New York Law Review

Tag: Audit Authority

  • Handler v. DiNapoli, 20 N.Y.3d 241 (2012): Scope of State Comptroller’s Audit Authority Over Healthcare Providers

    20 N.Y.3d 241 (2012)

    The State Comptroller’s constitutional authority to audit state expenditures extends to reviewing the billing records of private healthcare providers who receive state funds through a third-party administrator, even if the providers do not have a direct contract with the state.

    Summary

    This case addresses whether the New York State Constitution limits the State Comptroller’s authority to review the billing records of private medical providers who receive payments from the state’s health insurance program (NYSHIP) through a third-party administrator. The Court of Appeals held that the Comptroller’s authority does extend to these providers, as the funds they receive are ultimately state funds, and reviewing their billing records is necessary to ensure proper payment and prevent overpayments. The Court emphasized that this audit authority is limited to billing records directly related to state payments and does not extend to performance audits or other administrative functions.

    Facts

    Martin H. Handler, M.D., P.C. (Handler) and South Island Orthopaedic Group (South Island) are medical providers whose patients are insured by the Empire Plan, New York State’s primary health benefit plan. They are non-participating providers, meaning they bill patients directly, who are then reimbursed by United Healthcare Insurance of New York (United), the plan administrator. The State covers the full cost of these claims to United. The Comptroller audited Handler and South Island to determine if they were improperly waiving patient co-payments, which inflates the state’s costs. The Comptroller’s audits revealed a pattern of waived co-payments, leading to alleged overpayments by the state.

    Procedural History

    Handler and South Island filed separate actions challenging the Comptroller’s authority to audit their books. Supreme Court initially granted the petitions, enjoining United from taking action based on the audit results, concluding that the Comptroller lacked constitutional authority. The Appellate Division reversed, reinstating the audits and holding that the Comptroller has a constitutional duty to audit payments made by the State. The cases were remitted to Supreme Court, which then dismissed the petitions. Handler and South Island appealed to the Court of Appeals.

    Issue(s)

    Whether the State Comptroller’s constitutional authority to audit state expenditures extends to the billing records of private healthcare providers who indirectly receive state funds through a third-party administrator, specifically when auditing for potential waiver of co-payments.

    Holding

    Yes, because the funds paid to the healthcare providers are ultimately state funds, and reviewing their billing records is necessary for the Comptroller to fulfill its constitutional duty to audit state expenditures and prevent overpayments.

    Court’s Reasoning

    The Court of Appeals based its reasoning on Article V, § 1 of the New York State Constitution, which mandates the Comptroller to audit all state payments and receipts. The Court emphasized the importance of maintaining the Comptroller’s independent audit function to protect the state fisc. The court reasoned that the Comptroller’s authority isn’t limited by the fact that payments are made through a third-party administrator (United). The funds remain state dollars used to pay for healthcare services for state beneficiaries. Reviewing the providers’ billing records is the only effective way to ensure that required co-payments are being collected and that the state is not overpaying claims. The Court distinguished this case from prior cases where the Comptroller attempted to conduct performance audits or assume administrative duties outside of its core fiscal oversight role. The Court stated:

    “Reviewing a provider’s billing records is the only way to ensure that the provider has been collecting the required co-payment, and United has no way of obtaining those records.”

    The court also noted that the providers’ own billing practices indicated an understanding that they were receiving state funds. The court explicitly limited its holding, stating that it was not deciding the full extent of the Comptroller’s power over third parties, but only affirming the Comptroller’s narrow authority to review billing records directly related to state payments, especially where the information is not available from the third-party administrator. The Court emphasized that the audits were focused on preventing overpayment, a core aspect of the Comptroller’s constitutional mandate, and not on evaluating the quality of the providers’ medical services.

  • New York Charter Schools Assn. v. DiNapoli, 16 N.Y.3d 73 (2010): Limits on Comptroller’s Audit Authority over Charter Schools

    New York Charter Schools Assn. v. DiNapoli, 16 N.Y.3d 73 (2010)

    The Legislature violates Article V, § 1 of the New York State Constitution when it assigns and directs the State Comptroller to audit charter schools, as charter schools are not political subdivisions of the State, and auditing them is not an administrative duty incidental to the Comptroller’s constitutionally prescribed functions.

    Summary

    This case addresses whether the New York State Legislature violated the state constitution by directing the State Comptroller to audit charter schools. The Court of Appeals held that the Legislature exceeded its constitutional authority. The Court reasoned that charter schools are not political subdivisions of the state, and auditing them is not an administrative duty incidental to the Comptroller’s constitutionally prescribed functions. The decision emphasizes the limits on the Legislature’s power to assign duties to the Comptroller and underscores the independent character of the Comptroller’s audit function. It clarifies that the Comptroller’s authority is primarily tied to auditing political subdivisions of the state and administrative duties directly related to those audits, rather than extending to any entity receiving state funds.

    Facts

    In 1998, the New York Legislature enacted the Charter Schools Act, creating a system of charter schools. Charter schools are considered part of the public school system but operate independently. They are funded primarily with public monies, with school districts paying tuition for resident students attending charter schools. In 2005, the Legislature amended the law to direct the State Comptroller to audit all school districts, BOCES, and charter schools by March 31, 2010. The State Comptroller then notified several charter schools of scheduled performance audits to assess academic achievement and compliance with student selection procedures.

    Procedural History

    Several charter schools challenged the Comptroller’s authority to conduct these audits. The Supreme Court denied the respondents’ motion for summary judgment and permanently enjoined the Comptroller from conducting further charter audits. The Appellate Division reversed, finding the Legislature did not violate the state constitution. The Court of Appeals then reversed the Appellate Division, reinstating the Supreme Court’s order and judgment.

    Issue(s)

    Whether the Legislature violated Article V, § 1 of the New York State Constitution by assigning the State Comptroller the power and duty to audit charter schools.

    Holding

    No, because charter schools are not political subdivisions of the State, and the task of auditing charter schools is not an administrative duty incidental to the Comptroller’s constitutionally prescribed functions.

    Court’s Reasoning

    The Court of Appeals held that the Legislature’s assignment of auditing authority over charter schools to the Comptroller violated Article V, § 1 of the New York State Constitution. Article V, § 1 outlines the Comptroller’s duties, including auditing vouchers, official accounts, and revenue collection. It also allows the Legislature to assign the Comptroller supervision of the accounts of any political subdivision of the state and administrative duties incidental to those functions. The Court emphasized that the “plainly expressed constitutional prohibition” of Article V, § 1 does not support an expansive reading of the term “incidental.”

    The Court distinguished its holding from Matter of McCall v. Barrios-Paoli, 93 N.Y.2d 99 (1999), stating that while the Comptroller has the authority to inquire into the management and operations of city agencies (political subdivisions), this does not extend to entities that are not political subdivisions simply because they receive state funds and perform a governmental function.

    The Court also rejected the argument that the Comptroller’s authority to audit all vouchers before payment implies a “post-audit” authority to confirm that funds have been correctly disbursed. It stated that the Comptroller’s authority to audit monies paid by a school district to a charter school, acting as a conduit, does not extend to questioning the wisdom of how charter schools provide instruction. Once the funds are transferred, they are no longer under the State’s control.

    The Court noted that charter schools are still subject to fiscal oversight by the Board of Regents, their charter entity, the school’s board of trustees, and mandatory independent annual audits. Further, a school may lose its charter if it fails to meet educational standards.

    The Court concluded that the provisions of General Municipal Law § 33 (2) and Education Law § 2854 (1) (c), to the extent they direct the Comptroller to conduct audits of charter schools, are unconstitutional.

  • Serio v. Hevesi, 90 N.Y.2d 96 (2008): Limits on Comptroller’s Authority to Audit Insurance Liquidation Bureau

    Serio v. Hevesi, 90 N.Y.2d 96 (2008)

    The New York State Comptroller lacks the constitutional and statutory authority to audit the New York State Insurance Department Liquidation Bureau because the assets of a distressed insurer are not “moneys of the state” nor “moneys under [state] control.”

    Summary

    This case addresses the scope of the New York State Comptroller’s authority to audit the New York State Insurance Department Liquidation Bureau (Bureau). The Court of Appeals held that the Comptroller does not have the authority to audit the Bureau because the assets the Bureau manages during the liquidation of distressed insurers are not state funds or under state control. The Superintendent of Insurance acts as a court-appointed receiver, managing private assets for the benefit of creditors and policyholders, not for the state’s fiscal interests. This decision clarifies the separation between the Superintendent’s regulatory role and their role as a liquidator of private entities.

    Facts

    The New York State Insurance Department Liquidation Bureau (Bureau) manages the assets of distressed insurance companies. The Comptroller sought to audit the Bureau’s financial management and operating practices, including its handling of abandoned property. The Bureau rejected this request, arguing it was not a state agency subject to the Comptroller’s oversight. The Comptroller issued subpoenas to the Superintendent and Bureau officials, seeking testimony and documents related to the Bureau’s finances and operations. The Comptroller based his authority on the New York State Constitution, the State Finance Law, and the Abandoned Property Law.

    Procedural History

    The Superintendent and Bureau employees filed a special proceeding to quash the subpoenas. The Supreme Court quashed the subpoenas, finding the Comptroller lacked the authority to audit the Bureau. The Appellate Division reversed, holding the Bureau was a state agency and the Superintendent a state officer, granting the Comptroller audit authority. The Court of Appeals reversed the Appellate Division and reinstated the Supreme Court’s decision, denying the Comptroller’s audit authority.

    Issue(s)

    1. Whether the New York State Comptroller has constitutional or statutory authority to pre-audit expenditures of the New York State Insurance Department Liquidation Bureau?

    2. Whether the New York State Comptroller has constitutional or statutory authority to post-audit the financial management and operational practices of the New York State Insurance Department Liquidation Bureau?

    3. Whether the New York State Comptroller has the authority under the Abandoned Property Law to conduct broad audit functions in this case?

    Holding

    1. No, because the assets of a distressed insurer are neither “money[s] of the state” nor “money[s] under [state] control,” and thus do not fall under the Comptroller’s constitutional or statutory pre-audit authority.

    2. No, because the assets of a distressed insurer are neither “money[s] of the state” nor “money[s] under [state] control,” and thus do not fall under the Comptroller’s constitutional or statutory post-audit authority.

    3. No, because the Comptroller lacks the authority under the Abandoned Property Law to conduct the broad audit functions sought in this case; therefore, the subpoenas were overly broad.

    Court’s Reasoning

    The Court reasoned that the Comptroller’s authority stems from Article V, § 1 of the New York State Constitution and State Finance Law § 111, which pertain to auditing “money of the state” or “money under its control.” The Court determined that assets held by the Bureau during liquidation are neither. While the Superintendent holds legal title to the assets, equitable title remains with the distressed insurer for distribution to creditors and policyholders. The State has no direct interest in these assets. Further, the Court emphasized that the Superintendent acts as a statutory receiver in this capacity, standing in the shoes of a private entity, rather than acting in their public role as a regulator. The Bureau is not a “state agency” performing a governmental function for the state, but instead runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order. The Court also stated, “the Superintendent as liquidator occupies a legal status that is ‘separate and distinct from the Superintendent of Insurance as the public official charged with regulating the industry generally.’” Thus, assigning audit duties to the Comptroller in this context would contravene Article V, § 1’s prohibition against assigning administrative tasks unrelated to the state’s fiscal concerns. Regarding the Abandoned Property Law, the Court found the subpoenas issued were overly broad, lacking a sufficient basis for the extensive audit sought by the Comptroller.

  • People ex rel. Grannis v. Roberts, 163 N.Y. 70 (1900): Mandamus and the Comptroller’s Audit Authority

    People ex rel. Grannis v. Roberts, 163 N.Y. 70 (1900)

    Mandamus does not lie to compel a state comptroller to audit a claim in a specific manner, as the comptroller’s auditing function involves the exercise of judgment and discretion.

    Summary

    This case concerns a dispute over payments for canal work. The relators, Grannis and O’Connor, sought a writ of mandamus to compel the state comptroller to pay drafts in full for work performed. The comptroller argued the contract was fraudulent due to an inaccurate estimate of rock excavation by the state engineer, leading to an unbalanced bid. The court held that the comptroller possesses the authority to audit claims against the state and cannot be compelled by mandamus to make a specific determination, as auditing involves discretionary judgment.

    Facts

    Grannis and O’Connor entered into a contract to perform work on the Erie Canal. The State Engineer’s estimate for rock excavation was significantly lower (100 yards) than the actual amount (over 30,000 yards). The contractors bid $3 per yard for rock excavation. The Comptroller refused to fully pay the contractors’ drafts, arguing that the rock excavation was only worth $1 per yard. The Comptroller further contended that the contractors knew the actual amount of rock excavation before signing the contract. A referee found no collusion or fraud. The Appellate Division affirmed.

    Procedural History

    The relators sought a writ of mandamus in the Supreme Court to compel the Comptroller to pay the drafts. The Comptroller opposed, alleging fraud. The case was referred to a referee who found no fraud. The Appellate Division affirmed the referee’s finding. The Comptroller appealed to the New York Court of Appeals.

    Issue(s)

    Whether the State Comptroller can be compelled by mandamus to audit a claim in a specific manner, given the Comptroller’s authority to audit claims against the state.

    Holding

    No, because the comptroller’s auditing function involves a judicial function requiring the exercise of judgment and discretion, and mandamus cannot substitute the court’s judgment for that of the comptroller.

    Court’s Reasoning

    The Court of Appeals reviewed the history of auditing authority in New York, noting that the Constitution requires an audit before state funds are disbursed. While the legislature appropriates funds, it is the responsibility of an auditing officer to examine and approve claims. The Court traced the evolution of auditing power, eventually settling with the Comptroller. The Court emphasized that the Comptroller’s role involves more than just a ministerial calculation; it requires the Comptroller to “hear, to examine, to pass upon, to settle and adjust.” The court cited People ex rel. Harris v. Commissioners, 149 N.Y. 26, stating, “That would substitute the judgment or discretion of the court issuing the writ for that of the person or persons against whom the writ was issued.” The court found no legislative intent to remove the Comptroller’s audit authority and vest it solely in the State Engineer. Therefore, because the Comptroller’s audit function requires the exercise of discretion, mandamus cannot compel a particular outcome.