Key BPCA board member unaware of New York law regarding fraud audit

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BPCA board Serpico Gallo Mateo

January 8, 2013 By Steven E. Greer, MD

The Battery Park City Authority (BPCA) convened a board session today to conduct a “pre-audit” meeting before the outside audit company files their official audit at the end of the month. The audit company retained by the BPCA is Marks Paneth & Shron LLP. The BPCA also has a different audit company retained to conduct internal audits.

During the meeting, there were no updates announced on the state of the Asphalt Green community center repairs, or the ballfields repairs. Recall, the modified contract with Asphalt Green was set to be executed last year shortly before Hurricane Sandy hit, but was derailed due to damages caused by the storm and uncertainties over cost and responsibility of cleanup.

The accountant for the audit firm, Mr. Warren Ruppel, led the discussion. Midway into the meeting, he asked the board whether anyone knew of any past or ongoing fraud by the BPCA, or any whistleblower claims. At which time, board member Martha Gallo, attending via speakerphone, expressed concern about dealing with questions of fraud in a public meeting.

She started by saying, “In full disclosure, I was the lead auditor for JPMorgan Chase for six years.” She is currently the global head of compliance and regulatory affairs. JPMorgan is the bank that committed one of the largest financial mistakes in history, by allowing the “London Whale” trader to lose at least $6 Billion USD on risky derivatives trading. Moreover, in general, since the financial collapse of 2008 caused by the banks, the reliability of Wall Street financial reporting has been called into question. Most recently, this week it was announced that the largest banks, including JPMorgan, agreed to settle civil and criminal investigations into improper handling of mortgage foreclosures for $8.5 Billion (with a separate $10 Billion to come from Bank of America).

Board member Gallo went on to explain that, in her private sector experiences, she has always handled discussions of fraud during nonpublic “executive sessions”. Phyllis Taylor, internal legal counsel for the BPCA and in personal attendance of the meeting, interjected and explained that the New York law clearly requires that matters of fraud be discussed during public session meetings. Ms. Gallo did not seem convinced, so Ms. Taylor finally said, “This question has been asked before, and the State of New York has clearly answered it.” Then, Chairman and CEO Dennis Mehiel moved the board on to the next topic, after having all members of the board state that they knew of no fraudulent issues or whistleblower claims.

The BPCA board has angered members of the community over the last six month by using “executive sessions” liberally, making the public attendees wait up to an hour in the lobby before being allowed in. In every board meeting attended by BatteryPark.TV, Ms. Gallo has promptly left the meetings after the private sessions were concluded. Of note, Ms. Gallo is the only board member who lives in Battery Park City.

Regarding the question of whether any fraud has taken place by members of the BPCA during the time period being audited, that answer is unclear. In fact, the previous Chairman, Bill Thompson, abruptly resigned the same week that it was reported he was accepting campaign donations for his 2013 Mayoral run from large corporate tenants who pay the BPCA ground rent fees. A few months after that, his chosen President/CEO, Gayle Horwitz, abruptly resigned one day after BatteryPark.TV exposed that the BPCA was indeed stalling the opening of Asphalt Green over contract disputes. In addition, millions of dollars have been spent on the Pier A, with numerous contracts granted, resulting in work that is behind schedule and over budget. More recently, the original contract awarded to install the turf ballfields is being called into question as it seems that the work was shoddy.

The appearance of an independent unbiased audit is gained by hiring multiple accounting firms, as the BPCA has done. However, the fact that the BPCA is paying the very firm that is supposed to uncover bad accounting or fraud creates a moral hazard and conflict of interest. Compounding the conflict of interest, it was made public by Mr. Ruppel of the accounting firm that the BPCA had hired an employee who used to be an auditor working for his audit firm.

To address the need for truly independent auditing, New York has the offices of the State Inspector General and the Attorney General. An example of this type of thorough audit can be found in the 2010 State Inspector General report of the BPCA.

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