Opinion ID: 4291042
Heading Depth: 4
Heading Rank: 1

Heading: The Testimony of Michael OConnell

Text: Michael OConnell testified for Resource Recovery. It was his testimony that, at the time of trial, he was the Executive Director of Resource Recovery and had held that post since January of 2007. He testified that he was “responsible for the day-to-day activities” at the Central Landfill in Johnston and that he reported to the “board of commissioners.” He explained that, when he started at Resource Recovery, the Chairman of the Board functioned as Resource Recovery’s Chief Executive Officer, whereas Mr. OConnell, despite having the title of Executive -4- Director, was “just an administrator   .” It was further his testimony that, in his first few months working at Resource Recovery, he identified “specific large issues” within the entity with respect to “charitable contributions;    consolidation of [Resource Recovery’s] investments with one financial corporation; and    excessive prices that the corporation had paid for land that [it] bought for [an] industrial park.” With respect to the charitable contributions, Mr. OConnell testified that, although charitable contributions had been made by Resource Recovery, when he “looked at the mission of the corporation, it wasn’t what we were supposed to do   .” He stated that it was his “goal to limit or restrict it or tie it to [Resource Recovery’s] mission.” He further testified that, from fiscal year 2003 until fiscal year 2007, Resource Recovery had made charitable contributions in the amount of $2,092,163.95. He confirmed in his testimony that Restivo had conducted the audits of Resource Recovery for two of the years in that time period—viz., fiscal years 2006 and 2007. He then detailed in his testimony certain charitable contributions which were made during the years that Restivo had conducted its audits but were not related to the mission of Resource Recovery. He further testified that funds were also spent on the involvement of board commissioners and/or employees as participants in charity golf events—“[a]pproximately $1,000 for each golf outing” and “approximately ten [outings] a year.” It was further Mr. OConnell’s testimony that, at the start of fiscal year 2006, Resource Recovery had approximately one hundred million dollars in investments in the “employee pension investments” (the pension trust) and the two “landfill trust funds” (the two trusts at issue). He explained that the money in the “landfill trust funds” was set aside for the point in the future when the landfill would be filled to capacity and would no longer be taking in trash and, accordingly, no longer producing any revenue; he added that the money in the “landfill trust -5- funds” was used “to make sure that the landfill is properly maintained, it’s properly fixed, it’s properly secure.”4 It was further his testimony that Van Liew managed all of the trust investments. He stated that he had been concerned with having all of Resource Recovery’s investments under the management of one small firm—viz., Van Liew. He also testified that, after assuming the position of Executive Director, he learned that a commissioner on the Resource Recovery Board of Commissioners was also a paid board member of Van Liew. Furthermore, he answered in the affirmative when asked if, “at some point,” he became “concerned with whether Van Liew had been making investments in accordance with the    rules and policies governing investments in the trust?” He testified that he “came to find” that the investments in the trust funds were “in opposition to the investment strategy that the corporation had.” It was Mr. OConnell’s testimony that he expressed to the Rhode Island Auditor General his “concern that [Resource Recovery] had excessive charitable contributions, [and] had concentration of assets [issues] to be resolved.” According to Mr. OConnell’s testimony, he further expressed his concern to the Auditor General that Resource Recovery had “paid    inflated prices for real estate property” and had “failed to properly record them    on [its] financial statements.” He then testified that he also conveyed his concerns to the Governor at a meeting on November 12, 2007. It was his testimony that the Governor ordered “a 45-day preliminary examination    to be done by the bureau of audits   .”5 He further testified 4 Dean Huff, who was the Chief Financial Officer of Resource Recovery at the time of trial, described in his testimony the two trusts referred to by Mr. OConnell as the “landfill trust funds.” Mr. Huff described one trust as the “pollution remediation trust fund” and the other trust as the “closure/post-closure trust fund.” 5 Mr. OConnell explained in his testimony that the Bureau of Audits “is a department of the state which typically does    internal audits. They audit the other agencies in the state.” It -6- that the Governor instructed two of the commissioners on the Resource Recovery Board of Commissioners not to attend any further board meetings, thereby precluding the existence of a quorum.6 According to Mr. OConnell’s testimony, the Bureau of Audits issued a document entitled “Preliminary 45-day Examination of Rhode Island Resource Recovery Corporation, Summary of Findings, March 2008.” Mr. OConnell testified that, as a result of the conclusions made in that document, the Governor “ordered a full forensic audit.” The full forensic audit resulted in a very lengthy report dated September 22, 2009. In the Executive Summary of that report, it is noted that “the Bureau found numerous instances in which employees, vendors, and various current and former Commissioners, appear to have acted in ways that compromised their fiduciary and ethical obligations to [Resource Recovery] and to the public.” Mr. OConnell further testified that he believed that Restivo had “failed to do its job for Resource Recovery[.]” He bluntly stated: “[Restivo was] a professional accounting and auditing firm who in the course of two years found no issues with Resource Recovery. I came in in six months and I was tripping over issues, I couldn’t help it, they were everywhere. And they found nothing.” is important to note that Rhode Island has both an Auditor General and a Bureau of Audits. The Office of the Auditor General is the State of Rhode Island’s legislative audit agency. See Office of the Auditor General, http://www.oag.state.ri.us/ (last visited July 2, 2018). The Bureau of Audits, also called the Office of Internal Audit, “performs the auditing function for the Executive Branch of State Government, and falls under the Department of Administration.” See Office of Internal Audit, About Us, http://www.omb.ri.gov/internal-audit/about/overview.php (last visited July 2, 2018). Reference was made, in the course of the testimony in this case, to both the Auditor General and the Bureau of Audits. 6 A quorum is defined as “[t]he smallest number of people who must be present at a meeting so that official decisions can be made   .” Black’s Law Dictionary 1446 (10th ed. 2014). -7- He testified that he terminated Restivo’s services in June of 2008. He went on to detail the damages that Resource Recovery contended were incurred as a result of Restivo’s alleged “failure to do its job.” 2. The Testimony of Resource Recovery’s Expert Witnesses
Joseph Centofanti, who was called by Resource Recovery, was qualified as an expert witness in the areas of accounting and auditing. Mr. Centofanti, after being qualified as an expert, began his testimony by explaining the auditing process in general. It was his testimony that the audits of governmental entities were governed by “[g]enerally accepted accounting principles, generally accepted auditing standards, [and] government auditing standards   .” He added that audits were also governed by the requirements imposed by the Rhode Island Auditor General and by the provisions in the contract between the parties. He noted that the requirements of the Auditor General included a requirement to report “any indications of fraud, abuse, or illegal acts that are noted   .” Mr. Centofanti testified that, based on his review of extensive materials, which materials he detailed in his testimony at length, it was his opinion that Restivo “lacked the experience to perform an audit of a quasi-governmental entity.” He further testified that Restivo “failed to test compliance with the applicable laws, regulations, contracts, and other agreements,” “failed to identify and report the improper charitable contributions,” and “failed to report internal control deficiencies that were identified.” He provided details of how an auditor would test the compliance of the trust investments with the investment policies of the corporation; and he added that, except for a single comment in the papers which he reviewed, he “couldn’t find any evidence    that [the trust investments were] reviewed for compliance” by Restivo. -8- Mr. Centofanti also testified as to the amount of money that had been donated by Resource Recovery in fiscal years 2006 and 2007 to charitable organizations which were not related to Resource Recovery’s mission. He testified that the charitable contributions for those fiscal years constituted “indications of fraud or abuse.” He further added in his testimony that, if Restivo had uncovered these contributions, it would have been obligated to report them to the Auditor General.
Jerry DeNigris testified on behalf of Resource Recovery and was qualified as an expert in calculating and determining investment losses. He stated that he was hired to “view the activity, the securities purchased specifically, in these various trust accounts to determine first what they had actually made or lost; and to see - - really to compare them to investment policies to see whether or not the activity in the account was consistent with or complied with those investment policies.” He testified that there were “securities that were out of compliance” with the investment policies of Resource Recovery. He stated that his analysis spanned from July 1, 2006 until January of 2008. It was his testimony that the “damages” resulting from those “nonconforming securities” amounted to $2,551,052.