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Home My WebLink About82-544 HackettMr. Leo A. Hackett 107 West Third Street Box 647 Media, PA 19063 STATE ETHICS COMMISSION P.O. BOX 1179 HARRISBURG, PA 17108 TELEPHONE: (717) 783 -1610 May 12, 1982 ADVICE OF COUNSEL Mailing Address: 82-544 RE: Section 3(c); School Director Also School Authority Auditor Dear Mr. Hackett: This responds to your letter of December 30, 1981, in which you, as Representative of a school authority, requested advice from the State Ethics Commission. Issue: May a School Authority appoint as its auditor a firm, one of whose principal currently serves on the Board of School Directors that created and has an ongoing relationship with the Authority? Facts: Your office represents a School Authority that is considering appointing as its auditor a firm, one of whose principals is an incumbent on the Board of School Directors. The Board created the School Authority and has an ongoing relationship with it. The Board has lease agreements with the Authority, pays rentals to it and has the power to appoint Authority members. Your office has researched the issue and has discovered no statutory prohibitions barring an individual's ability to serve concurrently on the School Board and as a member of the Authority's auditing firm. You have concluded, however, that that individual may have to abstain from voting on certain items directly related to the authority. Discussion: As defined by the Ethics Act, 65 P.S. §401 et se , a public official is any elected or appointed official in t e Executive, Legislative, or Judicial Branch of the Sate or political subdivision thereof. Id. §402. A School Director is a public official subject to the Ethics Act. State Ethics Commission • 308 Finance Building • Harrisburg, Pennsyl■ ,�. Mr. Leo Hackett May 12, 1982 Page 2 The Act states that a public official must avoid even the appearance of a conflict of interest with the public trust. 65 P.S. §401. The Ethics Commission has held that a conflict of interest exists when an individual represents two or more persons with adverse interests. Alfano, 80 -007. The interests of the school district and the school authority are not per se in conflict so as to preclude a Director from serving at the same time as a member of the school authority's auditing firm. Of course, no one may offer and no public official may accept, anything of value based on the understanding that the public official's conduct or judgment will be influenced thereby. Section 3(b) of the Ethics Act, 65 P.S. 403(b). Thus, the Authority or the auditing firm could not offer, nor could the Board member accept anything of value, including the promise of future employment (as auditing firm) which was an attempt to influence the Board member's official actions. Nor could the Board member act in his official capacity to appoint members to the Authority on the understanding that those members would appoint the Board member's firm as authority auditor. The Ethics Act also states that no public official or any business in which he is a director, officer, owner or holder of stock exceeding 5% of the equity at fair market value of the business shall enter into any contract valued at $500 or more with a governmental body unless the contract has been awarded through an open and public process, including prior public notice and subsequent public disclosure of all proposals consi- dered and contracts awarded. 65 P.S. §403(c). This restriction has been held to apply to a contract between the public official and the "governmental body" with which he is associated. Byran, 80 -014 and Lench, 79 -047. Your description of the school director "as one of the principals" in the auditing firm, which the Authority proposes to appoint as its auditor, suggests that the director may be a "director, officer, owner or holder of stock exceeding 5% of the equity at fair market value." If so, and if the proposed appointment would involve a contract valued at $500 or more between the Board member and the Board the contract must be awarded through an open and public process. The process must include prior public notice and subsequent public disclosure of all proposals considered and contracts awarded. The Commission, however, has typically viewed an Authority as a separate and distinct legal entity from the body which created it. Kuller, 80 -004 and Monaco, 81 -534. Thus, a member of an Authority would be deemed "associated with" the Authority typically and a member of a School Board "associated with" the Board alone for purposes of Section 3(c) of the Ethics Act. Thus, notwith- standing the "continuing relationship "between this Board and Authority, the Board member or his firm could contract with the Authority without reference to an "open and public" process. However, should you elect to award the auditor's post through Mr. Leo Hackett May 12, 1982 Page 3 such a process, those standards would involve a reasonable opportunity for a competitor to be aware of and to apply for the post as well as the disclosure of all applications consi- dered and the appointment made. Howard, 79-044. You have stated that the school board on which the auditor presently serves appoints individuals to serve on the school authority. The situation has the potential to present the appearance of a conflict of interest. Two courses of action are necessary to dispel this appearance, as long as a principal of the auditing firm continues his concurrent services on the school board. First, in his capacity as school director, he must abstain from voting on the appointment of members to the school authority with which his firm is associated. Second, as a principal in the auditing firm, as well as a school director who has participated in appointing incumbent authority members, he himself must not perform the actual audit of the Authority's books and records or review or certify these results. Conclusion: A school director is a public official subject to the Ethics Act. There is no inherent conflict of interest in an auditing firm, of which an incumbent school director is one of the principals, accepting an appointment as auditor for a school authority that the school board has created. If the auditing contract is between the School Board and the Board member's auditing firm and is valued at more than $500 and if the school Director /Auditor is an officer, director, owner or stockholder of 5% or more of the auditing firm, the School Board must award the contract in an open and public process. If the contract is between the auditing firm and the Authority, however, there is no strict application of Section 3(c) of the Ethics Act which would require award only after an open and public process. Furthermore, the incument director must abstain from participating in his official capacity in any issue involving the School Authority. Should the auditing firm be awarded the contract with the authority, the actual audit and related work must be performed by auditors other than the principal firm member /school director. Pursuant to Section 7(9)(ii), this Advice is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any other civil or criminal proceeding, providing the requestor has disclosed truthfully all the material facts and committed the acts complained of in reliance on the Advice given. This letter is a public record and will be made available as such. Mr. Leo Hackett May 12,. 1982 Page 4 Finally, if you disagree with this Advice or if you have any reason to challenge same, you may request that the full Commission review this Advice. A personal appearance before the Commission may be scheduled and a formal Opinion from the Commission will be issued. You should make such a request or indicate your disapproval of this Advice within the next 30 days. BF /rdp Sincerely, 'Sandra S. Chr tianson General Counsel