Red Bank Sick Leave, Vacation Payout Policy 'Deficient,' State Says

TRENTON, NJ —Red Bank is among nine municipalities that have not taken necessary action to prevent illegal employee sick leave and vacation payouts, according to the Office of the State Comptroller.

And the office has now notified state leaders it may request withholding funding to those towns if, after 30 days, they remain in non-compliance, the office said Thursday.

In July 2022, the office released a report finding that of 60 towns surveyed, 57 failed to follow the laws capping payouts of sick leave and accrued vacation time to government employees, "creating a financial liability of many millions of dollars for taxpayers."

All but nine towns provided corrective action plans to include "specific provisions to identify and potentially recoup improper payments and prevent more wasteful payouts," the state said.

Red Bank made some progress in the matter, but did not fully complete the action plan - or CAP, officials acknowledged Thursday.

Interim Borough Administrator and Police Chief Darren McConnell said Thursday the comptroller's requests will be met as soon possible after a "procedural oversight" caused the delay:

"The Borough has had communications with the OSC regarding this matter and did file a CAP as required. Due to a procedural oversight, the CAP was not approved by a vote of the governing body at the time, but we fully intend to do that as soon as possible," he said.

The Office of the State Comptroller (OSC) also said a third party - an auditor, for example - was required to make an assessment of the town's sick leave/vacation payment practices.

McConnell acknowledged that "While we did an internal review, we did not have our independent auditor do so, but fully intend to have that auditor's review completed with this year's annual audit."

He said the borough's internal review "did not reveal any overpayments that I am aware of but our auditor will be confirming that when he conducts his review."

He said Chuck Fallon of Hazlet is the borough auditor for 2023. Fallon was not immediately available to comment on the matter.

In a letter published Thursday, and sent to Gov. Phil Murphy and the Legislature, Acting State Comptroller Kevin Walsh cited Red Bank, along with Bridgewater, Hamilton, Pennsville, Piscataway, Rutherford, Sparta, Wantage and West New York.

“These nine towns are failing in their most basic responsibilities: To act as a fiduciary of taxpayer funds and to be transparent about how these funds are used,” said Walsh. “After more than a year, they continue to delay. My office will use all of the tools we have to protect New Jersey taxpayers from fraud, waste, and abuse.”

Red Bank's non-compliance

Each town has different issues with compliance and an appendix to the letter explains Red Bank's situation:

The OSC report found that one of Red Bank Borough’s union contracts did not comply with a 2010 law regarding sick leave. The specific contract was not named by the state.

"One Red Bank union contract allows payment for accumulated sick leave at retirement based on half-pay per day accumulated, capped at a total of $20,000. The contract also allows payment of accrued sick leave should the employee die while still employed."

The state found that the terms of one of Red Bank’s contracts did not comply "with the 2010 law with regard to sick leave by allowing payment of accrued sick leave at retirement for an amount greater than $15,000 for employees hired after May 21, 2010, and by allowing payment at a time other than retirement for employees hired after May 21, 2010."

On July 26, 2022, OSC notified Red Bank of its findings, detailing the requirements for the corrective action plan, the state said. The state set a Sept. 30, 2022 deadline to respond with the CAP.

Red Bank provided its CAP on Sept. 6, 2022 and Red Bank’s CAP stated that it planned to modify its union contracts and had reviewed payments to ensure it was in compliance with state law.

But the state on April 5, 2023 noted that, although the town evaluated the payments made for unused sick leave, the office had recommended it be done by an independent third party and asked that Red Bank's auditor for its annual audit perform a review and confirm the township’s evaluation.

Also, the state noted that the CAP and additional recommended changes needed to be approved by the governing body.

OSC requested an updated CAP to address these concerns by May 5, 2023.

"To date, Red Bank has not responded," the Office of the State Comptroller said Thursday.

State leave payout laws

By state law, all employees hired after May 2010 cannot receive more than $15,000 for unused sick leave. Employees can only receive that $15,000 at retirement – not when they resign, change jobs, or as an annual payout.

Employees also can’t carry over more than a year’s worth of vacation time.

OSC’s investigation found, however, that the majority of municipalities surveyed were violating aspects of this law and continue to enter into employment contracts and collective bargaining agreements that allow for these improper payments, the state said in its letter Thursday.

The office said a 2023 audit of Rockaway Township, for instance, found that the town accrued financial liabilities of nearly $4 million in unused vacation and holiday-related pay, most of it by police officers. The police chief in Rockaway also was improperly paid $47,433 in sick leave pay over three years.

“Many towns across New Jersey have made improper, wasteful payouts for years and years. It’s inexcusable that the basic steps to safeguard public funds are not being taken,” said Walsh. “Taxpayers deserve better.”

One of OSC’s recommendations in 2022 was that the Legislature impose accountability measures to ensure the laws are enforced. A bill that was introduced last year has not advanced, the comptroller's office said.

Last month, the Local Finance Board issued regulations that clarified and strengthened the legal obligations of towns and counties.

Specifically, CFOs are now required to review and approve any payments for sick leave and vacation payouts, and as part of annual audits, auditors are required to confirm the eligibility and propriety of any payouts.