An advisory opinion has been requested concerning whether an employee in the Income Tax Division of the Comptroller of the Treasury (the Comptroller) may serve as an official in a private association whose activities may be subject to audit by the Comptroller.
The Requestor is a field audit supervisor in the Income Tax Division of the Comptroller's Office. He supervises a team of 3 individuals in auditing the income tax returns of individuals and business entities. He is also a volunteer fireman and active in the affairs of the Maryland State Fireman's Association (MSFA or the Association). The MSFA is an association composed of all the volunteer fire companies in Maryland, and is incorporated under Maryland Law as a private, nonstock non-profit corporation. Volunteer fire companies are not, as a general matter, subject to regulation by the State of Maryland; they operate in accordance with standards established by the MSFA. The companies and the Association work in close coordination with the Office of the Fire Marshal as to fire investigations, but otherwise, according to MSFA, the official relationships between the Association and the Fire Marshal and the Fire-Rescue Education and Training Commission are limited to appearance at hearings and submission of recommendations on specific issues.
The MSFA is listed in the Maryland Manual (1981--82) under the Board of Public Works heading "State Aided Societies and Institutions," and is responsible for administering State funds based on three separate funding provisions. First, the Association administers pension and education funds for disabled or deceased volunteer firefighters and their spouses and children. These funds consist of an annual appropriation of "not less than $55,000...each year," directed to be "administered and expended by the board of trustees of the...Association." (Article 38A, §§4243, Annotated Code of Maryland.) The Law prohibits use of these funds for administrative purposes but does not establish any substantive audit responsibility in any State agency. A second MSFA administrative responsibility involving State funding was established in the Laws of 1982, Ch. 239, and provides for implementation by the Association of a public information, record-keeping and data collection program. (Article 38A, §46A, Annotated Code of Maryland.) The FY 1983 appropriation for this program is $75,000, and section 46B(A) of Article 38A provides that the "Comptroller may audit the financial affairs of the...Association in order to insure compliance with §46A."
The third State-funded program was also established in Ch. 239, Laws of 1982, in an amended section 46, Article 38A. This program involves a $675,000 FY 1983 appropriation and MSFA administration of an emergency assistance trust fund to provide loans and grants to volunteer fire companies. Applications from fire companies are to be considered by an MSFA Board of Review, whose recommendations for approval are processed to the Association's Executive Committee, and then through the Department of Budget and Fiscal Planning (DBFP) and the Legislative Auditor. Award is made by the Board of Public Works based on DBFP recommendation. Disbursement of funds is made by the Treasurer based on the warrant of the Comptroller. MSFA itself appears not to be subject to audit in connection with its participation in the emergency trust fund. Individual fire companies receiving awards must submit financial statements to the Legislative Auditor. The statements are to be reviewed and a report provided to DBFP regarding whether the funds were expended consistently with the company's request for financial assistance.
The Requestor has been asked to serve as a member of MSFA's Board of Review, and as such would be involved in the Association's initial review and recommendations regarding emergency fund requests. The Board of Review would be involved only in this particular program, as expenditure approval of other funds entrusted to MSFA is handled by the organization's Board of Trustees or its Executive Committee. As noted, the Requestor works as a Supervisory Auditor in the Comptroller's Income Tax Division. Routine "pre-audits" that are conducted in connection with the disbursement of any State funds are handled in the General Accounting Division. These "pre-audits" affect every request for payment of State funds and involve a determination that there is spending authority and that funds exist to pay; as a result of the "pre-audit" a warrant is issued authorizing payment by the Treasurer.
All MSFA programs involving State funds are subject to the "pre-audit" procedure. However, from review of Article 38A, it appears that only the public information program is subject to substantive audit by the Comptroller. Responsibility for audits under this program has not been determined, since audit of private entities such as the MSFA is not a usual Comptroller function. A likely Division to do this audit, however, would probably be the General Accounting Division. The Chief Auditor of the Income Tax Division, the Requestor's supervisor, has indicated he does not believe that service on the Board of Review would present a problem for the Requestor as long as it is kept separate from his auditing duties.
The issue presented in this inquiry is whether the Requestor's service on the MSFA Board of Review is forbidden by section 3-103(a) of the Ethics Law. This section bars outside employment by an official or employee with an entity that is under the authority of his agency (subsection 3-103(a)(1)(i)), and also other employment that would impair his impartiality or independence of judgment (subsection 3-103(a)(1)(ii)). Since the Requestor's auditing responsibilities as to individual and business income tax returns do not appear to be related to or impacted by his proposed MSFA activities, we do not believe that there is a problem here under the inconsistent employment provisions of subsection 3-103(a)(1)(ii). The issue then, is whether his MSFA Board of Review service would constitute employment with an entity under the authority of the Comptroller intended to be barred by the more technical limitations of subsection 3-103(a)(1)(i).
We have in previous requests considered the question of whether noncompensated service as an officer in a private board or entity constituted employment for purposes of section 3-103(a) of the Ethics Law. In our Opinion No. 82-22 for example, we advised the Executive Director of the Regional Planning Council that his noncompensated service on two local advisory boards constituted an employment relationship that was prohibited by section 3-103(a). Our review in this and other requests raising this issue has been that the substance of a relationship should control rather than solely whether or not there is compensation. Where a relationship involves a commitment or requirement of loyalty or a fiduciary relationship, the Commission has held that an employment relationship exists even when there is no compensation. See Opinions No. 80-4 and No. 82-2. We believe that these principles apply in this situation, and that the Requestor's service on the Board of Review would constitute an employment relationship as contemplated by §3-103(a)(1).
Under these circumstances we believe that the prohibition of §3-103(a)(1)(i) applies in this situation, since the amended Article 38A, §46A plainly assigns the Comptroller substantive audit responsibilities over some of MSFA's activities. The Comptroller's Office also, of course, has routine pre-audit and warrant authority over all of the Association's State-funded activities. We do not here determine whether the general warrant authority is significant enough to bring section 3-103(a) into play, since the Agency's limited substantive audit responsibilities seem to us to be sufficient to create at least a technical bar under §3-103(a)(1)(i). However, the relationship of the Requestor's official duties to those that the Comptroller performs involving MSFA seems to be remote, and thus justify application of our recently promulgated outside employment exception regulations. COMAR 19A.02.01 (9:15 Md. R. 1517, July 23, 1982).
These regulations became effective August 2, 1982, and were issued in implementation of exception authority set forth in §3-103(a)(1) of the Ethics Law. The content and approach of the exception criteria are set forth in some detail in our Opinion No. 82-40. Basically, they implement the statutory criteria that exception to the general prohibition be allowed "where such employment does not create a conflict of interest or appearance of conflict." The regulations list several circumstances where the relationship between an individual's State job and proposed outside activity would be so remote that a conflict of interest or appearance of conflict is unlikely, even though a situation fits within the technical terms of §3-103(a)(1). We have evaluated the Requestor's proposed service on the MSFA Board of Review in light of these exception criteria, and do not believe that his situation would raise issues under any of the provisions set forth in the regulations. We therefore conclude that the Requestor may be excepted from the prohibition of §3-103(a)(1)(i), and that his service on the Board of Review is therefore allowable as proposed.
Herbert J. Belgrad, Chairman
Jervis S. Finney
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: September 22, 1982