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Larkins v. Solter

Superior Court of New Jersey, Appellate Division

June 15, 2017

MARC LARKINS, ACTING STATE COMPTROLLER, STATE OF NEW JERSEY, OFFICE OF THE STATE COMPTROLLER, Plaintiff-Respondent,
v.
GEORGE J. SOLTER, JR., SUPERINTENDENT, NORTH BERGEN DISTRICT BOARD OF EDUCATION and NORTH BERGEN DISTRICT BOARD OF EDUCATION, Defendants-Appellants.

          Argued June 6, 2017

         On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-108-15.

          Michael D. Witt argued the cause for appellants (Chasan, Leyner & Lamparello, P.C., attorneys; Mitchell L. Pascual, Cheyne R. Scott and Mr. Witt, of counsel and on the briefs).

          James A. Carey, Jr., Deputy Attorney General, argued the cause for respondent (Christopher S. Porrino, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Paul Davis, Deputy Attorney General, on the brief).

          Before Judges Yannotti, Fasciale and Gilson.

          OPINION

          FASCIALE, J.A.D.

         Defendants George J. Solter, Jr., Superintendent (Superintendent), North Bergen District Board of Education (NBBOE), and the NBBOE, appeal from two December 22, 2015 orders: one granting summary judgment to plaintiff Marc Larkins, Acting State Comptroller (the State Comptroller), State of New Jersey, Office of the State Comptroller (the OSC); and the other denying defendants' cross-motion to compel production of documents. Defendants also appeal from a February 11, 2016 order denying reconsideration of the orders.

         The State Comptroller established objective criteria, gathered voluminous information, and weighed various factors before deciding to conduct a performance audit of the NBBOE. Defendants insisted that the State Comptroller was obligated to disclose his reasons for the audit before it commenced. As a result, they conditioned their cooperation on receiving that information.

         In entering the orders, the judge determined the parties' obligations by interpreting N.J.S.A. 52:15C-1 to -24 (the Act or Enabling Statute). Based on his review of the Act, the judge concluded that the State Comptroller had no obligation to explain his reasons for the audit. Pursuant to N.J.S.A. 52:15C-14(a), the judge compelled defendants to fully assist and cooperate with the audit.

         The legal issue presented on appeal is whether the State Comptroller was obligated to disclose his reasons for selecting the NBBOE for a performance audit before commencing the audit.[1]We hold that the Enabling Statute does not impose any such requirement. To hold otherwise would undermine the purpose of the Act; render meaningless an auditee's unambiguous statutory obligation to provide full assistance and cooperation with any audit; and unduly delay the conduct of audits. We therefore affirm.

         I.

         We begin by summarizing the State Comptroller's role, responsibility, and broad administrative powers. Doing so informs our holding that the State Comptroller is not obligated to justify, in advance of the audit, his reasons for selecting the NBBOE for the performance audit. Undertaking this summary provides further support for our conclusion that imposing such a condition would substantially undermine the State Comptroller's independent oversight role in safeguarding efficient and independent public financial control and accountability statewide.

         In 2007, the Legislature recognized that the size of governmental agencies had been steadily growing for decades because of new and escalating societal needs. N.J.S.A. 52:15C-1. Although the size of governmental agencies and authorities had been expanding, the Legislature acknowledged that the State's ability to manage the governmental accountability systems had not matched its responsibility to subject governmental financial activities to public scrutiny. Ibid. Consequently, the Legislature declared it had a fundamental duty to the taxpayers to oversee and promote the "professional conduct of internal audits, [the] assurance on the adequacy of internal financial controls within agencies of government, [and the] assess[ment] [of] the adequacy of controls over financial management, contracting, financial reporting and the delivery of government programs and activities with due regard to efficiency, effectiveness and economy." Ibid.

         The Legislature determined there existed a compelling need to ensure "independence and integrity in the financial oversight of the discharge of its duties and responsibilities [to be] carried out in a manner and under a structure that safeguards the fiscal resources with which it has been entrusted[. ]" Ibid. As a result, the Legislature established the OSC, which the State Comptroller administers, to satisfy these responsibilities. Ibid. It also created the OSC to "subject governmental financial activities to uniform, meaningful, and systematic public scrutiny[.]" Ibid.

         To strengthen the integrity of the State Comptroller's statutory duties, the Legislature established an independent governmental framework. Pursuant to N.J.S.A. 52:15C-2, and to comply with the provisions of article V, section IV, paragraph 1 of the New Jersey Constitution, [2] the Legislature declared that the OSC "shall be allocated in, but not of, the Department of the Treasury. Notwithstanding this allocation, the [OSC] shall be independent of any supervision or control by the State Treasurer, or the department or by any division, board, office, or other officer thereof." In this independent Executive Agency capacity, the Legislature required the State Comptroller to "report directly to the Governor." N.J.S.A. 52:15C-2(b).

         The State Comptroller's duties include a wide range of responsibilities under the Act. Under his direction, the OSC is responsible for conducting routine, periodic, and random audits of entities with executive branch authority including "public institutions of higher education, independent State authorities, units of local government and boards of education." N.J.S.A. 52:15C-5(a). Likewise, the OSC is responsible for "conducting assessments of the performance and management of programs of . . . public institutions of higher education, independent State authorities, units of local government and boards of education and the extent to which they are achieving their goals and objectives." Ibid.

         The Legislature consolidated within the OSC coordination responsibility for internal and external audit functions. N.J.S.A. 52:15C-7.It therefore authorized the State Comptroller to establish an independent "full-time program of audit and performance review[.]" N.J.S.A. 52:15C-7(a). Such a program would be in addition to any audit or review conducted by entities other than the OSC. The Legislature also designed the consolidation of these functions to "provide increased accountability, integrity, and oversight of . . . all . . . units of local government and boards of education[.]" Ibid.

         To fulfill his statutory obligations under the Act, the Legislature directed the State Comptroller to establish various guidelines. The Legislature directed the State Comptroller to adopt rules and regulations in accordance with the Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -15, "as shall be necessary to implement the provisions of this [A]ct." N.J.S.A. 52:15C-19; see also N.J.S.A. 52:15C-8(a) (stating in part that the State Comptroller "shall, pursuant to the provisions of the [APA], adopt rules and regulations necessary to effectuate the purposes of this [A]ct").

         The State Comptroller enjoys broad powers under the Act. Pursuant to N.J.S.A. 52:15C-8(a), the State Comptroller "shall have all the powers necessary" to carry out his statutory duties, functions, and responsibilities. The State Comptroller has authority to conduct financial audits pursuant to N.J.S.A. 52:15C-8(c)(2), and performance audits pursuant to N.J.S.A. 52:15C-8(c)(3).

         In accordance with N.J.S.A. 52:15C-8(c)(3), and pertinent to this appeal, the State Comptroller is required to establish objective criteria for analyzing whether to undertake a performance audit. In deciding whether to conduct a performance audit, the State Comptroller must use that criteria and

weigh relevant risk factors, including, but not limited to: (a) the size of the entity's budget, (b) the entity's past performance, (c) the frequency, scope, and quality of any audits or reviews that have been performed regarding the entity's financial condition or performance, (d) assessments or evaluations of the entity's management, performance or financial condition such as those undertaken as part of the New Jersey Quality Single Accountability Continuum for school districts, and (e) other credible information which suggests the necessity of a review.
[N.J.S.A. 52:15C-8(c)(3).]

         In this section, reference to "entity" means "any unit in the Executive branch of State government, including all entities exercising executive branch authority, public institutions of higher education, independent State authorities, units of local government and boards of education or their vendors." N.J.S.A. 52:15C-8(c)(4).

         II.

         On March 31, 2015, a Director of the Audit Division in the OSC (the Audit Director) wrote the Superintendent and explained that the OSC had been analyzing whether to review the operations of certain school districts statewide. In his letter, the Audit Director explained the OSC had focused on those school districts receiving fifty percent or more of their fiscal year 2013 budgets from State aid. The NBBOE fell into that category.

         To determine whether to conduct the performance audit of the NBBOE, the Audit Director requested the NBBOE produce the following documentation for the period between July 2012 and March 2015:

1. Organizational Chart (including names of key personnel).
2. Written policies and procedures governing expenditures (including payroll).
3. Employment contracts for all bargaining units.
4. Board meeting minutes.
5. List, including vendor name, description of services and total amount paid, of all ...

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