An inquiry has been presented by a staff specialist (the Employee) in the computer center of the Maryland Lottery concerning whether he may own a substantial minority interest in a computer supply business. The Employee has worked at the Lottery for approximately 7 months as a data processing user coordinator. His job function is to serve as a liaison between the agency's computer center and data processing users. Basically, the Lottery has two computer operations, one covering the computerized games and ticket sales (located at the Hunt Valley Computer Center) and the other covering the computer needs of the agency's internal administration. The Hunt Valley Center is run under a facility management contract, and all supplies, services, equipment, training and operational consultation regarding the Statewide terminal system for sale of Lottery game tickets is operated out of this center. Also, according to the Lottery Administrator, equipment is provided to terminal holders by the Lottery through this facilities contractor. This includes paper, ribbons, and other expendable supplies.
The Employee works in the other computer center servicing the Lottery's internal administrative data processing needs. The agency uses for this purpose a Burroughs A-3 computer with approximately 30 terminals hooked into the mainframe. About 15 of the terminals are also microcomputers. The mainframe computer is used to run and maintain all of the agency's administrative systems, such as timekeeping and payroll. The microcomputers are used mostly for wordprocessing, minor accounting work, marketing graphics and budget spread sheets. The computer system is used by most of the agency management personnel. Generally, the Employee's job as user coordinator is to assist people using the computer, do training for new employees or in new programs, and to make recommendations for equipment and supplies.
More particularly, the position description for the Employee's job lists duties to help users assess and define their data processing needs, to participate in study and design of new systems and changes to current systems, and to work directly with users when problems occur in order to coordinate corrections. He is also involved in planning for resources for the computer center and end users, and participates in the technical evaluation of proposals from data processing vendors. Typical decisions of the position include determining whether equipment, systems and procedures are fulfilling the needs of end users, and whether user problems have been resolved. Though the position description indicates that he would be expected to "interface with vendors of computer hardware and software," the Employee says that all purchasing, including expendable supplies such as paper, diskettes and ribbons, is done through the agency's operations department.
Though not within the purchasing office, the Employee's position nevertheless does appear to entail indirect involvement with purchase of supplies. The Employee says he does not get involved on a regular basis in defining particular needs, except to report that supplies are low and need to be replenished. He does, however, in the context of his systems work with the software, deal with user complaints or problems that may involve issues about where the problem is and whether the supplies being used are the source of the problem. For example, word-processing users were having problems with machines that were eventually traced to the use of poor quality disks. When higher quality disks were purchased (from a few suppliers), the problems ceased. Also, the Employee indicates that as a coordinator of system use, he would expect to be part of any major decision regarding new equipment or new software.
The private business involved here (the Corporation) is a corporation that sells high technology office products. It does not sell computers or computer software, or other office machines such as copiers or adding machines. Rather, it markets expendable supplies, such as ribbons, diskettes, print wheels, and paper, and computer-oriented furniture. The company markets to large corporate entities; it does not do business with smaller businesses such as liquor stores and convenience stores that would have Lottery game terminals. The Employee indicates that a significant part of the entity's business is in the design and installation of computer work stations in the high-tech office environment. The company is included as a qualified bidder for State purchases, and did approximately $200,000 in State business in 1985. (This represents more than 50% of the entity's gross sales for the period.) The Employee says that the company has done between $500 and $1,000 worth of business with the Lottery, primarily in diskettes and printer ribbons. Products are sold in response to informal solicitations from purchasing offices, and the company has sales people who call on purchasing departments to market their products. It has not sold any products to the facility contractor at the Hunt Valley Center.
At the time the Employee began to work for the Lottery, his spouse was employed as a salesperson for the Corporation. The company was wholly owned by one individual; neither the Employee nor his wife has any financial interest in the Corporation. In the interest of expanding the company's management capability, the original owner now proposes to sell 49% of the business to the Employee and his spouse, retaining a controlling interest. The Employee's spouse would own 25% and he himself would hold a 24% interest. He estimates the value of the anticipated joint interest at approximately $15,000. The Employee, who has provided accounting services to the firm under contract (he is a CPA), would also serve as the comptroller of the Corporation and says he would be compensated for these services in addition to income received as return on his investment. This arrangement is on hold pending Commission action and the Employee is not clear as to what his total annual income from the company would be, though he expects his annual compensation as comptroller to be substantial.
The Lottery purchasing officer continued to purchase small amounts of supplies from the Corporation even though the Employee's spouse was employed there. When the Employee and his wife proposed to purchase an interest in the business, however, the agency discontinued its business with the firm. Both the agency Administrator and the Employee's supervisor (the agency's Data Processing Manager) have expressed the view that it would be improper, or would "not look good" for a firm owned so substantially by a Lottery employee to be one of the agency's suppliers. Neither of these individuals believes that removing the Corporation from the agency's bidders list for these types of supplies would present any hardship for the agency. They agree that his affiliation with it would not be a problem as long as it did not sell supplies to the Lottery.
This request involves the employment and interest prohibitions of §3-103(a)(1)(i) of the Public Ethics Law (Article 40A, §3-103(a)(1)(i), Annotated Code of Maryland, the Ethics Law), and the possible application of the exception to that provision as implemented in Commission regulations. Section 3-103(a)(1)(i) is a strictly couched prohibition barring an employee from having a financial interest in or being employed by an entity that contracts with or is under his authority or that of his agency. If an individual receives an annual income from or has an equity interest of $1,000 or more in the business, then he was a financial interest in it. (See definition of financial interest, §1-201 of the Ethics Law.) Also, we have generally said that individuals who are affiliated with and provide services to private businesses have employment relationships with them. (See, for example, Opinions No. 82-35, No. 82-11, No. 82-20 and No. 82-12.) The Employee proposes to purchase an equity interest in the Corporation of $15,000 and to provide services to it as its comptroller. If it continues to sell supplies to the Lottery, these activities would be within the prohibition of §3-103(a)(1)(i), unless an exception can be allowed.
In reviewing application of the exception provision, we do not believe that affiliation by the Employee with the Corporation while it does business with the Lottery can be allowed under the criteria developed by us pursuant to statutory exception language set forth in §3-103(a). Basically, this language allows exception from the prohibition in accordance with Commission regulations, where the relationship would not result in a conflict of interest or appearance of conflict. Our regulations are published at COMAR 19A.02.01 (outside employment exception) and 19A.02.02 (financial interest exception). Their approach is to set forth general guidance criteria for assuring that an outside employment or interest relationship is so remote from the individual's agency activities and official duties that the possibility of a conflict or appearance thereof is remote.
The criteria include, for example, consideration of possible impact by the employee on his outside employer or interest, and also the relationship of the employee to supervisors, other employees, or the unit of his agency that impact on his outside employer or interest. The criteria also include a provision for consideration of the nature of the individual's private duties in relationship to his State agency, providing, for example (in COMAR 19A.02.01.03F and 19A.02.02.03G), that an employee's outside employment or financial interest should involve no substantive non-ministerial duties significantly relating to his State agency's authority over the entity. In applying these criteria to the Employee's situation. We do not believe that the relationship would be sufficiently remote to allow an exception if the Corporation continued to do business with the Lottery. We note, for example, the Employee's involvement in supply purchases, and also the issues presented given the percentage significance of his ownership interest and his key position as the company's comptroller. We therefore advise that the Employee should affiliate with the company as proposed only if it is understood by both his agency and the Corporation that it would not be involved in any sales relationships with the Lottery.
We have in several prior Opinions evaluated situations where individuals wished to do business through private entities with State agencies other than their own, and have generally said that this is allowable. (See, for example, Opinions No. 82-8, No. 81-40, No. 80-12, and No. 80-11.) In these circumstances, the strict prohibition of §3-103(a)(1)(i) would not apply, as the entity is not contracting with the Employee's agency. Nor would the more general impairment provision of §3-103(a)(1)(ii) apply, as long as the private activities do not relate in any way to the individual's agency duties or agency program. Under these principles, we advise the Employee that his affiliation with the Corporation would not be barred by the fact that the Corporation does business with other agencies of the State. To be certain to avoid any conflict or appearance of conflict under the impairment provision, however, the Corporation should continue to avoid any business with entities connected with the Lottery, including the facility contractor for the Hunt Valley Center, and private businesses that participate in the agency programs as vendors of Lottery game tickets.
Thomas D. Washburne, Chairman
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: November 6, 1986