The City of New York Office of the Comptroller
Bureau of Financial Audit

Audit Report on the Financial and Operating Practices of the United Probation Officers Association Welfare Fund

FL08-076A
June 30, 2009

AUDIT REPORT IN BRIEF

Download the Complete Audit Report (pdf 6,596 kb)

The United Probation Officers Association Welfare Fund (Active Fund) provides health and welfare benefits to eligible active City employees and their dependents. It receives contributions from the City of New York.  The Active Fund is required to conform with Comptroller’s Internal Control and Accountability Directive #12, “Employee Benefit Funds—Uniform Reporting and Auditing Requirements” (Comptroller’s Directive #12), which sets forth accounting, auditing and financial guidelines for City welfare funds and their boards of trustees. 

We performed an audit on the financial and operating practices of the Active Fund for Fiscal Year 2006. As of June 30, 2006, the Active Fund reported $1,422,214 in City contributions and net assets of $1,934,518.

Audit Findings and Conclusions

The audit found that the Trustees of the Active Fund may have breached their fiduciary responsibilities to the Active Fund and its members. For example, the Active Fund has spent a significantly larger percentage of its City contributions on administrative expenses—especially the high administrative fees totaling $436,790 paid to its third-party administrator—when compared to other, similarly-sized funds, and has claimed to pay for capital equipment and other operating expenses of its third-party administrator, even though the Active Fund lists the equipment as fixed assets on its financial statements.  Moreover, the Active Fund was not in compliance with the procedures and reporting requirements of Comptroller’s Directive #12.  Consequently, the Active Fund’s financial statements and its Directive #12 filing were materially misstated.  Specifically, the Active Fund:

• Materially misstated its City contributions, total assets, expenses, and Net Assets Available for Plan Benefits on its financial statements. (See Appendix I.) 

• Misstated revenue, benefit and administrative expenses on its Directive #12 filing. (See Appendix I.) 

• Spent a significantly larger percentage of its City contributions on administrative expenses when compared to other, similarly-sized funds. 

• Paid for capital equipment and other operating expenses of its third-party administrator. 

• Did not select a Certified Public Accountant who appears to be independent to audit its financial statements, as required by Directive #12. 

• Paid $10,652 for other questionable expenses. 

• Reportedly paid $181,626 for Health and Wellness benefits that may not exist. 

• Paid $10,995 for the Second Dental Opinion Program that does not exist.

• Has poor controls over payments to its third party administrator. 

• Provided us minutes of Board of Trustee meetings that appear to be fictitious.

• Made improper benefit payments totaling $6,180.

• Paid claims for dependents whose eligibility was not documented.  

• Is owed $34,850 by the Retiree Fund. 

Audit Recommendations

Generally, we would recommend a series of actions to the Active Fund designed to address the problems identified.  However, the financial, managerial and operational problems are so prevalent and pervasive that they cannot be readily addressed by fine-tuning Active Fund financial and operating practices.  Therefore, it is clear that the entire financial and operating systems of the Active Fund have to be overhauled. Consequently, we recommend that the Board of Trustees:

• Evaluate how the Active Fund resources could be used to reach its ultimate goal—providing maximum benefits to its members—while keeping administrative costs to a minimum.

• Consider replacing the Fund Manager based on the extensive problems cited in this report and for denying us access to important records and assets.

• Develop policies and procedures that would ensure that the Active Fund is achieving its ultimate goal and that it is in compliance with Comptroller’s Directive #12.  These policies and procedures should include a system of internal controls addressing the issues cited in this report.  

• Closely monitor Active Fund operations to ensure that the issues cited in this report have been eliminated, and address any new issues that arise in the future.