It Always Starts With Picking Up the Dry Cleaning” — How Unethical Conduct Metastasizes

by Marianne M. Jennings

We think of the dedicated public servants who have helped us, and we are grateful for their work. However, those dedicated public servants often find themselves in difficult ethical dilemmas. Confronting government officials about violations of policies, rules and laws is a tall order. Not confronting them means ethical lapses blossoming into more lapses and eventually into a scandal that provides no one with a face-saving solution and always results in harm to more people than we could have anticipated. The simplest forms of unethical conduct often metastasize because no action was taken when that conduct began or because the right tools were not being used to detect the conduct. The following three issue areas illustrate the problem.

“It Always Starts With Picking Up the Dry Cleaning”

Those are the words of Lisa Gilbert of Public Citizen (a Washington, D.C. advocacy group). Gilbert was referring to the ethical downfalls of so many public officials, a downfall that begins with high-ranking officials asking members of their security detail or staff to pick up their dry cleaning. The act of having someone else pick up your clothes at the dry cleaners seems to be the gateway drug to misuse of public resources and funds.

Errand-running seems like such a small thing, but it constitutes, in the words of Robin Thicke (or Marvin Gaye, depending on how copyright law is applied), a “blurred line.” John Conyers (formerly D-Michigan), Scott Pruitt (former head of the EPA), David Shulken (former head of the VA), Mike Pompeo (Secretary of State), and many more have faced misuse of staff issues, resulting in inspector general investigations and headlines. (See Carl Hulse, “Why Clean Shirts Become the Stuff of Dirty Laundry,” New York Times, May 20, 2020)

Addressing ethical issues from an angle of equality strikes a nerve with government officials. The staff member cannot do errands on government time. They would be disciplined for doing so. Yet demands by their bosses are asking staff members to violate government rules. The little request looks different from this perspective.

Government officials and staff members should also be given ethics training on the effective use of options. Instead of staff members just saying “Okay,” and rolling their eyes as they walk away to the dry cleaners, they can offer options, e.g., “I am sure that we could have your dry cleaning delivered.” That option should be offered with consequences other government officials have experienced because they began asking staff for such simple requests. Most importantly, staff members need training to understand and accept the significant role they play in sharing their experiences with their bosses to keep them, their agencies and themselves out of the headlines.

There is also an issue of human dignity that is not included in most ethics training. Educated and trained staff members were not hired for their ability to run errands. Nor do members of the public expect that their salaries would go to such purposes.

There is one more piece of training that should focus on the trump card. Staff members actually wield the ultimate power when they are forced to succumb to these simplest of requests. They now have information that officials do not want to be known publicly. So, the moral of the story and the basics of this new ethics training is to use caution in how we treat those who we perceive cannot harm us. They can, in fact, hold the trump card.

When this type of small “stuff” is managed, the blossoming stops. Pick up the

Governmental Accounting Conference Feb. 5, 2021

Location: Desert Willow Conference Center Available In-Person or via Webcast Recommended CPE Credit: 8 hours

Hear the latest on GASB, fraud and cybersecurity at the 2021 ASCPA Governmental Accounting Conference on Friday, Feb. 5, 2021 at the Desert Willow Conference Center. Your favorite speakers, including David Cotton, Marianne Jennings and David Bean are back, along with other local and national experts to assist you in discovering insights and understanding on new developments in governmental accounting and auditing.

Conference Agenda

The Ethical Issues We Miss, Rationalize Away, or Fail to Report Marianne Jennings, Arizona State University

GASB Update David Bean, Governmental Accounting Standards Board

Performance Auditing Made Easy David Cotton, Cotton & Company, LLP

Single Audit Update Brittney Williams, Heinfeld Meech & Co., P.C.

Data Analytics for Your Government Organization Kevin Bach, Henry+Horne

The Government and Not-for-Profit Super Bowl David Cotton, Cotton & Company, LLP

Implementing GASB 87 — Leases Michael Stelpstra, Arizona Auditor General’s Office

Defeating the Hackers — The Top Five Things to Stop Them in Their Tracks

Michael Cocanower, IT Synergy

Economic Changes and What It All Means Jim Rounds, Rounds Consulting Group, Inc.

GASB - Deep Dive

David Bean, Governmental Accounting Standards Board

Thank You to Our Sponsors

Platinum Sponsor Henry+Horne

Gold Sponsor Heinfeld Meech & Co., P.C.

Register on-line at www.ascpa.com/gac21 or by phone at (602) 252-4144.

dry cleaning and the staff member slowly becomes a travel concierge (which is what happened with Dr. Shulken at the VA). Once the staff member succumbs, those in power push, and the gateway drug does its thing and the lapses grow bigger, sometimes even roping the staff members into illegal conduct along with their public official bosses. Clear lines drawn early stop the metastasizing.

Those Invoice and E-Mail Identity Checks

Sometimes ethical lapses metastasize because the simplest of internal controls are not used. For example, a former lawyer at the FBI, Kevin Clinesmith, has entered a guilty plea to altering an e-mail in order to provide the support needed for obtaining a search warrant. That e-mail came from another federal agency. The original e-mail did not support granting the warrant. No one took the time to check with the other agency to verify the information and its sender. If that simple check had been done, the warrant request would not have been granted. The e-mail was altered to say exactly the opposite of what the alterations changed it to read. That search warrant blossomed into three years of investigations and hearings, not to mention a serious breach of the privacy of the warrant’s subject and likely prison time for the former FBI lawyer.

In curbing misuse of government funds, placing a few calls, visiting a few sites and verifying a few e-mails may stop the embezzlement. For example, one government contractor was submitting fake invoices for work that was not done. He had set up shell companies and even stolen a friend’s identity to have e-mails with invoices sent for processing. One auditor cracked the years-long scheme simply by calling the friend and checking on the e-mails. The friend was stunned. In Iraq, the empty warehouses in the field were the first clues that started the investigations into government contractors who were billing for shipments that were never sent or were turned over to Iraqis for sale for a way to double their takes.

The Latest Issue: Third-Party Stuff

The former mayor of Baltimore is in prison because she was selling her self-published children’s health books to hospitals and other nonprofits who, in turn for supporting the mayor’s book sales, were awarded contracts or grants from the city. Other elected officials have a way around campaign contribution limitations: Create a nonprofit organization run by a former campaign aide and accept donations from businesses and individuals. Government contracts and grants seem to flow to the nonprofit donors.

Sometimes there are independent nonprofits that find paths to public officials. For example, a large nonprofit organization in Canada was paying members of Prime Minister Trudeau’s family thousands for speaking fees. The nonprofit was awarded a major Canadian government contract following a meeting in which the Prime Minister participated. There was no review of the nonprofit’s proposal by staff. In curbing misuse of government funds, placing a few calls, visiting a few sites and verifying a few e-mails may stop the embezzlement.

In Los Angeles, investigators are cross-checking contract and grant awards with donors to nonprofits created by public officials. In some cases, the donors are awarded no-bid contracts. In other cases, their performance on their contracts, from failure-to-complete to use of substandard materials, has proven costly for the city.

This third-party issue is a new one, one that can be tracked simply by matching nonprofit donors with contracts and awards. A nonprofit in the middle does not mean that virtue is in the air.

The simplest of responses and audit tools can get to the heart of the ethical and legal problems in government. They key is to use them early before the ethical lapses metastasize. l Marianne M. Jennings is Professor Emeritus at W.P. Carey School of Business Arizona State University. She will be presenting at the Governmental Accounting Conference on Feb. 5, 2021. She can be reached at mariannejennings@reagan.com.

Get Your Dollar-For-Dollar Arizona Tax Credit Today

Redirect your Arizona income tax liability to Brophy Community Foundation and provide K-12 students educational opportunities through critical tuition aid.

2020 Individual Tax Credit Maximums Single $1,183 Married $2,365

For Individual Tax Credit Donations Nick Shimon 602.264.5291 (x6500) nshimon@brophyprep.org For Corporate Tax Credit Donations Carol Brown 602.264.5291 (x6521) cbrown@brophyprep.org

www.brophyfoundation.org 4701 North Central Avenue Phoenix, AZ 85012

The Brophy Community Foundation has NEVER accepted donor designated contributions. Arizona law now requires all school tuition organizations to print the following notice on all printed material and websites: A school tuition organization cannot award, restrict or reserve scholarships solely on the basis of donor recommendation. A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer’s own dependent.

2021 Arizona Tax Guide

Order the only comprehensive guide on Arizona taxes. Authors: Pat Derdenger, Steve Rodis and Ed Zollars

New in the 2021 Arizona Tax Guide:

• Details of Arizona law changes to reflect conformity with changes made in the SECURE Act • MRRA changes to the alteration limitations and exclusion of contractors not required to be licensed by the Registrar of Contractors from the prime contracting classification • Option to bypass OAH and appeal directly to the state board of tax appeals or the tax court • Required registration with the DOR for online lodging marketplaces

The Arizona Tax Guide includes the following guides: • The Arizona Income Tax Guide is a comprehensive reference that highlights the differences between Arizona and Federal income tax law and provides references to the Arizona Revised Statutes for a more in-depth analysis. It highlights the differences between individual, corporate, partnership and trust taxes, includes tax tables, and is arranged in a way that facilitates research on any topic. • The Arizona Sales and Use Tax Guide is a resource for anyone preparing or filing city sales and use tax returns. The guide details the various sales tax classifications, exemptions, deductions and rates as well as compliance, audits, refund claims and administrative appeals. • The Arizona Personal Property Tax Guide provides an overview of Arizona’s personal property tax system, including exemptions, the classification structure and assessment rates, reporting, valuation and appeals. • The Arizona Unclaimed Property Guide explains what unclaimed property is, reporting requirements for holders of unclaimed property, how owners of unclaimed property can claim their property and audits.

Order online and learn more about the guides at www.ascpa.com/taxguide2021

2021

Arizona Tax Guide

2021 Arizona Income Tax Guide 2021 Arizona Sales & Use Tax Guide 2021 Arizona Personal Property Tax Guide 2021 Arizona Unclaimed Property Guide 4-Volume Set

Pat Derdenger, Esq. Stephen J. Rodis, CPA Edward K. Zollars, CPA

Published by the Arizona Society of CPAs Phoenix Tax Workshop

Spiral-Bound Book:

Pre-Order by Dec. 16, 2020 r Members of ASCPA,

Phoenix Tax Workshop,

State Bar of Arizona or

Enrolled Agents: $85

r Nonmembers: $105

After Dec. 16, 2020 r Members of ASCPA,

Phoenix Tax Workshop,

State Bar of Arizona or

Enrolled Agents: $95

r Nonmembers: $115

Electronic PDF:

r Members of ASCPA,

Phoenix Tax Workshop,

State Bar of Arizona or

Enrolled Agents: $79

r Nonmembers: $99

Guides will be available for delivery mid-January 2021.

Name ______________________________________________ Company ___________________________________________ Address ___________________________________________ City _____________________State ______ Zip ____________ Phone _____________________ Fax ____________________ Email ______________________________________________ r CPA r Attorney r EA r Other: _____________________

Please return this form and payment to:

Arizona Society of CPAs

4801 E. Washington St., Ste. 180 Phoenix, AZ 85034-2040

Method of Payment:

r Check r VISA r MasterCard r American Express

Name on Card ______________________________________ Card Number _______________________________________ Exp. Date ____________ Amount $ _____________________ Signature of Cardholder_______________________________

Sales tax, standard shipping and handling prices are included.

*The ASCPA will be processing checks submitted in payment as an Electronic Funds Transfer (EFT) transaction. Funds may be withdrawn from your account as soon as the same day we receive your payment.