ETHICS A PRACTICAL EXERCISE KY PSC 2018 WATER

ETHICS: A PRACTICAL EXERCISE KY PSC 2018 WATER PERSONNEL TRAINING KENTUCKY DAM STATE RESORT PARK SEPTEMBER 19 AND 20, 2018

Character – Correct Values CORRECT VALUES ARE THE EXPECTATION; BAD VALUES BRING PROBLEMS. 2

How often, while reading the newspaper, do you read about the following: • Employee of nonprofit or governmental unit embezzles money. • Employee of governmental unit uses (and keeps) work property for a private purpose. • Official or employee of governmental unit provides a family member or friend with an advantage that is not otherwise available to others. • Official or employee of governmental unit uses position to obtain a benefit that is not otherwise properly available. 3

“ETHICS” IS MANDATORY NOT OPTIONAL • KRS 65. 003 requires the governing body of each county to adopt, by ordinance, a code of ethics that applies to all elected officials. The boards, officers, and employees of special purpose governmental entities “shall” be subject to a code of ethics. • KRS 65 A. 070(2) permits the governing body of a special purpose governmental entity to adopt ethics provisions that are more stringent than adopted by the establishing entity (the code of ethics of the county in which the principal business office is located). 4

QUICK SELF-TEST • How many of the members of the board have read the applicable code of ethics for the water district? • How many officers of the water district have read the applicable code of ethics for the water district? • Does the water district have a process in place for its employees to receive training in the applicable code of ethics? • There is a problem if your answers are anything other than “all, ” and “yes. ” 5

So, what are the correct values? KRS 11 A. 005 • Independent and impartial actions • Policy and decision through established processes • No use of position for private benefits • Enforcement (KRS 11 A. 080) KRS 65. 003 • Disclosure of financial interests • Operate with clear standards of conduct • Have policy on employment of family members • Enforcement 6

Example of Code of Ethics adopted pursuant to KRS 65. 003 • Prohibits use of influence in any matter which involves a substantial conflict of interest between private interests and public duties • Prohibits use of position to obtain financial gain or creation of advantage or treatment in derogation of public duty • Generally prohibits acceptance of extra compensation for performance of official duties (and requires the establishment of policies and procedures for certain public servants falling under an exception). • Requires some individuals to file a financial disclosure statement 7

Code of Ethics Addresses: • Gifts (including travel and travel-related expenses) • Use of public property, equipment, and personnel • Misuse of confidential information • Honoraria (extra compensation) 8

Code of Ethics Addresses: • Conflict of interest generally with emphasis on maintaining the proper discharge of public duties • Conflicts of interest, specifically, in contracts • Representation of interests before governmental unit • Post-employment restrictions • Nepotism 9

Tailored Ethics - KRS 65 A. 070(2) Additional policy of water district includes, among other things, prohibitions against: • Gambling or money lending on site • Intoxication from alcohol or drugs • Sexual harassment of a fellow employee Note: While these seem to be the type of things covered by an employee handbook, it underscores that ethical behavior is not separate or distinct from correct performance of the job. 10

Confidence • “The citizens of the Commonwealth have a right to expect honesty from state employees and have confidence in their government. ” From Guide to the Executive Branch Code of Ethics (7 th Edition; May 2007). 11

How do your customers view your utility? • Water utilities face significant costs in rehabilitating and replacing infrastructure, compliance with drinking water regulations, and other expenses such as energy costs. If your customers do not have confidence in your utility, then how can you ask them to fund your cost of service? 12

Remember – The Board is the Key. Water Districts (government) Water Associations (not government) • KRS Chapter 74 – • KRS Chapter 273 - • KRS 74. 020 specifies that the board will manage and control the affairs of the district. • KRS 273. 215 contains standards for directors: good faith; informed basis; best interest of corporation. • KRS 74. 020 notes that inefficiency, neglect of duty, • KRS 273. 219 is the conflict of malfeasance, or conflict of interest provision with focus on interest are reasons for removal. disclosure and fairness. 13

Self-dealing by directors or officers is a major problem area. • One consistent theme in several of the recent audits of public entities is the use of the entity to promote private gain and personal enrichment. • When the action involves the personal interest or private gain of an officer or director, there is a conflict of interest. • Both the members of the boards and boards as bodies have to be diligent to prevent conflicts of interest from interfering with the management of the utility. 14

What to do (and what not to do): • Affirmatively review for conflicts of interest. (Board Member) • When a conflict exists, there should be a documentation of the conflict. (Minutes) • Abstain means to abstain. (Board) Err on the side of caution, noninvolvement. Remember, if you have a fiduciary duty to another organization, then you need to be very careful. • Do not assume that other board members will know that you have a conflict. • Do not fail to inform the other party/entity of the conflict or potential conflict. • Do not communicate “off-therecord” or otherwise do indirectly what is not appropriate. 15

Where to start looking: • There needs to be a reasonable nexus between the spending (expense) and the provision of reasonable service. Read the most recent rate case Order from the Commission and see if there were any expenses disallowed. • In several recent cases, the Commission has questioned the amount of legal fees which a utility seeks to recover. • In one case, a utility estimated their rate case expense at $72, 000. Then at the close of the case, they sought to recover $162, 695. 30 in case expenses. This was for an annual revenue increase of $798, 210. The Commission found the amount excessive and capped the allowed expenses at $72, 000. • The presentation to the board concerning the budget and expenditures should contain sufficient information to describe and detail the use of funds. 16

How many times do you run across an article about a person being dismissed because he/she was too ethical? How many times have you run across an article about a person being fined and/or indicted because he/she was too ethical? (“Just following orders” and “everybody does it” are not justifications for unethical conduct. ) 17

Recent Activity – KRS Chapter 11 A • Case Number 16 -004: Used official position as an Inspector with the Dept of Housing, Building and Construction to access confidential and person information of HVAC licensees which was subsequently passed on to the official’s wife who was starting an online HVAC education service. • Case Number 18 -003: Used a state issued credit card to obtain fuel for his personal vehicle(s) on 25 occasions. • Case Number 17 -003: Used state resources and facilities for personal gain by shipping personal items and for-profit items he sold on Ebay using the state office mail system. Also used state issued computer to further his Ebay business. • Case Number 16 -002: Supervisor supplied interview questions, in advance, to interviewee who was a close, personal friend of subordinate employee with whom supervisor had a close, personal relationship. Participated in interview and selection of person for position with agency. 18

When in doubt… • New York Times Rule: “Don’t do anything you wouldn’t want to have on the front page of the New York Times. ” • On the record disclosure to the board • Advice of counsel and/or (where available) advisory opinion by ethics board • On the record removal (recusal) from the matter • Local Paper Rule: Would a reasonable, informed customer agree that it is fair? 19

THANK YOU • Jenny Sanders • Public Service Commission • P. O. Box 615 • Frankfort, Kentucky 40602 -0615 • T 502 -782 -2581 • Jenny. sanders@ky. gov 20