Term Paper on "NYS Public Authority Accountability Act"

Term Paper 12 pages (3866 words) Sources: 6 Style: APA

[EXCERPT] . . . .

NYS Public Authority Accountability Act

For far too long public authorities have operated behind closed doors without any real oversight or accountability...."

Richard L. Brodsky (D-Westchester)

Revealing Operations behind Closed Doors

The result of public authorities operating behind closed doors without: "real oversight or accountability," according to Richard L. Brodsky (D-Westchester), NYS Assemblyman Chair of the Committee on Corporations, Authorities and Commissions, "has been a systemic pattern of corruption and mismanagement." Consequently, the "systemic pattern of corruption and mismanagement," led to the passage of the NYS Public Authority Accountability Act. This paper examines the NYS Public Authority Accountability Act, the S-OX Rule 404, a related report by the NYS Comptroller, and a report by the AG and the State IG, requested by NYS Governor, which addressed the sale of certain land rights bordering the Erie Canal. This researcher also explored:

Factors contributing to the passage of the NYS Public Authority Accountability Act and its intent.

Ways this act addresses legislative concerns, along with its potential to succeed.

A synthesis of the NYS Public Authority Accountability Act's particular provisions, internal controls the act mandates, and enhanced powers the act created.

This researcher additionally assesses the effectiveness of this act's provisions and proposed controls. Ultimately, as this researcher relates recommendations regarding revealing operations behind closed doors and whether the NYS Public Authority Accountability Act's provisions should be extended to other state agencies, other aspects of the legislation deemed to warrant analysis are discussed.

The NYS Public Authority Accountability Act, enacted in 2005, Act draws from select principles of the Sarbanes-Oxley Act (S-OX) and Rule 404 of the SEC, making those principles applicable to the governance of public authorities in NYS. As this act additionally imposes specific controls by statute; the possibility exists that some provisions may be applicable to state agencies in certain respects, either by legislation or executive order. Also, the NYS Public Authority Accountability Act made the NYS Office of the Inspector General a creature of statute.

Circumstances and conduct that prompted the enactment of the NYS Public Authority Accountability Act include one scenario in 1990, after the Commission on Government Integrity examined public authorities, and determined that a dearth of basic rudimentary information about these entities existed. The fact that a seemingly simple question regarding the number of existing public authorities New York State could not be easily answered, but required extensive research utilizing a number of sources also contributed to this act's passage.

Accountability," the primary word in the NYS Public Authority Accountability Act, this researcher purports, denotes the main goal for the initiation of this act. David R. Riemer reports that "a sea of accountability" engulfs the American society today. From the bed and individual sleeps on by the safety standards the U.S. Consumer Product Safety Commission set; to the water that meets that meets U.S. Environmental Protection Agency ("EPA") standard. Treated wastewater "must meet conveyance and treatment requirements of both the EPA and the state's department of natural resources." The U.S. Department of Agriculture monitors the accountability of the farmers' eggs, and simultaneously monitors pesticides used on wheat ultimately milled and baked in bread, along with overseeing the safety of a myriad of other food products. City and state law enforcement officers, as well as local, state and national public employees, routinely check an individual's compliance with laws and regulations. In addition, private employers maintain their roster of individuals for accountability.

Despite numerous methods currently in place to help ensure accountability, Segal contends that knowing how to reform chronically corrupt agencies constitutes one of the most perplexing problems in public administration. Although Segal completes a case study of the New York City school custodial system and focuses on roadblocks with the potential to derail traditional control in what in 2002 was deemed a "deeply corrupt system that has resisted decades of reform efforts," a number of points Segal presents also prove applicable to this paper's focus.

The "Act" Itself

The NYS Public Authority Accountability Act consists of:

An act to amend the public authorities law, the environmental conservation law, the legislative law and chapter 899 of the laws of 1984 relating to creating a public benefit corporation to plan, develop, operate and maintain Roosevelt Island, in relation to enacting the public authorities accountability act of 2005 and to amend the executive law, in relation to the office of the state inspector general

Specific Provisions of the Public Authority Reform Act

Defines and identifies 733 public authorities and their subsidiaries by Class, making some provisions mandatory for Classes a and B. And recommended for Classes C. And D (the Classes over which the State has less direct control).

Places controls on public authority debt.

Controls the proliferation of public authority subsidiaries by requiring approval by the Legislature.

Creates a Temporary Commission on Public Authority Reform to review the purpose and mission of each public authority and recommendations for mergers, consolidations or elimination regarding Class a and Class B authorities by April 1, 2006 and regarding Class C and Class D by April 1, 2008.

Creates a Public Authorities Inspector General with appropriate powers to thoroughly investigate allegations of wrongdoing and issue reports of findings, as well as provide training to authority officials regarding their legal, fiduciary, ethical and personal responsibilities.

Creates a Public Authorities Independent Budget Office to receive reports from public authorities, analyze their budgets and finances, and make recommendations for improvement.

Provides rules for public authorities in selecting firms to perform audit services and prohibits authorities from engaging the same audit firm for certain non-audit services in order to eliminate conflicts of interest.

Improves corporate governance of public authorities by:

requiring transparent compensation policies and disclosure of compensation, mandating separation of Chairman and CEO roles, providing for independent members, requiring that Board members approve financial statements, requiring that Boards establish Audit, Procurement, and Employment and Compensation Committees, defining procedures for removal of authority officials, and requiring each Board of Class a and Class B public authorities to adopt principles of corporate governance and fiscal integrity.

During the first half of 2003, public controversy surfaced regarding the Hutchens agreement, an "effort to foster economic development along the Erie Canal, the New York State Canal Corporation, in 2001, sold broad and exclusive rights to cut new residential access channels into the Canal to an upstate entity named Richard Hutchens & Associates ('RHA'), a company primarily owned by Richard Hutchens." Concerns included complaints of minimal, if any, professional competence by the Canal Staff's senior members, their ethical lapses, Thruway Authority and Canal Corporation staffers provided internal documents to Hutchens, and reported Appearance of Favoritism, forbidden by the Code of Ethics. Two weeks after the Joint Assembly Standing Committees on Corporations, Authorities and Commissions, and on Transportation, hosted a public hearing in early October 2003, Assembly members challenged the deal's fiscal prudence, as well as the question of fairness ultimately confirming the deal. Two weeks after the hearing, the New York State Comptroller's Office conducted its own investigation and voided the Hutchens' contract. The following figure notes concerns challenged in Hutchens' contract.

Figure1: Areas Compromised by Hutchen's Contract

Three main categories of the Code of Ethics of New York State's Public Officers Law include:

the disclosure of confidential documents, the political solicitation of campaign contributions, and the creation of the appearance of favoritism.

Consequences of violations of the NYS Public Authority Accountability Act, just as repercussions from non-adherence to precepts set forth in the Code of Ethics, may not merit criminal charges, however, these are serious. "... Public officials should be held accountable for their ethical transgressions."

They, this researcher, along with a number of others cited for this paper, contends, "should be guided by the simple principle of transparency."

SOX Rule 404 the Sarbanes-Oxley Act of 2002 (SOX), a report by the NYS Comptroller, related to the NYS Public Authority Accountability Act, instructed the SEC to issue final rules to implement Section 404, and launched a requirement for management to:

1) "state its responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting and 2) "make an assessment, as of the end of the most recent fiscal year, of the effectiveness of the internal control structure and procedures for financial reporting."

In addition, an independent auditor who prepares or issues the audit financial statements' report on financial must confirm and report on management's assessment. Also, as required, the SEC presented the SOX requirement, often referred to by its location within SOX as "Section 404," which specifies final rules management and the independent auditor are to comply with.

Romano reports that Congress introduced a series of corporate governance initiatives into the SOX Rule 404, considered a noteworthy law change, which also made an exodus from the regulation mode. Until the passage of the SOX Rule 404, the federal regime had primarily consisted of disclosure requirements instead of substantive corporate governance mandates, traditionally left to state corporate law. Federal courts also characterized the SEC's efforts to extend its domain into substantive corporate governance as beyond… READ MORE

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