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Cost unknown? Mass. taxpayers on hook for millions of dollars in settlement fees

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Taxpayers have paid millions of dollars to settle disputes between the state and its public employees in recent years, but the true scope of costs is unknown due to “haphazard” record keeping and management, according to a new state audit.

“Mismanaging these agreements puts taxpayers at risk and silently condones the continued ability to exploit taxpayer dollars to protect powerful officials,” Massachusetts State Auditor Diana DiZoglio wrote in her nearly 150-page audit.

DiZoglio’s office reviewed 75 state agencies. The audit looked at settlement agreements reached between the state and employees. Settlement agreements are commonly used to end lawsuits, which can save the state and its taxpayers the cost of litigation and avoid potentially higher penalties at trial.

Tuesday, DiZoglio acknowledged the taxpayer benefits to settling employment disputes outside of court. But she said her office uncovered troubling trends concerning record keeping and the use of confidentiality agreements.

“[T]axpayer dollars may be weaponized to force employees into silence,” DiZoglio wrote in her report, later adding, “There is a risk that confidentially (sic) language may be used to cover up harassment, discrimination, or other unlawful behaviors, potentially allowing perpetrators to continue to remain in their position and engage in further unlawful behavior.”

The governor’s office, aware of the pending report, issued a formal, written policy addressing settlement agreements on Monday. Governor Healey banned the use of confidentiality agreements and called for “enhanced tracking of settlement agreements across the executive branch.” The governor’s office said it was merely formalizing a “pre-established approach” to employee settlements.

DiZoglio’s report sought any settlement agreements the state struck with employees between 2010 and 2022. It found 2,029 settlements costing more than $40,800,000 in taxpayer money. Fewer than 160 contained a non-disclosure or confidentiality agreement.

But DiZoglio said all numbers may be higher than reported due to poor record keeping.

“[S]ome state agencies had difficulties locating and producing these records,” DiZoglio noted in her report. “Some reported that they may have been destroyed because their records retention period had already expired.”

The audit criticized the state’s executive branch for its lack of a “centralized list of employee settlement agreements and supporting documentation.”

In its response to the auditor’s findings, the state said that “the executive department worked collaboratively and cooperatively with OSA to locate and produce information and documents from a thirteen-year audit period, nine years of which fell outside of the presumptive records retention period.”

“Over the thirteen-year audit period, many executive department offices and agencies underwent broad organizational changes or consolidated their human resources functions, updated their computer systems, and sent older case-related materials to offsite paper storage,” the state said in its response. “In each case in which settlement agreements could not be located, the offices and agencies explained… how its searches were conducted and why certain requested agreements could not be found. Consequently, we disagree with the report’s unfounded implication that settlement agreements have been ‘unlawfully withheld’ from OSA.”

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