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Selection and Oversight of Consultants
Tuesday, June 21st, 2011
Robert Wechsler
Just because it happens in New York City doesn't mean it will happen in
the average city or, especially, town. Right? No, it can happen, only the numbers will probably be smaller. Two situations
described in today's New York Times, both of them effectively centered on the hiring and failure to oversee consultants, are worth knowing about.
Elected Judges Selecting and Overseeing Distressed Property Receivers
The first one involves business property foreclosures. One of the truisms of local government ethics is that a lot more happens during the good times, because there's a lot more money and property changing hands, and people aren't paying as close attention to the numbers. But foreclosures in a recession can provide opportunities for those with good political connections, especially in states where, as in New York, judges are elected.
According to one of the articles in today's Times, 600 people have been approved for oversight of distressed properties (they are called receivers, a bankruptcy term, but they are effectively government consultants). 284 were selected by elected judges in 2010, up from 47 in 2007. The receivers are usually paid 5% of the property's revenues, even when they hire managers and other lawyers (the receivers are usually lawyers themselves), who are not paid out of this 5%. In other words, they can do very little and still get a sizeable sum of money.
The receivers that are chosen are not chosen randomly from those who have been approved. The great majority of them have been involved in politics and/or have the right connections, for example, the former city controller's father, a state senator's law partner, a former taxi commissioner.
No one actually knows how much these receivers are working, how they are chosen, or what. The most disturbing thing is that many of the major players would not talk with the Times about the issue. Now, everyone knows that politicians love to talk with the Times. When they don't return calls, it doesn't look good.
It's also troubling that the state's chief administrative judge said, “To some degree, it’s human nature. When you have a property that’s vulnerable, you want to appoint somebody that you have faith in, or someone maybe you were familiar with.” It would seem that a judge, especially one who is elected and, therefore, could be seen favoring his contributors, would prefer to select someone she didn't know from a list of people who have been certified as competent. Then no one could question the choice. Judges are not supposed to give in to human nature when it comes to bias and preferential treatment.
The largest receivership, dollarwise, went to a retired judge whose law partners donated $1,000 to the judge who appointed him. A court spokesman said that the judge was not aware of the contributions and that the judge had "outstanding credentials." But that isn't the point. The point is that an elected judge should not be appointing his supporters, or anyone that would make it look like a patronage situation. Instead, a judge should want a system that would prevent him from accidentally appearing biased and giving preferential treatment.
If the judges feel they need to have control over the selection process, then they should accept the responsibility for making sure their selections are as conflict-free as possible (no excuses), and they should make sure their appointments are doing the work rather than delegating it to other lawyers, who are paid extra. They can't have it both ways.
Consultants, Ethics, and Oversight
According to the second Times article, a city subcontractor and two of its executives were indicted in a major fraud scheme. What makes this situation especially interesting is that the mastermind of the scheme appears to have been not someone working for the city, but rather a city consultant.
Too often, local government consultants are left out of government ethics. The ethics commission usually doesn't have jurisdiction over them. They don't have to file annual disclosure statements or disclose conflicts when they arise or when they apply for a consulting contract. They don't have to get ethics training, and there would be little reason for any but the most conscientious of them to seek ethics advice. Left out of the whole ethics program, consultants often feel they can do whatever they want, since no one is watching. This is especially true if they have a special relationship with the head of the department or agency that hired them in the first place.
This appears to be the case with respect to the consultant at the center of this fraud scheme. According to the article, "owing to his close relationship with the office’s executive director ... [the consultant] enjoyed unusually wide latitude in approving contracts." That is, there was no more oversight given to the consultant than the judges gave to the receivers they appointed. It's all about the freedom (or is that the power?) to appoint, with no accompanying obligations to provide oversight.
Give someone wide latitude, give him complete freedom from any ethics disclosure or enforcement, and it should come as no surprise when the latitude and freedom are abused. And as long as nothing happens to those who provide the latitude and freedom, then there will be little responsible behavior. As the chief administrative judge said, "it's human nature."
That's why there are ethics programs and oversight responsibilities. Any executive director or judge who doesn't recognize this probably should be working outside of government.
Robert Wechsler
Director of Research-Retired, City Ethics
---
Elected Judges Selecting and Overseeing Distressed Property Receivers
The first one involves business property foreclosures. One of the truisms of local government ethics is that a lot more happens during the good times, because there's a lot more money and property changing hands, and people aren't paying as close attention to the numbers. But foreclosures in a recession can provide opportunities for those with good political connections, especially in states where, as in New York, judges are elected.
According to one of the articles in today's Times, 600 people have been approved for oversight of distressed properties (they are called receivers, a bankruptcy term, but they are effectively government consultants). 284 were selected by elected judges in 2010, up from 47 in 2007. The receivers are usually paid 5% of the property's revenues, even when they hire managers and other lawyers (the receivers are usually lawyers themselves), who are not paid out of this 5%. In other words, they can do very little and still get a sizeable sum of money.
The receivers that are chosen are not chosen randomly from those who have been approved. The great majority of them have been involved in politics and/or have the right connections, for example, the former city controller's father, a state senator's law partner, a former taxi commissioner.
No one actually knows how much these receivers are working, how they are chosen, or what. The most disturbing thing is that many of the major players would not talk with the Times about the issue. Now, everyone knows that politicians love to talk with the Times. When they don't return calls, it doesn't look good.
It's also troubling that the state's chief administrative judge said, “To some degree, it’s human nature. When you have a property that’s vulnerable, you want to appoint somebody that you have faith in, or someone maybe you were familiar with.” It would seem that a judge, especially one who is elected and, therefore, could be seen favoring his contributors, would prefer to select someone she didn't know from a list of people who have been certified as competent. Then no one could question the choice. Judges are not supposed to give in to human nature when it comes to bias and preferential treatment.
The largest receivership, dollarwise, went to a retired judge whose law partners donated $1,000 to the judge who appointed him. A court spokesman said that the judge was not aware of the contributions and that the judge had "outstanding credentials." But that isn't the point. The point is that an elected judge should not be appointing his supporters, or anyone that would make it look like a patronage situation. Instead, a judge should want a system that would prevent him from accidentally appearing biased and giving preferential treatment.
If the judges feel they need to have control over the selection process, then they should accept the responsibility for making sure their selections are as conflict-free as possible (no excuses), and they should make sure their appointments are doing the work rather than delegating it to other lawyers, who are paid extra. They can't have it both ways.
Consultants, Ethics, and Oversight
According to the second Times article, a city subcontractor and two of its executives were indicted in a major fraud scheme. What makes this situation especially interesting is that the mastermind of the scheme appears to have been not someone working for the city, but rather a city consultant.
Too often, local government consultants are left out of government ethics. The ethics commission usually doesn't have jurisdiction over them. They don't have to file annual disclosure statements or disclose conflicts when they arise or when they apply for a consulting contract. They don't have to get ethics training, and there would be little reason for any but the most conscientious of them to seek ethics advice. Left out of the whole ethics program, consultants often feel they can do whatever they want, since no one is watching. This is especially true if they have a special relationship with the head of the department or agency that hired them in the first place.
This appears to be the case with respect to the consultant at the center of this fraud scheme. According to the article, "owing to his close relationship with the office’s executive director ... [the consultant] enjoyed unusually wide latitude in approving contracts." That is, there was no more oversight given to the consultant than the judges gave to the receivers they appointed. It's all about the freedom (or is that the power?) to appoint, with no accompanying obligations to provide oversight.
Give someone wide latitude, give him complete freedom from any ethics disclosure or enforcement, and it should come as no surprise when the latitude and freedom are abused. And as long as nothing happens to those who provide the latitude and freedom, then there will be little responsible behavior. As the chief administrative judge said, "it's human nature."
That's why there are ethics programs and oversight responsibilities. Any executive director or judge who doesn't recognize this probably should be working outside of government.
Robert Wechsler
Director of Research-Retired, City Ethics
---
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