97.04

OPINION NO. 97-04

A request has been presented by the University of Maryland System for clarification of prior Commission opinions regarding application of the Public Ethics Law (State Government Article, Title 15, Annotated Code of Maryland, the Ethics Law) to use of affiliated foundation or similar private funds for activities that result in personal benefits to University employees.

This particular question relates to payment by a System institution of salary supplements funded by the institution's affiliated foundation out of unrestricted funds to several administrative staff persons, all of whom had duties relating to the foundation. We have considered foundation relationships and private funding for official activities in a variety of situations. The key opinions on these issues are Nos. 89-9 and 93-15. Opinion No. 89-9 dealt with participation by officials in a private entity established by several State agencies. It reviewed a variety of types of situations where employees might be expected to be involved with private entities, and set forth a series of guidelines to be applied to ensure that situations are avoided where employees have private economic interests that could impact on their performance of their State jobs. The guidelines included, for example, that a private entity could not provide compensation for State officials, or use private entity funds to supplement salaries of State employees or otherwise benefit them in violation of State personnel and fiscal policies.

Opinion No. 93-15 dealt with a question presented by the University of Maryland College Park (UMCP) regarding Ethics Law application to programs for providing cash awards to employees, using private sources of funding (including possibly an affiliated foundation). We reviewed potential issues under the participation, gift, and prestige provisions of the Law (§§15-501, 15-505, and 15-506), as well as advice in previous opinions (see for example, Nos. 88-17 and 81-34), and took account of several policy constraints already in place at UMCP. We advised that the activity was not strictly prohibited by the Law, but was subject to significant constraints, and that great care was required in view of the fact that the awards at issue were intended to be cash awards. The Commission, in addition to acknowledging UMCP's existing policies (including that the awards program be administered by the institution), also set out several monitoring controls designed to protect against abuse. In particular, the Opinion advised that:

1) Any award program should be established in writing and approved in writing by a central System-wide authority.

2) The written program should define the funding source, the eligibility and selection criteria, the award amount and the selection mechanism.

3) Approval of an awards program should include certification by the State Law Department that the program is otherwise consistent with State law, as well as the concurrence of appropriate fiscal and personnel officials of the University System.

4) Funding should come from sources where use for these purposes is consistent with the understanding of the funding entity and its donors.

5) None of the recipients may have duties relating to any donor, or have duties relating to the award program.

There have also been informal advice situations involving salary supplement or bonus issues for higher education staff. In 1991, for example, a Trustee of a State institution was advised that a program by which the institution's foundation directly supplemented the President's salary would present issues under the Ethics Law, particularly since a personal benefit was being conferred on institution personnel responsible for monitoring the relationships between the institution and the foundation. The participation, employment/interest, gift and prestige sections were cited as potential Ethics Law issues, and the Trustee was advised that the best way to deal with the activity would be through the agency budget process.

Later in 1992, we considered an issue presented by UMCP and a payment from the University of Maryland Foundation of bonuses to employees in a particular college. The bonus was recommended by the Dean, who did not himself receive a bonus, and apparently none of the employees who benefitted were involved in the request or approval of funds. The payment, however, was not approved through University fiscal controls. The University was advised that payment of these funds was not consistent with prior advice that related foundations should not be providing financial benefits to employees except where specifically provided by State law. These types of issues have also been considered in the enforcement process in a matter involving the University of Maryland. In a situation where mortgage loan support was provided by a foundation to a University official who had duties relating to the foundation, the Commission closed the matter based on that fact that the loan was terminated, the official's financial disclosure statement was corrected and he made an unrestricted donation to the University. The Commission at that time reiterated its view that as a general matter there should not be financial relationships between these types of foundations and University employees.

System Administration staff reviewing this matter have suggested that the foundations tend to be established for the sole purpose of supporting the University System or the particular institution with which they are affiliated. Their mission is usually described as provision of any general educational or other assistance to the affiliated institution and System staff suggest that funds to support salaries should be possible as well as funds to purchase equipment or provide scholarships or other support.1 While we recognize these concerns of the System, we believe that the constraints we have previously articulated regarding the use of foundation (and similar) funds to benefit employees should also apply to situations involving salary supplements, bonuses and related compensation activities. We are concerned in particular about situations where such benefits are awarded to officials who serve as members of a foundation's Board and have substantial fiscal and management duties at an institution, as such persons tend to have obligations as part of their official responsibilities to ensure that funds are donated and used consistent with the statutory requirements applying to the foundation, as well as the charter and priorities of the foundation.

Obviously these kinds of issues could be avoided or minimized if institution officials are not appointed to serve on foundation boards. Where such persons do serve on foundation boards, however, it is our view that the general Ethics Law guidance barring persons who have duties relating to an entity from receiving personal benefits from it should apply to exclude them from receipt of salary supplements funded by a foundation.2 Moreover, in our previous advice in these kinds of situations we have said that policies regarding such programs should be clearly defined in written System-wide guidelines that set forth the ethics policy and establish a clear framework within which such actions would be allowable. We therefore believe that the System Administration should act to ensure that senior managers at its institutions are aware of the constraints applying to use of foundation funds for personal employee benefits. If the System believes that funds from these sources should be available for salary supplements, bonuses and related compensation uses, then it needs to clearly include these constraints in any Board of Regents policy issued pursuant to §12-109 of the Education Article, and should also make certain that these requirements are reflected in fiscal, personnel and other control mechanisms applied to the institutions' foundation relationships.

Michael L. May, Chairman,
   Mark C. Medairy, Jr.,
   Charles O. Monk, II,
   April E. Sepulveda

Date: April 24, 1997

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1 It should be noted, however, that §15-104 of the Education Article specifically provides that gifts and donations to university institutions are to be used in accordance with the wishes of the donors, and also that they may not be used as a substitute for State General Fund appropriations.

2 We recognize, of course, that payments to these persons could be made where consistent with §15-104 of the Education Article, which allows compensation for work done by individuals on behalf of foundations.