Audit cites waste at DRPA, questions insurance dealings with Norcross firm [Asbury Park Press, N.J.]

March 29--TRENTON -- An audit released today by New Jersey's comptroller says the Delaware River Port Authority repeatedly wasted and mismanaged tollpayers' dollars, including commissions paid through DRPA insurance policies to undisclosed brokers, such as influential Democratic political boss George Norcross III.

The Office of the State Comptroller's 77-page report said oversight at the bi-state agency serving New Jersey and Pennsylvania was so lax that nearly any expenditure was acceptable.

"In nearly every area we looked at, we found people who treated the DRPA like a personal ATM, from DRPA commissioners to private vendors to community organizations," state Comptroller Matthew Boxer said. "People with connections at the DRPA were quick to put their hand out when dealing with the agency, and they generally were not disappointed when they did."

The DRPA's audit committee responded to the report with a statement that noted the agency has already made changes to its insurance procurement, ended other programs and practices criticized in the audit and hired a former federal law enforcement official as its newly established inspector general. It may alter its travel reimbursements rules a result of the audit, it said.

"We appreciate the time, effort and dedication invested in the Office of the State Comptroller's report, as well as the care taken to identify practices that we agree should not be repeated in the future," said the DRPA's statement.

The report criticized spending on social and civic causes, saying a majority went to organizations linked to DRPA officials, abuse of E-ZPass accounts and the spending of $443 million on economic development projects funded by taking on additional debt. But its details about insurance contracts are likely to be the most politically explosive.

Sharing of insurance commissions under licensed brokers is legal in New Jersey, though the State Commission of Investigation said in a report more than 30 years ago that it should be banned because such practices can be politically motivated and financially wasteful.

Hugh Braithwaite, a spokesman for Conner Strong & Buckelew, which Norcross has headed in various incarnations since 1979 and now serves as executive chairman, said auditors uncovered no wrongdoing.

"We fully support the (Office of the State Comptroller's) efforts to advance transparency and trust at DRPA, and are pleased that its findings ultimately show that Commerce Insurance Services and its successor companies acted in an entirely proper, legal and ethical manner in full compliance with all statutory, regulatory, industry and professional standards," Braithwaite said.

U.S. Sen. Frank Lautenberg, D-N.J., who has become embroiled in a political dispute with South Jersey political officials over the proposed merger of the Camden campus of Rutgers University into Rowan University, had a much more critical reaction to the audit.

"The residents of South Jersey deserve better," Lautenberg said. "This is yet another example of how a corrupt political machine operates to enrich itself and local politicians at the expense of everyday people. As I always have, I will continue to stand up for the residents of this region against endemic corruption, and I encourage other public officials to finally do the same."

Norcross didn't directly address the content of the audit but did respond to Lautenberg, saying he only shows interest in South Jersey when he needs campaign money and votes.

"Sen. Lautenberg has been picking the pockets of no-bid, pay-to-play vendors at the DRPA and other public agencies throughout New Jersey for decades," Norcross said. "Aside from the absurdity of his comments, it's interesting to note that he never expressed these sentiments when he literally begged for South Jersey's support in all of his campaigns for re-election. It's the height of hypocrisy."

Auditors found that beginning in 2003, at the direction of Gov. James McGreevey's office, the DRPA directed its insurance brokers in New Jersey and Pennsylvania to evenly split commission payments. At the time, roughly 80 percent of the agency's insurance commissions were being paid to brokers based in Pennsylvania. The so-called "true-up" meant The Graham Company paid Willis of New Jersey more than $500,000 over six years, though Willis did not perform any additional services.

Willis' selection as DRPA's broker in New Jersey was apparently steered by Norcross' insurance brokerage company -- Commerce Insurance Services at that time, now known as Conner Strong & Buckelew.

The company has no official connection to the DRPA and doesn't have the authority to appoint its broker, but a Dec. 30, 2002, email from Norcross to Willis' chief executive officer Joseph Plumeri informed Willis it had been selected -- at a time, according to the audit, that Willis didn't even know it was being considered for the position.

Plumeri told auditors Norcross had offered in an informal conversation in 2002 that he would refer insurance work his company wasn't able to handle to Willis. Shortly thereafter, Norcross emailed him about the DRPA deal.

In an interview with auditors, Norcross said he had been contacted by somebody in McGreevey's governor's office offering his insurance company the opportunity to be DRPA's insurance broker. Norcross told auditors he did not remember who called but that it wasn't the governor himself.

"Norcross stated that he declined the offer because he did not believe his company had the capacity to handle DRPA's insurance requirements at the time and because DRPA was too 'high profile,'" the audit says. "Norcross explained that he did not want to risk bad publicity, noting that DRPA had been the subject of scandal in the 1980s and previously had been under investigation by the United States Attorney's Office. Norcross stated that working for DRPA would be too much of a 'reputational risk.'"

Norcross told auditors McGreevey's office then asked him to recommend other brokers for the work. He said he didn't talk with anyone at the DRPA about the appointment.

DRPA vice chairman Jeffrey Nash told auditors McGreevey's administration directed the agency to appoint Willis as its New Jersey insurance broker. He said the DRPA had no input and didn't even meet with Willis representatives before making the selection.

Willis then paid $410,000 over six years to Conner Strong and $45,000 over two years to a related insurance broker, Michael Martucci. Martucci told the auditors he may have consulted or attended a meeting but said he didn't recall performing any substantive work for those payments.

Willis officials said the payments, which were not formally disclosed to the DRPA, were a referral fee and recorded them as such in company records.

In a 2004 email exchange between senior Willis officials, one said Conner Strong's chief operating officer "called this morning quite anxious over getting payed (sic) on DRPA." Kevin Walsh, Willis New Jersey's chief executive officer from 2002 to 2008, told auditors he negotiated the Conner Strong payments directly with Norcross and discussed it as a fee for the DRPA work. Later, he said, Norcross made clear he preferred to refer to payments as part of a 'North Jersey Marketing Agreement.'

Conner Strong, however, told auditors the payments were for general marketing and referral efforts unrelated to the DRPA. Norcross said he reached an unwritten referral agreement with Plumeri in 2004, in part to maintain a dialogue about perhaps consolidating or merging firms one day. He told auditors he would have sent the money back to Willis if he thought it was connected with the DRPA work.

"Norcross also stated that the compensation amount came "out of space" and was not, as characterized by Willis and indicated in the payment statements provided to Conner Strong by Willis, related to the commissions received as a result of placing insurance for DRPA," the audit said.

Several Conner Strong documents described the Willis payments as a general marketing fee, though a few referenced the DRPA. The company told auditors those comments on the cash register receipt identified the check, not the purpose or source.

Boxer said such referral fees drive up the cost of government and that tollpayers would benefit if such fees are eliminated, particularly if no services are being performed. He referenced a push by the Citizens Campaign to reform insurance contracting in local government.

"Today's comptroller's report reinforces the importance of government at all levels putting in place a transparent and competitive process for the selection of brokers and insurance companies -- one that ensures that brokers work for the interests of the government entity and the taxpayers -- not the insurance companies," said Heather Taylor of the Citizens Campaign.

Graham made the "true-up" payments to Willis through 2009, when it complained to the assistant to DRPA chairman John Estey about having to send payments to Willis for work Willis didn't perform.

The assistant, Mary Rita D'Alessandro, eventually forced a meeting on the topic with three top DRPA officials, including chief executive officer John Matheussen. She told auditors she was advised to stay out of the issue because it went "further above your head than you know." In a 2010 email, D'Alessandro said in an email to a DRPA commissioner that it was "like I was dealing' w the (expletive) mob or somethin'."

William Graham, owner of The Graham Company, which had to pay Willis under terms of the true-up agreement, had complained to the DRPA in 2006 when he began to suspect nearly all of those payments were being forwarded to Conner Strong and Norcross. Matheussen told auditors he didn't believe the assertions.

The true-up payments ended in 2010.

The Graham Company also shared nearly $685,000 in DRPA-related commissions betwen 2000 and 2010 with a second insurance broker, the West Insurance Agency, under similar ambigious circumstances. Graham and West weren't able to provide auditors documentation of what services West performed for the commissions it was paid. DRPA knew about the payments at least as early as 2006 but didn't determine if the payments were wasteful.

Auditors identified other ways they say money was squandered, as well.

It borrowed money to pay for $443 million in support for economic development projects even though it had a backlog of infrastructure needs, which auditors said "violated the terms and spirit of DRPA's charter." The oversight was limited for the projects, some of which were approved with little documentation. Two years ago, the agency's board passed a resolution that ended the funding of any such new projects.

The DRPA spent $700,000 of its economic-development funds through a "Social and Civic Sponsorship Fund" it established in 2004, one year after Matheussen became CEO. Auditors said "the vast majority" of money went to organizations linked to agency commissioners or employees, including $59,000 for ads in a Philadelphia newspaper run by a DRPA commissioner.

"A significant number of the funded projects had connections to CEO Matheussen," the audit says. "... Groups receiving funding that included Matheussen on their board of directors included the Seamen's Church Institute, the Battleship New Jersey, the World Trade Center of Greater Philadelphia, the Philadelphia Sports Congress, the Philadelphia Convention and Visitors Bureau and the Southern New Jersey Development Council. None of these entities submitted to DRPA a Community Giving Fund Application in support of their funding request. Nonetheless, they received money from the fund."

The fund was ended in 2010.

Auditors said the DRPA also missed out on more than $1 million in revenue over 10 years by allowing commissioners and employees to cross a bridge without paying a toll. Some people extended the benefit to friends and relatives, and more than 50 people with no affiliation to DRPA were granted repeated free trips.

Boxer initiated the audit in 2010, at the request of Gov. Chris Christie and then-Gov. Edward Rendell of Pennsylvania.

Christie spokesman Michael Drewniak said the report "covers a history of financial mismanagement at DRPA which thankfully is behind us."

"As soon as Gov. Christie took office, he zeroed in on the DRPA as among the worst offenders in terms of abusing toll payer money for employee and commissioner perks and large-scale spending outside the agency's core mission," Drewniak said. " With unrelenting pressure on the board -- whose New Jersey membership was stacked by Governor (Jon) Corzine before he left office -- Gov. Christie and his Authorities Unit forced the DRPA to implement critical reforms and fundamentally change its practices and culture."

Boxer said the DRPA has begun correcting the deficiencies that were identified and eliminating the programs most prone to abuse. For instance, it has initiated, and subsequently improved, a competitive procurement process for hiring insurance brokers that prohibits the practice of fee-splitting.

The DRPA said it has instituted "a fixed-fee model that does not include percentage-based brokerage commissions. The public can be assured that any practice of fee-splitting by insurance brokers has been terminated and will be prohibited in the future."

The DRPA owns and operates four Delaware River bridges: the Benjamin Franklin, Walt Whitman, Commodore Barry and Betsy Ross bridges. Its subsidiary, PATCO, operates a rail system connecting Philadelphia and New Jersey.

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