oversight

An Improved Financial Disclosure System

Published by the Government Accountability Office on 1977-01-26.

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

                          DOCUMENT RESUME
 00650   "- (A0751057]

 An Improved Financial Disclosure System. FPCD-77-14;
                                                        B-1039d7;
 B-180228. January 26, 1977. 15 pp.

Report to the Congress; by Elmer B. Staats, Comptroller
                                                          General.
Issue Area: Personnel Management and Compensation:
                                                    Employee
    Conflicts of Interest (301).
contact: Federal Personnel and Compensation Div.
Budget Function: General Government: Central Personnel
    Management (805); Natural Resources, Environment,
    Energy: Energy (305).                               and
Organization Concerned: Energy Research and Development
    Administration.
Congressional Relevance: House Committee on Science
                                                     and
    Technology; Senate Committee on Interior and Insular
    Affairs; Congress.
Authority: Energy Reorganization Act of 1974 (P.L.
                                                    93-438). 18
    c.S.C. 208. Executive Order 11222. 10 C.F.R. 0.735.

         The financial disclosure system of the Energy Research
and Development Administration (ERDA) was examined
                                                    to determine
if the agency adequately reviewed financial disclosure
statements and detected and acted on any a'parent
                                                   or potential
conflicts of interest. Findirgs/Conclusiins: ERDA's
                                                      finaucial
disclosure system is effective for detecting end resolving
questionable financial interests held by employees, and agency
reviewers are detecting potential conflicts  of interest. It
appears that ERDA's regulations provide an adequate
for avoiding conflicts in contracting with private mechanism
                                                    industry for
supplies and services. In some cases, employees have
                                                      not been
advised in writing of potential conflicts and necessary
action. Reviewing officials do not always report to      remedial
counselor the results of efforts to resolve potentialthe ethics
and not all agency reviewing officials have taken      conflicts,
                                                   action to
insure that employees are disqualified from matters
they have financial interests. In August 1976, ERDA in which
                                                     issued new
regulations tightening standards of conduct and requiring
information to be submitted in its financial disclosure    more
                                                         system.
(RRS)
C)


CA

               REPORT TO THE CONGRESS

               BY THE COMPTROLLER GENERAL
     ',. 7 :   OF THE UNITED STATES




               An Improved Financial
               Disclosure System

               Energy Research and Development Administration


               Standards of ethical conduct for Government
               officials are prescribed by an Executive order.
               In line with this order, the Energy Research
               and Development Administration established
               a financial disclosure system which is effective
               for resolving the problem of questionable
               financial interests held by employees.




               FPCD-77-14                                         J   97 7
                     COMPTROLLER GENERAL OF THE UNITED STATES
PJ~B~
~j~.e   i                       WASHINGTON, D.C.   GUN




        6-103987
        B-180228




        To the Presiaent of the Senate and the
        Speaker of the House of Representatives
             Executive Order 11222 prescribes standards of ethical
        conduct for Government officials and directs the Civil Serv-
        ice Commission to establish guidelines for agency financial
        disclosure systems. Several Members of Congress requested
        that we review the effectiveness of Federal agencies' finan-
        cial disclosure systems. This report discusses the finan-
        cial disclosure system of the Energy Research and Develop-
        ment Administration.

             We made our review pursuant to the Budget and Account-
        ing Act, 1921 (31 U.S.C. 53), and the Accounting and Audit-
        ing Act of 1950 (31 U.S.C. 67).

             We did not obtain formal comments Lrom the Energy Re-
        search and Development Administration. However, we did dis-
        cuss the report informally with officials in the Administra-
        tion's Office of General Counsel, which is responsible for
        the financial disclosure system. Their conmments were con-
        sidered and included in the report where appropriate.
             We are sending copies of this report to the Director,
        Office of Management and Budget; the Administrator, Energy
        Research and Development Administration; and other
        interested parties.




                                             Comptroller General
                                             of the United States
                          Contents


DIGEST                                                        i

CHAPTER
      1     INTRODUCTION                                     1
                Scope of review                              1

      2     FINANCIAL DISCLOSURE REQUIREMENTS                3
                Agency regulations                           3
                Conflict-of-interest restrictions            4

      3     REVIEW OF FINANCIAL DISCLOSURE STATEMENTS        7
                ERDA's action on questionable finan-
                  cial interests                             7
                Late submission of some statements           8
                Agency action to strengthen its finan-
                  cial disclosure system                     9

      4     CONCLUSIONS                                      10
APPEINiIX

      I     Reports issued on agencies' financial dis-
              closure systems                                11

  II        ERDA memorandum on additional review pro-
              cedures                                        13
                           ABBREVIATIONS

AEC         Atomic Energy Commission
CSC         Civil Service Commission

ERDA        Energy Research and Development Administration
GAO         General Accounting Office
COMPTROLLER GENERAL'S                 Ai IMPROVED FINANCIAL
REPORT TO THE CONGRESS                DISCLOSURE SYSTEM
                                      Energy Research and Development
                                      Administration

           DIGEST

           THE SYSTEM WORKS

           Energy Research and Development Administration
           programs are aimed at finding new supplies of
           energy and conserving a'7ailable supplies.
           Because these programs depend on close coop-
           eration and contracts with industry and uni-
           versities, agency employees must maintain the
           highest standards of conduct.   To help insure
           high standards of conduct, certain employees
           must fill out financial disclosure statements
           which the agency reviews.

           The agency's financial disclosure system is
            effective for detecting and resolving ques-
            tionable financial interests held by employ-
            ees.  Disclosure statements for 1,661 agency
           .employees showed that agency reviewers were
            detecting potential conflicts.  (See pp. 7
            and 8.)

            SCME PROBLEMS HAVE BEEN NOTED

            In many cases, however, employees were not
            advised in writing of potential conflicts and
            necessary remedial action.  Also, reviewing
            officials did not always report co the ethics
            counselor or deputy counselor the results of
            efforts to resolve potential conflict prob-
            lems.

           Many agency employees have financial inter-
           ests in organizations doing energy-related
           work.  The agency requires these employees
           to disqualify themselves frcm working on
           matters in which they have financial inter-
           ests.  However, not all agency reviewing
           officials have taken action to insure that
           disqualifications occurred.   In addition,
           procedures for monitoring disqualifications
           have not been established.   (See p. 8.)




 c'r Sbst Upon rernoval, the report
 car date should be noted hereon.i                          FPCD-77-14
AGENCY PLANS FOR IMPROVEMENT

On its own initiative, and before GAO
announced its audit plans, the Energy Re-
search and Development Administration began
a comprehensive review of its entire Conduct
of Employees regulations, including the finan-
cial disclosure system. Based on this review,
the agency issued new regulations in August
1976 which tightened the standards of conduct
and required more information to be submitted
in its financial disclosure system. Included
in the new regulations is an explicit require-
ment that reviewing officisas report in writ-
ing to the counselor or deputy counselor on
remedial actions ta;ken.
GAO discussed, with representatives of the
agency's Office of General Counsel, its con-
cern over employees not being advised in writ-
ing of potential conflicts and necessary re-
medial action and the agency not having pro-
cedures for monitoring disqualifications. As
a result, the agency ethics counselor issued c
memorandum to all reviewing officials on No-
vember 5, 1976, instructing them to (1) advise
employees--and the counselor--in writing of
any necessary remedial action, including dis-
qualification from a particular assignment,
and (2) establish a means for monitoring dis-
qualifications. (See app. II.)

CONCLUSION
In view of the agency's recent actions to
strengthen its financial disclosure system,
GAO is not making any recommendations. How-
ever, the agency should continue to give pri-
ority attention to its financial disclosure
system, making the provisions in the November
memorandum a part of its new Conduct of Em-
ployees regulations.
This is one in a series of GAO reports issued
on financial disclosure systems in the
Government. (See pp. 11 and 12.)




                     ii
                           CHAPTER 1

                         INTRODUCTION

     The Energy Research and Development Administration
(ERDA) was established by the Energy Reorganization Act of
1974 (Public Law 93-438) and became operational on Janu-
ary 19, 1975.  It was created by combining elements from
existing agencies, such as the Atomic Energy Commission, Na-
tional Science Foundation, Environmental Protection Agency,
and the Department of the Interior.

       ERDA brought together the majo: energy research and de-
velopnent procgr.ss of the Federal Governmena aimed at finding
ways of increasing the supply of energy while conserving the
enierrgy already available. ERDA's mission, as defined by the
Cjngress, is to:

     -- Increase tile productivity of the nation and mnake it
        self-sufficient in energy.

     -- Develop all sources cf energy required to fulfi.l
        present and future needs.

     -- Restore, protect, and enhance the environment.

     -- Insure public health and safety.
     The fulfillment of ERDA's mission depends on the even-
tual transfer of proven energy technology to private indus-
try for commercial application. To achieve this goal,
ERDA's programs are operated through cooperation and con-
tracts with industry and universities. Because of this
close interaction between industry and Government, ERDA's
employees must maintain the highest standards of conduct.

SCOPE OF REVIEW

     Ouz review, conducted at ERDA headquarters, Germantown,
Maryland, and Washington, D.C., was made pursuant to re-
quests from several Members of Congress.  The primary con-
cerns expressed in these requests were whether

     -- Federal agencies have effective financial disclosure
        systems for revealing conflicts of interest,

     -- all required financial disclosure statements are
        promptly and properly filed, and

     -- all required financial disclosure statements are ade-
        quately reviewed.

                               1
     From February through April 19 6, we examined the 1975
financial disclosure statements of 1,469 ERDA employees and
192 consultants.  Field office statements which were filed
and reviewed in their respective offices were sent to ERDA
headquarters for us to review.

     The main purpose of our examination was to determine if
the agency adequately reviewed the financial disclosure
statements and detected and acted on any apparent or poten-
tial conflicts.  Thus, we did not contact any employees to
determine if (1) they still owned reported interests or (2)
their position descriptions were current.  Neither did we
obtain data on previous private sector employment of agency
employees.

     The confidentiality of disclosure statements was main-
tained at all times.  Instead of names, we used codes trace-
able to employees and their questionable interests.  Lists
of these codes were given to ERDA at the completion of our
audit.

     In addition, we reviewed selected job descriptions of
employees not currently required to file financial disclo-
sure statements to determine whether they should be filing
because of their duties.  We also reviewed the regulations
in effect at the time of our audit--and new regulations sub-
sequently approved--governing employee standards of conduct.

     Our review did not focus on statutory criminal provi-
sions concerning thie activities of Federal employees affect-
ing their personal financial interests (18 U.S.C. 208
(1974)).  We noted, however, that the requirements of the
statute are no more stringent than the requirements in the
agency's regulations.

     The Administrator of ERDA during our audit was Robert C.
Seamans, Jr.  His tenure was from January 1975 to the pres-
ent.

     We did not review the Administrator's financial disclo-
sure statement.   Executive Order 11222 requires his statement
to be filed directly with the Civil Service Commission (CSC),
and as part of ongoing work we are reviewing CSC implementa-
tion of the Executive order end the financial disclosure sys-
tem for high-ranking Federal officials.   We will be reporting
separately tl. the Congress on the results of this work.

     A list of other reports issued on agencies'   financial
disclosure systems is contained in appendix I.




                               2
                          CHAPTER 2

               FINANCIAL DISCLOSURE REQUIREMENTS

     The President, on May 3, 1965, issued Executive Order
11222 prescribing standards of ethical conduct for Govern-
ment officials and employees and directing the Civil Ser%-
ice Commission to establish implementing regulations.  In
November 1965, CSC issued instructions requiring each agency
to prepare employee conduct standards and to establish a sys-
tem for reviewing employees' financial disclosure statements.

     The CSC regulations require each agency to obtain state-
ments of outside employment and financial interests from:

     -- Employees paid at a level of the Executive Schedule
        in subchapter II of chapter 53 of title 5, United
        States Code.

     -- Employees, classified at GS-13 or above, who are in
        decisionmaking positions or have duties which could
        involve conflict-of-interest situations.

     -- Employees classified below GS-13 who occupy a posi-
       tion otherwiF- meeting the above criteria.      (An agency
       must obtain written CSC approval   to require   the em-
       ployee to file.)
Special GoveLnment employees (experts and consultants) are
are also required to file financial disclosure statements.
AGENCY REGULATIONS

     Under the Executive order, each agency is responsible
for issuing regulations on standards of conduct for its em-
ployees, providing interpretations and advice to its employ-
ees, and enforcing its regulations.  At the time of our au-
dit, ERDA was operating under the Atomic Energy Commission's
(AEC's) regulations which were published in the Federal Reg-
ister on March 17, 1966, and codified as 10 C.F.R. 0.735.

     ERDA, on its own initiative and before GAO announced
its audit plans, undertook a comprehensive review of its en-
tire Conduct of Employees regulations, including the finan-
cial disclosure system. As a result of ERDA's review, new
regulations were issued which tightened the standards of
conduct and required the submission of more information in
the financial disclosure system than had previously been re-
quired. The new regulations were published in the Federal
Register on August 17, 1976, and codified as 10 2.F.R. 735.


                              3
     The AEC regulations required statements to tb filed no
later than 30 days after entrance on duty and updated annu-
ally as of June 30.  ERDA's new regulations require that em-
ployees' statements be filed within 10 days after entrance on
duty and updated annually as of September 30. Also, state-
ments for employees assigned as heads of divisions, offices,
or field organizations and statements for consultants and
persons employed under professional term appointments must be
submitted before appointment or assumption of duties.

     ERDA's General Counsel is its ethics counselor and
serves as its designee to CSC on conflict-of-interest matters.
The counselor is authorized to designate deputy counselors for
headquarters and field offices. lie is responsible for assur-
ing that co'unseling and interpretations on questions of
conflict-of-interest matters are available to deputy cokn-
selors.
     Employees financial statements receive a dual review.
Initially the statements are submittec to and reviewed by
the appropriate division, office, or field organization
head--the official presumably most familiar with the employ-
ee's duties and the organizations with which the employee
may deal. The reviewer must record, on the employee's finan-
cial statement, his opinion concerning possible conflicts and
forward the statement to the counselor or deputy counselor
for legal review.

     If a conflict-of-interest question exists, the ERDA
counselor or deputy counselor must notify the reviewer, who
will then, with the employee, attempt to resolve the problem.
CSC and ERDA regulations provide for remedial action which
may include
     -- changes in assigned duties,

     -- divestment by the employee of his conflicting inter-
        ests,
     -- disciplinary action, or

     -- disqualification from a particular assignment.
CONFLICT-OF-INTEREST RESTRICTIONS

     ERDA's regulations on standards of conduct are issued to
each employee. The Regulations include prohibiting employees
from

    -- having a direct or indirect financial interest that
       conflicts substantially, or appears to conflict

                              4
      substantially, with his Government duties and respon-
      sibilities;
    -- engaging in, directly or indirectly, a financial
       transaction as a result of, or primarily relying on,
       information obtained through his Government employ-
       ment; or

    -- participating personally and substantially as a Gov-
       ernment officer or employee, through decision, ap-
       proval, disapproval, recommendation, or otherwise, in
       a contract, claim, application, controversy, or other
       matter in which, to his knowledge, he; his spouse;
       minor child; partner; organization in which he is
       serving as officer, director, trustee, partner, or em-
       ployee; or any person or organization with whom he is
       negotiating or has any arrangement concerning prospec-
       tive employment has a financial interest.

However, agency regulations also provide for granting ad hoc
exemptions, exemptions cf remote or inconsequential financial
interests, and special exemptions for special Government em-
ployees. These exemptions ate allowed under the conflict-of-
interest statute (18 U.S.C. 208).
     Under the ad hoc exemption provisions, an ERDA employee
can request an exemption from the prohibitions by informing
the head of his division, office, or field organization of
the nature and circumstances of the particular matter and
of the financial interests involved. He may then approve
the employee's participation after determining that
     -- the financial interest is not so substantial as to be
        deemed likely to affect the integrity of the employ-
        ee's services and

     -- no provision of law and no regulation would appear to
        be violated by the employee's participation.

     Other action which many be taken on a case-by-case basis
includes advising an employee in writing that he is relieved
from participation in a particular matter in which he has a
financial interest. This action is generally referred to as
"disqualification."

     Also, in this coiniection, a general exemption adopted in
1964 by AEC permitted an employee or consultant to partici-
pate in a matter in which he had a financial interest in an
enterprise not exceeding $7,500--market value--and not ex-
ceeding 1 percent of the dollar value of the particular class
of holding. Under this general exemption, employees were not
required to report information on remote financial interests.
                              5
     ERDA's revised regulations lowered the exemption level
to $5,000 but kept the 1-percent dollar value and required
employees to report all financial interests even though they
are exempted. Other changes in the new regulations clarify
policy and the procedures for administering ERDA's ethical
conduct program.




                             6
                          CHAPTER   3

          REVIEW OF FINANCIAL DISCLOSURE STATEMENTS

     Some 1,469 Energy Research and Development Administration
employees, including headquarters and field staff, and 192
consultants were required to file financial disclosure state-
ments as of June 30, 1975.  These statements listed creditors,
property interests, and business entities in which the employ-
ees or consultants had a financial interest.

     During a review of the statements, we noted that 204 em-
ployees (includes headquarters and field employees and consult-
ants) listed employment and/or financial interests in organi-
zations with energy-related business.  Corporations included
major oil, gas, and electric companies; public utilities;
solar energy; and nuclear research-related industries.  Some
of these corporations had contractual dealings with ERDA, and
several employees owned securities in corporations whose busi-
ness related to the mission of the division in which the em-
ployee was working.

ERDA'S ACTION ON QUESTIONABLE
FINANCIAL INTERESTS

     Of the 204 employees who listed employment and/or finan-
cial interests in energy-related organizations, ERDA decided
that some action was necessary for 195 employees.  For the
other nine employees, ERDA advised us that the employees' re-
sponsibilities did not, and were not likely to, involve par-
ticipation in matters in which they had employment or finan-
cial interests.

     Actions taken on the 195 employees included granting
ad hoc exemptions to 21 employees.   In these cases, ERDA de-
termined on a case-by-case basis that the financial interest
of the employee was not so substantial as to be deemed likely
to affect the integrity of the employee's services.   ERDA
also determined that no provision of law and no regulation
would appear to be violated by the employee's participation
in matters in which he had the financial interests.   ERDA re-
quired two other employees to divest themselves of certain
financial interests.

     For 172 other employees, an ERDA deputy counselor rou-
tinely sent memorandums to the respective reviewing officials
indicating employees' names and the organizations they listed
with which ERDA has or is likely to do business and noted
that care should be taken to insure that the employees do not
participate in a matter in whicn they have employment or fi-
nancial interests.

                                7
     The files showed that only 13 of those 172 employees
were directed not to participate in matters involving organi-
zations in which they have a financial interest. Ten were
informed in writing and three were informed verbally and a
record was made on their financial disclosure statements.
For 158 employees, although the counselor or deputy counselor
had detected potential conflicts and brought them to the
attention of reviewing officials, no record indicated that
the employees had been advised of the results of the review.

     Also, nothing in the files indicated that the reviewers
reported to the counselor or deputy counselor (as required by
agency regulations) the results of efforts to resolve poten-
tial conflicts.

     At the time of our review, 49 heads of divisions, of-
fices, or field organizations in ERDA were designated as re-
viewing officials. Of 17 reviewing officials interviewed, 10
said they did not closely monitor employees' holdings or
take action to insure disqualifications other than cautioning
the employees at the time statements were filed and reviewed.
Also, procedures for monitoring disqualifications had not
been established.

LATE SUBMISSION OF SOME STATEMENTS

      We noted that 48 individuals in the Fossil Energy Divi-
sion failed to submit statements until that division's re-
viewing official was notified of the GAO audit in February
1976.   The division is made up of personnel who were trans-
ferred from the Department of the Interior.   The reviewing
official responsible for collecting the statements indicated
that the division and the rest of ERDA had little communica-
tion because of confusion resulting from the transfer.

     ERDA requires the heads of divisions, offices, and field
organizations to identify those employees required to file
statements, prepare a list of such temployees, provide the em-
ployees with blank statements, and collect completed state-
ments.

     The Fossil Energy Division had followed the Department
of the Interior's procedures in which the notifications to
file come from the main personnel office.  The ERDA deputy
counselor for legal review said he was unsuccessful in
getting the division to follow ERDA's procedures because of
the disorganization following the transfer of personnel.

     We believe this situation is unlikely to occur in the
future as ERDA's new regulations are clear concerning proce-
dures for identifying those employees required to file and
for collecting completed statements.
                               8
AGENCY ACTION TO STRENGTHEN ITS
FINANCIAL DISCLOSURE SYSTEM

     We discussed, with representatives of ERDA's Office of
General Counsel, our concern over not advising all employees
in writing of potential conflicts and necessary remedial ac-
tion and not having procedures for monitoring disqualifica-
tions.  As a result, ERDA's ethics counselor, in November
1976, issued instructions to all reviewing officials to ad-
vise employees in writing--and to send a copy to the
counselor--of any necessary remedial action, including dis-
qualification from particular assignments, and to establish
a means for monitoring disqualifications.   (See app. II.)

     Also, the new ERDA regulations now make explicit a re-
quirement that the reviewing official report in writing to the
counselor or deputy counselor regarding the remedial action
taken.  This requirement should provide the counselor with in-
sight into the reviewing official's application of   le legal
advice required.




                              9
                         CHAPTER 4

                         CONCLUSIONS

     Unlike regulatory agencies whose rulings generally have
broad, industrywide impact, the actions of agencies, such as
the Energy Research and Development Administration, generally
are more limited in effect.  Most of ERDA's actions involving
private industry take the form of contracts for supplies or
services, and these generally affect only the parties in-
volved.  We believe ERDA's regulations provide an adequate
mechanism for avoiding conflicts in these situations.

     Since many of ERDA's employees have financial interests
in organizations with which ERDA has or is likely to do busi-
ness, reviewing officials must notify and counsel these em-
ployees regarding the results of the review of their financial
interest statements.  Reviewing officials must also take ap-
propriate action throughout the year to insure that employees
do not participate in matters in which they have a financial
interest and must not limit their actions to when the state-
ments are filed and reviewed.

     ERDA reviewing officials had not been effectively follow-
ing through in cases where the deputy counselor identii~ed
interests likely to be affected by an employee's duties.   Re-
sults of reviews were seldom communicated in ,writing to em-
ployees.  Also, reviewing officials seldom reported in writing
to the counselor or deputy counselor the results of efforts to
resolve employee conflicts or potential conflict problems.
And, not all reviewing officials monitored employees' holdings
or took action to make sure disqualifications occurred other
than cautioning the employees at the time disclosure state-
ments were filed and reviewed.

     ERDA's revised regulations and subsequently added review
steps (see p. 13) strengthen the financial disclosure system,
particularly in tht areas noted above.  We believe this sys-
tem is effective for detecting and resolving questionable fi-
nancial interests held by employees.

     In view of the positive actions taken, we are not making
any recommendations.  However, ERDA should continue to give
priority attention to its financial disclcsure system and in-
clude in its new Conduct of Employees regulations the provi-
sions of the November 5, 1976, memorandum.   (See app. II.)




                              '0
APPENDIX I                                              APPENDIX I

                   REPORTS ISSUED ON AGENCIES'
                   FINANCIAL DISCLOSURE SYSTEMS

                                      Report title, number, and
          Agency                              issue date

Federal Power Commission         Need for Improving the Regula-
                                 tion of the Natural Gas Indus-
                                 try and Management of Internal
                                 Operations, B-180228, 9/13/74.

Department of the Interior       Effectiveness of the Financial
                                 Disclosure System for Employees
                                 of the U.S. Geological Survey,
                                 FPCD-75-131, 3/3/75.

Civil Aeronautics Board          Effectiveness of the Financial
                                 Disclosure System for Civil
                                 Aeronautics Board Employees
                                 Needs Improvement, FPCD-76-6,
                                 9/16/75.

Federal Maritime Commission      Improvements Needed in the Fed-
                                 eral Maritime Commission's Fi-
                                 nancial Disclosure System for
                                 Employees, FPCD-76-16, 10/22/75.

U.S. Railway Association         Improvements Needed in Procure-
                                 ment and Financial Disclosure
                                 Activities of the U.S. Railway
                                 Association, RED-76-41, 11/5/75.

Department of the Interior       Department of the Interior Im-
                                 proves Its Financial Disclosure
                                 System for Employees, FPCD-75-
                                 167, 12/2/75.

Department of Health, Ed-        Financial Disclosure System for
ucation, and Welfare             Employees of the Food and Drug
                                 Administration Needs Tighten-
                                 ing, FPCD-76-21, 1/19/76.

Department of the Interior       Letter report to Congressman
                                 John Moss on U.S. Geological
                                 Survey employees' divestiture,
                                 FPCD-76-37, 2/2/76.



                                 11
APPENDIX I                                           APPENDIX I
                                   Report title, number, and
          Agyncy                           issue date
Inter-American Foundation     Inter-American Foundation's Fi-
                              nancial Disclosure System for
                              Employees and its Procurement
                              Practices, ID-76-69, 6/30/76.
Department of Transporta-     Problems with the F nancial
tion                          Disclosure System, Federal
                              Aviation Administration,
                              FPCD-76-50, 8/4/76.
Department of Commerce        Problems Found in the Financial
                              Disclosure System for Departnent
                              of Commerce Employees,
                              FPCD-76-55, 8/10/76.
Small Business Administra-    Management Control Functions of
tion                          the Small Business Administra-
                              tion--Improvements Are Needed,
                              GGD-76-74, 8/23/76.
Export-Import Bank            Export-Import Bank's Financial
                              Disclosure System for Employees
                              and its Procurement Practices,
                              ID-76-81, 10/4/76.
Federal Communications Com-   Actions Needed to Improve the
mission                       Federal Communications Commis-
                              sion's Financial Disclosure
                              System, FPCD-76-51, 12/21/76.
Tennessee Valley Authority    Tennessee Valley Authority:
                              Information on Certain Con-
                              tracting and Personnel Man-
                              agement Activities, CED-77-4,
                              12/29/76 (Restricted).




                              12
APPENDIX II                                         APPENDIX II
                             COPY

                        UNITED STATES
       ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION
                   WASHINGTON, D.C. 20545
                                     Nov 5 1976

Heads of Divisions and Offices, HQ

REVIEW PROCEDURES - EMPLOYEES' CONFIDENTIAL STATEMENT OF
EMPLOYMENT AND FINANCIAL INTERESTS - ERDAM APPENDIX 4124
The recent revision to ERDA's Conduct Regulations will re-
quire revised procedures for processing employees' Confiden-
tial Employment and Financial Interest Statements.
As you know, the reporting system Utilizes a dual review
procedure -- the first by the head of the division or office
head (reviewing official) and the second by the legal office
(General Counsel or his designee). This dual review of state-
ments takes advantage of the knowledge and expertise of both
management and the legal office. Thr       jh this procedure, the
familiarity of management  with  the  emp.oyee's  duties and re-
sponsibilities as they  relate  to the  interests  of those hav-
ing or seeking business  with  the agency   is initially uti-
lized. This knowledge   is coupled   with the  knowledge of the
legal office to identify conflicts or potential conflicts
problems. Following this second (legal) review, advice as to
actual or potential conflicts situations is given in writing
to the reviewing official by the legal office. In the past,
communication of that advice to the employee was left to the
judgment of the reviewing official. The result was that some
employees may not have received notice of potential conflicts
problems and therefore may not have fully benefited from the
program. The objective of the program is essentially to pro-
vide advice and counseling to employees to assist them in
avoiding conflict of interest situations.

To strengthen our financial interest statement program, each
reviewing official is requested to do the following in connec-
tion with the review of financial interest statements:
1. Review each financial interest statement in the light of
   the particular duties and responsibilities of the individ-
   ual employee, as to the existence or likelihood of con-
   flicts. If there are any questions, note them on the form
   under the section for the reviewer's action. Sign and
   send the form to the legal office, (John Cho, Assistant
   General Counsel) in accordance with the instructions on
   the form;

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APPENDIX II                                           APPENDIX II

Multiple Addressees


2.   Following review by the legal office, the reviewing offi -
     cial will receive written advice.  Assess the advice
     received.  If there are any questions concerning the advice,
     discuss them with the conflicts counselor.  Advise the em-
     ployee_in writing on necessary remedial action (etg., dis-
     Qualification fromparticular assignments,  divestment of
     interest) with a copyto thle conflicts counselor-

3.   Require the emloyee to re-ort when remedial action for
     wh-ich   is resconsible, such as< Vestment of interests,
              le
     Is completed.    nless  t appear     at the action taken is
     inadequate, (in which case th    ,  ewing-iEoff--c-a-  should
     pursue the matter wth the emloee),    the     outcome should
     be reported bWl the reviewin  offlclal--ln
                                             wrilF         to the
     conflicts counselor.
4. Establish a means for monitorinc the observance of any
   disqualification from particular assignments without com-
   promis    the confidentiality of the information. For ex-
   ample, the employee may be instructed to avoid participa-
   tion in certainspecific ares related to the emloee
   financial interest; and the employeeTs immediate supervi-
   sor be informedof the disqualification ithout necessar-
   ily revealing the details of the financial interest givin
   rise to the dijualif cation.

     Note:   Underscored language represents additional steps.
All correspondence indicated above should, of course, be by
sealed envelopes marked "Confidential -- Personal Financial
Information -- Open By Addressee Only."

Clarification appears necessary as to who should review the
confidential statements of employees. The regulation desig-
nates the recipients of statements (in general, Heads of Di-
visions and Offices, Headquarters and of Field Offices) and
identifies them as reviewing officials.
It is realized that the review function can be time-consuming,
particularly when lar
                    i       numbers of employees are reporting.
On the other hand, an efficient conflicts program is critical
to the continued well-being of the agency. Personal atten-
tion by the designated officials will assure review of employ-
ees' statements at a high level, by someone with overall
knowledge of the activities of the Division or Office, while



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APPENDIX II                                     APPENDIX II

minimizing the number of persons having access to the per-
sonally sensitive information as to employees' interests.
For these reasons, it is strongly urged that the review func-
tion be delegated only for the most compelling reasons, and
then only to the deputy or other second-ranking official in
the organization. To the extent forms have already been re-
viewed by other delegated senior staff, there will be no need
to repeat the process. However, future reviews should be on
the above basis.




                             James A. Wilderotter
                             General Counsel




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