Ethical conflicts: disclose or shun?

In the commercial world it is often sufficient, in cases of conflicts of interests, between, say a board member and a corporation, that a board member disclose conflicts and recuse from voting, maybe even "the deliberation process". This simple disclosure requirement is sometimes found in public procurement. But since public procurement involves the expenditure of state funds, i.e., your money, disclosure is more often than not insufficient to cure the taint of conflict.

Guam law procurement ethics, for example, following the ABA Model Procurement Code, requires that "any [government] employee who has, or obtains any benefit from, any territorial contract with a
business in which the employee has a financial interest shall report such benefit", but the bar is higher in the case of conflicts: "it shall be a breach of ethical standards for any employee to participate directly or indirectly in a procurement when the employee knows" of the usual conflicts.

Furthermore, "notwithstanding any other provision of law, any member of any elected or appointed board or commission shall be prohibited from acting or participating in discussion on any matter in which he is a principal, has a financial interest in, or acts as an agent for anyone other than the government of Guam. Interests held in blind trust shall not be exempt from this provision. The member shall be prohibited from influencing any determination made by the board or commission on which the member serves and in which the member either participates personally and substantially through decision, approval, disapproval, recommendation, the rendering of advice, investigation or otherwise, or which is the subject of the member’s official responsibility, where the government of Guam is a party or has a direct and substantial interest."

The judicious expenditure of government taxpayer money is a significant feature of good public governance. Any appearance of impropriety begins to tear at the public confidence in its government. Public procurement professionals are the sentinels who protect the government of the people by insisting on avoidance of all such appearances. It rots at the core otherwise.

Conflicts of interest is just one of the issues in the following reported case involving the New York Power Authority:

Report finds ethical misconduct at NYPA under Richard Kessel

A state investigation of New York Power Authority practices under then-chief Richard Kessel found "ethical misconduct, procurement irregularities and financial mismanagement" in 2009 and 2010, according to a newly released report. The probe, which took nearly three years, was initiated in February 2011 by former Inspector General Ellen Biben. [Which is why real time policing by protests and public disclosre requirement is so crucial to the integrity of the procurement process.]

For example, Kessel, had "apparent conflicts of interest that he failed to reveal" in recommending that NYPA consider a law firm for a "substantial contract for legal services," the probe found. It said Kessel failed to disclose "his own ongoing personal legal relationship with the same firm," according to the state Inspector General's office.

The probe also uncovered a $15,000 loan in 2009 that Kessel solicited and accepted from a subordinate, "which neither individual reported as required in their annual financial disclosure statements," the IG found. The IG's report said Kessel told DeJesu he was having financial difficulties in November 2009 and "he couldn't come to anyone else." DeJesu, who reported to Kessel at NYPA, provided the loan interest-free, according to the report. By requesting and accepting the loan, the report says, "Kessel created an appearance or situation where [he] could be either improperly influenced [or] give or be given preferential treatment."

Under Kessel's tenure, the probe also found that charitable contributions and business-related contributions increased at NYPA, both statewide and "specifically related to the Long Island area where Kessel lived." The report said NYPA's charitable donations to groups on Long Island, where NYPA has a "limited presence," increased 50 percent under Kessel. The IG's office noted that while the contributions increased under Kessel, investigators did not find "any undue influence with regard to the contributions made to Long Island organizations. NYPA had a deficient policy which lacked provisions for identifying, monitoring, and justifying these purported business-related contributions," the report found.

The Inspector General's office recommended NYPA enact a series of new controls, among them:

• A management audit of its procurement policies, practices, procedures, and organizational structure;

• More exacting procurement standards and full documentation and record retention;

• Disclosure of "actual, potential, or perceived conflicts of interest" when issuing and reviewing procurement requests for proposals and train officials and employees on disclosure requirements;

• Training regarding the prohibition of seeking a loan from a subordinate and loaning money to a superior;

• A policy prohibiting active board members from seeking NYPA employment;

• A policy for business-related contributions, which includes documentation and justification of each expenditure, as well as disclosure of any ties between a NYPA employee and the funding recipient; and

• Monthly reports delineating contributions, sponsorships and business-related contributions for presentation to the NYPA board.

This is a good example, assuming all is as reported and there are no unreported mitigating factors, of slow rot. 

Not outrageous corruption and theft, but the kind of undermining whimsy that comes from treating public funds as the booty of office or pleasure of the director.   

It does not show any criminal act, but does show an arrogant disregard of the trust we place in our governing officers.  Punishment should follow, but be proportionate to the legal harm done.  In some cases, and with some people, the exposure and shame may be sufficient, if they "get it".


POST SCRIPT January 26, 2014

On a similar topic, whether to disclose or shun political "gifts", is this comment in a WaPo article today:

Virginia was ripe for a scandal

The indictment, against former Virginia governor Bob McDonnell and his wife, Maureen, stems from an investigation of gifts the McDonnells received from businessman Jonnie Williams. In return for these gifts, it is charged, the governor did official favors for Williams’s diet supplement company.

Some might say that Virginia was ripe for such a scandal. After all, until newly-elected Gov. Terry McCauliffe changed it (for only one year, by the way), the law allowed public officials to accept unlimited gifts as long as they were reported. Tim Kaine, for example, reported gifts in excess of $300,000 while governor. For that matter, so did McDonnell (although the gifts cited in the indictment were not reported). This kind of lax ethics would seem an invitation to corruption and is one reason the Center for Public Integrity ranked Virginia 47th out of 50 in “state integrity” and gave it an “F” in combating corruption risk.