Barrett: Bill Thompson Questions Graduation Rates; City Responds With Its Shady Numbers Man

When Bill Thompson issued a recent audit questioning the high school graduation rate claims of the Bloomberg administration, the Department of Education enlisted its prestigious outside auditor, Ernst & Young, to rebut the comptroller's findings. But the E&Y partner who signed the unusual June 22 letter challenging Thompson's findings, David Milkosky, turns out to be a thin reed for Bloomberg to lean on.

Milkosky, who is "the coordinating partner" for the E&Y team that oversaw its supposedly "independent" audit of the graduation rate as part of a roughly $2 million-a-year contract with the DOE, also headed the E&Y team that for years audited the city's Housing Development Corporation when it was run by Russell Harding, who pled guilty in 2005 to looting it for $400,000.

In submissions to the DOE, Milkosky described himself as "the partner in charge of all services rendered" to the city's HDC, though he tells the Voice he didn't "recall" if he ever talked to Harding during the three years that he audited the small agency while Harding ran it.

An HDC spokeswoman says that Milkosky was "the lead partner" on the contract during the Harding years, and that E&Y was awarded the contract shortly after Harding became president.

Since Harding's release from federal prison, he has been writing his own blog, Rudy Veritas (he was a Rudy Giuliani appointee) and has noted that E&Y auditors were in his office for two months every year and that "all of my records were there for E&Y to see." While Harding's blog is frequently unreliable, his claim that E&Y did not uncover any of his extravagant vacation and other illegal perks is not contradicted by any of the evidence made public in the federal case against Harding. Milkosky says "I don't remember if our audits uncovered any questionable expense items."

Milkosky, who lives and is based in New Jersey, also oversaw the E&Y team that was for years the auditor for the City of Hoboken, whose current mayor, Peter Cammarano, just resigned after he was indicted in a massive federal bribery case. Hoboken was listed as a client on the 2006 submissions to DOE made by Milkosky, who is the partner-in-charge of E&Y's Metro New York Area Public Sector Practice.

The E&Y contract with Hoboken ended before the 32-year-old Cammarano took office this spring, but Cammarano was elected to Hoboken's city council in 2005 on a ticket headed by his ally and mentor, then mayor David Roberts, who awarded the E&Y contracts. E&Y's political action committee in New Jersey, which listed Milkosky as its treasurer for nearly two decades, contributed thousands of dollars to support the Roberts/Cammarano ticket. The ties between Cammarano and Roberts are so close that Tom Bertolli, a political operative who ran many campaigns in the Hoboken area, says that "Cammarano was Roberts' waterboy."
Hoboken's mayor since 2001, Roberts decided not to run in 2009 after the state took over the city's troubled finances the year before, turning the reins over to Cammarano, the youngest mayor in Hoboken history. E&Y was the city's auditor throughout Roberts' term until the city council nixed the contract in 2007.

One Hoboken councilman, Michael Russo, tells the Voice that he had "no confidence" in E&Y and that "when we had the opportunity to change" auditors in 2007, "we did it." Russo, whose father was once Hoboken's mayor and also went to jail, says E&Y was "just going through the motions" and that the council "had many issues with our financial statements at that point, and we've uncovered many issues since."

Another former top financial official in Hoboken's government says that E&Y "certainly had a central role" in the re-financings of the municipal garage, for example, a fiscal gimmick that allowed the city to raise additional cash twice, but helped lead it down the path to the eventual state takeover. According to this official, E&Y was "expensive and competent," but "they weren't courageous, failing to "highlight" the budgetary "things that were wrong" that the Roberts administration was doing. Milkosky acknowledged knowing and speaking to Roberts and said that he "reviewed the work" that E&Y auditors did in Hoboken but that he "didn't sign" the opinion on the financial statement, as he does in New York, because he was not a registered municipal accountant in Jersey, a requirement in that state.      
The Fund for a Better Waterfront, a two-decade-old good government group in Hoboken, reported that Milkosky gave $3,000 to the Hoboken Democratic Party at a fundraiser honoring Roberts in September 2004. The same story indicated that E&Y had given Roberts-tied committees $25,800 since 2001 and received $1.1 million in contracts from the city. E&Y were cited as an example of pay-to-play donors as part of a successful campaign to pass a city referendum, backed by Common Cause, to ban such donations. Milkosky said he may well have gone to the Mayfair Farms fundraiser, adding that he went to many, but he insisted that he did not make any personal contributions, giving only through E&Y's PAC (in fact the state website lists him for nearly $6000 in other personal donations).

Denying that these were pay-to-play donations because E&Y gave to "party organizations that didn't award the contracts," Milkosky nonetheless said E&Y closed down the PAC because "so many pay to play" ordinances were adopted in New Jersey that "compliance was too onerous."

Audit firms like E&Y that are on retainer to public agencies rarely author rebuttal letters responding to audits by state and city comptrollers like Milkosky did. Asked if he'd done it before, Milkosky said he had, but that he couldn't specify another example "off the top of my head." E&Y has examined the graduation rate data for several years, and DOE says it was paid $117,000 for looking at the 2007 data, the same data examined by Thompson. But the E&Y report in 2008 about the grad rate exudes caveats, insisting that it made "no representation regarding the sufficiency of the procedures" used by DOE to determine who graduates. "We were not engaged and did not conduct an examination, the objective of which would be the expression of an opinion on management's assertion" about the rate, verifying instead "the mathematical accuracy of the calculation." Had E&Y "performed other procedures," it wrote, "other matters might have come to our attention."

Milkosky explained to the Voice that Thompson "looked at the information behind the transcripts" of the graduates and "we didn't." The comptroller "went beyond things that we checked" because "we weren't asked to check that," he said. Yet the June 22 letter he wrote at DOE's request left the impression that E&Y was challenging Thompson's findings, noting that it doesn't "call into question any of the conclusions" expressed in the firm's report, "including but not limited to our overall conclusion that the graduation rate calculation was accurate." The key word in Milkosky's letter is "calculation," which means simply that all E&Y did was validate DOE's numbers, not the probity of the graduation controls, and that Thompson did nothing to contradict the numbers either.

E&Y's requirements contract with DOE has averaged $2 million a year and, under it, the department requests that they perform an assortment of auditing functions ("I'm sure we charged them for a couple of hours" to review the Thompson audit, said Milkosky). It was renewed for another four years in 2007, despite the fact that the only other bidder, KPMG, submitted a bid at less than half E&Y's price (E&Y bid $1.2 million for the core audit of 40 schools and KPMG bid $500,000). E&Y "showed a greater understanding and willingness to adapt to the preferences and needs" of DOE, concluded an evaluation report authorizing the contract.                       

Research Credit: Johanna Barr, Georgia Bobley, Tom Feeney Jr., Jane C. Timm

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