Financial Disclosures: Don’t Believe Their Spin; Read What One of Our Experts Declared The federal courts have spoken.
The League’s long legal challenge to the LAPD’s financial disclosure policy, as implemented by Special Order No. 20 (2008), came to a close on February 3, after federal district court Judge Gary Feess granted the City’s motion for summary judgment of the League’s civil complaint. Judge Feess’ ruling followed on February 16, and expanded on the previous ruling by the Ninth Circuit Court of Appeals regarding the merits of the League’s case.
Even though our legal challenge is over for now, we will not stop objecting to LAPD management’s efforts to persuade officers to submit to the onerous financial disclosure requirements. Their latest spin is to attempt to persuade officers that the League’s objections are exaggerated and lack veracity.
They will say that financial disclosure is watered down and not a big deal. They will claim that security of officers’ disclosure records (based on their private financial circumstances) will be very tight and that criminal defendants and their attorneys will not be able to discover these records.
Before agreeing to submit to the financial disclosure requirements, all officers should consider what one of our experts declared in court as documented below.
Observations from Our Expert While serving for 27 years as a special agent and then supervisory special agent with the Federal Bureau of Investigation
I investigated and supervised the investigation of perhaps 10,000 whitecollar crime/fraud inquiries. As a supervisory special agent, I also investigated allegations of internal misconduct. For the past several years, I have been engaged in the practice of forensic accounting, focusing upon internal fraud investigations. My review of the proposed financial disclosure policy elicits the following observations:
• Officers with information to conceal may not need to fully and truthfully complete the Confidential Financial Disclosure Report. The officer completing the Confidential Financial Disclosure Report will know that unless the financial information he or she desires to conceal is available through public-source databases, or is known to others who may choose to reveal it, it is most likely that the concealed information will not be discovered.
• Officers with information to conceal can elect not to complete the Confidential Financial Disclosure Report. Officers compelled to conceal their financial information, for non-employment reasons as well as employment-related reasons, will just not apply for assignment to one of the applicable units. This has the potential to disqualify exceptional officers, as well as problematic officers.
• Officers who do not fully and truthfully complete the Confidential Financial Disclosure Report face very little chance of discovery if not audited. Financial privacy laws within the United States make it difficult, if not impossible, to obtain nonpublic-source financial information without formal court process. The absence of central repositories for financial information makes almost any attempt at a nonspecific financial search practically ineffectual.
• Officers who do not fully and truthfully complete the Confidential Financial Disclosure Report can face very little chance of discovery, even if audited under the terms of Special Order 20. Unless the officer fails to report public-source financial information, or information known to others who may choose to divulge it, conventional audit procedures, including checks of publically available databases and selfgenerated credit reports, as mandated by Special Order 20 audit procedure, will not likely uncover the information.
• Informing officers of what financial disclosures will be required of them provides opportunity to circumvent undesired disclosures. Knowing in advance what financial information will be asked for will allow an officer determined to conceal information time to do so. The advance knowledge will also allow an officer time to structure his or her financial affairs in such a way as to legitimately avoid the categories reportable under the policy.
• Financial privacy laws make it extremely difficult, if not virtually impossible, to find hidden assets. As stated above, financial privacy laws within the United States make it difficult, if not impossible, to obtain nonpublic-source financial information absent voluntary disclosure or formal court process.
• Publically available databases have limited efficacy in locating hidden assets. Publically available databases are primarily maintained by federal, state, county and municipal governmental agencies and are limited to public records and documents. Databases maintained by financial institutions and other private entities are not accessible without consent or court process. Assets and liabilities in an alias name or domiciled in other states are difficult, if not impossible, to find.
• Credit reports have limited efficacy in locating hidden assets. Credit reports provide identifying information, public record information, recent inquiries and credit or liability information. Unless an asset is associated with a reported liability, it will likely not be revealed on the credit report.
• Income-to-asset ratios may not be a valid determiner of financial well-being or of financial difficulty. While Special Order 20 does not specify the range of acceptable income-to-asset ratios, such ratios are legitimately affected by a multitude of causes. Spending habits, savings practices, well-paid spouses, nonworking spouses, family size, child support, parent support, divorce, illness, catastrophe and inheritance, among many other causes, can all affect the accumulation of wealth, and thus the officer’s income-to-asset ratio.
• Debt-to-income ratios may not be a valid determiner of financial well-being or of financial difficulty. While Special Order 20 does not specify the range of acceptable debtto- income ratios, such ratios are legitimately affected by a multitude of causes as set forth above.
• Bad-debt flags causing further evaluation, bankruptcies within the past three years and past-due accounts over 90 days may be indications of financial integrity rather than only of financial distress. Upon occasion, an officer may encounter financial difficulties beyond his or her making or control. Honoring the incurred financial obligations may require less-than-immediate full payment and limited payments over an extended time period. Bankruptcy may be involuntary and unavoidable.
• Officers not willing to disclose personal financial information will forego assignment to the applicable units. Some officers, among them highly qualified officers with no financial disclosure issues, will decide not to apply to the applicable units because they are not willing to expose their financial information, whether for employment or non-employment reasons.
• Officers embarrassed by their personal financial situation may forego assignment to the applicable units. Officers can become self-conscious and embarrassed about their financial situation or lack of accumulated wealth. This embarrassment can cause highly qualified officers to decide not to apply to units requiring financial disclosure.
• Completion of the Confidential Financial Disclosure Report requires disclosure of only sole and jointly owned assets, liabilities, income and income sources Officers intent upon not disclosing certain assets, liabilities, income or income sources will often be able to do so legitimately by placing and holding the assets, liabilities and income in the sole name or combination of names of his or her spouse, children, parents, relatives, friends or others.
• Completion of the Confidential Financial Disclosure Report will likely require disclosure of personal financial information about the officer’s spouse, children, relatives, friends and others. Not only will an officer be required to disclose personal financial information about himself or herself, he or she will be required to disclose personal financial information about one’s spouse, children, relatives, friends and others. Some officers may not be willing to do so. Some officers, facing objections to the disclosure from spouse, children, relatives, friends or other uninvolved parties to the personal disclosures, will elect not to apply to units requiring financial disclosure.
• Completion of the Confidential Financial Disclosure Report could result in disclosure of personal financial information outside the Los Angeles Police Department. Disclosure of an officer’s personal financial information outside the Los Angeles Police Department is potentially as imminent as the next federal, state, county or municipal court order; lawsuit; Pitchess motion; or legislative, executive or administrative decree.
• Completion of the Confidential Financial Disclosure Report could result in officer identity theft. Identity theft is pervasive and devastating to its victims. As more and more financial disclosures are mandated, electronically stored and accessed, identity theft increases. Even with the most well-intentioned safeguards in place, inadvertent individual and mass releases and thefts of personal financial information continue to occur. Whether the financial information is stored in paper or electronic form, it is subject to inadvertent or intentional disclosure. Financial information, even when deleted from a computer, is often recoverable and useable. While certainly not likely, it is possible that dishonest Consent Decree Bureau personnel and other Los Angeles Police Department personnel could obtain access to and misuse the information.
• A properly structured and rigorous selection process for the applicable units can be more effective than the financial disclosure policy. Given the shortcomings of the financial disclosure policy as set forth in Special Order 20, some of which have been discussed herein, a well-designed, tested and proven selection process could prove to be more successful.
• Proper internal controls within the applicable units can be more effective than the financial disclosure policy. As a former supervisory law enforcement officer, I have repeatedly seen demonstrated the effectiveness of proper policies, procedures and protocols. As a forensic accountant, I have repeatedly seen demonstrated the effectiveness of proper internal controls, which manage significant risks and monitor the reliability and integrity of operations.
• Proper supervision of the applicable units can be more effective than the financial disclosure policy. Continual supervision of, among others, operations, informants, cash, valuables, contraband and reporting will result in effective control of conduct. Continual supervision will also uncover performance, character and ethical shortcomings.
• Oversight by external organizations can be more effective than the financial disclosure policy. Organizations external to the Los Angeles Police Department, such as federal investigative agencies, the United States Attorney’s office, the District Attorney’s office, grand juries, criminal and civil attorneys and the media, have been, and will continue to be, most resolute and steadfast in finding and exposing police corruption.
• Limited tenure within the applicable units can be more effective than the financial disclosure policy. Limiting the tenure of assignment to one of the applicable units allows for the continual introduction of new or “outsider” officers whose willingness to “go along with how things are done” is unknown and untested. It also provides for the injection of new officers who very likely will not allow unethical behavior by current unit members.
• Sting audits of the applicable units can be more effective than the financial disclosure policy. As provided for in paragraph 97 of the Consent Decree of June 15, 2001, so-called sting audits, both focused and random, provide not only for the identification of problematic officers but also serve as an irrefutable deterrent to officer misconduct.
• Most fraud and corruption is exposed through tips, rather than through audit. Several fraud studies have identified anonymous tips as the most effective means of fraud discovery, more effective than internal or external audits. An anonymous tip program, often a hotline, allows officers and others to report questionable activities without fear of retribution.
• A culture of integrity within the applicable units can serve as the best defense against police corruption. The officer or officers in charge of the unit set the ethical standards of the unit. Leadership sets the tone and conveys that ethics and integrity are either essential to the way the unit functions, or they are not. Subordinate officers will mimic the type and level of ethical performance they see modeled above them.
Next month, we will share additional expert declarations against financial disclosures. Until then, be safe and stay in touch.
