State Comptroller Thomas P. DiNapoli has criticized the financial practices followed for six years by the Niagara Power Coalition, which controlled more than $1 million in taxpayer money and paid more than $141,000 to former Executive Director Mark S. Zito, his son and his fiancee.
According to an audit report, which covered the period July 20, 2000, to May 19, 2006, the coalition paid more than a half-million dollars for professional services without evidence the services actually were provided.
The report, released Thursday after a legal battle launched by Zito's attorneys, cites "virtually no internal controls" over cash flows.
"The coalition may have expended resources provided by the participating local governments for services it did not need, or did not receive," the report's executive summary says.
The financial policies and procedures faulted in the comptroller's report include payments to vendors, among them, Zito, his son and fiancee, plus attorneys and a public affairs consultant.
According to the report, coalition officials failed to provide adequate safeguards for taxpayer money in a variety of ways:
* Paying vendors before they supplied specific deliverables or documentation that deliverables were provided.
* Failing to ensure contracts were drawn up that would provide the coalition with "necessary and appropriate services."
* Failing to properly execute contracts that clearly delineated what services would be provided.
* Entering into service contracts with Zito, who became an employee as well as a manager, which gives rise to the appearance of impropriety.
* Failing to define Zito's duties.
The seven-member coalition consists of Niagara County, Niagara Falls, the towns of Niagara and Lewiston, and three school districts: Lewiston-Porter, Niagara Falls and Niagara-Wheatfield. The group was formed in the early 1990s to negotiate a collective settlement with the State Power Authority over the federal relicensing of the Niagara Power Project.
Zito was a member of the Niagara Falls School Board while serving as executive director of the coalition.
Over the period covered by the report, the coalition paid Zito, his fiancee and/or his son a total of $141,920. Coalition leaders controlled more than $1 million in taxpayer money between Oct. 18, 2000, and Dec. 31, 2005, according to the report.
The coalition also spent more than $196,000 for attorneys and more than $192,000 for public affairs consulting.
Zito has said coalition officials did not allow him to hire staff, so he and his family had to take on the work.
"There is a complete lack of financial oversight at the Niagara Power Coalition," DiNapoli said in a statement. "[Zito] authorized payments to himself, his son and his fiancee for undocumented work. The coalition made unauthorized payments and improperly reported payments to the [Internal Revenue Service]. No one was looking out for the public's interest."
Coalition members are set to receive millions of dollars in cash and low-cost electricity for the next 50 years under agreements signed with the Power Authority in 2005.
Steven M. Cohen, of Lorenzo & Cohen, an attorney representing Zito, said he did not have the opportunity to review the final report. But he said he didn't expect major changes in the tone of the report from the draft version.
Cohen noted that the coalition's official comments on the report were attached, but comments on behalf of Zito were not.
"They're not striving for a fair and impartial report," he said.
Cohen offered to make available copies of his comments to anyone interested.
In the coalition's formal response to the comptroller's report, attorney Stanley W. Widger Jr. defended the group's early financial practices.
"The communities almost literally had to feel their way along an uncharted course and probably would have been ill served by too rigid a structure," Widger wrote.
In April, Zito filed a motion in State Supreme Court to prevent the release of the report. Cohen argued before Justice Joseph G. Makowski that his client had been promised but denied an opportunity to provide comments before a final report was issued.
On May 23, Makowski announced an agreement had been brokered between Zito and the comptroller's office giving Zito three weeks to provide comment on the report. The comptroller's office was placed under no obligation to include Zito's comments in the final report.
In the comments sent to the comptroller's office, Cohen questioned the independence of the auditor working on the report. Cohen also alleged coalition officials were looking to use the audit to discredit Zito before a potential lawsuit.
Zito has said he plans to sue the coalition for $50 million to $150 million for failing to pay a performance bonus he contends he was promised.
The comptroller's office wants the coalition to submit a plan of action to deal with its recommendations within 90 days.
To read the entire audit, visit www.osc.state.ny.us/localgov/audits/2007 /other/niagarapower.pdf.