As part of an initiative for economic advancement, the U.S. Agency for International Development (USAID) authorizes a multimillion-dollar loan to the government of a small Asian country to help fund a new water treatment system in the country's largest city. While primary responsibility for supervising the construction and operation of the system is given to the country's water resources ministry, the loan agreement gives the USAID significant oversight with respect to project costs and billing.
The water resources ministry retains a U.S. engineering firm to design the new system and supervise its construction, and this firm in turn subcontracts a portion of the construction to a Spanish company. The agreement with the Spanish company specifies a price of $9 million, but there is an allowance for increases in the event of a cost overrun. The U.S. firm assigns one of its employees, a construction engineer and ASCE member, to serve as the project manager and to supervise the Spanish company's work.
Upon completion of its work, the Spanish company submits a series of invoices to the USAID itemizing an additional $3 million in overruns. In accordance with the terms of its loan agreement, the USAID commissions an auditing firm to review the Spanish company's billing. The auditing firm reviews the documentation provided to it by the Spanish company but does not have sufficient technical knowledge to verify that the materials and services listed are in fact attributable to the water treatment project. The firm's final report gives a qualified approval for most of the additional costs but notes that its assessment is heavily reliant on the accuracy of information provided by the U.S. firm's project manager in support of the Spanish company's claims. On the basis of the auditing firm's findings, the USAID pays an additional $2.8 million to the Spanish company.
Nearly two years later, a second audit of the water treatment project reveals evidence suggesting that several of the Spanish company's invoices had been falsified. The evidence sparks a lengthy investigation, which quickly focuses on the actions of two principals of the Spanish company and the American project manager.
The three individuals are indicted on charges of conspiracy to defraud the United States. At trial, federal prosecutors present written records and eyewitness accounts alleging that the three parties had colluded over a period of many months to submit falsified invoices for payment by the USAID. The two principals would prepare invoices with inflated costs or costs that were incurred in connection with the company's other projects, and the U.S. project manager would approve the fraudulent charges. After payment by the USAID of the nonexistent cost overruns, one of the principals withdrew several hundred thousand dollars from the Spanish company's bank account, and the U.S. engineer deposited a similar amount into his own bank account. The prosecution also noted that the engineer had been passed over for a promotion on multiple occasions, suggesting that he had both a financial and a personal motive for participating in the scheme.
The U.S. engineer is convicted by a federal jury and sentenced to three years in prison and payment of a substantial criminal fine. An ASCE member reads a newspaper account of the engineer's conviction and forwards the information to ASCE's Committee on Professional Conduct (CPC).
Which canons of ASCE's Code of Ethics did the project manager violate by participating in this scheme?
As is often the case with complaints involving criminal offenses, the actions of this project manager violate numerous provisions of the ASCE code. Canon 4 is unambiguous: "Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest." In failing to honor his commitment to provide an independent review of the subcontractor's activities, the engineer harmed not only the U.S. agency that paid the inflated claims but also the water resources ministry of the country in question, which did not receive the full benefit of the USAID funding. Furthermore, the engineer's employer was subjected to an investigation that exacted a toll on both its finances and reputation.
The engineer's conduct also merits consideration under canon 6, which at the time read as follows: "Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession." Although this case preceded the amendments to this canon made in 2006 expressing "zero tolerance for bribery, fraud, and corruption," category (a) in the guidelines to practice had this to say at the time: "Engineers shall not knowingly engage in business or professional practices of a fraudulent, dishonest, or unethical nature." In today's version of the code, category (b) in the guidelines underlines the obligation of engineers to be "scrupulously honest in their control and spending of monies, and [to] promote effective use of resources through open, honest, and impartial service with fidelity to the public, employers, associates, and clients."
Finally, to the extent that the member's approval of the fraudulent claims can be deemed a professional opinion, his conduct could be examined under category (b) in the guidelines to practice for canon 3, which notes that engineers "shall be objective and truthful in professional reports, statements, or testimony."
When contacted by the CPC, the member responded tersely that the newspaper reports of his conviction were "slanderous" and contained "numerous inaccuracies." But when pressed for further information in support of his stance, he ceased all communication with the CPC. In view of the member's refusal to cooperate, the CPC had no alternative but to base its deliberations on information provided during the federal trial.
In the member's defense depositions and trial transcripts, he denied any involvement in a scheme to defraud the government. While acknowledging that his relationship with his employer was less than ideal, he felt this had in no way affected his performance as project manager, and he claimed that he had no suspicions that the Spanish subcontractor's bills were fraudulent. With regard to his suspicious bank deposit, he said that the money was a combination of savings he had accrued over many years of working abroad and funds from the sale of a business held by his wife's family, who lived in another country.
Ultimately, the members of the CPC were no more persuaded by the member's defense than were the members of the jury that convicted him. The CPC ruled that the member had violated canons 4 and 6 of the Code of Ethics and recommended that he be expelled from the Society. The case was brought before the Board of Direction for a full hearing, and again the member declined to respond or present a defense. The board agreed with the CPC's recommendation to expel the member, and notice of the disciplinary action taken, along with the member's name, appeared in a Society publication. -TARA HOKE
Tara Hoke is ASCE's assistant general counsel and a contributing editor to Civil Engineering.
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.
, July 2014