Investigation report obtained

Former CFO and his attorney respond to firing

June 8, 2003 - Tom Jennemann - Hoboken Reporter

A report from the city's auditors charges that the city's Finance Department miscalculated how much in emergency appropriations would be needed to run the city.

The city's finance director, who was fired by the city three weeks ago, defended himself by saying he was being on the safe side in making sure the city had enough money to pay its bills.

The report was officially filed with the city on June 2 but is dated April 23, 2003.

Last month, the city cited the report as a rationale to fire the city's acting Chief Financial Officer, Michael Lenz, who was also said to be supporting candidates who opposed the mayor's candidates in the May 13 City Council election.

Lenz was fired on election day.

The mayor's investigation, which was conducted by Louis Roberts of the firm Ernst and Young, the city's auditors, centers around $1.3 million in emergency appropriations that were approved by the City Council in a resolution on April 10.

Emergency appropriations are permitted under the New Jersey Local Budget Law after the budget has been adopted, to provide for emergencies that were not foreseen at the time of the budget adoption.

The city's budget for the nearly-completed 2002-2003 fiscal year is nearly $65 million.

Lenz and his lawyer contend that he has done nothing wrong, and that every dollar that was included in the emergency appropriations will need to be spent, making the resolution appropriate.

"The Chief Financial Officer has a responsibility to safeguard the fiscal integrity of the city," said Lenz Friday morning in his defense. "You don't do that by cutting things down to the penny."

He added that since overspending the budget in New Jersey would have been a crime, it is perfectly acceptable to leave a buffer so that the city is not caught overspending.

"The goal is to take reasonable precautions to make sure you don't overspend," Lenz said. "That's what I did."

The largest component of the emergency appropriation in the April 10 resolution is related to group health insurance in the amount of $587,847. "The explanation on page one of the [emergency appropriation] resolution states that the reason for the emergency was that the insurer failed to provide timely notice of and increase," said Louis Roberts the report. "Subsequent to the passage of this resolution, it was discovered by the Purchasing Department that the Group Health Insurance account was erroneously encumbered for approximately $600,000. This overencumbrance negates the need for additional funding."

The report implies that Lenz could have asked for only $700,000 instead of the $1.3 million.

Lenz's attorney, Martin Pachman, contends that the error was made in the Purchasing Department, which Lenz does not supervise, and added that even with the error, the recently adopted Police Superiors' contract would likely force to City Council to use those funds anyways.

"The examination of the April 10, 2003 emergency appropriation by Ernst and Young does not in any way cite any failure of performance by Mr. Lenz," reads Pachman's letter addressed to the mayor. "As the report points out, the discovery of the over-encumbrances with respect to the heath insurance did not take place until subsequent to the presentation of the emergency appropriation. Even had it been known to Mr. Lenz, there would still have been a potential over-expenditure of over $700,000, primarily in the salaries and wages account of the Police Department."

The Ernest and Young report added that including the $600,000 error in group health insurance, there was $805,900 available to the city. Again Lenz's attorney contends that "the 'possible available funds' [that are] reported to have been discovered would not have closed the gap" of the potential cost incurred by the police contract.

The report also criticized the Finance Department, which Lenz headed, for recommending a $99,041 emergency appropriations for a council runoff that hasn't happened yet. The appropriations were approved on April 10, a month before the general election was even held.

"Although there may be a need for an increase in this budget account, the city has not yet incurred these costs," reads the report.

Lenz has argued that with 26 candidates running for only six seats, it was inevitable that there would be runoffs, thus making the emergency appropriation appropriate. In retrospect, Lenz was right - there are runoffs in four city wards on Tuesday.

During the last two months of the fiscal year, May and June, the city is also allowed to transfer funds from departments that underspent their budget. The report says that the Finance Department did not fully take into account these budget transfers when asking for emergency appropriations.

"As the resolution was passed less than one month from the period in which the budgetary transfers are allowable, the process of identifying available funds for transfer in the last two months of the year should have been performed before the presentation of the resolution in order to minimize the amount of such emergency authorization," reads the report. "Although the city cannot wait to pass an emergency authorization after a budgetary account is already overexpended, the city could have determined which accounts would be overexpended before May 1, and pass an emergency only for those accounts."

Lenz's attorney responded that while looking at other options may have deferred appropriations, they could not have avoided them all together.

"It is important to note that what Ernst and Young concluded," Pachman said, "is that there may have been other options available to the city of Hoboken in April, which would have deferred, but not altered, the eventual need for an emergency appropriation for approximately $700,000. Thus, it is clear that not only was the attempted termination of Mr. Lenz without legal authority, but the basis therefore is certainly not justified by any reported failure of performance on his behalf."

Mayoral spokesman Bill Campbell said Friday that the city would withhold comment since legal action is pending on the matter.