oversight

Financial Disclosure Legislation

Published by the Government Accountability Office on 1977-09-09.

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

                         DCCUMENT RESUME
03532 -   A25737083

Financial Disclosure Legislaticn. September 9, 1977. 10 pp.
Testimony before the House Committee on the Judiciary:
Administrative aw and Governmental Relations Subcommittee; by
Robert F. Reller, Deputy Ccmptrcller General.
Issue Area: Perscnnel Management and Compensation: Employee
    Conflicts of Interest (301).
Contact: Cffice of the Comptroller General.
Budget Function: General Government: Central Personnel
    Management (805).
Organizaticn Concerned: Civil Service Commission.
Congressional Relevance: House Committee on the Judiciary:
    Administrative Law and Governmental Relations Subcommittee.
Authority: thics in Government Act of 1977; H.R. 6954 (95th
    Cong.). legislative Branch Disclosure Act BH.R. 7401 (95th
    Cong.). Privacy Act of 1974. Freedom of Information Act.
    H.R. 1 (95th Cong.). H.R. 9 (95th Cong.). H.R. 3249 95th
    Cong.). Executive Order 11222, sec. 401.
         During the past 3 years, GAO has issued 23 reports
concerning Federal agency financial disclosure systems. These
reports have revealed serious weaknesses in these systems. due,
in part, to a lack of enforcement authority and effective
monitoring. As a result of these reviews, GAO recommended that
the President establish an executive branch office of ethics
with strong enforcement ,rowers. Among its responsibilities, the
Office of Ethics should: issue uniform and clearly stated
ethical standards of conduct and financial disclosure
regulations; develop financial disclosure forms so that all
relevant information is obtained concerning employee interests
neede to enforce conflict-of-interest matters; make periodic
auditb of te effectiveness of agency financial disclosure
systems on a sample basis to see that they include appropriate
procedures for collecting and reviewing statements and followup
procedures to preclude conflicts of interest; establish a formal
advisory service to render opinions on matters of ethical
corduct so that all agencies are advised of such opinions:
provide criteria for positions requiring disclosure statements;
administer the financia) disclosure system for Presidential
appcintees under section 401 of Executive Order 11222; report
annually to the President and the Congress on the effectiveness
of the ethics program; and investiute and resolve ethical
conduct matters dnrecolved at the agency level. (SC)
                         SUMMARY OF TESTIMONY
O                                OF
                           ROBERT F. KELLER
            DEPUTY COMPTROLLER GENERAL OF THE UNITED STATES



         During the past 3 years GAO has issued 23 reports con-
    cerning Federal agency financial disclosure systems. These
    rrviews have revealed serious weaknesses in these systems, due,
     n part, to a lack of enforcement authority and effective moni-
    toring. As a result of our reviews we recommended that the Presi-
    dent establish an executive branch office of ethics with strong
    enforcement powers.

         The Comptroller General believes that Title I of H.R. 9 as
    amended reflects GAO's recommendations and the President's pro-
    posals, and its enactment as part of H.R. 9 would establish an
    effective financial disclosure system.

         The House Select Committee on Ethics has reported H.R. 7401--
    the Legislative Branch Disclosure Act of 1977--and we assume this
    bill will become Title II of H.R. 9. Many bills to establish fin-
    ancial disclosure systems for the Congress give administrative
    and/or audit authority to the General Accounting Office. The
    Comptroller General has stated on many occasions that he strongly
    opposes giving GAO such authority as it could potentially do great
    damage to GAO's effectiveness by endangering the close relationship
    which GAO must have with Members and committees of the Congress.

         H.R. 7401 would require GAO to conduct, on a regular basis, a
    study of the effectiveness of the House and Senate financial dis-
    closure systems. The Comptroller General fully supports this type
    of audit authoritv for GAO and recommends that H.R. 7401 be included
    as Title II of H.R. 9.

         We also believe that the Congress must consider an individual's
    right to privacy when developing financial disclosure legislation.
                                             FOR RELEASE ON DELIVERY
                                             Expected at 10:00
                                             September 9, 1977

              STATEMENT OF ROBERT F. KELLER
     DEPUTY COMPTROLLER GENERAL OF TE UNITED STATES
                         BEFORE THE
 SUBCOMMITTEE ON ADMINISTRATIVE LAW AND GOVERNMENTAL RELATIONS
               HOUSE COMMITTEE ON THE JUDICIARY
                              ON
              FINANCIAL DISCLOSURE LEGISLATION

Mr. Chairman and Members of the Committee:

     We appreciate your invitation to present our v-i s on several

proposed bills to establish a new financial-disclosure system for

top-level officers and employees of the three branches of the

Federal Government.

     During the past three years, we have issued 23 reports con-

cerning the financial disclosure systems and standard of conduct

regulations of executive branch departments and agencies.     These
reviews have revealed serious weaknesses in agency systems, due,

in part, to the lack of enforcement authority, and effective mni-

toring by the Civil Service Commission.

     On February 28, 1977, we recommended that the President issue

a statement Lo the heads of all executive departments and agenL!sS

setting forth a firm commitment to the highest standards of ethical

conduct.   We also recommended that he establish an executive branch

Office of Ethics with aer      .. .   -re   to address the problems
of enforcement and complii
Among its responitilities, we believe the Office of Ethics
should

     -- Issue uniform and clearly stated ethical standards
        of conduct and financial disclosure regulations as
        discussed in GAO reports.
     -- Develop financial disclosure forms so that a2l
        relevant information is obtained concerning em-
        ployee interests needed to enforce conflict-of-
        interest matters.
     --Make periodic audits of the effectiveness of
       agency financial disclosure systems on a sample
       basis to see that they include appropriate pro-
       cedures for collecting and reviewing statements,
       and followup procedures to preclude conflicts
       of interest.
     -- Establish a formal advisory service to render
        opinions on matters of ethical conduct so that
        all agencies are advised of uLch opinions.
     -- Provide criteria for positions requiring dis-
        closure statements.
     -- Administer the financial disclosure system for
        Presidential appointees under section 401 of
        Executive Order 1122..
     -- Report annually to the President and the Congress
        on the effectiveness of the ethics program and
        recommend changes or additions to applicable laws
        as appropriate.
     -- Investigate and resolve ethical conduct matters
        unresolved at the agency level, including allega-
        tions against a Federal employce or officer.
     -- Provide a continuing program of information and
        education for Federal officers and employees.
     The President submitted to the Congress on May 3, 1977,
a legislative proposal which would establish an Office of
Government   thics for the executive branch with strong oversight
and enforcement powers.   The President's proposal was embodied

                               - 2-
in   .R. 6954--the Ethics in Government Act of 1977--which would

apply only to the executive branch.      We believe the provisions
of H.R. 6954 are needed to remedy the deficiencies that exist

in the executive branch disclosure systems.      We note   that the
provisions of Title I of H.R. 9 as amended, are similar to

R.R. 6954.

     On August .. 1977, we reported to the Congress that the

Civil Service Co:nmission's financial disclosure system for
                                                            top-
level executive branch officials has not been effective
                                                        because:
     -- the Commission dd not design and operate
        the system effectively,

     -- the system lacked enforcement authority
        from the President,

     -- the Commission was not involved in the
        review and investigation process of
        appointees by the White ouse and
        Senate confirmation committees,

     -- the system was managed with limited
        support and insufficient resources,

     -- additional financial information was
        needed from appointees because of their
        particular duties and responsibilities,
        and

     -- policies and criteria for blind trusts had
        not been formalized and enforced.

     Most of the proposed legislation currently before the Congress

also would address these deficiencies.



                                3 -
     I would now like to briefly summarize some observations

regarding certain segments of the bills.

FINANCIAL DISCLOSURE LEGISLATION

     Several bills, such as   .R. 1, would establish a financial
disclosure system for all three branches of the Federal Government.

These bills would give responsibility to the Comptroller General

for administering a Government-wide financial disclosure system.

We Jo not agree that this responsibility should be given to the

Comptroller Generl.

     On July 29, 1976, the Comptroller General appeared before

this Subcommittee to present our views on   .R. 3249, a bill similar
to H.R. 1.   At that time he strongly emphasized that giving GAO the

responsibility for adir.nistering a financial disclosure system,

particularly for Members of Congress and congressional employees,

could potentially do great damage to the overall effectiveness of

our Office and endanger the close relationship which this

Office must hve with Members and committees of the Congress.

We do not believe that oversight and investigation of the personal

financial transactions of individual Members of Congress is     on-
sistent with our role as a non-partisan arm of the Congress.

     We believe that responsibility for administering a financial

disclosure system should rest with each branch of Government.



                              - 4
     B.R. 9--the Ethics in Government Act of 1977--as amended
by the Subcommittee on July 21, 1977, would establish a finan-

cial disclosure system for all three branches of the Federal

Government.

     Title I of H.R. 9 would establish an Office of Government
Ethics in the executive branch with strong    administrative and
enforcement powers over the financial disclosure system.     This
Title reflects GAO's recommendations on actions needed to im-

prove the executive branch financial disclosure system, and is

similar to the President's proposals     ntroduced as B.R. 5954 on
May 3 to reform the financial disclosure system.     In our opinion,
Title I, with its strong enforcement provisions would create an

effective financial disclosure system.
     Title II of H.R. 9 concerning the establishment of a finan-
cial disclosure system for the legislative branch , we assume,
will be based on the recommendations of the Bouse Select Committee
on Ethics.    The Select Committee on Ethics reported H.R. 7401--
the Legislative Branch Disclosure Act--on August 5, 1977.     H.R.
7401 as reported by the Committee deals with the responsibilities
of the Comptroller General in a manner that is satisfactory to us.
     In testimony before the House Select Committee on Ethics
in June of this year on H.R. 7401, the Comptroller General opposed
giving GAO audit responsibility for the financial statements of
Members o    Congress and congressional employees.   In addition there
was testimony of the Chairman of the Federal Elections Com-
mission, the Executive Director of the Alabama Ethics Commission,

and a senior partner of Price Waterhouse and Company who agreed
that a random audit system of financial disclosure statements
would be unworkable, meaningless, and basically unnecessary.
     H.R. 7401, as reported, places the responsibility for seeing
that there is compliance with the Act with the Committee on Ethics
of the Senate and the Committee on Standard= of Official Conduct
of the House.   The Comptroller General is required to conduct a
study before November 30, 1979, and regularly thereafter, to
determine whether the Act is being carried out effectively and
wnether timely and accurate reports are being filed by individuals
subject to the Act.
     Specifiually, the GAO study is expected to provide an
analysis and recommendations concerning such items as:
     -- adequacy of coverage, including an evaluation of the
       manner in which Members designate persons to file;
     -- compliance with filing requirements by all covered
       individuals, including candidates;
     -- compliance with filing deadlines and the reasons for
       late filing;
     -- the procedures and activity of the designated House
       and Senate Committees in fulfilling their compliance
       review role;

                              -   6 -.
     -- the discharge of administrative duties imposed on
          the Clerk and the Secretary, including their imple-
          mentation of the requirement for public availability
          of the reports.
     -- any unnecessary burden or apparent omissions with
          regard to the contents of disclosure statements;
     -- the discharge of duties imposed on designated State
          officials; and
     -- the extent of Justice Department activity in enforcing
          compliance.
     The bill specifically directs the GAO, in its first study
under this provision, to analyze the feasibility and potential
need for systematic random audits of the financial disclosure
reports.    Within 30 days after completion of the investigation
and study, the Comptroller Gen-ral must transmit a report to the
Congress containing a detailed statement of his findings and con-
clusions, together with his recommendations for such legislative
and administrative changes deemed appropriate.
     We believe this type of GAO oversight if incorporated in
H.R. 9, together with the enforcement authority of the supervising
ethics offices and the Attorney General, and the public and media
review of the financial disclosure statements, would be sufficient
to insure the integrity of a Government-wide financial disclosure
system.

                                - 7-
    We also note that section 101(f)(3) would require officers
and employees of the General Accounting Office to file statement:
as an executive agency, as it is defined in section 105 of Title 5,
United States Code. We believe this section should be amended to
state "with the exception of the officers and employees of the
General Accounting Office," and that Title II, when incorporated,
should contain provisions requiring officers and employees of
legislative branch agencies to file with the appropriate committee
of the Congress.
BALANCING PRIVACY CONSIDERATIONS
WITH PUBLIC DISCLOSURE
     While both the Senate and House have decided to have
public disclosure of financial interests of its Members,
we believe that as legislation is considered for the three
branches of Government, the Congress should continue to
balance conflict-of-interest and public disclosure concerns
with the rights of individuals to privacy.
     Obviously, the Congress faces a difficult dilemma in
seeking to accommodate the public policy considerations under-
lying requirements for public disclosure     of personal financial
information and the right of personal pivacy which affects all
of us.   This dilemma is somewhat the same as is inherent in the
public policy aims of the Freedom of Information Act and the
Privacy Act of 1974--the cne promoting openness in Government
administration and the other carefully spelling out the basis
upon which "private" information in the hands of the Government
may be used and disclosed.


                              -8-
     Here the primary concern is promoting confidence in public
officials through a code of ethics and full disclosure of their
personal financial status.   Aside from any philosophical or
ethical objections which might be voiced against such disclosure,
there are difficult problems that need to be considered--problems
which, to our mind, are avoidable without undermining the overall
objective being pursued.
     We suggest that if public availability is to be required
disclosure of individual reports not be automatic but on a request
basis and that there be notice to the individual that disclosure
of his financial report has been made and to whom.    Prior to in-
specting or receiving a copy of any financial report, we believe
the requester should be required to present a written request
giving his name; address, names and addresses of persons or
organization, if any, or on whose behalf he is making the request,
and the intented use of the report.
     We also be'ieve that if the financial disclosure statements
of top-level officials are made public, many more questions will
be raised than are answered because of the absence of Government-
wide standards of conduct.   Questions will likely be raised as
to whether certain interests could be potential conflicts of
interests or whether certain actions are unethical.   Such actions
or interests, if held up against absolute but impractical ethical
standards, could tarnish the careers of many honest individuals
without their even being given a hearing.


                              -9-
     We believe that the supervising ethics office in each
branch has a duty, to the public, and to the individual
                                                         against
which a complaint is made, to insure that each complaint
                                                          is fully
considered, that a thoroug.   nvestigation is conducted if warranted,
and that an unbiased opinion is rendered on each complaint.
    This concludes my statement and I will be glad to respond
                                                                to
any questions.




                              -   10   -