandUnionenteredintoa“StipulationofSettlementandDiscontinuance”Agreement(StipulationAgreement).AccordingtotheStipulationAgreement,thebalanceoftheFFItaxmoney,overaperiodoftime,istobepaidtotheAssociation.25ItalsoappearsthattheFFItaxmoneyreceivedbytheAssociationaretobeusedinaccordancewithSections9104and9105ofInsuranceLaw.26

19CityCharterSection25-1420CityCharterSection25-1821CityCharterSection25-11provides,inpart,that“whenthefinalobligationofsuchfundshallhavebeenmet,thebalanceofitsassets,ifany,shallbeturnedovertothegeneralfundofthecity,andthereuponsaidpensionfundshallterminate.”

22TheCityofBuffaloisnotapartytotheTrustAgreement.AccordingtotheTrustAgreement,theTrusteesaretoplacethe2percentmoneyreceivedintoaseparateaccountforeachfirecompany.

23TheSpecialActLegislationset forth inSections6and7ofChapter683of theLawsof1905was latercodifiedasSections13-58and13-59oftheSyracuse“CodeofOrdinances.”

24SeeSyracuseFirefightersAssociationLocal280vsFiremen’sRetirementFundoftheCityofSyracuse,datedJuly9,1991,andSyracuseFirefightersAssociationLocal280,supra,IndexNo.89/5767,orderdatedJuly25,1991.

25It is not clearwhether the StipulationAgreementwas approved or ordered by theCourt, or otherwise has bindinglegaleffect.Forpurposesofthisreport,however,wehaveassumedtheproprietyofcustodyofFFItaxmoneybytheAssociation.

26TheCourtOrderdidnotaddresshowtheFFItaxmoneymaybeusedbythepaidfirefighters.Therefore,intheabsenceofaspecialactorlocallawaddressingtheissue,itisourviewthattheFFItaxmoneyreceivedbytheAssociationbeusedinaccordancewithSections9104and9105ofInsuranceLaw.


CityofRochesterandtheRochesterTPC(RochesterFirefightersTwoPercentCommittee,Inc.) – In May2002, theRochester FirefightersAssociationLocal 1071 union (Local 1071) commenced anactionagainst theCityseeking,amongother things,adeclarationbythecourt that InsuranceLawSections 9104 and 9105 supersede and preempt certain provisions of theCityCharter relating tothereceiptanduseofforeignfireinsurancereceivedbytheCity.27 After 10 years of various court proceedings,inAugust2012asettlementagreement(Agreement)betweentheCityandLocal1071wasapprovedbythecourttosettleallmatterssurroundinglitigationregardingtheCity’s“TwoPercentFund.”

The Agreement generally provides for the 2 percent FFI money to be distributed between the City and theRochesterTPC.28 The Agreement also distinguishes between 2 percent FFI money received by theCitybeforeandafterthedateoftheAgreement.Forexample,theAgreementgenerallyprovidesthat30percentoffutureFFItaxmoney(i.e.,FFImoneyreceivedafterthedateoftheAgreement)beallocatedtotheCityforthebenefitofallactivefirefighters,and70percentoffutureFFItaxmoneyallocatedtotheRochesterTPCforthedistributionandbenefitofallactivefirefighters.TheCityistoestablishandmaintainaseparatebankaccountfortheCity’s30percentshareofthe2percentFFImoneyandaseparatebankaccountforthefirefighters’70percentshare.TheCitymaintainscustodyoftheFFItaxmoneyintheseseparateaccounts,pendingdisbursement.

Inaddition, theAgreementprovides,amongother things, that theCityallocate$3million,held ina separate trustaccount in thenameof theCityTreasurer, for thepurchase, leaseorconstruction,furnishingandmaintenanceofabuildingforthebenefitofactivefirefightersandtheRochesterTPC.TheCityTreasurerdisbursesmoneyfromthisfund(BuildingFund)totheRochesterTPCaftertheCityCouncilapprovesthe“realestateagreement”fortheconstruction,purchaseorleaseofabuilding.Otherbuilding-relateddisbursementsarepaidupontheCityTreasurer’sreviewandapproval.

Yonkers(MutualAidAssociationofthePaidFireDepartmentoftheCityofYonkers,NewYork,Inc.) –TheAssociationisresponsibleforadministeringthereceiptanduseofFFItaxmoneyreceivedeachyear,asrequiredbythespecialact.29ThespecialactrequirestheFFItaxmoneytobeusedforthecareofindigentanddisabledfiremenandtheirfamilies.TheAssociationisanot-for-profitcorporation.ItiscomposedofpaidfirefightersfromtheCityofYonkersFireDepartment.Anindependentwelfaretrust(Trust),alsoknownastheTrustFundorWelfareFund,wasestablishedasavehicletoreceiveandacceptFFIpaymentsforthepurposeofprovidingtheYonkersprofessionalfirefightersandtheirfamiliesanddependentswithvariousbenefits.30

27 See Montesano v Madison,12Misc3d1197(A),aff’d45AD3d1352,lvdismissed10NY3d782.Seealso,Sections8B-11oftheRochesterCityCharter,establishinga“Firefighters’InsuranceFund”forthereceiptof2percentfunds.TheCityTreasurermaintainsthe2percentmoneyreceivedbytheCityinanaccountreferredtoasthe“TwoPercentFund.”

28According to theAgreement, theRochesterTPC is to be “organized under theNot-For-ProfitCorporationLawoftheStateofNewYorkwiththelegalcapacitytoownpropertyandexecutecontractsrelatedtothemanagementanddisbursementofTwoPercentFunds.”

29SeeChapter308oftheLawsof1912,asamendedbychapter920oftheLawsof1962.ThespecialactwasamendedonDecember18,2017,subsequenttoauditfieldwork,byChapter499oftheLawsof2017.TheamendmentprovidesthatFFItaxmoneyreceivedbytheMutualAidAssociationofthePaidFireDepartmentoftheCityofYonkersInc.beusedinaccordancewithInsuranceLawSections9104and9105.

30SeeAgreementandDeclarationofTrust,datedJune41986.Forpurposesofthisreport,wedidnotaddresswhethertheAssociation,consistentwithitsspecialact,hadauthoritytotransfercustodyoftheFFItaxmoneytotheTrust.


APPENDIX B

RESPONSE FROM OFFICIALS

We provided a draft copy of the global report to all six entities we audited and requested a response from each. We received responses from three entities: the City of Buffalo, the Syracuse Fire Department Association Inc., and the Rochester Firefighters Two Percent Committee Inc. The Buffalo Firefighters Two Percent Fund, the City of Rochester, and the Mutual Aid Association of the Paid Fire Department of the City of Yonkers, New York, Inc. did not respond.

Two of the three entities that responded (the Syracuse Fire Department Association Inc. and the Rochester Firefighters Two Percent Committee) generally disagreed with our findings and recommendations specific to them. Their responses also were not global in nature. Therefore, comments that were specific to the findings at these two entities are not included here. Each entity’s individual report includes its response to our audit of the specific entity.

The following global comment was excerpted from the response of the City of Buffalo, which generally agreed with our findings and recommendations.

City of Buffalo − “. . . Receipt of Foreign Fire Insurance money greatly benefits our firefighters in a number of ways. These funds provide continual assistance to the day to day operations of our hardworking Firefighters.”


APPENDIX C

AUDIT METHODOLOGY AND STANDARDS

Weperformedthefollowingauditprocedurestocompleteourauditobjective:

• We reviewed the applicable special act, law, charter and/or court-ordered agreement todeterminewhetherthereisauthoritytoreceiveanduseFFImoney.

• Weinterviewedofficialsandstaffinvolvedintheadministration,receiptanduseofFFImoneyforgeneralbackgroundinformationandpolicies/proceduresinplace.

• We reviewed agreements and records specific to the entities authority to receive and useFFImoney;andminutes, receipts,financial reports andotheravailabledocumentationandcorrespondencerelatedtoFFImoneyandwhichaddressesfinancialactivity.

• We reviewed the available documentation for information concerning approvals on FFI expenditures.

• Wereviewedcanceledchecksandsupportingdocumentation,suchasinvoicesforindividualexpendituresrelatedtoFFIdisbursements,todeterminecompliancewiththelaw,specialact,Charterand/orcourt-orderedagreement,asappropriate.

• We determined reliability of reported FFI disbursements for our audit scope period and reviewed accounting for the FFI money to determine whether money was deposited into the bankaccounts.

• Weselected439disbursements,totaling$2,056,218,outofabout$8millionFFItaxmoneyreceived.All disbursementswere traced to supporting source documentation to determinewhetherFFItaxmoneywasappropriatelyusedandproperlysupported.WereconciledsampledFFIdisbursementstoreporteddisbursementclassifications.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperformtheaudittoobtainsufficient,appropriateevidencetoprovideareasonablebasisforourfindingsandconclusionsbasedonourauditobjectives.Webelieve that theevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjectives.


APPENDIX D

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:


APPENDIX EOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:[email protected]

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:[email protected]

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOneBroadStreetPlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:[email protected]

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:[email protected]

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:[email protected]

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThePowersBuilding16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:[email protected]

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:[email protected]

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313

use of foreign fire insurance tax money · 2018-01-12 · disburse foreign fire insurance (ffi) tax...

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