State auditors give clean report on handling of transfer tax funds by East End towns, but cite Riverhead for procedural deficiencies

A state audit of the Peconic Bay Community Preservation Fund administered by the five East End Towns found that fund disbursements and debt service payments by all five towns were proper, according to a report issued yesterday by the Office of the State Comptroller. 

The fund is financed by a 2% real estate transfer tax. The town board in each town is responsible for overseeing the fund and managing it for its intended purpose, generally, the preservation of open space and farmland.

The audit report singled out the Town of Riverhead for procedural deficiencies and made recommendations for corrections. 

Riverhead failed to record the dates on which seven CPF collections totaling $5.3 million were received and failed to deposit $5.3 million in CPF collections within the 10-day period required by state law.

The $5.3 million in CPF collections was slightly more than one-third of the total CPF collections by the town during the audit period, Jan. 1, 2021 through Dec. 31, 2022.

State auditors found that seven of the 27 CPF collections during the audit period, which totaled $15.5 million, had no recorded date of receipt by the town. Auditors could not determine whether these collections were deposited within the 10-day period required by state law, since there was no record of when the collections were received.

Of the 20 CPF collections with a recorded date of receipt, nine collections were deposited later than the 10-day statutory requirement, the report states. On average, the deposits were made 18 days, and as much as 28 days after the recorded receipt date, according to the audit report.

All collections by Riverhead were deposited intact, and all disbursements of the funds were proper and supported, the audit report said.

Riverhead Town has established procedures for collecting, recording and depositing CPF funds, but the procedures were not followed in the instances cited, according to the report.

The state auditors recommended that Riverhead Town: 

• ensure personnel who receive CPF collections are aware of, and follow, collections procedures; 
• maintain complete collection records, including the date CPF checks are received; and
• deposit CPF collections in a timely manner.

The audit report states that the town’s established CPF collection procedures call for the town to pick up the CPF checks from the comptroller’s office and deliver them to the town’s accounting department, which then logs and processes the checks and posts the deposit. A town police officer then deposits the checks at the bank either the same day or the day after the accounting department receives them.

In a response letter, then-Supervisor Yvette Aguiar, described a collection procedure that differed from the town’s established procedure described in the audit report. Aguiar said the county’s “routine practice” was to deliver the checks to the town. She did not acknowledge the town-established procedures stated in the audit report or explain the deviation from them. 

Aguiar’s response said the COVID-19 pandemic and the cyberattack on Suffolk County’s IT systems disrupted procedures previously followed by the county for delivering checks for CPF collections to the town. Additional delay resulted from the town’s accounting office being located in a building outside of Town Hall, the supervisor wrote. 

“The key findings [of the audit] do not adequately reflect County of Suffolk change of procedure and its negative impact to established Town procedure,” Aguiar said in a letter dated Dec. 19, 2023.

“The Town explained that on or about the commencement of COVID pandemic and continuing through the audit period, the County of Suffolk changed its routine practice of delivering the payments, along with the requisite certification from the Suffolk County Treasurer, to the Office of the Financial Administrator (formerly located at Pulaski Street, Riverhead, New York) and instead to delivered to the welcome desk at Town Hall (formerly located at 200 Howell Avenue) or Office of the Town Attorney,”  Aguiar wrote.

“Moreover, and acute during the audit period, the well published massive cyberattack of Suffolk County’s information technology system in December of 2021 (although not yet realized until early fall of 2022), required the County of Suffolk to not only disable 10,000 civil service emails, but scrub software to stave off intrusion with some services related to real property, sewer bills, etc. yet to be restored impacting timely delivery of the payments from Suffolk County,” Aguiar wrote.

“The change in delivery and timeliness of delivery to the Town did impact logging of date received and necessitated the Town adding an additional step of creating a memorandum of transfer to Office of the Financial Administrator and mail courier from Town Hall to the Office of the Financial Administrator impacting logging of date of receipt and timely transfer from one town building to another frustrating deposit schedule,” Aguiar explained.

The state comptroller’s audit reports for the other four towns in the Peconic Bay region, for the same audit period, found no procedural deficiencies and made no recommendations for improvements. 

During the two-year audit period, the five towns collected $403.6 million in CPF payments and made disbursements totaling $179.3 million. The Town of Riverhead has historically had the second-lowest volume of CPF tax collections among the five towns, with the Town of Shelter Island posting the smallest collections. That held true during the audit period. Southampton led in collections with $224 million, followed by East Hampton with $127.2 million and Southold with $28 million.

According to data released this week by Assembly Member Fred Thiele, the Peconic Bay Region Community Preservation Fund transfer tax has generated more than $2.1 billion in revenue for the five East End towns since the inception of the CPF in 1999.

Riverhead’s CPF revenues since 1999 totaled more than $94 million through 2023, according to the data provided by Thiele.