New CPA’s undisclosed past connection with Riverhead financial administrator and school district scandal irks board

An accountant hired last month by Riverhead Town to replace a deputy financial administrator was a partner in the disgraced auditing firm involved in the Roslyn school district scandal a decade ago — where Riverhead financial administrator William Rothaar was then employed as district treasurer.

Rothaar, who participated in interviews conducted by a two-member town board committee, did not disclose his past professional relationship with the accountant, Donald Pearce,  who was selected by the committee from three applicants and then appointed to a $90,000-per-year “principal accountant” position by the board in a split vote at its Aug. 4 regular meeting.

Four of the five town board members, including Riverhead Supervisor Sean Walter, said Rothaar did not disclose he had worked with Pearce’s former firm,  Miller, Lilly and Pearce. (The fifth town board member could not be reached for comment.) The firm for more than a decade had been the outside auditing firm for the scandal-plagued Roslyn school district, where Rothaar held the part-time position of district treasurer from 1999 to 2004.

During that time, according to prosecutors and the state comptroller, the district superintendent, assistant superintendent for business and an account clerk, stole millions of dollars of public funds. The fraud included using public money to pay for personal expenses, including auto, mortgage and credit card payments and vacations, as well as misappropriating funds to falsified vendor accounts, and overpaying salary and benefits to the superintendent, various assistant superintendents and the account clerk, according to the state comptroller’s report.

Neither Pearce nor Rothaar were charged with any wrongdoing.

A perfect storm of sloppy neglect left fraud undetected
The state comptroller said the fraud could occur because the school board had “abdicated its oversight role and essentially did not monitor the district’s financial operations,” according to an audit report.

“Two employees who could have identified the apparent misappropriation, the internal claims auditor and the treasurer, were not doing their jobs to ensure that only appropriate and authorized payments were being made.

“The external auditor, the CPA firm that audited the district once a year, had conflicts of interest and performed an audit that was so flawed and so far below professional standards that it failed to identify the millions that were apparently misappropriated,” the comptroller said in its report.

The work of Miller, Lilly and Pearce “was so appallingly inadequate that it would shock anyone associated with the auditing profession and certainly the taxpayers who depend on the firm to safeguard their money,” then-comptroller Alan Hevesi told the New York Times in January 2005.

“The fraud was so pervasive that it would have taken significant effort not to uncover it. Even a rudimentary review of disbursements and canceled checks would have revealed many instances of wrongdoing.”  

The Roslyn school district replaced both Pearce’s firm and Rothaar in 2004.

Pearce’s partner, Andrew Miller, was charged with tampering with public records and served six months in jail.

Rothaar: ‘innocent people like myself got a bad rap’
While Rothaar served as district treasurer, his full-time job was deputy finance administrator for Brookhaven Town, a post he held for 12 years.

The district treasurer post was a $3,000-a-year post, Rothaar said in an interview Wednesday evening. He said his job responsibilities were limited to reviewing the district’s bank reconciliations, checking them through the general ledger and giving the school board cash reports and cash-flow reports.

“My job was verifying that the cash was right,” Rothaar said. “It was the internal claims auditor’s job to  look at all the documentation.”

The Roslyn scandal was “something that innocent people like myself got a bad rap for,” Rothaar said.

Pearce, he said, was not involved in the Roslyn school district at all, which was Miller’s assignment. Rothaar said he and Pearce never worked together, though they knew each other in professional circles and had attended some of the same continuing professional education courses.

Miller, Lilly and Pearce was at one time the outside auditor for 55 school districts on Long Island and in the lower Hudson Valley, including the Riverhead Central School District, where it was retained for 10 years, until the Roslyn scandal broke in 2004. The firm was also the outside auditor for the William Floyd School District, where five officials, including the district treasurer and his assistant superintendent for business, were accused in 2005 of stealing about $1.5 million in school funds. Millions more were improperly spent due to lack of appropriate internal controls, according to a scathing audit report by the state comptroller.

Miller Lilly and Pearce was dissolved. Miller, surrendered his CPA license after he was charged with tampering with public records.

Rothaar was terminated by the Town of Brookhaven in 2006, when Democrat Brian Foley took office as supervisor. In April of that year, when Riverhead financial administrator, Jack Hansen, went on sick leave, the town hired Rothaar as a $75-a-hour consultant, working four days a week. He was later hired as full-time financial administrator.

Riverhead board members: Rothaar should have told us
Pearce’s connection to Rothaar was news to Riverhead Town Board members, including at least one of the two who interviewed the three “finalists” for the position.

“I knew they knew each other on a professional level but not to that extent,” Councilman James Wooten said this afternoon. “Bill [Rothaar] said he knew him but that it was through conferences they attended together or something like that,” Wooten said. “He never said they knew each other from Roslyn. That bothers me a lot.”

The other board member who did the interviews was Councilman John Dunleavy, who could not be reached for comment this afternoon. Dunleavy abstained from the vote on Pearce’s appointment Aug. 4, stating a concern that the annual salary recited in the resolution was different from what he recalled having agreed to in a board executive session.

Wooten said there were three finalists interviewed. Pearce’s experience as Port Jefferson Village treasurer, where he was working before Riverhead hired him, stood out, Wooten said.  But the councilman said he was disturbed not to have been told of a prior work relationship between Rothaar and a firm in which Pearce was a partner, especially in the context of the Roslyn scandal.

Councilman George Gabrielsen and Councilwoman Jodi Giglio echoed Wooten’s concerns about Rothaar not disclosing the past relationship.

Giglio said she voted against the hire because she doesn’t think the town should fill the vacancy in the accounting office. The second accountant position was created in 2009 at the suggestion of the town’s outside auditing firm, Albrecht, Viggiano, Zureck & Company and hired Scott Harrington to fill the post.

“This guy came out of nowhere. There’s no list. We hired him provisionally. I didn’t like anything about him and I didn’t think that the vetting process was done properly,” Giglio said yesterday.

“I thought if we were going to hire anyone it should be a Riverhead resident,” she said, noting that a highly qualified candidate from Wading River was one of the other finalists interviewed.

The applicant Giglio referred to was a woman who is presently employed at a NYC firm where she earns twice as much as what she’d be paid by the town, according to board members, who  said yesterday they didn’t think she’d be “a good fit” for the town and didn’t think she’d remain satisfied with such a significant pay cut.

That thought process, according to the councilwoman, “makes no sense.”

“When we took office in 2010, the town was five years behind in its audits,” Giglio said.  “A half a million dollars later, we’re caught up and we have one CPA in the office, Rothaar, and that’s enough.”

As of January 2010, the town actually had audited financial statements complete through 2007, AVZ having produced the audited statement for 2007 on Dec. 30, 2009. It was unable to finish the 2008, 2009 and 2010 audited financial statements until 2011. Officials blamed the backlog on the retirement of the town’s longtime financial administrator in 2006, and the replacement in 2007 of the town’s longtime auditing firm, Markowitz Fenelon & Bank P.C. with AVZ after Rothaar was hired full-time that April. The town hired outside accounting and bookkeeping firms to help bring its books up to date.

‘We can’t condemn anybody with guilt by association’
Walter yesterday said he was “not happy” about Rothaar not disclosing that it was Pearce’s firm at the center of the Roslyn school district scandal. But the supervisor defended the financial administrator and the newly hired accountant.

“Pearce is a great guy and seems very capable. They interviewed him. They did a background check on him,” Walter said.

“If he did something wrong, he would have been either arrested or he would have lost his CPA license,” he said. The same is true of Rothaar, he said.

“You can’t hold somebody accountable because people around him did something bad. We can’t condemn anybody with guilt by association.”

Nevertheless, he said, Rothaar should have made the past association known to the board.

Rothaar said last night in hindsight, he would have to agree and he regrets that he did not.

“He was not involved, though he was part of the firm,” he said of Pearce. “There was nothing secret about it. He put the firm’s name on his resume. He disclosed it.

“I knew he had no culpability and he was the best qualified for the job, not only in my eyes but in the eyes of everyone in the interview. I didn’t want to throw his name out there for something he was innocent of. The man is qualified and he’s done nothing wrong,” Rothaar said.

“I did what I thought was best at the time.”