Audit of Settlement Agreements and Confidentiality Clauses Across Multiple State Agencies Objectives, Scope, and Methodology

An overview of the purpose and process of auditing Settlement Agreements and Confidentiality Clauses Across Multiple State Agencies.

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities related to state employee settlement agreements of the Office of the Governor (GOV) and its subordinate agencies and the Office of the Comptroller of the Commonwealth (CTR). Pursuant to our governing statute, Section 12 of Chapter 11 of the General Laws, our audit covers multiple entities’ use of state employee settlement agreements. Specifically, Section 12 of Chapter 11 states, “Each entity may be audited separately as a part of a larger organizational entity or as a part of an audit covering multiple entities.” As such, our review of the use of employee settlement agreements was completed at GOV, CTR, and 73 other executive branch agencies for the period January 1, 2010 through December 31, 2022.

We conducted this performance audit in accordance with generally accepted government auditing standards (GAGAS) except Paragraph 8.90, which pertains to obtaining sufficient, appropriate evidence to meet audit objectives. During the audit, we encountered instances where sufficient, appropriate evidence was not provided for the full audit period.

Consistent with GAGAS, we have noted this inability to obtain sufficient, appropriate evidence as part of the “Scope Limitation” section below. We believe that, except for areas detailed in the “Scope Limitation,” the evidence we obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective	Conclusion
Did state agencies report monetary state employee settlement agreement claims to CTR in accordance with Section 5.09 of Title 815 of the Code of Massachusetts Regulation (CMR) and CTR’s Settlements and Judgments Policy?	No; see Findings 1, 3, and 4
To what extent, if at all, have agencies developed and implemented policies and procedures regarding the use of confidentiality requests, including nondisclosure language, within the context of state employee settlement agreements?	Not at all; see Findings 2 and 5

To accomplish our audit objectives, we gained an understanding of the internal control environment in GOV and its executive offices and agencies and in CTR related to the objectives by reviewing the Governor’s and Comptroller’s internal control plans, by reviewing the Comptroller’s and the executive offices’ and agencies’ applicable policies and procedures, by conducting interviews of management in GOV and its executive offices and agencies and CTR and performing walkthroughs of the processes related to our objectives. (See Finding 1.)

We performed the procedures listed below in order to obtain sufficient, appropriate audit evidence to address the audit objectives.

Scope Limitations

Paragraph 9.12 of the US Government Accountability Office’s Government Auditing Standards states, “Auditors should . . . report any significant constraints imposed on the audit approach by information limitations or scope impairments.”

We experienced the scope limitations listed below while performing the audit.

Production of Records

Our original objective was to review documents, including settlements and related records, covering a period of 13 years. However, agencies expressed concerns about providing documents dating back as far as 2010. It was explained to us that documents for recent settlements would be more readily available as these documents fall within the six-year retention period most agencies reported to us that they followed.

When originally questioned about this records retention period, agencies were generally unable to identify which specific records retention category employee settlement documentation fell under, offering different requirements based on the type of document.

We reviewed the Massachusetts Statewide Records Schedule in the relevant areas of legal, fiscal, and personnel records and documents. After consulting with the Secretary of State Public Records Division and the Archivist of the Commonwealth of Massachusetts, we conclude that most of the settlement documentation, including settlement payment support documentation and employee complaints associated with settlements, could reasonably be assumed to have records retention periods of six years from the date of final resolution or final activity.¹⁰ Certain other categories require longer periods of retention, however, such as employee grievance/complaint records resulting in “Landmark Cases,” which require permanent retention. Similarly, under Subsection E05-02(b), case summaries and final decisions must be retained for 25 years. It is notable that agencies seeking to destroy such records after the expiration of retention periods must first seek approval of the Records Conservation Board, consisting of the State Librarian, the Attorney General, the Comptroller of the Commonwealth, the “Commissioner of Administration and Finance,”¹¹ the Supervisor of Records, the Secretary of Technology Services and Security, and the State Archivist, or persons designated by them.

Given that a portion of our audit period was within the six-year retention period and some agencies were unable to provide us with the requested information, even within this shortened period, we have referred this matter to the Supervisor of Public Records in the Office of the Secretary of the Commonwealth for their review and potential enforcement. Additionally, we have concerns that agencies may not be properly classifying records under the statewide records retention schedule and have also referred these matters to the Supervisor of Public Records in the Office of the Secretary of the Commonwealth for their review and potential enforcement. We also note that case summary records and final decisions are required to be retained for 25 years and that this information could have served as a source of information for our audit. These records were not provided to us as evidence.

Therefore, we were forced to limit the scope of our testing to six years. This included the final four years of the audit period. We determined we could still answer our audit objective by evaluating a testing population of monetary settlements within the final four years of the audit period (January 1, 2019 through December 31, 2022).

Constraint

During the course of the audit, certain records requested were not provided in a timely manner. (See Findings 2 and 4).

We initiated our audit by requesting a list of all state employee settlement agreements entered into by the state agencies included in this review. Most agencies did not have a system of record for settlements made with their employees, and none of them had a system that encompassed the full duration of the audit period. Agencies made an effort to review their records and compile the list by doing the following: reviewing legal files, reviewing human resources files, and reviewing union grievance files. Agencies also consulted CTR’s Settlements and Judgments fund records for their agencies to determine which activity was related to state employee settlement agreements and should be included on the requested list. The agencies compiled the lists after reviewing the state employee settlement agreements identified in this search. Some agencies conducted this due diligence in a sufficient manner while others required many months to produce a list, and instructed our office to simply refer to the settlements and judgments Access database.¹² Some agencies indicated that they “lost” relevant records, while others claimed that they could not access the records we requested of prior administrations because they claimed those records were the property of that prior administration,¹³ and that they would not inspect them without the expressed permission of the prior administration. The table below details the length of time it took to receive a complete list of settlement agreements to begin our audit work.

Agency	Days it took to receive complete list	Settlement Records Listed
GOV	65	1
CTR	6	1
Executive Office for Administration & Finance (A&F)	52	58
Executive Office of Education (EOE)	72	58
Executive Office of Housing and Livable Communities (EOHLC)	110	15
Executive Office of Economic Development (EOED)	79	7
Executive Office of Energy and Environmental Affairs (EEA)	93	108
Executive Office of Technology Services and Security (EOTSS)	24	14
Massachusetts Department of Transportation (MassDOT)	35	527
Executive Office of Labor and Workforce Development (EOLWD)	122	37
Executive Office of Health and Human Services (EOHHS)	122	1,456
Executive Office of Public Safety and Security (EOPSS)	143	6,744

As part of our data reliability analysis of state employee settlement agreement lists, we requested to review employee personnel files for a sample of staff members actively employed during the audit period. The purpose of this review was to determine whether files contained settlement documentation that was not identified by the agencies during their aforementioned searches. We have been denied access to the files needed to conduct this verification aspect of our data reliability analysis.¹⁴ At the time this report was issued, we were actively working with the Office of the Attorney General to gain access to the files.

Reporting of Monetary Settlements to CTR

a. Review of Documentation for Monetary Settlements

To determine whether the 75 agencies reviewed as part of this multi-agency audit reported monetary state employee settlement agreements to CTR, we took the following actions:

• We had a test population of 263 monetary settlements records dated from January 1, 2019 through December 31, 2022. For each executive office, we stratified the population of monetary state employee settlement agreements by dollar amount. Assessed at high risk, we tested all records with settlement amounts greater than or equal to $20,000.
• We also selected random, nonstatistical samples of records for settlement amounts less than $20,000. Our test sample included a total of 108 state employee settlement agreements from the population of 263. (See table below.)
• We requested the following documentation for all the records we tested:

• the executed state employee settlement agreement, complete with signatures from authorized parties
• the “815 CMR 5.00 Non-Tort Settlement/Judgment Payment Authorization Form” submitted to CTR, complete with proper approvals
• the email approval of the settlement claim from CTR.

Documentation provided was assessed at three levels:

• FULL DOCUMENTATION—the agency provided evidence of all three requested documents.
• LIMITED DOCUMENTATION—the agency provided one or two of the requested documents.
• NO DOCUMENTATION—the agency did not provide any of the requested documents.

Test Populations by Agency
January 1, 2019 through December 31, 2022

Agency	Population	Sample Size of Settlements Reviewed Under $20,000	Settlements Reviewed Over $20,000	Total Test Sample
EOHHS	99	20	8	28
MassDOT	53	10	11	21
EOPSS	55	10	10	20
EEA	32	10	6	16
EOHLC	6	5	0	5
EOLWD	5	5	0	5
EOTSS	4	4	0	4
A&F	3	2	1	3
EOE	3	1	2	3
EOED	2	1	1	2
GOV	1	0	1	1
Total Count	263	68	40	108

b. Review of Potentially Unreported State Employee Settlement Agreements

During our assessment of the reliability of the state employee settlement agreement lists (further described below in the "State Employee Settlement Agreement List” section), we identified 93 potentially unreported state employee settlement agreements.

We asked CTR to review the provided lists and settlement agreements. Based on the nature of the settlements and awards, CTR confirmed 56 of the 93 state employee settlement agreements were monetary settlements that should have been reported. We asked CTR to search its settlements and judgments Access database and records to determine whether it had any evidence that the 56 state employee settlement agreements were submitted to CTR for review. CTR confirmed that 16 of the 56 were effectively reported.

See Finding 3 for issues we identified with state agencies reporting monetary state employee settlement agreements to CTR. 

Use of Confidentiality Language in State Employee Settlement Agreements

To determine to what extent the 75 agencies in this multi-agency audit have developed and implemented policies and procedures regarding the use of confidentiality language within the context of state employee settlement agreements, we took the following actions:

• We interviewed management and legal counsel to the executive offices and agencies to learn about the steps taken when entering into a state employee settlement agreement. During these interviews, we inquired about internal procedural documents for reviewing claims, determining terms of the settlement, and processing settlement agreements. It was explained to us that this support was considered privileged documentation and would not be provided to the audit team while the legal counsel performed an analysis and provided a recommendation on whether to settle a pending claim.
• We inquired whether the state agencies had policies in place regarding the use of confidentiality language within state employee settlement agreements.
• For the entire population of 159 state employee settlement agreements self-reported by executive agencies as containing confidentiality language, which we were unable to verify, we requested copies of the original claim, complaint, or grievance to gain an understanding of the situation that led to the settlement. The few requested documents that were provided to us (35) were generally for the settlement of union grievances.
• We reviewed the available 145 state employee settlement agreements, looking for evidence of information that could be considered exempt under public records law. As we learned, agreements are drafted on a case-by-case basis. We requested that agencies explain their rationale or reasoning for the inclusion of confidentiality language.

See Findings 2 and 5 for issues we identified with the process on how state agencies used confidentiality language in state employee settlement agreements.

We used nonstatistical sampling methods for testing. Therefore, we did not project the results of our testing to any of the populations.

Data Reliability Assessment

CTR Settlements and Judgments Access Database

CTR provided us an Excel list of state employee settlement agreements and payments reported during the audit period from its internal settlements and judgments Access database. To determine the reliability of the data, we performed validity and integrity testing to ensure that the settlement documentation receipt dates (the date documentation was received by CTR’s legal team) were within the audit period. We also checked that there were no duplicate state employee settlement records. In addition, we conducted interviews pertaining to CTR’s approval process, which included employee access to the database.

State Employee Settlement Agreement Lists

To determine the reliability of the lists of state employee settlement agreements provided by each executive office, GOV, and CTR, we conducted interviews with officials from each executive office who were knowledgeable about the process of entering in settlement agreements and the creation of the lists. We performed validity and integrity testing of the data to ensure that all lists from the executive offices and agencies contained settlement records that were executed during the audit period and that there were no duplicate settlement records.

In addition, to ensure the accuracy of the lists, we selected random samples from the agencies with larger counts of state employee settlement agreements. For agencies with smaller counts, we selected either judgmental samples or the entire population for review. These samples¹⁵ combined for 254 state employee settlement agreements from the total population of 9,026 employees entering into settlement agreements provided for the audit period. We vouched information included in each list (settlement dates, employee names, descriptions of the settlements, and the amounts) to copies of the signed state employee settlement agreements. The following table details the sample sizes reviewed for each office.

Agency	Count of Settlements Records Provided for the Audit Period	Sample Size
EOPSS	6,744	50
EOHHS	1,456	50
MassDOT	527	50
EEA	108	20
A&F	58	20
EOE	58	20
EOLWD	37	10
EOHLC	15	15
EOTSS	14	10
EOED	7	7
CTR	1	1
GOV	1	1
Total	9,026	254

For those state employee settlement agreements in the sample that were monetary, we also vouched the agency name, settlement date, employee name, and the amount to CTR’s settlements and judgments Access data. Additionally, we filtered the settlements and judgments Access data by agency, confirming that the monetary settlements were included in the state employee settlement agreement lists provided to us by the executive offices and agencies, GOV, and CTR.

Out of our sample of 254, we identified 93 potentially unreported state employee settlement agreements based on the following characteristics:

• Settlement list information could not be traced to source documents because they were not provided by agencies.
• Settlement records could not be traced to our list of records from CTR’s settlements and judgments Access database.
• Settlement amounts in the list and source documents provided differed from the amounts reported in CTR’s settlements and judgments Access database.

To determine the completeness of the settlement lists, we requested to review employee personnel files for a sample of staff members actively employed during the audit period. The purpose of this review was to determine whether files contained settlement documentation that was not identified by the agencies during their aforementioned searches. We have been denied access to these files needed to conduct this aspect of our data reliability analysis. We are actively working with the Office of the Attorney General to gain access to these files.

As a result, we cannot determine whether the lists provided by any of the executive agencies included in this audit are complete. We used this data as it was the only source available for our audit purpose. For more information, see Finding 4.

Based on the results of the data reliability procedures described above, we determined that the data was sufficiently reliable for the purposes of our audit.

10.    Documents submitted to CTR to support the payment of settlements are classified as “Routine Accounting Records” under section D01-07. CTR has routinely had requests to destroy records after three years by the Records Conservation Board. See Statewide Records Retention Schedule D01-01(c): Primary copies of payment support documentation and transaction Postings; E05-01: Employee Complaint/Investigation/Disciplinary Records; and E05-02 (c): All other records.

11.    We note that this is an archaic title for this position, which is now entitled Secretary of Administration and Finance.

12.    It was not considered sufficient to obtain settlements processed through the CTR Settlements and Judgments database as we could not be certain that all settlement agreements were processed through CTR. Settlement agreements are able to be paid for through an agency’s own funds, and it is possible that CTR would not be aware of them.

13.    After making this representation to us, GOV informed us that it had inspected prior records and made representations to us about the data as described therein.

14.    In denying us access to these records, GOV indicated that it was concerned our request to view employee personnel files violated the Fair Information Practices Act (FIPA). We note that this is a new argument, never previously having been asserted to our office, including the multiple times in which we have requested and received access to employee personnel files in conducting our audits (Department of Industrial Accidents [Audit No. 2019-0222-3S], issued March 23, 2021, and Hampden County District Attorney’s Office [Audit No. 2022-1259-3J], issued November 28, 2023). GOV offered that, in accordance with its interpretation of FIPA, it would notify impacted employees of our request to inspect their personnel files, allowing them to file an injunction in court to prevent us from accessing their individual files. This is a functional denial of records, as (1) our enabling statute provides us access to these records; (2) we have been given repeated, unfettered access to these files; (3) this new obstacle would require employees to undertake unnecessary expense and inconvenience to pursue legal action; and (4) it would provide employees the opportunity to withhold records from this office, which we have the legal authority to access.

15.    As referenced throughout this audit, there were 2,029 settlement agreements during the audit period. Agencies provided lists consisting of 9,026 employees entering into settlement agreements. There were multiple class action suits that occurred during our audit period, some of which were provided to us as a single record and some of which were provided to us listing each employee involved. For the purposes of the audit, we considered each class action as one settlement agreement.

 

Date published:	January 28, 2025