posted June 15, 2016

Conflicts of Interest - It's not Just About the Governing Board

by Jennifer L. Shields, CPA, CGFM, Partner

You show up for work your first day at the district. Perhaps you are a teacher, or a records clerk, maybe a custodian or grounds crew member. You might even be the superintendent. Regardless of your position, as a government employee, you must know that you are held to a very high level of scrutiny, since there are taxpayer dollars that contribute to your paycheck. If you hold a position as an administrator, you are held to an even higher level of scrutiny, and on top of that, you have the duty of making sure Board-approved policies are followed, including those that govern conflicts of interest.

Arizona Revised Statute 38-503 prohibits any public officer or employee who has, or whose relative has, a substantial interest in a contract, sale, purchase or service from participating in any manner in the contract, sale, or purchase. The statute includes not just purchases made but also includesdecisionsmade by a district. As with many statutes, there is an exception to the rule. The statute does allow for purchases to be made with conflicted vendors, provided the proper bidding and procurement rules are followed and the conflicted district official or employee refrains from voting or otherwise participating in the procurement. This exception can get complicated depending on whether the individual with the conflict is a board member or an employee of the district. The procurement rules also depend on the size of the district’s student population and the type of purchase. This information is spelled out in the Uniform System of Financial Records manual.

Let’s go back to your first day at the district. The Human Resources staff dutifully informed you about all the rules, regulations, policies and of course the required paperwork and forms to fill out. So much paperwork. Luckily, you do not have any conflicts of interest so you do not complete that form.

Let’s now fast forward a few years and life changes have occurred, but you still work at the district. District officials should be asking themselves now when the last time communication was made with existing employees and board members regarding conflicts of interest. If you do not know the answer to that question, it has probably been too long. A recommended best practice would be to periodically remind all employees of their statutory obligation to disclose any potential conflicts of interest to the district. This can be done annually during beginning of the year trainings, with contract renewals, via district newsletters, or through postings on the district’s intranet or staff webpage. Unfortunately, as a district official, you are reliant upon the employee to voluntarily make conflicts known to you. Ensuring a strong “tone at the top” and repeated reminders of the rules can assist a district in demonstrating its commitment to ensuring employees will disclose conflicts of interest as they arise.

Another recommended best practice is to have members of the Board file a conflict of interest statement annually, indicating none if there are none. This could be done at the organizational portion of the meeting each January or the first meeting of each fiscal year.

As a reminder, Arizona Revised Statute 38-509 requires a special file be maintained for all disclosures of substantial interests made known to the District and that file must be made available for public inspection. Therefore, a recommended best practice is to have one single file with all conflict of interest disclosures as opposed filing forms in individual personnel files. This ensures that the file can be reviewed routinely as the district goes about purchasing good and services and other normal business operations. The person charged with maintaining the conflict of interest forms file should be tasked with reviewing the forms upon receipt and ensuring the information is shared with impacted district departments, such as purchasing.

If a board member has a conflict of interest, the district should take special care when placing vouchers on a consent agenda that contain expenditures where purchases are made with the conflicted vendor.

Questions to ask yourself:

  • How often does management remind board members and employees about the conflict of interest policy?
  • Does the district’s policy define and/or give examples of what constitutes “a significant interest”?
  • Which department or person is responsible for maintaining the conflict of interest file?
  • How is the purchasing department alerted as to conflicts of interest?

The content of these pages is for general information purposes only and does not constitute advice. Heinfeld, Meech & Co., P.C. tries to provide content that is true and accurate as of the date of writing; however, we give no assurance or warranty regarding the accuracy, timeliness, or applicability of any of the contents.