Multiple Dipping for Dollars

New York Indie Contractors Rip Off System as ‘Employees’

By Ronald J. Huefner, Ph.D., CPA, CMA, and Sara R. Melendy, Ph.D., CPA

2009-MayJune-Multiple Dipping for Dollars ladle 
As more and different types of frauds come to light involving public pension systems, CFEs and auditors must be on the lookout for miscast worker/employer relationships and determine if professional service providers actually are independent contractors illegitimately reported as employees.  


In February 2008, a New York State Comptroller’s Office audit found that a Long Island attorney was reported as a full-time employee by five different school districts simultaneously. As a result of this “herculean feat,” the attorney was credited – for state pension purposes – with more than 1,270 days of work in each of two years according to a Feb. 15, 2008, article in Newsday, “5 School Districts Claimed Same Full-Time Lawyer.” That’s quite an accomplishment because a year only contains about 260 workdays.

While the attorney was being reported as an employee of the schools, his firm billed the school districts more than $2.5 million in fees for his services. As a result of the extensive service credits built up in the state pension system, the attorney received an annual state pension of nearly $62,000 and health benefits for life. The attorney defended his arrangement as “common practice,” a version of the familiar fraud rationalization that “everyone does it.”

A few days later, the audit identified two other Long Island attorneys who were reported as employees by six school districts; together they had been credited with more than 55 years of service in the retirement system according to the Sept. 4, 2008, Newsday article, “Nassau attorney removed from pension system.”

In a bit of hyperbole, one of the attorneys said, “Hundreds and hundreds of people over thousands of years have been doing this,” thus presumably tracing the practice to biblical times. Though this article uses New York state examples, it’s highly likely that similar abuses are occurring across the country, particularly when public pension benefits are involved.

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