Audit of Settlement Agreements and Confidentiality Clauses Across Multiple State Agencies - Division of Banks (January 28, 2025)
January 28, 2025 · Division of Banks · Read the full official report on mass.gov ↗
Published January 28, 2025 Audit covers January 1, 2010 – December 31, 2022 Under Diana DiZoglio · 2023–present
source
“There exists little more than a haphazard approach to executing settlements, including those containing confidentiality clauses, with an informal, verbal policy that was allegedly promulgated around 2018 regarding non-disclosure language.”
Read the plain-English breakdown
This is a state audit of employee settlement agreements and confidentiality clauses used by the Governor's Office, its agencies, and the Comptroller from 2010 through 2022.
“This audit was conducted on the Office of the Governor (GOV) and its subordinate agencies, as well as the Office of the Comptroller of the Commonwealth (CTR), for the period January 1, 2010 through December 31, 2022.”
The audit looked at whether agencies properly reported money-related employee settlements to the Comptroller and whether they had rules for using confidentiality or nondisclosure language.
“In this performance audit, we determined the following:”
The report says poor controls can hide misconduct, silence employees, and misuse taxpayer money.
“Mismanaging these agreements puts taxpayers at risk and silently condones the continued ability to exploit taxpayer dollars to protect powerful officials.”
As a taxpayer and resident, this matters because public money may be used in settlements, and the public may not be able to see clearly how or why those payments were made.
“This results in an inconsistent process that is not transparent to the citizens of the Commonwealth regarding how their public employees are treated or how their tax dollars are being spent.”
The auditor found no documented statewide system for approving, creating, tracking, retaining, or publicly reporting these employee settlements in a consistent way.
“The Administration has no apparent standard approach to records retention, no single point of data collection or analysis, and no demonstrable management of agencies’ use of confidentiality agreements.”
The auditor recommends written policies, centralized oversight, better reporting, limits on confidentiality language, and possibly an executive order and legislation.
“Your office has committed to taking actions on some of our audit’s recommendations.”
The report frames this as a transparency, ethics, and accountability problem because settlements can reveal warning signs inside agencies, especially when employees may be vulnerable.
“These agreements represent an inflection point, where executive management can become aware of practices inside agencies where potential abuse or other inappropriate activity may be occurring.”
A settlement agreement is a written deal used to resolve a claim or dispute without continuing a lawsuit or formal fight; confidentiality language can restrict what people say about it.
“For the purposes of this executive order, the definition of settlement agreement shall mean a written agreement resolving any claim (as defined by 815 CMR 5.02), written or unwritten, by any claimant for damages to compensate an injury or wrong allegedly suffered, directly or a result of the Commonwealth failing to prevent such damages, including but not limited to personal injury, violation of civil rights, breach of contract, failure to comply with contract bidding laws, assault, harassment, discrimination, retaliation, whistle blowing, incorrect or improper personnel determinations regarding pay, promotion or discipline, failure to comply with statutory or constitutional provisions applicable to employment, and eminent domain taking damages, misconduct, including any attorney's fees and interest associated with these claims.”
3 figure(s) pending source verification - not shown
What the Auditor checked
- Did not comply Did state agencies report monetary state employee settlement agreement claims to CTR in accordance with Section 5.09 of Title 815 of the Code of Massachusetts Regulation (CMR) and CTR’s Settlements and Judgments Policy?
- Did not comply To what extent, if at all, have agencies developed and implemented policies and procedures regarding the use of confidentiality requests, including nondisclosure language, within the context of state employee settlement agreements?
What the Auditor found
Why it matters: The lack of policies and procedures creates inconsistent, nontransparent handling of settlement agreements and may lead to financial reporting errors.
Standard: US Government Accountability Office’s Standards for Internal Control in the Federal Government; best practices from Montana’s Legislative Audit Division performance audit on state employee settlements. ( Section 5 of Title 815 of the Code of Massachusetts Regulations; US Government Accountability Office’s Standards for Internal Control in the Federal Government )
3 recommendations
- GOV should establish and implement policies and procedures over the authorization, development, documentation, and retention of state employee settlement agreements, and requirements for supporting documentation.agency: agreed
- GOV should provide centralized management and oversight over the use of state employee settlement agreements to ensure that policies and procedures are followed and public reporting is available.agency: agreed
- GOV should establish a public reporting process to ensure sufficient transparency and accountability for state employee settlement agreements.agency: agreed
Agency response & Auditor reply
Agency: "The executive department agrees that documenting policy and procedures can help ensure consistent practice across a broad and wide-ranging government."
Auditor: "We note that it will be important that GOV ensure proper monitoring of any policy implemented to address these concerns and ensure agencies comply on an ongoing basis."
Why it matters: Confidentiality language could be used to conceal harassment, discrimination, unlawful behavior, poor management, or other inappropriate conduct funded by taxpayers.
Standard: Public Records Law; 2013 Superior Court decision in Boston Globe Newspaper Co. v. Executive Office of Administration and Finance; CTR’s Settlements and Judgments Policy; US Government Accountability Office’s Standards for Internal Control in the Federal Government. ( Public Records Law, G.L. c. 4, §. 7, 26 (a) and (c); Boston Globe Newspaper Co. v. Exec. Office of Admin. and Finance, Suffolk Sup. No. 11-01184-A; CTR’s Settlements and Judgments Policy; Speak Out Act )
4 recommendations
- GOV should establish and implement policies and procedures regarding confidentiality language in state employee settlement agreements and supporting documentation justifying its inclusion.agency: partially agreed
- GOV’s policy should weigh employee privacy rights against the public’s right to know how state funds are spent.agency: partially agreed
- GOV’s policy should not protect an employee with detrimental workplace behavior such as harassment or abuse.agency: partially agreed
- The Governor should consider implementing an executive order limiting confidentiality language in employee settlement agreements.agency: partially agreed
Agency response & Auditor reply
Agency: "The executive department cannot concur with Audit Finding 2 to the extent that it appears to overlook the Comptroller’s Settlement and Judgments Policy which explains that “confidentiality language mandating that a settlement or settlement terms be kept confidential may not be enforceable”; that “[c]onfidentiality provisions will not create protections that do not already exist under the Public Records Law or other statutory bar to disclosure”; and that “the name of a recipient payee of a settlement or judgment payment made from the settlement and judgment account is considered a public record.”"
Why it matters: Unreported settlement agreements violate regulation and policy and may result in improper accounting and tax reporting.
Standard: CTR’s Settlements and Judgments Policy; Section 5.09 of Title 815 of the Code of Massachusetts Regulations. ( CTR’s Settlements and Judgments Policy; Section 5.09 of Title 815 of the Code of Massachusetts Regulation )
3 recommendations
- GOV should establish and implement policies and procedures over reporting state employee settlement agreements to CTR.agency: agreed
- All executive office employees should receive training on these policies and procedures.agency: agreed
- GOV should establish monitoring controls to ensure compliance and appropriate management.agency: agreed
Agency response & Auditor reply
Agency: "We agree that offices and agencies must follow the Comptroller’s reporting requirements, even when the settlement at issue requires no disbursement from the settlements and judgments fund."
Auditor: "Based on its response, GOV plans to take some measures to address our concerns in this area."
Why it matters: Missing settlement agreements prevented testing of compliance with CTR reporting requirements and created a risk that settlement information was withheld or incomplete.
Standard: Massachusetts Statewide Records Retention Schedule; Section 12 of Chapter 11 of the Massachusetts General Laws. ( Massachusetts Statewide Records Retention Schedule E05-01; Massachusetts Statewide Records Retention Schedule E05-02; Massachusetts Statewide Records Retention Schedule E05-03; Section 12 of Chapter 11of the General Laws )
1 recommendation
- GOV should ensure that state agencies comply with public records law and develop policies and procedures to retain settlement agreements under the Massachusetts Statewide Record Retention Schedule and provide them to the Auditor upon request.agency: disagreed
Agency response & Auditor reply
Agency: "We respectfully disagree with the report’s assertion that “57 executed settlement agreements” requested by OSA “were not provided.”"
Auditor: "We revisited the responses from the agencies that came in late and after our requested timelines and revised the figure, which still shows 47 settlements agreements were not provided to us in order for us to conduct our tests."
Why it matters: Without complaint records, inappropriate behavior may not be identified or addressed to prevent recurrence.
Standard: Massachusetts Statewide Records Retention Schedule E05-02; Section 12 of Chapter 11 of the General Laws. ( Massachusetts Statewide Records Retention Schedule E05-02; Section 12 of Chapter 11 of the General Laws )
3 recommendations
- GOV should develop policies and procedures to document and retain complaints under the Massachusetts Statewide Records Retention Schedule and provide them to external auditors upon request.agency: agreed
- Agencies should consult the Massachusetts Supervisor of Public Records to classify and retain these records accurately.agency: agreed
- Complaints arising from substantiated egregious behavior should be retained permanently so behavior can be tracked across state government.agency: agreed
Agency response & Auditor reply
Agency: "Regardless of the numbers, we agree that the report has identified historical record-keeping issues requiring attention."
Auditor: "What we know for certain is that we did not receive 124 of the 159, or 78% of, requested copies of the original claim, complaint, or grievance."
More audits of this entity
Other Office of the State Auditor reports on Division of Banks .
- Audit of the Division of BanksState Agency / Office · November 18, 2021
- Division of BanksState Agency / Office · March 23, 2017
- Division of BanksState Agency / Office · January 25, 2012