Pennsylvania Withholds City’s Aid over Investment Firm Hiring

Auditor general says the process to replace the investment manager was 'fatally flawed.'

Pennsylvania’s auditor general said he will withhold state pension aid for the city of Monessen, citing a possible conflict of interest and other red flags concerning the replacement of the city’s long-time investment fund pension manager.

Based on a recent audit that examined the police and firemen’s pension plans, Auditor General Eugene DePasquale said Monessen officials followed neither state law, nor the city’s own procurement procedures in replacing its investment firm last year, including having no records that explain how or why the new firm was selected.

“The contract bidding process was fatally flawed,” DePasquale said in a release. “The city provided no documents, minutes, or records explaining why one firm was selected over another, as required by law. The appearance of a conflict of interest further clouds the issue.”

The potential conflict of interest arose when auditors discovered that a managing director at the investment firm hired by the city is the brother of a partner in the law firm that serves as city solicitor. The city solicitor is responsible for making sure the pension board and city officials meet city and state laws in the bidding of investment fund management professional services, according to the state auditor general’s office.

“An investigation should determine why the process was not followed,” DePasquale said. “The public should know how this happened. It’s a matter of trust.”

The audit was referred to the Westmoreland County District Attorney, the Pennsylvania Attorney General’s Office, the US Attorney’s Office, and the Pennsylvania Ethics Commission. Monessen received $166,236 in state pension aid in 2016 and $160,589 in 2017.

“The fair and proper remedy is to start the process over,” DePasquale said. “Until the contract is rebid, or I receive the previously requested documentation required by law, I am withholding future state pension aid. I will release the funds when I am satisfied the laws and procedures in awarding this contract were followed.”

According to the audit report, the bidding and awarding process raised several red flags:

  • The new firm has less than five years of experience, despite the requests for proposals requiring at least 15 years of experience.
  • The city and pension board could not provide evidence of the review and the evaluation of the competing firms’ qualifications, experience, expertise, and fees.
  • The city did not summarize the relevant factors that resulted in awarding the contract.
  • The city failed to make all application and disclosure forms public.
  • The pension board did not maintain minutes of meetings. There was no documentation to support the pension board’s review and consideration of the firms’ proposals or their recommendation to the city council.
  • The city did not issue a termination letter to the former investment service provider with the information required by state law and city procedures.

DePasquale also said pension aid would be held from Monessen until the city returned $54,390 to the police pension fund from an unauthorized pension benefit awarded to a retired police officer.

The audit found that a retired police officer received $54,390 in ineligible benefits between April 2016 and July 2017. He received a $3,399 monthly benefit though he was not eligible for his pension until 2023.  The City of Monessen agreed with the ineligible pension benefits finding and will repay $54,390 to the police pension plan.

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