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HomeMy WebLinkAbout1040 WhetstoneIn Re: Jeffrey Whetstone STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 File Docket: 96- 013 -C2 Date Decided: 2/20/97 Date Mailed: 3/7/97 Before: Daneen E. Reese, Chair Austin M. Lee, Vice Chair Roy W. Wilt Rev. Joseph G. Quinn Boyd E. Wolff This is a final adjudication of the State Ethics Commission. Procedurally, the Investigative Division of the State Ethics Commission conducted an investigation regarding a possible violation of the Public Official and Employee Ethics Law, Act 9 of 1989, P.L. 26, 65 P.S. §401 gt fig., by the above - named Respondent. At the commencement of its investigation, the Investigative Division served upon Respondent written notice of the specific allegations. Upon completion of its investigation, the Investigative Division issued and served upon Respondent a Findings Report identified as an "Investigative Complaint." An Answer was filed and a hearing was waived. The record is complete. A consent agreement was submitted by the parties to the Commission for consideration which was subsequently approved. This adjudication of the State Ethics Commission will be made available as a public document thirty days after the mailing date noted above. However, reconsideration may be requested. Any reconsideration request must be received at this Commission within thirty days of the mailing date and must include a detailed explanation of the reasons as to why reconsideration should be granted in conformity with 51 Pa. Code §21.29(b). A request for reconsideration will not affect the finality of this adjudication but will defer its public release pending action on the request by the Commission. The files in this case will remain confidential in accordance with Act 9 of 1989, 65 P.S. §408(h). Any person who violates confidentiality of the Ethics Law is guilty of a misdemeanor subject to a fine of not more than $1,000 or imprisonment for not more than one year, 65 P.S. §409(e). Confidentiality does not preclude discussing this case with an attorney at law. Whetstone, 96- 013 -C2 Page 2 I. ALLEGATION: That Jeffrey Whetstone, a public official /public employee, in his capacity as a Member and Chairman of the Borough of Everett Area Municipal Authority (BEAMA), violated the following provisions of the State Ethics Act (Act 9 of 1989) when a business with which he is associated, Whetstone Insurance Agency, contracted with BEAMA without an open and public process; and when he used the authority of his office for the private pecuniary benefit of himself and /or a business with which he is associated by participating in actions and /or decisions of BEAMA to approve payments to a business with which he is associated. Section 3. Restricted Activities (a) No public official or public employee shall engage in conduct that constitutes a conflict of interest. 65 P.S. §403(a). Section 3. Restricted activities (f) No public official or public employee or his spouse or child or any business in vtich the person or his spouse or child is associated shall enter into any contract valued at $500 or more with the governmental body with which the public official or public employee is associated or any subcontract valued at $500 or more with any person who has been awarded a contract with the governmental body with which the public official or public employee is associated, unless the contract has been awarded through an open and public process, including prior public notice and subsequent public disclosure of all proposals considered and contracts awarded. In such a case, the public official or public employee shall not have any supervisory or overall responsibility for the implementation or administration of the contract. Any contract or subcontract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of the making of the contract or subcontract. 65 P.S. §403(f). I!. FINDINGS: 1. Jeffrey Whetstone has served as a board member on the Borough of Everett Area Municipal Authority (BEAMA) from 1984 to the present. a. Whetstone has served as Authority Chairman from January 1993 to the present. 2. The Whetstone Agency, Everett, Pennsylvania, is a firm which has provided insurance services to the local community since at least 1968. a. Jeffrey Whetstone's father and uncle Lynn Whetstone operated this business from 1968 to 1995. Whetstone, 96- 013 -C2 Page 3 b. Whetstone Insurance Associates is a Pennsylvania Corporation in which the shareholders are Jeffrey Whetstone, his brother Daniel Whetstone and his father Donn Whetstone. 3. Jeffrey Whetstone has filed Statements of Financial Interests with the BEAMA for the 1993 calendar year on April 13, 1994, which confirmed the following: a. Item No. 11: Direct or Indirect Sources of Income: Whetstone Insurance; BEAMA b. Item No. 14: Office, Directorship or Employment in any Business: Whetstone Insurance - Secretary/Treasurer c. Item No. 15: Financial Interest in any Legal Entity in Business for Profit: Whetstone Insurance - Stockholder 4. Statements of Financial Interests were also filed for the 1994 calendar year on April 13, 1995, and the 1995 calendar year on March 13, 1996. a. Item No. 11 on those forms listed Whetstone Insurance Associates and BEAMA as sources of income. b. Item No. 14 on those forms lists position held as President of Whetstone Insurance. c. Item No. 15 of both forms lists interest held as stockholder of Whetstone Insurance. 5. The Whetstone Agency has entered into contracts with BEAMA for the sale of various types of insurance since at least 1977. a. The types of insurance included liability insurance, umbrella liability insurance, errors & omissions, machinery and tools, property insurance, truck insurance, workman's compensation insurance and bonds for the authority treasurer. b. These contracts were in effect prior to Jeffrey Whetstone's service as a BEAMA member. c. Rather than seek new coverage and policies each year, the existing policies were renewed annually. 6. BEAMA did not publicly advertise or solicit bids for insurance coverage proposals. a. Other insurance agencies were permitted to submit insurance coverage proposals to BEAMA which BEAMA would review against their current coverage. 7. Between 1991 and 1995, BEAMA has made staggered payments to the Whetstone Insurance Agency for insurance premiums. Whetstone, 96- 013 -C2 Page 4 8. BEAMA meeting minutes reflect that Authority members make motions and vote to pay bills of the Authority at regularly scheduled meetings. a. The motions were in the form to pay all bills listed. b. Bills from Whetstone Insurance Agency were included in these Bill Lists. c. BEAMA meeting minutes indicate that motions to pay these bills were carried unanimously. 9. In 1991 and 1992, Whetstone, as a BEAMA board member, did not vote to pay bill lists which contained bills from the Whetstone Insurance Agency. a. Whetstone abstained from these votes by not voting although he did not orally indicate that he was abstaining nor did he indicate why he was abstaining. b. The fact that Whetstone did not vote on the Bill Lists in question was not reflected in BEAMA meeting minutes. c. Whetstone relied on the advice of LAMA solicitor John Koontz, who advised Whetstone that a conflict could be avoided by merely not voting on a matter. 10. As Chairman of BEAMA from 1993 though 1995, Whetstone was not permitted to vote on bills to be paid or other Authority matters. a. Whetstone could only vote when a tie vote was needed to be broken. b. Bill Lists routinely passed unanimously. 11. As Chairman of BEAMA from 1992 through 1995, one of Whetstone's duties was to sign all checks issued by the Authority. a. BEAMA checks required two signatures. b. BEAMA Treasurer Richard Horton provided the second signature on Authority checks. c. BEAMA Vice Chairman James Howser could sign checks in Whetstone's place if Whetstone was unable to do so. 12. Facsimile stamps of Whetstone's and Horton's signatures were routinely used on BEAMA checks. a. Horton kept the facsimile stamps in an office drawer. b. • Whetstone and Horton would apply their own signatures to checks in situations where checks needed to be signed and issued on the night of meetings. 13. Between 1993 and 1995, Whetstone's signature was placed upon thirty -eight (38) BEAMA checks that were payable to the Whetstone Insurance Agency. Whetstone, 96- 013 -C2 Page 5 a. Thirty -four (34) of these checks bore the facsimile stamp of Whetstone's signature. b. Whetstone was unaware that Authority Treasurer Richard Horton used the facsimile and had not given this authorization to do so. c. Four (4) of these checks bore Whetstone's actual signature. 14. The checks issued by BEAMA to the Whetstone Insurance Agency between 1991 and 1995 are as follows: a. 1991: (13) checks totaling $ 19,002.72 b. 1992: (15) checks totaling $ 18,193.88 c. 1993: (17) checks totaling $24,437.28 d. 1994: (1 1) checks totaling $17,270.74 e. 1995: (12) checks totaling $13,870.20 1991 -1995 TOTAL: $92,783.82 15. The payments made to the Whetstone Agency were for policies and bonds that were entered into and contracted by BEAMA prior to Whetstone's appointment to the Authority. 16. One of Whetstone's functions as a BEAMA board member was to review the Authority's insurance needs against its current policies. 17. Whetstone provided a yearly breakdown of all insurance costs in BEAMA's Annual Report and Recommended Budget. a. Whetstone felt obliged to provide this breakdown as he wanted to demonstrate that BEAMA was getting the best coverage for its money. 18. The BEAMA has purchased the following specific types of insurance from the Whetstone Agency. Type Municipal Liability Errors & Omissions Umbrella Business Automobile Inland Marine Computer Workmen's Compensation Fire FMHA Position Schedule Bond Treasurer Bond Sewer and Water Bill Collector Bond Policy Number 90017297 524 - 182964 -4 UL90017297 AU90017297 IM90017297 BC90004401 WC90017297 CL90017297 SB073632 SB073632 SB073109; SB0731 10; SB104556 Whetstone, 96- 013 -C2 Page 6 19. Premiums for insurance placed with the Whetstone Agency for 1993, 1994 and 1995 as follows: Type 1993 1994 1995 Municipal Liability $2,835.00 $2,835.00 $2,896.00 Errors and Omissions $3,178.00 $3,178.00 $2,307.00 Umbrella $1,260.00 $1,260.00 $1,260.00 Business Automobile $1,334.00 $2,151.00 $1,1 15.00 Inland Marine $ 910.00 $ 910.00 $ 910.00 Computer $ 173.00 $ 173.00 $ 173.00 Workmen's Compensation $4,606.00 $4.709.00 $4,709.00 Fire $5,578.00 $4,449.00 $4,540.00 FMHA Bond $ 875.00 $ 875.00 $ 875.00 Treasurer Bond $ 269.00 $ 269.00 $ 269.00 Bill Collector Bond $ 450.00 $ 450.00 $ 450.00 TOTAL $21,468.00 $20,442.00 $19,504.00 20. The Whetstone Agency would receive commissions as follows for the sale of insurance to BEAMA. a. Liability Insurance 15% b. Umbrella Liability Insurance 15% c. Errors & Omissions Insurance 7% d. Machinery & Tools 15% e. Property Insurance 15% f. Truck Insurance 15% g. Workmen's Compensation Insurance 7% average h. Bonds 20% 20. The Whetstone Insurance Agency received commissions in the following amounts for the sale of insurance to BEAMA. a. Liability Insurance: Based on 15% of annual premium of $2,835.00 (2) and $2,896.00. 1. 1993: $ 425.00 commission 2. 1994: $ 425.00 commission 3. 1995: $ 434.40 commission 4. Total: $1,284.40 b. Umbrella Liability Insurance: Based on 15% of annual premium of $1,260.00: Whetstone, 96- 013 -C2 Page 7 1. 1993: $ 189.00 commission 2. 1994: $ 189.00 commission 3. 1995: $ 189.00 commission 4. Total: $ 567.00 c. Errors and Omissions Insurance: Based on 7% of annual premiums of $3,178.00 (3) and $2,307.00. d. Business Automobile Insurance: Based on 15% of annual premiums of $1,334.00; $2,151.00 and $1,115.00: g. 1. 1993: $ 222.46 commission 2. 1994: $ 222.46 commission 2. 1994: $ 222.46 commission 3. 1995: $ 161.49 commission 4. Total: $ 606.41 A. 1. 1993: $ 200.10 commission 2. 1994: $ 322.65 commission 3. 1995: $ 167.25 commission 4. Total: $ 409.50 f. Workmen's Compensation: Based on 7% of annual premiums of $4,606.00 and $4,709.00 (2). 1. 1993: $ 322.42 commission 2. 1994: $ 329.63 commission 3. 1995: $ 329.63 commission 4. Total: $ 981.68 Fire Insurance: Based on 15% of annual premiums of $5,578.00; $4,449.00 and $4,450.00: 1. 1993: $ 836.70 commission 2. 1994: $ 667.35 commission 3. 1995: $ 681.00 commission Whetstone 96- 013 -C2 Page 8 4. Total: $2,185.05 h. FMHA Position Schedule Bond: Based on 20% of annual premiums of $875.00: 1. 1993: $175.00 commission 2. 1994: $175.00 commission 3. 1995: $175.00 commissions 4. Total: $525.00 Treasurer Bond: Based on 20% of annual premiums of $269.00: 1. 1993: $ 53.80 commission 2. 1994: $ 53.80 commission 3. 1995: $ 53.80 commission 4. Total: $161.50 Collector of Authority Bills and Bonds: Based on 20% of annual premiums of $450.00: 1. 1993: $ 90.00 commission 2. 1994: $ 90.00 commission 3. 1995: $ 90.00 commission 4. Total: $270.00 21 The total financial benefit received in commissions by the Whetstone Insurance Agency, 1993 -1995, from BEAMA is as follows: Liability Insurance $1,284.40 Umbrella Insurance $ 567.00 Errors & Omissions Insurance $ 606.41 Business Automobile Insurance $ 690.00 Inland Marine Insurance $ 409.50 Workman's Compensation $ 981.68 Fire Insurance $2,185.05 FMHA Position Scheduled Bond $ 525.00 Treasurer Bond $ 161.40 Collector of Authority Bonds $ 270.00 TOTAL IN COMMISSIONS $7,680.44 22 BEAMA suffered financial losses totaling $47,000 as the result of flooding during the winter and spring of 1996. Whetstone, 96- 013 -C2 Page 9 III. DISCUSSION: 23 In order to become eligible for state and federal aid, BEAMA was required to obtain flood insurance coverage. a. BEAMA did not previously have such insurance. 24 BEAMA formed a flood insurance committee, composed of Authority board members, in order to obtain the proper insurance policy. a. Whetstone was not a member of this committee. b. Whetstone was requested to obtain information for the committee. 25 In July 1996, the Authority board members voted to appoint the Whetstone Insurance Agency to provide flood insurance coverage to BEAMA. a. Whetstone, as chairman, did not participate in this vote. 26. BEAMA Solicitor John Koontz has periodically provided legal advice to Whetstone regarding the Whetstone Agency's relationship with the Authority. a. Whetstone was advised by Solicitor slohn Koontz to abstain from voting on bills for invoices from Whetstone Insurance Agency. b. Koontz was not asked if Whetstone's signature or a stamp of his signature on BEAMA checks payable to Whetstone Agency would be conflict of interest. 27. Upon being advised that a conflict of interest arose when Whetstone signed checks to his insurance agency, Whetstone and BEAMA took steps to assure that Vice Chairman James Howser would sign such checks in Whetstone's place in the future. At all times relevant to this matter, the Respondent, Jeffrey Whetstone, hereinafter Whetstone, has been a public official subject to the provisions of the Public Official and Employee Ethics Law ( "Ethics Law "), Act 9 of 1989, Pamphlet Law 26, 65 P.S. §4O1, g egg. The issue before us is whether Whetstone, as a Member and Chairman of the Borough of Everett Area Municipal Authority (BEAMA), violated Sections 3(a) and 3(f) of the Ethics Law (Act 9 of 1989) as to the allegation that a business with which he is associated, Whetstone Insurance Agency (WIA), contracted with BEAMA without an open and public process; and when he used the authority of his office for the private pecuniary benefit of himself and /or WIA by participating in actions and /or decisions of BEAMA to approve payments to WIA. Pursuant to Section 3(a) of the Ethics Law quoted above, a public official /public employee is prohibited from engaging in conduct that constitutes a conflict of interest. The term "conflict of interest" is defined under Act 9 of 1989 as follows: Whetstone, 96- 013 -C2 Page 10 65 P.S. §402. facts. Section 2. Definitions "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. "Conflict" or "conflict of interest" does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. Section 3(f) of the Ethics Law, quoted above, specifically provides in part that no public official /public employee or spouse or child or business with which he or the spouse or child is associated may enter into a contract with his governmental body valued at five hundred dollars or more or any subcontract valued at five hundred dollars or more with any person who has been awarded a contract with the governmental body with which the public official /public employee is associated unless the contract is awarded through an open and public process including prior public notice and subsequent public disclosure. Having noted the issues and applicable law, we shall now summarize the salient Whetstone has served as a Member of the Borough of Everett Area Municipal Authority (BEAMA) from 1984 to the present. In a private capacity, Whetstone is a shareholder along with his brother and father in WIA, a Pennsylvania corporation providing insurance services. Whetstone has listed his interests in WIA on his Financial Interests Statements for the calendar years 1993 through 1995. Since 1977 which was prior to Whetstone's service as a BEAMA Member, WIA has entered into contracts with BEAMA for various types of insurance. BEAMA, rather than seek new coverage and policies each year, annually renews existing policies. Thus, BEAMA does not publicly advertise or solicit bids for insurance coverage although insurance companies are permitted to submit proposals. Between 1991 and 1995, BEAMA made staggered payments to WIA for insurance premiums through motions and unanimous votes to pay bill lists which are reflected in the BEAMA minutes. Whetstone abstained from these votes but did not orally state that he was abstaining nor did he provide any reason for his abstention. Whetstone took such action based upon the BEAMA Solicitor who advised that a conflict could be avoided by merely not voting on a matter. As BEAMA Chairman from 1993 to 1995, Whetstone was not permitted to vote on bills unless there was a tie. Bill lists were routinely passed by the BEAMA Board through unanimous votes. One of Whetstone's duties as BEAMA Chairman was to cosign checks which require two signatures: the Chairman and the Treasurer. Facsimile stamps were routinely used on BEAMA checks, with Whetstone actually writing his signature only on BEAMA meeting nights. As to Whetstone, 96- 013 -C2 Page 11 38 BEAMA checks made payable to WIA between 1993 and 1995, Whetstone's signature was stamped upon 34 checks with 4 checks bearing his actual signature. Fact Findings 14, 18, and 19 delineate the types of insurance that BEAMA purchased through WIA, as well as the premiums and the checks in payment. The actual commissions received by WIA as to insurance purchased by BEAMA are delineated in Fact Findings 20 and 21. In early 1996, after BEAMA suffered a Toss from flooding, it sought to obtain flood insurance coverage. Although WIA was selected to provide the coverage, Whetstone was not a member of the committee which was charged with obtaining flood insurance. Further, Whetstone did not participate as to the vote to award the coverage to WIA. Although the BEAMA Solicitor periodically provided advice regarding the utilization of WIA as to BEAMA insurance, the Solicitor was not asked whether the use of Whetstone's signature stamp would be a conflict of interest. Whetstone was instructed by the Solicitor that he must abstain from voting on WIA invoices. After Whetstone was advised that a conflict of interest would arise by signing checks to WIA, steps were taken to insure that the Vice -Chair would sign such checks in place of Whetstone. Having summarized the above relevant facts, we must now determine whether the actions of Whetstone violated Sections 3(a) and 3(f) of Act 9 of 1989. In order to establish a violation, Section 3(a) requires a use of the authority of office or confidential information by a public official /employee for the private pecuniary benefit of himself, a member of his immediate family, or business with which he or a member of his immediate family is associated. In applying the provisions of Section 3(a) of Act 9 of 1989 to the instant matter, we find no violation of the Ethics Law. We find under these particular facts that the actions: of Whetstone did not constitute a use of authority of office. Whetstone did not participate as to the votes to approve the payments to WIA. Further, the actual BEAMA contracts with BEAMA for various types of insurance were in place before Whetstone became a Member of BEAMA. Finally, as to the checks of BEAMA which were issued in payment to WIA as to the various insurance policies, most of the checks that were issued contained a signature stamp of Whetstone. Based upon the totality of these facts and circumstances of this case, we find no violation of Section 3(a) of Act 9 of 1989. As to Section 3(f) of Act 9 of 1989, we find a technical violation as to the contracting between BEAMA and WIA. Since Whetstone is one of the three shareholders in WIA, it is a business with which he is associated as that term is defined under Act 9 of 1989. 65 P.S. §402. Contracts for insurance with WIA exceeded $500 but were not awarded through an open and public process. Once again, we note that all but one of these policies were in place before Whetstone became a Member of the BEAMA Board and were merely rolled over on an annual basis. Accordingly, a technical violation of Section 3(f) of Act 9 of 1989 occurred when WIA, a business with which Whetstone is associated, contracted with BEAMA in excess of $500 without an open and public process. Lastly, we note that the parties have filed a Stipulation of Findings and Consent Agreement which sets forth a proposed resolution of the allegations. We believe that the Consent Agreement is the proper disposition for this case based upon our review as reflected in the above analysis and the totality of the facts and circumstances. Whetstone, 96- 013 -C2 Page 12 IV. CONCLUSIONS OF LAW: 1. Jeffrey Whetstone, as a Member and Chairman of the Borough of Everett Area Municipal Authority ( BEAMA), is a public official subject to the provisions of Act 9 of 1989. 2. Whetstone did not violate Section 3(a) as to the approval of payments to Whetstone Insurance Agency, a business with which he is associated, in that Whetstone did not use the authority of his office. 3. A technical violation of Section 3(f) occurred when BEAMA contracted with the Whetstone Insurance Agency, a business with which Whetstone is associated, to purchase various insurance policies in excess of $500 without an open and public process. In Re: Jeffrey Whetstone ORDER NO. 1040 File Docket: 96- 013 -C2 Date Decided: 2/20/97 Date Mailed: 3/7/97 1. Jeffrey Whetstone, as a Member and Chairman of the Borough of Everett Area Municipal Authority (BEAMA), did not violate Section 3(a) as to the approval of payments to Whetstone Insurance Agency, a business with which he is associated, in that Whetstone did not use the authority of his office. 2. A technical violation of Section 3(f) occurred when BEAMA contracted with the Whetstone Insurance Agency, a business with which Whetstone is associated, to purchase various insurance policies in excess of $500 without an open and public process. BY THE COMMISSION, OekiliPPti 824L DANEEN E. REESE, CHAIR