oversight

Review of the Department's Public Financial Disclosure Reports for Employees Responsible for Oversight of the Federal Family Education Loan Program. (ED/OIG I13H0005) - Date Issued: 03/12/2008 PDF (398K) MS Word (4M)

Published by the Department of Education, Office of Inspector General on 2008-03-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                  UNITED STATES DEPARTMENT OF EDUCATION
                                                        OFFICE OF INSPECTOR GENERAL

                                                                                                  Evaluation and Inspection Services

                                                                    March 12, 2008
Memorandum
TO:                  Kent Talbert
                     General Counsel
                     Office of the General Counsel

FROM:                Wanda A. Scott /s/
                     Assistant Inspector General
                     Evaluation, Inspection, and Management Services

SUBJECT:             Final Inspection Report
                     Review of the Department’s Public Financial Disclosure Reports for Employees
                     Responsible for Oversight of the Federal Family Education Loan Program (ED-
                     OIG/I13H0005)


This final inspection report presents the results of our Review of the Department of Education’s
(Department) Public Financial Disclosure Reports for Employees Responsible for Oversight of
the Federal Family Education Loan (FFEL) Program and the Department’s response to those
results.



                                                      BACKGROUND


On April 26, 2007, Congressman George Miller, the Chairman of the U.S. House of
Representatives Committee on Education and Labor, requested that this office determine whether
the Department’s existing policies, procedures, guidance and practices are adequate for ensuring
the absence of financial conflicts of interest among Department employees and officers
responsible for the oversight of FFEL. Specifically, Congressman Miller requested that we
review, for the six most recent years, the Standard Form 278 Executive Branch Personnel Public
Financial Disclosure Reports (SF 278) for these employees and officers. Congressman Miller
also expressed interest in the extent to which the Department informs, trains, or counsels existing
and newly hired or appointed officials of federal conflict of interest statutes and standards of
ethical conduct.

The Ethics in Government Act of 1978, as amended, requires senior officials in the executive,
legislative and judicial branches to file public reports of their finances as well as other interests
outside the Government. The statute and the U.S. Office of Government Ethics’ (OGE)
regulations at 5 C.F.R § 2634 provide the filing and reviewing requirements for the SF 278. The


 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
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statute specifies which officials in the Executive Branch are required to file a public financial
disclosure report.

In the introduction to the “Instructions for Completing SF 278,” OGE emphasizes that it is
important for the filer to provide complete and accurate information on the report:

        A basic premise of the statutory financial disclosure requirements is that those
        having responsibility for review of reports filed pursuant to the Ethics in
        Government Act or permitted public access to reports must be given sufficient
        information by reporting individuals concerning the nature of their outside
        interests and activities so that an informed judgment can be made with respect to
        compliance with applicable conflict of interest laws and standards of conduct
        regulations. Therefore, it is important that you carefully complete the attached
        form. This report is a safeguard for you as well as the Government, in that it
        provides a mechanism for determining actual or potential conflicts between your
        public responsibilities and your private interests and activities and allows you and
        your agency to fashion appropriate protections against such conflicts when they
        first appear.

Accordingly, if the filer fails to report an item, those responsible for reviewing the SF 278 are
not in a position to determine if the item presents any actual or potential conflicts.

On Schedule A of the report, filers are instructed to report each asset held by the filer, the filer’s
spouse, and the filer’s dependent children for investment or the production of income which had
a fair market value exceeding $1,000 at the close of the applicable reporting period, or which
generated more than $200 in income during the applicable reporting period, together with such
income. On Schedule B, Part I of the report, filers 1 are instructed to report any purchase, sale, or
exchange during the applicable reporting period of any real property, stocks, bonds, commodity
futures, and other securities when the amount of the transaction exceeded $1,000.

OGE’s regulations at 5 C.F.R. § 2634.605(b) provide the responsibilities of the reviewing
officials. Under 5 C.F.R. § 2634.605(b)(1) the reviewing official is responsible for examining
the report “to determine, to his satisfaction that: (i) Each required item is completed; and (ii) No
interest or position disclosed on the form violates or appears to violate” applicable laws and
regulations. The regulations at 5 C.F.R. § 2634.605(b)(2) provide that the reviewing official
does not need to audit the report to determine whether the disclosures are correct and can take
the disclosure at “face value” as correct, unless there is a “patent omission or ambiguity or the
official has independent knowledge of matters outside the report.”

The Ethics Division of the Department’s Office of the General Counsel (OGC) is responsible for
certifying and maintaining the reports filed by Department employees. OGC maintains an ethics
file for each public filer that includes public financial disclosure reports, communication with the
filer regarding the reports, and other ethics-related documentation. As of December 21, 2007,
411 Department employees were required to file reports and five attorneys in the Ethics Division
were responsible for reviewing and certifying the reports. These same attorneys were

1
  There are three different reporting status designations for filers: 1) New Entrant, Nominee, or Candidate, 2)
Incumbent, and 3) Termination Filer. The reporting period and the required information vary for each reporting
status. New Entrant, Nominee, and Candidate filers are not required to list transactions on Schedule B, Part I.

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responsible for developing training materials and newsletters, providing ethics training
throughout the year, and counseling all Department employees on ethics issues or concerns as
they arise.

The Department implements, regulates, and oversees the FFEL program. The Department’s
Federal Student Aid (FSA) office has primary compliance and oversight responsibility for the
FFEL program.



                                       INSPECTION RESULTS


The objectives of our inspection were to: 1) Determine whether the Department’s process for
reviewing the SF 278 was adequate to identify and address financial conflicts of interest or the
appearance of conflicts of interest among employees responsible for oversight of the FFEL
program who are required to submit an SF 278; and 2) Determine the extent to which the
Department informs, trains, or counsels existing and newly hired or appointed officials of federal
conflict of interest statutes and standards of ethical conduct.

Finding #1: The Department’s Review Process Was Adequate to Identify and
Address Financial Conflicts of Interest or the Appearance of Conflicts of Interest

We found that the Department’s process for reviewing public financial disclosure reports was
adequate to identify and address financial conflicts of interest or the appearance of conflicts of
interest among employees responsible for oversight of the FFEL program. This conclusion is
based on a review of all assets listed in the ethics files of 90 FSA employees 2 required to file a
public financial disclosure report between 2001 and 2007. 3 In this review, we did not find any
financial conflicts of interest or appearances of conflicts of interest for the assets reported by
FSA employees responsible for oversight of the FFEL program that the Department had not
previously identified and addressed.

Finding #2: The Department Informs, Trains, and Counsels All Employees on All
Federal Conflict of Interest Statutes and Standards of Ethical Conduct

In determining the extent to which the Department informs, trains, or counsels existing and
newly hired or appointed officials on federal conflict of interest statutes and standards of ethical
conduct, we found that the Department covers all federal conflict of interest statutes and
standards of ethical conduct for all employees.

The Department utilizes a variety of means to educate and inform its employees. It does so
through: its intranet site; columns in the FSA and Department-wide monthly newsletters;
memoranda to employees; and various documents regarding specific ethics-related topics, which
are provided to employees in briefings and training sessions. The Department trains its


2
  One filer’s public financial disclosure reports were not examined as part of this inspection due to a separate OIG
matter.
3
  We did not review reports filed in 2007 that OGC had not certified.

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employees through: orientation for new employees; 4 individualized ethics briefings for
presidential appointees shortly after they enter duty; annual ethics training that is required for
selected employees and available to all employees; and ethics briefings for senior management in
FSA. Additionally, the Department encourages its employees to seek advice and counsel on any
ethics-related issues.

Through the various ways mentioned above, the Department trains and provides information to
its employees on all of the conflict of interest statutes that are applicable to executive branch
employees (18 U.S.C. Sections 203, 205, 207, 208, and 209) and all of the subparts of the
Standards of Ethical Conduct for Employees of the Executive Branch.

Finding #3: The Department’s Reviewers Did Not Consistently Address Repeated
Reporting Errors Made by Filers

During the course of our review of the assets listed in the 90 ethics files, we found that the
Department’s reviewers did not consistently address reporting errors made by filers.
Specifically, we found that some filers’ reports contained repeated errors, such as assets not
appropriately reconciled, required asset information not disclosed in a clear and concise manner,
and Excepted Investment Fund (EIF) 5 information not consistently and correctly reported for
assets. In all of these cases, the filers’ reports contained sufficient information for a reviewer to
perform a conflict of interest analysis.

We found that some filers’ reports repeatedly contained assets that were not appropriately
reconciled. Specifically, assets valued over $15,000 on one year’s Schedule A disappeared from
the next year’s Schedule A without corresponding transaction information listed on Schedule B,
Part I; assets not listed on one year’s Schedule A appeared on the next year’s Schedule A without
corresponding transaction information on Schedule B, Part I; and assets listed as purchases,
sales, or exchanges on Schedule B, Part I, were not listed on the corresponding Schedule A.

We also found that some filers repeatedly failed to disclose required asset information in a clear
and concise manner. Specifically, filers did not list information to clearly distinguish assets; did
not provide the values of assets; and did not provide supplemental information that was complete
and correct. For example, filers listed the names of assets differently from one report to the next
making it difficult for a reviewer to decipher whether an asset was listed on the prior report or is
a new entry. Filers also attached account statements as substitutes for Schedules A and B that
did not include asset values or did not cover the complete required reporting period.

Additionally, we found that some filers incorrectly or inconsistently designated assets as EIFs.
For example, one filer incorrectly listed two checking accounts as EIFs. Additionally, filers
often inconsistently designated assets as EIFs from year to year, which indicates that the filers do
not understand what qualifies as an EIF.



4
  At the new employee training, the Department provides new employees a packet that includes the complete
Standards of Ethical Conduct for Employees of the Executive Branch and other documents covering a wide range of
ethical issues, including conflict of interest statutes.
5
  An EIF is an investment which is: 1. widely held, 2. (a) publicly-traded (or available) or (b) widely diversified,
and, 3. independently managed, that is, arranged so that the filer neither exercises control nor has the ability to
exercise control over the financial interests held by the fund.

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OGE’s guide for reviewers, 6 Public Financial Disclosure: A Reviewer’s Reference (Second
Edition) (Reviewer’s Guide), states that the current report must reconcile with previous reports
and that each asset should normally either “continue on the next report, disappear (or appear)
because of a reported transaction or disappear because it slipped below a threshold or
dissipated.” The Reviewer’s Guide also states that reviewers should seek additional information
for a report when the form is incomplete and when the form reveals one entry (or the absence of
one) that is inconsistent with another entry on the report or on the filer's previous report(s). We
found that reviewers did follow up with filers when the reports were incomplete or when entries
were inconsistent; however, as we noted above, reviewers did not consistently do so.

The Reviewer’s Guide does encourage reviewers to exercise prudent judgment when deciding
whether to request additional information from the filer:

        The decision . . . often involves the exercise of judgment on the part of the
        reviewer. This is especially true when two reports do not reconcile. Reviewers
        have the primary responsibility for conflict of interest counseling. Each reviewer
        should use more or less scrutiny, depending on the familiarity of the filer with the
        process, the technical accuracy of any previous report(s) and the possibility of
        conflicts of interest.

Since we did not find any financial conflicts of interest or appearances of conflicts of interest in
the 90 files we reviewed, it appears that reviewers did exercise prudent judgment; however, OGC
does not have policies and procedures to ensure the consistent handling of reporting errors.

Reports that contain repeated reporting errors indicate that filers did not understand the reporting
instructions. The Department does not provide formal training to filers on the basics of
completing a public financial disclosure report. OGC does encourage filers to ask questions and
seek advice if they are having any difficulty completing the report, but it does not appear that
filers always seek that advice. Reviewers informed us that they believe the filers would benefit
from some form of training related to filing public financial disclosure reports.

Recommendation:
We recommend that the General Counsel for OGC require the Ethics Division to:

1. Develop policies and procedures to ensure the consistent handling of reporting errors; and

2. Develop a process to ensure that all filers receive appropriate training on public financial
   disclosure reports.



                                  DEPARTMENT COMMENTS


On February 8, 2008, we provided the Department with a copy of our draft report for comment.
We received the Department’s comments to the report on March 10, 2008. The Department
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 The stated purpose of this document is to “ensure the consistent, comprehensive and accurate review of executive
branch employees’ public financial disclosure reports.” Further, “[i]t aims to increase Government efficiency by
providing uniform guidance and interpretation to agency ethics officials.”

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generally concurred with the findings and recommendations of our report. The Department’s
response provided a brief description of the steps they have already taken, or are planning to
take, to strengthen the Department’s ethics program and, in particular, to implement the report’s
recommendations. For those areas where the Department did not completely agree with the
information presented in our report, we have summarized the Department’s comments and
provided our responses below. The Department’s response, in its entirety, is attached.

Department Comment
The Department commented that there are many reasons why an asset reported one year and not
the next, or vice versa, has no corresponding transaction in Schedule B. The Department stated
that filers are not required to report gifts given or received and that assets like common stocks
may disappear without a transaction when companies merge and change names. The Department
also commented that an asset may not have a corresponding transaction on Schedule B if the
asset simply loses value and does not meet the reporting threshold.

OIG Response
During our review, we did not find any evidence in the files or on the public financial disclosure
reports that the assets that were not appropriately reconciled were in fact gifts or were assets that
disappeared due to a merger. Additionally, these assets were valued over $15,000; therefore, it
would be unreasonable to assume that they dropped under the $1,000 reporting threshold. We
did not find any evidence in the files or on the public financial disclosure reports that the
reviewers determined that the assets had dropped under the reporting threshold.

Department Comment
The Department commented that our report’s statement that five attorneys were responsible for
reviewing and certifying the reports was incorrect because the Ethics Division had six attorneys
who were responsible for reviewing and certifying public financial disclosure reports during the
time period covered in our scope. The Department added that the Ethics Division has three
ethics program specialists who are involved in the initial reviews of the reports to ensure
completeness.

OIG Response
The statement in the report is accurate. As of December 21, 2007, five attorneys in the Ethics
Division were responsible for reviewing and certifying the reports. This statement is based on
information provided by the Acting Assistant General Counsel for OGC’s Ethics Division on
that date. The three ethics program specialists are not attorneys and do not certify reports.



                  OBJECTIVES, SCOPE, AND METHODOLOGY


The original objectives of our inspection were to: 1) Determine whether the Department’s
process for reviewing the SF 278 was adequate to identify and address financial conflicts of
interest or the appearance of conflicts of interest among employees responsible for oversight of
the FFEL program who are required to submit an SF 278; 2) Determine, to the extent possible,
whether any employees who are required to submit an SF 278 failed to disclose potential
conflicts of interest; and 3) Determine the extent to which the Department informs, trains, or
counsels existing and newly hired or appointed officials of federal conflict of interest statues and

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standards of ethical conduct. We determined that the data to answer objective two was not
readily available and further work in answering the objective would not have been an effective
use of resources. As a result, we eliminated the objective and informed the Department of the
change in our objectives.

We began our fieldwork on June 18, 2007 and conducted an exit conference on January 17,
2008.

We reviewed applicable conflict of interest laws and regulations. We also reviewed OGE’s
Public Financial Disclosure: A Reviewer’s Reference, (Second Edition); OGE program reviews
of OGC’s Ethics Division; and the Standards of Ethical Conduct for Employees of the Executive
Branch issued by OGE. We reviewed conflict of interest training materials and ethics-related
information provided by OGC’s Ethics Division. We interviewed Department staff in the OGC
Ethics Division.

We requested that OGC provide a listing of all FSA employees required to file public financial
disclosure reports for each of the past six years.

To answer our first objective, we identified 90 FSA employees who we determined to be
primarily responsible for oversight of the FFEL program for the time period covered by our
review. We determined that employees from the following FSA offices do not have FFEL
program oversight responsibilities: School Services and Training Channel, Application
Development Group, Enterprise IT Services Group, Funds Control and Accounting Operations
Branch, Budget Group, Budget Support Division, Financial Management Systems Group, Project
Management and Oversight Group, Contracts Group, Communication Management Services,
and Facilities Security and Emergency Management Services. We determined that employees
from all other FSA offices could have FFEL program oversight responsibilities. As a result, we
identified 90 filers from FSA who worked in these offices within the past six years.

The scope of our review included new entrant and annual reports filed in 2001; new entrant,
annual, and termination reports filed between 2002 and 2007; and related documentation in the
ethics files of the 90 FSA employees with FFEL oversight responsibilities. We did not review
reports filed in 2007 that OGC had not certified. We performed extensive reviews of
approximately 3,000 assets listed in all applicable public financial disclosure reports in the 90
ethics files to determine if there were any financial conflicts of interest or appearances of
conflicts of interest related to the FFEL program that were not identified and addressed by the
Department.

We limited our review to the assets listed in the public financial disclosure reports. As a result,
we reviewed Schedule A and Schedule B, Part I of the reports since Schedule A is required to
contain a listing of all assets and Schedule B, Part I is required to contain all corresponding
transaction information for those assets. After completing our review of the files, we used
listings of current FSA vendors and FFEL participants provided by OGC and conducted
extensive internet searches to research all assets valued over $15,000 for the 90 FSA filers for
possible connections to the FFEL program.

We identified 70 assets that required more complete information from OGC before any
conclusions could be made. We provided this list of assets to OGC for further review and


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comment. OGC then provided the information necessary for us to draw conclusions on those
assets.

Our inspection was performed in accordance with the 2005 President’s Council on Integrity and
Efficiency Quality Standards for Inspections appropriate to the scope of the inspection described
above.



                            ADMINISTRATIVE MATTERS


An electronic copy of this final inspection report has been provided to your Audit Liaison
Officer. We received your comments, which generally concurred with our findings and
recommendations.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your offices
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System (AARTS). Department policy requires that you enter your final corrective
action plan (CAP) for our review in the automated system within 30 days of the issuance of this
report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports issued by the Office
of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

Electronic cc: Phil Rosenfelt, Deputy General Counsel
               Susan Winchell, Acting Assistant General Counsel, Ethics Division




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