By RAY RIVERA
Published: April 17, 2008
New York Times
The tiny nonprofit group was said to be named for a girl who died of cancer and was intended to provide tutoring and other services in Flatbush. But when it applied for a grant from the city’s Department for the Aging, department officials noticed something odd: the group’s address was the home of the top aide to the city councilman sponsoring the grant request.
The department said it was a conflict of interest and would not issue the money. But the group, the Donna Reid Memorial Education Fund, was undeterred. It simply took its request to another city agency, the Department of Youth and Community Development, and got the money.
On Wednesday, federal prosecutors announced the indictment of the Council aide who oversaw the nonprofit agency and that of another Council staff member, on charges of embezzling at least $145,000 in city funds and sending some of the money to relatives in Jamaica.
But while the indictment focused on the Brooklyn agency, it also revealed a lack of control and oversight of the millions of dollars the city appropriates annually to nonprofit groups through council member earmarks, often referred to as pork-barrel spending. And it suggests likely areas of inquiry as federal prosecutors pursue their investigation of Council finances.
Prosecutors have been examining the Council’s longtime practice of appropriating discretionary funds to nonexistent organizations, which has allowed the speaker and other council members to tap the money later for favored programs without the mayor’s approval. On Wednesday, the United States attorney for the Southern District, Michael J. Garcia, said the budget maneuver was part of a system that “lacked controls and accountability.”
“Without transparency and accountability in the budget process, discretionary items are ripe for abuse,” Mr. Garcia said at a news conference announcing the indictment. “Taxpayer money allocated to fake nonprofit entities, organizations that do not even exist, is even more difficult to trace and more easily diverted for personal gain. This investigation will continue to take a hard look at this process.”
Since 2001, more than $17 million has been budgeted to fake organizations. City Council Speaker Christine C. Quinn, who has come under a firestorm of criticism for the practice and for her failure to publicly disclose it after she learned about it last fall, has insisted that the money ended up in the hands of legitimate organizations.
Ms. Quinn declined to respond to the indictments but said again that the Council was cooperating with the investigation.
On Wednesday, private lawyers retained by the Council to assist with the investigation briefed council members about the inquiry. But the briefings left many members frustrated and pressing for more information. The lawyers, with the firm Sullivan & Cromwell, told the members they did not know the scope of the investigation, exactly how it began, or whether more indictments were on the way, according to several people who were present for the briefings.
Councilman G. Oliver Koppell of the Bronx said the lawmakers needed to know, among other things, whether they would have to hire their own lawyers.
“Everybody needs a clear answer to this and other questions,” Mr. Koppell said.
The briefing did reveal that the Department of Investigation, which is looking into the budget practices along with federal prosecutors, contacted Ms. Quinn’s office last September. That was when Ms. Quinn hired the law firm. On Oct. 10, the department and the United States attorney’s office requested that the Council provide all correspondence from 2002 to 2007 about the member items, or earmarks.
According to Friday’s indictment, Councilman Kendall Stewart of Brooklyn directed about $356,000 from his discretionary funds to the Donna Reid Memorial Education Fund, which was overseen by his chief of staff and former campaign manager, Asquith Reid. About $14,000 of that sum was funneled through two fictitious groups: the New York Foundation for Community Development and the American Association of Concerned Veterans.Under the city’s budgeting system, each council member designates funds for groups in his or her district. The money is then allocated to a city agency to distribute the money to the group. It is the city agency’s responsibility to make sure the group meets city standards for business integrity and is capable of doing the work. Another layer of protection comes from the city comptroller’s office, which certifies all city contracts over $25,000.
It is unclear why, after the Department for the Aging rejected the request from the Donna Reid Fund in June 2004 because of its ties to Mr. Reid, the agency was able to obtain funds later that year from Youth and Community Development.
According to the city comptroller’s office, the Department for the Aging’s concerns were never flagged on the city’s contract database, known as Vendex, which is maintained by the mayor’s Office of Contracts.
“Nearly two decades ago, the city developed a system to report and share information on vendors,” Comptroller William C. Thompson said in a statement on Wednesday. “The Department for the Aging should have reported its concerns in that system, but apparently failed to do so, allowing these alleged thefts of money to occur.”
The Donna Reid group filed a Vendex questionnaire in February 2005, but answered “no” to a question asking whether the organization had been disqualified for cause as a bidder for a city contract, city documents show. Mr. Reid’s name did not appear on the form.
Another procedure for catching problems is the requirement that financing agencies annually review contractors’ performance. Youth and Community Development found that the Donna Reid group had been “satisfactory.”
Spokesmen for the Department for the Aging and the Department of Youth and Community Development declined to comment. John Gallagher, a spokesman for Mayor Michael R. Bloomberg, said the administration was “working to further strengthen oversight” of nonprofit agencies.The Donna Reid fund was incorporated as a nonprofit group in 1989, according to the state Division of Corporations, to “provide educational assistance to public school children by way of after-school tutoring.” It was named after Mr. Reid’s daughter, who died of cancer, said Michael Roberts, a spokesman for Mr. Stewart. But there is no record of the agency’s receiving city money until 2004.
According to the indictment, some of the money went toward its intended purpose. But at least $145,000 was used for personal or political purposes, the indictment said, including $31,000 that was sent to family members and friends in Jamaica and $21,000 for political fliers and a hall used for events for a political club that the indictment said was controlled by Mr. Stewart.
Mr. Reid, 64, who has been Mr. Stewart’s chief of staff since he took office in 2002, faces up to 80 years in prison if convicted on all counts, Mr. Garcia said. The charges include two counts of witness tampering, as he is accused of trying to influence the grand jury testimony of two unnamed co-conspirators.
Joycinth Anderson, 69, who worked part time in Mr. Stewart’s office on senior citizen matters, is accused of helping Mr. Reid in the scheme, and faces a 40-year sentence.
A lawyer for Mr. Reid, Michael A. Marinaccio, and a lawyer for Ms. Anderson, Elizabeth E. Macedonio, disputed the government’s contentions.
“He is a public servant,” Mr. Marinaccio said of Mr. Reid. “He runs a charitable organization, and that organization in turn provides a number of services to the community.”
Mr. Stewart, who was subpoenaed in the case in January and testified before a grand jury, was not charged and has said he is not a target of the investigation.
Mr. Stewart told reporters he did not pay attention to the inner workings of the Donna Reid Fund, despite its ties to his chief of staff and his district.
“How could I have oversight?” he said. The Department of Youth and Community Development, he said, determines whether the community organizations are qualified or not qualified. “It’s not my office that does that,” he said.
Mr. Stewart added that he had not received contributions from the Reid fund, but campaign finance records show that Mr. Reid and several family members were active contributors.
Asked how Mr. Reid and Ms. Anderson ended up on his staff, Mr. Stewart responded: “These are folks that were there, they’re community activists, folks who work in the community doing community service and they’ve worked with me in the past on different ventures, so I see their quality, I see their ability.”
Mr. Reid and Ms. Anderson have been suspended and will probably be dismissed, Council officials said.
Reporting was contributed by Russ Buettner, Diane Cardwell, Serge F. Kovaleski, William K. Rashbaum and Carolyn Wilder.
This article has been revised to reflect the following correction:
Correction: April 19, 2008
An article on Thursday about the indictments of two New York City Council aides on charges of embezzling funds from a nonprofit agency, and a related federal investigation into the Council’s practice of appropriating discretionary funds to nonexistent organizations, misspelled the surname of a Bronx councilman who attended a briefing about the inquiry with private lawyers hired by the Council. He is G. Oliver Koppell, not Koppel.
