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REPORT OF INVESTIGATION OF FUNDRAISING ACTIVITIES OF THE EXECUTIVE OFFICE OF THE MAYOR OIG NO. 2001-0188 (S) Volume 1 of 2 THIS REPORT IS PROVIDED TO YOU FOR OFFICIAL PURPOSES ONLY AND THE CONTENTS MAY NOT BE RELEASED WITHOUT THE PRIOR WRITTEN APPROVAL OF THE INSPECTOR GENERAL OF THE DISTRICT OF COLUMBIAMarch 28, 2002 [The online version of this report available on DCWatch.com differs from the print version in four ways: 1) minor corrections have been made in section and footnote numbering; 2) additional entries have been made in the table of contents; and 3) Volume 2, which consists of appendices (primarily copies of bank account statements and checks), is not reproduced.] TABLE OF CONTENTSList of Acronyms I. Predication II. Scope of the Investigation
III. The Perspective of the Mayor and His Staff IV. The Legal Framework1. An Early Attempt to Secure Appropriated Funds V. Findings and Recommendations (Includes Observations on Mayoral Order 2002-2) VI. Narrative of the Events
VII. Statutes,1 Regulations Involved, and Legal Opinions ACRONYMS
CACS Church Association for Community Services EXECUTIVE SUMMARYBACKGROUNDIn January of 2001, print and broadcast reports questioned the propriety of certain fundraising activities involving the Executive Office of the Mayor (EOM). Thereafter, Mayor Anthony A. WILLIAMS and D.C. Council members Vincent B. ORANGE, Sr., and David A. CATANIA requested the Office of Inspector General to conduct a thorough review of these allegations. Taken together, these requests required a thirteen-month investigation that encompassed two and a half years of fundraising activities and involved numerous District government employees. It also required a detailed financial analysis of the activities of numerous non-profit corporations and interviews with hundreds of individuals, many of whom were donors solicited by or on behalf of the EOM and its public-private partnership activities.We reviewed the methodology of the EOM with respect to nine fundraising activities, or civic events, beginning with the Mayor's HOOP Corner program in November 1999 and ending with the Mayor's January 20, 2001, Inaugural Parade Reception. Approximately $1.5 million was raised under the auspices of the EOM to fund these civic events, with most of the fundraising ($1.2 million) conducted on behalf of Millennium Washington - Capital Bicentennial, the nonprofit organization established to promote the two-day Main Street Millennium gala and the year-long District Bicentennial celebration. Some of these events were the result of public-private partnerships designed to promote the Mayor's revitalization initiatives; however, most were in the nature of limited invitation parties and receptions that did not appear to provide any direct benefit to the citizens of the District. From the onset, and throughout this investigation, we solicited the advice and counsel-of the United States Attorney's Office for the District of Columbia. This Report of Investigation, in its entirety, has been referred to the United States Attorney and other enforcement agencies for further consideration. PURPOSEThis Report of Investigation has the following objectives:
FINDINGSOur investigation has resulted in numerous findings. Some findings are general in nature and do not necessitate corrective action, while others are more specific and call for corresponding recommendations. Listed below are our findings and recommendations:* General Finding #1: We did not uncover evidence that the EOM's fundraising was a campaign of institutional corruption with its purpose or effect being the personal enrichment of the Mayor or EOM employees. We found facts suggesting the possibility of criminal violations in only a few instances, and these matters have been referred to the United States Attorney's Office for evaluation. General Finding #2: With one exception noted in the Specific Findings Section, we did not identify evidence suggesting that an illegal benefit (quid pro quo) or direct competitive advantage was conferred on any D.C. government contractor or regulated business as a result of its support for, or participation in, EOM fundraising or partnership activities. We referred information regarding one questionable exception to the United States Attorney's Office for evaluation. General Finding #3: Mayor WILLIAMS and then EOM Chief of Staff Dr. Abdusalam OMER did not properly supervise and manage EOM employees to ensure that fundraising was conducted in accordance with legal standards. Because critical witnesses provided contradictory statements, it is difficult to determine the extent of the Mayor's knowledge of the fundraising activities of his staff. Nevertheless, Mayor WILLIAMS is accountable and responsible for the conduct of EOM employees under his immediate supervision. In interviews, the Mayor and Dr. OMER conceded responsibility for misconduct and mistakes made by EOM employees involved in the fundraising activities examined during the course of this investigation. General Finding #4: We did not find evidence that government employees endorsed a candidate or engaged in campaign fundraising at any of the events described in this report. However, many of the events appear to be little more than social functions hosted by the Mayor for prominent political, business, and community leaders as well as government officials. As such, these events may be interpreted as being beneficial to the Mayor's candidacy for re-election. In addition, an adverse appearance was created because solicitation by District officials of the magnitude and frequency seen here did not result in the expenditure of government funds to directly benefit District of Columbia citizens in the form of government services and programs. Finally, the appearance that the events had a political purpose could weaken the public's confidence in the integrity of the government in violation of the Standards of Conduct. General Finding #5: The EOM offered several theories to justify their fundraising efforts, including the use of independent non-profit entities and partnerships. However, we have concluded that the only legal authority available to solicit funds for official purposes in the amounts and by the methods used by the EOM staff is the Mayor's gift acceptance authority set forth in the annual Appropriations Acts for the District of Columbia. See Charts entitled "Acceptable Official Fundraising Methods" and "EOM Fundraising Patterns." These charts illustrate fundraising methods that meet legal requirements as opposed to those utilized by the EOM. General Finding #6: Because donors were solicited directly by EOM staff, the staff should have utilized the Mayor's delegated gift acceptance authority under the District's annual Appropriations Act to augment the level of District government appropriations to finance ceremonial events. However, the EOM did not adhere to the accounting and disclosure requirements of the Appropriations Act, which are preconditions to the acceptance of gifts to the District government. These requirements provide essential safeguards which accomplish the following: (1) prevent misuse of donations; and (2) inform Congress of the manner and the extent by which the budget was augmented. In none of the events were official records kept documenting the receipt and use of these donations. In none of the events were records made of these funds to allow for audit and public inspection. General Finding #7: The failure to comply with the conditions set forth by Congress to augment the District's annual budget may constitute a violation of the federal Anti-Deficiency Act. We referred this issue to the Chief Financial Officer and the Corporation Counsel to make a determination whether an Anti-Deficiency Act violation occurred. General Finding #8: None of the $1.5 million raised for the District government was ever placed into the District Treasury where it would accrue interest and be properly accounted for. Instead, the EOM either: (1) instructed donors to pay event vendors directly; or 2) used the accounts of non-profit organizations to deposit donors' checks and pay event vendors. These practices bypassed donor disclosure requirements and avoided the safeguards inherent in the procurement process, such as competitive bidding and preferences for small, local and disadvantaged businesses. General Finding #9: Mayor WILLIAMS and Council member BRAZIL failed to comply with the conditions for gift acceptance in the Appropriations Act because they solicited substantial monetary contributions for the Republican National Convention/Democratic National Convention Mayoral Events without ensuring that mandatory accounting and public accounting procedures were followed. We are referring this matter to the Office of Campaign Finance to determine whether Mayor WILLIAMS and Council member BRAZIL violated the Standards of Conduct. This finding is discussed in the Specific Findings Section of this report. General Finding #10: There is an appearance of impropriety in violation of the Standards of Conduct based on the EOM's practice of soliciting large sums of money and other items of value from donors that had business relationships with the District government and/or that were contributors to the Mayor's re-election campaign where accounting and public disclosure safeguards were not addressed. General Finding #11: Government employees involved in the subject fundraising activities stated that they were motivated by a desire to engage the private sector in supporting the WILLIAMS administration's efforts to revitalize the city. The government employees who engaged in fundraising for these events stated that they believed that they were doing so in their official capacities and for purely government interests.General Finding #12: Irrespective of the stated intentions of the involved government employees, our investigation revealed that EOM employees solicited and accepted donations on behalf of private nonprofit organizations from their government offices, during government working hours, and utilizing government resources. This practice violated a Standards of Conduct provision prohibiting the entanglement of private interests with government activities. General Finding #13: Not only did government employees fundraise on behalf of existing private nonprofit organizations (non-profits), we found that employees of the EOM's Office of External Affairs created their own non-profits, and appointed themselves officers and members of the boards of directors of these entities. Thereafter, they proceeded to raise funds and control the income of the non-profit as well as its expenditures. Funds were moved improperly from one non-profit to another without the knowledge or approval of the responsible officials of the nonprofit. This activity violated the Standards of Conduct in that it created the appearance of using public office for private gain. General Finding #14: EOM employees who controlled non-profit fundraising and event finances demonstrated ill-regard for prudent business management. The EOM's failure to resolve financial obligations with vendors, who provided services and/or supplies for the events, impacted negatively on the public's confidence in the District government. General Finding #15: The nature and variety of the various fundraising methods described in this report occurred during a period of time when the EOM did not have an Ethics Officer and EOM employees did not receive ethics training or guidance on government fundraising. The Mayor informally delegated his solicitation and gift acceptance authority to EOM staff, rather than setting forth the parameters and limitations of this authority in writing in the form of a Mayor's Order. EOM staff, then, were left to their own devices to raise funds from the private sector to finance civic activities. They seldom solicited advice from the Office of the Corporation Counsel or the Office of Campaign Finance. The Standards of Conduct did not provide adequate guidance to District government employees involved in fundraising, and the EOM maintained no other written policy or instructions on fundraising for employees to reference for guidance. General Finding #16: The weight of the evidence suggests that government employees did not, in most cases, exert undue pressure upon donors who were solicited for monetary contributions. However, two donors did report to us that they felt pressured by the tactics employed by two government employees. These two exceptions are addressed in the Specific Findings Section. RECOMMENDATIONS AND REFERRALSOur recommendations and referrals may be summarized as follows: General Recommendation #1: We recommend that the Mayor work with the D.C. Council to revise the Standards of Conduct in the interest of establishing clear and definitive regulations regarding the parameters of official gift acceptance for District government personnel. General Recommendation #2: To ensure accountability and disclosure of government donations, we recommend that the Director of the Office of Partnerships and Grants Development, EOM, closely scrutinize all applications for gift approval and make certain that all monetary donations are promptly deposited into the District Treasury. General Recommendation #3: With regard to Mayor's Order 2002-2 and Mayor's Memorandum 20021, we recommend that the Mayor consider several revisions to the policy set forth in each document pertaining to his gift acceptance authority. General Recommendation #4: We recommend that the Office of the Corporation Counsel and the Office of the Chief Financial Officer consider our findings regarding possible violations of the Anti-Deficiency Act. If a violation of the Act occurred, the Mayor must submit to the President and Congress the report required by 31 U.S.C.A. §1351 (1994) in accordance with guidance contained in OMB Circular A-34 (revised October 19, 1999). General Recommendation #5: We recommend that Office of Campaign Finance and District agency heads take disciplinary action, as appropriate, against current District government employees for violations of ethics standards. General Recommendation #6: Regarding outstanding financial obligations owed to event vendors, we recommend that the Office of Partnerships and Grants Development, EOM, endeavor to address any outstanding accounting matters. General Referral #1: We refer this report to the U.S. Office of Special Counsel for its review regarding potential violations of the Hatch Act and to determine whether administrative action is warranted against current District government employees. General Referral #2: We refer our report to the U.S. Internal Revenue Service and the District of Columbia Office of Tax and Revenue to review our findings relating to the fundraising activities conducted on behalf of non-profit organizations. General Referral #3: In addition to specific instances of misconduct that may establish violations of a criminal nature, we refer this report in its entirety to the United States Attorney's Office so that it may continue its review to determine whether this investigation has revealed information that has prosecutorial merit. CHARTSAcceptable
Official Fundraising Methods
1. Gift
Acceptance Procedure Required by Appropriations Act |
||||||||||||||||||||||||||||||||||
| Mayor or Subordinate Government Official with Formal Delegation of Gift Acceptance Authority | Accepts/Solicits Funds with Legal Review and Mayor’s Approval | Donor | Donor’s Check Deposited After Review and Approval of Donation | Donation Is Deposited into D.C. Treasury with Public Disclosure | Purchases made from District Government Bank Account Pursuant to Procurement Regulations | Payment | Vendor |
2. Coordination with Private Entity
|
Government Official |
Suggests Event/Activity to Nonprofit | Nonprofit Organization No Solicitation by Govt. Officials or Transfer of Funds to Govt. Control | Independently Solicits | Donor Writes Check to Nonprofit | Nonprofit Account | Payment | Vendor |
3. Partnering with "Firewall": The above two patterns could be utilized concurrently to fund a single event, as long as government officials are riot controlling private fundraising.
| Mayor or Subordinate Government Official without formal Delegation of Mayor Gift Acceptance Delegated Authority | Requests Donor to Pay Vendor for Services Without Legal Review/Mayor’s Approval | Donor | No Accounting or Public Disclosure of Transaction | Payment Bypasses Procurement Regulations and Local, Small and Disadvantaged Business Enterprises (LSDBE) Requirements | Vendor or Event |
2. Solicitation
Method Used for Remainder of Events (Bypasses Federal and District Gift
Acceptance Requirements and District
Procurement Regulations)
| Government Official Without Formal Delegation of Mayor’s Gift Acceptance Authority | Solicits Funds on Behalf of Nonprofit Without Legal Review or Approval by Mayor | Donor | Donates to Nonprofit Government Official Controls Non-Profit Account | Nonprofit Organization Avoids Accounting and Public Disclosure of Donations | Avoids Procurement and LSDBE Requirements | Payment | Vendor or Event |
D.C. Council member ORANGE's letter noted that the issues identified by the media raised serious questions about the integrity of government employees working for the EOM. He requested that the OIG conduct an investigation to determine whether the relationship between the EOM and non-profit organizations resulted in any violation of law or District government personnel regulations. In particular, he expressed his interest in whether District government employees evaded financial disclosure laws and whether their actions created the appearance of using public office for private gain. He listed ten private organizations and asked the OIG to determine whether any political favors were granted or undue pressure exerted in securing donations. The organizations are as follows: 1) Washington Gas and Electric Company;I-5 2) A Second Chance Community Foundation; 3) UAF; 4) Executive Fellowship Group (EFG); 5) Millennium Washington - Capital Bicentennial (MWCB); 6) Church Association for Community Services (CACS); and 7) A Better Washington Political Action Committee, Inc.I-6
D.C. Council member CATANIA's letter identified the same organizations and asked the OIG to respond to a series of questions concerning their organizational structure, finances, and relationship to the District government.
EOM fundraising activities were first questioned in the print and broadcast media beginning in late January 2001.I-7 These public disclosures alleged that the Mayor used non-profit groups to collect more than a half-million dollars over a two-year period for community programs, and, in doing so, used a fundraising tool that skirted financial disclosure laws and violated the District's personnel regulations. The articles identified Mark JONES, former Deputy Chief of Operations, D.C. Lottery and Charitable Games Control Board (DCLB) and former Deputy Chief of Staff for External Affairs, EOM, as the Mayor's point of contact in the development of public-private partnerships. The articles further expressed a concern that JONES may have been using nonprofit organizations to engage in political fundraising for the Mayor without the public disclosure and accounting required by campaign finance laws. The articles also stated that JONES had acknowledged that he made a mistake by raising funds from local businesses that had financial dealings with the District government.
JONES was also identified in these articles as the campaign manager of the August 2000 District School Board referendum (Special Election on the Proposed School Governance Charter Amendment Act of 2000) that the Mayor supported and that came under scrutiny when District government employees were tasked by the Mayor to work on the referendum campaign. The newspaper articles identified two additional fundraising activities not presented to us in the written requests for investigation: a reception at the MCI Center for Clarence VINSON, a District resident and Olympic boxer, and a Christmas party hosted by the Mayor for his business, political and community supporters.
Three additional fundraising activities of the EOM came to our attention during the course of the investigation and are included in this report. One activity was for the purpose of financing a reception, hosted by the Mayor, honoring the Congressional "Black Caucus (CBC). A second activity was for the purpose of financing certain expenses of the EOM at the 2000 Republican and Democratic National Conventions (RNC and DNC), respectively. A third activity was for the purpose of obtaining complimentary tickets and refreshments for the Mayor's HOOP Corner program.I-8
These requests and the associated news media accounts raised questions about the integrity of the EOM and the public's confidence in the District government. Accordingly, the OIG initiated an in-depth review of the relationship between the EOM and certain private organizations that worked together in furtherance of civic events.
The investigation, which lasted approximately 13 months, involved 19 investigators and several executive staff members. It required almost 300 interviews, with many significant witnesses participating in multiple interviews into the final months of the investigation. We served 115 subpoenas, accessed more than 13,000 e-mails, and reviewed almost 280,000 documents, many of which were financial records that required detailed analysis.
While other investigations of similar complexity might require more than a year to complete, there were several factors that unnecessarily impeded our progress. Twenty-nine individuals refused to be interviewed (none are current District government employees), 23 individuals obtained the assistance of legal counsel before they would submit to an interview (to include Mayor WILLIAMS), and eight individuals sought certain assurances from the United States Attorney's Office for the District of Columbia (USAO) prior to their interviews. Donors and former and current District employees who participated in solicitation activities were particularly reluctant to be fully cooperative and forthright, despite protestations that they believed they had done nothing wrong. Taken together, all of these factors made it extremely difficult to ascertain the facts and obtain vital information that could be used for our analysis in a timely manner.
Because of the large number of individuals and numerous corporations implicated by the EOM's fundraising practices, it was necessary to dedicate the requisite time and resources used in this investigation to ensure fairness, accuracy, and a thorough analysis of all disclosed facts and findings. This investigation offers to the Mayor, the City Council, and the public an understanding of the fundraising activities subject to this investigation. As a result, appropriate authorities can determine the extent to which regulatory and/or legislative reforms are necessary; the Mayor can consider our recommended changes to his Mayor's Order regarding government fundraising; agencies can decide whether to take administrative action against current employees for misconduct; and the U.S. Attorney's Office for the District of Columbia can decide whether this report contains information that has prosecutorial merit. We trust that this report and the actions taken by responsible District leaders will assure residents that their government is accountable and responsive to public concerns.
From the onset, and throughout this investigation, we solicited the advice and counsel of the USAO. This Report of Investigation has been referred to the United States Attorney and other enforcement agencies for further consideration.
These three methods have very different legal requirements that act as safeguards against official misconduct. The first acceptable method entails the Mayor's exercise of his gift solicitation and acceptance authority, whereby he is required by federal and District law to approve the donation, apply it to an official use, deposit the funds in a government account, and provide appropriate accounting and public disclosure. All of the preceding should receive legal review and approval. The funds must then be disbursed in accordance with procurement and Local, Small, and Disadvantaged Business Enterprises (LSDBE) regulations.
The second acceptable method entails a private non-profit entity independently conducting the solicitation, accepting the donations, managing and financing an event, and making payment directly to vendors. To avoid conflicts of interest between the District government and the private sector, it is important that the non-profit conducts fundraising on its own without transferring money to government control.
The third acceptable method involves joint public-private funding. While it is possible for the District government and a private entity to fund the same event, extreme care is required to ensure that a "firewall" separates their operations such that District government employees are not involved in private fundraising activities.
In Pattern 1, EOM personnel solicited funds from private donors, but instructed them to pay event vendors directly rather than place the funds in the custody of the District government. In Pattern 2, EOM personnel either solicited funds on behalf of a private entity or took control of funds in the custody of the private entity and paid vendors directly. Both patterns bypassed accounting and disclosure requirements as well as the procurement process.
Finally, neither of these patterns qualifies as a legally sufficient joint effort between public and private partners because of the lack of a firewall separating the solicitation activities and management of the funds by the partners: In effect, the patterns used by the EOM were a hybrid of the two acceptable methods, but they incorporated the vital safeguards of neither.
For a graphic representation of each of these methods and patterns, see the two charts entitled "Acceptable Official Fundraising Methods" and "EOM Fundraising Patterns," which are located in the Executive Summary Section.
These seven narratives are not intended to capture all EOM fundraising activities during the period of time under investigation. However, we believe they are sufficiently representative for purposes of understanding the issues associated with fundraising, partnerships, and the District government.
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