|
A state audit report issued last fall found that Verizon claimed $118 million in federal aid to rebuild phone lines in the days following the Sept. 11, 2001, World Trade Center attack even after the company had received cash for those same emergency repairs from its private insurance coverage.
Auditors found the company also tried to inappropriately claim $56 million for emergency repairs that should have been claimed as long-term repairs. The government had offered to reimburse utilities in full for emergency repairs, but only for 75 percent of some permanent repairs.
The audit report, issued last September, found other questionable claims by Verizon and concluded that, in all, the company was not entitled to $230 million of a $280 million total claim against the federal government to cover emergency 9/11 repairs in lower Manhattan.
For months, state officials have kept the existence of the audit quiet. The Times Union acquired a copy and shared it with students at the Stabile Center for Investigative Journalism at Columbia University.
Verizon officials say the audit is wrong because the company's 9/11 insurance proceeds came in a massive lump-sum cash settlement that can't be directly attributed to its specific claims for 9/11 aid from the government.
After 9/11, Congress offered cash to reimburse utilities that suffered massive damage in the attacks so customers would not have to bear the costs. Verizon lost 300,000 voice lines and four million data circuits in lower Manhattan and scrambled to restore communications service to the New York Stock Exchange, Wall Street firms and government offices in the weeks that immediately followed.
Years later, state officials began to audit Verizon's federal reimbursement claims for that emergency work.
Verizon officials deny wrongdoing and say the purpose of federal 9/11 aid for utilities was "to make us whole." The company has appealed the state auditors' findings.
"If we were to recover all the money we applied for ... that, in combination with the proceeds from our insurance, still would not fully compensate us for our losses," said John Bonomo, Verizon spokesman. Much of Verizon's claim centers on work to restore its nerve center for lower Manhattan in the Verizon Building at 140 West Street, adjacent to the World Trade Center site.
Six months after the 9/11 attacks, federal, state and local officials brokered a deal that created the federal Utility Restoration and Infrastructure Rebuilding Program. It was to be administered by the Department of Housing and Urban Development and became part of a massive $20 billion promise of aid New York Sen. Chuck Schumer obtained from President George W. Bush.
The plan allocated a total of $750 million to rebuild utilities destroyed by the terrorist attacks, $250 million of which was allocated for emergency restoration of services by four utilities, including Verizon.
Under the rebuilding plan, emergency restoration expenses, called "Category One" costs, were 100 percent reimbursable. "Category Two" costs, or permanent rebuilding expenses, were 75 to 100 percent reimbursable.
Between October 2003 and March 2004, Verizon submitted four claims for Category One emergency repair reimbursement totaling more than $280 million. As with the other utility companies that submitted claims, Verizon's application was examined by Empire State Development Corp., which was given responsibility for overseeing distribution of the federal funds.
Last September's ESDC audit dealt only with Category One expenditures. Meanwhile, Verizon received an $89 million advance from the federal government while state auditors reviewed its claim.
Eventually, auditors concluded that Verizon was entitled to less than $50 million for its Category One emergency rebuilding claims and that the remaining funds already paid in advance to the utility be deducted from aid still due it for permanent reconstruction covered under the program's so-called Category Two.
Much of the state's more than 200-page audit examines whether Verizon's claim for federal money had already been covered by its insurance. The federal program prohibited utilities from claiming their privately insured losses.
Auditors found that Verizon failed to tell the federal government just how much a private insurance settlement paid the company for its emergency 9/11 repairs.
Claims already covered by insurance and non-emergency repairs that didn't qualify for full reimbursement weren't all that state auditors questioned. They also disallowed almost $21 million in expensed straight time pay for employees and about $35 million for other costs that did not meet audit evidence standards.
In all, Verizon claimed more than $230 million more than the plan allowed and, as a result, collected almost $39 million more than it was entitled for emergency repairs, auditors concluded.
The auditors' report also said Verizon delayed or tried to obstruct the audit team's effort to document Verizon's claims. "As the audit progressed, we encountered serious difficulties in obtaining information from Verizon on such key items as labor and insurance proceeds. During the course of the audit, the latter issue developed into the single most significant topic," the auditors wrote in their report.
It would take over a year for the auditors to obtain documentation of Verizon's $825 million insurance settlement for all its 9/11 damages, according to the audit report.
Schumer, who worked to bring federal aid to New York City after 9/11, had no immediate comment on the audit.
The audit report comes at a time when Verizon Chief Executive Ivan G. Seidenberg is being scrutinized by shareholder activists focusing on excessive payments to executives. According to a recent survey by The Wall Street Journal, Seidenberg received $23.7 million in total compensation in 2006. The New York Times recently reported that Seidenberg's equity holdings amount to more than $65 million.
After auditors made preliminary findings in 2005, Verizon argued that an inappropriately high standard of evidence had been applied in its reimbursement audit. It also argued that detailed spreadsheets used in the insurance settlement process were improperly used by auditors as a line-by-line allocation of the insurance proceeds. These claims were rejected by the audit team.
Verizon appealed the final audit report on Jan. 4, 2007, and that appeal is currently under consideration by Empire State Development Corp.
Avi Schick, Empire State Development Corp. president and chief operating officer, declined to comment publicly on the case. The agency is considering detailed materials submitted by Verizon and the Sept. 19, 2006, report by state auditors is not necessarily the final word on the matter.
If an agreement is not reached, Verizon is expected to file a claim in state Supreme Court to force payment of its claims in full. Schick and other state officials would not disclose what, if any, settlement with Verizon is being considered or say when a decision will be made on Verizon's appeal.
Coleman Cowan, Gretchen Cuda, Ellen Gabler and Christopher Twarowski are students at the Stabile Center for Investigative Journalism, which is part of Columbia University's Graduate School of Journalism in Manhattan. They prepared this story under the supervision of Times Union Senior Editor Bob Port, who can be reached at 454-5064 or by e-mail at bport@timesunion.com.
|
