CONFLICT OF INTEREST
UNIVERSITY TRUSTEE'S ACCOUNTING FIRM DOING BUSINESS
WITH UNIVERSITY FOUNDATION
To: Name withheld at person's request (Pensacola)
SUMMARY:
No prohibited conflict of interest is created under Section 112.313(7), Florida Statutes, where a member of a University Board of Trustees is a partner in an accounting firm contracting with the University Foundation and other entities which do business with the University, as long as the Trustee has not personally performed services for the client.
QUESTION:
Would a prohibited conflict of interest exist were you, a member of a University Board of Trustees, to be a partner in an accounting firm, when the firm has contracts with the University Foundation and other entities doing business with the University?
Your question is answered in the negative, except as respects clients for whom you have personally performed services, including clients for whom you have signed off on the work of others as a licensed Certified Public Accountant.
You advise that you are a recently appointed member of the Board of Trustees of the University of West Florida, and are also a Certified Public Accountant and managing partner in an accountancy firm which operates as a limited liability partnership. In this capacity, you relate, you primarily serve as a manager, although you do have accounts which you personally handle. You write that the firm has contracts with the University, the University Foundation, and with other business entities—for example architectural firms—which do business with the University. You advise that once any current contracts are fulfilled, your firm does not intend to do any further business with the University, but you inquire whether Section 112.313(7) will prohibit your firm from entering into contracts with the University Foundation or any other entity that does business with the University.
Section 112.313(7)(a), Florida Statutes, provides:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.— No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee…; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.
The first part of Section 112.313(7) prohibits you from having a contractual relationship with any business entity which is doing business with your agency. You advise that the University Foundation is a direct support organization of the University, and we previously have found that a direct support organization is considered to be "doing business with" the agency which created it. CEO 89-36. Therefore, Section 112.313(7), would operate to prohibit you from having a contractual or employment relationship with the Foundation, or with any other entity doing business with the University.
As you do not perform services for any clients except through their contracts with your firm, the question then becomes whether a contractual relationship between your firm and a client would be imputed to you by virtue of the client's contractual relationship with your firm. In CEO 89-24, we said that a certified public accountant who served on the State Board of Independent Colleges and Universities would violate Section 112.313(7), were his firm to provide accounting services to colleges and universities under the regulation of that board. In so finding, we relied on CEO 86-37, in which we determined that an attorney has a contractual relationship with each client represented by his firm. "Under the rationale of that opinion," we said, "we are of the view that an accountant has a contractual relationship with each client of his accounting firm."
Our conclusion that an attorney has a contractual relationship with each client represented by his firm is based on case law. In Frates v. Nichols, 167 So. 2d 77, 81 (3rd DCA 1964), the court held that, "the retention of a law firm obligates every member thereof to fulfilling that contract . . . ." Our opinions with respect to attorneys have followed that holding, but we have been unable to find any similar pronouncements from the courts applicable to accountants. Accordingly, we recede from CEO 89-24 to the extent that it reflects that an accountant, solely by virtue of his status as an employee or officer, or his holding of an ownership interest, has a contractual relationship with each client of his firm.
However, this does not end our inquiry, because we have also found that services performed under professional licensure may be contractual in nature. For example, in CEO 95- 28, we determined that a county property appraiser would hold a contractual relationship with clients for whom real estate appraisals were prepared, were he to act in his private capacity as a certified residential appraiser to sign appraisals prepared by a registered appraiser. We noted that under Florida law, property appraisal is a regulated field, that a licensed or certified appraiser's review and signature were indispensable to the issuance of appraisals by registered appraisers, and that registered appraisers were held to be acting under the supervision of the licensed or certified appraisers who reviewed and signed their work. Similarly, there are certain functions, such as the attestation as an expert in accountancy to the reliability or fairness of presentation of financial information, which may only be performed by a licensed Certified Public Accountant. We find that you would have a contractual relationship with clients for whom you personally perform services or on whose accounts you serve as the licensed Certified Public Accountant, approving the work of others.
Finally, we point out that Section 112.3143, Florida Statutes, the voting conflicts law, will place restrictions on your participation in matters relating to the firm's clients. It provides:
(2) No state public officer is prohibited from voting in an official capacity on any matter. However, any state public officer voting in an official capacity upon any measure which would inure to the officer’s special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom the officer is retained or to the parent organization or subsidiary of a corporate principal by which the officer is retained; or which the officer knows would inure to the special private gain or loss of a relative or business associate of the public officer shall, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes.
(4) No appointed public officer shall participate in any matter which would inure to the officer’s special private gain or loss; which the officer knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained; or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer, without first disclosing the nature of his or her interest in the matter.
(a) Such disclosure, indicating the nature of the conflict, shall be made in a written memorandum filed with the person responsible for recording the minutes of the meeting, prior to the meeting in which consideration of the matter will take place, and shall be incorporated into the minutes. Any such memorandum shall become a public record upon filing, shall immediately be provided to the other members of the agency, and shall be read publicly at the next meeting held subsequent to the filing of this written memorandum.
(b) In the event that disclosure has not been made prior to the meeting or that any conflict is unknown prior to the meeting, the disclosure shall be made orally at the meeting when it becomes known that a conflict exists. A written memorandum disclosing the nature of the conflict shall then be filed within 15 days after the oral disclosure with the person responsible for recording the minutes of the meeting and shall be incorporated into the minutes of the meeting at which the oral disclosure was made. Any such memorandum shall become a public record upon filing, shall immediately be provided to the other members of the agency, and shall be read publicly at the next meeting held subsequent to the filing of this written memorandum.
(c) For purposes of this subsection, the term "participate" means any attempt to influence the decision by oral or written communication, whether made by the officer or at the officer’s direction.
This section provides that a voting conflict of interest exists when a measure will inure to the special private gain or loss of a principal by whom you are retained. In CEO 85-14 we concluded that, as with certain other professions, a client of an accounting firm is such a "principal." As an appointed state officer, you are not prohibited from voting on any measure, but must, prior to having any participation in the matter, disclose the nature of your interest, as set forth in the statute.
Accordingly, we find that no prohibited conflict of interest is created under Section 112.313(7), Florida Statutes, where you are a partner in an accounting firm contracting with the University Foundation and other entities doing business with the University, as long as you have not personally performed services for the client, including signing off on the work of others as a licensed Certified Public Accountant.
ORDERED by the State of Florida Commission on Ethics meeting in public session on September 9, 2011 and RENDERED this 14th day of September, 2011.
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Robert J. Sniffen, Chairman