More Opra...

More OPRA…

Some of you may remember our recent case, Constantine v. Twp. of Bass River, 406 N.J. Super. 305 (App. Div.) certif. denied 200 N.J. 208 (2009) where the Appellate Division held the Open Public Records Act (OPRA), N.J.S.A. 47A-1 et seq. did not apply to municipal court discovery requests. The case clarified an important issue under the statute and eliminated the threat of an expensive refund process for over 200 municipalities.

On February 11, 2010 the Appellate Division decided Smith v. Hudson County Register and provided clarity about how local government units can charge for the copying and production of public records. However in doing so, the court severely limited the use of the so-called “default payment schedule” contained in the Act and held that beginning on July 1, 2010, local government units will be required to charge the “actual cost of duplicating” requested government records.

The problem is that the key portion of OPRA, N.J.S.A. 47A-5(b), is internally inconsistent. It consists of only four sentences but it is easier to parse the legislation if we separate the sentences and read them individually before viewing them as a whole:

The first sentence says:

A copy or copies of a government record may be purchased
by any person upon payment of the fee prescribed by law or regulation,
or if a fee is not prescribed by law or regulation, upon payment of the actual cost of duplicating the record.

The second sentence says:

Except as otherwise provided by law or regulation, the fee assessed
for the duplication of a government record embodied in the form of printed matter shall not exceed the following: first page to tenth page, $0.75 per page; eleventh page to twentieth page, $0.50 per page;
all pages over twenty, $0.25 per page.

The third sentence says:

The actual cost of duplicating the record shall be the cost of materials and supplies used to make a copy of the record, but shall not include the cost of labor or other overhead expenses associated with making the copy…

Finally, the fourth sentence reads as follows:

If a public agency can demonstrate that its actual costs for duplication of a government record exceed the foregoing rates, the public agency shall be permitted to charge the actual cost of duplicating the record.

The statute, at first blush, doesn’t make sense. In the first, third and fourth sentences the operative concept is “the actual cost of duplication” but that seems to be directly contradicted by the interjection of the specific fee schedule in the second sentence.

The statute would make more sense if the first and third sentences were put together to read:

A copy or copies of a government record may be purchased
by any person upon payment of the fee prescribed by law or regulation,
or if a fee is not prescribed by law or regulation, upon payment of the actual cost of duplicating the record.

[and]

The actual cost of duplicating the record shall be the cost of materials and supplies used to make a copy of the record, but shall not include the cost of labor or other overhead expenses associated with making the copy…

These two sentences express the basic notion, carried over from the common law right of access to public documents, that the cost of reproducing government records should be government’s actual cost but not including labor and other overhead costs. This is not a difficult proposition.

It then makes sense to match the second and fourth sentences to read:

Except as otherwise provided by law or regulation, the fee assessed
for the duplication of a government record embodied in the form of printed matter shall not exceed the following: first page to tenth page, $0.75 per page; eleventh page to twentieth page, $0.50 per page;
all pages over twenty, $0.25 per page.

[and]

If a public agency can demonstrate that its actual costs for duplication of a government record exceed the foregoing rates, the public agency shall be permitted to charge the actual cost of duplicating the record.

Linking these sentences together allows us to understand that the legislative intent was to cap the costs of duplicating records to those set rates unless the government agency could establish that its actual costs exceeded the set rates contained the second sentence. In other words, the Legislature placed a presumptive ceiling of reproduction costs, but gave government agencies the ability to prove that the actually costs exceeded the publish rates. This construction does two things. It provides meaning to every word of the statute and it provides a realistic interpretation that promotes the basic goal of making government records accessible to the public.

The appeals court solution was to require municipal government and agencies to do an actual cost analysis on an annual basis. If the fee charged is equal to or lower than the rate contained in the second sentence of N.J.S.A. 47A-5(b)($0.75 for first ten pages, etc…) then the burden of proving a lower actual cost would be on the requester of documents. If the assessed fees exceed the stated rates, then the burden of proof falls on the government agency to justify its rates.

This case was brought by the same lawyers we faced in Constantine and again they sought to use the class action device to obtain a large monetary recovery from the defendant, Hudson County. The court effectively blunted this approach by denying retrospective relief and ordering that municipal governments start charging “actual costs of duplicating” requested records no later than July 1, 2010.

Hopefully this case will settle many of the issues involved in purchasing government records in New Jersey and will make it easier and less expensive for the public to get information from local government.

-Tom Barron


The 3 Pillars of Financial Management (guest speaker)

Well managed companies employ many tools to optimize financial performance, some of which can be very sophisticated. However, most of these fall within the basic “blocking and tackling” of financial management.

Invariably, entities that under perform or experience fraud or some other impropriety will have failed in at least 2 of these categories. And the price of failure can be harsh. Many companies when they experience a negative event - a fraud perpetrated by an employee or a significant misstatement of their financial statements may be forced into bankruptcy or may be forced to merge or restructure against their wishes.

So reflect on your business operations and determine if you are lacking in these areas. If so, take quick, calculated action to supplement the areas of internal control, financial reporting and financial monitoring. The 3 pillars are:

Accurate, detailed financial statements produced in a timely fashion

Management should see to it that financial statements and management reports are produced in a relatively timely fashion. If your accounting staff cannot produce meaningful reports in a timely fashion or if the information is inconsistent or contains many errors, you could have a serious problem. If erroneous data has to be furnished to outside stakeholders like bankers, auditors or joint venture partners, you may lose credibility or may incur financial losses directly attributable to the loss of confidence of your stakeholders – such as the closure of a debt facility. You should ask yourself these questions:

Is the financial data contained with reports consistent? Does it dovetail with what you know is happening with the business? Does it allow you to conclude on opportunities and exposures?

Are you able to answer relatively simple questions such as what has led to an improvement or deterioration in your business over time or what is the biggest contributor to operating profit?

Adequate internal controls including adequate segregation of duties

Early in my career, the audit team that I was managing discovered a fraud at a location outside of the US. We couldn’t reconcile the general ledger to supporting data. We discovered a multimillion dollar fraud by a lower level accounting employee. The fraud was possible because the entity used manual checks instead of computerized checks (management didn’t want to switch because computerized check stock was more expensive than manual check stock). He was responsible for writing checks by hand and would make phony checks to real vendors and would then obtain the necessary 2 signatures from senior management. He would then alter the checks so that he could have a family member cash them. He reconciled the Accounts Payable subsidiary ledger (an inappropriate duty coupled with check writing and expense voucher entry) so he was able to cover up the fraud for several years.

Does your business have adequate controls and procedures in place to prevent errors and irregularities? Do the proper checks and balances exist so that one employee does not have an undue level of access or control? What controls and procedures are in place to prevent an employee from making an unauthorized disbursement by check or wire transfer? What prevents an employee from setting up a phony vendor or phony employee in your computer system?

Proactive, well informed, inquisitive management

The most valuable asset to a small business is astute management that asks the right questions, has a strong vision and is able to capitalize on opportunities quickly and efficiently. This type of management will use the solid financial data at their disposal to determine where their business is headed, to change course and/or speed and use all their resources to get to their destination. But management will need to be able to “mine” data to determine how the business is doing and why? Which clients are profitable and which are less so? Which products generate the highest gross margin and which contribute little? How are the trends in your business versus competitors of a similar size and make up? How do you position your business for a trade sale and how do you modify your business to give rise to a higher purchase price from an acquirer?

But talented management will need timely, reliable financial data produced in a strong control environment to be really successful. Otherwise, you will be making decision and determining a course that might not be the best one.

If your management is not able to be really proactive, to gain the knowledge that they require from management data and to be truly inquisitive, you may be incurring serious exposure due to poor performance in financial management.

The inclusion of a B2B CFO® partner onto your senior team can give you the financial expertise and strategic insight that you need to maximize the performance of your operation. Our partners, who have over 4000 years of cumulative experience, (including significant merger and acquisition related experience), are part of the largest US firm providing services on a part-time basis to closely-held companies with annual revenues of as much as US$75 million.

-Vince Leusner
Partner, B2B CFO®
vleusner@b2bcfo.com


***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.