New York State
Ethics Commission


Advisory Opinion No. 97-25: Application of Public Officers Law §74 to the service by a policymaking State employee on the board of directors of a not-for-profit corporation that is licensed by and receives funding from the employee's State agency.

INTRODUCTION

The following advisory opinion is issued in response to a request from [ ], a Senior Attorney at [a State agency]. He has asked whether [ ], who was recently hired as the agency's Director of Internal Audit, may continue to serve as a member of the Board of Directors of [ ], a not-for-profit corporation that is licensed by and funded through [the State agency].

Pursuant to the authority vested in it by Executive Law §94(15), the State Ethics Commission ("Commission") hereby renders its opinion that [the State employee] may, consistent with Public Officers Law §74, continue to serve as a Board member, subject to the recusal requirements set forth in this opinion.

BACKGROUND

[The State employee] was recently appointed to serve as Director of Internal Audit of [the State agency], and has been designated by the agency as a policymaking employee. Prior to his becoming a State employee, he was a member of the Board of Directors of [the not-for-profit corporation].

[ ] is the State agency charged with the "responsibility for assuring the development of comprehensive plans, programs and services in [certain] areas "(1) The Commissioner of [the State agency] is authorized to, among other things, execute the policies of the State concerning [certain] services; administer State, local, private and federal funds made available to the State for the provision of such services; make grants to or enter into agreements with [certain] programs; supervise and administer financial and technical assistance; adopt regulations; and receive and distribute federal funding in support of facilities, programs and activities [ ].(2) [The State agency] is also responsible for inspecting and approving or disapproving the facilities and services provided by programs within its authority, and promulgating and enforcing certification, inspection, licensing and treatment standards for programs, facilities and staff.(3)

[The State employee], as the Director of Internal Audit at [the State agency], is responsible for insuring agency compliance with the requirements of the New York State Governmental Accountability Audit and Internal Control Act of 1987 (Chap. 814, Laws of 1987). This Act requires each agency to maintain a system of internal controls "to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies." (Executive Law §§950, 951.) [The State employee's] duties include establishing guidelines for internal control systems; developing management policies and standards for all agency employees; conducting audits of agency operations; and insuring that financial transactions are executed in accordance with management's authorizations.(4)

[The not-for-profit corporation], the corporation on which [the State employee] serves as a Board member, operates a [ ] program located in [ ]. It is a not-for-profit organization that is licensed and regulated by [the State agency]. It last received an updated license [prior to the hiring of the State employee], and is currently authorized to provide services through [several years]. [The not-for-profit corporation] also receives funding from the State, which is administered by [the State agency]. In 1996, it received [ ] in State aid.

The corporation is governed by an uncompensated Board of Directors consisting of "not less than ten and not more than thirty" members.(5) The Board employs an Executive Director who manages the affairs of the corporation in accordance with the policies established by the Board.

[The State employee] has served as a member of the Board of Directors of [the not-for-profit corporation] since [prior to his State service], although he has been "previously involved with the [organization] for a number of years." He also serves as Chair of the Board's Program and Strategic Planning Committee. According to [the State employee], the Committee provides "corporate governance over the programmatic content of the agency's operation assuring that they are strategically consistent with the mission and capabilities of the agency and needs of the community."

[The senior attorney] in requesting this opinion, has asked the Commission to consider whether [the State employee] may continue to serve as a Director of [the not-for-profit corporation], and whether the Commission's determination would differ if [the State employee] were to participate as a non-voting member of the Board.

APPLICABLE LAW

Section 74 of the Public Officers Law sets forth the code of ethics for State employees, prohibiting conflicts of interest and the appearance of conflicts. The rule, as contained in §74(2), provides as follows:

No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity . . . which is in substantial conflict with the proper discharge of his duties in the public interest.

Following this rule, Public Officers Law §74(3) provides standards of conduct. In particular, these standards provide:

    . . .

  1. No officer or employee of a state agency . . . should use or attempt to use his official position to secure unwarranted privileges or exemptions for himself or others.

    . . .

  2. An officer or employee of a state agency . . . should not by his conduct give a reasonable basis for the impression that any person can improperly influence him or unduly enjoy his favor . . .

    . . .

  3. An officer or employee of a state agency . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts that are in violation of his trust.

    . . .

    As has been often noted, Public Officers Law §74 is concerned with activities that have the appearance of a conflict of interest; an actual conflict is not required for a violation to occur.

    DISCUSSION

    The Commission, since it was established in 1989, has had many occasions to consider issues relating to the outside activities in which State employees may engage. In its early opinions, it precluded all policymaking employees of an agency from engaging in any activity which involved an entity regulated or funded by the agency. It also precluded those working in a unit of an agency that is responsible for the regulation or oversight of certain types of entities or organizations from being associated with an entity or organization subject to the unit's regulation or oversight.

    In Advisory Opinion No. 90-25, the Commission held that a policymaking employee in the Office of Mental Retardation and Developmental Disabilities ("OMRDD") could not serve on the board of directors of a not-for-profit agency licensed by OMRDD because of the appearance of a conflict of interest, in violation of Public Officers Law §74. The Commission held that

    [e]ven if that policy-maker is not in the line of authority to regulate or oversee the private organization on whose board he or she serves, the appearance that he or she can influence other policy-makers, with whom he or she works or who have appointed him or her, clearly exists whenever favorable action is taken by the agency towards such organization.

    In Advisory Opinion No. 92-4, the Commission found the appearance of a conflict and precluded a policymaker at the Office of Mental Health with duties relating directly to adult homes from serving as an uncompensated member of the board of directors of an adult home that had "significant contacts" with the agency.

    Similarly, in Advisory Opinion No. 92-18, the Commission considered whether [a State agency] could have its agency employees sit on the board of a not-for-profit corporation that had a contract with [the State agency] to do training in the field of foster care. The Commission held that Public Officers Law §74 precluded [the State agency's] policymakers and those agency employees directly or indirectly responsible for the contract, including its oversight, from serving on the board. It stated:

    When [State agency] employees serve on the Task Force board, competitors for such contracts may well question whether those training contracts were awarded fairly and objectively, whether confidential information was acquired from the [State agency] employees in order to secure the contracts in violation of §74(3)(c), or whether [those State agency] board members secured unwarranted privileges for the Task Force in violation of §74(3)(d).

    In 1994, the Commission's analysis of the application of §74 to the outside activities of State employees was modified as a result of two court decisions. The first arose from the request by a policymaking employee in the Office of the State Comptroller "(OSC") for approval to serve as a member of the Albany City School District Board of Education. The Commission denied his request, noting that, because of his status as a policymaker, the public reasonably could perceive that the school district would receive preferential treatment in any audit conducted by OSC. It also said that the employee would be able to provide assistance to the school district in preparing for any such audit. The employee challenged the Commission's determination, and in Matter of Hancox v. Bress, 208 A.D.2d 1031 (3d Dept. 1994), the Appellate Division, Third Department held that his status as a policymaker did not, by itself, create the appearance of a conflict of interest. The Court noted that the Division in which the employee worked was separate from the office's Division of Municipal Affairs, which oversees school districts.

    In a second case, Speers v. State Ethics Commission, 209 A.D.2d 919 (3d Dept. 1994), which was decided shortly after Hancox, the Third Department upheld the Commission's finding that the service by an OSC employee on the City of Buffalo Water Board would create the appearance of a conflict of interest. The Court said that the employee "is employed by the very division of OSC that is responsible for auditing the City of Buffalo and the Authority." It held that recusal "is insufficient to guard against, much less remove, the appearance of a conflict of interest."

    Since 1994, the Commission has, of course, followed the holdings in Hancox and Speers. In Advisory Opinion No. 95-9, the Commission permitted a policymaker to serve on the board of a not-for-profit corporation even though there were areas of common interest between the agency in which she worked and the corporation. She was required to recuse herself from any board decision or vote concerning specific issues on which her agency would likely take a position. Similarly, in Advisory Opinion No. 95-18, the Commission allowed a policymaking member of a State Board to serve as a Trustee of a foundation that makes grants to institutions that are chartered by the State Board. He was cautioned to recuse himself from decisions of the Board that affected or were directly related to any such grant.

    In the instant case, there is no doubt that [the State agency] licenses, regulates and financially supports [the not-for-profit corporation]. However, [the State employee] in his State position, does not perform tasks related to the licensing, regulation or financing of [ ] programs. Rather, as Director of Internal Audit, [the State employee's] duties focus entirely on the internal administrative operations of [the State agency]. They include developing internal control systems, conducting audits of internal practices and procedures, and insuring that agency personnel are well-versed in management standards and practices. In carrying out these tasks, he is charged with complying with the mandates imposed upon [the State agency] by the Accountability Audit and Internal Control Act of 1987, which looks solely toward improving the internal operations of the State's agencies. Therefore, based on its opinions following the Hancox and Speers decisions, the Commission concludes that [the State employee], although a policymaking employee, may, consistent with Public Officers Law §74, continue to serve as a Director of [the not-for-profit corporation].

    While [the State employee] may fully participate as a member of the Board, including casting votes on matters presented, there are some issues on which he should recuse himself (see Advisory Opinion No. 95-9). As a Board member, he should not participate in the discussion or vote on any matter dealing with the licensing, regulation, oversight or funding of [the not-for-profit corporation] by [the State agency]. His participation in any such matter could give rise to the appearance that he was using his public position and the knowledge that he had gained from that position in his work for [the not-for-profit corporation]. In his State position, it is unlikely that any matter concerning [the not-for-profit corporation] will be presented to him, but should such a matter arise, he should similarly recuse himself. Again, such matters would present a conflict of interest or the appearance of a conflict between his public and private positions.

    CONCLUSION

    The Commission concludes that [the State employee] may, consistent with Public Officers Law §74, continue to serve in his position as an uncompensated board member of [the not-for-profit corporation] while he serves as the Director of Internal Audit at [the State agency]. To avoid a potential conflict of interest or the appearance of a conflict, [the State employee] should, as a Director, recuse himself from any matter involving the licensing, regulation, oversight or funding of [the not-for-profit corporation] by [the State agency], and, as a public employee, from any matter concerning [the not-for-profit corporation].

    This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the requesting individual who acted in good faith, unless material facts were omitted or misstated by the person in the request for opinion.

    All concur:

    Evans V. Brewster,
    Henry G. Gossel,
    Paul L. Shechtman,
    O. Peter Sherwood, Members

    Dated: October 28, 1997


    Endnotes

    1. [Statutory cite omitted.]

    2. [ ].

    3. [ ].

    4. Job Description - Director, Internal Audit, provided by [the State agency].

    5. Bylaws of [the not-for-profit corporation].



    URL: http://www.nysl.nysed.gov/edocs/ethics/97-25.htm