CHARLESTON -
The West Virginia Ethics Commission determined Aug. 2 that public employees of a nonprofit organization that makes funding decisions for the employees' employers creates "an insoluble conflict."
The Kanawha-Charleston Health Department asked for a clarification about how a nonprofit corporation, formed by employees from every health department in the state, makes funding distributions.
A single employee from each of the state's 49 local health departments takes part in the voluntary association, which has the mission of representing local health department interests and working together to leverage resources and influence public policy, according to facts outlined in the ethics commission opinion.
Members of that association are required to pay annual dues.
Those members formed a private, nonprofit corporation in 1995, and one of its operational tasks, according to the commission opinion, was to solicit, receive and manage contributions from individuals, businesses and organizations as well as make distributions to 501(c)(3) organizations.
The way that process worked was questioned in light of federal funds that needed allocated in a hurry.
A federal grant of about $1.2 million to benefit local health departments was given to a state agency to distribute in 2010, according to the opinion.
According to a statement from the Kanawha-Charleston Health Department quoted in the Ethics Commission opinion, "the chief declared the purpose of the grant was to address performance management improvement and further enhance efforts to effect public health system changes that improve public health impact."
Members of the Health Department's Association were told in February 2012 that most of the infrastructure grant money provided to the state agency had yet to be distributed, and if the funds were not allocated and spent by Sept. 29, 2012, the money may have to be returned to the federal government.
The association of health department members met with the state agency and decided that by distributing $400,000 of the funds to the non-profit corporation, the funds would be assigned quickly.
The groups entered into a sub-recipient agreement, and 19 of the local health departments were notified April 6, 2012, they would receive a portion of the funds, and the Kanawha-Charleston Health Department was set to receive the biggest portion.
According to the Ethics Commission opinion, "questions began to rise about the grant process and the funding matrix," specifically the role the nonprofit played in creating the funding matrix and the executive director's role in the process.
The nonprofit had an emergency board meeting April 12, 2012, and decided to obtain a legal opinion about the potential for conflict of interest. The group's attorney provided a written, legal opinion stating that no conflict of interest existed under the nonprofit's by-laws, so the group moved forward with its funding allocation.
The Kanawha-Charleston Health Department agreed unanimously during an April 23 meeting to rescind from the nonprofit's grant process. The KCHD also decided to seek an advisory opinion from the Ethics Commission and eventually withdrew its membership from both the association of health departments and the nonprofit.
During that time, the KCHD submitted its application directly to the state agency for funding.
"The state agency stated that it did not have an alternative grant process," according to the Ethics Commission opinion. The state agency then referred KCHD back to the nonprofit.
The KCHD's request of the Ethics Commission included seven questions, but not all of them fell under the commission's jurisdiction, according to the opinion.
The opinion recognizes that the decision to give the grant funding process and oversight to the nonprofit "was borne of a perceived necessity and not an attempt by any particular public employee to directly benefit their respective employer."
The opinion also cites a section of West Virginia State Code that states "the public servants serving on the Board of Directors, work group, committee and/or any other entity empowered to consider, evaluate, discuss, rank, and/or oversee funding decisions, including the funding matrix, need to be recused so as not to violate the Ethics Act."
The opinion also stated that "by prohibiting public employees whose employers are potential grant recipients from participating in the funding process, the Commission ensures transparency in the process and limits the potential for favoritism."
The commission comes up with a few solutions, however, that would allow a nonprofit organization to handle funding allocation matters under certain circumstances, such as if the board of the nonprofit was made up of a majority of community members. But it points out the federal grant guidelines could prohibit the delegation of fund authority to a nonprofit, and a legal opinion from the attorney general may be needed to clear up whether the state agency has the legal authority to give funding to the nonprofit without going through a competitive process such as going on the state's approved vendor list. The opinion also raised the question of whether the state agency is able to delegate its executive powers for the administration of grant funding to the nonprofit.
"As a result, the Commission finds that the evaluation and administration of the grant funds may only be handled by the state agency, as that is currently the only entity that can neutrally evaluate, decide and administer the allocation of grant funds," the opinion reads.
The opinion also pointed out the financial hardship that could fall on local health departments, so the commission delayed the application of its order until Dec. 31, 2012.
The order also stated that the state agency had approved mini-grants to local health departments and money is being re-appropriated through the nonprofit "only as a pass through to the local health departments."
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