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Taxpayer-funded entities must turn over financial records

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NEWS MEDIA UPDATE   ·   OHIO   ·   Freedom of Information   ·   April 13, 2006

NEWS MEDIA UPDATE   ·   OHIO   ·   Freedom of Information   ·   April 13, 2006

Taxpayer-funded entities must turn over financial records

  • The state’s highest court upheld the state auditor’s right to inspect financial records of a community-based correctional facility that receives public funds.

April 13, 2006  ·   Private entities that are taxpayer-funded and perform government functions cannot shield their financial records from public disclosure, the Ohio Supreme Court unanimously ruled April 6 in a financial records case pitting the state auditor against one such group.

The court ruled that state Auditor Betty Montgomery acted within her authority when she subpoenaed financial records of the Oriana House, a private company that under a state contract controls day-to-day operations of the Summit County Community Based Correctional Facility.

But the court also said that Montgomery exceeded her authority when she subpoenaed financial records of Oriana House President James Lawrence.

Justice Paul Pfeifer wrote for the court that “individuals or entities who control public funds have a duty to account for their handling of those funds.”

State laws grant the auditor authority to audit private institutions that receive public money, and those audits are made public on the auditor’s Web site.

“The State Auditor has the duty to ensure that the public funds at issue are being used appropriately and in accordance with the grant agreements,” Pfeifer wrote. “The State Auditor must be able to follow a money trail to examine potential or inherent conflicts of interest between closely related entities receiving public funds.”

The records requested are relevant to the audit of the Oriana House, the court said, but “nothing in the record before us, however, indicates that the records relating to Lawrence are relevant to the special audit.”

Lawrence is also president of Correctional Health Services Inc., a for-profit subsidiary of Oriana House. Montgomery discovered that in 1999 and 2000, Oriana House loaned Correctional Health approximately $6 million. Correctional Health had also “purchased property from Oriana House for $275,000, and then leased it back to Oriana House,” court documents say. “From 1999 until 2001, the lease payments from Oriana House to Correctional Health totaled $840,278. Oriana House did not disclose the source of funding for these transactions.”

In 2003, Montgomery wanted to examine the transactions of Oriana House, Correctional Health, and Lawrence to determine “whether they involved an improper conflict of interest or misuse of public funds.” A 2003 law gives the state auditor authority to audit “any private or non-profit entities performing the day-to-day operations of any community-based correctional facility and program.”

After Oriana House protested the audit, Montgomery subpoenaed documents related to the transactions, including bank records for Correctional Health and credit card statements of Oriana House and Lawrence. Oriana House, Correctional Health and Lawrence sued, seeking, among other things, a restraining order against Montgomery. In 2003, the Franklin County Court of Common Pleas ruled in the auditor’s favor, and an appeals court later affirmed that decision.

The Supreme Court’s ruling means that there is a “clearer definition in a matter of a private entity who is funded by public dollars,” and a “further definition that has to do with that private entity taking on a government function,” said Frank Deaner, executive director of the Ohio News Association and president of the Ohio Coalition for Open Government. “The court made it clear that, in both of those cases, there is a right to look at those records, even though the entities themselves may be private.”

“Some government agencies and their private contractors won’t be able to hide behind certain contractual arrangements in withholding records,” Deaner said.

Montgomery could not be reached for comment, but said in a press release: “We are pleased the Court has reaffirmed the historical and well-settled legal right, duty and obligation of this office to serve as a watchdog of public funds . . . . We are also grateful the Court recognized our need and ability to pursue records from third parties when those records can shed light on how public dollars have been spent — or in some cases, misspent.”

State Rep. William Healy II (D-Canton) plans to introduce a bill this week that would make private entities receiving public funding subject to open records laws.

Government programs have been privatized over time, and a side effect is that “you end up closing the books to the public,” said Healy. “In some cases it may have been an evolution, in others it may have been intentional.”

To avoid corruption, privatization “should be transparent,” Healy said. “Essentially the bill makes any entity that is receiving government funding subject to open records and the sunshine law just as if it were a state agency.”

(Oriana House, Inc. v. Montgomery)KV

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