Faced with its second harsh audit from state Comptroller Thomas DiNapoli’s Office in a three-month period, the Niagara Falls City School District is fighting back.

District officials formed a unified front Tuesday to challenge, again, the comptroller’s accusations they squandered $2.1 million by mismanaging employee health insurance benefits and ignoring a contract provision to switch retirees 65 and older to a less expensive supplemental plan. The district maintains it would have violated employee contracts and subjected itself to legal action had it switched programs, which the comptroller said would’ve saved $1.8 million.

“The comptroller’s position is that Medicare, with the supplemental plans available, provides ‘appropriate’ coverage,” said Board of Education President Robert Kazeangin. “However, contracts negotiated with the collective bargaining units require that the district provide equal coverage, not appropriate coverage, at the time of retirement.”

The audit said the district would not need to violate contracts, writing, “We contacted a representative from Blue Cross Blue Shield who indicated that customizable group supplemental Medicare coverage was available by mid-2007.”

But Kazeangin said Tuesday none of the plans available during the time the comptroller’s office audited, from July 2006 through this March, could provide equal coverage. A letter from Blue Cross Blue Shield to district officials dated Nov. 11 stated plans offered customization, but did not offer the same customization the insurance company is currently offering, which allowed the district to only recently move to a less expensive insurance package.

An equal plan became available around October and the board approved switching to a new PPO or preferred provider option to save the district $1.2 million yearly, which took effect Dec. 1. The district will save around $600,000 for the 2008-09 year, said Business Administrator Joseph Giarrizzo.

District attorney Angelo Massaro added an alleged breach of employee contracts in the Buffalo City School District led the Buffalo Teachers Federation to file a $40 million lawsuit against the school system this month.

“My office stands by the audit’s findings,” DiNapoli said in a statement issued responding to Tuesday’s press conference. “Our auditors reviewed the district’s health insurance arrangements and conducted an audit devoted solely to this issue. The audit found that the school district could have saved taxpayers more than $2 million if it had done its homework.”

The district took issue with other criticisms in the audit, including the comptroller’s findings that 14 retirees or spouses the district continued to be insured even through they were deceased, costing the district approximately $114,000.

Kazeangin said it was Flexcare, the district’s third party administrator’s, responsibility to track records, and the errors were likely due to a failure of spouses to report deaths rather than a fault of the district. All the payments have been recouped and Flexcare Administrator DeAnne Venditti said a procedure is now in place to update records every quarter.

The audit identified 23 retirees who inappropriately received incentive payments totaling $21,250 and five retirees who received health insurance they were not entitled to costing $44,339.

But district officials said four of the five were entitled to coverage and the incentive payments to 23 retirees were individually agreed upon and saved the district between $200,000 and $250,000.

“The district was able to ... talk with 23 retirees and offer them a monetary incentive in exchange for their accepting coverage of co-pays of $15 and $30 instead of the $5 co-pays they had enjoyed,” Kazeangin said.

The comptroller also said the district wasted $14,440 providing undue long-term care insurance to seven administrators, but Kazeangin said district policy allowed anyone in those positions to be entitled to long-term care after they retired unless the district passed a resolution to stop it. Kazeangin said it would be a “serious labor relations and legal issue” not to provide the long-term care.

When the school board approved Superintendent Carmen Granto’s retirement last month, they passed a special memorandum of agreement reaffirming long-term care insurance and health insurance covering medical, hospital, dental, vision, prescription and major medical expenses for Granto and his wife for the rest of their lives.

Massaro said it was a measure taken directly in response to the comptroller’s audit and the district is being more careful in setting policy.

“Ten years from now or five years from now, I don’t want an auditor coming in and questioning if (Granto’s) entitled to it,” Massaro said.

The school board now has 90 days to submit a corrective action plan to address all 14 recommendations to address problems. Nearly all problems have already been addressed, Kazeangin said.

This latest audit comes three months after DiNapoli’s office accused the district of wasting hundreds and thousands of dollars by overpaying employees, allowing too lax purchasing procedures and misusing credit cards. That audit had 33 recommendations for corrective action, including disciplinary action against Business Administrator James Ingrasci and Supervisor of Operations and Maintenance Lawrence “Butch” Beyer and “appropriate action” against Granto.