Local Government Responsibilities Under The New State Comptroller Law

07.28.08

As a result of the debate over the impact of high property taxes and ongoing concerns about government abuse, fraud, corruption and fiscal irregularities in general, the New Jersey legislature recently enacted a number of bills concerning government accountability and affecting local government.  One of these bills created the Office of the State Comptroller. P.L.2007, c. 52, approved March 15, 2007 (A 2/S15).

A2, was consolidated with S15 and enacted into law as Chapter 52 of the Pamphlet Laws of 2007, approved March 15, 2007, but by its terms only took effect October 1, 2007.  The legislation is  entitled “An Act establishing an independent office of State Comptroller, consolidating financial audit and performance reviews of state and local government units, revising various parts of statutory law and supplementing Title 52 of the revised statutes.”  The Act establishes the Office of the State Comptroller, which reports directly to the Governor.  While it was intended to take effect earlier, in fact the State Comptroller, Mat Boxer was only appointed several months later and took office in January of 2008.  The office is budgeted to have 59 employees, and several months have been spent hiring staff and organizing the office.  The office  will audit government finances, examine efficiency of government programs, scrutinize government contracting procedures and provide training to government entities.  The law is applicable to every level of State and local government.

On May 7, 2008 the office issued its first directive for compliance with the new law. Because of the number of other bills and the comprehensive changes this new legislation created, the State Comptroller bill has not gotten much attention until this directive was issued.  It is now important to make sure that local governments provide the necessary attention to and ensure compliance with the requirements of the law and the directives of the office.

Summary of State Comptroller Law

The following is a summary of certain provisions of the law.

Audits; Assessments. The Office of the State Comptroller is responsible for conducting routine, periodic and random audits of the Executive Branch of State government, including all state agencies and entities, and also units of local government and boards of education, and for conducting assessments of performance and management and the extent to which goals and objectives are met.  For entities already required to have periodic audits, the State Comptroller must undertake analysis and review of certified financial audits and of procedures used to conduct the audits.  The State Comptroller may undertake a financial audit or other steps if the analysis and review identifies weaknesses, inadequacies or failures of the entities’ financial controls or concerns about the quality or independence of the audit.  Additionally, Section 9 of the recently enacted P.L.2008, c. 39, approved July 9, 2008, also provides that the newly created School Development Authority as successor to the New Jersey Schools Construction Corporation, in consultation with the State Comptroller, must cause an audit to be conducted of school facilities projects financed pursuant to the Educational Facilities Construction and Financing Act that have a State Share that exceeds $10,000,000.

Procurement. The State Comptroller is authorized to audit and monitor the process of soliciting proposals for and the process of awarding contracts by contracting units.  Contracting units include State government entities, local governments and boards of education.  A contracting unit must provide notice to the State Comptroller no later than 20 business days after the award of a contract involving an expenditure of more than $2,000,000 but less than $10,000,000  Contracting units must inform the State Comptroller in writing of the commencement of any procurement process involving an expenditure of $10,000,000 or more at the earliest time practicable as it commences the procurement process, but no later than the time the contracting unit commences preparation of any bid specification or request for proposal, concession offering, proposal to purchase, sell or lease real estate or other related activities and contracts.  Unless waived by the State Comptroller, the contracting unit must provide 30 days notice prior to issuing any public advertising, notice of availability of a request for proposals or any other public or private solicitation of a contract for a procurement that is subject to the law in order that the State Comptroller may complete a review that may be undertaken pursuant to the law.  The contracting unit is required to provide notice in the form to be provided by the State Comptroller.  The purpose of the law is to ensure compliance with State procurement processes rather than to substitute the judgment of the State Comptroller for the judgment of the governmental entity as to whether it should undertake the procurement. Specifically excepted from the contracting provisions are labor contracts, financial agreements with developers entered into under the Municipal Land Use Law, redevelopment agreements entered into under the Local Redevelopment and Housing Law, financial agreements under the Long Term Tax Exemption Law and the Five-Year Exemption and Abatement Law and certain other redevelopment agreements and agreements for tax abatement and payments in lieu of taxes.

Oversight and Investigation. If the State Comptroller is advised that a local government or board of education has impeded an audit or failed or refused to cooperate in a corrective or remedial action plan, the State Comptroller may recommend that the Governor withhold expenditures of State funds that may be due or paid to the local unit and request the Commissioner of Education, the Director of Local Government Services or other appropriate representative to impose a corrective or remedial action plan that may include prior approval by the State Comptroller of that local unit’s or board’s contracts and expenditures.  The State Comptroller is also authorized to refer findings that may constitute alleged criminal conduct to the Attorney General or other appropriate prosecutorial authority.  Even if the Attorney General and the Inspector General decline to investigate, the Office of the State Comptroller may continue an investigation. The legislation then amends existing law to clarify the responsibilities of the Inspector General, to establish a full time program of investigation, and to receive and investigate complaints concerning alleged fraud, waste, abuse or mismanagement of State funds.  This oversight is intended to provide increased accountability, integrity and oversight of all recipients of State funds including local governments and boards of education, of the awarding and the execution of contracts and the performance of governmental officers, employees, appointees, functions and programs.  The purpose is to promote efficiency, to identify cost savings and to detect and prevent misconduct within the programs and operations of any governmental agency funded by or disbursing State funds.  The legislation attempts to clarify the roles of the Attorney General, the Inspector General, the Director of the Division of Budget and Accounting and other State offices.

May 7 Directive

The May 7, 2008 letter addressed to All Units of New Jersey Local Government instructed all local governments to send the most recent financial audit including the Management Letter and the Single Audit if applicable, a statement concerning the process used to select the auditor and the number of years the auditor has served as the auditor.  The letter also provided direction as to how local governments are to comply with the reporting of the commencement of any procurement process involving consideration or an expenditure of $10,000,000 or more and notice of any contract involving consideration or expenditure of $2,000,00 to $10,0000,000.  The letter and a summary of the law are on the website of the Office of the State Comptroller. www.nj.gov/comptroller.

Observations

The legislation gives the State Comptroller responsibility for all State offices as well as all levels of local government.  The purpose of the legislation is to provide fiscal oversight to ensure both fiscal responsibility and the efficient delivery of government services.  The office reports directly to the Governor and seems to overlap with other agencies regulating or overseeing State and local government including the office of the Attorney General, the Office of Government Integrity, the State Treasurer, the State Auditor, the Division of Local Government Services and the Local Finance Board, the Department of Education, the Office of the Inspector General, the State Commission of Investigation and the Public Advocate.  It will be up the new State Comptroller to coordinate with the other agencies to avoid duplication of efforts, although the legislation clearly gives the new State Comptroller the power to override decisions of other agencies.   It is also not clear what problems or abuses the legislation was created to address and why the focus seems to be on competitive contracts when it would seem that there would be more opportunity for abuse in contracts not subject to competitive bidding.

The legislation also presents a number of questions that will have to be addressed through its implementation.  The State Comptroller has already addressed one question to clarify that the law was intended to cover contracts for goods and services generally governed by the Local Public Contracts law, the Public School Contracts Law and other public bidding laws and not the sale of bonds or investments, which are covered by other statutory provisions.  Other questions to be addressed include whether the concept of aggregation will apply.  That is, if a single project has a number of contracts that in the aggregate equal or exceed the threshold, must they be treated as a single contract triggering the notice requirements for contracts?  Also, what will happen if a bid exceeds cost estimates?  Obviously it would be prudent to err on the side of caution and provide notice if that potential exists.  There have been occasions though when bids have come in high, and it has been prudent even to hold the bid and obtain additional funding authority rather than lose a good bid when circumstances warrant.  More problematical is the requirement to provide notice before commencing preparation of bid specifications.  That is an amorphous time frame, and sometimes it is necessary to commence preparation of bid specifications to focus on the strategy for how to bid, particularly when multiple facilities may be constructed or improved and phasing and other bid considerations are involved, such as the availability of large or small contractors in certain industries, the specialized skill needed for certain projects, or parts of projects, or other considerations aimed to keep prices down within a given market situation.

While the Governor could not have made a better appointment than Mat Boxer for his experience, talent and demeanor, the creation of an additional oversight government agency itself raises a question concerning government efficiency.  Will the cost of this office, together with the cost of all the other oversight agencies and regulations, and the cost of all the other government agencies to respond to this bureaucracy, save money or cost money for the taxpayers of our State?  Perhaps the Office of the State Comptroller should begin its investigation at home and consider whether there should be a consolidation of government oversight regulations and agencies in order to meet the goal of government efficiency, consolidate government activity, reduce costs and insure that government agencies do the job they were created to do.