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April 2014

Acting as Faithful Agents or Trustees

Situation:

A series of newspaper articles is forwarded to ASCE’s Committee on Professional Conduct (CPC) detailing charges of fraudulent activity by a Pennsylvania architecture and engineering firm in connection with a multimillion-dollar public works project. Among the individuals named in the articles are four ASCE members. Two of them are project engineers, one is a senior vice president, and the other is the firm’s chief executive.

Testifying for the state in a criminal trial against the senior vice president, the two project engineers describe their involvement in a scheme to overcharge a county municipal authority by billing the authority for staff hours that were not actually related to the project. The first engineer, who served as a lower-level manager for the firm, claimed that he was routinely called into the senior vice president’s office and asked to arrange for certain employees to bill their time to the municipal project even though the employees in question were not in fact working on the project. The manager claimed that the charges initially involved only a small amount of time for a few employees but that over the course of several months both the amount of work and the number of employees involved grew substantially. Eventually, work billed to the municipal project included not only services undertaken on other projects but also general accounting activities, sales activities, and even time spent by one staff member composing the company’s internal newsletter.

The second engineer stated that he had been directed on several occasions to sign and submit a blank time sheet. Although the engineer had worked only a few hours on the municipal project, records indicated that his time sheets showed hundreds of hours billable to the project. The second engineer acknowledged that the directions had come from another member of the firm’s staff (who was not an ASCE member), but he said that the staff member had named the senior vice president as the source of the order.

Although none of the witnesses at trial had any direct evidence of the chief executive’s participation in the scheme, several claimed that they had not approached that person with concerns about the overbilling because they believed he was aware of the scheme and may even have devised it. Moreover, both project engineers claimed that the executive had pressured them to cover up the fraudulent billing when they were questioned by state investigators. After calls from the state attorney general to schedule an interview, one of the engineers stated that the executive had told him, “If you break, the company breaks,” while the other said that the executive had advised him to answer any questions about the project with a claim that he could not remember.

The criminal trial of the senior vice president ends in a mistrial, and the firm itself pleads guilty to several counts of fraud and conspiracy. Ultimately, the firm is ordered to pay more than $1.1 million in penalties and disallowed charges.

Question:

Did the four members’ actions in connection with a scheme to overcharge a public agency for services violate the ASCE’s Code of Ethics?

Discussion:

Canon 4 of the code says that engineers “shall act in professional matters for each employer or client as faithful agents or trustees.” Furthermore, at the time this case was investigated, category (a) in the guidelines to practice for canon 6 read as follows: “Engineers shall not knowingly act in a manner which will be derogatory to the honor, integrity, or dignity of the engineering profession or knowingly engage in business or professional practices of a fraudulent, dishonest, or unethical nature.”

The members of the CPC felt that the actions of the three primary participants constituted a clear violation of canons 4 and 6 and recommended disciplinary action based on the members’ degree of seniority within the firm. The lower- and upper-level project engineers received suspensions of respectively one year and five years, and the senior vice president was brought before the full Board of Direction for an expulsion hearing. The board voted unanimously to expel the senior vice president from the Society, and notice of the action was published in an ASCE publication.

With regard to the firm’s chief executive, the members of the CPC believed that even if the available evidence did not conclusively prove his prior knowledge of the overbilling scheme, he had failed in his ethical obligation to the public agency by allowing such a substantial and widespread fraud to occur on his watch. Moreover, upon learning of the state investigation into the fraud, his decision to cover up the fraud rather than cooperate and make the appropriate reparation was itself a failure to act as a faithful agent or trustee and was inconsistent with the ethical mandate of business and professional integrity. Accordingly, the members of the CPC felt that the executive’s actions may have violated canons 4 and 6 and notified him of their intent to conduct an investigation.

Upon receipt of the CPC’s correspondence, the executive expressed outrage at the accusation and said that he would send a written statement in his defense. But after that initial outburst the executive proved unresponsive to subsequent communications from the CPC. During the months of the CPC’s investigation the executive’s membership went into arrears, and ultimately he was dropped for nonpayment of dues.

Nearly a decade after the CPC’s investigation of the executive ended because of his loss of member status, ASCE’s leadership was approached by the executive with a request to reinstate his membership. Pursuant to ASCE’s bylaws, however, if a member resigns or allows his or her dues to lapse after receiving notice of an investigation into a possible violation of the Code of Ethics, the individual’s membership is considered to be terminated “with prejudice.” At the time of the executive’s request, ASCE’s bylaws provided that a member terminated with prejudice could be reinstated only by “the affirmative votes of not less than 75 percent of the entire Board of Direction.”

Treating the matter much as it would a formal disciplinary action, the board granted the member a full hearing at one of its meetings. The member appeared in person to argue for his reinstatement, observing that he had never been indicted for any crime and offering a list of his professional achievements along with written character references from other professionals. While the members of the CPC found his appeal sufficiently persuasive to offer their support for his reinstatement, the board vote fell short of the necessary three-quarters, and the executive’s membership application was denied.

While the basic concepts of termination “with prejudice” are unchanged since this case, the process for reinstatements has undergone a slight revision. Today, subsection 3.2.5.2 of the ASCE bylaws states that a member terminated with prejudice “shall not be reinstated except by a two-thirds (2/3) vote of the Executive Committee. The former Society member shall make an application to the Committee on Professional Conduct, which shall prepare a report and recommendation on the reinstatement for the Executive Committee.” —TARA HOKE

Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case, that some details may have been altered for purposes of illustration or confidentiality, and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society.

Tara Hoke is ASCE’s assistant general counsel and a contributing editor to Civil Engineering.

 

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