Overview
During the review of the 252 employee settlements sent to CTR, CTR confirmed that 173 were required to be reported for review. CTR found that 13 (8%) of those 173 monetary state employee settlement agreements across 20 agencies, totaling approximately $59,863, were not reported as required. According to CTR’s “Settlements and Judgments” policy, CTR reviews monetary settlement agreements, regardless of whether the settlement agreement is funded through the Settlement and Judgment fund or self-funded by the state agency. CTR performs this review to ensure proper accounting and tax reporting for payment of the state employee settlement agreements.
The following is a breakdown of state agencies that failed to report state employee settlement agreements, and the number of state employee settlement agreements they did not report to CTR:
| State Agency | Number of Monetary Settlements Not Reported to CTR | Dollar Value of Unreported Settlements |
|---|---|---|
| BSU | 2 | $ 21,770 |
| BHCC | 1 | 242 |
| FSU | 3 | 4,550 |
| GCC | 2 | 7,308 |
| MMA | 2 | 3,943 |
| MCLA | 2 | 18,139 |
| OCP | 1 | 3,911 |
| Grand Total | 13 | $ 59,863 |
Failure to report settlement agreements is a violation of regulation and policy and may result in the improper reporting of the state employee settlement agreement in the state’s accounting system and by the state employee to the Department of Revenue and the Internal Revenue Service. According to CTR’s “Settlements and Judgments” policy, agencies are responsible for making any corrections necessary to bring any settlement documentation or payments into compliance if payment was made contrary to the instruction of CTR.
Authoritative Guidance
CTR’s “Settlements and Judgments” policy, dated January 10, 2022, and effective during the audit period, stated,
All “monetary” settlements/judgments must be reviewed by CTR prior to payment to ensure that the payments are made using the appropriate codes and that proper tax withholdings and tax reporting are made, irrespective of whether or not the Department plans to pay the claim with Department funds or through the Settlement and Judgment Reserve (1599-3384) or other authorized account.
A “monetary” settlement or judgment includes any action which results in a payment being made to, or on behalf of a Claimant, or which may impact “creditable” service for retirement calculation purposes for a state employee, or which may result in a future commitment of funds, services or state resources.
- A settlement or judgment on an employee grievance which makes an adjustment to vacation or sick time or other leave (which does not have any associated payments, reimbursements or changes in creditable service) will be considered a “non-monetary” settlement or judgment which does not have to be reviewed by CTR prior to the payroll adjustment. (Note that payroll “adjustments” may not be made in lieu of back pay or other salary payments and may not be made for leave that has not actually been earned, accrued or for time actually worked.)
- A settlement or judgment on an employee grievance which reinstates, promotes, or makes an employee “whole” for a number of days is a “monetary” settlement or judgment” and must be reviewed by CTR for the proper processing instructions. These amounts may not be processed as regular payroll payments using regular pay or any other payroll earnings codes to avoid the CTR approval process, to make payments from current payroll funds which are not authorized by CTR or to avoid the settlement process.
GOV’s Executive Department Settlement Policy established the following requirement:
- Applicability of the Office of the Comptroller’s Regulations and Settlements & Judgments Policy.
Executive department offices and agencies are reminded that the Office of the Comptroller’s settlements and judgments regulations, 815 CMR 5.00 et seq., and the Comptroller’s Settlements and Judgments Policy, are applicable to all monetary settlements within the scope of 815 CMR 5.00 et seq., whether the settlement occurs prior to or after the institution of litigation, and whether the settlement is paid from agency funds or the Settlements and Judgments Reserve. The requirements set forth in this Executive Department Settlement Policy serve as a supplement and do not supersede the requirements prescribed by the Office of the Comptroller.
In June of 2020, the state of Montana issued a performance audit titled “State Employee Settlements: Trends, Transparency, and Administration.” In this audit, a recommendation is given, stating the following:
- Defining what constitutes a state employee settlement and what should be considered when determining the cost of a state employee settlement, and
- Requiring reporting of state employee settlements in the State Accounting, Budgeting, and Human Resource System, including defining what information should be reported.
While agencies are not required to follow Montana’s policies, we believe them to be best practices.
Reasons for Issue
Most of the state employee settlement agreements that were not reported to CTR were paid through the agencies’ own funds. The agencies do not have their own documented policies over the reporting of state employee settlement agreements.
Recommendations
- Agencies (where applicable) should establish and implement policies and procedures over the reporting of state employee settlement agreements to CTR. These policies and procedures should comply with all of CTR’s regulations.
- Agencies should ensure that staff members who are involved in the employee settlement process receive training on these policies and procedures.
- Agencies should establish sufficient monitoring controls to ensure compliance and the appropriate management of this issue.
Auditee’s Response: BSU
The Detailed Audit Findings allege that Bridgewater State University did not properly report two (2) separation agreements to the State Comptroller as required. The university is committed to complying with the State Comptroller’s Settlements and Judgments Policy, including submitting all agreements for review whether self-funded or funded by the Settlements and Judgments Reserve account.
The Detailed Audit Findings also express concerns about the improper reporting of agreements, the appropriate use of codes and proper tax withholdings. Bridgewater State University has not been contacted by the Office of the Comptroller regarding any improper reporting of agreements, inappropriate use of [Human Resources Compensation Management System] payment codes, or improper tax withholdings.
The Reasons for Issue section asserts that the University did not properly report two (2) separation agreements to the State Comptroller as required. One separation agreement documented the university’s legal obligation under federal law to pay for a foreign national employee’s return to their home country. This payment was not a negotiated monetary settlement, but rather an obligation under federal law required to be paid whether a separation agreement was in place or not.
Auditor’s Reply: BSU
OSA appreciates BSU’s stated commitment to comply with CTR policies regarding reporting employee settlement agreements. BSU reports that CTR has not notified it of issues pertaining to reporting, the use of Human Resources Compensation Management System codes, or tax withholdings. Since CTR is not responsible for auditing agencies to ensure that inconsistencies are reviewed, BSU’s statement regarding not being contacted by CTR makes sense. It is our office’s responsibility, when analyzing issues such as this, to report the issues we find to the agencies under audit because it is each agency’s responsibility to self-report these agreements. If there is a disagreement over filing protocols identified to our office by CTR, we encourage BSU to speak with CTR regarding its position to resolve any potential issues and ensure that any payments related to settlements are processed correctly.
Auditee’s Response: BHCC
OSA incorrectly found that BHCC did not provide settlement agreements in this finding. The employee settlement referenced here was the conversion of a three-day unpaid disciplinary suspension to a two-day unpaid disciplinary suspension as the result of a Memorandum of Agreement with the union in response to an employee grievance. The payroll submission for the employee changed that one day to a paid suspension; the employee was paid $241.50 by the College to ensure correct payroll. The Memorandum of Agreement was provided to OSA in BHCC’s March 2025 submission. While BHCC in good faith believes this matter was handled correctly, the College is cognizant of the recent changes by CTR to reporting all monetary settlements for approval, including those paid by the College, and participated in [the Office of the General Counsel’s] June 2025 training regarding the S&J Policy recently updated by CTR. In any future similar cases, the College will seek the approval of CTR before making such a payroll adjustment, if the matter comes within the scope of CTR’s area of review.
Auditor’s Reply: BHCC
OSA understands that BHCC disagrees with the information provided to our office from CTR, which stated that BHCC did not report an employee settlement agreement as required by state regulation. Our information is coming straight from CTR. Therefore, we encourage BHCC to work with CTR to ensure that this issue is resolved. Based on its response, BHCC appears to be taking steps to address the issue.
Auditee’s Response: FSU
In response to our finding, FSU requested that we “change the dollar value of unreported settlements to $0 (salaries were paid).”
Auditor’s Response: FSU
To clarify, during our audit testing, we noted that three FSU employee settlement agreements, totaling $4,550 (highlighted in the table above) were not reported to CTR as required by CTR’s “Settlements and Judgments” policy and Section 5.00 of Title 815 of the Code of Massachusetts Regulations. Accordingly, we did not remove these records from the finding or change the amounts (as requested by FSU in its response) because the documentation we reviewed indicated that these are employee settlement agreements. As a next step, OSA suggests that FSU work with CTR to ensure that the 3 payments related to settlement agreements were processed correctly.
Auditee’s Response: GCC
[OSA’s audit report states:] “We found that seven state agencies did not report 13 state employee settlement agreements to CTR as required,” GCC acknowledges that two settlements paid from agency funds were inadvertently not reported to CTR. As previously noted, the Massachusetts Community Colleges, including [chief financial officers] and [Human Resources], received training from [the Office of the General Counsel] in June 2025 on the recently updated CTR S&J Policy. The College is confident that its administrators understand the reporting requirements and that such omissions will not recur.
Auditor’s Reply: GCC
OSA appreciates GCC’s stated commitment to comply with CTR policies regarding reporting employee settlement agreements.
Auditee’s Response: MMA
There were two monetary settlement agreements that the OSA determined were not appropriately reported to the Comptroller of the Commonwealth, totaling $3,943.47. The Academy is committed to appropriately submitting for review to the CTR monetary settlements, regardless of whether the settlement agreement is funded through the Settlement and Judgment fund or self-funded by the Academy.
Auditor’s Reply: MMA
OSA appreciates MMA’s stated commitment to comply with CTR policies regarding reporting employee settlement agreements.
Auditee’s Response: MCLA
There were two monetary settlement agreements that the OSA determined were not appropriately reported to the Comptroller of the Commonwealth, totaling $18,139.00, which were processed through the College’s payroll and not submitted for payment through the Settlement and Judgment Fund. Both settlements were the result of the resolution of grievances. The College will appropriately submit for review to the CTR monetary settlements, regardless of whether the settlement agreement is funded through the Settlement and Judgment fund or self-funded by the College.
Auditor’s Reply: MCLA
OSA appreciates MCLA’s stated commitment to comply with CTR policies regarding reporting employee settlement agreements.
| Date published: | January 21, 2026 |
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