UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK X UNITED STATES OF AMERICA, Plaintiff,

90 Civ. 5722(RMB)

-against-

DISTRICT COUNCIL OF NEW YORK CITY AND VICINITY OF THE UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA,et al., Defendants. X

THE SEVENTH INTERIM REPORT OF THE REVIEW OFFICER

Dennis M. Walsh Review Officer The Law Office of Dennis M. Walsh th 415 Madison Avenue, 11 Floor New York, New York 10017 646.553.1357 dwalsh@dennismwalsh.com

TABLE OF CONTENTS Page, INTRODUCTION I. THE DISTRICT COUNCIL A. B. C. Full Mobility CBAs and the Compliance Requirement Information Technology and Business Practices Business Representative Interview Project 1. Background: The Job of the Business Rep 2. Business Reps' Views Cross-Training of Business Reps a. b. Rotation of Business Reps Morning and Afternoon "Debrief Sessions c. d. Two-Person Teams 3. Other Issues Raised and Solutions Contemplated D. RO Development and Implementation of Pilot Program for Business Representatives 1. Current Workflow 2. Pilot Program Workflow E. Review Officer Time Sheets F. Hiring of Counsel to "Deal with the RO" G. The OWL Department and its Many Hats H. Special Election for Executive Secretary-Treasurer An Imperfect Approach to Negotiating CBAs I. Confidential Organized Crime Investigations J. K. The Heart Scan Affair L. The District Council Compliance Function M. The Inspector General's Office N. Governance and the Delegate Body O. District Council Invocation of Privilege and a Requested Protocol P. District Council Policy on Steward Certifications and Bylaw Sec. 39 Q. Working Dues and Assessments System and the Dues Check Off Program R. MWA Arbitration Award and Related Matters S. On-site Review of Local Unions 1. Local Union Hall Access 2. Dues Payments 3. Professional Engagements 4. Insurance 5. Financial Matters Trustees' Training and Meetings a. b. Membership Meetings Bank Accounts c. d. Scholarship Fund Accounts Credit/Debit Cards e. Petty Cash f. 1 1 2 4 8 8 9 9 10 10 11 11 12 12 14 14 15 15 16 17 18 19 19 19 20 22 22 24 24 25 26 26 26 27 27 27 28 29 29 30 31

g. Review of Dental Insurance Programs 6. Business Records Bylaws a. b. Local Union Employee Policies T. Local Union Monthly Meetings U. The Trial Committee V. Man Hour Totals, Organizing and the Non-union Incursion -Work List W. The Out-of Letter to Douglas McCarron Regarding William Walsh Officer Review X. Y. Hurricane Sandy Contribution Review Z. The Review Officer Hotline AA. Review Officer Costs II. THE BENEFIT FUNDS A. B. C. D. E. The First Six Months Under the Executive Director The Benefit Funds' Chief Compliance Officer Outside Auditor IT Infrastructure Overall Condition of the Funds 1. The Pension Fund 2. The Welfare Fund Collections 1. Collection of Delinquent Contributions 2. Specific Litigation/Settlement Matters A Note on Outside Counsel Fees 395 Hudson: The Renovation Project

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F.

G. H.

CONCLUSION

"You never change things byfighting the existing reality. To change something, build a new model that makes the existing model obsolete." -Buckminster Fuller INTRODUCTION I submit this seventh semi-annual report pursuant to paragraph 5.m of the Stipulation and Order entered on June 3, 2010, in United States v. District Council, et al., 90 Civ. 5722(RMB) (the "Stipulation and Order"). It endeavors to inform the Court and the parties of the scope and substance of my activities for the past six months and convey my impressions of certain aspects of the undertaking. My responsibilities encompass review, investigative and oversight functions relating to the New York City District Council of Carpenters (the "District Council" or the "Council") and its Taft-Hartley fringe benefit funds (the "Benefit Funds" or the "Funds"). I. THE DISTRICT COUNCIL Though aspects of the administration of the District Council have improved over the last three years I cannot say the same about its governance or fundamental business practices. The fiduciaries responsible for the care and improvement of this organization -- and for insuring compliance with the orders of this Court (which approved collective bargaining agreements featuring full mobility on the premise that compliance provisions would be ironclad) -- have too often been content to ignore these imperatives and in some cases even failed to recognize them as such. Too many people associated with the District Council are frustrated by the zeal, even the very presence, of the RO's office, and by the pendency of Court orders. They yearn merely for political power, the homage of constituents, and the day when they can run the District

Council as they please. This despite that they have not engaged in any objective, critical thinking about the changes that must be made if this institution is to survive. A. Full Mobility CBAs and the Compliance Requirement The District Council has entered into collective bargaining agreements this year with five major contractor associations, which, in exchange for increased wages and benefits, grant the employer the right to select the carpenters (from local unions affiliated with the District Council) who will work on a job. Each of the contracts had to be submitted to and approved by the Court because a May 2009 order of the Court established a formula by which no more than two-thirds of the carpenters on a job could be selected by the employer. My office, the government and, most importantly, the Court conditioned their approval of the contracts on the implementation of a historic compliance program whereby shop stewards would promptly enter into a District Council database all hours worked -- via a tablet provided by the District Council or via computer. The entered time is then made available to the contractor via email notice. The contractor is then obliged to accept or dispute the time entered by the steward within five business days. Once accepted, the contractor is obliged to remit to the Benefit Funds the associated amount of contributions for fringe benefits. The linchpin of the system provides for members to have the ability to log into the database and read the amount of time entered by the steward and report any errors or suspicions of fraud. The reliability and success of the system depends on stewards complying with their obligations and entering the time (within 48 to 72 hours) and on the District Council having a thorough and efficient method to insure the accuracy and timeliness of the hours entered. The District Council is required by the Court's orders approving the contracts to submit progress reports on the compliance program every 30 days. To date, five such "30-day Reports"

have been submitted. As is evident from the data provided in the reports and as has been discussed in conferences with the Court, the District Council has failed to deliver a thorough and efficient method insuring the accuracy and timeliness of the hours entered. Accordingly, some six months after implementation, the compliance program is still not reliable. See Fifth 30-day Report (Docket no. 1431); see also Transcripts of Status Conferences on September 30 and November 18, 2013. The Court has scheduled a conference for December 4, 2013 on this serious issue. See Court's Order of November 25, 2013(Docket no.1434). In addition to the aforementioned problems, the District Council has not set a date by which the submission of all paper steward reports will end. If the District Council had a disciplined approach and firm commitment to reform in such matters, one would expect that such a date could easily be set for the very near future, perhaps 30 to 60 days hence. The District Council also needs to immediately (i) implement a procedure for promptly resolving disputes with employers about electronically entered time and for swiftly moving to grievance and arbitration proceedings, if necessary;(ii) end the telephonic reporting of work hours by stewards on jobs with three or more members (unless extraordinary circumstances warrant such a method, which should rarely occur); and (iii) implement a simple method whereby stewards can record electronically that a job has ended (whether temporarily or permanently). Finally, at my urging, the District Council and Benefit Funds have agreed on a temporary protocol whereby each week the Funds will be provided with the record of time entered by stewards on the 20 largest District Council work sites (by man hours). The data will then be compared to the records kept by the Funds of hours and fringe benefit payments remitted by the employers (through the recently installed i-Remit system). Until a method is implemented where all such District Council data is automatically sent to Funds' computers for cross-checking

(which I understand cannot occur until at least the spring of 2014), this interim method will serve as a hedge against incorrect reporting and fraud on the largest jobs. B. Information Technology and Business Practices On September 16, 2013, I filed a motion with the District Court with the goal of requiring the District Council to adopt my recommendations regarding the improvement of the District Council information technology ("IT") systems and its business practices. I was left with no choice but to do so after both the District Council Executive Committee and delegate body voted to reject the recommendations. I view both parts of the recommendations -- using technology and best business practices -- as imperative steps in insulating the District Council from corruption and racketeering. The District Council will realize many other benefits from these improvements, including accountability of employees and departments, efficiency in operations, the creation of searchable databases through which data can be used in a variety of ways to benefit the District Council and its membership, and the elimination of paper reporting and record keeping. These have been standard practices in the modern American business community for many years. The Benefit Funds started a similar process approximately two years ago and it is nearly complete. After rejecting my recommendations, and without rational explanation, the Executive Committee and delegate body then voted to hire new counsel to "deal" with my motion and my office, but also then voted shortly thereafter to form an IT committee, hire an IT consultant to assist the committee, and ultimately issue a request for proposals from IT consultants to implement a broad upgrade of the current, antiquated systems and practices (the precise result I originally recommended).

I have met frequently with Barbara Jones, the attorney engaged by the District Council, and various District Council managers to discuss the goal of achieving what is best for the District Council and bring about the changes necessary. Though these continuing discussions have been productive, the pace of progress has been modest. My motion has been held in abeyance to determine if my goals can be achieved in this manner. The specifics of my recommendations and related correspondence follow. Email from the RO to General Counsel James Murphy sent on July 23, 2013: As I said in the large group meeting last Wednesday the 171h, I would like to begin assembling the terms of a stipulation and order governing DC business practices, procedures and systems which would be executed by and between the DC, RO and the government. The document, in my view, should state, among other things, that the parties recognize that the DC needs to reconstruct its business practices, IT infrastructure and personnel needs in order to successfully perform its function and also achieve the eradication of corruption and racketeering and meet its remedial obligations as contemplated by the Stipulation and Order. See Paragraph 4.a. The DC would enter the agreement to avoid potentially protracted and expensive litigation with the Review Officer over enforcement of a range of formal recommendations. The document should establish a framework through which the Court can decide, in the absence ofagreement, what needs to be done by the DC in regard to: -hiring more employees (office workers as well as business representatives) and efficiently using and deploying them; -acquiring a modern computer system and tailored software to begin growing and using an interactive business database (as I discussed in the meeting; basically, the DC brain); -writing and publishing detailed business procedures and protocols. The document should establish a schedule for all of the milestones as well as a means ofcalculating costs and establishing budgetsfor each category (which will require the DC to spend money it currently has sitting in savings accounts and which currently brings very little benefit).

Email from the RO to Mr. Murphy sent on July 26, 2013: I hereby formally recommend to the District Council pursuant to Paragraph 5.h. viii of the Stipulation and Order that it conceive, acquire and implement the business technology systems, practices and procedures (and hire appropriate personnel) of which I spoke in the meeting on July 17, 2013, attended by you, the EST Pro Tem, Vice President, Director of Operations, the IG and CCO, managers of the representative center, and members ofmy staff among others. In the absence of the stipulation I requested in my email ofJuly 23rd being executed by August 16, 2013, I intend to move swiftly to seek an order from the District Court requiring adoption of my recommendations. In sum, and as I said in the large group meeting on the 17th, the recommendations concern modernizing and ameliorating District Council business practices, procedures and systems. The District Council needs to reconstruct its business practices, IT infrastructure and personnel needs in order to successfully perform itsfunction and also achieve the eradication ofcorruption and racketeering and meet its remedial obligations as contemplated by the Stipulation and Order. See Paragraph 4.a. The District Council must as quickly as feasible establish and implement the new business structure, including by -hiring more employees (office workers as well as business representatives) and efficiently using and deploying them and documenting their assignments and undertakings in a manner which minimizes the likelihood ofcorruption; -acquiring a modern computer system and tailored software to begin growing and using an interactive business database as the repository of all District Council business information and which will serve as the principal tool for all business practices (as I discussed in the meeting; basically, the DC brain); and -writing and publishing detailed business procedures and protocols consistent with the foregoing. Email from the RO to Mr. Murphy sent on July 29, 2013 To further refine what I will be seeking in the absence of agreement, I recommend that there be a category of representatives called client representatives or account representatives, as well as a basic category, line rep. Line representatives will be dispatched tojobs electronically. They will,for example, respond to ajob site after being dispatched, perform the duty assigned by the DC, and report back electronically on the handling of the assignment. A standard reportform should be used. This will be the official record ofthe rep dispatch and report. Multiple authorized DC persons will have access to the information. If the employer wishes to dispute or refine anything discussed by the line rep, he can then do that by communicating with the account representative.

The account rep should never visit the job by himself. Email should be used, but if telephone contact is made or received, the account rep must make a short, timely entry into the DC business system on the subject and the outcome. If necessary, a meeting should be held at the DC with the employer, account rep, line rep and business center lead to resolve any remaining issue expeditiously and in a compliant manner. Briefing and debriefing meetings should be held sparingly. Green sheets will be superseded and abolished. Specialty reps will also be in a line rep category and dispatched to non-specialty jobs as needed. There will be specialty account reps assigned to handle specialty employers in the same manner as described above. One's access to the DC database will be determined byjob description and will ofcourse be by password and username to insure an electronic trail and accountability. As of the time of this report, the District Council has agreed to implement a pilot program whereby a small number of business representatives will receive their assignments electronically (and report back the same way), will not be required to attend morning and afternoon debriefings at the District Council, and will be exempted from submitting time and task records to my office. The District Council has recently formed an IT Committee that has met twice. Proposals have been received from five technology consulting companies to provide assistance to the committee in reviewing the current use of technology, conceive all necessary improvements and draft and issue an RFP to vendors(by March 28, 2014), one of whom will be selected to engineer and install all necessary upgrades. The entire process will likely extend into 2015. Even if the District Council were to agree today to adopt every recommendation I have made, there would still need to be an Order entered by the Court documenting the associated undertakings and commitments, to guarantee a means of enforcement should the District Council fail to accomplish the results required on a specific schedule.

C.

Business Representative Interview Project In June of this year, RO staff began to interview District Council business representatives

to ascertain how they view their job responsibilities, as well as the manner in which they are currently required to perform them, and to solicit their opinions on specific procedural changes that might help improve efficiency. RO staff interviewed 21 of the 27 business representatives ("reps," as they are called at the District Council). RO staff also interviewed the lead regional manager and the two regional managers of the "business rep" centers. 1. Background: The Job of the "Business Rep" District Council business reps are responsible for policing the entire jurisdiction of the Council -- a craft jurisdiction that includes general carpentry, woodwork, dock building, millwork, cabinetry, scaffolding, floor covering, and millwrights and a geographic jurisdiction that includes New York City's five boroughs, and, for some crafts, Long Island, certain counties in upstate New York and parts of New Jersey. The business reps are in the front line of anticorruption efforts at the Council. Vigorous policing of the Union's jurisdiction includes

obtaining information on all job sites to assist the Council in enforcing the collective bargaining agreements. There are two business rep centers, one located in Manhattan and the other in Queens, to which the business reps report twice a day. A regional manager oversees each rep center, reporting up to the lead regional manager. Each rep center is divided into a number of geographical zones. Business reps are assigned to either a geographical zone or a specialty trade or to assist with the implementation of electronic reporting of hours and other administrative matters.

A typical daily routine for a business rep starts with going to the rep center for the morning briefing to receive assignments. New job starts and shop steward dispatches drive the assignments. Business reps receive up to 30 new job start notifications a day. The business reps use the daily job starts and shop steward dispatches to determine what job sites to visit, which stewards to contact, what members to call about electronic reporting of hours, and what other matters need their attention. The business reps are also required to fill out detailed time sheets (referred to as "RO timesheets") and send an email to their managers after every third job site visit listing the jobs visited and the contractor on site. All of the business reps reported that they were busy and, at times, overloaded with work. Many reported that they could not perform all of the assignments given to them in a particular day. Common themes as to why they could not complete all assignments include too much "paperwork" and, especially for those assigned to zones in Manhattan, being responsible for too many job sites. I 2. Business Reps' Views My staff discussed a number of specific issues and possible procedural changes with business reps during the interview project. a. Cross-Training of Business Reps The business reps unanimously support cross-training of business reps in all craft jurisdictions. The Council has implemented cross-training and has conducted training sessions in millwright, dockbuilder, floor coverer, timbermen and interior systems jurisdictions. The District Council also intends to conduct cross-training for other craft jurisdictions. The training sessions are in-person seminars conducted by subject matter experts and include visual aids.

Business reps assigned to certain zones in Manhattan can be responsible for well over 100 jobs, while those assigned to certain zones outside Manhattan are responsible for significantly fewer jobs.

Some business reps reported that they have used the training to assist them in identifying and rectifying some issues on job sites. b. Rotation of Business Reps Most of the business reps support rotating business representatives on a regular basis and agree that a one-year rotation schedule is appropriate (though in my view, the time should be shorter). c. Morning and Afternoon "Debrief Sessions Until recently, there was a morning "debrief' at the beginning of each work day that the bus reps were required to attend at their rep center. The business reps found them to be unhelpful and the regional managers have, for the most part, stopped holding the meetings. However, the regional managers still require, with limited exceptions, that business reps to report to their rep center each morning before beginning their work day. This results in some business reps driving by job sites that they are supposed to visit, then circling back to those sites after reporting to the rep center, a situation that is inefficient and frustrating to the reps who have to do it. Additionally, the regional managers require business reps to attend an afternoon debrief at approximately 2:00 p.m. Many business reps end their job site visits immediately after lunch in order to get to the rep centers in time for the afternoon debrief, even though job sites are typically active until 3:30 p.m. Thus, business reps spend many hours commuting to and attending meetings, rather than visiting job sites.2

The regional managers tested using telephone conferencing rather than physical attendance at the afternoon debriefs. The test was said to be unsuccessful due to a lack of a protocol for conducting such conferences.
2

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d.

Two-Person Teams All of the business reps except one thought that having a team of two business reps

perform their duties together was inefficient, would require the hiring of many more business reps and would not necessarily limit corruption. Additionally, the business reps and their managers pointed out that when there are indications of possible corruption or other major issues at a job site, the Council sends two business reps to the site. 3. Other Issues Raised and Solutions Contemplated With the candid cooperation of the business reps, my staff identified these additional changes for the Council to consider: (1) There should be formal, structured training for business reps and documentation of that training. The current practice is to pair a newly hired business rep with a veteran one for "on the job" training that can range from a few weeks to months. This ad hoc process creates inconsistencies in the training; (2) There should be standardized written policies and procedures governing the business reps' job responsibilities. Currently, the Council has no such policies and procedures or none of which the business reps are aware; (3) Daily morning and afternoon meetings should be eliminated. The sessions take too much time away from the business reps performing job site visits and other important tasks; (4) The Council should immediately increase administrative resources to perform some of the tasks now performed by the business reps, such as updating job folders, tracking shop steward compliance with electronic reporting requirements, addressing working dues assessment issues, collecting dues check off cards, and tracking tablets used by shop stewards. Using business reps to perform such tasks limits the number and thoroughness of their job site visits, an essential anti-corruption tool.

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I note a few additional observations made by the business reps:(1) technology should be utilized more extensively, especially for processing job profile sheets ("green sheets"); and (2) District Council leadership should communicate better with business reps, who often first learn important information from rank-and-file carpenters. D. RO Development and Implementation of a Pilot Program for Business Representatives As noted, one important tool in the District Council's anti-corruption efforts is visiting as many job sites as possible on a regular basis and obtaining and maintaining current information about employers, shop stewards, carpenters and the job sites. My staff and I have used information gathered from the business rep interview project, -Work List ("OWL") staff, District Council officers and RO timesheets to develop and Out-of implement a pilot program, agreed to by the Council, that uses technology to create a system that will afford business reps more time to visit job sites and to track and document their visits. The objective ofthe pilot program is simple: to develop and use technology in business processes. To assist in the implementation of the pilot program my staff documented the current business workflow, attached as Exhibit 1, and an accompanying pilot program business workflow, attached as Exhibit 2. Two business reps reporting to the Queens rep center were selected to participate in the pilot program. They are implementing the pilot program workflow. 1. Current Workflow The current workflow for business reps relies heavily upon the receipt of documents from the OWL department. Each night, the OWL department sends to each rep center documents including green sheets, shop steward dispatch records, non-shop steward dispatch records and one- and two-person job starts. Examples of these documents are attached as Exhibit 3. The business reps are required to process these documents every day.

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The green sheet is used by the Council to drive many of its business rep functions. It is used to document new job starts, job site visits by business reps and the progress of a job. Typically, a green sheet is created by the OWL department when an employer requests a job number for a new job and a steward to be dispatched. To dispatch a steward, a member of the OWL department handwrites certain information received from the employer, including the employer's name and the job site location. The green sheet is then used to dispatch a steward to the job. The name of the steward and the steward's telephone number are handwritten onto the green sheet. At the end of the night, all of the green sheets are sent to the appropriate rep centers. The next morning, the regional managers sort the green sheets and other documents from the OWL department into the various zones the Council has created for business reps. The business reps report each morning to their rep center to receive the documents for their zone. Business reps use the green sheets to determine which job sites to visit and in what order. After each job site visit, the business rep handwrites information gathered from the visit onto the green sheet. At the end of the day, the business rep returns to the rep center for the afternoon debrief and hands in the updated green sheets. While the Council maintains a database of information recorded on the green sheets, since the green sheets are handwritten, a Council employee must manually enter the information into the database. Though the Queens rep center generally updates its database in a timely manner, the Manhattan rep center is approximately seven months behind in its data entry. This delay severely limits the Council's knowledge ofjob sites assigned to the Manhattan rep center.

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2.

Pilot Program Workflow To minimize disruption in the rep centers, the pilot program will mimic the current

workflow except for specific changes designed to free up time for business reps to visit job sites by creating a workflow that is electronic and not dependent on handwritten forms and manual data entry. The specific changes in the pilot program flow from the current workflow are: (1) green sheets for the business reps assigned to the pilot program are created in an electronic form and maintained electronically; (2) the business reps are sent an email containing electronic prepopulated green sheets;(3) the business reps will not be required to attend the morning debrief and will begin their work day by reporting directly to a job site;(4)the business reps will fill out the green sheets electronically on their iPads and email them to the rep center immediately after each job site visit;(5) the electronic green sheets will be filed and maintained, with appropriate safeguards, on the Council's network hard drive; (6) business reps will not have to fill out RO timesheets or email the rep center managers after every three job site visits; and (7) business reps will not report to the rep center for the afternoon debrief My staff will monitor the pilot program and share the findings with the District Council to assist it in improving its business practices by utilizing technology. E. Review Officer Time Sheets Each week (since the first year of my tenure) all business reps, organizers and their supervisors have been required to submit written reports to me documenting what they do in each 30-minute increment of their work day. A well done example is attached as Exhibit 4. The time reports have been very helpful in the areas of accountability and assessing productivity. The best reports -- written by business representatives who clearly document what they

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encountered and did at site visits -- serve as the prototype for what such reports should say. The electronic reporting of business representatives should be consistent with this model. F. Hiring of Counsel to "Deal with the RO" On September 12, 2013, the delegate body passed a motion "to deal with the RO...." Exhibit 5. An advertisement was placed in the New York Law Journal. See Exhibit 6. Despite that the District Council's Chief Compliance Officer ("CCO") was directly involved in the interview process, the Council violated the Stipulation and Order by failing to give my office notice of the delegate body's vote (via email) to retain the attorney in question or the terms of the retention agreement. My office was similarly not provided with adequate appropriate prior notice of the interviews conducted by the District Council's General Counsel, CCO (who scheduled the interviews) and Vice President. I was presented with the retainer agreement after it was executed. The delegate body was not presented with the proposals presented by other law firms (a violation of Section 5(B)7 of the District Council Bylaws). The email sent to the delegate body to consider the "recommendation" of the above-referenced committee is attached as Exhibit 7. G. The OWL Department and its Many Hats The breadth and quality of work accomplished by the "Out of Work List" department, managed by Aaron Gholston, deserves to be specifically recognized. In addition to

administering the many facets of the OWL and dispatching members to jobs from the OWL, its chief responsibilities include maintaining records of skill sets and certifications held by members, receiving written and telephonic notice of new jobs from contractors, dispatching stewards to new jobs, processing written steward reports (via scanning), and receiving telephone reports of time worked on one- and two-man jobs (it is also receiving telephone reports from

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stewards on jobs with three or more members, something that should only occur in rare circumstances but is inappropriately being condoned by District Council executives). The department also telephonically attempts to communicate with timekeepers and contractors (on two- and one-man jobs, respectively) who have not reported work hours within the expected reporting time to determine the hours in question. The department accomplishes its principal tasks by fax, telephone, using three nonWindows systems and programs(ULTRA, AS400 and LIBERTY) and via hand-written records. Logically, as the beginning point for record-keeping relating to all new jobs, the functions of the OWL should be converted to modem electronic methods as soon as possible. H. Special Election for Executive Secretary-Treasurer In August 2013, the Court issued an Order granting my request to hold a special election (with modified election rules) for the remainder of the term of the Executive Secretary-Treasurer, which expires on January 11, 2015. See Court's Order of August 15, 2013 (Docket no. 1365). On September 24, 2013, after completing the review of petitions and candidate interviews, I issued a statement (which was sent as an attachment to a letter to the Court) regarding the candidate approval process required by Paragraph 5.k.iv of the Stipulation and Order. See Endorsed Letter of Dennis M. Walsh to Court with Enclosure (Docket no. 1421). The statement (in which I approved the candidacy of Greg Kelty) set forth the reasons why I declined to approve the candidacies of Pat Nee, Steven McInnis and James Noonan. A motion filed with the Court by Mr. Noonan requesting that my finding regarding his candidacy be set aside was denied. See Court's Decision and Order of October 23, 2013(Docket no. 1425). In order to have a contested election providing members with a choice, the election schedule was re-set to allow for additional candidates to circulate petitions and seek approval and

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nomination. Notice of the new schedule was sent on November 8th to all members. This process has resulted in two additional members having completed the petition process. The interviews of these men will be concluded this week and approval decisions regarding the two additional candidates will be made by December 11th. Ballots will be mailed by the American Arbitration Association on January 6, 2014 and will be counted by the AAA on January 24, 2014. The winner will be installed at the first delegate meeting thereafter. I. An Imperfect Approach to Negotiating CBAs The District Council currently invites all eight Executive Committee members to attend all collective bargaining sessions. As seen in the following email, I expressed my concern about the inequality and waste associated with this practice: Having received on July 15th notice of a collective bargaining session (with officials from the Javits Center), I asked if the entire executive committee would be attending. Mr. McInnis replied as follows: The entire Executive Committee as per the Bylaws is the Negotiating Committee and are invited. Attendance at all negotiations has varied due to individuals schedules. Myself Mike Cavanaugh, Chris Wallace, Ray Harvey, Rob Villalta have answered yes to the invite. Paul Tyznar has a scheduling conflict and will not be in attendance. We have not heard backfrom the others. Rob Stulburg and Javits Steward John Diodato will also be there. Sal Tagliafero President of Local 926 and Delegate requested to attend I will be calling him today denying that request. To which I replied: The precise language ofthe Bylaws is asfollows: (I) The Executive Committee shall have the primary responsibility for negotiating, and recommending to the Council Delegate Body for approval, all Collective Bargaining Agreements. Attendance of the entire Executive Committee is not required and when certain of its members are DC representatives, actually creates an issue. The negotiation of CBAs is not in the job description ofDC representatives, yet under the DC's current policy, they will draw full pay. Alternatively, it is not economically prudentfor a working member to

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give up his job to attend a negotiating session and thus must often forego attending in order to make a living. Based on your email, you expect at least three DC reps to be in attendance at the Javits negotiation. They will not be in the field checking jobs or otherwise be doing what they are actually getting paid to do. The approach of the DC is inequitable. The DC needs to consider an efficient and even handed approach to such negotiations that insures fair compensation and does not deprive the membership ofresources in thefield. In sum, a better policy for the District Council would be for the Executive Committee to meet regularly at a time when all members could attend and determine substantive negotiating points, as well as which informed and prepared team of negotiators (an appropriately sized subset of the full committee) would attend a specific session. The team would be authorized by the Executive Committee to negotiate a range of points and terms approved by the Executive Committee and report back. Such a policy and practice would also foster consistency in substantive terms (set by the Executive Committee) from one industry association to another. Members of the Executive Committee who do not have a specific role to fill in a session should not attend the session, particularly when they are Council representatives who should instead be performing their daily duties in that regard. J. Confidential Organized Crime Investigations My office continues to investigate the attempts of racketeers to infiltrate and exercise influence over this Union. We routinely share information learned from such investigations with prosecutors and appropriate investigative agencies. I am particularly grateful for the ongoing assistance of the Organized Crime Investigations Division of the New York City Police Department.

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K.

The Heart Scan Affair Certain of the top fiduciaries of the District Council (and two who are trustees of the

Benefit Funds) received free heart scans earlier this year from a vendor who sought to be named as a provider by the Benefit Funds. The fair market value of the procedure is $300 (according to the vendor). I attach as Exhibit 8 the email inquiry I sent to each of the men in question and their responses. L. The District Council Compliance Function The two quarterly reports presented to the delegate body by the District Council's CCO during the last six months are attached as Exhibit 9. In my view, they demonstrate that the CCO has not been adequately involved in the District Council's compliance with orders of the Court. The CCO must also take a firmer approach in his dealings with the senior executives of the District Council and strongly establish the independence of the office from management. Further, the CCO (at the District Council and at the Benefit Funds) should at all times refrain from performing any management task. M. The Inspector General's Office The quarterly reports by the Inspector General ("IG") presented to the delegate body in the last six months are attached as Exhibit 10. I have recommended to the IG that the reports should contain more substance, particularly in describing the types of investigations being undertaken and the types of resources being applied. Case numbers appear to serve more as a reference tool for slight matters or communications from members or third parties, rather than as an indication that a substantive investigation has been opened. Most importantly, the Inspector General should regularly confirm his views via email to responsible District Council executives when he has reason to believe that any policy or bylaw of

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the District Council is being violated and that any order of the Court is being, or even may be, violated. The IG has described to me circumstances when he has communicated such views to responsible managers, but has not confirmed his views in writing. The District Council Bylaws give the IG (and the CCO) strong protection from being terminated (neither can be released without the consent of the Review Officer and the United States Attorney's office). The IG must always aggressively strive to enforce the bylaws and policies of the District Council and his actions should always be memorialized with a written record. N. Governance and the Delegate Body Previous reports have documented concerns about the democratic process at the District Council and what must be accomplished for an acceptable, racketeering-resistant paradigm to be achieved. My concerns have not abated. As a democratic institution, the Council has made little progress in the last two years. Though usually provided with ample pre-read material before meetings, the delegate body remains a capricious, ill-prepared and under-informed group too easily manipulated by agendists who care nothing about critical thinking and the necessity of constructive change. In an effort to see what effect my absence from meetings would have, I have not observed a delegate meeting since September 12th (though the recordings of the meetings are always reviewed). The meetings remain crude, overly long, torturous affairs; profanity and theatrics reign and issues of real importance (such as the urgent need to grow man hours and the deep flaws in the Union's business model) get short shrift. Specialty collective bargaining agreements sought by the effected members of specialty local unions have been rejected. Motions are often poorly conceived and worded and debate is marred by bluster and ad hominem volleys. The apportioning of delegates based on the size of local unions means that many local unions have scant influence in the affairs of the Council and that one grossly-

20

oversized local union dictates the direction being taken by the Council.

The starkest

transgression against common sense was the rejection of my recommendations regarding information technology and business practices, the hiring of counsel to "deal" with me, and the subsequent vote to pursue everything I recommended regarding IT in the first place. Plainly, the results of the democratic process have been and continue to be discouraging. On its current path, the greatest threat to a successful democratic system at the Council is democracy itself. For many years, and particularly since January 11, 2012, the District Council has functioned as a business due to the yeoman efforts of employees who labor, in "middle office" and "back office" roles. It functions in spite of the vagaries of politics and usual lack of experience and business training of executives, who too often rely on tradition and dogma, receive no rigorous business training and manage with seat of the pants methods. Well-reasoned, standard operating procedures incorporating modern technology have not been prepared for key departments such as the business rep center. The lack of such formal procedures in critical respects forces too much business to be accomplished by inefficient methods. Time and resources are wasted and accountability is not certain. A business model incorporating a philosophy of constant, rigorous analysis and improvement of the business practices of the Union needs to be accepted and instituted. The reform accomplished at the District Council over the last three years has most often been the product of the progressive District Council Bylaws (negotiated by me and the UBC) and other initiatives of this office. In order for the Union to succeed on its own, the impetus for reform must come from within.

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O.

District Council Invocation of Privilege and a Requested Protocol The correspondence relating to the District Council's first invocation of attorney client

privilege under the Stipulation and Order, which occurred at the October 9, 2013 delegate body meeting, is attached as Exhibit 11 (sign-in sheets omitted). P. District Council Policy on Steward Certifications and Bylaw Sec. 39 Section 39 of the District Council Bylaws requires that stewards of the District Council obtain and keep current certifications of types of special training. Further, the District Council has for over seven years promulgated in a series of announcements in The Carpenter the official policy of the Union regarding the necessity of stewards obtaining and keeping current certifications. Every major collective bargaining agreement held by the Union contemplates that the Union will send a "certified" steward to a job. On October 18, 2013, I received the following message from District Council General Counsel James Murphy: See the attachedfrom Aaron Gholston in which he requests an extension [from] October 31, 2013 to March 31, 2014for the recertifications ofthe various skills required for Shop Stewards for them to retain their Shop Steward certification for dispatch through the OWL. For the reasons described by Aaron, Steve and Mike have no objections. Do you have a problem with this request and such an extension? I believe that this should be considered a one-time temporary measure because of the specific circumstances described by Aaron and the extension limited to March 31, 2014. I believe that this request should also be reviewed and approved by the Executive Committee at its next meeting under Bylaws section 12(C), with at least a report ofthis to the Delegate Body. The referenced attachment is attached hereto as Exhibit 12. I did not agree with the proposal, but did consent to a 30-day grace period on the condition that the District Council immediately communicate to all stewards the necessity of keeping the required certifications current and on file with the OWL department. The District Council endeavored to inform stewards of the

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imperative of keeping certifications current and on file and a few hundred attempted to comply. Those that did not, a published statement of the District Council said, would not be referred off the OWL as stewards. On November 26, 2013, I received the following request via email from a colleague of Mr. Murphy, Adrian Healy: This is to follow up on your prior agreement to an extension of the deadline for shop steward re-certifications. The deadline for all necessary steward certifications to be updated was extendedfrom October 31, 2013 to November 30, 2013. Thus, starting next week, stewards that did not obtain the necessary re-certifications will lose their certified status and become ineligiblefor dispatch. However, the Union has learned that the "30-day lag" provision under Section V of the OWL rules has prevented stewards from updating their OWL profiles to show the re[alny request by a shop certifications they've obtained. OWL rule 27 provides that, " steward for a change of skills listed in his or her personal profile on the Job Referral List will not go into effect until thirty (30) days after the request is made." This rule has prevented a substantial number ofshop stewards(100+) who have re-certified during the extension periodfrom updating their profiles. Under these circumstances, the Union would like to waive application of the 30-day lag provision and permit those stewards who have earned their re-certifications during the period from November 1, 2013 to December 31, 2013 to update their profiles immediately and remain eligible for dispatch. In other words, as soon as all necessary steward requirements are satisfied, they would be eligiblefor dispatch. We believe that this proposed waiver should also be reviewed and confirmed by the Executive Committee at its next meeting under the authority granted by Section 12 ofthe Bylaws with a report to the Delegate Body tofollow. Please let us know your thoughts on this as soon as you can. I replied as follows: The Union has been well aware ofRule 27 since its inception. My position is that all applicable rules must be applied, whether setforth in the District Council Bylaws or OWL Rules and that District Council policy, in some cases promulgated years ago, must be enforced. Any proposed change in policy must be reviewed by the RO under the plain terms ofthe Stipulation and Order. The problems you describe have resulted from the negligence of District Council

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management and the failure of members who want to serve as stewardsfrom following the requirement ofkeeping their certifications current. The net effect of the situation is that the District Council will be unable to follow its policy and comply with its Bylaws (which in this regard are clearly intended to serve as a deterrent to unqualified, racketeer-influenced persons serving as stewards), as it apparently will have no choice but to have stewards on jobs who either do not have current certifications or who will not be in compliance with Rule 27.

Q.

Working Dues and Assessments System and the Dues Check Off Program The District Council still collects the lion's share of working dues and assessments from

members through check or credit card payments to the District Council. The ending of the "blue card" program necessitated this method. Statistics regularly reported by the District Council's Chief Accountant show that, on average, approximately 95% of the monies owed by members are received each quarter. The new collective bargaining agreements between the District Council and the various employer associations provide for a dues check-off system, whereby, with the written consent of a member, an employer withholds a portion of a member's pay for forwarding to the District Council. The program is currently scheduled to begin this week. R. MWA Arbitration Award and Related Matters As previously reported, an arbitrator has issued a Merits Award and a Remedy Award with respect to a claim brought by the Manufacturing Woodworkers Association of Greater New York ("MWA") against the District Council, alleging that a trade show contractor, Gilbert Displays ("Gilbert"), was a competitor of the MWA employers and that the MWA employers were entitled to the more favorable contract rate given to Gilbert. See Fifth Interim Report at 13; Sixth Interim Report at 11. The Merits Award, issued in May 2012, found in the MWA's favor, a decision I disagree with principally because the MWA employers and Gilbert are not

24

competitors. The Remedy Award, issued in January 2013, was for approximately $8.3 million in damages to the MWA. The Remedy Award did not address benefit contributions, which the MWA had unilaterally begun paying at the Gilbert rate, but to the Benefit Funds rather than the Hollow Metal Fund, following the Merits Award. The award has not yet been confirmed in court and the money awarded has not yet been paid. Instead, since Spring 2013, the District Council, MWA, and Benefit Funds have been engaged in global negotiations in an attempt to resolve all issues and potential issues between and among them. It is my understanding that the parties are focused on reaching an agreement addressing the shortfall of benefit contributions to the Benefit Funds and that progress is being made in the settlement negotiations. Upon finalization of that agreement, the District Council and MWA will enter an agreement resolving the remaining issues that exist, including entry of a successor collective bargaining agreement. I have a number of concerns. Negotiations have been going on for a lengthy period of time, a time period during which the MWA employers have been making benefit contributions at the lower Gilbert rate and during which health coverage for the MWA employees has been harmed (the employees' benefits were suspended June 30, 2013). I am also concerned about the potential total sum of money the District Council will pay the MWA to satisfy the award and to recompense the Benefit Funds for the gap in contributions between the MWA and Gilbert rates. I will continue to monitor this and will contemplate what steps might be taken under the Stipulation and Order if a resolution is not imminent and reasonable. S. On-site Review of Local Unions Beginning in May 2013, my office conducted an on-site review of each of the eight Local Unions. We provided advance notice to the Locals, including a checklist of documents to be

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reviewed. See Exhibit 13. A staff member then visited each Local, reviewing the documents and, typically, interviewing the office manager. Overall, the Locals appear to be functioning in accordance with the Stipulation and Order. improvement, are set forth below. 1. Local Union Hall Access Access to the Local Union halls seems appropriately limited, with only the office manager and the president, treasurer and financial secretary typically having keys. Where a Local has only one or two employees, those employees also have access. 2. Dues Payments All of the Locals accept checks and money orders in payment of dues. Many of the Locals also accept credit cards, with two doing so online via the Local's website. Appropriately, none of the Locals accept cash. Some of the Locals deposit checks and money orders electronically, eliminating the need to make in-person deposits at a bank. The Locals that do not follow this procedure store the checks and money orders in a desk drawer until a deposit is made, typically one or two times a week. The checks and money orders were not always being adequately secured by the Locals, but this has been addressed with them and remedied. 3. Professional Engagements The Locals appear to be seeking professional assistance where appropriate. A11 of the Locals have hired an accountant to assist with periodic and annual audits, LM-2 and 990 (Scholarship Fund) filings, and bank account reconciliations. All but two of the Locals have engaged, or are in the process of engaging, legal counsel. Most of the Locals have retained the Findings, and any related suggestions for

26

services of an IT company to assist with their computer needs, as well as developing and maintaining a website. 4. Insurance Each of the Locals have surety bonds covering their officers and employees, as required by the UBC. In addition, each Local maintains current disability coverage for its employees, as well as worker's compensation and liability coverage. 5. Financial Matters A Local Union's oversight of its finances is the responsibility of its three trustees; its Executive Committee, which is composed of the Local's president, vice president, recording secretary, financial secretary, treasurer, conductor, and warden (or "officers"), as well as the trustees; and its membership. The duties of Local Union officers are set forth in the UBC Constitution. a. Trustees' Training and Meetings Each Local has trustees whose responsibilities include reviewing financial records of the Local and who report to the Executive Committee and to the members regarding whether those records are in order. To assist them in fulfilling these important duties, the UBC provides financial training for the trustees, which the trustees are required to take. See UBC Constitution, Sections 31A and 31B. Not all Local Union trustees have attended the training. Trustees from some Locals have not met consistently each month. Trustees of some of the Locals meet immediately before, or even during, the Executive Committee meeting, allowing insufficient time to properly review documents. Additionally, officers of some Locals were attending trustees' meetings, which ran the risk of the officers unduly influencing the trustees with respect to their evaluation of the financial records they are charged with reviewing. We

27

have advised the officers not to attend the trustees' meetings and have been assured that they have ceased doing so. I suggest that each trustee who has not already done so should attend the financial training provided by the UBC, making every effort to attend one of the earlier training sessions provided in 2014. A trustees' meeting should take place every month (and at least two trustees should attend those meetings). No one other than the Local's trustees, office manager and accountant should attend a Local's trustees' meeting. A trustees' report should be presented at every monthly membership meeting, including whether the financial records are in order. b. Membership Meetings The Locals do not have a standard method of reporting financial information to their members nor do they all report the same type of information at membership meetings. There is only one Local currently using both a profit & loss statement and a balance sheet to present bank account information, expenses, and overall financial health. Additionally, while the Locals present information on their General and Contingency Fund accounts (provided for in Section 54 of the UBC Constitution), some Locals do not present information on other accounts that they may have, at least not on a consistent basis. In addition, despite the requirement set forth in Section 54 of the UBC Constitution that members approve bills before there are paid, many of the Locals are paying their regularly recurring monthly bills prior to monthly membership meetings and without membership approval. Some Locals were also paying recurring expenses without 5.b notification to the RO, but that has been remedied. I suggest that as a general matter (and as I have previously said), all Locals should use some form of audio/visual aids for presentation of information to the members during their

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monthly meetings. It would be a more clear and efficient way to present sometimes complicated infoiillation. Only one Local is using audio/video aids (PowerPoint presentations) and the rest should begin doing so. When making its financial report at the monthly membership meeting, a Local should present a profit and loss statement as well as a balance sheet for each account. Additionally, all bills, even regularly recurring ones, must be presented to my office for 5.b review and must be reviewed by the membership. If a Local prefers to pay its regularly recurring monthly bills prior to the monthly membership meeting, it should submit to me and its membership a list of regularly recurring bills for approval. If the Local obtains both approvals, it may pay the bills, but should advise its membership of the payments that have been made at the membership meetings and give notice of amendments to the list of recurring bills. c. Bank Accounts Each of the Locals has not only General and Contingency Fund bank accounts, but other accounts. None of the Locals appear to have written guidelines regarding who has access to their accounts, what transactions, including transfers, may be conducted, and any monetary limits on the transactions. Additionally, Locals are not consistently reporting on these accounts at the

membership meetings. I suggest that Locals should create written guidelines governing access to, authorized uses of and any monetary limitations applicable to use of their bank accounts. Locals should review the status of each of their bank accounts at every monthly membership meeting. d. Scholarship Fund Accounts Seven Locals have Scholarship Fund accounts. All seven of the Scholarship Funds appear to have been established as not-for-profit entities, with IRS 501(c)(3) forms and

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formation documents (articles of incorporation or trust agreements). However, not all of the Funds have current formation documents and there are instances of non-compliance with the requirements set forth in the documents. In addition, not all of the Locals have written guidelines for qualification for, and selection and administration of, Scholarship Fund awards. Another notable issue is the continuing existence of Scholarship Funds for Locals that no longer exist, after having been merged into other Locals. My office has been in communication with the District Council or Locals into which the former Locals were merged regarding addressing this issue. Finally on this issue, the Locals are not reporting the financial status of the Scholarship Funds to their membership on a regular basis, if at all. My office has informed some of the Locals and will inform the others that their Scholarship Fund accounts should be reviewed and audited, like all others, to safeguard against irregular actions, and that they should regularly update members about the accounts. I suggest that Locals follow through with retaining and consulting with counsel to ensure that their Scholarship Fund documents meet all legal requirements. Additionally, Locals should engage professionals, with the selection process and standards for awarding scholarships contained in contracts with the professionals. The officers' or trustees' monthly reports at Local membership meetings should also cover their Scholarship Fund accounts. e. Credit/Debit Cards Seven of the Locals have a credit/debit card that is used periodically and for recurring monthly bills. These Locals had not notified my office of this practice. Upon becoming aware of it, we advised the Locals to develop policies and procedures regarding the usage and security

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of these cards. Six of the Locals have developed and implemented these policies and procedures and we are currently reviewing the policies and procedures from the other Local. f. Petty Cash While checks, money orders and electronic transfers appear to be the preferred instruments for conducting Local Union business, the Local's financial secretary or treasurer is permitted to maintain a petty cash fund. See UBC Constitution, Section 40B. The Local's trustees are required to audit the books and records of all accounts and provide a report to the membership. See id., Section 40C. Two of the Locals conduct some transactions in cash but do not maintain books and records reflecting the transactions. Essentially, they write checks to cash as they see fit. I suggest that the use of cash to conduct Local business should be ended. If the two Locals in question continue conducting cash transactions, they should set up petty cash funds and maintain appropriate books and records. They should have policies on the use of petty cash and a limit to the amount in their petty cash funds. The trustees should review the records of the funds and report on them to the membership. g. Review of Dental Insurance Programs My office also devoted resources to assisting certain Local Unions in establishing dental insurance programs for their members, and in reviewing the propriety of various steps taken by Local Unions, officers and third parties engaged in the process, as well as the associated contracts.

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6. a.

Business Records Bylaws All Locals are required by the UBC to have bylaws. In May of this year, the Locals were

advised of a change in the approval process for their bylaws and reminded by the UBC that their bylaws must conform to a specific format. To date, one Local has conformed its bylaws to the format and two others are in the process of doing so. The others still need to make the UBCrequired changes in order to be in compliance. Locals that have not conformed their bylaws to UBC requirements should do so immediately, as they were instructed to do by the UBC in May. b. Local Union Employee Policies Three Locals have personnel and sexual harassment policies and one is in the process of drafting these policies for presentation to its membership in January 2014. Three Locals advised my staff that they basically rely on the District Council's policies and procedures manual, which they maintain a copy of at their offices. One Local does not have any employee policies. I suggest that each Local should develop and implement personnel and anti-harassment policies and train their employees on the policies. This may be as simple as formalizing the fact that that they are adopting the District Council's employee policies, and training their employees on those policies. T. Local Union Monthly Meetings In April of this year, all Locals were asked to include the number of attendees at monthly membership meetings in their meeting minutes, to allow for more accurate tracking. With the exception of Local 740 (with an average turnout of approximately 20 percent), the Locals appear to have an average turnout of between one and four percent, based on the number of attendees compared to the total number of members in their Per Capita Reports.

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U.

The Trial Committee New rules for the Trial Committee were recommended by my office on July 15, 2013 and

adopted by the delegate body on August 28, 2013. The new rules are attached as Exhibit 15. The new rules, which were adapted from Section 54 of the UBC Constitution in consultation with the Trial Committee chairpersons and the District Council's CCO, give enhanced authority to the Trial Committees' presiding officer and eliminate the Executive Committee's ministerial functions performed at the "first reading" of charges, went in to effect on October 10, 2013. On September 13, I had vetoed an attempt by the delegate body to rescind the new rules. The veto statement is attached as Exhibitl6. Since their implementation, 48 cases have been heard and no complaints from any quarter have been received by this office. The cost of the Trial Committee Chairpersons since June 1, 2013 has been only approximately $30,000. V. Man Hour Totals, Organizing and the Non-union Incursion Man-hour totals obtained from the Benefit Funds show that the District Council has been unable to significantly increase job opportunities for its members. Exhibit 17. The statistics show that hours are flat and on a pace to merely match or only slightly exceed the totals in each of the last two years. One must conclude that the Organizing Department, despite its diligent implementation of its Area Standards campaign (which seeks to inform the general public about certain employers' failure to pay fair wages to workers), must be authorized to employ new methods if carpenters now with non-union employers are to be unionized and man-hours increased. W. -Work List The Out-of Contrary to the predictions of some, the advent of "full mobility" has not significantly -work list. Members are being referred off of the decreased the rate of referrals from the out-of

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OWL at a pace to match previous periods. Further, the "three dispatch rule" has achieved its intended effect of ending the over-stating or puffing of skills when registering to be placed on the OWL,as well as the quitting ofjobs before completion in order to take a chance that one's next referral will be for a job of longer duration. The slight decrease in dispatches is likely due to companies no longer making requests for members from the OWL, which counted as dispatches, and companies keeping apprentices. The following summarizes recent membership, OWL and dispatch trends: Journeymen in good standing 10/31/13 Journeymen in good standing 4/30/13 Increase in journeymen Reduction since 12/3/10 Members in arrears Numbers of persons on the OWL on 11/22/13: Local 157 Local 2287 Local 1556 Scaffolding Local 1556 Dockbuilders Local 740 Local 2790 Total Dispatch Statistics October 2013 320 Apprentices 19 Requests 307 Shapes 10 Denied Requests 1,075 Pure Dispatches 1,731 Totals April 2013 483 182 346 46 1,308 2,365 October 2012 438 236 293 31 952 1,950 13,226 13,122 104 2,068 801

4,346 250 169 284 144 83 5,276 (compared to 5,500 as of 12/2010)

The October 2013 dispatch figures include 83 trade show dispatches. Total activity from June 2013 through September 2013 follows: June 2013: 1,561

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July 2013: August 2013: September 2013: X.

1,681 1,825 1,517

Review Officer Letter to Douglas McCarron Regarding William Walsh By letter dated October 9, 2013, UBC General President Douglas McCarron decided a

protest filed with him by a Local Union 157 member regarding the eligibility of another member, William Walsh, to run for a delegate seat (representing Local 157). Mr. McCarron ruled that Mr. Walsh was not eligible to run, finding that he was not depending on the trade for a livelihood as required by Section 31D of the UBC Constitution. Understanding that Mr. Walsh had been unable to work due to a knee replacement, but that he had returned to work as quickly as he was able, and that he had been thus limited in his income to a disability pension paid by the Benefit Funds, I wrote to Mr. McCarron to seek guidance on the proper interpretation of Section 31D. The letter of the General President dated October 9, 2013 and my letter of November 7, 2013, are attached as Exhibit 18. In deciding the protest, Mr. McCarron directed Local 157 to rerun its delegate election (for 48 seats in the District Council delegate body) held in June. The Local also sent a letter to Mr. McCarron seeking, among other things, further consideration of the Walsh disqualification and clarification on proper interpretation of Section 31D. That letter is attached as Exhibit 19. Local 157 has not yet held the rerun election or sent notice of such an election. Its delegates remain in service in the District Council delegate body. Y. Hurricane Sandy Contribution Review My office reviewed the applications for and awards of $3,000 made by the District Council to some 60 members who suffered economic loss as a result of Hurricane Sandy. Though the application process did require basic proof of loss such as verified insurance claims

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and photographic evidence, we did not feel that all claims were equally situated and suggest that if such donations are made in the future, a more rigorous procedure should be employed to prevent marginal and unmerited claims from being paid. Z. The Review Officer Hotline In the last six months, the Review Officer "Hotline" has only received a total of 10 calls, none of which reported serious matters relating to corruption. AA. Review Officer Costs The last six bills submitted by this office to the District Council are attached as Exhibit 20. All have been at the low end to median of the range of total monthly costs contemplated by paragraph 8.b of the Stipulation and Order.

THE BENEFIT FUNDS A. The First Six Months Under the Executive Director Under the leadership of its new Executive Director, Ryk Tierney, and with the support and engagement of its Board of Trustees, the Benefit Funds is being run professionally and a number of important improvements are being made. During his first six months of service, the Executive Director has made a significant commitment of time and energy to improving both the operation of the Benefit Funds and the morale of Funds' staff. He has familiarized himself with all facets of the Funds' operations and administers the Funds knowledgeably and pragmatically. He holds bi-weekly senior staff

meetings, establishing goals to be met. He holds monthly meetings with staff, at which training is provided. He has staff working in committees on specific Funds' projects, such as the new website discussed below. He has helped the trustees avail themselves of appropriate conferences.

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Overall, there appears to be improved communications at the Funds and a more constructive work environment. The Executive Director has made a number of critical hires. Importantly, he has hired a Human Resources Director, filling a void that was created with the departure of the initial HR Director over a year ago. Among the responsibilities of the new HR Director, who brings over 20 years of relevant experience to this position, is fine-tuning and administering the HR Plan. She is currently preparing to conduct the first annual performance reviews since coming on board. In this regard, she has worked on modifying the evaluation form to reflect core

competencies and on revising the ratings system. She has also participated in training directors, managers and staff regarding the review process. In addition to these responsibilities, the HR Director will serve as someone who staff may come to with questions and concerns. It is my hope that this will further improve morale as well as serve as a hedge against corruption. The Executive Director has also hired a Records Retention Coordinator, who is reviewing and organizing the mass of documents that have been stored (or, perhaps more accurately, piling up) at the Funds' office for years. This includes ascertaining those documents that must be maintained on site at the Funds and those that may be shipped off site and maintained in storage. In her relatively short tenure, she has already catalogued the Funds' records and moved over 3,000 boxes of records off site to a leased facility. Her next project is reviewing and organizing the records of the Hollow Metal Funds. She will have continuing responsibility for overseeing records management, as well as following destruction guidelines. The importance of this function, which enhances transparency, fosters efficiency, creates price savings and facilitates meeting regulatory requirements, cannot be overstated.

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The Executive Director appears to work well with the Funds' Chief Compliance Officer ("CCO"). The Executive Director has worked with the CCO to address audit findings of the outside auditor S&P. He has fostered an environment where the CCO can develop and implement internal controls (discussed below). It is critical that this commitment -- by the Executive Director as well as the trustees -- continue. As I have stated since the beginning of my tenure in communications to the trustees and in my interim reports, a robust compliance function is among the most important components of Funds' governance. The Executive Director has overseen a number of major projects, including the switch from ADP to I-Remit for employer remittances of benefit contributions to the Funds; the roll-out of the new IT system ("URBAN"), which is to become operational in February 2013; and the renovation of the Funds' office space, which is ongoing. (URBAN and the renovation are discussed in greater depth below). To better serve the Funds' participants, the Executive Director has demonstrated a commitment to improving the service provided by the call center to carpenters and their families. Additionally, he has spearheaded development of a state-of-the art Funds' website that will enable participants to readily access information at their convenience; the website will go live when URBAN does in February. Finally with respect to membership service, he is developing a quarterly newsletter, which will be distributed beginning in January 2014. One of the next major projects the Executive Director will undertake is developing standard operating procedures for Funds' operations. The CCO has already made progress in this respect, as discussed below.

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B.

The Benefit Funds' Chief Compliance Officer Under the leadership of its Chief Compliance Officer, Julie Block, the Benefit Funds is

building a robust compliance program, developing and implementing internal controls, conducting audits, serving as an important resource with respect to the records retention project, and providing compliance and ethics training. The CCO recently gave her second semi-annual report at the November 21, 2013 Board of Trustees meeting. The CCO is continuing her assessment of Funds' operations and has developed and implemented policies and procedures and internal controls, including procurement procedures for the Benefit Funds and the Labor Technical College ("LTC"); a fixed asset inventory and capitalization policy; procedures for voiding outside pension checks and notification of deceased pensioners; procedures for reviewing charity and relief requests; procedures for handling subpoenas and document requests; and procedures related to the LTC sales tax exemption. The CCO has also developed check processing procedures for pension, disability and supplemental checks to be implemented when the Funds bring the process inhouse with the roll out of the URBAN system (discussed below). Additionally, the CCO has conducted a number of audits, including of travel and expense reports, the LTC logo wear store and URBAN user security. Other notable efforts have been developing a vendor integrity check list to be used in connection with procurement, a no gift policy in advance of the holidays, and, with the assistance of outside counsel, an ERISA 411 certification form in connection with the prohibition of individuals convicted of certain crimes serving employee benefits funds. The CCO has also distributed Conflict of Interest forms to Funds' staff and provided training on this topic.

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Upcoming projects include continuing to draft internal controls, with a focus on the accounting department; auditing accounting procedures, to assess compliance with the procedures; having some departments do self-audits and following up on them as indicated by the findings; reviewing servicer provider agreements, to assess compliance with the terms of the agreement; conducting the annual employee survey and working with the Executive Director and HR Director to revise the Compliance and Ethics Program ("CEP")adopted back in April 2012. With respect to the CEP, I have a few observations. When the CEP was developed and adopted, two Funds' employees who held other senior positions were designated compliance chief and deputy chief That was the best solution available at the time. I was concerned that the responsibilities borne by those two employees might be too great or that compliance would not be their priority. I believe that turned out to be the case. Having an outside compliance professional like Ms. Block serve as CCO has been very effective and should be the model going forward. Ideally, compliance should always be an independent function. C. Outside Auditor In addition to working on the audit for the fiscal year ending June 30, 2013, the Benefit Funds' outside auditing firm, Schultheis & Panettieri ("S&P"), has been conducting two projects at the request of the trustees: an audit of the finances associated with management of the physical building at 395 Hudson Street and an expense allocation study. Earlier this Fall, S&P completed the expense allocation study, which was designed to determine the appropriate allocations of shared expenses among the various separate funds (Welfare, Pension, Annuity, Apprenticeship, and Relief and Charity), and other related entities (e.g., District Council and local unions). Among the expenses reviewed were employee payroll,

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occupancy costs, payroll audits, data processing and support, computer expenses, legal expenses, consulting expenses, postage, fiduciary insurance and administrative expenses. The expense allocation study confirmed that in large measure, the Benefit Funds have been properly allocating expenses. There will be a decrease of approximately 6% in the Welfare Fund's share of projected expenses and nominal decreases with respect to the Pension and Annuity Funds. Decreases will be largely absorbed by the District Council, LTC, Hollow Metal Funds and Relief and Charity Fund. At its Administrative Committee meeting on November 19, 2013, the Trustees gave their formal approval to the expense allocation study and its findings will be implemented retroactively to July 1, 2013. S&P has also conducted an audit of 395 Hudson-associated finances for period from July 1, 2012 through March 31, 2013 and is working on finalizing its report. To that end, S&P is liaising with the building's QPAM and we expect that process to be completed by year-end. D. IT Infrastructure By July 1, 2013, the Funds successfully transitioned its collection of employer benefit contributions from outside provider ADP to its internal i-Remit system. Eight hundred employers are using i-Remit to make their benefit contributions and staff has been reaching out to employers who still manually remit to encourage them to use i-Remit. Additionally, as of this month, i-Remit is being used to accomplish member dues remittance. With i-Remit fully operational since July, the Funds have been focused on preparing for the roll-out of its overarching IT upgrade, referred to as URBAN. On October 1, the Funds began parallel testing of its current system and URBAN,entering the same information into both systems. I understand that the Executive Director and Project Manager are communicating on a

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weekly basis with each department regarding any issues spotted. With respect to preparing Funds' staff, the focus has shifted to training Funds' staff one-on-one at their desks as the time for roll-out approaches. URBAN is scheduled to go live on February 3, 2014. The Funds' contract with the service provider for its current system, Standard Data Corporation ("SDC"), ends in March 2013. I note that SDC has sued the Benefit Funds for money it claims to be owed for efforts to develop a new computer system for the Funds, called Benefits Management System or BMS, the Funds have answered and counterclaimed for the money it paid toward that project and SDC has answered the counterclaim. See Standard Data Corporation v. New York City District Council of Carpenters Pension Fund, et al., Docket No.: HUD-L-1783-/3. E. Overall Condition of the Funds At the November 18, 2013 court conference, the Executive Director provided a presentation on the state of the Pension, Welfare, Annuity and Apprentice Funds, showcasing their currently healthy condition. As the Executive Director reported, the Pension Fund has recently been certified as being in the "Green Zone."(Under the Pension Protection Act of 2006, the Green Zone is a designation indicating that a pension fund is over 80% funded and is not expected to have a funding deficiency for the next six years. As of July 1, 2013, the funding percentage for the District Council's Pension Fund is 89.4 percent). The Executive Director also reported that the Welfare Fund has a reserve of 11.8 months (meaning that it could pay benefits for that period of time without receiving any contributions). The Executive Director reported that the rate of return on investments for the Pension and Welfare Funds is favorable compared to the relevant policy indices. He did not report any concerns with respect to the Annuity or Apprenticeship Funds. He noted that the Trustees are reviewing alternatives to the

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Apprenticeship Fund's assets being in a money market. See, generally, Transcript of November 18, 2013 at 3-11. Below is a snapshot of the current condition of the Pension and Welfare Funds, based on the most recent presentations by its consultants. 1. The Pension Fund According to the report of its investment advisor at the November 19, 2013 Administrative Committee meeting, as of October 31, 2013, the assets of the Pension Fund had a market value of approximately $2,424,955,000. Some indicia of how the Fund is performing include that: Performance for January 1 through October 31, 2013 was up 15.67% compared to the policy index of 13.26%; performance for the 12 months ending October 31, 2013 was 18.36% compared to the policy index of 15.97%; and performance for July 1 through October 31, 2013 (the current fiscal year to date) is up 6%, compared to the policy index of 7.14%. Looking at the Fund's recent historical performance as a further source of comparison, as of September 30, 2012, the assets of the Pension Fund had a market value of approximately $2.09 billion and, as of April 30, 2013, the assets of the Pension Fund had a market value of almost $2.3 billion. See Fifth Interim Report of the Review Officer at 34; Sixth Interim Report of the Review Officer at 34. Clearly, the value of the Pension Fund's assets has increased over the six-month and approximately one-year periods, although the past few months reflect a positive performance that is lower than the benchmark. It also should be noted that the value of the Fund's assets includes the appraised value of the building at 395 Hudson, which is in large part owned by the Pension Fund and has been an especially strongly performing asset, and that performance percentages are net of fees.

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2. a.

The Welfare Fund Condition of the Fund According to the report by its investment advisor at the November 19, 2013

Administrative Committee meeting, as of October 31, 2013, the assets of the Welfare Fund had a market value of approximately $221,001,083. Performance for January 1 through October 31, 2013 was up 3.58% compared to the policy index of 3.12%; performance for the 12 month period ending October 31, 2013 was up 4.69% compared to the policy index of 3.91%; and performance for the current fiscal year to date is up 3.31% compared to 2.95% for the policy index. Looking at the Welfare Fund's recent historical performance as a further source of comparison, as of September 30, 2012, the assets of the Fund had a market value of approximately $203 million and, as of April 30, 2013, the assets of the Fund had a market value of approaching $208 million. See Fifth Interim Report of the Review Officer at 35; Sixth Interim Report of the Review Officer at 35. As noted in my previous reports, the most important indicator of the Welfare Fund's health and stability is man hours. For the year ending July 2013, man hours for the Welfare Fund were slightly below a disappointing 16 and a half million and thus similar to the hours reported last fiscal year. On the positive side, the Welfare Fund continues to experience improved performance of its investments. Additionally, a number of new CBAs have been entered that include an allocation increase of over $2 per hour payable by the employers to the Welfare Fund, further supporting the health of the Fund. Another positive is that the plan changes made in June 2012 are having an effect (as explained by the Funds' consultant at the November 21 Board of Trustees' meeting).

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b.

Litigation Initiated By Retirees As previously noted, in anticipation of the imposition of retiree premiums effective June

2012, on May 25, 2012, a number of retirees sued the Welfare Fund in the Southern District of New York. See Patrick Enright, et al. v. New York City District ofCarpenters Welfare Fund, 12 CV 4181 (JPO). The plaintiffs challenged the retiree premium requirement for Welfare Fund coverage, essentially alleging that retirees are entitled to free coverage for life, as well as the now discontinued blue card deduction program. Up until June 2012, the blue card program was the means by which working dues were collected from union members, basically by the Funds deducting the dues from the members' vacation benefits based on authorization cards and then forwarding the dues to the District Council. The blue card program was challenged because the Funds were not compensated by the District Council for its role. In February of this year, the District Council reimbursed the Funds approximately $1.7 million for the cost of administering the dues deduction program and interest. See id(docket # 73 at 4-5). Since the Sixth Interim Report, on July 10, 2013, the Court ruled on the parties' motions for summary judgment. The Funds prevailed in defending the retiree premium requirement. With respect to the blue card program, the Court found that there had been a prohibited transaction under ERISA, but the only remaining issue is whether the $1.7 million in administration fees paid to the Welfare Fund by the District Council is sufficient. See id. at 35. It is our understanding that discovery was to be completed in December, but may be extended until February 2014. F. Collections The Benefit Funds has continued its efforts to maximize collection of employer contributions and other monies owed, as detailed below.

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1.

Collection of Delinquent Contributions Virginia & Ambinder("V&A") has now been collections counsel for the Funds for over

two years. V&A continues to handle a very heavy collections workload, including 53 active litigations, 136 arbitration matters, 21 bankruptcies, 45 matters without pending legal proceedings, 215 judgment enforcement matters and 38 audit referrals as of the monthly status report that V&A provided to the trustees on November 4, 2013. As of the Delinquency Committee meeting held on November 13, 2013, V&A's efforts have resulted in total recoveries of almost $12 million ($11,934,218), with associated legal fees of approximately $1.65 million and costs of approximately $175,000. Taking into account audit fees of $1.7 million, that is a net positive of over $8 million. It is my understanding that the net positive is understated because a significant portion of the audit fees was for time-consuming anti-corruption audits before V&A's tenure. The trustees and V&A are appropriately focused on reducing audit fees in a way that does not adversely impact collections and they continually evaluate the costs that are being incurred. The trustees regularly ask questions regarding audit costs and V&A undertakes to review costs and makes policy recommendations. That focus is appropriate and should continue. The trustees should also move forward with finalizing the Revised Collection Policy. Going forward, additional attention should be given to ways to ways to minimize delinquencies on the front end. It is our expectation that the use of i-Remit and URBAN will enable early identification and remediation of delinquencies, although that remains to be confirmed. Thought should be given to whether there are any additional efforts that can be undertaken to avoid delinquencies in the first place (be it through increased due diligence,

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bonding requirements, employer guarantees or otherwise) or to enable early detection. This would seem to require coordination with the District Council and is likely somewhat dependent on the District Council's IT modernization efforts. 2. a. Specific Litigation/Settlement Matters Civil RICO Case against Former EST Michael Forde and Others As noted in prior reports, the Benefit Funds brought a civil RICO action against a former EST of the District Council, Michael Forde, and others "to recover millions of dollars embezzled from the Funds by the defendants, who conspired and engaged in a scheme to enrich themselves at the expense of the rank-and-file union members and thousands of other beneficiaries of the Funds." Third Interim Report of the Review Officer at 51 (quoting Ex. 44 to that report at 2), Sixth Interim Report of the Review Officer at 38. Following the denial in March 2013 of motions to dismiss by some of the defendants, even though there has not yet been a determination of liability, the case has been in the asset discovery phase. b. Lawsuit against O'Dwyer & Bernstein As noted in the Sixth Interim Report of the Review Officer, in January 2013, the Benefit Funds brought a legal malpractice case against O'Dwyer & Bernstein in connection with ODB's handling of collections matters. See Sixth Interim Report of the Review officer at 39 and Exhibit 19 thereto. The case is in the discovery phase. In October, the Funds filed a Request for Judicial s failure to respond to discovery demands. Intervention based on ODB' c. Settlement with Stuart GraBois In June 2013, a former Executive Director of the Benefit Funds who retired in 2011, Stuart GraBois, entered a settlement agreement with the Funds of fiduciary claims the Funds

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believed they could maintain but which Mr. GraBois denied and asserted were without legal or factual basis. In September, the settlement amount - $99,000 - was paid. G. A Note on Outside Counsel Fees I have periodically commented on counsel fees in these interim reports, with a particular interest in economies achieved. Fees of the Benefit Funds outside counsel, Kauff, McGuire & Margolis LLP("KMM"), have decreased over time, and notably so in the past few months. This appears to be due to capable management by the Executive Director and his new team of professionals, as well as to the guiding hand of KMM. H. 395 Hudson: The Renovation Project The renovation project at 395 Hudson is ongoing. As previously reported, the building at 395 Hudson that houses the District Council and the Benefit Funds, among other tenants, is owned by the Pension Fund and the Apprenticeship Fund. Renovation was undertaken to facilitate operation of the Funds in less space and enable leasing of freed up space. The Benefit Funds, which previously occupied the Stn Floor and part of the 9th Floor of 395 Hudson, will be

located exclusively on the 9th Floor. At the November 21 meeting of the Board of Trustees, the Executive Director reported that the renovation of the ninth floor is 90% complete, with millwork and finishing remaining to be done; the renovation is now expected to be completed by January 14, 2014. The eighth floor is to be entirely vacated by the Funds (of property and a couple remaining staff members) by the end of December and demolition work will commence so that tenants can build out the space to suit their needs.

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CONCLUSION Relationships ofownership, they whisper in the wings To those condemned to act accordingly and waitfor succeeding kings And I try to harmonize with songs, the lonesome sparrow sings There are no kings inside the Gates ofEden Bob Dylan Niccolo Machiavelli wrote "many men have imagined republics and principalities that never really existed at all. Yet the way men live is so far removed from the way they ought to live that anyone who abandons what is for what should be pursues his downfall rather than his preservation; for a man who strives after goodness in all his acts is sure to come to ruin, since there are so many men who are not good." Machiavelli thus concluded that "it is necessary that a prince who is interested in his survival learn to be other than good, making use of this capacity or refraining from it according to need." The history of the District Council has never included a period when its leaders have risked "ruin" to abandon what is for what should be. If that does not change immediately, all imaginings of a better day will have been for naught, and a period of protection and enlightenment wasted. The walls will suffer no breach. The doors will be opened to scoundrels forced to the hinterlands for a spell but served well by their minions in the interregnum. It will be no solace that their reign will be short, for in the absence of what should be, there will one day be little left to covet.

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Dated:

New York, New York December 3, 2013 Respectfully submitted,

Gik/ Dennis M. Walsh Review Officer The Law Office of Dennis M. Walsh 415 Madison Avenue, 11 th Floor New York, New York 10017 646.553.1357 dwalsh@dennismwalsh.com Bridget M. Rohde Of Counsel Mintz Levin Cohn Ferris Glovsky and Popeo,PC 666 Third Avenue New York, New York 10017 cc: AUSAs Benjamin Torrance and Tara LaMorte U.S. Attorney's Office, Southern District of New York 86 Chambers Street, 3`d Floor New York, New York 10007 Barbara S. Jones, Esq. Zuckerman Spaeder LLP 1185 Avenue of the Americas, 31sr Floor New York, New York 10036-2603 James M. Murphy, Esq. Spivak Lipton, LLP 1700 Broadway, Floor 21 New York, New York 10019 Raymond McGuire, Esq. Kauff McGuire & Margolis LLP 950 Third Avenue, 14th Floor New York, New York 10022

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