Relates to the pre-audit of expenditures from the state insurance fund by the state comptroller

Section 2 of this bill states that this act would take effect immediately.

Prior legislative history

S.4034 and A.3732 (Passed Assembly) of 2013-2014 S.7562 and A. 10316 - (Passed Assembly) of 2011- 2012 S.4925 and A.7505 - Passed Both Houses 2015 - Veto Message 240

Justification

Chapter 635 of the Laws of 1996 made major changes to the State's workers' compensation system. As part of that chapter, Section 88 of the Workers' Compensation Law was amended to provide that the Fund shall not be considered a State agency or fund for purposes of Section 4 of the State Finance Law, thus eliminating it from the appropriation requirement of that section, and eliminating approval of the Fund's budget by the Budget Director. The amendment was intended, in part, to prevent further transfers of the State Insurance Fund's moneys to the State's general fund.

Apparently, as a corollary to eliminating the Fund from the appropriation requirement of Section 4 of the State Finance Law, another of the 1996 amendments to Section 88 of the Workers' Compensation Law exceeded the intended purpose by attempting to eliminate the constitutionally mandated pre-audit of the Fund's funds by the Office of the State Comptroller ("OSC") pursuant to Article V, Section 1 of the State Constitution and the statutory codification of such Constitutional provision in Section 111 of the State Finance Law. However, the requirements of appropriation and pre-audit derive from two separate constitutional provisions.

Section 4 of the State Finance Law, which requires appropriation of all money "under the management of the State, or any agency or officer thereof' is broader than the constitutional appropriation requirement of Article VII, Section 7, as articulated by the Court of Appeals. In Anderson v. Regan (53 N.Y.2d 356) the Court indicated that "off budget" funds (those deposited outside the State Treasury) are not subject to the appropriation requirement of Article VII, Section 7. Therefore, it is constitutionally permissible to remove off-budget State funds from the appropriation requirement of State Finance Law Section 4. However, it does not follow that off-budget funds can be removed from the constitutional pre-audit requirement, which derives independently from Article V, Section 1 of the New York State Constitution.

Article V, Section 1 mandates the pre-audit by the Comptroller of all money of the State and all money under its control, and is not limited to funds in the State Treasury. Section 111 of the State Finance Law is merely a codification of that constitutional requirement. The exemption of the Fund from the appropriation requirement of Section 4 of the State Finance Law does not alter the fact that the Fund's moneys are both money of the State and money under the control of the State for purposes of Article V, Section 1 of the State Constitution.

Since 1996, in accordance with its constitutional duty, OSC has continued to audit the State Insurance Fund's administrative payments and the Fund has continued to pay the administrative expenses required by Section 88. The provisions of this proposal would simply remove the unconstitutional impediment to audit payments from the Fund itself and do not impose any significant or duplicative auditing requirements on OSC or the Fund. Nor would this amendment impose an unreasonable burden on the Fund given that the current practice granting OSC direct access to necessary files streamlines the entire process. If, in addition to an OSC audit, an audit is performed as a part of an internal control process, there is a benefit to the auditee since such audits provide objective assurance on the audited area. However, performance of an internal control audit cannot supersede a constitutionally mandated audit by the State Comptroller and must viewed as an additional safety mechanism. Further, a statute cannot eliminate the Comptroller's constitutional responsibility to audit payments.

In 2015, the Governor signed into law Chapter 566 of the laws of 2015 authorizing an enterprise fraud prevention and detection system to be established by the State Comptroller for the purpose of developing and implementing techniques and technologies to detect and prevent fraud. The new law directs state agencies to fully support and cooperate with the State Comptroller by providing OSC with access to requested data, in accordance with applicable state and federal law, in order to allow such data to be integrated into such analytic efforts as the state comptroller may deem necessary for the purpose of detecting and preventing fraud, waste and abuse and improper payments by state government. This action is a clear example of the general agreement by the Executive that granting access to OSC is imperative if OSC is to continue to perform its constitutionally mandated duties.

Accordingly, the Comptroller urges passage of this legislation.

Budget implications

This bill has no fiscal impact for the Office of the State Comptroller, the State Insurance Fund or any other state entity because no significant requirements or activities are imposed by the proposal. The Comptroller currently audits the Fund and therefore no additional resources would be necessary. The sole purpose of the bill is to eliminate unconstitutional language from

Section 88 of the Workers' Compensation Law.

Effective date

This bill would take effect immediately.