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HomeMy WebLinkAbout82-001 RogersJanuary 20, 1982 OPINION OF THE COMMISSION James C. Rogers Rogers, Huber & Associates, P.C. 521 North Derr Drive Lewisburg, PA 17837 STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 II. Factual Basis for Determination: 82 -001 Nauman, Smith, Shissler & Hall Bergner Building Six North Third Street P.O. Box 840 Harrisburg, PA 17108 RE: Sections 4 and 5, CPA, Auditors Dear Mr. Rogers: I. Issue: You request through your attorney advice as to whether: 1. An accounting firm designated by a municipality as its official auditor is a public official required by the Ethics Act to file a Statement of Financial Interests? 2. If an accounting firm must file a Statement, is it required to reveal the name and address of its sources of income? In a letter of April 29, 1980 you requested an advisory opinion from the State Ethics Commission on the issue of whether you were required to file Statements of Financial Interests by the Ethics Act. At that time your firm audited several school districts, boroughs, water -sewer authorities, planning commissions, housing and redevelopment authorities, school district authorities and county revenue sharing funds. In response to your request, an Opinion of the Commission dated August 20, 1980, held that: (1) any individual serving in the elected office of auditor for a political subdivision is a public official required to file a Statement of Financial Interests; and Nauman, Smith, Shissler & Hall January 20, 1982 Page 2 (2) any individual appointed to fill the office of auditor in lieu of election and who is compensated is a public official obligated to file a Statement. After the Ethics Commission issued this Opinion, Rogers and the Pennsylvania Institute of Certified Public Accoun- tants (PICPA) began a class action suit in Commonwealth Court seeking declaratory judgment and injunctive relief. This action, No. 452 C.D. 1981, remains before the Court. By letter of July 22, 1981, you requested a clarification of the original Rogers Opinion in an effort to better define, limit and /or resolve the litigation. Reconsideration of our prior Opinion was granted and you appeared before the State Ethics Commission, through Counsel on September 23, 1981. The record of that presentation is incorporated herein by reference.. In a presentation accompanying your letter of July 22, 1981, PICPA gave the Commission additional information as to the process of selecting a CPA. A CPA or a firm of CPA's submits written proposals in response to a request for proposals by a political subdivision. The terms of the agreement are set forth in an engagement letter but the audit is always an "independent audit" under the standards of the American Institute of Certified Public Accountants & PICPA. The audit is usually performed within a few days and is meant to provide the citizens of the political subdivi- sion with information about the financial condition of the municipality. The auditor is not elected by the citizens and has no power to make decisions on behalf of the muni- cipality. III. Applicable Law: §401 §402, definition of "public official and "public employee" §404 §405 IV. Discussion: In enacting the Ethics Act, 65 P.S. §401 et seq., the purpose of the Legislature was to promote public confidence in government and its elected and appointed officials. To that end, and to insure the impartiality and honesty of public servants, certain public employees and officials are required to file Statements of Financial Interests. 65 P.S. §404. The Statement is required of "public officials ", defined as those who are elected or appointed officials in the executive, legislative or judicial branch of the state or any political subdivision. 65 P.S. §402. James C. Rogers Nauman, Smith, Shissler & Hall January 20, 1982 Page 3 You do not challenge the Commission's decision that an elected auditor is a public official obligated to file a Statement of Financial Interests; and that portion of the decision in Rogers, 80 -035, is hereby affirmed. You argue, however, that the auditor appointed to the position of auditor is different from the elected auditor because the appointed auditor does not have a continuing or electoral relationship with the municipality. This is not a signi- ficant distinction. The elected auditor would also perform his duties in a short time possibly without further contact with the municipality from audit to audit. The appointed auditor peforms similar duties to any elected auditor and the need to insure impartiality and to maintain independence is the same in both cases. Therefore, we affirm the Rogers holding that an independent auditor appointed in lieu of an elected auditor is a public official and is required to file a Statement of Financial Interests. The Ethics Act also provides that an individual employed by the Commonwealth or a political subdivision and engaged in recommending official action of a non - ministerial nature with regard to "auditing" is a "public employee." The Supreme Court in Ballou v. State Ethics Commission, Pa. , 436 A.2d 186 (1981) recently held part -time municipal solicitors exempt from this statutory definition. Based on this ruling and the similarity between the solicitor's position in Ballou and that of you or your firm as a CPA, we conclude that you are not required to file a Financial Interest Statement because you would not fit within the definition of "public employee" under the Ethics Act. See also 51 Pa. Code 5.10. The Ethics Act, however, is not to be construed to require disclosure of information from CPAs who may under the above discussion be considered "public officials" which is protected by an existing code of professional ethics. 65 P.S. §405(5). To the limited extent that the identity of a client is to be kept confidential under the CPA's Profes- sional Code of Ethics Rule 301 and Ethics Ruling 7, identity need not be disclosed on the Statement. However, your Code merely prohibits the release of "confidential information." You have not established that the mere identity of a client falls within this category. The Ruling you provided is not dispositive of the question. It does not address the requirements imposed upon public officials and /or employees and in fact your Rule 301.01 appears to allow disclosure of even "confidential information ", in general, given in response to inquiry made under "state statutes." We find that the mere identity as discussed below, of certain clients is required in response to the Ethics Act. However, a CPA required to file a Financial Statement under this Opinion must disclose clients only as required by the Commission's regulations. See 51 PA. Code 5.10 and 5.7(b) which provides that: James C. Rogers Nauman, Smith, Shissler & Hall January 20, 1982 Page 4 Professionals, whether acting as individuals or members of a business, are required to disclose as sources of income those persons who have paid fees for services related to matters before the governmental body with which the public official or public employee is or, if a candidate, would be associated. In all other cases only the name of their firm or business is to be listed. Finally, we are not convinced that this ruling that you are deemed a "public official" required to file a Financial Statement under the Ethics Act affects or obviates the "independence" required to be maintained by a CPA vis -a -vis his client under the CPA's Code of Conduct. You have specifically indicated and we agree, that the CPA who would be deemed a "public official" under the Ethics Act would not operate in the equivalent of a "member of management" by making or recommending decisions on behalf of the appointing political subdivision. Given this, we see no impact on the "independence" required under your Code, §101.01B. Even if some impact was discernable, we are by statute obliged to implement and apply the provisions of the Ethics Act. The existence of a Code of Conduct, such as yours cannot ulti- mately affect, rescind or render inapplicable otherwise appropriately applied statutory requirements. We must rule that the proper decision for this Commission is to apply the Ethics Act, a law of general applicability, in appropriate situations and to suggest that your Code, must be scruti- nized, interpreted, and re- written if required to cope with this perceived problem. The alternative would be for us to obviate the provisions of the Ethics Act to accomodate a private Code of Conduct, which has no force of law. This we may not and will not do. Likewise, the fact that the State Board of Examiners of CPA's regulates your profession and may revoke or suspend a CPA license for violation of a rule of professional conduct (such as lacking independence), does not alter our ruling. You have not presented any substantive or persuasive evidence that the mere inclusion of some CPA's under the Ethics Act as public officials would constitute a violation of a rule of professional conduct relating to independence. Nor have you presented any concrete evidence that the regulatory officials with the Department of State have or would arrive at the conclusion you suggest. We are not inclined to alter our ruling because of the mere existence of another regu- latory body or upon the speculation that such an body may react to our ruling. We must deal with the facts of the case at hand and are compelled to apply our law to those facts to reach a conclusion. This conclusion follows. James C. Rogers Nauman, Smith, Shissler & Hall January 20, 1982 Page 5 V. Conclusion: If you or your firm, serve as such and are, appointed as same in lieu of the elected auditor in a municipality you are a "public official" required to file a Financial Interest Statement under the Ethics Act. Pursuant to Section 7(9)(i), this opinion is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any 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. PJS /rdp UPDATE: Cross- reference 80 -035. PAUL J. SMITH Chairman