oversight

FHFA's Controls over Post-Employment Restrictions and Financial Disclosure Requirements for Offboarded Employees Were Followed During 2016 and 2017

Published by the Federal Housing Finance Agency, Office of Inspector General on 2019-03-13.

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

          Federal Housing Finance Agency
              Office of Inspector General




    FHFA’s Controls over Post-
   Employment Restrictions and
Financial Disclosure Requirements
 for Offboarded Employees Were
  Followed During 2016 and 2017




 Audit Report • AUD-2019-005 • March 13, 2019
                 Executive Summary
                 The Federal Housing Finance Agency (FHFA or Agency) was established by
                 the Housing and Economic Recovery Act of 2008 and is responsible for the
                 supervision, regulation, and housing mission oversight of Fannie Mae, Freddie
                 Mac, and the Federal Home Loan Bank System. Since September 2008, it has
                 also served as the conservator for Fannie Mae and Freddie Mac. FHFA is an
AUD-2019-005     independent agency with a workforce, as of December 31, 2017, of 603 that
                 included examiners; economists; financial and policy analysts; attorneys;
March 13, 2019   subject matter experts in banking, insurance, technology, accounting, and
                 legal matters; and support personnel. The Office of Inspector General (OIG)
                 is not included in this number.

                 When employees separate from FHFA, they are required to go through an
                 “offboarding” process, which has several elements. One element requires
                 that certain disclosures be made to separating employees, other than interns,
                 regarding post-employment restrictions and financial disclosures.

                 Recent reports by other federal agency Offices of Inspector General have
                 highlighted the importance of an effective employee offboarding process to
                 mitigate reputational, security, and other risks to federal agencies.

                 Also, the Office of Government Ethics (OGE) explains that an agency’s lack
                 of effective offboarding controls can lead to conflicts of interest that can arise
                 between the separating (or separated) employee and the agency, such as a
                 separating employee seeking to leverage his or her existing government
                 position to seek private employment or a separated employee representing
                 an individual or entity before the agency on matters in which he or she was
                 personally and substantially involved.

                 Today, we are issuing two separate audit reports. This report reviews
                 offboarding controls over post-employment restrictions and financial
                 disclosure requirements. The other report reviews offboarding controls over
                 access cards, sensitive IT assets, and records: FHFA’s Offboarding Controls
                 over Access Cards, Sensitive IT Assets, and Records Were Not Always
                 Documented or Followed During 2016 and 2017 (AUD-2019-004), online at
                 www.fhfaoig.gov/reports/auditsandevaluations.

                 In this audit, we sought to (1) determine FHFA’s offboarding controls
                 regarding post-employment restrictions and financial disclosure requirements
                 for separating employees and (2) assess whether those controls operated
                 effectively during 2016 and 2017 (review period). During the review period,
                 55 FHFA employees separated from the agency and all of these individuals
                 were required, under FHFA’s requirements, to follow one or more post-
                 employment restrictions. Twenty (20) separated employees were also required
                 to file a Public Financial Disclosure Report.

                 We performed two audit tests to assess FHFA’s controls over its employee
                 offboarding process related to post-employment restrictions and financial
                 disclosure requirements. In the first test, we determined whether FHFA’s
                 Office of General Counsel (OGC) signed off on FHFA’s form used to
AUD-2019-005     offboard an employee (Pre-Exit Clearance Form) and attested that the
                 individual received the required exit briefings on post-employment restrictions
March 13, 2019   and financial disclosure requirements. We found that for 52 of the 53
                 separated employees for which the Pre-Exit Clearance Form was produced
                 by FHFA, an OGC official signed the form attesting that the required exit
                 briefing had been provided. We consider the exception for the remaining
                 employee to be non-systemic.

                 In the second test, we determined whether the 20 separated employees
                 required to file an OGE Public Financial Disclosure Report filed the report
                 and for any who did not, whether FHFA followed up with the separated
                 employee and took other action as appropriate. We found that 17 of the 20
                 separated employees timely filed a Public Financial Disclosure Report, as
                 required. For the remaining three separated employees, OGC provided us with
                 its follow-up correspondence with these employees regarding their reporting
                 obligation. These three separated employees eventually filed their reports.

                 From our tests, we found that FHFA’s controls over post-employment
                 restrictions and financial disclosure requirements for separating employees
                 during 2016 and 2017 were followed. We make no recommendations in this
                 report.

                 This report was prepared by Tara Lewis, Audit Director; Terese Blanchard,
                 Auditor-in-Charge; and Brian Maloney, Auditor; with assistance from Bob
                 Taylor, Senior Advisor. We appreciate the cooperation of FHFA staff, as well
                 as the assistance of all those who contributed to the preparation of this report.

                 This report has been distributed to Congress, the Office of Management and
                 Budget, and others and will be posted on our website, www.fhfaoig.gov.

                 Marla A. Freedman, Deputy Inspector General for Audits /s/
TABLE OF CONTENTS ................................................................
EXECUTIVE SUMMARY .............................................................................................................2

ABBREVIATIONS .........................................................................................................................5

BACKGROUND .............................................................................................................................6
       FHFA’s Offboarding Process and Systems ..............................................................................6

FACTS AND ANALYSIS...............................................................................................................8
       55 Employees who Separated in 2016 and 2017 Were Required to Follow One or
       More Post-Employment Restrictions and 20 of the 55 Employees Were Required to
       File Public Financial Disclosure Reports .................................................................................8
       FHFA’s Controls Over Post-Employment Restrictions and Financial Disclosure
       Requirements for Separating Employees Were Adequate........................................................9

CONCLUSION ..............................................................................................................................10

FHFA COMMENTS AND OIG RESPONSE ...............................................................................10

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................10

APPENDIX 1: FHFA’S PRE-EXIT CLEARANCE FORM .........................................................12

APPENDIX 2: NUMBER OF EMPLOYEES WHO SEPARATED FROM FHFA IN
2016 AND 2017 THAT WERE SUBJECT TO POST-EMPLOYMENT RESTRICTIONS
........................................................................................................................................................13

APPENDIX 3: FHFA MANAGEMENT RESPONSE .................................................................15

ADDITIONAL INFORMATION AND COPIES .........................................................................16




                                              OIG • AUD-2019-005 • March 13, 2019                                                                      4
ABBREVIATIONS .......................................................................

ACS                   Access Control System

FHFA or Agency        Federal Housing Finance Agency

GS                    General Schedule

HRIS                  Human Resources Information System

OGC                   Office of General Counsel

OGE                   Office of Government Ethics

OHRM                  Office of Human Resources Management

OIG                   Federal Housing Finance Agency Office of Inspector General




                         OIG • AUD-2019-005 • March 13, 2019                        5
BACKGROUND ..........................................................................

FHFA’s Offboarding Process and Systems

When employees separate from FHFA, they are required to go through an “offboarding”
process, which has several elements. 1 One element requires that certain disclosures be made
to separating employees, other than interns, regarding post-employment restrictions and
financial disclosures. 2

The FHFA offboarding process for separating employees begins when the individual notifies
(either directly or through his or her manager) the Office of Human Resources Management
(OHRM) of his or her pending separation. OHRM enters the pending separation information,
to include name and separation date, into FHFA’s offboarding system, the Access Control
System (ACS). ACS generates email notifications to FHFA offices with offboarding
responsibilities to alert them to an employee’s pending separation. At that time, the employees
are required to complete FHFA’s Form 16, Pre-Exit Clearance Form prior to their departure.
This form is used to ensure that the employee satisfies all offboarding requirements by
obtaining sign-offs from various FHFA offices. 3 OHRM is responsible for collecting and
maintaining all completed Pre-Exit Clearance Forms. After the employee completes the Pre-
Exit Clearance Form, OHRM is tasked with removing the employee from FHFA’s Human
Resources Information System (HRIS). 4 Appendix 1 is a version of the Pre-Exit Clearance
Form used by separating employees during the review period. FHFA’s retention period for the
Pre-Exit Clearance Form is seven years.

One FHFA office that receives the ACS-generated email of pending separations is OGC. In
accordance with FHFA’s Operating Policies and Procedures for the Ethics Program, OGC is
responsible for providing the separating employee with an oral exit briefing, written materials,
and contact information on ethics and nondisclosure matters. These written materials include
1
  This report does not consider FHFA employees who die during the course of their employment to “separate”
for purposes of offboarding. We recognize the need for FHFA to collect sensitive information technology
assets, and FHFA records relating to deceased employees but this collection falls outside the scope of this
report.
2
 We reviewed FHFA’s offboarding controls over access cards, sensitive information technology assets, and
FHFA records as a separate audit. See OIG, FHFA’s Offboarding Controls over Access Cards, Sensitive IT
Assets, and Records Were Not Always Documented or Followed During 2016 and 2017 (Mar. 13, 2019)
(AUD-2019-004) (online at https://www.fhfaoig.gov/reports/auditsandevaluations).
3
  In all, the separating employee is to obtain 11 sign-offs on the form. The employee also signs and dates the
form.
4
  HRIS is FHFA’s human resources software that allows for the paperless processing of personnel actions
including leave and payroll.




                                   OIG • AUD-2019-005 • March 13, 2019                                           6
a listing of the post-employment restrictions applicable to FHFA employees. For example, the
written materials inform employees about (1) an Executive Branch prohibition that former
employees who participated in a particular matter involving a specific party while employed
at FHFA shall not “switch sides” and counsel another person or entity on that same matter 5
and (2) an FHFA-specific restriction that separated employees whose FHFA salary exceeded
a certain amount are prohibited from accepting compensation from either Fannie Mae or
Freddie Mac for two years after separation from FHFA. 6 After the exit briefing, OGC signs
off on the Pre-Exit Clearance Form, which attests that it conducted the exit briefing.

OGC is also tasked with providing written notification to separating employees whose salary
meets or exceeds the basic rate of 120% of General Schedule (GS)-15, Step 1 that they must
complete the OGE 7 Form 278e, the Public Financial Disclosure Report, 8 within 30 days of
separation. 9 According to FHFA’s Operating Policies and Procedures for the Ethics
Program, the primary purpose of the Public Financial Disclosure Report is to assist agencies
in identifying potential conflicts of interest between a filer’s official duties and the filer’s
private financial interests and affiliations. If a separated employee does not complete the
required Public Financial Disclosure Report within 30 days, FHFA policy provides that OGC
is to follow up by email to remind that individual about his or her filing obligation.




5
    See 18 U.S.C. § 207(a)(1).
6
    See 12 U.S.C. § 4523.
7
  OGE was created by the Ethics in Government Act of 1978 and is responsible for, among other things,
interpreting rules and regulations governing conflict of interest and ethical problems, the development of
forms, and cooperating with the Attorney General in developing an effective system for reporting allegations
of violations of the conflict of interest laws to the Attorney General.
8
  An OGC official explained that because FHFA is not subject to the general schedule pay scale, FHFA uses
OGE’s advisory, Determining the Public Financial Disclosure Requirements for Non-Standard Pay Systems
(issued August 20, 2007), to determine the public financial disclosure requirements for FHFA employees.
Using the OGE advisory, FHFA determined that only EL-15 level employees and above must file the Public
Financial Disclosure Report.
9
  The Public Financial Disclosure Report captures a separating employee’s, and as applicable, certain family
members’ financial disclosures. Among matters reported are: (1) positions held outside the U.S. Government,
(2) employment assets and income and retirement accounts, (3) employment agreements and arrangements,
(4) sources of compensation exceeding $5,000 in a year, (5) certain other assets and income, (6) transactions
exceeding $1,000 during the year, (7) certain liabilities, and (8) gifts and travel reimbursements.




                                   OIG • AUD-2019-005 • March 13, 2019                                          7
Recent reports by other federal agency Offices of Inspector General have highlighted the
importance of an effective employee offboarding process to mitigate reputational, security,
and other risks to federal agencies. 10


FACTS AND ANALYSIS ...............................................................

55 Employees who Separated in 2016 and 2017 Were Required to Follow One or More
Post-Employment Restrictions and 20 of the 55 Employees Were Required to File
Public Financial Disclosure Reports

FHFA provided a list of 55 employees who separated during the review period. 11 We
determined that all 55 separated employees were required to follow one or more post-
employment restrictions. 12 For example, all 55 FHFA employees were subject to the
post-employment restriction prohibiting former employee’s representations to the United
States concerning particular matters in which the employee participated personally and
substantially. 13 Appendix 2 of this report contains a complete list of the various post-
employment restrictions and our analysis of their applicability to the 55 who separated from
FHFA during our review period.

We also found that 20 of the 55 separated employees were required to file a Public Financial
Disclosure Report because their salaries met or exceeded the basic rate of 120% of a GS-15,
Step 1, salary.




10
   See Board of Governors of the Federal Reserve System and Consumer Financial Protection Bureau
OIG, The CFPB Can Further Strengthen Controls Over Certain Offboarding Processes and Data (Jan. 22,
2018) (2018‑MO‑C‑OO1) (online at http://oig.federalreserve.gov/reports/cfpb-offboarding-processes-data-
jan2018.htm) and Federal Deposit Insurance Corporation OIG, Controls Over Separating Personnel’s Access
to Sensitive Information (Sept. 2017) (EVAL-17-007) (online at
www.fdicoig.gov/sites/default/files/publications/17-007EV_0.pdf).
11
   One FHFA employee passed away during the review period. As explained previously, deceased employees
are excluded from the scope of this audit.
12
   This count does not include 70 employees who were interns that separated during the review period.
According to an OGC official, interns are not required to receive an exit briefing on post-employment
restrictions, rather, interns receive information on post-employment restrictions at new employee orientation.
A separate Pre-Exit Clearance Form is used to offboard interns, and that form does not require sign-off by an
OGC official. Accordingly, interns are not included in the scope of this audit.
13
     See 18 U.S.C. § 207(a)(1).



                                   OIG • AUD-2019-005 • March 13, 2019                                           8
FHFA’s Controls Over Post-Employment Restrictions and Financial Disclosure
Requirements for Separating Employees Were Adequate

We performed two audit tests to assess the adequacy of FHFA’s controls over its employee
offboarding process related to post-employment restrictions and financial disclosure
requirements.

   •   Determine whether OGC signed off on the Pre-Exit Clearance Forms maintained by
       FHFA to verify that the 55 separated employees received the required exit briefings on
       post-employment restrictions and financial disclosure requirements. FHFA provided a
       Pre-Exit Clearance Form for 53 of the 55 separated employees. OHRM maintained to
       us that OHRM staff responsible for collecting these forms during the review period
       were not familiar with the offboarding procedures and that two of the forms for the 55
       separated employees could not be located.

       Result of Test: We found that for 52 of the 53 separated employees for whom the Pre-
       Exit Clearance Forms were produced, an OGC official signed the form attesting that
       the required exit briefing had been provided. For the remaining employee, an OGC
       official informed us that the individual left suddenly and did not go through the
       standard offboarding process. However, we noted that the other 10 FHFA offices had
       signed off on the form attesting that their related offboarding procedures had been
       completed.

   •   Determine whether the 20 separated employees required to file an OGE Public
       Financial Disclosure Report filed the report. For any who did not, determine whether
       FHFA followed up with the separated employee and took other action as appropriate.

       Result of Test: We found that 17 of the 20 separated employees timely filed a Public
       Financial Disclosure Report, as required. For the remaining three separated
       employees, OGC provided its follow-up correspondence with these employees
       regarding their Public Financial Disclosure Report obligations. These separated
       employees eventually filed their reports.

During our audit, we asked OGC officials whether FHFA had learned of any potential
violations of post-employment restrictions by employees separated during the review period.
They responded that FHFA had not.




                             OIG • AUD-2019-005 • March 13, 2019                                9
CONCLUSION ............................................................................

We found that FHFA’s controls over post-employment restrictions and financial disclosure
requirements for separating employees during 2016 and 2017 were followed. For 52 of the 53
separated employees for whom the Pre-Exit Clearance Forms were produced, an OGC official
signed the form, attesting that the required exit briefing had been provided. For the remaining
employee, an OGC official informed us that the individual left suddenly and did not go
through the standard offboarding process. While that explanation was not consistent with
other sign-offs on the employee’s Pre-Exit Clearance Form, we did not consider this single
exception to be systemic. In addition, we found that 17 of the 20 separated employees timely
filed a Public Financial Disclosure Report, as required, and the other 3 late-filed after being
notified by OGC of their delinquency.


FHFA COMMENTS AND OIG RESPONSE .....................................

We provided FHFA an opportunity to respond to a draft of this audit report. FHFA provided
technical comments on the draft report and those comments were incorporated as appropriate
in finalizing this report. FHFA also provided a management response, which is included as
Appendix 3 to this report. FHFA’s management response acknowledged our conclusion that
controls over post-employment restrictions and financial disclosure requirements for
separating employees during 2016 and 2017 were followed.


OBJECTIVE, SCOPE, AND METHODOLOGY .................................

We performed this audit to (1) determine FHFA’s offboarding controls regarding post-
employment restrictions and financial disclosure requirements for separating employees and
(2) assess whether those controls are operating effectively. The audit covered calendar years
2016 and 2017 (review period). Our audit scope did not include separating FHFA employees
who were interns. We did not audit the OIG.

To accomplish our objectives, we:

   •   Researched and identified applicable laws, regulations, and other guidance related to
       post-employment restrictions and financial disclosure requirements;

   •   Obtained and reviewed FHFA’s policies, procedures, and supporting documents on
       post-employment restrictions and financial disclosure requirements;


                             OIG • AUD-2019-005 • March 13, 2019                                  10
   •   Interviewed FHFA officials to gain an understanding of FHFA’s offboarding process
       related to post-employment restrictions and financial disclosure requirements.

   •   Obtained and analyzed information provided by FHFA related to the universe of
       employees and interns who separated from FHFA in 2016 and 2017, to determine
       whether the applicable individuals completed the offboarding process related to post-
       employment restrictions and financial disclosure requirements;

   •   Determined for each employee who separated during our review period whether
       FHFA’s offboarding requirements related to post-employment restrictions and
       financial disclosure requirements were met. We performed this by analyzing the
       following FHFA offboarding documents related to post-employment restrictions
       and financial disclosure requirements to ensure completeness and that offboarding
       requirements were met: (1) FHFA’s Pre-Exit Clearance Form and (2) OGE’s Public
       Financial Disclosure Report.

       o We reviewed FHFA’s Pre-Exit Clearance Form provided by FHFA for employees
         who separated from FHFA to determine whether all employees completed OGC
         exit briefings and that the responsible FHFA officials signed off on the form.

       o We reviewed OGE’s Public Financial Disclosure Report provided by FHFA
         for employees who separated from FHFA to determine whether all required
         individuals met the financial disclosure requirement.

We conducted this performance audit from March 2018 through March 2019 in accordance
with generally accepted government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for the findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.




                             OIG • AUD-2019-005 • March 13, 2019                                 11
APPENDIX 1: FHFA’S PRE-EXIT CLEARANCE FORM14 ..................




14
   The yellow-highlighted sections on the Pre-Exit Clearance Form were marked by FHFA. We have redacted
the names of the FHFA officials responsible for signing off on the form. FHFA updated this form several times
during 2016 and 2017 for changes in the responsible FHFA officials.



                                  OIG • AUD-2019-005 • March 13, 2019                                           12
APPENDIX 2: NUMBER OF EMPLOYEES WHO SEPARATED
FROM FHFA IN 2016 AND 2017 THAT WERE SUBJECT TO
POST-EMPLOYMENT RESTRICTIONS .........................................

                                                                                           Number of FHFA
     Citation of                                                  Applicability of       Employees Subject to
  Post-Employment            Title and Description of           Post-Employment          the Post-Employment
   Restriction1516       Post-Employment Restriction15              Restriction               Restriction
18 USC § 207(a)(1)       Permanent restriction on             All employees.                       55
                         any former employee’s
                         representations to the United
                         States concerning particular
                         matters in which the employee
                         participated personally and
                         substantially.
18 USC § 207(a)(2)       Two-year restriction on              All employees.                       55
                         any former employee’s
                         representations to the United
                         States concerning particular
                         matters for which the
                         employee had official
                         responsibility.
12 USC § 4523            Two-year restriction for FHFA        Employees with                       38
                         employees to work at Fannie          salaries greater than
                         Mae and Freddie Mac.                 $129,874 in 2016 and
                                                              2017.
18 USC § 207(c)          One-year restriction on any          Employees with                       28
                         former senior employee’s             salaries greater than
                         representations to its former        $160,111 (2016) and
                         agency concerning any                $161,755 (2017).
                         matters, regardless of prior
                         involvement.

15
  OIG analysis of FHFA’s employee exit briefing handouts including FHFA’s Summary of Post-Employment
Restrictions Applicable to Former FHFA Employees (January 2017) and the Office of Government Ethics’
Understanding the Revolving Door: How Ethics Rules Apply to Your Job Seeking and Post-Government
Employment Activities (October 2007).
16
   FHFA’s Summary of Post-Employment Restrictions Applicable to Former FHFA Employees (January
2017) and the Office of Government Ethics Understanding the Revolving Door: How Ethics Rules Apply to
Your Job Seeking and Post-Government Employment Activities (October 2007) also cite 18 U.S.C. § 203.
FHFA’s OGC stated that 18 U.S.C. § 203 is a compensation-based “representational rule” that alerts former
FHFA employees of restrictions related to accepting compensation from their new employer related to matters
affecting the government that the employer earned while the employee was still employed by the government.
OGC officials told us they include this statute as part of the post-employment restriction summary and exit
briefings because they want to inform former employees of this rule.



                                  OIG • AUD-2019-005 • March 13, 2019                                         13
                                                                                    Number of FHFA
     Citation of                                             Applicability of     Employees Subject to
  Post-Employment         Title and Description of         Post-Employment        the Post-Employment
   Restriction1516   Post-Employment Restriction15             Restriction             Restriction
18 USC § 207(f)      One-year restriction on any         Employees with                     28
                     former senior or very senior        salaries greater than
                     employee representing a             $160,111 (2016) and
                     foreign government or foreign       $161,755 (2017).
                     political party before an officer
                     or employee of an agency or
                     department of the United
                     States.
12 CFR § 1212        Additional one-year restriction     Employees who                     2
                     for FHFA senior examiners to        acted as a “senior
                     work at Fannie Mae, Freddie         examiner” for 2 or
                     Mac, or the Federal Home            more months during
                     Loan Banks if that individual       the last 12 months of
                     served as the senior examiner       employment.
                     of that regulated entity.
18 USC § 207(d)      Two-year restriction on any         Employees with                    0
                     former very senior employee’s       salaries equal to
                     representations to its former       $205,700 (2016) and
                     agency concerning any matter,       $207,800 (2017).
                     regardless of prior
                     involvement.
41 USC § 423         Federal Acquisitions Reform         Employees involved                0
                     Act imposes a one-year              in contracts in excess
                     restriction on certain              of $10 million.
                     employees.




                             OIG • AUD-2019-005 • March 13, 2019                                   14
APPENDIX 3: FHFA MANAGEMENT RESPONSE ..........................




                   OIG • AUD-2019-005 • March 13, 2019       15
ADDITIONAL INFORMATION AND COPIES .................................


For additional copies of this report:

   •   Call: 202-730-0880

   •   Fax: 202-318-0239

   •   Visit: www.fhfaoig.gov



To report potential fraud, waste, abuse, mismanagement, or any other kind of criminal or
noncriminal misconduct relative to FHFA’s programs or operations:

   •   Call: 1-800-793-7724

   •   Fax: 202-318-0358

   •   Visit: www.fhfaoig.gov/ReportFraud

   •   Write:

                FHFA Office of Inspector General
                Attn: Office of Investigations – Hotline
                400 Seventh Street SW
                Washington, DC 20219




                               OIG • AUD-2019-005 • March 13, 2019                         16