News & Politics

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

by

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

Most Popular