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Uncovered: Conflicts often overlooked in ethics filings

• Post and Courier: Uncovered

By Stephen Hobbs and Thad Moore

The Post and Courier

“Uncovered” is creating a series of investigative articles to look at how the lack of watchdog journalism in communities, combined with weak ethics laws, is a perfect storm for corruption in South Carolina. The stories are written by the Post and Courier of Charleston’s Watchdog and Public Service Team and are being reprinted in The Advertiser and here in partnership with that newspaper and affiliated website.

DILLON — Every year, from Greenville to Charleston to this small city near the North Carolina border, elected officials flood the State Ethics Commission with paperwork intended to reveal potential conflicts of interest.

But for more than a decade, a medical practice owned by Dillon’s current acting mayor made money from the city and he never disclosed it.The case shows how in South Carolina, clear entanglements can fall through the cracks.

When the words “conflict of interest” were uttered from a plastic table during a council meeting in July, Dr. Phil Wallace’s business dealings with the city he serves were already deeply entrenched.

Wallace’s medical practice, Dillon Internal Medicine, had been tending to city employees for so long that he and Dillon’s longtime city manager had forgotten when the business collected its first check. It had been the better part of a decade, at least, since he had updated his rates for services like physicals.

The relationship was hardly a secret. Wallace’s medical practice had a list of clients on its website. “Historic City of Dillon, S.C.” was at the top of the list.

Yet until days ago, Wallace, who has served on Dillon’s council for more than two decades, did not include the money his practice made from the city in any of his past 14 annual financial disclosures. He amended those filings after The Post and Courier raised questions.

The work hadn’t received the blessing of City Council, a requirement in South Carolina law before any city hires one of its elected officials for contract work. What’s more, state law only allows those deals if other companies have a chance to submit bids; Dillon’s city manager said the work hadn’t been put to a formal bidding process.

Since mid-2009, Wallace’s practice has made more than $83,000 from its work for the city, The Post and Courier found, raising questions about how the business relationship could go unscrutinized for so long.

In an interview with The Post and Courier, Wallace said he was not aware that he had to update his disclosure information on an annual basis.

“I’ll have to look at that statement again,” he told a reporter.

The repeated omissions show how a deluge of paperwork and South Carolina’s loose enforcement of ethics laws can let apparent violations hide in plain sight.

The state’s ethics agency has just one auditor to check the truthfulness of filings it receives, which last year topped 20,000.

Even so, potential conflicts of interest are well-documented. Cities like Dillon must disclose any business dealings they have with their leaders in annual audits. But the Ethics Commission does not proactively check those audits for possible issues.

Instead, Dillon Internal Medicine’s contract only came to light after another council member began asking questions last year. He then called for a vote to determine where city workers should go for medical services. In the process, he stirred a heated fight among leaders of this city of 6,400 residents, who live about 60 miles inland from Myrtle Beach.

In a room by a basketball court in the city’s fitness center, council members simmered in a debate that should have happened years earlier.

Wallace said he’d sit the conversation out because his practice had proposed to keep the work. Legally, he wasn’t allowed to participate.

But after a half-hour of disagreement, already warned once to stay out of it, the doctor interjected. The price his practice was going to charge for a physical?

“That could easily be four times that,” he said, an apparent violation of state ethics rules that require officials to stay out of conversations in which they have a financial interest.

The flare-up highlights the significance of watchdogs in local government: Wallace’s outburst wasn’t mentioned in City Council’s official minutes, but it was captured in a video recording posted online by The Dillon Herald newspaper.

Close attention to local officials has become lacking in South Carolina. Ethics monitors and law enforcement are ill-equipped to track public officials’ behavior, and local newspapers have fewer resources to keep tabs on them, The Post and Courier’s Uncovered investigation has found. The void in oversight has led to excessive spending, nepotism and misconduct by government officials in communities around the state.

Such scrutiny can steer the outcome of government decisions. Two months after his practice’s arrangement came to light — even after his council colleagues voted to keep giving it work — the doctor pulled his business out of providing the medical services for the city, deciding it was more hassle than it was worth.

But first, there had been trouble.


Raising the issue

Dillon was founded in 1888 as a railroad stop, a place where farmers in the northeast corner of the state gathered tobacco and cotton for transport.

Today, it still acts as a hub for a rural county where the poverty rate is nearly double the state average. Trains bring goods here from the port of Charleston, and nearby distribution centers send them out on Interstate 95. A railroad line still cuts through downtown, passing vacant storefronts, an Amtrak station and a clock honoring the city’s mayors, past and future.

Wallace served on council under three of them before taking up the responsibilities of the office himself.

The doctor moved to Dillon almost a century after the city was founded, opening a medical practice in 1984 after completing a residency in Charleston. He started serving as the Dillon High School football team’s physician and picked up leadership roles at the local hospital. He became so intertwined in the city’s medical community that the hospital put up his portrait in a hall.

That hospital, which anchors a medical district just northeast of downtown, used to handle services like pre-employment screenings for the city. But eventually, City Manager Glen Wagner said, it stopped doing so. Wagner said he can’t remember when, except that it happened sometime in the three decades he’s worked for Dillon. That’s when Wallace’s practice took over the job.

“Over the years, it really hasn’t changed because we didn’t really know that we needed to change,” Wagner said.

In 1995, the doctor won a seat on City Council, and he has now held it through a fifth of Dillon’s history. When the council needed someone to take up the job of being Dillon’s mayor in 2019, they tapped Wallace for the role, electing him mayor pro tem. (The city’s newly elected mayor, John Corey Jackson, had been suspended from office after he was accused of offering boys money for lewd photographs. He has a pending charge of sexual exploitation of a minor).

In his new job, the doctor’s business ties with the city faced scrutiny.

Councilman Johnny Eller doesn’t remember exactly what led him to ask about the work Dillon Internal Medicine did for the city. But the issue bubbled up during a council meeting in June in what was supposed to be a conversation about a local golf course. When Eller invoked the contract, an argument between him and the doctor ensued.

“Let’s do it the right way,” Eller said, asking for an open bidding process on the city’s medical needs.

Wagner, the city manager, put the item on the agenda for the following month, and he contacted a few local medical practices for bids. At the time, Wallace’s practice was handling a grab bag of medical work, like drug tests and physicals for all the city’s new employees, check-ups for most of its firefighters and treatment for any workers hurt on the job. Dillon Internal Medicine submitted bids to keep doing it.

But with the meeting approaching, the city manager emailed Wallace a page from the state Municipal Association’s handbook for public officials.

The section titled “Conflicts of Interest” was circled.


Delayed debate

The rules Wagner found posed a problem for the doctor’s bids.

The handbook said that by law a city official could only do business with the government if council voted unanimously to allow it. Although Wagner couldn’t remember a similar vote happening in the past, he planned to follow the rules this time.

Which is how an otherwise routine item of city business turned into a heated fight in July.

“It was a big, big shabang,” Eller recalled in an interview with The Post and Courier. “It could have really gotten nasty.”

When the medical business came up for discussion, council members moved to give Dillon Internal Medicine all of the pre-employment physicals and drug screenings.

Eller voted against the proposal, the only holdout.

Another member observed the issue could be destined for a stalemate. Eller was unwilling to give the work to Dillon Internal Medicine. The rest of council was unwilling to give it to another provider.

Finally, one council member tried to broker a compromise: The city could work with multiple practices. Employees could choose where to go.

The root problem remained.

“If we’re paying Dillon Internal Medicine, you’ve still, I believe, got to follow this,” Wagner said, holding up a copy of the rule that had already derailed the Monday night meeting. “He (Wallace) would be having a ‘substantial financial interest,’ ” he added.

That’s when the doctor interjected.

“It is not going to hurt me,” he said about the possibility of losing the bids, before explaining that it cost his practice more per visit than it was charging for pre-employment physicals.

South Carolina’s ethics laws say that officials must recuse themselves when they stand to gain financially from a government decision, and they must explain their conflict of interest to the public in writing. But, as a matter of course, when conflicts arise in Dillon, the city doesn’t take recusals in writing, said Wagner, the city manager. He concedes that it ought to do so.

The standoff ended when Eller finally relented on all of the contracts, allowing people to choose which medical practice to go to for the services.

With the discussion over, Wallace pointed at council members one-by-one, asking if he had called them before the vote to discuss the bidding process. Each said no.

Wallace then pointed at Eller.

“Just wanted to make that clear,” the mayor pro tem said. “You’ve questioned my integrity.”

In an interview with The Post and Courier, Wallace said that he was probably losing money from the work for the city, and said it was just easier to pull the bids than to keep doing it.

Asked about why he hadn’t disclosed the arrangement, Wallace ended the interview. He did not respond to follow-up written questions about his disclosure forms,but he updated them a week later. He also did not answer questions about his comments during the meeting.

“At the very least, a recusal means you don’t participate in the discussion or decision-making process of the body,” said Scott Slatton, director of advocacy and communications for the Municipal Association of South Carolina, which trains city leaders on ethics laws.

Meghan Walker, executive director of the State Ethics Commission, declined to discuss the specifics of the situation. But, in an unrelated advisory opinion issued in February, the commission’s general counsel took a strict interpretation of the state’s recusal requirement, cautioning a school board member in the Midlands that he should avoid even visiting a school under construction because his employer was associated with its contractor.

And the general counsel reiterated the commission’s past conclusions about recusals: When an official has an economic stake in a decision, merely discussing it could be a violation.

In plain sight

Dillon Internal Medicine’s work wasn’t hidden: The city included details of the arrangement in footnotes in its financial audits.

Yet when Wallace filed his financial disclosures each year since 2008 — as far back as the Ethics Commission has records — he did not mention the payments his practice received from the city. State law requires officials to disclose potential conflicts of interest, including financial ties to government contracts.

“Based on the hypothetical you’ve given me, it’s a perfect example of a relationship that needs to be disclosed,” said Cathy Hazelwood, who was the Ethics Commission’s top lawyer for 15 years.

In audits, the city reported more than $75,000 in fees paid to Dillon Internal Medicine in its 2009-2019 fiscal years, according to documents obtained by The Post and Courier through a Freedom of Information Act request. Separately, the city chose to send employees to Wallace’s practice when they were hurt on the job. Dillon’s workers’ compensation insurance provider has paid the business roughly $7,700 since 2010.

Wallace’s empty disclosure forms should have raised suspicions.

The documents the doctor originally submitted were all but blank. He only once mentioned Dillon Internal Medicine, just noting that he owned the business.  Wallace also did not list his city salary. Now, amended filings show him as the owner of the practice and say that the he donates his salary to charities. Since 2017, public officials have been required to list every source and type of income they receive, from public and private entities.

Last fiscal year, the Ethics Commission received more than 22,000 filings, related to campaign disclosures, lobbying reports and financial statements. All elected and appointed officials, among others, are required to submit documents. To sift through it all, the agency has just one staff auditor, a position it got funding for in 2018. At the time, it said the auditor would help increase government accountability and transparency by allowing a more proactive approach to enforcing ethics laws.

Still, the agency has a limited ability to police ethics filings. The auditor reviewed just 327 in the past fiscal year, pulling them at random to check their accuracy. That’s less than 2 percent of those the Ethics Commission received.

“That is appalling. You wonder why things happen? Well, that’s a good example of why things happen,” said former state Rep. Gary Clary, an Upstate Republican who was a leading voice in the Legislature for ethics reform. “For a business relationship not to be disclosed by the mayor or a councilman, that should tell us all we need to know — that we need to have more controls, we need to have more teeth in our state ethics laws for all elected officials.”

The lack of manpower at the Ethics Commission combined with weak punishments for violations add up to a system that does little to deter bad behavior, Clary said. That ultimately has a corrosive effect: It wastes taxpayer money and can create a culture that pushes civic-minded people away from running for office.

Meanwhile, inadequate disclosures can fester for years. Consider other instances eventually documented in news reports and Ethics Commission case files.

Like the Bishopville City Council member who failed to reveal thousands of dollars’ worth of city payments he got over the course of four years.

Or the Varnville mayor who failed to report three years’ worth of meals, cellphone bills and insurance premiums the town covered.

Or the Awendaw mayor who failed over 20 years in office to disclose her job working for a power company that had business with the town.

Or the state lawmaker from Columbia who earned nearly $1 million over a decade working for a powerful political consultant while failing to report that relationship on his disclosure forms.

With access to a city’s audit, situations like Wallace’s are relatively simple to catch. South Carolina requires municipalities to undergo an annual audit, and government standards require the disclosure of business relationships between a city and its officials. Dillon documented the fees from Wallace’s practice each year since at least 2010.

But there is no comprehensive repository for the public to view the results of those audits. South Carolina law requires cities to send a copy to the state Treasurer’s Office, but its staff simply checks that the review was done, its spokeswoman said.

The state doesn’t keep a copy.


Small city problem

Wagner, the city manager, figures potential conflicts of interest are hard to avoid in a place the size of Dillon.

One member of council owns a local grocery store; sometimes the city needs to buy food. The city’s suspended mayor owns a flower shop; is his store off limits?

In fact, Wallace wasn’t the only member of council whose business secured city work in the past decade. Another former member’s insurance agency sold the city a policy while he was serving, according to Dillon’s audit disclosures.

Eller, the council member who raised the issue last year, said the state’s ethics laws seem too convoluted, making it hard to know when a real violation has occurred. He wishes the rules were cut and dried.

“You’re not supposed to make a monetary gain while you’re serving in this capacity,” Eller said in the interview. Of Wallace, he added, “He should get the same thing I get while I serve the council — no more, no less.”

When Wallace in August pulled Dillon Internal Medicine out of doing work for the city, the doctor said he didn’t want anyone to think he was receiving a “secondary gain,” according to a video recording posted online by The Dillon Herald.

Months later, at the beginning of this year, Wallace filed his annual financial disclosure with the Ethics Commission. He again didn’t mention the work his practice had done.


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