O.C. Water District Has Strict New Ethics Code : Government: The scandal-plagued Santa Margarita agency bans all gifts and meals from contractors.

The Santa Margarita Water District Board of Directors on Monday adopted one of the most stringent codes of ethics of any public agency in California, including a clause that prohibits employees from accepting gifts or meals from contractors.

“The adoption of this policy is our first step in restoring trust in the district,” Chairman Don B. Schone said Monday. “We want to reassure the ratepayers that, beginning today, directors, employees and vendors of this district will be governed by the strictest rules in Orange County.”

The district’s new “Code of Conduct and Expense Reimbursement Guidelines” is the first formal step the water agency has taken to reform itself since it was stung by scandal.

The Times revealed last month that General Manager Walter W. (Bill) Knitz and his deputy, Michael P. Lord, spent tens of thousands of dollars in public funds on questionable expenses, such as $200 theater tickets and room-service charges that routinely exceeded $1,000. The Times also documented how Knitz and Lord had accepted $60,000 in gifts from contractors and other vendors in apparent violation of state law.

Both men have been suspended with pay and are under investigation by a joint task force of the FBI and the Orange County District Attorney’s Office.

Knitz and Lord have denied any wrongdoing and have noted that the water district did not have any internal policies governing expense reimbursements.

The only ethics code governing the district was the state’s Political Reform Act, which requires directors and top officers of public agencies to abstain from acting on any matter involving a donor who gave them more than $250 in the last 12 months.

Now, Santa Margarita’s employees, directors and their family members are “forbidden” from accepting “all gifts,” except for “plaques and commemorative mementos of nominal value.”

Knitz and Lord accepted numerous gifts from contractors.

The Irvine-based engineering firm of Robert Bein, William Frost & Associates, for instance, spent $3,000 in 1990 to take Knitz on two fishing trips to Cabo San Lucas. Since 1989, the firm has received about $14 million worth of water district contracts, records show.

Under the new guidelines, passed unanimously by the four-member board, firms that do business with Santa Margarita are required to file public disclosure forms of all meals and entertainment involving district employees.

“As far as we know, nobody’s ever done that before,” said district spokesman Scott Hart, adding that he was not aware of a stricter code of conduct among public agencies.

Failure to report those expenses may result in the termination of a vendor’s contract, the new policy states.

The majority of the district’s 10-page policy, however, focuses on expense-account claims. It was the reimbursements to Knitz and Lord that especially angered the district’s customers.

Santa Margarita officials will be limited to spending $9 for breakfast, $18 for lunch and $28 for dinner. Business meals involving contractors and developers will be split equitably, with each side paying for its portion.

The purchase of alcohol--which had been regularly charged to the district--is now forbidden.

The Times recently reported that some offspring of water district officials were hired by the companies, and the new policy also addresses that issue.

Michael Lord’s daughter Susan, for instance, worked for MacDonald-Stephens Engineers doing computer drafting from mid-1988 to mid-1990. MacDonald-Stephens has been paid about $4 million in the last four years by the district.

Lord’s son Ken worked as an intern for Robert Bein, William Frost in the late 1980s.

“It is expressly forbidden for vendors, contractors and consultants of SMWD to employ dependents . . . of SMWD employees,” the policy states, adding that “it is expressly forbidden for employees of SMWD to solicit jobs for immediate family or immediate relatives” with the same firms.

Schone said other water districts and public agencies are reviewing their ethics and expense guidelines and some have contacted Santa Margarita for a copy of its new policy.

“After 84 news articles and editorials in less than six weeks, the perception has been created that the district is dysfunctional,” Schone said. “From this point on, the board wants to earn the public’s trust back. Our eye is on the ball again.”

Code of Conduct

The Santa Margarita Water District Board of Directors adopted guidelines Monday that impose restrictions on travel, gifts and expense reimbursement. Highlights of the policy:

* A total ban on gifts, including meals and entertainment, from vendors.

* Vendors submit annual expense reports to SMWD.

* SMWD directors and employees must pay for their own business meals; a “Dutch Treat Test” is mandatory.

* Strict travel policy with specific meal reimbursement levels and hotel, airline costs and personal expense criteria.

* Ban on alcohol during working hours.

* Outside business activity subject to strict rules.

* Ban on dependents’ working for vendors, employees’ soliciting jobs for dependents with vendors.

* Comprehensive review of Statements of Economic Interest filings for accuracy and form.

Source: Santa Margarita Water District