TRENTON—Nine municipalities have failed to take necessary actions to prevent illegal employee sick leave and vacation payouts, and the Office of the State Comptroller (OSC) notified State leaders it may request withholding funding to the towns if, after 30 days, the towns remain in non-compliance.

In July 2022, OSC 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. OSC directed the municipalities to provide corrective action plans that included specific provisions to identify and potentially recoup improper payments and prevent more wasteful payouts.

In a letter published today, and sent to Governor Phil Murphy and the Legislature, Acting State Comptroller Kevin Walsh noted that Bridgewater, Hamilton, Pennsville, Piscataway, Red Bank, Rutherford, Sparta, Wantage, and West New York failed to cooperate with OSC and had not addressed deficiencies identified by OSC.

“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 Acting State Comptroller Kevin 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.”

Most of the 57 towns in OSC’s 2022 report have complied with OSC’s recommendations and have corrected their sick and vacation leave policies. Some also are in the process of negotiating new contracts with labor unions and entering into side agreements. Many have notified labor unions of the unenforceability of illegal provisions in collective bargaining agreements.

Of the nine towns identified in OSC’s letter, seven failed to have an independent fiscal assessment. OSC requested this assessment to identify whether improper payments were made and need to be recovered, evaluate the strength of internal financial controls, and prevent self-dealing in the event management received unlawful payouts. OSC also directed towns to submit corrective action plans to the governing body for approval so that there is transparency about past improper payouts and improper provisions in current contracts and policies. Six of the nine towns failed to do that.

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.

Subsequent audits by OSC have found similar improprieties in other towns. 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 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. 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.

READ OSC’s LETTER

Sign up now for OSC's newsletter.  

To report government fraud, waste, mismanagement, or corruption, file a complaint with OSC or call 1-855-OSC-TIPS.