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 excellence and ensuring equal access. 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. 2 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. 3 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. 4 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 6 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.” 5 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 6 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 7 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 8
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)