oversight

Inspection to Evaluate the Adequacy of the Department's Procedures in Response to Section 306 of the Fiscal Year 2008 Appropriations Act - Maintenance of Integrity and Ethical Values Within the Department.

Published by the Department of Education, Office of Inspector General on 2008-04-21.

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

                                  UNITED STATES DEPARTMENT OF EDUCATION
                                                        OFFICE OF INSPECTOR GENERAL

                                                                                                                  The Inspector General

                                                                                            April 21, 2008

Memorandum
TO:                  David Dunn
                     Chief of Staff
                     Office of the Secretary

FROM:                John P. Higgins, Jr. /s/


SUBJECT:             Final Inspection Report
                     Inspection to Evaluate the Adequacy of the Department’s Procedures in Response
                     to Section 306 of the Fiscal Year 2008 Appropriations Act – Maintenance of
                     Integrity and Ethical Values Within the Department (ED-OIG/I13I0004)


This final inspection report presents the results of our inspection to evaluate the adequacy of the
Department of Education’s (Department) procedures in response to Section 306 of the Fiscal
Year 2008 Appropriations Act – Maintenance of Integrity and Ethical Values Within the
Department (Section 306).



                                               INSPECTION RESULTS


The objective of our inspection was to evaluate the adequacy of the procedures developed by the
Department to comply with the requirements of Section 306. Specifically, Section 306 required
the Department to implement procedures to assess and disclose whether an individual or entity
has a potential financial interest in, or impaired objectivity towards, a product or service
involving Department funds. These procedures apply to Department officers and professional
employees; contractors, subcontractors, and their employees; consultants and advisors; and peer
reviewers.

Section 306 requires the OIG to evaluate the Department’s procedures and report on their
adequacy along with any recommendations for modifications within 60 days of implementation.
The Department issued a notification to all Department managers titled, “Procedures to Comply
with Section 306 of the 2008 Appropriations Act” on February 22, 2008. Our work was limited
to reviewing the written procedures. We did not review the implementation of the procedures. If
an individual fails to disclose an item, those responsible for assessing potential financial interests
and impaired objectivity are not in a position to determine if the item presents any actual or
potential conflict.

 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
We found that the Department’s procedures, if fully implemented as planned, are adequate to
comply with the requirements of Section 306; however, we did find that one aspect of the
Department’s procedures for peer reviewers could be misinterpreted. As a result, we recommend
that the Department modify its peer reviewer certification procedure to clarify the issue.

We summarized the Department’s procedures using the following three categories: 1)
Department employees; 2) contractors, subcontractors, and individuals hired by the contracted
entity; and 3) peer reviewers. According to the Department, an individual serving as a consultant
or an advisor is considered either a Department employee or a contractor and would be subject to
the applicable conflict of interest procedures.

1. Procedures for Department Employees

The Department implements the Executive Branch-wide financial disclosure reporting system
required by the Ethics in Government Act of 1978 and U.S. Office of Government Ethics
regulations. Approximately 400 Department employees are required to file the Standard Form
278, also known as the Public Financial Disclosure Report; and approximately 400 Department
employees are required to file the Office of Government Ethics (OGE) Form 450, also known as
the Confidential Financial Disclosure Report. The Department currently has approximately
4,500 employees.

The employees required to file public financial disclosure reports, which include senior officials
and political appointees, are specifically defined in 5 C.F.R. § 2634.202 and the employees
required to file confidential disclosure reports are specifically defined in 5 C.F.R. § 2634.904.
The definition in 5 C.F.R. § 2634.904 provides that the Department will determine that an
employee is a confidential filer by concluding whether the employee’s duties and responsibilities
require participation in a decision or the exercise of significant judgment, without substantial
supervision and review, in government actions further specified in the section. Thus, the
Department is required to assess the responsibilities of all employees to determine their level of
involvement in the decision-making process. The Department has the discretion to determine
which employees are in a position that would require filing a confidential financial disclosure
report.

While both the public and confidential reports are primarily designed to disclose and assess an
employee’s financial interests, both reports contain sections that address whether an employee
has impaired objectivity. The sections require disclosure of positions held outside of
government; agreements or arrangements with former or future employers; and gifts,
reimbursements, and travel arrangements.

The Department also reaches out to employees through the Ethics Division of the Office of the
General Counsel (OGC), which provides training and guidance on ethics requirements to all
Department employees. The Ethics Division also encourages all employees to seek advice and
counsel on any ethics-related issues. These efforts provide employees with significant guidance
and education on a variety of ethics-related issues. Additionally, the efforts provide
opportunities for employees to disclose any potential connections that may impair their
objectivity.



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Further, on December 4, 2007, the Department issued an internal directive to all employees
titled, “Improving Administration and Management of Department Programs.” Through the
directive, the Department emphasizes the importance of objectivity and professionalism;
provides guidance on identifying and disclosing conflicts of interest; stresses compliance with
the prohibitions against controlling and directing curriculum and instruction; strongly encourages
early and ongoing consultation with OGC; emphasizes the importance of cooperation with OIG;
and informs employees that they are required to participate in annual internal control training.

On March 12, 2008, OIG issued the 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). 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. Additionally, we found that the Department informs, trains, and
counsels all employees on all federal conflict of interest statutes and standards of ethical conduct.

The Office of Government Ethics’ most recent published program review of the Department’s
ethics program, dated February 12, 2004, found that the ethics program is “essentially sound and
appears to be appropriately tailored to the needs of agency employees.” OGE found that some of
the strong parts of the program include the ethics training, the provision of useful ethics advice,
and an enforcement process that promptly and effectively deals with employee ethical breaches.
On February 23, 2007, OGE announced that the Department was one of its ethics training award
recipients. OGE stated in the announcement: “The award recipients successfully met the
challenge of developing creative, innovative educational programs and tools. Their products
serve as models of programs that can be adapted for use by other agencies.”

Based on our analysis of the procedures and evidence that the ethics program has and continues
to adhere to all applicable ethics program requirements, we conclude that the Department’s
procedures, if fully implemented as planned, are adequate to assess and disclose the existence of
any potential financial interest or impaired objectivity with regard to Department employees.

2. Procedures for Contractors, Subcontractors, and Individuals Hired by the Contracted
   Entity

Since August 2007, the Department has included a requirement that organizations responding to
contract solicitations submit conflict of interest plans and disclose all potential conflicts as part
of their proposals. In the conflict of interest plan, the organization is required to provide details
on its policies and procedures to identify and avoid potential organizational or personal conflicts
of interest (or apparent conflicts of interest). The organization’s plan should also address
procedures taken to neutralize or mitigate such conflicts, if they have not been or cannot be
avoided.

As part of a contract proposal, an organization must certify that it has disclosed all information
related to potential conflicts of interest for itself, any subcontractor, and any individual hired by
the contracted entity. The certification specifically addresses impaired objectivity, which
includes but is not limited to: financial interests or reasonably foreseeable financial interests;
significant connections to teaching methodologies; and significant identification with
pedagogical or philosophical viewpoints.


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Department employees are required to use the Department’s Contract Monitoring Internal
Directive and associated procedures when reviewing the conflict of interest plans and
certifications. Additionally, the Department addresses Federal Acquisition Regulations Subpart
9.5, which concerns organizational conflict of interest, through specific procedures for
identifying and addressing conflicts of interest when planning acquisitions, soliciting proposals,
and awarding and administering contracts. These procedures explain the roles and
responsibilities of the heads of contracting activities, contracting officers, contract specialists,
contractors, program managers, contracting officer’s representatives, and other members of the
acquisition team in identifying and addressing conflicts of interest. The three specific steps are
to: 1) identify and avoid, neutralize, or mitigate potential conflicts during acquisition planning
and other pre-award activity, 2) identify, evaluate, and resolve conflicts during contract
administration, and 3) brief subsequent acquisition team members.

The Department’s internal directive, “Improving Administration and Management of Department
Programs,” emphasizes the need for early and ongoing consultation with OGC. If a contract
official is unsure of a conflict of interest issue, the directive encourages that official to seek
advice from OGC.

We conclude that the Department’s procedures, if fully implemented as planned, are adequate to
assess and disclose the existence of any potential financial interest or impaired objectivity with
regard to contractors, subcontractors, and individuals hired by the contracted entity.

3. Procedures for Peer Reviewers

In its Handbook for the Discretionary Grant Process, the Department provides detailed guidance
and procedures for Department staff to identify and assess possible conflicts of interest among
peer reviewers for discretionary grant competitions. The Department’s internal directive,
“Improving Administration and Management of Department Programs,” sets forth similar
guidance and procedures for the use of peer reviewers in formula grant programs.

We conclude that the guidance and procedures in the Department’s handbook and internal
directive, if properly implemented, are adequate to assess the existence of any potential financial
interest or impaired objectivity with regard to a member of a peer review panel.

With regard to the disclosure of potential conflicts of interest, the Department requires peer
reviewers to certify that they do not have a conflict of interest with respect to any of the
applications being considered as part of their review. The certification requires the reviewer to
agree to the following statement: “I understand that I will be considered to have a ‘conflict of
interest’ when I, or certain individuals and entities with whom I have a relationship, have a
financial interest in the outcome of this competition.” The certification provides examples of
direct financial conflicts and examples of relationships with certain entities and individuals that
would create financial conflicts for the reviewer.

The certification also requires reviewers to agree that the examples provided are not exhaustive
and to agree that they will promptly notify the appropriate Program Official if they become
aware of any other circumstances that might cause someone to question their impartiality in



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serving as a reviewer for the competition. OGC officials informed us that this statement is meant
to apply to all other aspects of impaired objectivity, not only financial interests.

We conclude that the procedures requiring the certification from peer reviewers are adequate to
disclose financial conflicts of interest; however, the statement in the certification on impartiality
could be misinterpreted as applying only to financial conflicts because of the context of the
examples given in the certification. If the certification does not provide clear examples of
impaired objectivity, the Department cannot be sure that reviewers are disclosing all
circumstances that could impact objectivity.

Recommendations:
We recommend that the Department:

   1. Clarify the statement regarding impartiality in the peer review certification by adding
      language that specifically identifies the types of non-financial interests that would impair
      objectivity so that non-financial interests, such as significant connections to teaching
      methodologies and significant identification with pedagogical or philosophical
      viewpoints, are disclosed; and

   2. Define the terms “significant connections to teaching methodologies” and “significant
      identification with pedagogical viewpoints.”



                              DEPARTMENT COMMENTS


On April 4, 2008, we provided the Department with a copy of our draft report for comment. We
received the Department’s comments to the report on April 16, 2008.

Department Comment
The Department agreed with the findings but expressed concern that using the terms mentioned
in the draft report recommendation – “teaching methodologies” and “significant identification
with pedagogical or philosophical viewpoints” – would be too vague and may cause confusion
and concern. The Department further stated that it believes the recommendation should not
include those terms. The Department stated that it does intend to develop additional guidance
about non-financial interests that will include specific examples. The Department’s response, in
its entirety, is attached.

OIG Response
In the Department’s internal directive, Contracting Monitoring For Program Officials (OCFO:
2-108), “significant connections to teaching methodologies” and “significant identification with
pedagogical or philosophical viewpoints” are specifically cited as types of impaired objectivity
that would cause a reasonable person with knowledge of the relevant facts to question a person’s
objectivity. In our draft report recommendation, we used these terms as types of impaired
objectivity that should be addressed when clarifying the statement regarding impartiality. We
did not recommend that these terms be specifically included in the peer review certification. It is
incumbent upon the Department to ensure that these types of impaired objectivity are addressed



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in the certification so that non-financial interests are completely disclosed. We have added
language to clarify the recommendation. We have also added a recommendation based on the
Department’s comment that the terms “teaching methodologies” and “significant identification
with pedagogical or philosophical viewpoints” are vague.



                  OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our inspection was to evaluate the adequacy of the procedures developed by the
Department to comply with the requirements of Section 306.

We began our fieldwork on February 29, 2008, and conducted an exit conference on April 11,
2008.

The scope of our review included the procedures and any documents referenced in the
Department’s notification to all Department managers titled, “Procedures to Comply with
Section 306 of the 2008 Appropriations Act.” Our work was limited to only reviewing the
written procedures. We did not review the implementation of the procedures.

We reviewed the procedures identified in the Department’s notification to managers and all
applicable documents referenced in those procedures. We interviewed Department staff in OGC
and in the Office of the Chief Financial Officer’s Contracts and Acquisitions Management office.
We also met with OGE officials who are responsible for performing ethics program reviews at
the Department. Additionally, we referred to OIG’s inspection report regarding the
Department’s public financial disclosure process and OGE’s 2004 ethics program review.

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


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.




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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: Kent Talbert, General Counsel, Office of the General Counsel
               Lawrence Warder, Chief Financial Officer, Office of the Chief Financial Officer
               Thomas Skelly, Director, Budget Services




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