6 9 8 1 GIFT 10 '915 PW-2 REPORT ON THE Bonding of City and County Employees FEBRUARY 25, 1915 LIBRARY ITY OF CALIFORNIA LOS ANGELES OFFICB or THE COMMISSIONER OF ACCOUNTS CITY OF' NEW YORK LEONARD M. WALLSTBIN ComtoUiloner REPORT ON THE Bonding of City and County Employees FEBRUARY 25, 1915 OFFICE OF THE COMMISSIONER OF ACCOUNTS CITY OF NEW YORK LEONARD M. WALLSTEIX Comir.issioner CITY OF NEW YORK, OFFICE OF THE COMMISSIONERS OF ACCOUNTS, MUNICIPAL BUILDING, February 25, 1915. Hon. JOHN PURROY MITCH EL, Mayor: SIR Pursuant to your request, an investigation has been made as to the cost to the city arising from the payment of premiums for the bonding of city and county employees, and as to the effectiveness of the protection afforded by such bonds. Legal Requirements. Section 55 of the Charter provides as follows : " It shall be the duty of the board of aldermen where no provision has been made by law in respect thereto, to provide for the accountability of all officers and other per- sons, save as herein otherwise provided, to whom the re- ceipt or expenditure of the funds of the city shall be en- trusted, by requiring from them sufficient security for the performance of their duties of trust, which security shall be annually renewed ; but the security first taken shall re- main in force until new security shall be given. In the event of a failure of the board of aldermen to fix any such bond, the heads of the respective departments and the presidents of the several boroughs shall have power to fix such bond subject to modification by the board of aldermen." In addition to the general bonding powers provided by the foregoing to the board of aldermen and the heads of departments, requirements are made in various state laws, charter provisions and city ordinances for the bonding of incumbents of numerous official positions. Under chapter 481, laws of 1912, amending chapter 47, sec- tion 11, of the Consolidated Laws, only those premiums paid for bonding state or local officials were made a charge against the state or municipal corporation to which the official was bond- ed. However, on April 19, 1913, the law was amended by chapter 325, as follows : " If the surety on an official undertaking of a state or local officer, clerk or employee of the state or political sub- division thereof or of a municipal corporation be a fidelity or surety corporation, the reasonable expense of procuring such surety, not exceeding one per centum per annum upon the amount of such undertaking shall be a charge against the state or political subdivision or municipal cor- poration respectively in and for which he is elected or appointed." By this enactment the expense of all required bonding of em- ployees, as well as officials, became a charge against the munici- pality to the extent of the service rendered to it. Scope of Examination. For the purpose of ascertaining the extent of the expendi- tures of the city in this respect, schedules were prepared from the records of the department of finance respectively for the periods covered by the year 1913, and from January 1 to Sep- tember 15, 1914. In these schedules were incorporated some additional items of bonded employees in Bellevue and Allied Hos- pitals, Bronx Parkway Commission, and the Department of Edu- cation, as obtained from those departments and which, under the amended law, appeared to constitute a potential charge against the city. Methods of Procedure. A study of these schedules showed that, prior to 1914, the bonding of employees was performed in a haphazard manner, and apparently without regard for a systematic designation of those employees who, by the nature of their services, should be bonded at the expense of the city. For the stated period of 1914, greater consistency of designation appears, with an increase in the number of bonded employees, apparently largely due to the amended law of 1913, as shown in the following recapitulation of the schedules : Jan. 1, 1914, to Sept. Year of 1913. 15,1914. A A t \ f \ Number of employees bonded City Offices 646 735 County Offices .. 141 210 Totals . , 7S7 945 Total amount of bonds City Offices $4,654.800 00 $5.170.400 00 County Offices .. 1,587,00000 2,504,00000 Totals $6.241.800 00 $7,674.400 00 Net cost to City for premiums City Offices $7.16662 $9.91332 County Offices . . 5,920 55 10,504 88 Totals '. $13.08717 $20.41820 The determination as to which employees should be bonded, and as to the amounts of their bonds, is made by the head of each department, but it appeared from a scrutiny of the schedules for the stated period of 1914, that the employment of such dis- cretion might be less perfunctorily and more economically applied in many cases where excessive or unnecessary bonds have been secured. The following instances have been noted as worthy of consideration in this respect. Borough Presidents. In The Bronx, the bookkeeper handles all receipts of the office, deposits these daily to the credit of the Borough President, and transmits them weekly to the Chamberlain and Comptroller. Most of the receipts are in checks, and the total amount in his hands at one time rarely exceeds the sum of $3,000. An assistant clerk performs the same duties only in the absence of the book- keeper on vacation or otherwise. Each of these employees is bonded for $10,000. A bond of $5,000 would appear to be more than ample in each case, and would save premiums of $20. The cashier of the Bureau of Highways in The Bronx rarely receives more than $500 daily, which he daily transmits to the bookkeeper. An assistant clerk performs the same duties in his absence. Each of these employees is bonded for $5,000. A bond of $1,000 each would save premiums of $18. A messenger in The Bronx conveys weekly deposits to the Comptroller, consisting invariably of bank checks, and handles no cash. He is bonded for $2,500 at an expense of $5. In Queens, the Secretary of Buildings is bonded for $2,000 at an expense of $5. No similar bond is required in other bor- oughs. Department of Docks and Ferries. Seven clerks are shown on the schedule as under a bond of $3,000 each. We are informed by the deputy commissioner that their work is so closely under observance that irregularities would hardly be possible, and that a bond of $1,000 for each of the clerks would be more than ample. A reduction of their bonds accordingly would save $34 in premiums. Twenty-nine ticket agents are scheduled as under bonds of $3,000 each. These employees handle cash and tickets to the value of about $1,500 at one time, and a bond for $2,000 each would be ample. The department employs thirty-six ticket agents, and a reduction of each bond for this number of employees would save $108 in premiums. Department of Public Charities. Twenty-eight persons are bonded in this department in the 1914 period. The list includes the second and third deputy com- missioners, the superintendents of the Bureaus of Dependent Adults and the bookkeeper in the administration office, none of whom handle cash. An elimination of these bonds would save $65 in premiums. Department of Finance. In the 1914 period 428 persons are bonded at a cost to the city of $6,026.28. These include 192 temporary employees in the office of the Receiver of Taxes, also bookkeepers, stenographers, searcher and watchman in the several divisions. Department of Health. The secretary of the department is bonded, as custodian of funds for contingent expenses, in the sum of $6,000 at a premium cost of $30. It would seem that the amount of this bond is excessive. The foregoing instances were noted from a general observa- tion of the schedule. It is probable that a judicious application 8 of the more intimate knowledge of conditions possessed by de- partment heads might result in further economies along these lines. Municipal Courts. Section 1373 of the charter requires a bond of $5,000 for each clerk of court, deputy clerk and assistant clerk in each district of each borough. For this class of bonded employees the city has expended during the 1914 period the sum of $876.39 for pre- miums. Periodical examinations are made by this commission of the financial transactions of each court, and it appears that the financial responsibility of a court may readily be confined to the clerk, and a deputy or assistant clerk ; whereas, under the law, bonds now are required for additional deputy and assistant clerks in eleven of the twenty-four districts. This is particularly notice- able in the first district, Manhattan, which has one deputy and six assistants, and the second district, Manhattan, which has one clerk, one deputy and six assistants. , Premium Disbursements for Bonds Running to Other Beneficiaries. During the examination it was observed that many bonds on which the city has paid the premiums afforded no compensating terms for direct recovery of damages by the city, such bonds being written to run to the State or to individuals. This condition is particularly noticeable in the bonding of county employees, where a premium liability of more than ten thousand dollars was found accruing to the city in the current year for employees bonded to other beneficiaries. The bonds of the County Clerks, Registers and Sheriffs run to the State of New York, and presumably cover damages accru- ing from the work of their offices, the responsibility for which would lie with their subordinates. The subordinates are in turn bonded to these officials for the faithful discharge of their several duties. Should a necessity arise for the recovery of damages the city would have to apply to the court for permission to sue on these bonds (Code Civil Proc., Section 1888, 182 N. Y., 369), although it pays all of the premiums. A review of the subordinates thus bonded presents an appar- ent lack of necessity for bonding many of them. More particu- larly is this apparent in the office of the Sheriff, New York County, where persons employed as counsel, clerks, cleaners, engineers, van drivers, messenger, etc., are bonded to the Sheriff. However, under chapter 523, laws of 1890, the Sheriff of New York County is authorized to require bonds from any of his subordinates, and under chapter 325, laws of 1913, previously referred to, the cost of the bonds becomes a charge against the city. In an opinion of the Corporation Counsel, rendered March 23, 1914, the sheriff is given full discretion in the designation of his subordinates who shall be required to give bonds. The premiums paid by the city in 1914 for bonding the Sheriff, New York County, and his employees amounted to $3,954.10. Of this amount $500 was paid for a '$100,000 bond of the Sheriff to the State of New York. The remainder was for bonds of subordinates, all running to the Sheriff. A further scrutiny of conditions discloses a considerable dif- ference in the amounts of bonds required from certain classes of employees in the different counties, which suggests injudicious determination as to the amount of security necessary. This also is particularly noticeable in the Sheriff's offices. The activities of New York County exceed those of the other counties, yet keepers and prison guards in Bronx and Kings counties are bonded at $5,000 each and in New York County at $2,500 each. In the same counties a chief clerk is bonded at $10,000, as against $5,000 in New York, and the cashier of Bronx County is bonded at $25.000, as against $10,000 in New York. 10 General Conclusions. For the purpose of ascertaining the amount of benefit derived by the city from the bonding of employees, a request was made of the Department of Finance for information as to all amounts recovered or in process of recovery from surety and bonding com- panies for defalcations or irregularities of employees during the period from January 1, 1913, to November 28, 1914. In response thereto, the deputy comptroller stated as follows : " * * * this office has no record on its books of the recovery of any such moneys during the period men- tioned nor has it any knowledge of any existing proceed- ings for recovery." The net cost to the city for premiums on bonds paid from January 1, 1914, to September 15, 1914 was more than twenty thousand dollars. About $2,500 of this amount was expended for premiums on bonds running to the State of New York, and about $7,700 on bonds running to individuals. In view of the statement of the Department of Finance as to the apparent integrity of bonded employees, and of the excessive and unnecessary bonding indicated in the foregoing, much of the expense of which the city is now obliged to pay, it is suggested that the city might safely assume the risk of bonding the em- ployees and thereby save to the city treasury the large amount hitherto expended for premiums, and which form of expenditure will undoubtedly be greatly increased in the future as the force of the present law becomes better known. In the event of the continuance of the present system, it is sub- mitted that the Comptroller should be vested with authority to determine finally upon the employees to be bonded and the amounts of their bonds, in order to secure a commensurate but not excessive security which should be both uniform and eco- nomical. 11 Recommendations. 1. That the State of New York be requested to assume the expense of all bonds which run to the State. 2. That legislative action be instituted to amend section 55 of the charter to provide a centralized determining power, vested in the Comptroller, as to the designation of employees to be bonded and the amounts of their bonds, when not otherwise pro- vided for by law. 3. That legislative action be instituted to cause the bonds of county officials and their subordinates to run directly to the city, or that the bonding of such subordinates run to the State of New York in like manner with the county officials, their premiums thereby becoming a charge against the State. 4. That the heads of all departments and the several county officers having employees under bond be requested to critically review the bonds of such employees with a view to an economic revision of their schedules, as indicated in the foregoing report. Respectfully submitted, LEONARD M. WALLSTEIN, Commissioner of Accounts. . I. MOWN FRINTINC dlNDIMS CO. 1639-15-500 NEW YORK