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4th Interim Report and Exhibits

4th Interim Report and Exhibits

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------------------------------------X UNITED STATES OF AMERICA, Plaintiff


90 Civ. 5722 (RMB)


DISTRICT COUNCIL OF NEW YORK CITY AND VICINITY OF THE UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA, et al., Defendants. -------------------------------------------------------------X


Dennis M. Walsh Review Officer Fitzmaurice & Walsh, LLP 15 Chester Avenue White Plains, New York 10601 914.437.9058 dmwfw@verizon.net

Table of Contents I. Introduction and Summary ...........................................................................................................1 A. B. C. D. E. F. G. The “Amalgamated” Threat.....................................................................................4 Salvester Zarzana .....................................................................................................9 Collective Bargaining ..............................................................................................9 The New Administration and the Delegate Body..................................................11 The Gilbert Agreement and the MWA Arbitration Ruling....................................12 The Trial Committee..............................................................................................13 Recommendations for the District Council............................................................14 1. 2. 3. 4. 5. H. I. The Out-of-Work List ................................................................................14 Technology ................................................................................................16 Business Representatives ...........................................................................16 Rent Costs ..................................................................................................17 Inventory and Purchasing ..........................................................................17

Local Unions..........................................................................................................18 Observations Regarding the Benefit Funds ...........................................................18

II. The District Council ..................................................................................................................19 A. B. C. Installation of Newly Elected Officials..................................................................19 Withdrawal of Election-Related Appeal ................................................................20 Institutionalization of Financial Oversight ............................................................20 1. 2. 3. 4. Chief Accountant .......................................................................................20 Outside Accounting Firms .........................................................................20 Trustees ......................................................................................................21 Audit Committee........................................................................................22 i

D. E.

Observations regarding Delegate Body Meetings .................................................22 The Need for Electronic Scanning at Job Sites......................................................23 1. 2. Facts Ascertained .......................................................................................25 Problems Identified....................................................................................28 a. Untimely and Inaccurate Information..................................................28 i. Shop Steward Reports....................................................................28 ii. Job Numbers ..................................................................................29 iii. Other Reasons for Inaccuracies .....................................................30 b. Significant Resources Expended Processing Information ...................31 3. Recommendations......................................................................................31 a. Use Electronic Scanners or Other Electronic Means to Report Hours........................................................................................31 b. Develop Management Procedures to Ensure Use of Accurate Job Numbers and Timely Filing of Shop Steward Reports .......................32 c. Close Job Numbers for Inactive Jobs...................................................32 d. Maximize the Opportunity Created by Transitioning to i-Remit.........33


Work in The Trade-Show Industry........................................................................34 1. How Carpenters Obtain Work in the Trade-Show Industry ......................34 a. Javits Center Process............................................................................35 b. Other Trade-Show Work......................................................................36 2. Is Work in the Trade Show-Industry Dispatched Fairly? ..........................38

G. H.

Journeymen and OWL Statistics............................................................................40 Compliance Review of Local Unions ....................................................................41 1. 2. The Eight Local Unions .............................................................................41 Financial Review .......................................................................................43 ii


Operational Review ...................................................................................43

III. The Benefit Funds....................................................................................................................44 A. B. C. D. E. F. G. Executive Director .................................................................................................44 In-house Counsel ...................................................................................................45 Compliance Function .............................................................................................45 Employee Handbook..............................................................................................47 IT Infrastructure .....................................................................................................48 Email Back-up .......................................................................................................48 Collections .............................................................................................................49 1. 2. 3. 4. 5. H. I. J. K. Collections Policy ......................................................................................49 Virginia & Ambinder.................................................................................49 Funds’ Staff................................................................................................51 Inspector General Audit Referrals .............................................................51 Overdue Arbitration Decisions ..................................................................52

Cost Savings and Vendor Review..........................................................................53 395 Hudson Street..................................................................................................54 Blue Card Issue ......................................................................................................55 Overall Condition of the Funds..............................................................................56 1. 2. The Pension Fund ......................................................................................56 The Welfare Fund .....................................................................................56 a. Condition of the Welfare Fund ............................................................56 b. Plan Deadlock Arbitration ...................................................................57 c. Update on Other Cost Control Measures ............................................59


1. 2. 3. L. M. N.

Ineligible Dependants ................................................................................59 Revised Bank Hours Provisions.................................................................59 Attention to Scholarship Fund Deficit .......................................................60

Allocation of Contributions ...................................................................................60 The Labor Technical College.................................................................................63 The Hollow Metal Fund.........................................................................................64 1. 2. 3. Background ................................................................................................65 Problems Identified....................................................................................65 Steps Being Taken and Recommendations ...............................................66

Conclusion .....................................................................................................................................68


Who built the seven gates of Thebes? In the books are listed the names of kings. Did the kings heave up the building blocks? - Bertolt Brecht I. INTRODUCTION AND SUMMARY Preoccupied and indifferent millions of us owe a debt to the construction workers who have toiled in the City of New York. Though the debt can be fairly calculated, the likelihood of it ever being paid is slight. In light of market conditions and current trends, particularly the abhorrent phenomenon of anti-unionism that has drawn great attention across the nation, the prospect that fair wages and benefits will never be paid to all of the carpenters and related tradesmen who deserve them, whether represented by a union or not, looms ever larger. Depending on market conditions, up to 20,000 or so members of the eight local unions affiliated with the New York City District Council of Carpenters are at work in their respective trades in the five boroughs (and in some cases beyond). In recent years, even in boom times, they have never constituted more than 30 percent of the men and women working at jobs in the jurisdiction of the District Council. The broad scope and impact of non-union carpentry work, now more than 70 percent of all such work, is obvious. The effect on Union wages and benefits is now the key issue being confronted by the District Council as it and the major employer associations engage in a new round of collective bargaining. In January 2012, the newly installed delegates to the District Council voted to have the rank and file consider the five major agreements negotiated during the pendency of the supervision of the District Council by the United Brotherhood of Carpenters and Joiners of America (“UBC”). This was the first time the members had ever been allowed to vote directly


on a contract. The voting was accomplished by mail balloting conducted in March by the American Arbitration Association. Though the amount of ballots returned was appallingly low, less than 20%, the results (except for the Floor Covers’ vote) were in general not close and the major contracts, including the pivotal agreement with the Association of Wall-Ceiling and Carpentry Industries (“WC&C”), were rejected. Though the WC&C and other contracts

contained a modest increase in wages over five years, they were founded on the hiring method known as “full mobility,” whereby the employers may select all of the carpenters in their work force, rather than the current procedure whereby the District Council has the right to refer, on average, a third of the carpenters to a job. In response to the defeat of the UBC-negotiated contract, WC&C has recently offered the Union a significant raise over five years, including a raise in the first year of over $4.00 per hour (which would increase the Union package to over $90 per hour in wages and benefits). However, the offer is conditioned upon mobility and other features, such as a special, lower “market recovery” rate applicable to work where employers desire to be able to bid against non-union contractors who pay far lower wages. WC&C and other associations have

communicated to me their deep frustration with the rejection of the UBC-negotiated contracts (after they thought they had a deal with the UBC) and the belief that they cannot compete against the burgeoning non-union sector without concessions from the District Council. At the time of this writing, no contract is near being settled, yet June 30th looms as the date upon which “evergreen clauses” extending the prior contracts expire. Thereafter, the Union is free to strike and the employers become free actors. The District Council for some years now has struggled to craft and implement an effective strategy to increase its market share by organizing non-union workers and signing non-


union contractors to collective bargaining agreements. Since at least 2006, it has paid particular attention to developers such as Shan (“Sam”) Leong Chang of McSam LLC and Tritel Construction, who has built dozens of economy, national-brand hotels in New York City using non-union contractors such as Cava Construction.1 He is currently building what will be the tallest Holiday Inn (50 stories) at 99 Washington Street. The District Council has documented a common practice of contractors working on Chang projects paying workers who do carpentry and laborers’ work salaries of approximately $20 per hour (as compared to work performed by District Council carpenters for $46 per hour, excluding fringe benefits). The spread in wages of greater than 65% puts the tension in the New York City construction trades in sharp focus. It also makes clear that the challenge faced by the District Council cannot be met by traditional organizing methods and of necessity must involve either a means of elevating the wages and expectations of non-union workers or granting some concession regarding its own, or both. The specter of organized crime continues to loom large over all aspects of the construction industry in New York City. In the classic model established by labor racketeers such as Louis “Lepke” Buchalter over 80 years ago, and refined through the years by members and associates of Cosa Nostra families, organized criminal groups seek to maximize their profit from labor rackets by exercising control over labor unions as well as trade associations and individual employers (through extortion and bribery, among other methods). The Genovese family at one time enjoyed considerable success through such methods, and, in particular, regarded the District Council and its affiliated local unions as its property. The “116th Street” crew and its infamous members over the years, men such as Anthony “Fat Tony” Salerno, Vincent and Louis Di Napoli, Vincent “The Fish” Cafaro, Liborio Bellomo, and Louis


Carmine Della Cava is the founder and chief executive of Cava. News articles about Mr. Chang are available on line from Forbes and the New York Times.


Moscatiello, controlled whole industries, such as drywall, cement, cranes and heavy construction machinery, and trade show exhibitions, and planted their associates and agents in positions of authority within numerous unions, including the District Council, its Benefit Funds and its affiliated local unions. They resorted to intimidation and violence when necessary.2 The District Council and its local unions have been purged of such associates and agents, but because there is so much money at stake, the obsession of the Genovese family with the work of the Carpenters and its membership has not abated. Investigation has revealed that the Genovese family is now seeking to remedy its loss of the District Council by controlling a new union and a new trade association. A. The “Amalgamated” Threat My office began collecting information about the activities of the “Amalgamated Dockbuilders” in August 2011. I remarked in my Third Interim Report filed on December 5, 2011 that “Persons who are not parties to the Consent Decree or the Stipulation and Order may be importuning members to join this new union and thereby may be in a position to interfere with the implementation of the Consent Decree and the Stipulation and Order.” See Third Interim Report at 12. I also wrote a letter to the Court on December 13, 2011, see Exhibit 2, and made my position known at the status conference held on December 20, 2011, that the Consent Decree would follow any former or present member of a local union affiliated with the District Council if represented by Amalgamated. See Exhibit 3. Following a signature drive by the Amalgamated Dockbuilders and various proceedings in Region 22 of the NLRB, in March 2012, a vote was conducted by the NLRB among employees of the General Contractors Association to determine whether they would be


See, e.g., the record in this case, 90 Civ. 5722 (SDNY); United States v. Salerno, et al., 86 Cr. 245 (SDNY); United States v. Muscarella, et al., 03 Cr. 00229 (SDNY).


represented by the Amalgamated Dockbuilders or continue to be represented by the District Council of Carpenters. By a vote of 361 to 186, the employees chose to remain with the District Council. See Exhibit 4. The vote remains to be certified but the consensus view is that certification will be a mere formality, given that there were only 105 sustained challenges. Investigation, including a review of records obtained pursuant to a subpoena obtained from the District Court and served upon the Federal Bureau of Prisons in March 2012, has revealed that Joseph Olivieri, a senior operative of the Genovese family, is deeply involved in the affairs of the Amalgamated union. Olivieri is currently an inmate housed at the federal prison in Fort Dix, New Jersey. He is well known to the construction industry in New York. He was incarcerated after he was convicted of perjury in 2010 (following a trial in the United States District Court for the Southern District of New York) for lying in a deposition (in this case) about his affiliation with the Genovese family. He is currently scheduled to be released in December 2012. Olivieri has been a facilitator of Genovese family interests in the construction industry since at least the 1990s, serving as an agent provocateur for the late Louis Moscatiello.3 Olivieri was once the chief executive of the WC&C and a trustee of the Benefit Funds of the District Council of Carpenters. During the tenure of former Executive-Secretary Treasurer Michael Forde (also now a federal prisoner), he is said to have spent hours behind closed doors with Forde, the District Council, and Funds’ officials.


See Exhibit 1 (excerpt of the testimony of Joseph Rizzuto, Sr., the former President of Local Union 14 of the International Union of Operating Engineers, in the Southern District of New York on January 26, 2006; government’s Motion in Limine in U.S. v. Olivieri).


Also according to the BOP records, from late September 2011 through April 16, 2012, the one-time president of the Amalgamated Carpenters Union,4 Angelo Bisceglie, received the following calls from inmate Joseph Olivieri: 4/16/12 4/13/12 4/9/12 4/9/12 4/9/12 4/9/12 4/5/12 4/4/12 4/3/12 4/2/12 3/26/12 3/22/12 3/19/12 3/15/12 3/12/12 3/7/12 2/29/12 2/28/12 2/16/12 2/7/12 1/30/12 1/21/12 1/12/12 1/11/12 1/9/12 1/3/12 12/27/11 12/12/11 12/6/11 12/6/11 12/1/11 11/25/11 11/22/11 11/16/11 11/8/11 10/28/11 10/25/11 10/20/11

12:57 p.m. 10:21 a.m. 5:32 p.m. 4:30 p.m. 11:44 a.m. 10:18 a.m. 10:35 a.m. 9:35 a.m. 11:01 a.m. 9:49 a.m. 1:06 p.m. 10:09 a.m. 9:38 a.m. 9:37 a.m. 9:22 a.m. 9:16 a.m. 12:25 a.m. 9:40 a.m. 9:36 a.m. 9:02 a.m. 11:51 a.m. 12:18 p.m. 10:50 a.m. 12:56 p.m. 9:49 a.m. 8:51 a.m. 9:26 a.m. 5:25 p.m. 5:28 p.m. 10:44 a.m. 4:32 p.m. 10:22 a.m. 4:32 p.m. 5:11 p.m. 4:30 p.m. 9:21 a.m. 5:38 p.m. 5:58 p.m.

2 (minutes) 2 5 2 1 2 1 1 2 1 2 1 5 2 2 2 3 2 1 2 3 2 1 1 2 2 5 4 2 1 1 1 2 2 1 1 1 1

See Exhibit 5 (LM-1, with first and last page of Amalgamated constitution), and subsequent letter referring to Joseph Firth as president).


10/12/11 10/4/11 10/3/11 9/28/11

5:32 p.m. 6:20 p.m. 5:14 p.m. 11:26 a.m.

2 5 1 1

According to BOP records, from October 2011 through February 2012, Mr. Bisceglie visited inmate Olivieri in prison on October 28, 2011, November 25, 2011, December 5, 2011, January 12, 2012, and February 17, 2012 (with former Local Union 608 President Joseph Firth). Additionally, Bisceglie exchanged emails about the Amalgamated union and associated undertakings. The messages obtained by my office (via the subpoena to BOP)

illustrate Mr. Olivieri’s deep involvement in, and control over, the Amalgamated union from inside a federal prison. On October 19, 2011 at 10:48 a.m. Bisceglie wrote to Olivieri: Joe: Good news. We have been approved by all General Presidents. We are awaiting a letter from Trumpka [sic] backing the Amalgamated and denouncing the UBC. It looks like Amalgamated will be part of the NYC Building Trades Council and the District Council will not. I will fill you in when I see you. On November 8, 2011 at 3:03 p.m. Bisceglie wrote to Olivieri: Friday isn’t good for me because I have a deposition. How about I come by on Monday? Also, George Greco’s address and email is as follows: Midhattan Woodworking Corp. [the address and email address are then given; Greco is a former trustee of the District Council Benefit Funds who resigned that position shortly before he was scheduled to be deposed by my office]. On December 1, 2011 at 5:48 p.m. Bisceglie sent the following email to Olivieri: I must cancel tomorrow because, following through with a lot of points we discussed last week, I would like to visit you in the earlier part of next week. Which day would be good for you? Also, I am having my secretary mail you a copy of the Agreement today. [Olivieri had emailed Bisceglie on November 30th saying “did you send agreement and don’t forget documents when you come on Friday.”] On December 10, 2011, at 3:47 p.m., Olivieri sent the following message to


Bisceglie: Please add furniture assembly and installation to agreement…. On December 20, 2011, an Amalgamated affair was held at Leonard’s of Great Neck. It was attended by, among others, Bisceglie, Greco and Dominick Lavacca (a former District Council employee who in a deposition taken in 1998 by the Investigations and Review Officer (“IRO”) admitted his relationships with soldiers in the Genovese and Colombo crime families, see Exhibit 6; investigation reveals that he has been tapped for a leadership position in a trade association to be called the “Joint Carpentry Association” that would engage in collective bargaining with Amalgamated). Also in attendance were various contractors and ex-employees of the District Council. That morning at 8:59 a.m., Olivieri sent the following email to Bisceglie: Good luck tonight stay focused highlight building trade endorsement and no unfunded liability issue going forward, makes all competitive, will work out any issue for any project, man still makes same or more wage, truly labor/management arrangement On December 21, 2011, at 2:18 p.m., Olivieri sent the following email to Bisceglie: HEARD U (sic) HAD VERY INTERESTING EVENING, REALLY ROCKIN (sic) BOAT, PANIC IS SETTING IN *** It is plain to me that the Amalgamated union has been formed to facilitate the restoration of the Genovese family’s control of the industries currently served by the District Council. Should Amalgamated ever be successful in winning any representation vote involving past or present members of local unions affiliated with the District Council, based on wellestablished precedent in the Southern District of New York, I will move in the District Court for an order pursuant to Paragraph 2 of the Consent Decree barring those past and present members from involvement with the Amalgamated union. 8


Salvester Zarzana In April 2012, an indictment was unsealed in the Eastern District of New York

charging Salvester Zarzana, a former business representative of the District Council and former president of Local Union 926 in Brooklyn,5 with extortion conspiracy and extortion relating to a construction site at the intersection of Gold Street, Johnson Street and Flatbush Avenue in Brooklyn. See Exhibit 8a.6 The government identified Mr. Zarzana as a soldier in the Genovese family. See Exhibit 8b at 3. Mr. Zarzana was deposed by my office via written questions in October 2011. See Exhibit 9. Based on the government’s identification of him as a soldier in the Genovese family, one must conclude that his sworn answers to my questions about organized crime were false. C. Collective Bargaining The five major agreements negotiated by the UBC (WC&C, Building Contractors, Floor Coverers, Cement League, Hod-Hoist) were to have been voted on by the new delegates to the District Council on January 10, 2012 (at the end of a two-day seminar on the agreements sponsored by the UBC). The planned vote was shelved when the senior representative of the UBC at the seminar perceived that certain of the contracts about to be presented did not contain market recovery language he understood had been agreed upon with the employers. Some persons with whom I have spoken believe that the contracts were actually shelved because they were going to be rejected by the delegates. The new administration at the District Council was installed on January 11, 2012, ending the UBC’s supervision of the District Council. After some limited negotiations to

5 6

Zarzana retired in July 2010 after I issued a Notice of Possible Action. See Exhibit 7. Ten other defendants have been charged, with charges ranging from racketeering to illegal gambling.


address imprecise language in the UBC agreements regarding project labor agreements and “most favored nations” clauses (where terms more favorable than in a CBA are subsequently given to a signatory or parties to other agreements who are deemed competitors, as in the MWA arbitration discussed infra) and to clarify that all agreements going forward must be considered by the delegate body, slightly revised contracts were ready for consideration by early March 2012. The delegate body voted to have the rank and file membership consider the contracts, which, except for the Hoist agreement, were rejected in a mail-ballot-vote tallied by the AAA on March 27. Since then, sessions have been infrequent and the pace of bargaining has been slow. I believe this to be a grave error.7 The employers and the District Council members need agreements to be settled as soon as possible. Stability in the industry and comity in the relations between the Union and the employers must be restored to best serve the urgent need to increase Union market share and man hours, bringing much needed income to the Benefit Funds. From January 1, 2012 through May 22, 2012, fringe benefit payments for approximately 6.3 million man hours were received by the Benefit Funds. Adjusted to 6.5 million to approximate the first five months of the year, the monthly average is 1.3 million man hours. At that pace, total man hours for the year would be 15.6 million, a dismal showing in comparison to recent historical highs of over 23 million hours. The foregoing numbers also demonstrate that a strike lasting 30 days would have a devastating effect on the Benefit Funds, particularly the Welfare Fund (where as a result of

While the issue of “full mobility” is front and center, there are many other issues that are to be dealt with in the context of collective bargaining. These issues affect not only the District Council but the Benefit Funds. For example, there is the issue of bonds that employers are required to have before beginning work on a job (which provide some security against any subsequent nonpayment of benefits). It appears that many employers may not be in compliance with this obligation or have been allowed to post bonds that are inadequate. This may be because, under certain circumstances, employers are exempt and the exemption is being interpreted too broadly. Outside counsel for the Benefit Funds together with collections counsel for the Funds is reviewing this issue.


costs exceeding income by some $4 per hour, and the Funds’ Board of Trustees having deadlocked on how to address the problem, an arbitrator was forced to end dental and vision coverage for all participants). See Exhibit 10. Considering the foregoing, and having attended some of the key bargaining sessions (where I was asked my views on a number of issues by employers and Union executives), I urge all parties to engage in intensive bargaining sessions to craft agreements as soon as possible, recognizing the need for fair and rational compromise and endeavoring to support their positions on an empirical basis. Positions formed on emotion, sentiment, and tradition articulated in a confrontational manner will bring no good outcome. D. The New Administration and the Delegate Body Michael Bilello, Bill Lebo and Michael Cavanaugh were installed as ExecutiveSecretary Treasurer, President and Vice President, respectively, on January 11, 2012. Lebo and Cavanaugh were immediately granted delegations of authority by the EST, which were approved by the delegate body pursuant to Section 10(N) of the District Council Bylaws. See Exhibit 11 at 11. They are also serving as trustees to the Benefit Funds. All of the local unions have elected executive committee members. The delegate body and executive committee met once per week until recently (twice monthly meetings are planned and I believe that to be appropriate). As might be

expected, for some weeks delegate meetings were raucous, but necessary business, such as consideration of all expenditures on a detailed basis, was never neglected. I have observed these meetings first hand. Though they have improved in tone and quality of debate in recent weeks, there is still room for improvement in order for the delegate body to become a truly collegial institution.


Early on I was forced to veto a resolution which would have barred members from sitting in a gallery section going forward. See Exhibit 12. Since then, members have been admitted to view every meeting without incident. E. The Gilbert Agreement and the MWA Arbitration Ruling Though not vested by the former District Council Bylaws with authority to do so,8 in August 2009, then District Council Vice President Denis Sheil entered into an agreement on behalf of the District Council with a company called Gilbert Displays (active in the trade show industry), which set its wage and benefit package at a rate lower than that in the agreement for the Manufacturing Woodworkers Association (the MWA). When the MWA found out about the deal, it claimed that it should have received the same terms pursuant to the “most favored nations clause” in its CBA. The MWA filed an arbitration claim and, in May of this year, an arbitrator agreed with the MWA’s position that it should have received the Gilbert rate from August 1, 2009, forward. See Exhibit 13. The MWA has now not only claimed that it is entitled to a refund of contributions paid to the Benefit Funds, but has asserted it should only pay the lower, Gilbert rate going forward (a position which the Funds has rejected through a letter sent by counsel to counsel for the MWA). There have been various claims and estimates of the damages in question – some which run into the millions of dollars -- but no ruling as to the precise amount in question has been issued (and will likely require further litigation). I do not believe that the Gilbert deal caused more than nominal actual damages to any MWA company, as Gilbert was active principally in the trade-show industry, which has not traditionally been thought of as a


The District Council has searched for a written delegation of authority by the delegate body or executive committee and found none.


competitor to MWA members. I have recommended to the District Council that its counsel explore legal remedies against any and all former District Council officials and any professionals who advised them with regard to the Gilbert contract. The District Council is also exploring its options with regard to an insurance claim. F. The Trial Committee The Trial Committee (“TC”) chaired by Walter Mack continues to provide a scrupulously fair forum within which District Council members may obtain justice from their peers who sit in judgment. The terms of the original member-jurors of the TC expired and each of the eight local unions have held (or will soon hold) elections to replace them (or renew their service). I also amended the TC Rules to give each local union a third member and increase the size of the jury pool. The administration and record keeping required by the TC is ably and tirelessly performed by staff in Mr. Mack’s office and their contributions to carpenter justice are very much appreciated. I am also grateful to Walter Mack and James Zazzali for their zeal,

commitment and steady shepherding of the TC. Statistics with respect to TC cases since the committee’s inception in 2010 through May 18, 2012 are attached to this report. See Exhibit 14. I specifically note that following a proceeding before the TC with respect to former Executive-Secretary Treasurer Michael Forde, Mr. Forde was ordered to pay a fine of $1 million and expelled from the District Council. See Exhibit 15. I must note for the record though that I do have some concerns. The TC is not federal court and it is not an arbitration forum; its chairman and vice chairman are not arbitrators deciding controversies that otherwise might have been brought to a court of law. They are


principally responsible for meticulously applying the TC Rules and administering the system. The TC is an internal union forum no different in status or function than any other trial committee in any other jurisdiction of the UBC (albeit with special rules in light of the District Council’s history of corruption). Of necessity, there are two aspects of the TC that will have to be addressed in the near term: the cost of its operation, which is too high at over $500,000 per year, and the need to adhere to the TC Rules rather than on any hybrid procedures. The TC Rules far exceed the standards of fairness established by the LMRDA and the UBC Constitution and were crafted to be literally applied. G. Recommendations for the District Council No one should assume that because, at least for now, the District Council is free of organized crime influence and the members are finally governing their District Council, the Union can revert to the warm bath of old ways. The Union must move forward and continue to constantly analyze how to improve its operations and control costs. The discussion, infra, of the egregious shortcomings of the steward report system presents a case in point. Another example is the discussion among some members of their desire to see a shape hall at the District Council (where members would show up and be ready for immediate dispatch); with some 5,000 members looking for work at any given time, how would a business representative know the skills of all eligible members or even decide between a handful of similarly-skilled members who are utter strangers to him who would get a dispatch? There is no room for backsliding or recidivism or thoughts that the way things were done in 1985 will work now because the gangsters and their associates are no longer in control. 1. The Out-of-Work List


Members cannot blame the out-of-work list (“OWL”) for lack of employment opportunities. Such opportunity is a function of the market place, which is simply not providing the jobs needed. The chief failing of the OWL program is that it has been transmogrified into something never intended by the parties to the Consent Decree. When the Job Referral Rules were implemented in 1994, members could work for four days before they were placed back at the bottom of the OWL. Even that method was flawed because it relied on the number of days at work rather than the number of dispatches to determine when a member would be placed at the end of the list. The increase from four days to 11 made the phenomenon of day counting obvious: if a member was about to work his or (her) 11th day on a job that was about to end, he naturally would see the opportunity presented by quitting the job and returning to his top position on the list in the hope of getting one more referral to a longer lasting job. Thus, I formally recommend to the District Council that no later than July 9, 2012, the 25-day rule be replaced by a three-dispatch rule, whereby, without temporal limitation, a member will receive three referrals before returning to the end of the OWL. While working, a member’s position on the list is frozen. Members will not be able to refuse a dispatch but may freeze their position at any time. The change is intended to end day counting and incentivize maximum performance on jobs. It will also force members not to puff their skills or seek a referral to jobs for which they may not be qualified. The rate of dispatches should also

accelerate (answering the criticism that “the list is not moving”). Further, there should be separate lists for members willing to take referral calls after 6:00 p.m. and those seeking immediate dispatch opportunities. If such a member is

unavailable when the District Council calls or refuses the referral, he or she would go to the


bottom of the list. Refusal of a referral made to a member who desires an immediate dispatch call will also result in him or her going to the end of the list. 2. Technology The long-used paper steward report system, as detailed infra, is a failure as a means of keeping proper business records and has been exploited by persons over the years to defraud the District Council and Benefit Funds. Regardless of whether any collective bargaining agreements call for electronic recording of time worked at each job site, the District Council should acquire and implement, by the end of this year, a means to use scanners on job sites or enable computer uploading of time by stewards logging in to a secure District Council database accessible through the District Council web site. Such electronic capture should occur on a daily basis and the resulting data should be processed and distributed to the Benefit Funds and employers on as close to a daily basis as technically possible. The lag time between discovery of a failure of an employer to remit fringe benefit payments to the Funds and initiation of a shutdown of work and collection efforts could be essentially eliminated by effective use of the technology. Further, the District Council should formally assess the suitability of its current technology infrastructure in light of its long-term business needs and dependence on vendors to keep the infrastructure functioning.9 3. Business Representatives Though there are recurring situations at present where “specialty” business representatives who are expert in a particular jurisdiction and intimately familiar with a particular CBA are called upon to handle matters, the District Council should greatly accelerate


The District Council recently purchased iPhones and iPads for use by its representatives and executives and these tools are being effectively used every day.


implementation of an intensive training program to educate all business agents about all jurisdictions and CBAs. Such training should be in-person and supplemented by video, photo and documentary material. Programs should be recorded and made available on DVD and on the District Council web site. Further, a specialty business representative should always be partnered with a non-specialty representative. Representatives should be rotated periodically so that they do not become associated with or captive to a particular employer. Partners should conduct field business together and in any situation where, unavoidably, one representative must remain in a vehicle, a contemporaneous email record should be made by the representative outside the meeting (sent to his or her supervisor and partner). 4. Rent Costs The District Council spent over $1.2 million in rent last year (the Pension Fund owns 395 Hudson Street). The District Council should formally explore its options with respect to either renting space at a lesser rate or purchasing a building to house its operations (which might also contain space which could be leased to third-parties for profit). 5. Inventory and Purchasing Though all District Council (and local union) expenditures are scrutinized by my office and more recently, as required by the new Bylaws, trustees, executives and the delegates, the circumstances underlying the purchase of necessary supplies, services and equipment are too random. Purchasing should be accomplished according to formal rules governing items

purchased, price, frequency of purchase, available inventory, and volume needed as well as who may make purchases and who must approve purchases. There must be accountability for


adherence to purchasing rules. As of now, I do not think that a purchasing department is necessary if proper rules are conceived and implemented. H. Local Unions Local unions affiliated with the District Council continue to be institutions with marginal utility. None have current bylaws (though some are actively striving to draft new bylaws). Their most important functions are to receive dues payments (and much of that money is ultimately sent to the District Council in the form of per capita payments) and elect delegates and executive committee members to convene with their peers at the District Council. Some local unions are afflicted by particularly inept leadership. Executives at one local union are under investigation for malfeasance, negligence and harassment issues. Most local unions

continue to struggle with abysmal turnout at regular monthly membership meetings. They are torturous affairs where little or nothing is learned or accomplished and the frustration of those who do attend is manifest. With the elimination of the need to pay homage to power bases broken down by investigation, resignation and veto, for most members, there is simply no reason to go to local union meetings. I. Observations Regarding the Benefit Funds As set forth infra, the administration of the Benefit Funds continues to be greatly improved through the conscientious oversight of the Board of Trustees, the diligent efforts of Executive Director Joseph Epstein and his able staff, and the work of zealous counsel.10 Prudent actions have been taken to remedy past transgressions (including a civil RICO suit filed against Michael Forde, John Greaney and many others) and other forceful actions are being considered.

The Union trustees are Michael Bilello, Bill Lebo, Michael Cavanaugh, Paul Capurso, Paul Tyznar and John Sheehy. The Employer trustees are David Meberg, Paul O’Brien, Kevin O’Callaghan, John DeLollis, Catherine Condon, and Joseph Kaming. The Funds have benefitted greatly from the wisdom and tireless work of Elizabeth O’Leary of Kauff, Margolis and McGuire and Charles Virginia and Marc Tenenbaum of Virginia & Ambinder (who are now also serving the Hollow Metal Fund).


Collections from employers who owe the funds contribution payments are at an all-time high and counsel works closely with the District Council to coordinate enforcement action against employers when required. Some service providers to the Funds have been replaced or in many cases have agreed to reduce their rates. The installation of new technology systems to better serve members is proceeding on schedule. The Funds’ use of space is being greatly reduced, freeing up space within 395 Hudson Street to be leased at premium rates to tenants gained through the market. However, with many good things being accomplished at the Funds, income remains marginal because of the continued slow pace of the construction industry (with District Council man hours stuck at or below 16 million per year) and investment income below benchmark return over the last three years (and such income being further reduced by over $2 million dollars in fees paid each year to investment managers). In the absence of a significant improvement in the economy and an increase in the amount and scale of Union jobs, the Union leadership will have to urgently consider other approaches to developing Union work. *** Below, I discuss some of the above-referenced issues in greater detail and I address additional issues and reform efforts of particular note during the preceding six months. II. THE DISTRICT COUNCIL A. Installation of Newly Elected Officials The newly elected District Council officers were installed on January 11, 2012. The new Executive-Secretary Treasurer (“EST”), the union’s highest ranking official, is Michael Bilello, the President is Bill Lebo and the Vice President is Michael Cavanaugh. Others elected


were Phil Fiorentino, as Warden; Scott Belford, as Conductor; and Turlough Noone, Sean Doonan and Joseph Neenan, as Trustees. See Exhibit16. Following the resignation of Mr. Doonan for personal reasons, a special election was held in April 2012 and Martin Maguire was elected as the new Trustee. B. Withdrawal of Election-Related Appeal Three District Council members who I did not approve to run for election filed a notice of appeal from the Court’s decision denying a preliminary injunction. On April 12, 2012, the government filed a motion to dismiss the appeal for mootness and I joined in that motion. On April 23, the Circuit so ordered a stipulation to withdraw their appeal. See Exhibit 17. C. Institutionalization of Financial Oversight Significant efforts have been made to institute meaningful financial oversight at the District Council. With the hiring of an in-house Chief Accountant, the retention of outside accounting firms to serve the District Council in various capacities and the seating and training of the recently elected District Council Trustees, there now are layers of financial oversight to ensure that all funds are accounted for and spent prudently. 1. Chief Accountant The District Council has hired a Chief Accountant, Judy Montreuil. Ms.

Montreuil, a CPA, was hired from a list of candidates provided by an accounting personnel search firm. Ms. Montreuil oversees the day-to-day financial operations of the District Council. Ms. Montreuil has exhibited care and skill in her work and is meeting the expectations of the District Council. She is assisted by one staff member. 2. Outside Accounting Firms


Following a Request for Proposals and interviews of the respondents, the District Council retained the accounting firm of Gould, Kobrick & Schlapp, P.C. The firm specializes in providing accounting, auditing and consulting services to labor organizations and employee benefit funds. The firm will perform the District Council’s audit for the fiscal year ending June 30, 2012. The firm will also prepare all necessary Department of Labor and Internal Revenue Service forms. On a go-forward basis, the firm will perform quarterly reviews of the District Council’s internally prepared financial statements. Additionally, the firm will identify any

deficiencies in internal controls and bring them to the attention of the District Council’s leadership. Also following a Request for Proposals and interviews of the respondents, the District Council retained a separate, independent accounting firm, the Calibre CPA Group, PLLC, to serve as a member of the District Council Audit Committee, discussed below. This firm also specializes in providing accounting, auditing and consulting services to labor organizations and employee benefit funds. It will monitor compliance with the financial

requirements of the District Council’s Bylaws; review the District Council’s financial systems and procedures, making recommendations regarding best practices on a periodic basis; check for potentially fraudulent activities; provide quarterly reports to the delegate body; and develop policies and procedures for the Audit Committee. 3. Trustees The District Council’s Chief Compliance Officer11/ and my office have provided guidance to the new District Council trustees with respect to their duties and responsibilities.


Josh Leicht, who already serves as the District Council Advocate and who is a compliance professional in private practice, has been retained to serve as CCO.


Two of the Trustees have attended the UBC training course. Additionally, the Chief Compliance Officer prepared a manual of procedures for the Trustees. Each week, the trustees receive emails appending District Council expenditures for their review. The trustees make a recommendation to the delegate body whether to approve, disapprove or request more information regarding each expenditure. The trustees also review various documents to ensure that all income is being collected and deposited and that all funds are accounted for. 4. Audit Committee The District Council Bylaws require establishment of an Audit Committee. See Exhibit 11 at 5 (Section 5(B)17). While slightly behind schedule, the membership of the

committee is now complete: the committee is composed of the District Council’s Inspector General, Chief Accountant, outside counsel, outside accounting firm, and two delegates, who recently were elected by the delegate body to serve on the committee. Additionally, on May 22, 2012, the Audit Committee held its first monthly meeting. The committee’s initial priority must be developing its policy and procedures, originally due March 15, 2012 according to the Bylaws. Id. I granted an extension of the completion date to June 30, 2012. D. Observations regarding Delegate Body Meetings The recently elected delegates have had a number of meetings, including a twoday presentation on the proposed collective bargaining agreements in early January 2012 and recurring meetings addressing union business. At the meeting held on January 25, 2012, the delegates voted to bar the rank and file from attending future meetings of the delegate body. On January 29, 2012, I issued a Notice of Veto regarding that ban. I found that the ban violated the Stipulation and Order in this case as


well as the District Council Bylaws. Importantly, as I noted in my Notice of Veto, “rank and file members were in attendance during the entire meeting of January 25, 2012…and no harm to the District Council or its affairs ensued.” See Exhibit 12. Indeed, permitting the rank and files members to attend delegate body meetings affords transparency, which is important to promote the integrity of the District Council and avoid corruption. The District Council President, as well as the EST, must lead the delegate body meetings in an orderly manner if union business is to be handled effectively. This involves having an agenda with clearly defined issues and a specific time allotment for presentation to and commentary by the delegates. Delegates, in turn, must participate in discussions of issues in an informed manner designed to contribute to decision making. If delegates filibuster on issues of limited, if any, importance to the delegate body as a whole and to the union members they represent, they limit the time available to intelligently discuss matters of more general concern to the union. Since those initial delegate body meetings, there has been considerable improvement in the manner in which meetings are conducted. With the participants gaining expertise and exercising greater decorum, meetings are occurring twice monthly, rather than weekly, and matters are being addressed in a more orderly and efficient fashion. This should increasingly provide more time for discussion of core substantive issues. E. The Need for Electronic Scanning at Job Sites One of the most important responsibilities of the District Council and its Benefit Funds is to ensure that employers pay appropriate wages to and benefits for union members in a timely fashion. Maintaining accurate records relating to where the work was performed, when


the work was performed, who performed the work and the number of hours worked is an important tool for fulfilling this responsibility. Both the District Council and the Funds expend significant time and money attempting to ensure the accuracy of this information. The District Council relies primarily upon shop steward reports to determine the location, date and hours worked by each of its members. The Funds rely upon the employers to generate this information through their benefit remittance reports. There is good reason for this seeming redundancy: the District Council captures too small a percentage of the hours worked by its members. For the calendar year 2011, hours provided by employers were approximately 2.6 million hours higher than the hours reported by the shop stewards. Put another way, shop steward reports captured only 75% of the hours worked. Note that this percentage of

underreporting does not include the hours reported by employers whose CBAs did not require shop steward reports to be submitted to the District Council. Unfortunately, the Funds’ records are also inaccurate. Our review found that a significant number of hours remitted to the Funds were reported under the wrong job number, making it impossible for the Funds or the District Council to know where a member worked, which is often the first piece of the puzzle.12 It is difficult to know if the Funds’ records are inaccurate in other areas as well, because Funds’ records are based on self-reporting by the employers and District Council records are inherently incomplete as noted above. The system for issuing, tracking and managing job numbers is also deficient. Of the 89,872 job numbers issued by the District Council since June 2002, 40,260 remain active.


The ability to know with certainty where covered work is being performed and by whom it is being performed is important so that the District Council can police its jurisdiction more effectively and identify employers violating its CBAs.


Our review indicated that the vast majority of these jobs are not active, but have not been changed to inactive in the system. These deficiencies contribute to the underpayment of benefits contributions, unnecessary expenditure of additional resources to collect contributions and lost investment opportunities for the monies remitted late or not at all. My office conducted a review to better understand the possible causes of discrepancies and any underlying systemic or management problems and to propose recommendations. The review included meeting with business representatives, the District

Council’s OWL staff, the Funds’ Audit Department staff, other Funds’ staff, and outside vendors to discuss business procedures relating to the use of shop steward reports. Shop steward reports, shop steward discrepancy reports, Job Referral Records, and other Union and Funds’ records were also reviewed and analyzed. recommendations are set forth below. 2. Facts Ascertained All work performed by District Council signatory contractors (i.e., the employers) requires a District Council-issued job number. These numbers are computer-generated by the OWL staff using the District Council’s “Liberty system.”13 Job numbers are generated The facts ascertained, the problems identified and my

sequentially and provided to the contractor when a particular job is called in to the District Council.14 Usually, more than one job number is associated with a particular job site because each contractor on that site is issued a job number. For instance, at a job site such as the construction of a high-rise building, numerous employers are involved, such as foundation


There are three computer systems that have some role in the processing and analyzing of payments to the Benefit Funds, namely, the District Council’s Liberty system, the Funds’ AS400 and ADP payroll. 14 Employers are required to notify the District Council of all jobs prior to the start of the job.


contractors, interior construction contractors and floor coverers and each contractor at the job receives a separate job number. The District Council uses job numbers to dispatch stewards and other workers to job sites. At the time of dispatch, the steward is given the job number so that the steward can record the number on shop steward reports. Job numbers are shared with the Funds and ADP so that contractors can remit payment for benefits under the appropriate job number. The Liberty system electronically sends the job number and its associated information, such as employer, job site address, et cetera, to both ADP and the Funds. Ideally, job numbers can be used to track all hours worked by District Council members at a particular job site for a particular employer. It is the link between the shop steward reports and the benefit hours reported by contractors. In practice, however, this is not always the case. There are many reasons for this breakdown. Shop steward reports are a vital business record of the District Council and it is extremely important that they be accurate and up-to-date. The primary purpose of the shop steward reports is to maintain accurate records of: (1) the location of a particular job site; (2) the name of the employer on the job site; (3) the District Council members who worked on the job site; and (4) the hours worked on the job site. It is the only District Council record of hours worked by its members. Information from the shop steward reports is also used as a means to determine if an employer is behind on payments to the Funds as well as to maintain the proper ratio of Union and company workers, ensure the Job Referral Rules are followed properly, assist in the audit of employers, and provide evidence in arbitrations.


Employers remit payments for benefits to the Funds electronically each week.15 Currently, these remittances are through the payroll system ADP.16 AS400 is the legacy computer system used by the Funds to electronically track and monitor the payment of benefits by employers. The employers pay benefits for each

member based on each hour, or portion thereof, worked by the member. When remitting payments for benefits, the employer lists the number of hours worked, the time period the work was performed and the job at which each member worked through the use of a District Council issued job number. The Funds use the information provided by the employer to allocate hours to each member so that there is an accurate accounting of the number of hours worked by each member, by employer and the time period in which it was worked. The Liberty system is used by the District Council to scan and store shop steward reports electronically. The Liberty system also creates the job numbers used by the District Council to track each job. Information such as the job number, employer, and each member’s hours for the week are stored in the system. electronically with the Funds’ AS400. The Funds use the information generated from the shop steward reports and compare it to the hours remitted by the employer. The Funds generate a report called a Shop Steward Variance Report. This report shows the number of hours that an employer has remitted and those shown on District Council shop steward reports. In theory, this number should be the same. Our review has confirmed that, in practice, this is rarely the case. The Liberty system shares this information

15 16

There are a very small number of benefits remitted and paid by check or other non-electronic means. Beginning December 2012, while it will continue to handle the wages aspect of payroll, ADP will no longer be involved in the benefit remittance process. The Funds are currently transitioning from the AS400 system to a JAVA-based system developed by ISSI, and will also have its own benefit remittance system called i-Remit.


If the Variance Report shows that there are more hours on shop steward reports than an employer has remitted, i.e. that an employer has not paid the appropriate amount in benefits, Funds’ staff alert the District Council. If the Variance Report shows that an employer has remitted more hours in benefits than are shown on shop steward reports, no action is taken by the Funds (since there is no reported underpayment of benefits). 2. Problems Identified The District Council and Funds have limited ability to determine the location where members are working and the date and number of hours worked due to the unreliability of their data. The unreliability of their data is caused in large measure by shop stewards submitting inaccurate or late reports and employers remitting benefits under incorrect job numbers. This can, and does lead to a number of issues, such as (i) employers paying benefit rates that are lower than required, (ii) the District Council being unable to determine in a timely manner whether an employer is current and accurate with its benefit payments, (iii) the District Council’s inability to present shop steward reports as evidence in arbitration hearings, and (iv) an overall lack of accountability. a. Untimely and Inaccurate Information It is intuitive that information is useful only if it is timely and accurate. Our review has found many instances in which the information generated by the District Council and the Funds is inaccurate, untimely or both. i. Shop Steward Reports Even if shop steward reports are submitted on time, there is delay built into the current process. Specifically, stewards create their reports on paper and the reports must be scanned into the Liberty system. This is time consuming. Members of the OWL staff perform


the scanning. It takes approximately six to eight weeks from the time the District Council receives a steward report until the report is scanned and the information can be effectively used. Some reports cannot be entered into the system because data, such as UBC numbers, is incomplete or incorrect, which causes further delay in obtaining the information. Of course, late steward reports by their very nature cause this time consuming process to be started belatedly and render necessary information unavailable for an even longer period of time. Notably, there is no formal system used by the District Council to determine if reports are late. Improperly filled-out or illegible reports are another issue faced by the District Council. Stewards make mistakes such as putting the wrong job number on the report, putting the wrong member identification number (UBC number) on a report, providing incorrect information regarding the number of hours worked by a member and failing to have a company representative sign a report. Any one of these human errors can potentially lead to longer processing time, incorrect information being inputted into the Liberty system and inadmissibility of reports at arbitrations, each of which negatively impacts the Funds’ collection efforts. ii. Job Numbers A significant issue, and one that directly impacts the Benefit Funds’ receipt of the appropriate amount of benefit contributions, involves the use of job numbers to track job sites, who is working at the sites and hours worked at the sites. As of May 6, 2012, the District Council had generated 89,872 job numbers since the inception of the system in June 2002. Of those, some 40,260, or 45% of all job numbers, are active in the system even though many of the jobs are not in fact active.


It is quite problematic that some employers are remitting payments for hours under the wrong job numbers. For example, in 2011, one employer remitted payment for all its hours under five job numbers, one of which was created in 2003. The shop steward reports filed with the District Council indicate that there were 45 job numbers associated with that employer in 2011, none of which matched the job numbers for which the employer remitted benefits. An employer can remit benefit hours at a lower rate than required if reporting under the wrong job number. For example, if an employer is signatory to a “market recovery” contract,17 it can remit benefit payments, even for hours worked under the regular CBA, at the lower market recovery rate. This can be uncovered only by an audit. From the inception of the system through May 6, 2012, there were 51,193 job numbers that had no shop steward reports associated with them. That is an astounding 57% of all job numbers. The District Council cannot provide a specific explanation as to why this is the case. iii. Other Reasons for Inaccuracies Our review has determined that there are other reasons that shop steward reports do not capture all hours worked by District Council members. First, work can be performed under an international agreement, which allows two members on the job before a shop steward is required. If there is no steward, no steward report is filed. We were unable to determine the actual number of hours worked under such circumstances. Second, employers may not call all jobs in to the District Council and may perform work without a steward. Since employers can remit benefits under any job number


A market recovery contract allows the employer to pay wages and benefits that are lower than a typical contract. Usually the rate is 80% of the standard CBA rate.


assigned to it, it is possible for an employer to pay workers benefits on unreported jobs. Our analysis could not determine the number of hours so remitted. Third, under certain conditions, employers that are members of the Hoisting Trade Association are allowed to work without utilizing a shop steward. However, the employer is required to make daily reports to the District Council as to the hours worked by its workers. c. Significant Resources Expended Processing Information The business representatives and shop stewards spend a great deal of time processing the stewards’ reports. Every Wednesday and Thursday from 6:00 to 8:00 a.m., 12 or 13 business representatives spend the morning meeting with shop stewards at the District Council “rep center.”18 Additional business representatives meet with stewards every Thursday morning at the Queens rep center and at Locals 20 and 926. This takes a significant amount of the business representatives’ time that could be spent policing jobs and performing other important tasks. Dockbuilders, timbermen and floor-coverers mail in shop steward reports. Business representatives spend additional time contacting these stewards to ensure the timely receipt of their reports. One business representative spends approximately four hours each week in an effort to get stewards to send in their reports. 3. a. Recommendations Use Electronic Scanners or Other Electronic Means to Report Hours The use of electronic scanners or other electronic means to report hours by shop stewards will alleviate many of the problems identified above. First and most importantly, it will allow the District Council and the Funds to have real time information regarding the hours

All District Council business representatives are assigned to one of two “rep centers.” One is located at 395 Hudson Street in Manhattan and covers Manhattan and the Bronx. The other rep center is located at Local Union 45 in Queens and covers Brooklyn, Queens, Staten Island and Long Island.


worked by its members and the payments for benefits due and owing. Second, it will reduce the number of hours that business representatives and OWL staff spend processing shop steward reports. Third, it will eliminate the impact of errors in shop steward reports. b. Develop Management Procedures to Ensure Use of Accurate Job Numbers and Timely Filing of Shop Steward Reports Until an electronic system is completely implemented, procedures designed to ensure the use of accurate job numbers and the timely filing of shop steward reports would greatly assist in the District Council’s goal of policing its jurisdiction. Of course, it is a shop steward’s direct responsibility to ensure that correct job numbers are being used and that their reports are filed on time. To aid them in fulfilling this responsibility, as noted in the Labor Technical College section of this report, infra, shop steward training will include attention to properly preparing and maintaining steward reports. Additionally, business representatives should bear the supervisory responsibility for monitoring the job numbers being used, ensuring they are correct and ensuring the timely filing of shop steward reports. The supervisory component should provide a redundancy that eliminates mistakes. Supervision should include, at a minimum:     Ensuring that a contractor does not have more than one job number for a particular job site; Determining why a job number was issued if no shop steward report is filed and conducting appropriate follow-up; Determining why a contractor is remitting hours for workers not on shop steward reports; and Monitoring the timeliness of the filing of shop steward reports. This should include processes for identifying stewards that are habitually late in filing reports so that appropriate disciplinary action can be taken.


Close Job Numbers for Inactive Jobs


As discussed above, there are many active job numbers in the Liberty system that are not active. These job numbers should be marked inactive. It should be noted that the District Council is in the process of performing this task. d. Maximize the Opportunity Created by Transitioning to i-Remit As recognized by the District Council and Benefit Funds, the system for remitting benefits needed improvement. The Funds is in the process of replacing its current remittance system with one administered by ISSI called i-Remit, which will be tailored to the Funds’ needs. The system should function to facilitate employers routinely paying the correct amount in a timely fashion.19 The system should not permit employers to remit benefits at rates that are lower than contractually required or to remit benefits under inactive job numbers. It is my understanding that a presentation will be made to the Administrative Committee of the Funds’ Board of Trustees in July 2012. The opportunity to attend this presentation will be open to all of the Funds’ trustees and I urge them to attend. Moreover, consideration is being given to some employers beta testing the system. This should greatly enhance the system, which is scheduled to be operational by December 2012. I encourage both the District Council and the Benefits

Funds to consider what additional steps can be taken to customize i-Remit, make it run smoothly and otherwise take advantage of this singular opportunity to improve the remittance system.

Unfortunately, the problem of some employers not remitting payment for benefits in a timely fashion, or at all, cannot be solved by technology alone. I am of the view that permitting employers to treat wages and benefits separately, e.g., to provide money to the payroll company on time for wages but not for benefits, is a significant contributing factor to the collections problems of the Benefit Funds and the attendant expenses of chasing contributions. The District Council wants its members to work, which requires employers staying in business, many members are more concerned with receiving their wages than benefits and some employers deal with their cash flow issues by paying wages and delaying on benefits, essentially using the Funds as their bank. The Collection section of this report, infra, covers the aggressive efforts being made to collect these delinquent contributions. But it seems that a fundamental change, perhaps achieved in the collective bargaining process, is required. Any such change could be implemented through the new technology.



Regarding employers with HTA agreements that require no stewards, those employers should be provided with the ability to directly self report hours worked on the District Council website. F. Work in The Trade-Show Industry The trade-show industry employs carpenters who perform work at the various convention and hotel sites where trade shows, conventions and other large meetings are held.20 The largest venue is the New York State-controlled Jacob Javits Convention Center (“Javits Center”) in Manhattan. There are other smaller venues such as the Hilton and Sheraton Hotels, the Armories and various piers. Carpenters build, install and erect the displays at these venues; they “lay out” the shows and install carpet and draping. According to Benefit Funds’ records, the total number of hours worked by union carpenters for trade show companies in 2011 was 756,294. The Javits Center accounted for 451,915 of those hours. The remaining signatories accounted for 304,379 hours. The work is generally desirable and historically was subject to control by Cosa Nostra.21 Due to the importance of the trade-show industry and its historic control by organized crime, my office performed a review of the industry to determine: (1) how carpenters obtain work in the trade-show industry and (2) whether work is dispatched fairly. 3. How Carpenters Obtain Work in the Trade-Show Industry


This discussion does not cover the carpenters that work in the shops that manufacture the displays. Those carpenters are generally full-time employees not subject to the hiring process for installers.

The Javits Center in particular was significantly influenced by the Genovese family until 1995, when New York State took control of all hiring. An investigation in 1994 by IRO Kenneth Conboy revealed the existence of a so-called “pool list.” The pool list, which was maintained by Union officials associated with the Genovese family, was designed to ensure that connected carpenters received the bulk of the work at the Javits Center.


The process for obtaining work as a carpenter in the trade-show industry is different depending upon the venue in which the work is performed. The Javits Center has one process and all other trade-show industry venues have another. a. Javits Center Process As a result of the reform efforts undertaken to address organized crime influence in the mid 1990s, the Javits Center has a unique hiring process. The Javits Center hires all of its workers directly and without any hiring ratio. Generally, a District Council member must be credentialed by the Javits Center in order to work there. There are two types of credentials, the so-called “blue badges” and “white badges.” Members with blue badges are considered “fulltime” employees and are the first sent to work. If a particular show at the Javits Center requires more workers, the Javits Center then calls the white badges to work. On the few occasions that the Javits Center requires more carpenters than have blue and white badges, it calls the OWL and requests workers. This occurs during large shows like the Auto Show. Pursuant to the governing CBA, the Director of Exhibit Labor at the Javits Center is in charge of providing labor to all the employers for all of the shows. He has two assistants. All three work for the Javits Center, and are not members of the District Council. The process for providing labor for a particular show begins with the employers requesting the number of workers they need in each trade from the Director of Exhibit Labor or his assistants.22 The employers may request particular workers by name, but are not guaranteed to have those workers provided to them. The Director of Exhibit Labor and his assistants determine the number of workers needed and who specifically will work, and then call the workers to inform them when and where to report and for which employer they will be working.


This process applies not only for carpenters but for electricians and teamsters.


After the Director of Exhibit Labor and his assistants make the initial assignments, the Employers determine the particulars, including which workers will return to dismantle the show. For instance, assume the Javits Center sends 10 workers to perform the installation of a show that will take three days to install and two days to dismantle. If, after the first day of installation, the employer needs only eight of the workers to complete the installation of the show, the employer chooses which eight workers will perform the work. The employer also chooses which of the 10 workers will dismantle the show. The Javits Center pays all the wages and benefits of the workers directly. Each day that a carpenter reports to work, he signs in with the Javits Center. Each employer is required to keep time records for each worker and submit them to the Javits Center.23 The Javits Center in turn bills the employers for each hour worked by a carpenter. b. Other Trade-Show Work At trade-show industry venues other than the Javits Center, each employer determines the number of workers it needs for a trade-show. Employers must hire a specified ratio of carpenters off of the OWL. The process for selecting carpenters is governed by the CBA. The CBA requires carpenters to be assigned to the job as follows: The first, third, fourth and fifth carpenter is to be chosen by the employer. The second carpenter – the shop steward - is to be chosen by the District Council. The remaining workers are to be chosen equally (50/50) by the District Council and by the employer. (Employers are also allowed to request up to 50% of the union referrals.) The only limitation in the CBA is that those requested to work must be members of the District Council. All District Council referrals must come from the OWL.

Approximately six months ago, Freeman Decorating, the largest trade show employer, began using electronic scanners to supplement the recording of time for each worker. Freeman is using the scanners to track the worker’s time spent on each particular task performed. This is to better track its labor costs for each trade show.


This formula evolved over time and, additionally, was inconsistently applied given that the business representative responsible for dispatches to the trade-show industry used his own list until approximately 2008. As noted, in 1995, the State of New York exercised control over hiring at the Javits Center. This addressed the hiring of favored carpenters at the Javits Center. However, work in venues other than the Javits Center was governed by the provisions of the CBA agreed to in 1995, including provisions regarding experience in the industry and certification. The CBA was renewed in 199624 and covered work through June 2001. It contained the same provisions as the previous agreement regarding the qualifications,25 but the hiring ratio changed so that the employer selected the third, fourth and fifth carpenter on the job,26 thus giving the employers more control over how many members it selects. In 2001, the CBA provisions regarding qualifications to work in the industry and hiring ratios changed. Requirements regarding experience were removed, but all workers were required to complete the 50-hour certification course. The employers also gained an important provision in that they could request 50 percent of the union referrals, provided that the requested members were from the District Council. These provisions remained in the CBA negotiated in 2006 and are in force today. In October 2007, William Callahan, who was then Independent Investigator (“II”) of the District Council, filed a report with the Court addressing the trade-show industry. The report advised that the business representative who was responsible for the trade-show industry


This “CBA” was handwritten on a piece of paper and later typed but there was never any complete and fully executed agreement. See Exhibit 18. 25 At the request of the IRO, the provisions regarding the union dispatching members with greater experience first were abandoned. 26 Under the current hiring ratio for a job with five workers, the contractor can pick four workers of his choice. The only union-referred worker on this job is the steward. For a job with 10 workers a contractor can pick up to eight of the workers and on a job with 20 workers the company can choose 15 workers. This system favors carpenters who have worked in the industry, those who have connections, illicit or otherwise, and those otherwise favored by contractors. The hiring ratio is discussed in detail above.


came from the pool list. He maintained a separate worker dispatch list that was not part of the computerized OWL, and he dispatched all stewards and workers from this list until January 2008. 27 During the time that business representative controlled the list, it contained, on average, only 40 to 60 carpenters even though more than 600 carpenters obtained the 50-hour certification and were eligible to sign it. The II report concluded that he was unable to determine if past referrals were appropriate because there were no records. Due in large part to the II report, the trade-show OWL list was transferred to the OWL department and maintained and run as any other OWL. It should be noted that the current trade show OWL includes over 350 of the 883 carpenters currently certified and eligible to work trade-shows. Currently, trade-show dispatches from the OWL are governed by the job referral rules, just as any other dispatch. Monthly referrals from the trade-show industry for 2012 were: Month January 2012 February 2012 March 2012 April 2012 May 2012 Referrals 108 51 190 267 46

As of May 31, 2012, the trade-show OWL has 323 members on it. 4. Is Work in the Trade Show-Industry Dispatched Fairly? Due to the documented history of influence and control exercised by organized crime figures over the trade-show industry, I was especially interested in whether members of


On March 4, 2011, this business representative was interviewed by my office regarding his knowledge, if any, of the influence and control of organized crime over the District Council and asked to sign a declaration summarizing such knowledge. He refused to sign the declaration and on March 7, 2011, he resigned as an employee and business representative of the District Council.


the so-called “pool list” still obtain more work, on average, than other carpenters. Our review indicates that members of the pool list continue to work more hours on average than other carpenters in the trade show industry. Moving the list into the control of the OWL department lowered the barriers for rank and file carpenters to obtain work in the industry.28 However, since the contractors select the vast majority of the workers on a particular job, the District Council has limited control over who works in the industry. Our review has found that members who were on the pool list work more hours, on average, than other rank-and-file carpenters. Our review has identified 28 members of the pool list who are still active in the union. Of these, 17 members of the pool list earned more than 250 hours in 2011 for contractors in the trade show industry. The members of the pool list who are still working within the industry are generally all working in venues other than the Javits Center. There are two members who were on the pool list who obtain all of their hours at the Javits Center. The average number of hours worked in the trade show industry in 2011 by the 28 active members who were on the pool list is 572. The average hours worked by all others in the industry for the same time period is 460 hours. If the hours worked at the Javits Center are excluded, the average for the pool list is 494 hours and the average for the remaining carpenters is 293 hours. When the analysis is performed to determine median hours, a similar but more extreme picture emerges. The median hours for a member who was on the pool list in the trade


An analysis of hours worked in 2007, the year prior to the trade show dispatches being moved to the OWL, show that rank-and-file carpenters obtained more work on average in 2011 than in 2007 and that members of the pool list obtained less work in 2011 than in 2007. In 2007, the average hours worked by a member of the pool list in venues other than the Javits Center was 611 and a rank and file carpenter worked 193.


show industry is 344.5 hours. For all other carpenters, the median hours for the year is 138 hours. That means that half of all workers in the trade-show industry had less than 138 hours for the entire year of 2011, less than half of pool list members. If hours worked at the Javits Center are excluded, the pool list members’ median hours are 260.5 and for all other carpenters the number is 47. Thus, on average, District Council members who were on the pool list are working more hours in the trade-show industry than other carpenters. G. Journeymen and OWL Statistics The following summarizes recent membership, OWL and dispatch trends: Journeymen in good standing 4/30/12 Journeymen in good standing 10/31/11 Reduction in journeymen Reduction since 12/3/10 Members in arrears 13,775 14,275 500 1,519 1,528

Numbers of persons on the OWL on 5/17/12: Local 157 4153 Local 2287 288 Local 1556 Scaffolding 193 Local 1556 Dockbuilders 214 Local 740 58 Local 2790 114 Total 5,020 (compared to 5,500 as of December 2010). Dispatch Statistics Apprentices Requests Shapes Denied Requests Pure Dispatches Totals April 2012 435 269 405 36 1,295 2,440 October 2011 451 305 342 46 1,138 2,282 April 2011 484 454 381 75 1,587 2,981

The April 2012 dispatch figures include some 267 trade show dispatches. Total activity from December 2011 through March 2012 follows: 40

December 2011: January 2012: February 2012: March 2012:

2,061 2,220 2,052 2,607

An analysis of OWL Dispatches may be viewed at Exhibit 19. H. Compliance Review of Local Unions In December 2011, my staff initiated a compliance review of the eight locals affiliated with the District Council. The compliance review included a review of each local’s computer systems, document filing system, accounting and dues collection procedures and financial recordkeeping. See Exhibit 20. 1. The Eight Local Unions Local Union 20 is located at 900 South Ave, Staten Island, New York and is a general construction local. The Local has approximately 620 members. Local Union 45 is located at 214-38 Hillside Ave, Queens Village, New York. It is a general construction local and its jurisdiction covers Queens and parts of Nassau County. In 1996, the UBC combined Locals 531 and 348 and created Local Union 45. The Local has approximately 1750 members. With approximately 9900 members, Local Union 157 is the largest local, by membership, in the District Council. When Local 608 was dissolved in Fall 2010, its members were placed in Local 157. Local 157 is located on the ground floor of 395 Hudson Street in Manhattan (the same building where the District Council and its Benefit Funds are headquartered). It is a general construction local and its jurisdiction is Manhattan and the Bronx. Local Union 926 is located at 373 96th Street, Brooklyn, New York. It is a general construction local and its jurisdiction is Brooklyn. It has 1780 members.


Local Union 740 is located at 89-07 Atlantic Avenue, Woodhaven, New York. It is a specialty local of millwrights and machinery erectors. Millwrights perform precision work on equipment and machinery at power plants, factories and other locations. Its jurisdiction includes New York City, Long Island, and portions of upstate New York. It has approximately 380 members. Local Union 1556 was created in 2011 after the General President’s dissolving of Locals 1536 (the “Dockbuilders”) and 1456 (the “Timbermen”). The combined local covers the jurisdictions of its predecessor locals and New York City, Long Island, portions of New Jersey and portions of upstate New York. It has approximately 2980 members. Local 2287 is a local of resilient floor coverers who perform installation of tile and carpet. Its jurisdiction is New York City, all of Long Island and portions of upstate New York. It is located at 395 Hudson Street and has approximately 1105 members. Local 2790 was created in 2011 after the General President’s dissolving of Locals 2090 and 2870. Local 2090 represented members who manufactured cabinets and millworkers. Local 2870 was the local of the hollow-metal trades. It represented members that performed light manufacturing in the New York City area. Members work in shops and their jobs tend to be full time and in one location. The members are also paid less than carpenters in the outside construction locals. Local 2790 is located at 395 Hudson Street and has some 2,600 members. While certain locals operate their offices with greater efficiency than others, all operate at a level that allows for the work of the locals to be performed adequately. Local Union 2790 has had issues with inadequate record-keeping and businesses processes. However, it is confronting the problem, and continues to improve its processes and record-keeping.


My office communicated the deficiencies noted during the compliance reviews to the local unions for remediation and we will follow up. At the request of my office, the Inspector General of the District Council also performs compliance checks of the locals. 2. Financial Review Any local union’s budget goes, in large part, to the per capita tax paid to the District Council, to rent for its office and to payroll and taxes for office staff. Many of the locals have sick and scholarship funds for the benefit of the local’s members, which can also constitute significant expenditures. The remaining expenditures include professional fees for accountants, lawyers and other consultants, monies for office supplies and donations to various charities and non-profit institutions. Historically, some local union leadership spent their members’ funds inappropriately. See, e.g., Second Interim Report at 32-39 (regarding the misuse of local union funds by the leadership of former Local 1456). The Section 5.b notice requirements of the Stipulation and Order,29 coupled with our investigations, appear to have had an impact. The compliance review conducted by my office over the last six months and our ongoing “5.b. review” process indicates that the local unions are in most instances spending their members’ money appropriately. The financial portion of the review consisted of examining, for a period of at least six months, all bank statements, cancelled checks and credit card statements. 3. Operational Review While the overall operation of the locals is acceptable, there are areas that can be improved.


For example, Section 5.b.i(1) requires that “The Review Officer must be given prior notice of, and is granted the authority to review, all expenditures and investments.”


The biggest issue with the operations of the local unions is the lack of current bylaws. All of the local unions operate under bylaws that are out of date and do not reflect the current state of local union governance. A number of locals are in the process of drafting updated bylaws for approval, but none have been completed. This process is taking far longer than it should. Record-keeping by some of the locals must also be improved. At a number of the locals, the office staff could not locate important documents and had to call an officer of the local so that the records could be located. One local did not have a copy of its office lease. The recording and maintenance of local union meeting minutes also needs to be improved. My staff reviews the minutes of each local’s Executive Board and General The minutes range from detailed, comprehensive and

Membership meetings each month.

informative to minimally informative and sometimes incomplete. Some locals have a template of minutes, which, on the positive side, ensures that all of the required information is at least referenced but, on the negative side, creates a “fill in the blanks” mentality. The local union Recording Secretary’s job requires attention to detail. When necessary, my staff has provided guidance to the Recording Secretaries and has informed Executive Board members that it is the collective responsibility of the Executive Boards to ensure that the minutes are accurate and complete. III. THE BENEFIT FUNDS A. Executive Director The Executive Director of the Benefit Funds, Joseph Epstein, has restructured the Funds’ office and filled most key positions. See Exhibit 22. He continues to assess operational


components and personnel. He is particularly focused on achieving cost efficiencies, and has presented to the Trustees an estimate of savings of approximately $5 million for the fiscal year ending June 30, 2012. See Exhibit 23. B. In-house Counsel Following a lengthy search and after some years, the Benefit Funds again have inhouse counsel. Using a competitive process that ultimately included legal recruiters, Mr. Epstein gained Trustees’ approval to hire Ming Ayvas, a 1996 graduate of Fordham Law School who has had experience as both a practicing attorney with a well-respected law firm and as a consultant with one of the big four accounting firms. See Exhibit 24. She specifically has experience with ERISA and tax issues. Id. Ms. Ayvas started on May 14, 2012. It is my expectation, as well as that of the Executive Director and the trustees, that the new in-house counsel will eventually handle most routine legal matters at the Funds, helping the Funds to run more efficiently and helping to reduce fees for outside counsel.30 There will, however, be a steep learning curve and, initially, the focus must be on addressing that issue. It is my understanding that, Ms. O’Leary of KMM is working closely with Ms. Ayvas to facilitate training and the ultimate transition of routine matters to her. C. Compliance Function The long-stalled institution of a compliance function -- another central hedge against corruption -- is finally underway. Since issuance of my Third Interim Report, the Benefit Funds have made significant substantive progress with respect to instituting a compliance function. The Funds have developed and finalized a comprehensive Compliance and Ethics Program (“CEP”), appointed compliance officers running the CEP and rolled out the CEP to


The Funds, through its Executive Director, a subcommittee of trustees and outside counsel, KMM, have been attentive to the issue of attorneys’ fees and have achieved a steady reduction in the past few months.


employees, by providing the CEP to them, getting acknowledgements of receipt and providing training sessions, in a small group format, to employees.31 Beginning in February 2012, outside counsel (KMM) worked to develop a compliance program consistent with Chapter 8 of the United States Sentencing Guidelines. My office provided input regarding various drafts of that program. On April 3, 2012, the Funds’ trustees, Executive Director, senior staff and outside counsel had a robust working meeting regarding the draft CEP, during which the trustees in particular discussed practical issues that arise in the construction industry and made recommendations as to how the program could be further refined to best achieve the highest level of professional conduct and ethics. Thereafter, Ms. O’Leary of KMM and Mr. Epstein’s proposed Chief Compliance Officer (“CCO”), Ralph Checuti, and Deputy Chief Compliance Officer (“Deputy CCO”), Laura Kalick, again with input from my office, refined the CEP. At their April 26, 2012 Board of Trustees meeting, the trustees approved the finalized CEP, including the appointment of Mr. Checuti (the Funds’ HR Director) and Ms. Kalick (the Funds’ Benefits Director) as CCO and Deputy CCO respectively. Thereafter, the CEP was distributed to employees, who were required to provide signed acknowledgments of the CEP. During May 2012, Mr. Chetcuti and Ms. Kalick provided training to Funds’ employees, doing so in five smaller group sessions to facilitate discussion; a sixth training session, for labor Technical College instructors, is scheduled for June 4 . Finally, initial training on the CEP will be provided to any new hires and refresher training will be provided to all employees on an annual basis. See Exhibit 25 (list of action items and implementation schedule from CEP).

I note that the CEP governs all employees of the Benefit Funds, including the Executive Director and senior staff. It does not cover the trustees, who are governed by separate policies. The trustees have executed forms accepting their positions as trustees as well as their obligations under conflict of interest and reimbursement policies, policies that were adopted at the April 26, 2012 Board of Trustees’ meeting. A confidentiality policy is in the revision stage.


Employees have been advised of individuals to whom they may address questions or concerns as well as the contact numbers for those individuals. See Exhibit 26 (page 28 of CEP). Among the contact numbers provided are a “hotline” telephone number and a hotline email address for confidential communications. See id. The Funds will have to evaluate whether Mr. Chetcuti and Ms. Kalick have sufficient time and expertise to fulfill their compliance roles. Their effectiveness will be diluted if they bear too many responsibilities and are outside their depth of experience. It is critically important that a compliance function be in place in more than name only. If such circumstances arise, the Executive Director and trustees will of necessity have to hire a compliance-dedicated professional. I will make a formal recommendation to that effect if necessary. D. Employee Handbook Importantly, the Benefit Funds has developed an Employee Handbook for Funds’ staff. Historically, the Funds have lacked the basic policies that legitimate organizations have. Without well-documented and scrupulously enforced fundamentals such as a non-discrimination and anti-harassment policy, an anti-nepotism policy, performance evaluations, and a conflict of interest policy, the Funds historically were over-staffed, with staff including family members and friends of former senior staff and outside counsel. As a result, the Funds were not run as professionally and efficiently as possible. The handbook, created in large part by Mr. Chetcuti with assistance by outside counsel KMM, includes the critical policies discussed above as well as other guidance for employees. The Trustees serving on the Administrative Committee also provided thoughtful, practical input, resulting in a well-considered product. The Funds’ Board of Trustees approved the Employee Handbook at its meeting on April 26, 2012.


My understanding is that the Employee Handbook was to be distributed to staff on or about June 1, 2012. It is now incumbent upon the Funds to provide appropriate training on the policies to all Funds’ staff. Training should be provided to each new staff upon entering employment with the Funds and yearly refresher training should also be provided. Additionally, the Funds should develop and implement standardized hiring, promotion and firing protocols. I understand that a salary band is being developed. The business of the Funds will be much enhanced by ensuring that qualified staff is hired and promoted and that staff is not dismissed in retaliation for reporting improper influence or corruption. E. IT Infrastructure Steady progress is being made with respect to upgrading the IT infrastructure. In January 2012, the Funds executed a hardware purchase and software license agreement with the vendor ISSI. Project Manager Jennifer Gordon is overseeing the implementation plan, which continues to be on schedule for completion in 18 to 24 months. In the interim, the legacy system is being supported by the prior vendor. Additionally, Funds’ staff have stepped up their

performance. The transition appears to be a smooth and positive one. As noted, one aspect of the IT upgrade is a new system for remittance of payment for benefits called i-Remit. It will be the subject of a presentation to the Trustees on July 18, 2012. There has been discussion regarding having a pilot program or a number of employers beta test i-Remit before it becomes operational across the board in December 2012. i-Remit is expected to create significant efficiencies and consequent savings for the Funds. F. Email Back-up In March 2012, a back-up system for storing emails became operational. The lack of a back-up system was a serious deficiency identified early in my tenure when the Funds was


developing its records retention policy.

Staff indicated that even though the draft records

retention policy reflected an operational back-up system, there was in fact no such system. Shortly after his hiring in July 2011, the Executive Director ensured that the IT department maintained emails off site while awaiting a back-up server. That back-up server has been acquired and is now fully operational. G. Collections Maximizing collections efforts continues to be a priority of the Benefit Funds. A comprehensive approach is being utilized by the Funds’ trustees, Executive Director, staff and outside counsel in their collection efforts, encompassing much-needed policy changes, vigorous litigation efforts and rigorous oversight as to whether efforts translate to actual collection of money and at what cost.32 A summary of the most significant efforts are set forth below. 1. Collections Policy On April 26, 2012, the Benefit Funds’ trustees approved a new collections policy. Over the last several months, Virginia & Ambinder has developed and refined the policy with particular attention to its experience addressing the collections issues encountered by these particular Funds together with the practical wisdom learned by the Trustees during their service. See Exhibit 27. With the new collections policy, attention has been directed to both regularizing and maximizing collections. V&A has demonstrated sensitivity to being cost effective,

recommending policy changes and courses of actions that will lead to cost savings. 2. Virginia & Ambinder


As previously indicated (see footnote 19), consideration should be given to the District Council and employers agreeing, and embodying in their CBAs, that payment for benefits is not severable from payment for wages. They should also explore using i-Remit to facilitate this technologically.


V&A was retained as new collections counsel approximately a year ago.


continues to assess the status of, and appropriately follow through on, the Funds’ numerous collections matters. V&A keeps the trustees informed of all ongoing collections matters through a number of means including a current summary of all collections matters referred to as the “scorecard,” an executive summary of the collection matters with more than $750,000 in controversy, a comprehensive monthly status report, oral presentations at monthly Delinquency Committee meetings and Board of Trustees meetings, and email communications regarding collections matters requiring attention between meetings. There are a number of different categories of collection matters that V&A handles. The matters include arbitrations, court actions to confirm arbitration awards or enforce judgments and civil lawsuits. Additionally, on V&A’s recommendation, the Delinquency

Committee approved not pursuing sums below $2,500 through legal action unless additional sums become due and owing such that an employer’s total debt exceeds that threshold. This practice has also been incorporated in the new collections policy. The breadth and intensity of V&A’s collections efforts is perhaps most easily ascertainable from the monthly status report it provides to the Benefit Funds. The April 2012 Status Report, issued on May 11, is over 700 pages long. It reflects that V&A is handling 58 active litigations, 185 arbitrations, 30 bankruptcies,33 76 matters without pending legal proceedings, 159 judgment enforcement matters, and 30 Inspector General audit referrals34 on behalf of the Funds. In some instances, V&A is handling litigation instituted several years before it was retained. In other instances, V&A has instituted lawsuits as part of its efforts to


This category includes bankruptcy proceedings of employer companies in which the Funds have an interest due to delinquent contributions. 34 This category involves reviewing audits being proposed by the District Council’s Inspector General to determine whether the expenditure of Funds’ resources is merited.


collect on long-standing employer delinquencies, such as the Darken/Metropolitan Arch. matter. See Third Interim Report at 43-44. Some delinquencies are staggeringly large: the amount sought from the Darken and Metropolitan Arch. based on defaulted payment plans is over $1 million and several six-figure delinquencies are also being pursued. As of the May 23, 2012 Delinquency Committee meeting, V&A had recovered approximately $3.5 million through its collections efforts for the Funds. V&A’s associated legal fees have been approximately $633,000 and its costs have been approximately $100,000. 3. Funds’ Staff Not all collections matters go to collections counsel. The Funds staff has a Collections’ manager who supervises daily collections from employers. Many collections issues are handled by Funds’ staff with the support of its outside auditors and short of legal action. A problem over the last several years has been excessive reliance on outside providers, both counsel and auditors, to handle the collections process. The Executive Director is supervising an effort to have Funds’ staff do the work that should be handled in house. ISSI met with the outside auditors in this regard and the new computer system is being designed to facilitate this effort. 4. Inspector General Audit Referrals Previously, the Funds had an “Anti-Corruption” Audits program. The District Council Anti-Corruption Committee (“ACC”) would advise that an anti-corruption audit needed to be set up for a particular employer and staff would make the arrangements. Apart from paying the audit bills, the Funds appear to have had little additional involvement with this process. (The Funds did not receive the audit reports). Responsibility for follow-through lay with the ACC. As I have previously reported, I regarded the ACC as ineffective and immediately after my


appointment, recommended that it be dissolved; it was, replaced by the Inspector General’s office. The Anti-Corruption Committee has been disbanded. Since January 2012, the Inspector General has been making requests for audits to the Funds’ Delinquency Committee and audit reports are being provided to the Delinquency Committee. whether an audit should be conducted before the expense is incurred. 5. Overdue Arbitration Decisions As noted in my Third Interim Report, in approximately July 2011, the Funds were waiting for one arbitrator to issue decisions in 29 arbitrations he presided over from the period 2006 through 2011. The arbitrator, who is no longer being utilized for new Funds’ matters, issued many but not all of the outstanding decisions in the second half of 2011. The delay has been detrimental to the Funds. For example, as noted in the last report, one of the arbitration decisions he issued involved an employer named Turbo. The arbitration hearing in that matter occurred in March 2008. The arbitrator finally issued the decision in the Turbo matter in November 2011, awarding the Funds in excess of $2 million. At this point, however, the judgment appears uncollectible and the Funds have refrained from expending the resources to file a lawsuit confirming the arbitration award. At the time of issuance of my last report, the Funds were still awaiting receipt of three outstanding arbitration decisions from the former arbitrator. V&A thereafter learned that there were actually five outstanding arbitration decisions. On March 26, 2012, V&A filed a As noted, V&A reviews

petition in New York State Supreme Court, New York County, seeking an order requiring the arbitrator to issue those decisions. The arbitrator was served on April 9th. Before the


arbitrator’s answer to the petition was due, he issued the outstanding arbitrations decisions and V&A withdrew the petition as moot. As with Turbo, the window of opportunity to recover the belatedly issued awards appears to have passed. H. Cost Savings and Vendor Review Since assuming the position of Executive Director on July 1, 2011, Joseph Epstein has achieved cost reductions and savings short of replacing vendors through RFPs. See Exhibit 23. As of May 9, Mr. Epstein estimated that these savings totaled approximately $5 million. See id. Particularly notable are the savings from staff reductions exclusive of retirement, which totaled approximately $920,000. See id. Mr. Epstein has trimmed down a bloated organization that was staffed in part with friends and relatives of former senior staff and outside collections counsel, in the process achieving quality and efficiencies as well as the noted savings. Also of particular note, changing vendors with regard to the Medicare claims processor is expected to save almost $300,000 a year, directly impacting the Welfare Fund; the diligence on the vendor indicates that the new vendor is professional and thorough as well as reasonable. There are other notable categories of cost reductions and savings. Reductions in retainers have been agreed to by consultants. Outside counsel (KMM) has consistently reduced its monthly billings.35 The Funds’ office now performs work in house, e.g., developing and sending RFPs, that was previously outsourced to vendors. See id. Additional savings of this nature are expecting going forward as, for example, new in-house counsel becomes acclimated.


I note that while the Executive Director and the trustees are carefully reviewing attorneys’ fees, particularly in light of past experience, outside counsel appears to be mindful of what they are charging in the first instance. As indicated, KMM has played a notable role in working with the Funds’ office to run more effectively and will continue to do this, for example, helping to train new in-house counsel.


In a more formalized effort to ascertain whether enhanced quality, efficiency and cost savings can be achieved, at its March 2012 meeting, the Benefit Funds’ Board of Trustees approved Mr. Epstein’s request to conduct RFPs for accounting, actuarial and consulting services. The Funds have used the same vendors -- and programs -- for an extended period of time and savings could be realized by changing to different vendors or newer programs. RFPs were sent to accounting and consulting firms, specifically, an RFP for accounting but not payroll auditing services, an RFP for consulting services for the Welfare Fund and an RFP for actuarial and consulting services for the Pension Fund. Responses have been received. The Executive Director and appropriate senior staff will review the proposals and recommend three companies in each category to the trustees. The trustees will receive the proposals submitted by the recommended companies and each of the companies will each give a 30-minute presentation to the Trustees on June 13, 2012. I. 395 Hudson Street Trustees of the Pension Fund, which owns 395 Hudson Street, are evaluating various options to maximize the value of the District Council’s and Benefit Funds headquarters in Tribeca at 395 Hudson Street. Currently, the District Council and the Benefit Funds occupy the ninth floor; the Benefit Funds also occupy the eighth floor. The tenth floor is largely conference and meeting space used by the District Council and the Funds. The Labor Technical College (“LTC”) occupies the second floor and basement of the building. Various commercial tenants also lease space in the building, bringing income to the Pension Fund. The Funds’ Executive Director proposed consolidating his staff on the ninth floor so that the eighth floor can be rented out at the market rate. There is sufficient space on the ninth


floor to do so by renovating the ninth floor in a manner that would decrease the size of work stations while creating more storage space and enhancing collaboration. Once the telephone is replaced, which is expected to happen in August 2012, renovations can begin. The real estate consultant has estimated that renting the eighth floor would generate $10 million over 10 years. Also under consideration is renovating and renting out the 10th floor as conference space. The real estate consultant is of the view that the 10th floor, a board room, could be rented at an above-market rate, while the District Council and Benefit Funds would still be able to use the space when required. Another option that has been considered involves finding and renting or buying a new location for the LTC and then moving the District Council into the space in the basement and on the second floor that the LTC currently occupies. I believe there is an additional option that should be considered, specifically the District Council, Benefit Funds and LTC moving out of 395 Hudson entirely. I was recently advised that, in 2011, the District Council paid over $1.2 million in rent for the space they occupy at 395 Hudson. In my view, this expense could be decreased. It is not necessary for the District Council to rent such capacious, high-end real estate. It appears that it would be prudent for the District Council to buy a more modest property elsewhere in Manhattan or another borough, utilize it for the Council and, depending on available space, rent to the LTC and third parties, gaining income for the District Council. explore this option as well. One final note: on the real estate advisor’s recommendation, the trustees A real estate consultant should be asked to

approved putting a news stand in the lobby as an additional way to generate revenue. J. Blue Card Issue


This has been an ongoing issue for the District Council and the Benefit Funds. The Funds have recognized the need to address its historical practice of deducting a member’s District Council dues from his vacation fund check. Under ERISA, the Funds should not be involved in dues collection. The Funds is working towards finalizing a voluntary program. We expect a final resolution shortly. K. 1. Overall Condition of the Funds The Pension Fund The Pension Fund, with the market value of its assets at over $2 billion as of April 30, 2012, appears to be in good health. I have not been notified of any reason why the Pension Fund would not be certified as in the Green Zone for the fund year from July 1, 2011 through June 30, 2012 and I expect that the Fund will be so certified without extraordinary measures, e.g., smoothing, being taken. I do have one observation regarding the Pension Fund. According to documents provided by the investment advisor, the Fund was up 0.91% for the period July 1, 2011 through April 30, 2012 (available fiscal year period), compared to the policy index of 3.48%. The Pension Fund’s performance also lagged the benchmark in one-month, one-year, year-to-date and three-year performance, although it did better for five-, seven- and 10-year performance. Some consideration should be given to the issue of paying fees to investment managers for performance lagging the index for the last few years. 2. a. The Welfare Fund Condition of the Welfare Fund


The condition of the Welfare Fund remains a matter of particular concern. As addressed in previous reports, see, e.g., Third Interim Report at 47-50, the Welfare Fund has been negatively impacted by decreased man hours and increasing health care costs. As with the Pension Fund, investment performance over the last few years has been disappointing. To be clear, performance has been positive. But it has lagged behind the benchmark. According to documents provided by the investment advisor, the Welfare Fund was up 3.30% for the period July 1, 2011 through April 30, 2012, compared to the policy index of 3.98%. The Fund’s performance was also less than the benchmark, albeit by fractions of a percentage point, in one-month, one-year, three-year, five-year, seven-year and 10-year performance; it surpassed the benchmark by a full percentage point for year to date performance. Again, these figures bear some consideration. Significant efforts have been made to address the concern over the Welfare Fund on a number of other levels, including by aggressively collecting delinquent contributions and by thoughtfully modifying benefits, as discussed below. b. Plan Deadlock Arbitration Since the issuance of my Third Interim Report, an Arbitrator has issued an interim decision with respect to modifying benefits. See Exhibit 10. To recap, at the October 20, 2011 Board of Trustees’ meeting, the Employer trustees made a motion proposing a series of benefit modifications that would result in a $10 hourly employer contribution rate and savings of $5.85 per hour. The Union trustees (then-Supervisor Frank Spencer and his designees) did not vote for the motion, based on their expectation that man hours would increase and their desire not to make any benefit modifications until the Fund’s actual performance in 2012 could be assessed.


Having deadlocked, and wishing to proceed expeditiously, the trustees agreed upon an arbitrator. Id. at 4-6. On January 31, 2012, having held a hearing on December 12, 2011 at which the Employer and Union trustees were each represented by counsel and having receiving proposed benefit modifications from the Union by January 10, 2012, the Arbitrator issued an interim award, stating: “I have concluded benefit modifications sufficient to reduce Fund expenses by three ($3.00) dollars per hour should be implemented, as soon as possible, but no later than April 1, 2012. This reduction shall be an interim measure, pending receipt by the Trustees and me of the Fund’s fiscal report for the year ending June 30, 2012. I will hold a further hearing [in July 2012]. Such a reduction is prudent under all of the circumstances presented and will suffice to provide the Fund a bridge toward its ultimate goal of bringing its income and expenses into line.” Id. at 14-15. The Arbitrator reasoned that while “the Fund is not in imminent danger,” there has been an unquestionable drop in man hours since 2009 and a consequent reduction in contribution income to the Funds (despite the increase in the employers’ contribution rate from $10 to $11.25 an hour); moreover, positive investment returns have not been sufficient to avoid substantial operating losses. Id. at 11-12. Importantly, the consultant -- Segal -- projected increasing deficits over the next few years predicated on steadily rising expenses, with erosion of the Fund’s reserves to 7.5 months by June 30, 2012, 4.4 months by June 30, 2013 and 0.8 of a month by June 30, 2014. Id. at 13. The Arbitrator’s opinion included a chart of the benefit modifications to be made. Id. at 15-19. These modifications include adding an in-network co-payment, increasing the emergency room co-payment, increasing the out-of network deductible and discontinuing dental


and vision coverage. See id. In March 2012, Summaries of Material Modifications (“SMM”s) were mailed to active participants and their eligible dependents, as well as to other categories of beneficiaries, and the SMMs were posted on the Benefit Funds’ website. See Exhibit 29. At their April 3, 2012 meeting, the District Council delegates received a chart of the benefit modifications. The benefit modifications became effective June 1, rather than April 1, primarily due to implementation issues. As reported by Segal at the April 26, 2012 Board of Trustees meeting, a total savings of $48 million a year is expected based on these benefits modifications. c. 1. Update on Other Cost Control Measures Ineligible Dependants As noted in my last report, see Third Interim Report at 50, the Funds Office commenced a dependent eligibility audit in Summer 2011. As of May 21, 2012, the number of dependents voluntarily dropping coverage had risen to 715 (from 215 in late September 2011). According to Segal, to determine estimated savings, the practice is to use an industry standard of $2,500 in determining savings. Thus, the estimated savings for “voluntary drops” is $1,787,500. In addition, there are 3,925 “non-verified” dependants, that is, dependants for whom no documentation or insufficient documentation was provided by a deadline set by the Funds office. Their coverage has been cancelled. Because some of those dependants may have subsequently supplied sufficient documentation, no savings estimate is available for that category of dependents at this time. 2. Revised Bank Hours Provisions As part of their ongoing efforts to reduce Welfare Fund costs, working with their counsel, the Trustees revised the bank hours rules to limit the extended eligibility that was


available to participants after they ceased working in covered employment. Following approval at the February 23, 2012 Board of Trustees meeting, the Funds mailed an SMM providing notice to the participants of the revisions, including that bank hours shall be permanently forfeited if a member engages in “disqualifying employment,” that is, work within the jurisdiction of the District Council for an employer who was not required to contribute. See Exhibit 30. The revised bank hours rules became effective March 15, 2012. 3. Attention to Scholarship Fund Deficit Mr. Epstein and Funds’ staff alerted the trustees that the scholarship fund (part of the Welfare Fund) is running at a large deficit. The Administrative Committee is addressing this matter. Historically, 35 scholarships have been granted yearly. As a first and immediate step, the trustees authorized reducing the number of new scholarships awarded in 2012 to 10. It will take until 2014-2015 for the Funds to again break even. Reducing scholarships to zero this year would put the Funds in the black only six months earlier. Consideration will also be given to increasing the contribution to the scholarship fund by a cent and a half. L. Allocation of Contributions Paragraph 5.h.vi of the Stipulation and Order provides that I should “review and assess the allocation of contributions to the Benefit Funds by employers and District Council members, and whether those allocations positively or negatively affect the achievement of the objectives of this Stipulation and Order, and whether a different allocation would more effectively further those objectives.” See Stipulation and Order at 11. The wage and benefit package for union members is the product of negotiation between the District Council and the industry associations. A Union member’s package (or


increase to the package) is set forth in the collective bargaining agreement between the District Council and the member’s industry. The collective bargaining agreements provide that it is within the sole discretion of the District Council to determine the percentage of the package, or increase, to be allocated to wages and to each of the benefit funds, e.g., pension, welfare, et cetera.36 I have been advised that, in recent history, officers of the District Council determined what percentage of an increase to allocate to wages and to each of the benefit funds. The District Council then provided a “post-it note” to the Benefit Funds with the allocations. The Benefit Funds provided the allocations, in chart form, to the Employers. The Employers provided the total amount due and owing for benefits to the Funds. The Funds, specifically the Controller and his staff, then allocated the specific percentage determined by the District Council to each of the benefit funds. I have two observations regarding further improving this process, one that is an easy but critical administrative fix and another that poses more difficult political issues for the District Council’s recently elected officers. First, there should be a document memorializing the District Council’s determination of the percentage of any increase to be allocated to each of the benefit funds. A “post-it note” with percentages scrawled on it and that is neither signed nor dated will not suffice. The document should also reflect the rationale for the percentages chosen. This rationale need not be set forth in detail; it may be a summary and may reference guidance received by the officers from the consulting professionals. But the document should set forth the salient points of the rationale.


My understanding is that the union thereby has the flexibility to react to economic conditions by modifying percentages, if it thinks that would be prudent.


Second, the District Council officers, who are not only the representatives of their members but trustees of the Benefit Funds, will at times have difficult decisions to make. For example, if the Welfare Fund is being depleted due to costs and deficient income, man hours and contributions income are down and investment proceeds and benefit cuts do not bridge the gap,37 the officers will have to consider whether a lesser percentage should be allocated to wages and a greater percentage to the Welfare Fund. The officers should do this informed by analysis from the appropriate professionals. Consideration should be given by the officers to discussing the options with Employer trustees for the Benefit Funds in advance of making the decision, given that they ultimately share the responsibility for ensuring the continuing viability of the Welfare Fund. If in light of all of the available facts and input, prudence dictates changing the allocation so that the Welfare Fund will receive a greater percentage, the officers must do so regardless of whether the decision might be unpopular with certain members more concerned with wages than with benefits. In sum, that the District Council determines the percentage of the allocation of contributions to each benefit fund should not negatively affect the achievement of the objectives of this Stipulation and Order. The practice appears to afford needed flexibility. Of course, the District Council officers must make a prudent decision in the exercise of their best judgment based on all of the available information. The membership has elected their new officers to do just that. Properly documenting the decision will provide transparency, which typically is an additional incentive for decision makers to thoughtfully decide and which allows for review of the decision by the members. Whether a different allocation would more effectively further the objectives of the Stipulation and Order is not a question that can be answered at one time, for all time. With every

Cutting benefits is a huge factor in and of itself, as discussed in the next section.


change of circumstance, the District Council must consider whether the percentage allocations should be modified. Political concerns cannot cloud its consideration.38 M. The Labor Technical College Since the issuance of my Third Interim Report, through a competitive hiring process, its Trustees have approved a new Director of Training for the LTC, Elly Spicer. The Director of Training is the LTC’s head position. The LTC has made key hires and is implementing initiatives on a number of levels. It has filled managerial positions, specifically the Assistant Director of Training and the Membership Advancement Coordinator, using a competitive hiring process, which had previously been lacking. The LTC has also hired a number of both full-time and part-time instructors. See Exhibit 31 at 1-2. The LTC is reviewing the possible use of an electronic application process for the apprenticeship program. Attention is also being focused on reviewing data regarding apprentices in order “to focus on recruiting from sources whose applicants have a proven record of success in the program.” Id. at 3. The LTC is implementing curriculum changes designed to increase the employability of our apprentices,” id. at 4, and certification testing to address concerns regarding inexperienced or unqualified workers, id. One curriculum change is requiring apprentices to take an OSHA scaffolding course before they may be included on the OWL. Id. The certification testing, developed in conjunction with the MWA Advocate (for the millwork industry), has a written component as well as a practical test; the roll out began in mid May 2012. Id. at 4-5. The next step is implementing written and practical tests for the concrete industry. Id. at 5.


A radical change would call for the allocation to be automatically adjusted based on the condition of the Welfare Fund to ensure that medical, dental and other health care benefits remain consistent.


The LTC is also turning attention to issues of financial oversight and recordkeeping, which I raised in my last report. Its Director has met with the Benefit Funds’ Controller to review the LTC budget and is reviewing expenditures and possible means to reduce them. Id. at 5-6. Additionally, the LTC intends to improve shop steward training, with specific attention to properly preparing and maintaining shop steward reports, by August 2012. Id. at 6-7. I look forward to being further updated on these initiatives. In many respects, the LTC is best positioned to not only provide excellent training in the craft of carpentry, but to set the tone of integrity and compliance for future carpenters. N. The Hollow Metal Fund The Hollow Metal Fund was started in 1985. In 2007, the Fund was merged with two smaller Pension and Welfare Funds, specifically, the Local Union 3127 fund and the Union Security Fund. The merged Hollow Metal Fund has approximately 48 active employers that contribute hourly pension and welfare benefits. As of 2011, the total number of participants in the plan was 5,239. Of this number, 795 were active participants, 2,389 were retired or separated from service and receiving benefits, and 2,055 were retired or separated from service and entitled to future benefits. Executive Director Joseph Epstein has started directing attention to the smaller Hollow Metal Fund. The assets of the Hollow Metal Fund are currently approximately $115 million. (The Funds that have been the traditional focus of attention are sometimes referred to as the “Big Funds,” which have assets in excess of $3 billion.) The combined welfare and pension hourly package contributed by employers ranges from $4.50 to $6.90 (as compared to $11.25 for the Big Funds).


The Hollow Metal Fund receives contributions from employers in fading industries and its income is limited. Complicating this fact, the Hollow Metal Fund has been plagued by many of the same administrative shortcomings as the Big Funds. The Hollow Metal Fund has been run poorly from a collections’ standpoint. In March 2012, outside counsel for the Hollow Metals Fund was replaced, with Elizabeth O’Leary of KMM being retained as new outside counsel. Additionally V&A has been retained as collections counsel. The plan going forward is to implement similar policy and procedure changes where warranted. 1. Background The Executive Director of the Benefit Funds oversees the Hollow Metal Fund. However, the Hollow Metal Fund has a separate Board of Trustees from the Big Fund and separate counsel.39 Once implementation of the more significant changes at the Big Funds was underway, my office started reviewing the Hollow Metal Fund. Mr. Epstein also began

reviewing the Hollow Metal Fund. Most of the facts informing this section were ascertained by reviewing the Hollow Metal Fund Board of Trustees’ meeting minutes, the Hollow Metal Fund’s delinquency reports, the Fund’s incomplete files, copies of prior counsel’s invoices to the Fund, correspondence between vendors and the Fund, and court documents when available. 2. Problems Identified It appears that, prior to 2007, the Hollow Metal Fund relied upon the contractors’ own estimation of hours worked to calculate benefits. In 2007, the UBC imposed an

independent audit requirement on all Hollow Metal contractors, which was phased in over the next two years. According to Fund’s staff, it quickly became apparent that many contractors were delinquent in paying benefits contributions.

The Fund, like the Big Funds, previously had co-counsel and shifted to sole counsel in Fall 2010.


As with the Big Funds, it was routine for contractors to be allowed to enter payment plans with the Hollow Metal Fund for delinquent benefits contributions. Payment plans appear to have been entered upon the signing of confession of judgment, with little if any attention to whether contractors had adequate collateral. Some payment plans were for lengthy periods of time and for significant amounts of delinquent benefits. Once a payment plan was entered, a contractor might fall behind on new contributions due and owing, get an extension of time on his payment plan and roll his new delinquencies into the extended plan, and, ultimately, default on the plan, owing a large sum in delinquent benefits. While filing confessions of judgment, confirming arbitration of awards and pursuing other legal action appears to have been discussed at Board of Trustees meetings, it appears that such action was much delayed if taken at all. During our review, it became clear that the Hollow Metal Fund’s case tracking system was woefully inadequate. The case tracking system contained little information

regarding the current status of any court actions or attempts at collections. To date, the Funds’ office has not been able to locate a collections policy for the Hollow Metal Fund and Fund’s counsel was not aware of the existence of one. An initial review of fees paid to investment managers indicates that a few of the managers are charging fees at the high end of industry norms. The fees of one of those managers appear out of line with industry norms. In short, efforts to collect monies due and owing to the Hollow Metal Fund have been lacking and it appears that the Fund may be overpaying at least some vendors. 3. Steps Being Taken and Recommendations Clearly, especially given that a significant increase in man hours is unlikely, every


effort must be made to shore up not only the Hollow Metal Fund’s receipts but expenditures. In an initial, important step, the Fund’s trustees have hired new outside counsel and new collections counsel. Counsel will be assisting the Executive Director and trustees in developing and

instituting policies and procedures similar to the ones that the Big Funds are now following. Certain policies and procedures must be a priority. First, the Hollow Metal Funds must have a collections policy. I understand that V&A is in the process of drafting one. Second, the Hollow Metal Funds need a case/matter tracking system. Such a system will assist the trustees in their efforts to mange not only collections matters but counsel’s fees. I expect that V&A will develop a reporting system along the lines of the one instituted for the Big Funds. As with the Big Funds, the number and type of matters pending, the

delinquencies at issue, the monies recovered and the legal fees paid to V&A in the process should be at the Trustees’ fingertips. Finally, a vendor review similar to the one being conducted by the Executive Director with respect to the Big Funds should be conducted for the Hollow Metal Fund. Performance and fees bear scrutiny.


cc: AUSAs Benjamin Torrance and Tara LaMorte U.S. Attorney’s Office, Southern District of New York 86 Chambers Street, 3rd Floor New York, New York 10007 James M. Murphy, Esq. Spivak Lipton, LLP 1700 Broadway, Floor 21 New York, NY 10019 Raymond McGuire, Esq. Kauff McGuire & Margolis LLP 950 Third Avenue, 14th Floor New York, NY 10022


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