| August 25, 1997
Beth Gates, Chair
Local Finance Board
Department of Community Affairs
P.O. Box 803
Trenton, New Jersey 08625-0803
Re: 97-0135--Registered
Municipal Accountants
as "Local Government Officers" or "Local
Government Employees" Pursuant to the
Local Government Ethics Law.
Dear Ms. Gates:
You have asked
whether a registered municipal accountant
engaged by a local government to prepare an annual audit required
by N.J.S.A. 40A:5-4 is a "local government officer" or
a "local
government employee" pursuant to the Local Government Ethics
Law,
N.J.S.A. 40A:9-22.1 et seq. For the reasons which follow, you are
advised that a registered municipal accountant engaged by a local
government to prepare an annual audit is not a "local government
officer" or a "local government employee" pursuant
to the Local
Government Ethics Law and, therefore, a registered municipal
accountant is not subject to the Local Government Ethics Law.
The purpose of
the Local Government Ethics Law is to provide
a statewide ethical code applicable to persons who serve in local
government as "local government officers" or as "local
government
employees" and to require "local government officers"
to file
annual financial disclosure statements. N.J.S.A. 40A:9-22.1 et
seq. Generally, all local government agencies, except purely
advisory bodies and school boards are within the scope of the Law.
N.J.S.A. 40A:9-22.3(e). In the absence of action by the county or
municipal governing body to establish a local ethics board, the
Code of Ethics is enforced by the Local Finance Board in the
Department of Community Affairs. N.J.S.A. 40A:9-22.4.
The Local Fiscal
Affairs Law requires every "local unit" to
cause an annual audit of its books, accounts and financial
transactions to be made. N.J.S.A. 40A:5-4. The governing body of
the local unit "shall employ a registered municipal accountant
of
New Jersey to prepare its annual audit or it shall enter into an
agreement with the Director of the Division of Local Government
Services for an annual audit to be made by qualified employees of
the division." Id. The annual audit is required to be performed
by a registered municipal accountant licensed by the New Jersey
State Board of Public Accountants. N.J.S.A. 40A:5-9. No local
unit is required to advertise for bids for any of the work
performed in regard to the annual audit. N.J.S.A. 40A:5-11. The
registered municipal accountant's report of audit and
recommendations is be filed with the clerk of the local unit and
the Division of Local Government Services. N.J.S.A. 40A:5-6. The
clerk of the local unit is required to publish in a newspaper of
general circulation the synopsis of the audit and recommendations
of the registered municipal accountant. N.J.S.A. 40A:5-7.
"Local government
officers" are 1) elected officials; 2)
members of local government bodies that have authority to enact
ordinances, approve development applications, or grant zoning
variances; 3) members of independent local authorities; and 4)
persons who are "managerial executives" or "confidential
employees." N.J.S.A. 40A:9-22.3(g). The fourth and last category
of "local government officer" is a person "who is
a managerial
executive or confidential employee of a local government agency,
as
defined in section 3 of the New Jersey Employer-Employee Relations
Act.,...but shall not mean any employee of a school district or
member of a local school board." N.J.S.A. 40A:9-22.3(g)(4).
As
the Local Government Ethics Law makes specific reference to the
definition contained in the Employer-Employee Relations Act, it
is
necessary to examine the latter Act. The Employer-Employee
Relations Act, N.J.S.A. 34:13A-1 et seq., provides a mechanism for
the resolution of labor disputes in the private and public sectors.
N.J.S.A. 34:13A-2. The Act is administered by the State's Public
Employment Relations Commission (PERC). N.J.S.A. 34:13A-5.2.
The Act defines
"managerial executives" of a public employer
as
Persons who
formulate managerial policies and
practices, and persons who are charged with
the responsibility of directing the
effectuation of such management policies and
practices....[N.J.S.A. 34:13A-3(f).]
"Confidential
employees" of a public employer are defined as
Employees
whose functional responsibilities or
knowledge in connection with the issues
involved in the collective negotiations
process would make their membership in any
appropriate negotiating unit incompatible with
their official duties. [N.J.S.A. 34:13A-3(g).]
The significance
of "managerial executives" and "confidential
employees" under the Employer-Employee Relations Act is that
these
individuals are excluded from membership in the local collective
bargaining unit comprised of local government employees. N.J.S.A.
34:13A-5.3.
PERC has established
guidelines for determining whether a
person formulates management policy and directs its effectuation
and is accordingly a "managerial executive." These guidelines
are
commonly denoted as the Montvale test (Borough of Montvale,
P.E.R.C. No. 81-52, 6 N.J.P.E.R. 11259 (1980)). However, the
Supreme Court in New Jersey Turnpike Authority v. AFSCME Council
73, 150 N.J. 331 (1997), recently modified the Montvale test to
provide as follows:
A person
formulates policies when he develops
a particular set of objectives designed to
further the mission of [a segment of] the
government unit and when he selects a course
of action from among available alternatives.
A person directs the effectuation of policy
when he is charged with developing methods,
means, and extent of reaching a policy
objective and thus oversees or coordinates
policy implementations by line supervisors.
Whether or not an employee possesses this
level of authority may generally be determined
by focusing on the interplay of three factors:
(1) the relative position of that employee in
his employer's hierarchy; (2) his functions
and responsibilities; and (3) the extent of
discretion he exercises. [Id. 150 N.J. at
356.]
The significance
of the Supreme Court's modification to the
Montvale test is that the Court removed the PERC guideline that
said employee must "exercise organization-wide power"
to be
considered a "managerial executive." Ibid. Rather, pursuant
to
the Court's modification, an individual who exercises significant
power, discretion and influence only within his/her own department
may now be within the scope of "managerial executive."
Ibid.
PERC's guidelines
for the determination as to whether a person
is a "confidential employee" require the following analysis:
We (PERC)
scrutinize the facts of each case to
find for whom each employee works, what he
does, and what he knows about collective
negotiations issues. Finally, we determine
whether the responsibilities or knowledge of
each employee would compromise the employer's
right to confidentiality concerning the
collective negotiations process if the
employee was included in a negotiating unit.
[State of New Jersey, P.E.R.C. No. 86-18, 11
N.J.P.E.R. 16179(1985).]
Mere access to
confidential labor relations information is
insufficient to render an employee confidential. Monmouth Reg'l
Bd. of Educ., D.R. No. 94-10, 20 N.J.P.E.R. 25009 (1993). The
Supreme Court in reviewing these guidelines did not modify the
guidelines and PERC's case-by-case approach for making this
determination. New Jersey Turnpike Authority v. AFSCME Council 73,
supra, 150 N.J. at 358.
In applying these
guidelines within the context of the Local
Government Ethics Law, we have previously opined that while certain
public officials may not be considered "employees" in
a strict
labor relations sense, the purpose of the Local Government Ethics
Law is to subject "policy makers" who serve local government
to the
requirements of the Law as "local government officers."
See e.g.
Attorney General Opinion No. 91-0090 (September 20, 1991) (County
Prosecutors); Attorney General Opinion No. 91-0092 (September 20,
1991) (Municipal Attorneys); See also, Dept. of Community of
Affairs v. Cook, 282 N.J. Super. 207, 209 (App. Div. 1995). The
result is that these "policy makers" as "local government
officers" are required to submit an annual financial disclosure
statement. N.J.S.A. 40A:9-22.6.
In contrast to
a "local government officer," a "local
government employee" is defined as "any person, whether
compensated
or not, whether part-time, employed by or serving on a local
government agency who is not a local government officer, but shall
not mean an employee of a school district." N.J.S.A. 40A:9-22.4(f).
Thus, this definition goes beyond the traditional
definition of "employee" within the labor relations context
and
seeks to identify persons who serve local government. However, we
have previously recognized that certain professionals who are
engaged by local government for a special limited purpose (e.g.
bond counsel, labor counsel, counsel retained to handle a tort
action) would not be subject to the Local Government Ethics Law
as
either "local government employees" or "local government
officers."
Attorney General Opinion No. 91-0092 (September 20, 1991); Attorney
General Opinion No. 91-0134 (November 1, 1991). Further, as a
general principle the private vendor of services to a municipality,
such as a computer repair firm, telephone installation firm, or
food vendor, would similarly not be subject to the Local Government
Ethics Law. Attorney General Opinion No. 91-0092 (September 20,
1991).
However, a word
of caution is appropriate in this regard. The
Local Finance Board has previously determined that the mere status
as an "independent contractor" is not dispositive as to
whether an
individual is subject to the requirements of the Local Government
Ethics Law. Department of Community Affairs v. Petti, 94
N.J.A.R.2d (CAF) 58, 61 (1994). The Local Finance Board stated:
a person
who maintains an ongoing and
continual relationship with a local government
agency [whether by contract or appointment],
who provides regular advice or services to a
local government agency, and who regularly
participates in or contributes significantly
to policy making determinations of a local
government may be considered by the public as
part of the official government family. In
view of the important purposes and the liberal
interpretation of the Local Government Ethics
Law, depending on the particular facts, an
individual who is technically an "independent
contractor" may be considered as a "local
government officer" or a "local government
employee" and therefore subject to the ethical
requirements of the Local Government Ethics.
[Ibid.]
Thus, the mere
status of an individual as an independent contractor
does not pre se result in the determination that the individual
is
not subject to the Local Government Ethics Law. Rather, if the
independent contractor maintains an ongoing and continual
relationship with a local government agency, provides regular
advice or services to a local government agency, and regularly
participates in or contributes significantly to the policy making
determinations of a local government agency, the independent
contractor may be deemed subject to the Local Government Ethics
Law.
Before applying
the above discussed principles to determine
whether a registered municipal accountant who conducts an annual
audit of a local unit is a "local government officer"
or a "local
government employee," it is appropriate to examine the statutes
and
regulations governing registered municipal accountants. Registered
municipal accountants are licensed and regulated by the New Jersey
State Board of Accountancy. N.J.S.A. 45:2B-33 et seq. The State
Board also licenses and regulates certified public accountants,
registered public accountants, and public school accountants.
N.J.S.A. 45:2B-12 et seq., N.J.S.A. 18A:23-8. The purpose of this
licensure and regulation is that it is in the public interest to
promote the dependability of information which is used in assessing
the status and performance of public and private enterprises and
to
ensure that persons who attest to the reliability of this
information are qualified. N.J.S.A. 45:2B-2. These accountants
are subject to the Rules of Professional Conduct promulgated by
the
State Board. N.J.A.C. 13:29-2.3(b), N.J.A.C. 13:29-3.1 et seq. In
particular, N.J.A.C. 13:29-3.1 provides, in part, that
[a] licensee
or a firm of which he or she is a
partner, member or a shareholder shall not
express an opinion on financial statements of
an enterprise in such a manner as to imply
that he or she is acting as an independent
public accountant with respect thereto unless
he or she or his or her firm is independent
with respect to such enterprise. Independence
will be considered to be impaired if, for
example:
1. During
the period covered by the
financial statements, during the period of the
professional engagement, or at the time of
expressing an opinion, the licensee or his or
her firm:
i. Was associated
with the enterprise as a...
director or officer or in any capacity
equivalent to that of a member of management
or of an employee; [Emphasis added.]
Thus, a registered
municipal accountant and his/her firm is
required by these Rules of Professional Conduct to be independent
of the enterprise being audited. In this regard, this Office has
previously determined that, in view of the requirement that a
registered municipal accountant be independent of the enterprise
being audited, a municipality could not place a registered
municipal accountant on retainer and advance him/her monies for
work not yet performed. Attorney General Opinion No. 83-5784
(November 28, 1983).
In State v. Indelicato,
87 N.J. Super. 566 (Law Div. 1965),
the court discussed the relationship of a registered municipal
accountant with a municipality which engaged him to conduct the
annual audit required by N.J.S.A. 40A:5-4. The court stated:
[d]efendant
(registered municipal accountant)
in this case did not posses any power of
government. He did not make any decision in
relation to policies and programs, and he in
no way exercised any governmental discretion.
His only function was to provide a service to
the City...The City was required to obtain
this service by N.J.S.A. 40A:5-4...defendant
clearly was in the position of an independent
contractor. It is clear that the Legislature
has regarded the auditor's service to be
rendered under N.J.S.A. 40A:5-4 as
professional services to be rendered on the
basis of contract between the parties.
Defendant's duties were merely to audit the
books. He had no control or discretion to
exercise any government function of the
City...He was merely a check on the
departments and department heads responsible
for keeping various accounts...the work to
performed under their arrangement, have none
of the indicia of a public office....[Ibid. 87
N.J. Super. at 570. Emphasis added.]
Thus, the registered
municipal accountant who is engaged by a local
unit to conduct the annual audit required by N.J.S.A. 40A:5-4 does
not make any decisions in relationship to government policies or
programs and he/she does not exercise any government discretion.
Rather, the registered municipal accountant is an independent
contractor engaged by the local unit by contract to audit the local
unit's books and act as a check on the financial accounts of the
local unit.
In considering the responsibilities of the registered
municipal accountant in the context of the Local Government Ethics
Law it is clear that he/she would not be deemed a "local government
officer" or "local government employee." The registered
municipal
accountant is not an elected official, a member of local government
with authority to enact ordinances, approve development
applications or grant zoning variances, or a member of an
independent local authority. N.J.S.A. 40A:9-22.3(g)(1)-(3).
In turning to
whether the registered municipal accountant
would be deemed to be a "managerial executive" or "confidential
employee," he/she does not exercise any government discretion,
he/she does not exercise any policy making responsibilities within
local government, and he/she is not involved in labor relations.
In considering whether the registered municipal accountant would
be
deemed to be a "local government employee," his/her relationship
with the municipal is that of an independent contractor and he/she
does not maintain an ongoing and continual relationship with a
local unit, does not provide regular advice or services to a local
unit, and does not regularly participate in or contribute
significantly to the policy making determinations of the local
unit. Rather, the registered municipal accountant is engaged to
annually audit the financial books of the local unit and to act
has
a check on those government officials who keep the local unit's
financial accounts. In exercising this responsibility, the
registered municipal accountant is required to be independent of
the entity being audited. In these circumstances, it is unlikely
that a reasonable person would consider a registered municipal
accountant, who is a check on the local unit's financial accounts,
to be a part of the official government family of a local unit.
For the foregoing
reasons, you are advised that a registered
municipal accountant who is engaged by a local government to
prepare the annual audit required by N.J.S.A. 40A:5-4 is not a
"local government officer" or "local government employee"
pursuant
to the Local Government Ethics Law and he/she is accordingly not
subject to the requirements of the Local Government Ethics Law.
Sincerely
yours,
PETER VERNIERO
ATTORNEY GENERAL OF NEW JERSEY
By:______________________________
John J. Chernoski
Deputy Attorney General
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