Talking about TRUST...
This is the school district where I worked for 21 years.
This article was in the New York Times.....
UNBELIEVABLE...
Failure to File Timely Insurance Claim May Cost Plundered School System Millions
By ALISON LEIGH COWAN
ROSLYN, N.Y., Dec. 2 - By her own admission, Pamela C. Gluckin stole $4 million from taxpayers in the years she ran the business affairs of the Roslyn school district on Long Island.
A former school bus driver who returned to school to earn her administrator's license, Ms. Gluckin used her control over the $70 million budget to treat herself, her family and friends to everything from shopping sprees at Home Depot and student loan payments to spa treatments, rugs and diamonds.
But besides writing thousands of checks and splurging on various items that she tossed about like confetti at a party, she was fastidious about making sure that the district had ample insurance for contingencies and that those policies stayed current.
The insurance, including a type known as "fidelity bond" or "commercial crime" insurance that pays for losses caused by dishonest employees, normally would have provided Roslyn's taxpayers with millions of dollars in relief once the district discovered Ms. Gluckin's fraudulent dealings.
But the Roslyn case has been anything but normal, as the 18,000 people who live in this village on the North Shore of Long Island and the surrounding communities that make up the school district keep learning.
In October 2002, when it first learned that Ms. Gluckin had stolen money, then believed to have been only $250,000, the Board of Education decided against filing a claim or making public disclosures, partly to avoid publicity and partly because she promised to repay that amount.
In taking that step, the board compromised the district's ability to collect from its insurance carriers by depriving them of the prompt notice the carriers said they are entitled to under the policies. Such notice allows the insurance companies to investigate promptly and to maximize efforts to recover any stolen funds.
Three of the four affected insurance companies have declined to pay claims and the district is negotiating with the fourth, which has reserved the right to deny the claims.
"This was dumb as dumb," said Jeff Borowick, a certified public accountant and lawyer who is one of six newcomers on Roslyn's seven-person Board of Education. "What could they have been thinking?"
Earlier this year, the current board sued 10 former board members and the district's former law firm, citing the mishandling of the insurance policies as one of their prime acts of negligence.
"I've been in insurance for 27 years and this is the first I've seen anything like this," said Joseph Goncalves, the executive director of New York Schools Insurance Reciprocal, a nonprofit company that helps many school districts secure insurance.
The suits are part of a tangle of legal actions, criminal and civil, surrounding the Roslyn scandal, which in turn set off a flurry of audits and legal actions in other districts around the state.
The stakes for Roslyn taxpayers and schoolchildren are far from trivial. State Comptroller Alan G. Hevesi faulted the former board in a forensic audit for showing "poor judgment" in failing to grasp that keeping the scandal a secret jeopardized the district's chances of collecting on insurance. By most estimates, that cost taxpayers the chance to recover $2 million of their losses and perhaps much more.
The audit estimated Roslyn lost at least $11.2 million in the theft carried out by several former employees, most notably Ms. Gluckin; her niece and underling, Debra Rigano; and Roslyn's longtime superintendent, Frank A. Tassone. All three have pleaded guilty to larceny and are cooperating with prosecutors while they await sentencing.
The Roslyn board, as the overseers of one of New York's premier school systems, has been harshly criticized for the lavish pay and perks it gave Dr. Tassone and for its failure to discern that he, too, was piling up large amounts of dubious expenses. Among the comptroller's findings were trips on the Concorde with a companion and $1,800-a-night hotel suites.
Dr. Tassone was not dismissed until last year, and then only after an anonymous letter alerted officials in February 2004 that Ms. Gluckin had stolen much more than first believed. The board had agreed to let her leave quietly, with her pension, on condition she repay the money and surrender her administrator's license. But the letter said that Dr. Tassone may have also had his hand in the till.
Taxpayers are not without some recompense: As part of their plea deals, Dr. Tassone has agreed to make about $2 million in restitution, Ms. Gluckin has pledged $4 million, and Ms. Rigano has promised $780,000, but it is uncertain whether the three have the assets to pay the full amounts.
The district also expects to receive $925,000 from its former auditors at Miller Lilly & Pearce in a civil settlement for their role in the scandal and hopes to obtain some money from the provider of its accounting software on the grounds that its susceptibility to manipulation made it a defective product, according to Thomas J. Killeen, a lawyer helping the district pursue its civil claims.
Among the claims are two lawsuits the district has filed, one against the former school board members and one against the district's former law firm. Those actions state that the former board's failure to notify its insurance carriers in a timely way may have jeopardized the district's ability to tap insurance coverage that had been purchased for just such an emergency.
The most recent commercial crime policy had been issued by the Continental Insurance Company, a unit of CNA Financial Corporation, supplanting a policy from Liberty Mutual Insurance. The CNA policy entitled the district to be reimbursed by as much as $100,000 for each lower-level employee who acted dishonestly.
It also provided up to $1 million of reimbursement in each instance, or event in insurance parlance, where the theft or loss involved the superintendent, assistant superintendent for business, district treasurer, district clerk or assistant clerk.
In fact, Dr. Tassone and Ms. Gluckin have pleaded guilty to stealing more than $1 million apiece, and more than a dozen employees, like Ms. Rigano, have been implicated.
Thus, the policy could easily have been worth well more than $2 million, according to current board members, their lawyers and people in the insurance field.
But questions persist: Did the board's failure to initially notify the insurers cost them the chance to report the full range of frauds? Were the thefts one event or many?
Liberty denied coverage in August and, records show, and CNA has reserved the right to deny the claim or reduce it because of the delayed notice. A CNA spokeswoman said the company would have no comment.
Delayed notification is also causing headaches for the former board members who are being sued by their successors on the board. Two insurance companies that provided $26 million in liability coverage to directors and officers have also balked at paying the former board member's legal bills or covering their losses. Late notice was a factor in both denials, according to the district's lawsuit.
One of those companies, American International Group, did not respond to a request for comment. The other is the New York Schools Insurance Reciprocal, which Mr. Goncalves runs. It informed the district in May that the initial failure to notify the carrier was "in violation of clear contractual obligations" and that the district then misled the carrier by failing to disclose the information on renewal forms in March 2003.
Forced to spend thousands on their own legal defense, former board members say the situation is unfair. The seven who were on the board in October 2002 say they relied heavily on the professionals who advised them to accept Dr. Tassone's recommendation that they settle the matter with Ms. Gluckin quietly.
"Most people would have done exactly what we did," said Bill Costigan, a graphic arts consultant, the former board president.
Andrew Miller, the district's longtime auditor, bolstered the recommendation by vouching that $250,000 was all Ms. Gluckin owed based on his own inspection of the records, the former board members said. They said they could hardly have known that Mr. Miller himself would one day be pleading guilty to tampering with the district's financial records in an effort to downplay the fraud.
Legal advice came from Thomas Hession, a former prosecutor, who was brought in by Dr. Tassone as the board's special counsel. Mr. Hession advised the board in writing in late 2002 that it had no legal duty to report the fraud to authorities, and so far, the Roslyn's current board has not sued Mr. Hession.
The board, however, claims that Jaspan Schlesinger & Hoffman, the district's former general counsel, is responsible for failing to challenge Mr. Hession's conclusions before the full board and for failing to convey the risks of neglecting to notify insurers at the first sign of a problem, according to the current board's lawsuit.
Steven Schlesinger, a partner at Jaspan, said that his firm did urge board members to notify the insurers and that the fault for the current situation, if any, lies with the former superintendent, the former auditor and the former board. By one token, his law firm is in better shape than other defendants: The insurance company that supplied the firm's $10 million malpractice policy, St. Paul Travelers, had adequate notice and is helping his firm mount its defense. |
