oversight

Financial Disclosure: USDA's Systems Limited by Insufficient Top Management Support

Published by the Government Accountability Office on 1990-07-13.

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

       r


                       United      States   General      Accounting      Office   ‘;.._,

                      Report to the Chairman, Subcommittee XL
 GAO                  on Nutrition and Investigations,
                      Committee on Agriculture, Nutrition,
                      and Forestry, U.S. Senate

i July 1990
                       FINANCIAL
                       DISCLOSURE
                       USDA’s Systems
                       Limited by Insufficient
              l
                       Top Management
                       support




                                                            RELEASED
                      EESTfLICTED --Not    to be released outside the
                      General Accouuting Office uuless specific&y
                      approved      by the Office     of Congressional
                  I   Relations,
G-0   ~iZtEj&ntknt~me
           , ..       -
      General Government   Division

      B-233920

      July 13, 1990

      The Honorable Tom Harkin
      Chairman, Subcommittee on Nutrition
        and Investigations
      Committee on Agriculture, Nutrition,
        and Forestry
      United States Senate

      Dear Mr. Chairman:

      This report, prepared at your request, evaluates the Department of Agriculture’s financial
      disclosure systems. We determined how Agriculture used those systems to detect and resolve
      potential conflicts between employees’ outside financial interests and their official duties.

      As arranged with the Subcommittee, unless you publicly announce its contents earlier, we
      plan no further distribution of this report until 30 days from the date it is issued. At that
      time, we will send copies to the Secretary of Agriculture, congressional committees having an
      interest in the matters discussed, and other interested parties.

      The major contributors to this report are listed in appendix II. Please contact me on 2755074
      if you or your staff have any questions.

      Sincerely yours,




      Bernard L. Ungar
      Director, Federal Human Resource
        Management Issues
                           the systems, but they still do not meet certain requirements of various
                           regulations and the 1978 act (e.g. designations of certain positions for
                           disclosure and reviewing disclosure reports in the required time) that
                           allow conflicts of interest to be resolved.

                           Weaknesses have existed in the systems for more than a decade. They
                           have persisted because key USDA officials have not given a high priority
                           to establishing effective systems. These officials have (1) devoted rela-
                           tively few people to developing and operating the systems according to
                           statutory and regulatory requirements and (2) received little informa-
                           tion, through internal management reports and evaluations, on whether
                           the systems are effective. USDAhas allowed weak procedures brought to
                           its attention to go uncorrected, in some cases even after agreeing to cor-
                           rect them.

                           The current senior USDA official responsible for the program responded
                           favorably to GAO'S recommendations and appears committed to making
                           needed improvements.

                           ~-

Principal Findings

Some Employees in          ~JSDA had not obtained confidential disclosure reports from employees in
Vulnerable Positions Not   certain positions, generally below GS-13, that GAO believes are vulnerable
                           to conflicts of interest and that meet established criteria for requiring
Required to Disclose       disclosure. Under USDA's decentralized organizational structure, many
                           employees below GS-13 approve millions of dollars in financial assis-
                           tance to farmers and ranchers every year. For example, about 2,000
                           county supervisors at grade levels ~~-10 through GS-12 in the Farmers
                           Home Administration have loan-approving authority, ranging up to
                           $500,000, but were not required to file disclosure reports. (See pp. 22,
                           24, and 25.)

                           IJSDA officials did not believe the positions posed risks significant enough
                           to justify the additional staff to obtain and review the reports. However,
                           regulations require that disclosure reports be obtained when employees’
                           duties present the potential for conflicts of interest. Moreover, an execu-
                           tive order and Office of Government Ethics regulations require agency
                           heads to provide sufficitnt resources for effective ethics programs. (See
                           pp. 24 and 44.)



                           Page3
                       ExecutiveS-ary




                                            -
                       example, one KIC employee who had interests in a company having a
                       contract to sell and service federally insured crop insurance policies also
                       had audit responsibilities over that company. (See pp. 39-43.)


Weaknesses Are Long-   Since 1977, GAO and other organizations have recommended that USM
Standing               address specific weaknesses in the disclosure systems, such as those
                       found in GAO'S current review. USDA has made certain improvements. For
                       example, it developed procedures for identifying, in a timely manner,
                       those employees who must file public disclosure reports. In other cases,
                       however, after agreeing to make recommended improvements, such as
                       to regularly audit the ethics program, USDA had not made the improve-
                       ments. (See pp. 51-53.)

                       GAO  believes that many problems have continued over the years because
                       USDA  has not adequately executed its responsibility to establish and
                       maintain effective disclosure systems. In June 1989, the former Assis-
                       tant Secretary for Administration stopped receiving the written reports
                       regularly submitted by the agencies on their compliance with financial
                       disclosure requirement.s because he did not consider the reports useful.
                       (See pp. 54 and 49. )


                            recommends that the Secretary of Agriculture provide the leader-
Recommendations        GAO
                       ship and commitment necessary to ensure that (1) sufficient resources
                       are devoted to the ethics program, (2) specific milestones are established
                       and met for correcting weaknesses in the disclosure systems, and (3) the
                       Director of Personnel is held accountable for developing, implementing,
                       and maintaining systems that adequately meet the requirements of the
                       1978 act and implementing regulations. GAO is making other recommen-
                       dations to the Secretary addressing specific weaknesses in the systems.
                       (See pp. 55 and 56 )

                                          -.
                             generally agreed with GAO'S recommendations and outlined 24
Agency Comments        USDA
                       actions that it has taken or will take by specific dates to correct identi-
                       fied weaknesses. Such actions include adding staff to the ethics program
                       and requiring more employees to file. IJSDA'S comments are included as
                       appendix I. A summary of the comments and GAO'S evaluation is
                       included on pages 56 and 57.




                       Page6
Contents




Table 2.1: Number of Employees Filing Public and                                  20
    Confidential Disclosure Reports
Table 2.2: Number of Disclosure Reports in GAO Sample                             34
    Signed by Employees After Report Due Dates
Table 2.3: Number of Approved Public and Confidential                             39
    Disclosure Reports in GAO Sample With Uncorrected
    Errors
Table 2.4: Number of Public and Confidential Reports in                           40
    GAO Sample With Potential Conflicts of Interest
Table 3.1: Employees Responsible for Reviewing Public                             45
    and Confidential Disclosure Reports
Table 3.2: Number of Public and Confidential Reports in                           46
    Sample Reviewed Late




Abbreviations

ARS         Agricultural Research Service
Ascs        Agricultural Stabilization and Conservation Service
DAEO        Designated Agency Ethics Official
FCIC        Federal Crop Insurance Corporation
FmHA        Farmers Home Administration
GM          General Management
GS          General Schedule
OGE         Office of Government Ethics
OIG         Office of Inspector General
OPM         Office of Personnel Management
OS          Office of the Secretary
SELRS       Security. Employee, and Labor Relations Staff
IXIIA       1T.S.Depa-tmwnt of Agriculture


page 7                                GAO/GGD9@199   Financial   Disclosure   at USM
-
                              chapter1
                              Introduction




                              (OGE)  developed regulations (5 C.F.R. 2634) to implement the public dis-
                              closure requirements of title II.’ OGE issued a standard form (SF-278) and
                              instructions for use in filing disclosure reports. The form and instruc-
                              tions specify that information required by the act is to be reported by
                              employees in seven categories as follows: assets and income sources;
                              transactions; gifts, reimbursements, and travel expenses; liabilities;
                              agreements and arrangements; positions held outside the federal govern-
                              ment; and compensation in excess of $5,000 paid by one source. Within
                              these categories, information is required such as the nature of the assets
                              and transactions, the asset and income category of value, type of debt
                              owed, and type of outside position held. The act requires that certain
                              financial interests of relatives, such as spouse and dependent children,
                              be disclosed in the employees’ reports.

                              The OGE regulations authorize agency officials to grant time extensions
                              for good cause totaling not more than 45 calendar days for filing public
                              disclosure reports. OGE for good cause may grant extensions for up to 45
                              additional calendar days. The act requires the reports to be reviewed
                              within 60 days after receipt. The act provides that the Attorney General
                              may bring a civil action against any employee required to file a report
                              who knowingly and willfully fails to file or falsifies the report.


    Confidential Disclosure   The 1978 act does not contain similar detailed requirements for confi-
                              dential disclosure. Rather, requirements for confidential disclosure in
                              the executive branch are contained in Executive Order 11222, issued
                              May 1965 and OPM regulations (5 C.F.R. 735) issued September 1968.
                              The 1978 act, as amended in December 1985, authorizes the president to
                              establish a confidential financial disclosure system for the executive
                              branch. By Executive Order 12565 of September 1986, which amends
                              Executive Order 11222, the President prescribed a comprehensive
                              system of public and confidential financial disclosure for executive
                              branch officers and employees.

                               Executive Order 12565 assigned responsibility to OGE for (1) developing,
                               in consultation with the Attorney General and OPM, regulations to pro-
                               vide guidance and criteria for designation of positions subject to confi-
                               dential disclosure, the type of information to be obtained, and the time

                               ‘OGE was under the Office of Persomel Management (OPM) until October 1,1989. On that date, OGE
                               became an independent executive agency as a result of the Office of Government Ethics Reauthorize-
                               tion Act of 1988 (Public Law 100-598, Nov. 3, 1988). In this report, we refer to regulations on confi-
                               dential disclosure issued in September 1968 as OPM regulations and other regulations, which were
                               developed after OGE was created. as OGE regulations.




                               Page 9                                             GAO/GGBS@lOO        Pinancld   Discloeure   at USI1A
                               chapter 1
                               Introduction




                               noncompliance to the president and Congress when agencies’ ethics pro-
                               grams do not fully comply with relevant laws and regulations.:’


Agencies’ Ethics Program       Agency heads and certain key officials, known as designated agency
Responsibilities               ethics officials (DAEO) and alternate DAEOS, have specific ethics program
                               responsibilities under the 1978 act, as amended; executive orders; and
                               CGE regulations. For example, the OGE regulations (5 C.F.R. 2638) require
                               agency heads to exercise personal leadership in establishing and car-
                               rying out agency ethics programs and to provide sufficient resources to
                               enable the agency to effectively administer its ethics program.

                               The act and regulations require each Secretary or DAEo concerned to sign
                               public disclosure reports if, on the basis of information presented in the
                               reports, the Secretary or DAEO believes the employees filing the reports
                               are in compliance with applicable laws and regulations. Neither the act
                               nor the regulations require the reports to be audited to determine if the
                               disclosures are correct. Rather, as provided in the OGE regulations, they
                               are to be taken at face value unless (1) there is an obvious omission or
                               ambiguity or (2) the reviewing official has independent knowledge
                               outside of the report.

                               Each agency head must appoint a DAEXI and an alternate DAEO and report
                               their names and position titles to OGE.The responsibilities of the DAEO
                               and alternate DAEO include administering a system of periodic evalua-
                               tions of the ethics program. Their responsibilities also include assuring
                               that

                           l an effective system for filing, review, and, when applicable, public
                             inspection of disclosure reports as required by the act of 1978 and other
                             applicable laws and regulations is developed and properly administered;
                           l all disclosure reports are properly maintained and are effectively and
                             consistently reviewed;
                           l ethics counseling for current and departing agency employees is
                             undertaken;
                           l employees are trained to understand and implement the agency’s ethics
                             program;
                           . prompt and effective remedies are undertaken to avoid conflicts of
                             interest or the appearance of conflicts of interest, and administrative
                             actions and sanctions are applied as appropriate;

                               “55 Fed. Reg. 1,665 (Jan. IS, 1990). The final regulations   were adopted effective    May 30, 1990.65
                               Fed. Reg. 21,846.




                                Page 11                                              GAO/GGD-90100       F-inancial   Di~~loswe   at USDA
Chapter1
Introduction




community facilities, provide economic support to farmers affected by
disaster, and foster rural economic development. FCIC administers a
system of federal crop insurance sold primarily through private insur-
ance companies and guaranteed by FUC to improve the economic sta-
bility of American agriculture.

USDA'S  regulations (7 C.F.R. 0.735) on employee responsibilities and con-
duct cover a broad range of topics, such as gifts and gratuities, attend-
ance and leave, use of vehicles, political activity, and public and
confidential financial disclosure. USDA included the regulations as an
appendix to the USDA Employee Handbook, which is to be given to every
USDA employee. The regulations prohibit outside employment and activi-
ties that are incompatible with USDA employees’ duties and responsibili-
ties. The regulations require that employees obtain advance approval
for outside employment or activity, whether paid or unpaid, except as
specifically provided in the regulations for employee involvement with
specific activities and organizations, such as social, labor, and profes-
sional organizations

 Subpart C of the USDA regulations provides criteria and procedures for
 obtaining and reviewing public disclosure reports (SF-278) required by
 the act of 1978 and confidential disclosure reports under Executive
 Order 11222 and OPM regulations. USDA employees must file confidential
 disclosure reports (ISDA Form 392) upon entering positions for which
 confidential disclosure is required. They are to report changes in, or
 additions to, the information in these reports by filing supplementary
 statements as of March 3 1 and submitting the statements by April 30
 each year. The reports and statements must be reviewed and conflict-of-
 interest determinations must be made within 2 months after receipt.
 LJSDA'S Ethics Handbook provides specific guidance for review of both
 public and confidential disclosure reports and resolution of potential
 conflicts of interest.

 To supplement the rrsDA-wide ethics regulations, ASCS,MA, and FCIC
 issued regulations and instructions on employee responsibilities and con-
 duct, including restrictions on employees’ outside financial interests.
 The ASCS Handbook-Personnel        Operations provides that employees
 cannot have financial interests or outside work that (1) substantially
 conflicts with their ASCSduties and responsibilities, (2) causes a bias
 toward their judgment, or (3) otherwise brings discredit to ASCS.Exam-
 ples of specific prohibit ions provided in the AKS handbook include the
 following:



 page13
                           Chapter1
                           Introduction




                           The Assistant Secretary for Administration is responsible for ensuring
                           that all employees required to file confidential disclosure reports are
                           identified, and agency heads are responsible for ensuring that the
                           reports are reviewed within 2 months after receipt. USDA regulations
                           assign responsibility to the various agency heads for identifying those
                           employees who are required to file confidential disclosure reports.
                           Agency heads are also responsible for collecting required reports,
                           reviewing all disclosure reports filed within the agency within 2 months
                           after receipt, and reporting to the Assistant Secretary for Administra-
                           tion on the number of reports filed.

                           In addition to delegating the above responsibilities, IJSDA designated an
                           associate general counsel as Department Counselor to coordinate ethics
                           counseling and advisory services. The DAEO and alternate DAEXI are desig-
                           nated as Department Deputy Counselors, and the agency heads are des-
                           ignated as Agency Deputy Counselors. The Department Counselor’s
                           responsibilities include reviewing the public disclosure reports filed for
                           the first time by individuals nominated by the president and subject to
                           Senate confirmation.

                           USDA'S  Office of Inspector General (OIG), as part of its overall review and
                           investigative responsibilities, reviews the Department’s ethics program
                           and investigates potential conflict-of-interest situations involving IJSDA
                           employees.


                           As agreed with the Subcommittee, the overall objective of our review
Objective, Scope,and       was to determine whether the IJSDA'S disclosure systems reasonably
Methodology                assure that conflicts of interest will be detected and resolved. To accom-
                           plish this objective. our work was directed at answering the following
                           four questions:

                       l Have USDA and the various agencies prescribed and followed procedures
                         for designating positions that pose potential conflicts of interest?
                       l Were required disclosure reports filed by the due dates specified in the
                         act and implementing regulations?
                       - Do USDA and the agencies have procedures and sufficient staff assigned
                         to thoroughly review reports within prescribed periods and obtain the
                         financial informat,ion required and necessary for conflict-of-interest
                         determinations?
                       . Were actual, apparent, and potential conflicts of interest indicated in
                         financial disclosure reports identified and fully resolved before the IJSDA
                         reviewing officials approved the reports?


                            Page15                                GAO/GGD90-100FinancislDisclosureatUSDA
                                         Chapter 1
                                         IntrlJduction




                                         reports. We reviewed the written guidance that had been provided for
                                         the reviews. To provide an indication of whether IJSDA had made thor-
                                         ough reviews of disclosure reports and resolved conflicts of interest, we
                                         assessed the procedures used for the reviews and analyzed a random
                                         sample of public and confidential disclosure reports (including sup-
                                         porting documentation in report files) filed by IJSDA employees in 1989
                                         and approved by IJSIIA reviewing officials.

                                         As table 1.1 shows, the random sample of reports we reviewed included
                                         46 public and 19 confidential disclosure reports filed by a total of 65
                                         employees in the Office of the Secretary (OS),A%& MA,      and FCIC in
                                         1989.

Table 1.1: Location of Employees
Included in GAO’s Sample of Public and                                                    Public                            ConiidentiaP
Confidential Disclosure Reports                                                  Universe          Sample              Universe          Sample
                                         OS                                             49                14                         II               1

                                         ASCS                                            55               16                    17                5
                                         FmHA                                            49               14                   20                6
                                         FCIC                                             2                2                    8                8
                                         Total                                         155                46                   45               19
                                         “We llmlted our revew of confldentlal   disclosure reports to a sample of these reports fkd by GS-15
                                         employees

                                         “USDA records revealed no confldentlal declosure reports flied by GS-15 employees onOS during 1989
                                         and USDA offoals said none were required to file


                                         Our sample of 65 reports was randomly selected from the universe of
                                         reports filed in 1989 by employees at GS-15 and above in OSand the
                                         three agencies. However, this number was not large enough to allow us
                                         to make reliable generalizations about error rates and conflicts of
                                         interest for the universe of reports. We had initially selected a sample of
                                         200 reports out of a total of 685 filed at 10 IJSDA components, the Com-
                                         modities Futures Trading Commission, and the Farm Credit Administra-
                                         tion, which were init,ially identified by the Subcommittee for review. We
                                         determined that a sample size of 200 would be large enough to yield
                                         estimates that would by accurate within 10 percent of the combined uni-
                                         verse of reports at a Z-percent confidence level.

                                          However, after developing our sampling plans and beginning work at
                                          IJSDA headquarters and the agencies, we learned that the listing of
                                          required filers provided by USDA and used for our sampling plans was
                                          incorrect. IJSDA headquarters did not regularly obtain lists of required
                                          confidential filers for the various agencies. Further, a list that we


                                          Page 17                                               GAO/GGB9@100       Financial   Dixlosure   at USDA
    Chapter 1
    Introduction




    filed by a total of 246 employees in the three agencies by April 30, 1989,
    and to be reviewed within 2 months after receipt. The reports that we
    requested for review included

l   a random sample of 55 reports from the universe of reports filed by            ASCS


    headquarters employees and ASCS Kansas City Office employees,
l   all 105 reports filed by F~HA headquarters employees, and
l   all 86 reports required to be filed by FCIC headquarters and field
    employees.

    Most of the public disclosure reports that we reviewed were filed in
    1989 and were to have covered the employees’ reportable financial hold-
    ings and transactions for calendar year 1988. However, some public dis-
    closure reports in our sample were filed for different periods because
    the filing employees were newly hired or had terminated their employ-
    ment. The confidential disclosure reports filed in 1989 that we reviewed
    were to have covered a reporting period of April 1, 1988, through March
    31, 1989.

    Our review was made using generally accepted government auditing
    standards.




     Page 19                              GAO/GGB90-100   Financid   Disclosure   at USDA
                           chapter 2
                           USDA Had Not Ensured That All Reports
                           Were Filed 88 Required and
                           Thoroughly  Reviewed




                           payroll system. The employees on that list were identified on the basis
                           of the specific criteria in the act and OGE regulations for who must file
                           public disclosure reports.

                           SELRS officials said they used the March 1989 list to notify employees
                           during early April to file reports by May 16; thus, employees had over
                           30 days to prepare and submit reports. Also, every two weeks SELRS
                           received lists of personnel changes. It used these lists to notify new and
                           departing employees of filing requirements.


                           Ascs, FmHA, and FCIC have not required certain employees, generally
Employees in Certain       below ~~-13, to file confidential disclosure reports. These employees
Vulnerable Positions       were in positions that we believe were vulnerable to conflicts of interest
Not Required to File       and that met OGE and ITSDA criteria for having to file the reports. USDA
                           operates its various loan and grant programs on a highly decentralized
Confidential               basis, and certain employees at grades below GS-13 make decisions
Disclosure Reports         affecting millions of dollars of federal funds annually.

                           OPM  regulations issued in September 1968 and currently in effect pro-
                           vide the criteria for identifying employees who must file confidential
                           disclosure reports. The regulations are as follows:

                       . Employees must file if they are classified at GS-13 and above and are in
                         positions requiring them to make decisions involving (1) contracting or
                         procurement, (2) administering or monitoring grants or subsidies, (3)
                         regulating or auditing private or other nonfederal enterprise, and (4)
                         other activities where the decision or action has an economic impact on
                         any nonfederal enterprise.
                       . Employees must file if they are classified at Gs-13 and above and are in
                         positions that the agency determines to have duties requiring the incum-
                         bent to file disclosure reports in order to (1) avoid possible conflicts of
                         interest and (2) carry out Executive Order 11222, the OPM regulation,
                         and each agency’s regulations.
                       . Employees must file if they are classified below GS-13 and are in posi-
                         tions otherwise meeting the above criteria, when the agency has specifi-
                         cally justified an exception that it is essential to require reporting to
                         protect the government’s integrity and avoid employee involvement in
                         possible conflict-of-interest situations.

                           USDA regulations contain essentially the same criteria and requirements
                           as above for identifying confidential report filers.



                           Page 21                                 GAO/GGB9&100   Fhancial   Disclosure   at USDA
Chapter 2
USDA Had Not Ensured That All Reports
Were Filed &s Required and
Thoroughly  Reviewed




farmers and who hire the county executive directors in each of approxi-
mately 2,800 ASCS county offices. This committee must meet periodically
to determine the eligibility of farmers and ranchers for ASCS assistance.

According to USDA’S Department Counselor, employees in ASCS county
offices are not federal employees and are not subject to conflict-of-
interest laws but are subject to ASCS’S regulations on employee responsi-
bilities and conduct. He said that under the Soil Conservation and
Domestic Allotment Act of 1935, as amended, ASCS has established rules
of conduct for county employees that include specific prohibitions on
their outside activities. He said further that the 1935 act provides
authority for ASS to require disclosure reports from the county
employees. He said the authority is not specific but can be derived from
the act of 1935 (16 USC. 590h), which authorizes the Secretary to issue
regulations on the selection of county committee members and their
administration of .GCSprograms.

OGE  also recommended in the April 1982 report previously mentioned
that AXS require county office specialists, who at that time audited the
decisions of county committee members, to file confidential disclosure
reports. According to the AKX employee relations chief, the county
office specialist position was abolished, and the responsibility for
auditing committee members’ decisions was reassigned to GS-12 program
specialists in the AXS state offices. As of January 1990, the program
specialists were not required to file disclosure reports.

In a July 1988 report, USDA’S OIG recommended to the DAEO that ASCS
county executive directors be required to file confidential disclosure
reports and that ASCSstate executive directors make initial reviews of
the reports. County executive directors carry out the day-to-day opera-
tions of the county offices. Their responsibilities include directing the
delivery of certain I’SIIA commodities and supervising the disbursement
of millions of dollars in government payments. According to the OIG
report, ASCS agreed in May 1988 to require county executive directors to
file. However, as of March 1990, ASCS still had not required them to file.
AXS officials said that county executive directors were not required to
file in 1989 because ASCS had not developed a disclosure form for these
employees. In March 1990, the AXS chief of employee relations was
developing a form

 In addition to recommending financial disclosure for certain ASS county
 office positions, I&DA’S OK;recommended in 1986 that ASCS review the
 duties and responsibilities of certain employees involved in developing


 Page 23                                GAO/GGD90100   Financial   Disclosure   at USDA
                   Chapter 2
                   USDA Had Not Ensured That AU Reports
                   Were Filed as Required and
                   Thoroughly  Reviewed




                   The cost effectiveness of obtaining disclosure reports and reviewing
                   them is not a factor to be considered under either the act or imple-
                   menting regulations. The reports are to be obtained when prescribed cri-
                   teria are met in order to resolve conflicts of interest. Concerning the
                   resource impact of o&s recommendation, agency heads are responsible
                   under an executive order and OGE regulations for ensuring that suffi-
                   cient resources are made available for effective ethics programs. In this
                   regard, the F~IIA personnel director suggested to the DAEO that if it was
                   necessary to obtain the reports from county supervisors, F~HA state
                   directors could review and sign the reports. We believe this is an option
                   that has merit, as we discuss later.

                   OGE did not state in its 1986 report that F~HA county committee mem-
                   bers, who are paid at rates below GS-13, should file financial disclosure
                   reports. However, we believe the duties of these employees present the
                   potential for conflicts of interest. A three-member county committee
                   exercises independent judgment in determining the eligibility of farmers
                   and ranchers for certain F~HA loans and grants, and their decisions have
                   economic impact on nonfederal entities. In fiscal year 1989, on the basis
                   of eligibility determinations made by about 6,800 county committee
                   members nationwide, F~HA county supervisors approved about 63,700
                   direct loans worth $2.3 billion, about 70 percent of F~HA'S total direct
                   loans.

                                         --.

FCIC Positions     In January 1986, OGErecommended to the DAEO that about 600 perma-
                   nent and temporary FCIC field employees in the following four positions
                   be required to file confidential disclosure reports. These employees were

                 . crop insurance field specialists who served as district directors of field
                   office units (GS-11 J,
                 . temporary crop insurance specialists (GS-5 through GS-i'),
                 . quality control training specialists (GS-g), and
                 . crop insurance underwriters (GS-5 through Gs-12).

                   OGE  recommended t,hat these positions be covered because a survey done
                   by FCIC in 1983 at the recommendation of the USDA OIG revealed potential
                   conflicts of interest. In that survey, FCIC required all employees to com-
                   plete a questionnaire on any outside employment of themselves and
                   their relatives. The survey identified 167 potential conflict-of-interest
                   cases involving employees in the above positions, and none of the
                   employees were rctqmred to file disclosure reports.



                   Page 25                                GAO/CX;DSO-100   Financial   Disclosure   at USDA
                         Chapter 2
                         USIlAHadNotEnsuredThatAUReports
                         WereFikdaaRequimdand
                         Thoroughly  Reviewed




                         reports who should. However, USDA headquarters (specifically the DAEQ)
                         had not required the agencies to regularly review positions and to desig-
                         nate those that met prescribed criteria for confidential disclosure. SELRS
                         officials said they did not monitor or approve the agencies’ position des-
                         ignations and did not know why employees in those positions recom-
                         mended by OGE for confidential disclosure were not required to file
                         reports.

                         We believe that the designation of positions for confidential disclosure
                         requires stronger direction and leadership from USDA headquarters. Cer-
                         tain USDA programs, such as farm assistance programs administered by
                         FIIIHA, pose a high risk for potential conflicts of interest. A properly
                         designed and implemented disclosure system that includes a require-
                         ment to obtain and review reports from employees who make loan and
                         grant decisions can help employees and management avoid situations
                         posing conflicts between their duties and their outside financial
                         interests.


                         Neither ASCS,F~HA, nor FCIC had properly implemented OPM and USDA
Agencies Had Not         regulations for obtaining confidential reports from employees in posi-
PrOpWly  Implemented     tions designated for confidential financial disclosure (covered positions).
Reporting                The three agencies had not (1) required employees to file initial reports
                         within 30 days after they entered covered positions, (2) obtained certain
Requirements for         information needed for conflict-of-interest determinations, and (3) given
Covered Employees        employees the recommended 30-days’ notice for filing reports.

                                                    -
Agencies Not Requiring   OPM    regulations on confidential disclosure require that employees file an
Reports Within 30 Days   initial report within 30 days after they enter covered positions. ASIS,
                         FIIIHA, and FCIC did not have procedures for notifying all employees new
                         to covered positions to file initial confidential disclosure reports within
                         30 days.

                         Newly covered employees did not always file on time. For example, we
                         reviewed reports filed by eight FCIC employees to determine if the
                         reports were complete and if all potential conflicts of interest were
                         resolved. One of the eight employees was hired in August 1986, and he
                         did not file his first disclosure report until April 1987, about 7 months
                         after the required date. That report indicated an apparent conflict of
                         interest between the employee’s official duties and arrangements with




                          page27                               GAO/GGD9@100   Financial   Discbsure   at USDA
    Chapter 2
    USDA Had Not Ensured That All Reports
    Were Filed as Required and
    Thoroughly  Reviewed




    the purchase and sale of income producing assets for such periods. Such
    information was needed to ensure that the employees complied with
    restrictions on their outside interests. To illustrate, employees could
    have had prohibited transactions, such as the purchase and sale of
    m-financed      property or agricultural commodities, during the year
    and not be required to disclose the transactions in the annual reports
    because the employees did not hold the financial interests as of March
    31.

    Although we limited our review to ASCS,F~HA, and FCIC, SELFcSofficials
    said other USDA agencies used the same form and instructions and thus
    required employees to report financial interests as of March 31 without
    having to disclose transactions occurring during the year. Our review of
    selected reports was limited to the information supplied by employees.
    Therefore, we could not determine whether employees at the three agen-
    cies had financial transactions that should have been reported but were
    not. In 1989, approximately 7,300 USDA employees filed confidential dis-
    closure reports. Because these employees used USDA'S standard form and
    instructions for reporting, they were not required to supply information
    on their financial transactions that is needed to determine whether con-
    flicts of interest exist.

    In addition to the lack of information on financial transactions, the USDA
    form and instructions had various shortcomings that could affect the
    completeness of the reported information. For example, the form and
    instructions did not provide

. clear guidance on whether certain outside employment and financial
  interests were to be reported by all USDA employees or only those in cer-
  tain agencies,
l space for reviewers to comment on follow-up work done with filing
  employees to clarify and supplement the report and the basis for con-
  flict-of-interest determinations, or
. specific requirements for reporting income received from nonagricul-
  tural interests held by USDA employees.

     Agency employee relations specialists recognized that the form for con-
     fidential disclosure and related instructions needed improvement. At an
     August 1989 meeting of IJSDA employee relations officials, the ASCSchief
     of employee relations agreed to work with other employee relations spe-
     cialists in developing recommendations to SELRSfor improving the form
     and instructions. Since that time, the ASCSchief said that he had
     obtained comments from several employee relations specialists in other


     Page 29                                GAO/GGD99-199   Financial   Disclosure   at USDA
                                 Chapter 2
                                 USDA Had Not Ensured That AU Reports
                                 Were Filed as Required and
                                 Thoroughly  Reviewed




Receipt Dates Not Recorded       Both the act and OGE regulations state that agency officials are to note
                                 on public disclosure reports the date that they are received. The receipt
                                 date is necessary to implement and monitor specific requirements in the
                                 act including when employees must file (May 15 each year), when the
                                 public must be provided access to reports (such as 15 days after receipt
                                 for incumbent employees), and when agencies must complete reviews of
                                 the reports (60 days after receipt).

                                 SELRSdid not record report receipt dates. Rather, when it received
                                 reports, its practice was to place a check mark next to the employee’s
                                 name on a list of those employees who were identified to file. The
                                 receipt date was not recorded on the list or the reports, and SELRSoffi-
                                 cials said they did not otherwise record report receipt dates. Only 1 of
                                 the public disclosure reports filed in 1989 and 1988 by the 46 employees
                                 in our sample showed receipt dates. According to SELFS officials, they
                                 began recording receipt dates during our review.

Time Extensions for Filing Not   The act and regulations establish specific requirements for granting time
Documented                       extensions for employees to file public disclosure reports. The act allows
                                 employees to request approval to file the reports up to 90 days beyond
                                 the dates for filing required by the act. CGE regulations state that filers
                                 may request and be granted extensions of up to 45 days by the agency
                                 at which they file reports and up to an additional 45 days by OGE.

                                 SELRSdid not maintain records of employees who had requested and
                                 were granted time extensions, the reasons for the extensions, or the
                                 additional time given to employees to file. SELRSofficials said their prac-
                                 tice was to accept and grant filers’ requests for extensions over the tele-
                                 phone. They said a note indicating each granted extension was placed in
                                 the employee’s file and discarded after the reports were received.

                                 Because of SELRS' practice, we could not determine whether employees in
                                 our sample requested and received time extensions for filing reports in
                                 1988 and 1989. For example, of the 46 employees in our sample, 14
                                 signed their reports from 3 to 212 days after the reports’ statutory due
                                 dates in 1989. Of these 14, 6 signed the reports more than 45 days after
                                 the due dates, the maximum time extension USDA may grant under the
                                 act. We asked the SELRSchief, who was responsible for approving exten-
                                 sions in 1989, whether the employees had been granted extensions. He
                                 could not remember granting extensions for any of the employees.
                                 According to SELRSofficials, documentation was thrown away after




                                 Page31                                 GAO/GGD-90190   Fkumcial   Disclosure   at USDA
                          Chapter 2
                          USDA Had Not Ensured That AR Reports
                          Were Filed as Required and
                          Thoroughly  Reviewed




                          reports. None of the three agencies had regularly updated their regula-
                          tions to show, as required by OPM regulations, those positions designated
                          for confidential disclosure.

                          Although ASCSand FCIC had more recently updated their lists, the list of
                          covered positions in FIIIHA'S regulations (FIIIHA Instructions 2045.EE
                          dated December 7, 1976) had not been updated in 14 years. The FKIHA
                          chief of employee relations said in June 1989 that the regulations would
                          be updated by October 1989 and that certain contract specialists who
                          have contracting and leasing authority in field offices would probably
                          be added to the list of required filers. However, FTIXHA   still had not
                          updated the regulations as of January 1990.

                          F~HA and FCIC employee relations specialists had computer-generated
                          lists of employees in covered positions. The specialists said they use
                          these lists to monitor filing compliance. The ASCSspecialist did not use a
                          similar list for monitoring filing compliance. A list that ASCSprovided us
                          of employees who were to file in 1989 was inaccurate. The list included
                           17 GM-15 employees who filed in 1989, but it excluded 13 other ~~-15
                          employees who filed reports in 1989. Without an accurate list of who
                          must file, ASCScannot ensure that all covered employees have been noti-
                          fied to file or that thry file on time, if at all

                          The three agencies did not have written procedures for requesting and
                          granting time extensions for filing. Employee relations specialists at all
                          three agencies said employees rarely requested extensions and when
                          they did, the requests and approvals were always handled orally and
                          not documented. Similarly. agencies did not have written procedures on
                          when follow-ups we’re to be done or how much additional time should be
                          given for filing. The specialists at ASCSand F~HA said they normally con-
                          tacted late filers by phone to obtain reports. A FCIC official said that she
                          contacted late filers by phone or in writing to obtain their reports. In
                          1989, 98 (40 percent,) of the 246 reports in our sample were not filed by
                          the required date in 1989. (See table 2.2.)


Employees’ Signature      Because of the informality in monitoring filing compliance, USDA head-
Dates Indicated Reports   quarters and the three agencies had not collected the data needed to
                          accurately determine whether employees filed public and confidential
Were Often Filed Late     disclosure reports by due dates. Signature dates that filing employees
                          entered on the reports indicated that some disclosure reports were filed
                          late.



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                            Chapter 2
                            USDA Had Not Ensured That All Reports
                            Were Filed as Required and
                            Thoroughly  Reviewed




Line Officials Generally    Although FIIIHAhad instructed its offices to make initial reviews of con-
Not Involved in Reviews     fidential reports, CTSDA headquarters, ASS, and FCIC did not require any
                            involvement of line managers and supervisors in the reviews. SELRS offi-
                            cials said the report responsibility had been centralized in the personnel
                            offices at USDAand agency headquarters because these offices had the
                            experience and knowledge needed for the reviews. ASCS and FCICofficials
                            said the responsibility had been centralized at agency headquarters to
                            protect the confidentiality of the reports. They also said that the
                            involvement of line managers and superiors in the reviews would com-
                            plicate and delay the process.

                            Although USDAhas c,entralized the final review responsibility, USDA regu-
                            lations provide that the initial processing and review of confidential dis-
                            closure reports can be delegat,ed to offices where filing employees are
                            assigned. The regulations further provide that (1) if reports are initially
                            reviewed in one office and (2) if the reports show any financial inter-
                            ests, the reports, along with statements from the first reviewer indi-
                            cat,ing whether the interests appear to have some relationship to the
                            employees’ duties, are to be referred to the office identified by the
                            agency heads as having final review responsibility.

                            We believe that the mitial review of reports by USDA line officials
                            responsible for the employees filing the reports could improve the thor-
                            oughness of reviews. These officials could compare reported outside
                            financial interests with employees’ current duties and responsibilities.
                            Given the small nunlber of staff reviewing reports at USDA and agency
                            headquarters and the delays in completing reviews, the involvement of
                            line offices in the reviews could reduce the overall time required to
                            review reports. Line officials have a valid need for access to confidential
                            disclosure reports fited by employees under their supervision, and we
                            believe the confiden t.iality of the reports can be protected through
                            appropriate administrative safeguards.


Specialists Generally Did   The reviews made at IKDA headquarters and the three agencies generally
Not Follow USDA Review      did not include steps in LWIA'S Ethics Handbook that we believe, if fol-
                            lowed, could improve the thoroughness of the reviews. The employee
Guidance                    relations specialists domg the reviews said they relied primarily on their
                            experience and their personal knowledge of employees’ duties and
                            responsibilities in reviewing the reports and making conflict-of-interest
                            determinations. They generally did not document the work done and the
                            basis for their deterrnmations.



                            Page 35                                 GAO/GGLMO-100   Financial   Disclosure   at USDA
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    USDA Had Not Ensured That All Reports
    Were Filed as Required and
    Thoroughly  Reviewed




                           ---
    their reviews of disclosure reports because they did not believe it was
    necessary for making conflict-of-interest determinations. We believe
    that requests and approvals for outside employment can provide infor-
    mation that is useful to report reviewers when making conflict-of-
    interest determinations. For example, the descriptions of the outside
    employment and comments by managers and supervisors responsible for
    the approvals could point to possible violations of ethics and conflict-of-
    interest laws and regulations. The report reviewers could also provide a
    check on whether employees who reported income from outside employ-
    ment or positions in outside organizations followed LJSDA regulations that
     require advance approval of outside activities.

    Various other steps recommended in the Handbook were generally not
    followed in the reviews. If followed, these steps could help ensure that
    the reviewers make consistent and thorough reviews and that any con-
    flicts of interest are identified. Some of the steps recommended in the
    Handbook include the following:

. Research corporations listed in the reports, paying particular attention
  to conglomerates and holding companies that may be involved in
  various types of activities and assess whether the corporations are
  involved in products or services which may lead to apparent conflicm of
  interest.
. Review current position descriptions and performance objectives, and as
  necessary, find out from the employees or their supervisors if they have
  other responsibilities not specifically covered by the position descrip-
  tions (e.g., details of employees to other positions).
l Determine for land holdings listed in reports the type of property, the
  number of acres owned, and any interest of the federal government in
  the land owned by the filing employee. and
l  Determine for creditors listed in reports if the filing employee’s duties
   and responsibilities will require the employee to deal with any of the
   creditors.

     One approach to ensuring that steps such as those in the Handbook are
     followed, thus improving the thoroughness of the reviews, would be to
     use a review checkhst. In our review of other organizations’ disclosure
     systems, we found that checklists were useful for making orderly
     reviews of disclosure reports, focusing review attention on specific




     Page 37                                GAO/GGD90-100   Financial   Disclosure   at USDA
                                         Chapter2
                                         USDA Had Not Ensured That AU Reports
                                         Were Filed as Required and
                                         Thoroughly  Reviewed




Financial Disclosure                     All but 1 of the 65 public and confidential reports in our sample of filers
Reviews Missed Certain                   for 1989 had been signed by USDA reviewing officials, indicating that all
                                         conflicts of interest had been resolved. On the basis of our reviews of
Errors and Potential                     the 64 reports and supporting files, we found that most of the reviews
Conflicts of Interest                    of public and confidential disclosure reports in 1989 missed certain
                                         errors. The errors were of varying significance. Some prevented us from
                                         determining whether reported financial interests posed conflicts of
                                         interest. (See table 2.3.)

Table 2.3: Number of Approved Public
and Confidential Disclosure Reports in                                                                            Number of reports
GAO Sample With Uncorrected Errors       Errors                                                             Public   Confidential           Total
                                         -__~       __~      ~~
                                         None                                                                    11                17          20
                                         Errors that did not prevent     conflict-of-interest
                                            determlnahons                                                        24                  1         25
                                         Errors preventing   confkt-of-Interest       determinations             11                  0         11
                                         Total number   of reports   In sample”                                  46                18          64
                                         “We revlewd 64 reports to provide an lndlcatlon of the thoroughness of the rewews done by USDA
                                         headquarters and the three agencies Our sample of 246 conf!dentlal reports (see tables 2 2 and 3 2)
                                         was used to determme whether rhe reports were flied by the required date and revlewd wlthln the
                                         prescribed time perlod


                                         Generally, in the 11 reports in which errors prevented us from making
                                          conflict-of-interest determinations, the errors were omissions of infor-
                                         mation on the nature or location of the outside financial interest, or the
                                          character of employee’s ownership and involvement (such as sole or
                                         joint owner, partner, or manager) with the reported interests. For
                                          example, an employee in the Office of the Secretary reported that her
                                          spouse received compensation from two private firms, one of which was
                                          a consulting firm. IIowever, the employee’s public disclosure report did
                                          not indicate the nature of the consulting done, and so the reviewer could
                                          not compare the consulting services with the employee’s official duties.


Potential Conflicts Not                  The reviewers had not assured that all conflicts of interest were identi-
Identified                               fied and fully resolved, as table 2.4 shows.




                                         Page39                                                   GAO/GGD9@100   Financial   Disclosure   at USDA
Chapter 2
USDA Had Not Ensured That All Reports
Were Filed aa Required and
Thoroughly  Reviewed




adjustments, and (3) recommending corrective action to the head of the
agency in which noncompliance was found to exist.

The employee did not file a disclosure report in September 1986,30 days
after he was hired, as required. He did not file his first report until April
1987. According to the disclosure report and supporting file, the assis-
t,ant manager was to receive one-half of his former salary for a 4-year
period ending in 1990 and a company car, both from his former
employer, a company selling and servicing rcrc-reinsured crop
insurance.

The employee’s disclosure report was marked “no conflict,” signed by
the FCICreviewing official (the personnel officer), and dated as liaving
been reviewed in October 1987, 14 months after the employee began FCIC
employment. The report and supporting files did not indicate that the
reviewer questioned the employee’s arrangement with his former
employer. The reviewing official said he did not believe the employee’s
arrangement posed a potential conflict of interest because the employee
had made the agreement before he became a FCIC employee.

We believe that the employee’s report contained information indicating
a potential conflict of interest involving the arrangement with his
former employer that the FCIC reviewing official should have questioned.
After we questioned the arrangement, we learned that it had also been
questioned by the NYC manager when the employee was being consid-
ered for a higher level FCIC position. The situation had also been investi-
gated by the IJSDAOIG, which referred the investigative results to the
Department of Justice. Justice declined to prosecute and returned the
CX5e to LJSDA.

In June 1988, 22 months after the employee was hired, the IEDA IJnder
Secretary notified the OIG that he had determined that no conflict of
interest existed and no administrative action was necessary. Meanwhile,
the employee notified FCIC that his former employer would be discontin-
uing its reinsurance contract with FCIC in January 1988. Until then, the
employee continued to serve as assistant manager responsible for mat-
ters affecting his previous employer, and the FCIC reviewing official took
no action to address the potential conflict of interest.

 We believe that the employee’s arrangement created at least the appear-
 ance of a conflict of interest that the FCIC report reviewer should have
 questioned. We also believe that, on the basis of information in the dis-
 closure report, the reviewer should have referred the case to the agency


 Page 41                                GAO/GGD!K-100   Financial   Disclosure   at USDA
Chapter 2
USDA Had Not Ensured That AR Reports
Were Filed as Required and
Thoroughly  Reviewed




In January 1990, ow asked IJSDA to furnish required evidence showing
that four nominees, including one nominee in our sample, had taken
agreed upon actions to resolve potential conflicts of interest. On Feb-
ruary 1, 1990, the Department Ethics Counselor said USDA had not
obtained all the evidence required.




Page 43                                GAO/GGD90100   Financial   Disclosure   at USDA
                                          Chapter 3
                                          Top Management Had Not Devoted               Sufficient
                                          Attention  and Staff to Financial
                                          Disclosure Systems




Table 3.1: Employees Responsible    for
Reviewing Public and Confidential                                                                                         Estimated time
Disclosure Reports                                                                                                        spent on ethics          Number
                                                                 Title and grade                                                  program        of reports
                                          Public reports
                                          Headquartersa          Chief, SELRS (GS-15)                                                      10%            50
                                                                 AssIstant      Chief. SELRS (GM-14)                                       15            150
                                                                     Employee Relations        Speclallst,
                                                                     SELRS (GM-13)
                                                                                  .~       ~~ ~~       ~~                                  50            400
                                          Confidential     reports
                                          ASCS                       Chief Employee        Relations    Branch
                                                                     (GM-14)                                                                5            333
                                          FmHA                       Employee   Relations      Speclallst
                                                                     (GM-13)                                                               10            558
                                          FCIC       __        >%ovee           I%latlons      Soec%(GS-i”l       -                        10             86

                                          aDoes not Include reports flied by lndwduals         nominated by the prwdent     I” 1989 and revlewd     outslde
                                          SELAS


                                          The experience and training of the specialists in ethics laws, regulations,
                                          and procedures also varied. For example, according to SELRSofficials,
                                          the DAEO, alternate DAISOand a deputy ethics official had 10 or more
                                          year’s experience each reviewing public disclosure reports. Similarly,
                                          the employee relations specialists at AXS and F~HA said they had 10 or
                                          more year’s experience each reviewing confidential disclosure reports.
                                          All of the reviewers said they had received formal ethics training. In
                                          contrast, the GS-7 specialist at FCIC was hired in June 1989 and given
                                          responsibility for review of the confidential disclosure reports due April
                                          30, 1989. According to the specialist, she had no prior ethics program
                                          experience and had received no formal ethics training through January
                                           1990. FYX officials said she was supervised by a person having training
                                          and experience in the I‘SDA ethics program.

                                           The Ethics Reform Act of 1989 and Executive Order 12674, issued in
                                           April 1989, assign additional responsibilities to agency ethics officials.
                                           For example, the executive order provides for mandatory ethics training
                                           for all employees required to file public and confidential disclosure
                                           reports. The Chief of SELRSsaid that as part of his fiscal year 1991
                                           budget request, he had requested one additional staff-year to work on
                                           the ethics program.




                                           Page 46                                                      GAO/GGD90-100      Financial   Disclosure   at USDA
                              Chapter 3
                              Top Management Had Not Devoted      Sufficient
                              Attention  and Staff to Financial
                              Disclosure Systems




                              employees had any financial interests. Also, unlike the FCIC reviewer,
                              the reviewers at ASCSand FmHA did not request employees who had
                              farming and other outside interests to submit a statement showing how
                              those interests related to the employees’ duties. The USDA form used for
                              confidential disclosure requires employees who report outside interest
                              to supply these statements. Consequently, the ASCSand F~HA reviewers
                              completed most of their reviews in a very short period of time. For
                              example, on May 14 and May 15,1989, the F~HA reviewer signed 94, or
                              90 percent, of the 105 reports in our sample. The employees filing 51 of
                              the 94 reports disclose& that they had no outside financial interests as
                              of March 31. 1989.


Employee Relations            In addition to devoting relatively few staff to reviewing disclosure
Specialists Signed High-      reports as only one part of their duties, USDA had assigned the responsi-
                              bility for signing certain reports to employees who were not in appro-
Level Officials’ Disclosure   priate positions. These employees were not in positions that allowed
Reports                       them to exercise independent judgement in detecting and resolving con-
                              flicts of interest.

                              The act requires that public disclosure reports be signed by the Secre-
                              tary concerned or the DAEO after it has been determined that conflicts of
                              interest do not exist or have been resolved. These signatures are
                              required in addition to the signature of the CGE director for certain
                              reports, such as those filed by individuals who are nominated by the
                              president and who must be confirmed by the Senate.

                              OGEregulations permit DAEXX to delegate the responsibility for signing
                              disclosure reports to appropriate reviewing officials, except for those
                              filed by individuals nominated by the president and subject to Senate
                              confirmation. At USDA headquarters, the public disclosure reports filed
                              by these presidential nominees subject to Senate confirmation were
                              reviewed by the USDA'S ethics counselor in its Office of General Counsel
                              and were signed by the DAED. All other public and confidential disclosure
                              reports were signed by employees in the offices of personnel at USDA and
                              agency headquarters.

                              At USDA headquarters, a ~-13 employee relations specialist-a deputy
                              ethics official-was   responsible for reviewing and signing the vast
                              majority of the public disclosure reports filed annually by USDA senior
                              executives and other high-level officials, including the Department
                              Ethics Counselor. The chief of SELRS, who is the alternate DAEO, was
                              responsible for signing public disclosure reports filed annually by the


                              Page 47                                          GAO/GGDsolOO   Financial   Disclosure   at USDA
Chapter 3
Top Management Had Not Dr\utrd      Sufficient
Attention  and Staff to Financial
Disclosure Systems




for Administration on the status of the agencies’ reviews of the confi-
dential disclosure reports. I’SDA had not required similar reports on the
public disclosure system.

The reports on the confldcntial disclosure system were to be submitted
to the Assistant Secretary for Administration by May 30 each year and
were to show the number of confidential disclosure reports filed, the
number closed favorably, and the number not closed. In the latter
instance, the agencic,s \vt’rc to provide the reasons reports remained
open and continue reporting monthly on the status of open cases.

In June 1989, the f0rmt.r Assistant Secretary for Administration
stopped receiving t.hc\rc~ports because, according to SELRS officials, he
did not believe the reports were useful. In response to the Assistant Sec-
retary’s concern, thcbW.I~ Chief directed that the status reports not be
submitted to the Assistnnt Secretary for Administration but rather to
SFLRS.
  1 L


We agree that the status reports were not designed to provide all the
information needed to c~ffcc*tivrly monitor the agencies’ reviews of
financial disclosure rc~port.:,and their resolutions of potential conflicts of
interest. We believe tht, rc’ports would have been more useful if the
agencies were requirr4 t,o show, in addition to the information reported,
(1) the number of t~mployrc~swho were required to file reports, (2) the
number of apparent and potential conflicts of interest found, and (3) the
actions taken to resol\ I>t III, l.onflict,s. Further, some analysis of the
reports, together with ~)v~~ralldat,a on trends and patterns of any
problems reported tl>, t hc>18 personnel offices servicing 39 offices and
agencies, could ha\-<\ btqen rlscful to pinpoint areas requiring the Assis-
tant Secretary’s attt~nrron.

The reports should also htbsubmitted as required, but the offices had not
always done so. For cxamplc. in 1989, SELRS had not received monthly
reports for FCIC. F~III.\. dntl ASCSeven though they had not closed all
cases. Of the 18 IKI 11~)clrsonneloffices servicing the agencies and
required to submit irut ~al rcl~orts by May 31, 1989, 1 had done so by that
date. Of the remairrmg 17. 13 submitted reports between June 1989 and
January 1990. and ‘I 11.~1not submit,ted reports as of January 1990.




Page 49                                          GAO/GGD-90-100   Financial   Discloswe   at USDA
                          Chapter 3
                          Top Management      Had Not Devotrd   Sufficient
                          Attention  and Staff to Finanrinl
                          Disclosure Systems




Agency Self-Audi is Not   To improve monitoring of the ethics program, SELKS established a
                          requirement that the agencies do self-audits each year. In the self-
Done Regularly            audits, agencies were to complete a three-page checklist to evaluate the
                          ethics program in such areas as filer identification, outside employment
                          procedures, and training.

                          SELKSrequested that agencies do the self-audits in 1986. As a result of
                          the self-audits, SELIWadvised several agencies on how they could
                          improve their programs. SELKS officials said that due to staffing changes
                          and other problems, they had not required self-audits in 1987 and 1988.
                          In October 1989, the 11.41~ asked agencies to do self-audits and submit
                          completed checklists by January 8, 1990. By the end of January 1990,
                          all agencies had submitted checklists.


                          For more than a dec.ade, audits of IISDA’S ethics program made by us,
Weaknessesin USDA’s       OGIC,and 1‘SL)A OIGhave identified weaknesses in the filing and review of
Financial Disclosure      public and confidential financial disclosure reports and the management
Systems Are Long-         oversight of the ethics program. In 1977, for example, we reported that
                          IYI),&‘s financial dixlosure system did not include specific criteria to
Standing                  ensure that all employees whose jobs affect the agricultural industry
                          were required to fik disclosure reports. I We also reported that T:SI)A
                          lacked adequate criteria for reviewing disclosure reports. In addition,
                          specific procedures for collecting disclosure reports were missing.

                          As discussed in chapter 2, AGE:and the OIGlater issued reports identi-
                          fying some of the same weaknesses that we had noted in our 1977
                          report. For example. in 1982, on the basis of a review of the ethics pro-
                          gram at WDA headquarters, ASCS, the Food Safety Inspection Service,
                          and the Agricultural Marketing Service, OGEreported that (1) the DAEO
                          was not closely monitoring the agencies, (2) positions that were vulner-
                          able to conflicts of interest were not covered under the confidential
                          financial disclosure hyst em, (3) managers who were most knowledgeable
                          of the employees’ duties were not sufficiently involved in reviewing
                          finanoial disclosure rel)orts. (4) reviews of certain disclosure reports
                          were untimely, and (5) reviewers did not document the reports to show
                          the rationale for their potential conflict-of-interest decisions.




                           Page 51                                           GAO/GGD90-100   Financial   Disclosure   at USDA
Chapter 3
Top Management Had Not Devoted     Sufficient
Attention and Staff to Financial
DisclosuR systems




official position description did not include any reference to ethics pro-
gram responsibilities and duties.

The alternate DAEO'S position description and performance appraisal for
1989 did describe general ethics program responsibilities. For example,
these documents mentioned providing staff leadership and advising on
actions to be taken on potential conflict-of-interest cases.




Page 53                                         GAO/GGDWlOO   Financial   Disclosure   at USDA
                      Chapter4
                      ConclusionsandReeommendations




                      USDA  officials most responsible for assuring the integrity of USDA'S pro-
                      grams and operations have had limited involvement with the disclosure
                      systems. Disclosure reports are a tool these officials and employees
                      under their responsibility should use to prevent conflicts of interest.
                      Yet, USDAhad not made the review of disclosure reports an integral part
                      of these employees’ responsibilities. Rather, employee relations special-
                      ists in USDA and agency headquarters had the review responsibility.

                      The act, executive orders, and OGE regulations assign responsibility to
                      agency heads and DAEOS for establishing effective ethics programs,
                      which are to include public and confidential disclosure systems. We
                      believe that because of the history of continuing weaknesses in USDA dis-
                      closure systems, the Secretary must take a strong leadership role to
                      ensure that the Department has effective disclosure systems and that
                      the DAEXI is accountable for establishing and maintaining the systems.


                      We recommend that the Secretary of Agriculture provide the leadership
Recommendations       to improve USDA'S ethics program by ensuring that (1) sufficient
                      resources are devoted to the program, (2) specific milestones are estab-
                      lished for correcting weaknesses in the financial disclosure systems, and
                      (3) the DAEO-the director of personnel-is held accountable for devel-
                      oping, implementing, and maintaining systems that adequately meet
                      requirements of the 1978 Ethics Act and related executive orders and
                      regulations.

                      To correct specific weaknesses in the systems, we recommend that the
                      Secretary direct the DAEO to take the following steps:

                  l Require confidential disclosure reports from all employees in positions
                    that pose conflicts of interest and meet GGEcriteria for confidential
                    disclosure.
                  l Develop and implement procedures, forms, and instructions for (1)
                    requesting confidential disclosure reports from employees in covered
                    positions within 30 days after they enter the positions; (2) obtaining suf-
                    ficient information. including information on financial transactions, for
                    making conflict-of-interest determinations; and (3) notifying all
                    employees in covered positions of filing requirements in sufficient time.
                  . Develop and implement procedures for monitoring compliance with due
                    dates for public and confidential disclosure reports and include require-
                    ments for recording receipt dates of reports, requesting and granting
                    time extensions for filing, and following up with employees who have
                    not filed reports by required dates.


                       page55
Chapter 4
ConclusionsandRecommendations




Although USDA has begun to implement almost all of our recommenda-
tions, it did not agree entirely with four of them, two which are dis-
cussed below, and two which are discussed in appendix I.

IJSDA did not agree with our recommendation that ASCS and FFC+IA      county
committee members should file financial disclosure reports. USDA said
that AXS committee members are not federal employees and suggested
that because of their limited authority, they would not be likely to have
conflicts of interest. We believe that, like certain other ASCS and F~HA
county employees, the duties of county committee members in these two
agencies present the potential for conflicts of interest. Also, these
employees meet criteria currently prescribed for requiring confidential
financial disclosure. Although they are not federal employees, AXS
county committee members are required to comply with MCS rules of
conduct, and they make decisions affecting financial assistance to
nonfederal entities. Similarly, FIMA county committee members deter-
mine the eligibility of farmers and ranchers for FIIIHA financial assis-
tance. Therefore, we believe USDA should require FIIXHAand AXS county
committee members, and all other USDA employees in positions that are
vulnerable to conflicts of interest, to file financial disclosure reports.

USDA said that requiring supervisory officials in line divisions and
offices to review all confidential disclosure reports would impair confi-
dentiality. We continue to believe that (1) line officials have a valid need
to review disclosure reports filed by employees under their responsi-
bility, (2) their involvement could improve the thoroughness of the
review, and (3) the confidentiality of the reports can be protected
through administrative safeguards such as restricting access to the
reports and storing them in locked cabinets. OPM and USDA regulations
impose restrictions on access to and use of the reports, and any
improper release or disclosure of information in the reports would vio-
late these regulations. IEDA regulations provide also that the initial
review responsibility may be assigned to offices where filing employees
are assigned. USDA did agree that this procedure was feasible in FmHA,
where state directors have responsibility to administer both loan pro-
grams and ethics regulations.

      specific comments on our recommendations are included in
I'SDA'S
appendix I.




Page 57                               GAO/GGB90100   Pimncial   Disclosure   at USDA
               Appendix I
               Comments From the Department
               of Agriculture




                                                --
I
                                                    $MdY             OF USDA ACCi

    The Department         has taken          the     following             actions:
          *        Allocated         one additional               full-time            position         for     an ethics
                   specialist.
          *        Begun date         stamping         public          financial          disclosure            reports        upon
                   receipt.
          *        Produced         a written         plan      to     correct         identified             weaknesses.

    Agencies     have    agreed       to take         the    following             actions:
          *        Add confidential         filers,               at grade           GS-12 and below,                  who meet
                   regulatory     criteria:
                   _.      Farmers          Home Administration                    (FmHA) county               supervisors           and
                           assistant          county  supervisors                    and

                   ..      Agricultural        Stabilization                     and Conservation                  Service       (ASCS)
                           county     executive       directors.

    The Department         will      take     the     following             actions:

                   Determine   further               resources             necessary          for     the     ethics       program      by
                   June, 1990.

                   Request the          Office     of Government                   Ethics    (OGE) to authorize      obtaining
                   confidential          financial       disclosure                  reports   from county    supervisors
                   and assistant            county    supervisors                  in FmHA by June, 1990.

                   Continue  to hold the OAEO accountable     for the                                         ethics  program,     and
                   add an ethics   element to his performance     plan                                        by October,    1990.

                   Modify    confidential      financial      disclosure    report  to include
                   information      on financial       transactions      and submit to OGE for
                   approval    by October,       1990.

                   Publish          an internal  procedure     for documenting                                requests        for,     and
                   grants         of, time extensions      for filing   by May,                               1991.

                   Issue guidance    for              reviewers             of   financial            disclosure           reports      by
                   December,   1992.

                   Document         timely      follow-up             of    public       financial            disclosure         reports         due
                   by June,         1991.

                   Require   agencies    to verify     approval     for                             outside   employment              reported
                   on public   financial    disclosure      reports,                                beginning   December,               1990.

                   Request         OGE to authorize  staggered dates for filing  confidential
                   reports         because of volume in excess of 10,000 reports    by November,
                   1990.




                Page 59                                                                    GAO/GGD90100                  Financial     Disclosure      at USDA
                  Appendix I
                  ConuaentsFmm      theDepartment
                  of Aalicultore




                                         RESPONSETO RECOHRENDATIONS

          RECCM4ENDATION:          The Secretary of Agriculture      provide the leadership       to
                                   improve USDA's ethics program by ensuring that
                                   (I) sufficient     resources are devoted to the program,
                                   (2) specific    milestones are established      for correcting
                                   weaknesses in the financial      disclosure    systems, and
                                   (3) the DAEO--the Director      of Personnel--is     held
                                   accountable    for developing,   implementing,     and maintaining
                                   systems that adequately meet requirements          of the Ethics
                                   Act of 1978 and related Executive orders and regulations.

          RESPONSE:
          Ue are adding inmediately  one staff year to the ethics program.        By June,
          1990, we will have analyzed the requirements    for further    staffing  of the
          ethics function as part of the FY 92 budget process.        We will require agencies
          to evaluate their ethics staffing   by December, 1990.

          By November, 1990, we will propose to OGE that we be permitted     to stagger the
          filing  dates for annual confidential financial disclosure  reports.     A balanced
          work load would allow us to plan a better flow of the work and facilitate       an
          orderly  substantive review.

          We have written a plan, using management-by-objectives   techniques,             to complete
          the tasks we have identified  as necessary to improve the financial              disclosure
          program.

          Although the DAEO always has been accountable           for the ethics program, by
          October, 1990, we will add a special element            to his performance plan that
          will be related to the management-by-objectives            plan for ethics.

          RECOWENOAT10N:           Require confidential      disclosure     reports from all employees
                                   in positions   that pose conflicts        of interest and meet OGE
                                   criteria   for confidential      disclosure.

          RESPONSE:

          YOU specifically recommended that confidential   financial    disclosure reports be
          obtained from the following groups:   (1) county executive directors     and county
          committee members in ASCS; and (2) county supervisors      and county coavnittee
          members in FmHA.

          Ye are requiring    2,300 ASCS county executive  directors  to file confidential
          financial  disclosure    reports in 1990 on the special form referenced    in your
          report.   This decision more than doubles the number of ASCS employees required
          to file.

Seep.59   A regularly    conducted internal    review of participation    by county committee
          members in ASCS programs would disclose any conflict          of interest problems.
          ASCS county committee members do not take actions on their own cases.            The
          conrnittee has no authority      to make general rules, but works only on matters
          involving   individual   clients   of the agency.    Finally,  members of county
          collnittees  do not meet statutory      tests to be considered Federal employees.
                             Appendix    I
                             Comments From the Department
                             of Agriculture




                                                                                                                                        1
                                                                                                                  3

                  requests for, and grants of, time extensions     for filing   of financial
                  disclosure  reports.   This will include procedures to monitor compliance                             with
                  due dates and to follow up with employees.     Ue will change our practices                            with
                  respect to both the public and confidential    reporting    systems.
                  RECOMMENDATION:                          Implement review guidance, such as that contained in
                                                           the USDA Ethics Handbook, to ensure thorough reviews
                                                           of publicandoii?%%%Tal       disclosure     reports are
                                                           made and all conflicts  of interest     indicated   in
                                                           reports are identified  and fully    resolved.

                  RESPONSE:

                  yegg;ill      revise       and reissue     the USDA Ethics   Handbook to agencies      by December,


                  RECOMMENDATION:                          Require the employees, rather     than reviewing
                                                           officials,  to amend disclosure     reports that do not
                                                           contain required information.

See comment   1   RESPONSE:
                  Our current practice      is to contact filers    in person or by telephone to obtain
                  additional   information    needed by the reviewers.      We have experienced     no
                  difficulties    with this practice    where the needed information      is easily
                  documented.     If the information     is complex, or if substantive      issues need to
                  be resolved,    we make written    requests for more information     from the filers.
                  This is consistent     with the practice    of OGE. We propose to continue this
                  method of operation.

                  RECONMENOATION:                          Require line officials     who are responsible      for the
                                                           integrity    of USDA programs and operations       to assist
                                                           in disclosure    report reviews and conflict       of interest
                                                           determinations.

See p.59          RESPONSE:

                  Our practice    maintains the confidentiality           that both the Executive order and
                  the Ethics Reform Act of 1989 require for non-public                 reports.   If supervisory
                  or line officials      were to review all reports,          confidentiality    would be
                  impaired.    The recommendation is feasible           in FmHA, where state directors        have
                  concurrent   responsibility        to administer  loan programs and the ethics and
                  conduct regulations.          In the case of public reports,         we propose to continue
                  our present practice        of involving    line officials     when needed. This will allow
                  US to adjudicate     the reports within the time frames allowed.
                  RECOMMENDATION:                          Require the verification of outside employment
                                                           approvals as part of the review of financial
                                                           disclosure reports.




                               Page 63                                              GAO/GGD-30.100    Financial       Disclosure   at USDA
               Appendix1
               CommentsFrom    theDepartment
               ofAgriculture




               The following are      GAO'S    comments on IJSDA'S letter dated May 24, 1990.


               1. We see no problem with the practice that IJSDA has described, but it is
GAO Comments   not the practice that we found to be followed by reviewers at USDA head-
               quarters, ASCS, and F~HA. Rather, the practice was to informally request
               and receive information, usually by phone, to supplement disclosure
               reports. For example, none of the reports or supporting files for the 46
               public filers in our sample contained written requests for corrections
               even though substantive changes had been made to some reports.
               Although we found no problem with the reviewers making minor correc-
               tions to reports on the basis of contacts in person or by phone, USDA
               should ensure that its practices conform with the procedures contained
               in the 1978 act for obtaining additional information from employees.

               2. USDA said it proposed to continue its current practice of requiring cer-
               tain reviewing officials to review and sign their superiors’ disclosure
               reports for reports that are to be reviewed by OGE. USDA agreed to change
               its practice where the superiors’ reports are not reviewed by OGE.
               Although our recommendation affects a small number of employees, we
               continue to believe that the independence and objectivity of the reviews
               and conflict-of-interest determinations are impaired when employees
               review their supervisors’ disclosure reports. We do not believe that OGE'S
               subsequent reviews of those reports reduce the need for thorough and
               objective reviews within IISDA.




               Page66
        LLm,;. .
                   &quests     for copies of GAO reports   should be sent to:

                   U.S. General Accounting     Office
                   Post Office Box 6015
                   Gaithersburg, Maryland      20877

                   Telephone    202-275-6241

5                  The first five copies of each report    are free. Additional    copies 4. ’
I                  $2.00 each.

                   There is a 25% discount     on orders for 100 or more copies      I~v!EE
                   single address.

                   Orders must be prepaid by cash or by check or money            I)~IRL~~~~~,.
    i
                   out to the Superintendent of Documents.
Appendix II

Major Contributors to This Report


General Government         Management Issues
Division, Washington,   Gary V. Lawson, Evaluator-In-Charge
                        Mary Y. Martin, Evaluator
D.C.                    Jeffrey Dawson, Evaluator
                        Annette A. Hartenstein, Evaluator
                        Ellen T. Wineholt, Evaluator
                        Valerie A. Miller. Technical Advisor



Office of General
Counsel




 (966363)               Page 66                                GAO/GGIHC-106   F-inancial   Disclosure   at USDA
      Appendix I
      Comments From the Department
      of Agriculhue




                                                                           4

RESPONSE:

Beginning in Deceaiber,   1990 we will require agencies to verify   that employees
have obtained approvals    for any outslde employment listed  on their financial
disclosure   reports.

RECOMNENDATION:            Ensure that employees responsible    for reviewing
                           disclosure  reports do not review   and sign their
                           superiors'  reports.

RESPONSE:

Your recommendation applies only to a small number of employees in the
Department.    In every case In which the affected  employee's financial
disclosure  report Is subject to further   review at OGE, we pro ose to continue
our current practice.    We will adopt your recommendation in ae 1 other cases.

RECOMMENDATION:             Require that management reports and audits provide
                            information   that is useful to top management in
                            evaluating  such things as whether required  reports
                            were filed and reviewed on time and whether the
                            reviews provide an adequate basis for detecting     and
                            timely resolving   conflicts of interests,

RESPONSE:

We agree that management should receive more and better information     on the
financial  disclosure pro ram. We will    implement your recommendation by
December, 1991. Since 0%E has increased its reporting     requirements,  we will
consider tying our effort  to those requirements.




       Page 64                                    GAO/GGDS6-166   Finadd   Dim&sure   at USM
          Appendix I
          Comments From the Department
          of Agriculture




                                                                                                              2

For these       reasons,     we do not       propose     to   require     filing       by ASCS county
committee       members.

We will     require    reports      from all FmHA employees             with loan approval            authority,
including       all county     supervisors       and assistant         county     supervisors.          Since FmHA
county     committee     members do not have loan approval                    authority,        they will     not be
required      to file    confidential       financial       disclosure        reports.        By June, 1990 we
will    request     OGE approval       to obtain      confidential        financial        disclosure      reports
from the county        supervisors        and assistant        county     supervisors,          who are graded
GS-12 and below.          We will      ask affected        employees      to file       after     we receive     OGE
approval.

Our actions       increase   the number of confidential   financial                        disclosure         reports
filed  within       the Department  from 7,275 to approximately                          13,000.

We agree that we should have a more coherent          way of                       identifying         positions        that
should file.       By May, 1991 we will     require agencies                       to review     all      positions        to
identify   additional     confidential  filers.

RECOMMENDATION:                       Develop      and implement        procedures,           forms,    and
                                      instructions        for (1) requesting               confidential
                                      disclosure       reports     from employees             in covered
                                      positions      within     30 days after            they enter       the
                                      positions;       (2) obtaining          sufficient         information,
                                      including      financial       transactions,            for making conflict
                                      of interest        determinations;           and (3) notifying           all
                                      employees      in covered        positions         of filing      requirements
                                      in sufficient         time for the employees                 to meet required
                                      reporting      dates.

RESPONSE:

By April,      1992 confidential           financial        disclosure       reports    will   be filed       within
30 days of the incumbents              entering       the position.            We agree that transaction
reporting     provides       a more complete          financial        disclosure     report;      therefore,        by
October,     1990 we will        request       approval       from OGE to amend our form for
confidential       financial       reporting       to ask for transaction             information.           By
March,     1991 we will       require      agencies       to notify       employees     of the filing
requirement      at least       30 days before          the April        30 due date.

RECOMMENDATION:                       Develop    and implement      procedures      for monitoring
                                      compliance     with due dates for public             and confidential
                                      disclosure      reports   and include      requirements       for
                                      recording     receipt    dates of reports,         requesting      and
                                      granting    time extensions       for filing,        and following      up
                                      with employees        who have not filed        reports     by required
                                      dates.

RESPONSE:

We have begun recording     receipt  dates for public                       reports.      By April,    1991 we
will  require    agencies to date stamp confidential                        reports     upon receipt.       As you
note,   we are aware of the penalty     for late filing                       that will     become effective
in 1991.      BY May, 1991 we will  publish   an internal                       procedure    for documenting




           Page 62                                                       GAO/CXXW0100            Financial        Disclosure    at USDA
             Appendix      I
             GxementsFromtheDepartment
             uf Agriculture




I                                                                                                                                            1
                                                                                                                       2
         *       Make timely          and appropriate reports                   to management through                 methods
                 established          by December, 1991.

    The Department        will      require     agencies      to:
         *       Review all Department               positions         to identify          additional          confidential
                 filers by May, 1991.
         *       Review the staffing  of their ethics programs to determine                                           whether
                 changes are necessary by December, 1990.
         *       Make timely          and appropriate          reports          beginning     December, 1991.
         *       Date stamp confidential                  forms upon receipt            by April,             1991.

         *        Obtain         "new entrant"      confidential          reports      in 30 days by April,                   1992.
         *        Give employees          timely     notice         of annual filing          requirement             by March,
                  1991.
         *        Verify approval for outside employment reported                                 on confidential
                  financial disclosure reports by December, 1990.
         l
                  Document timely             follow-up      for confidential           reports      due by May, 1991
         *
                  Obtain FmHA county supervisor                      and assistant          county       supervisor
                  confidential reports following                      OGE approval.
         c
                  Obtain       ASCS county       executive          directors      confidential           reports          in 1990.




              Page 60                                                            GAO/GGDb)BloO            -                DIacImure   at USDA
Appendix I

Comments From the Department of Agriculture


supplementing   those In the
report text appear at the
end of this appendix




                               Mr. Richard L. Fogel
                               Assistant   Comptroller General
                               General Government Division
                               U.S. General Accounting   Office
                               Washington,   D.C. 20548

                               Dear Mr. Fogel:

                               Thank you for the opportunity           to review and comment on your draft report,
                               Financial     Disclosure:     Agriculture's      Systems Limited By Insufficient   Top
                               Management Support.         This is an opportune time to receive       the report.    The
                               President     only recently     appointed    me to serve as Assistant    Secretary for
                               Administration.        Our newly appointed       Director of Personnel serves as the
                               Designated      Agency Ethics Official       (DAEO).

                               The administrative    deficiencies     detected    by your auditors     have been corrected.
                               Several of your findings       and recommendations      address desirable    processing
                               features  which are not required       by current    law or regulation.      We will    review
                               those recommendations      and adopt them where feasible.         Our comments on the
                               specific  findings  and recommendations         in your draft report     are enclosed.

                               The Secretary,   the DAEO, and I are aware that new requirements         have been
                               placed on the ethics program by President       Bush's Executive    Order of
                               April  12, 1989, and the Ethics Reform Act of 1989. Those requirements           will  be
                               met.   The Secretary   supports the initiatives    of the President     and the Congress
                               to strengthen   Government ethics  and has directed     me to establish    a model
                               ethics  program in the Department.

                                                                         Sincerely,



                                                                         Adis M. Vila
                                                                         Assistant  Secretary
                                                                           for Administration

                               Enclosures




                                        Page 68                                        GAO/GGlMO-100     Financial   Disclosure   et USDA
                          Chapter 4
                          Conclusions   and Recommendations




                  l     Implement review guidance, such as that contained in the USDA Ethics
                        Handbook, to ensure thorough reviews of public and confidential disclo-
                        sure reports are made and all conflicts of interest indicated in reports
                        are identified and fully resolved.
                  l     Require the employees, rather than reviewing officials, to amend disclo-
                        sure reports that do not contain required information.
                  l     Require line officials who are responsible for the integrity of CJSDA pro-
                        grams and operations to assist in disclosure report reviews and conflict-
                        of-interest determinations.
                      l Require the verification of outside employment approvals as part of the
                        review of financial disclosure reports.
                      0 Ensure that employees responsible for reviewing disclosure reports do
                        not review and sign their superiors’ reports.
                      l Require that management reports and audits provide information that is
                        useful to top management in evaluating such things as whether required
                         reports were filed and reviewed on time and whether the reviews pro-
                         vide an adequate basis for detecting and resolving conflicts of interest in
                         a timely manner.


                          In a May 24, 1990, letter, USDA commented on a draft of this report and
Agency Comments and       agreed with almost all of our recommendations. The recently appointed
Our Evaluation            Assistant Secretary for Administration said our draft report arrived at
                          an opportune time and that the Secretary had directed that she establish
                          a model ethics program in USDA.

                           Overall, we believe that the actions taken and planned, if properly
                           implemented, should address the weaknesses in USDA’S disclosure sys-
                           tems. USDA summarized three actions it had taken as of May 1990,
                           including allocating one additional full-time ethics specialist position. It
                           also provided a written plan identifying 21 specific actions it will take
                           between June 1990 and December 1992 to correct identified weaknesses.
                           USDA'S plan includes actions to (1) determine additional resources neces-
                           sary, (2) obtain additional confidential disclosure reports, (3) require all
                           USDA employees filing confidential reports to disclose financial transac-
                           tions, (4) obtain disclosure reports by due dates, (5) provide guidance
                           for review of disclosure reports, (6) require outside employment to be
                           verified, and (7) require management reports to be submitted on the
                           financial disclosure. USDA said it had appointed a new director of per-
                           sonnel to serve as DAEO and that it would include in the director’s per-
                            formance plan a special element for ethics.




                           Page 66                               GAO/GGlMCl-100   Financial   Disclosure   at USDA
Chapter 4

Conclusions and Recommendations


                 USDA  has made certain improvements in its disclosure systems, such as
                 developing procedures to more accurately identify those employees who
                 must file public disclosure reports. As recommended by OGE, USDA has
                 also required certain employees in positions at and below GS- 12 to file
                 confidential disclosure reports. Although there have been improve-
                 ments, the systems still do not meet certain basic requirements of the
                 Ethics Act of 1978 and regulations issued by CGE and OPM. The systems
                 do not, in our opinion. reasonably assure that conflicts of interest will be
                 detected and resolved.

                 Various procedural weaknesses existed in the systems, and few staff
                 were assigned to administer the systems. We believe that these weak-
                 nesses, which have continued to exist in the systems for more than a
                 decade, have persisted because USDA has not adequately discharged
                 responsibilities or devoted sufficient staff to developing, implementing,
                 and operating disclosure systems. To be specific, the systems did not
                 ensure that

             . all employees whose duties posed potential conflicts of interest filed
               confidential disclosure reports;
             . confidential disclosure reports provided all the information on
               employees’ outside interests held during any part of the reporting period
               that was required for making conflict-of-interest determinations;
             . procedures were effective for obtaining public and confidential reports
               by required filing dates;
             . a sufficient number of employees was assigned to review public and con-
               fidential reports within required periods;
             . the reviews of public and confidential disclosure followed a systematic
               approach and were thorough enough to identify and resolve all conflicts
               of interest; and
             l adequate review and oversight of the disclosure systems was provided
               by USDA top management to ensure that the requirements of the act,
               executive orders, and CKXregulations were met at USDA headquarters
               and the agencies.

                 These weaknesses reveal a more fundamental management problem-
                 management has devoted insufficient attention and staff to establishing
                 and maintaining disclosure systems that meet statutory and regulatory
                 requirements. This weakness diminished the value of the systems in
                 preventing and detecting conflicts of interest. The systems have not
                 received the attention and resources needed, and they have not dis-
                 closed conflicts of interest that were found in earlier reviews by OGE and
                 the IJSDA OIG and in our current review.


                 Page 54                               GAO/GGDCM-100   Financial   Disclosure   at USDA
Chapter 3
Top Management Had Not Devoted           Sufficient
Attention  and Staff to Financial
Disclosure Systems




In 1984, on the basis of a review at USDA headquarters and other
selected USDA agencies, the LJSDA OIG reported that (1) IJSDA guidelines and
regulations were insufficient to provide a strong ethics framework for
guiding USDA'S agencies’ programs and (2) due to insufficient audits and
oversight by IJSDA headquarters, not all agencies had regulations tailored
to their specific needs or adequate ethics training and awareness pro-
grams. The OIG reported that the lack of strong departmental involve-
ment had resulted in inconsistencies among agencies in requiring
employees whose duties may conflict with t,heir outside interests to file
confidential disclosure reports.

IJSDA responded positively to certain recommendations made in earlier
audit reports. For example, it implemented procedures to identify in a
timely manner those employees required to file public disclosure
reports. However, 1SDA did not agree to implement certain recommenda-
tions, and had not implemented those recommendations that were
agreed to, such as to provide ongoing evaluations of the ethics program
and to require ASCS county executive directors to file confidential
reports.

More recently, in reporting on IJSDA'S overall management, we said that
the highly decentralized organizational structure placed agency and
Department-level managers, including the Secretary, in a weakened
position to deal with policies and programs requiring the coordinated
action of several agencies.! We said that overcoming organizational con-
straints and improving IISDA management systems will require strong
leadership from top management, and we made various recommenda-
tions to deal with organizational and management weaknesses.
Regarding the ethics program, the history of reported weaknesses indi-
cates that the leadership must come from the Secretary to ensure that
weaknesses are corrected and effective disclosure systems are
established.

One means that the Secretary could use to provide leadership to the
IJSDA ethics program would be to designate the DAEO as accountable for
establishing a program that meets requirements of the act, executive
orders, and regulations and for communicating that accountability in
performance contracts. The DAFO's performance elements and standards
for 1989 made no mention of the ethics program. In addition, the DAEO'S


'1l.S.DepartmcntofAgriculturr~:lntrrim       Repot-ton Ways to Enhance Management(GAO/
R, D 90.19,&t.       26, 1989~




Page52                                                GAO/GGD90-100    Financial   Disclosure   at USDA
                          Chapter 3
                          Top Management Had Not Devoted      Sufficient
                          Attention  and Staff to Financial
                          Disclosure Systems




Periodic Audits Planned   OGE  regulations require that the DAEO of each executive agency periodi-
                          tally evaluate that agency’s ethics program. OGE recommended in both
but Not Regularly Done    1982 and 1986 and the ~ISDA-OIG recommended in 1984 that USDA estab-
                          lish an ongoing, systematic evaluation of its agencies’ ethics programs.
                          After the OIG’S 1984 report, the DAEO advised OIG that SELRS would do
                          audits at four agencies each year, which SELRS changed in 1986 to two a
                          year, and that he was requiring the various ~JSDA agencies to do self-
                          audits of their ethics programs annually.

                          SELRS  was responsible for doing the audits at the various USDA agencies.
                          Because of limited resources, SELRS had not met its audit schedule. It had
                          last completed audits at ASCS, FCIC, and khan in March 1982, October
                          1982, and March 1984, respectively. During the 3 calendar years 1987 to
                           1989, SELRS had done an audit at one agency, the Agricultural Research
                          Service (ARS). Although the staff had not done audits since the ARS audit
                          in July 1987, that last audit disclosed significant problems in the confi-
                          dential disclosure system at that location. Among the problems cited in
                          the February 4, 1988, report to the ARS Director of Personnel were that
                          (1) some employees who were required to file had not been identified to
                          file; (2) some other employees not required to file had filed; (3) certain
                          employees had not been notified to file reports that were due April 30,
                           1987. until *June 16, 1987-about l-1/2 months after the reports were
                          due; and (4) the review of reports due April 30,1986, had not been com-
                          pleted at the time of the audit-about    14-l/2 months after the reports
                          were due.

                          The SELRS reviewers also reported that confidential reports were not
                          filed in a locked cabinet as required but rather were filed in an unlocked
                          cabinet located in an office, permitting access to the reports by unautho-
                          rized personnel. Some reports were not signed by a reviewing official
                          but were rubber-stamped with a signature indicating the reports had
                          been reviewed and no conflicts of interest had been found. The
                          reviewers questioned four reports that ARS officials had signed or
                          stamped with signatures because the reports indicated potential con-
                          flicts of interest brltween ARS employees’ duties and their reported finan-
                          cial interests. NC+had not provided any basis for establishing that the
                          reported interest did not pose conflicts of interest, a problem that the
                          reviewers said they had found in their last audit at ARS in March 1984.

                          In March 1990, because of other demands on their time,                       SELRS   had no
                          additional audits scheduled.




                          Page 50                                          GAO/GGD.L)O-100 Financial    Disclosure   at USDA
                      Chapter 3
                      Top Management Had Not Devoted      Sufficient
                      Attention  and Staff to Financial
                      Disclosure Systems




                      USDA agency heads. The chief said that he also signed reports filed annu-
                      ally by certain USDA officials in the Office of the Secretary, such as assis-
                      tant and deputy assistant secretaries. At Am and F&A, the chiefs of the
                      employee relations branches, both GM/GS-14S, were responsible for
                      signing confidential disclosure reports. At FCIC, the personnel officer
                      (GM-Id) was responsible for signing these reports.

                      Under these arrangements, the reviewers were required to review their
                      supervisors’ disclosure reports. For example, the alternate DAEO
                      reviewed the DAEO'S reports, which were also later to be reviewed by
                      CGE;and the FCIC director of personnel reviewed the reports filed by his
                      supervisor, the assistant manager for administration.

                      In 1986, OGE recommended that the alternate DAEO, not the deputy ethics
                      official, sign public disclosure reports. The DAEO disagreed with OGE'S
                      recommendation and said the system was working well. He said that he
                      and the alternate DAEO see the financial disclosure reports of all individ-
                      uals nominated by the president and that the alternate DAEO sees any-
                      thing else of significance.

                      We disagree with USDA'S policy of requiring subordinate employees to
                      review and sign financial disclosure reports filed by superior officials,
                      including their immediate supervisors. Employees at these organiza-
                      tional levels may not perceive that they can exercise independent judge-
                      ment in reviewing the reports and determining whether potential
                      conflicts of interest exist.


                      IJSDA top management had not regularly received internal management
Top USDA Officials    reports on the operation and the effectiveness of the ethics program.
Had Not Regularly     According to SELLS officials, the DAEO had received audit reports and the
Reviewed the Ethics   responses to those reports. SELRSofficials said their communication with
                      the DAN and other top officials concerning financial disclosure was done
Program               informally and as needed. They said, for example, the DAEO was particu-
                      larly involved in the review of the financial disclosure reports of indi-
                      viduals nominated by the president and in specific problems, such as
                      potential conflict-of-interest situations.

                      Under USDA'S regulations, the Assistant Secretary for Administration is
                      responsible for assuring that all employees required to file reports are
                      identified and all reports are filed in a timely manner. IISDA had issued
                      regulations requiring reports to be submitted to the Assistant Secretary



                      Page48                                           GAO/GGB90-100   Financial   Disclosure   at USDA
                                   Chapter 3
                                   Top Management Had Not Devoted        Sufiicient
                                   Attention  and Staff to Financial
                                   Disclosure Systems




Reviewers Generally Did            Neither USDA headquarters nor the three agencies kept records on the
                                   timeliness with which the specialists completed their reviews in 1989.
Not Meet 60 Day Review             Thus, it could not be accurately determined whether public disclosure
Requirement                        reports were reviewed within the times specified in the act and CGE reg-
                                   ulations after the reports were received. The employee relations spe-
                                   cialist at IJSDA headquarters who was responsible for reviewing 400
                                   public disclosure reports in 1989 said that he reviewed about one-third
                                   of the reports in June 1989. He said that he completed the review of all
                                   but six of the remaining reports in October 1989, more than 4 months
                                   after the May 15 date when most reports were due.

                                   According to filers’ signature dates on reports, about three-fourths (34
                                   of 46) of the public disclosure reports in our sample were not reviewed
                                   within 60 days of signature dates on the reports. We also determined
                                   from dates entered by filers that ASCS and F~HA generally completed the
                                   reviews of confidential disclosure reports in our sample within 2
                                   months. However, this was not the case for the sample of reports filed at
                                   FCIC, as table 3.2 shows.


Table 3.2: Number of Public and
Confide1 ntial Reports in Sample                                                Public                      Confidential
-
Reviewed Late                                                                  SELRS             ASCS      FmHA          FCIC        Total
                                   Number    rn sample                                46            53        105            83       241a
                                   Reports   reviewed    late
                                     Number                                           34             4           3           71         70
                                     Percentage                                       74             8           3           86         32

                                   ,‘Of the 246 reports in our sample. 5 had not been fkd as of January 1990 and thus could not be
                                   revlewd


                                   SELRS  officials said the presidential transition and various changes in
                                   ethics laws and regulations had contributed to the delay in reviewing
                                   public disclosure reports in 1989. However, 34 of the 46 employees in
                                   our sample filed reports in both 1989 and 1988, and SELRs did not review
                                   8 of the 34 reports filed in 1988 within 60 days after the signature dates
                                   on those reports. The report reviewer at FCIC said she had several other
                                   personnel-related responsibilities, such as handling personnel griev-
                                   ances, facilitating an employee awards ceremony, and managing an
                                   employee health benefits awareness project, which prevented her from
                                   completing the reviews of confidential disclosure reports within the
                                   required time.

                                   Although the FrnfIA report reviewer had generally met the 60-day
                                   requirement, most of the reports reviewed did not show that the filing


                                   Page 46                                                 GAO/GGDSOlOO   Financial   Disclosure   at USDA
Chapter 3

Top Management Had Not Devoted Sufficient
Attention and Staff to Financial
Disclosure Systems
                           Agency heads are required by executive order and OGEregulations to
                           provide sufficient staff and take other required steps to effectively
                           implement ethics programs. However, USDA had not (1) assigned suffi-
                           cient staff to complete all reviews of disclosure reports within the times
                           required, (2) provided for regular reviews of the ethics program, or (3)
                           received internal management reports on a regular basis to know how
                           the program was being administered.


                                 had not completed all reviews of disclosure reports within the time
Insufficient Staff         IJSDA
                           period specified in the 1978 Ethics in Government Act and implementing
Assigned to                regulations. Despite IISDA'S size in both number of employees (about
Adequately                 144,000 employees) and budget ($48.3 billion in outlays during fiscal
                           year 1989), few staff were assigned to administer the ethics program,
Administer Ethics          and all of those assigned worked part-time on the program. OGE regula-
Program                    tions issued in January 198 1 and Executive Order 12674, dated April
                           12, 1989, require agency heads to provide sufficient staff to effectively
                           implement the act and OGE regulations.


Reviewers’ Work Load,      Staff assigned to review almost all of the public disclosure reports filed
Experience, and Training   at USDA headquarters and all of the confidential disclosure reports filed
                           at ASCS, F~HA, and FCIVwere employee relations managers and specialists
Varied                     in the personnel offices of USDA and agency headquarters. In addition to
                           their report review responsibilities, these employees had other ethics
                           program responsibilities, such as updating agency ethics policies and
                           standards and providing ethics training and counseling. The specialists
                           at USDA headquarters were also responsible for auditing the ethics pro-
                           gram administered by 18 personnel offices that served 36 USDA agencies
                           and offices. In addition to their ethics program duties, the employee
                           relations specialists had various other personnel duties.

                           The number of reports assigned to the reviewers varied from fewer than
                           100 at FCIC to more than 500 at FmRA. The employee relations specialists
                           estimated the percentage of their time spent on the ethics program in
                           1989, including time spent reviewing reports, ranged from 5 percent for
                           a specialist at ASCS to 50 percent for a specialist at USDA headquarters in
                           1989. (See table 3.1 .I




                           Page44                                GAO/GGDSO-100FinancialDisclosureatUSDA
                           Chapter 2
                           USDA Had Not Ensured That AU Rcpmts
                           Were Filed as Required and
                           Thoroughly  Reviewed




                           head, and the agency head should have determined whether remedial
                           action, such as an agreement with the employee that he would not act on
                           matters affecting his former employer, was appropriate.

Cases 4 Through 7          Four employees, all ASCSstate executive directors, filed reports showing
                           outside interests that we believe posed potential conflicts of interest.
                           These employees held positions as the manager and/or president of
                           farms that they owned. USDA disclosure files and official personnel files
                           for the four employees did not include approvals of their outside
                           employment. IJSDA employees who plan to have outside employment,
                           which according to INN officials includes presiding over and/or man-
                           aging farms, are required by USDA regulations to obtain advance
                           approval of the outside employment.

                           We believe that these state executive directors’ duties could have posed
                           potential conflicts of interest with their ownership and management of
                           farms. ASCSstate executive directors are appointed by the Secretary of
                           Agriculture and are responsible for planning, implementing, and oper-
                           ating ASCS assistance programs within their respective states. Their
                           responsibilities include participating in development of ASCS policies,
                           plans, and programs and recommending program changes based on spe-
                           cific needs within the respective states. IJSDA report reviewers did not
                           require actions by the four state executive directors to avoid potential
                           conflicts between the duties and their reported farm interests.


Potential Conflicts        As also shown in table 2.4, three public disclosure reports in our sample
Identified but Not Fully   disclosed outside financial interests that IJSDA reviewers identified as
                           potential conflicts of interest but did not fully resolve. The three reports
Resolved                   were filed by individuals nominated by the president and confirmed by
                           the Senate and appointed to positions at IJSDA headquarters.

                           Written statements had been furnished to OGE describing actions the
                           nominees planned to take to resolve the potential conflicts of interest if
                           appointed to the positions. However, according to IJSDAofficials, the
                           nominees did not furnish written evidence required by the act and OGE
                           regulations that the agreed upon actions were actually taken by the
                           three nominees. OGICregulations require that written evidence of such
                           actions by nominees bc provided to OGE and the Senate confirmation
                           committee and that records of these actions be maintained with the indi-
                           viduals’ financial disclosure reports at the agency.




                           Page 42                                GAO/XX%SO-100   Financial   Disclosure   at USDA
                                       Chapter 2
                                       USDA Had Not Ensured That AR Reports
                                       Were Filed as Required and
                                       Thoroughly  Reviewed




Table 2.4: Number of Public and
Confidential Reports in GAO Sample                                                                                Number of reports
With Potential Conflicts of Interest   Potential    conflicts   of interest                                 Public   Confidential           Total
                                       None                                                                      37                17          54
                                       Not ldentlfled   by USDA reviewers                                         6                  1          7
                                       Identified   by USDA reviewers         but not fully resolved              3                  0          3
                                       Total number     of reports   in sample”                                  46                18          64
                                       dWe revwwed 64 reports to provide an lndlcailon of the thoroughness of the reviews done by USDA
                                       headquarters and the three agencfes Our sample of 246 confldentlal reports (see tables 2 2 and 3 2)
                                       was used to determine whether the reports were fkd by the reqwad date and reviewed wIthIn the
                                       prescribed time period


                                       As indicated in table 2.4, six public reports and one confidential report
                                       disclosed that employees had outside financial interests that USDA
                                       reviewers did not identify as potential conflicts of interest. These seven
                                       cases are discussed below.

Casesland                              Two employees in the Office of the Secretary had, in our view, potential
                                       conflicts of interest that were not identified as such by USDA reviewers.
                                       One employee had program responsibility for small community and
                                       rural development and so in our opinion was in a position to influence
                                       decisions made concerning FNIHA,FCIC, and Rural Electrification Adminis-
                                       tration programs. On the basis of our review of the employee’s disclo-
                                       sure file and his official personnel file and our discussions with IJSDA
                                       officials, we discovered that the employee had not requested or obtained
                                       required approval of his outside employment as president of a farm cor-
                                       poration. He had reported the employment in his disclosure report. We
                                       believe this corporation could have potentially benefited from the pro-
                                       grams under his responsibilities.

                                       The other employee had program responsibility for research programs
                                       in food and agricultural sciences and owned a farm, which he rented.
                                       The employee could have had access to inside information that could
                                       have been used to specifically benefit his farm. The USDA reviewers did
                                       not question these financial interests and did not require the employees
                                       to take steps to avoid a potential conflict of interest.

case3                                  Another employee, an FCIC assistant manager who was required to file
                                       confidential reports, was appointed to his position in August 1986 and
                                       assigned responsibilities that included (1) managing a program of on-site
                                       reviews of insurance companies having reinsurance contracts with FCIC,
                                       (2) ensuring compliance with FCIC policies and procedures for crop loss




                                       Page 40                                                    GAO/GGB9@100   Financial   Disclosure   at USDA
                        Chapter 2
                        USDA Had Not Ensured That AR Reports
                        Were Filed as Required and
                        Thoroughly  Reviewed




                        kinds of likely errors, notifying filers of errors to be corrected, and doc-
                        umenting the reviews and corrections.”


Reviewers, Not Filing   The act and OGE regulations specify that if additional information is
                        needed by public report reviewers, the employee responsible for filing
Employees, Changed      the report is to be contacted to obtain the information. The practice gen-
Reports                 erally followed by reviewing officials at USDA headquarters, ASCS, and
                        Fmx4 was not to request or receive written information to supplement
                        disclosure reports. This informal approach to changing public disclosure
                        reports was confirmed in March 1989 by the Chief of SELF& His notice to
                        employees who were to file these reports said that contacts with the
                        filers to obtain additional information would be conducted “as infor-
                        mally as possible, usually by phone.” None of the reports and sup-
                        porting files for the 46 public filers in our sample contained written
                        requests for corrections.

                        We do not see any problem with reviewers making minor corrections to
                        employees’ reports, and this practice can obviously save time. However,
                        we believe that the reviewers’ practice of routinely making corrections,
                        such as completing whole sections of reports on the basis of telephone
                        calls, is contrary to the approach outlined in the act for the correction of
                        public financial disclosure reports.

                        The act requires that employees be requested to provide, within a date
                        specified by the agency, any additional information required. Filing
                        employees are responsible for certifying that the reports they submit
                        are complete and accurate. The falsification of the reports is a violation
                        of provisions of the Ethics Act of 1978 for which the Attorney General
                        may bring a civil suit, and fines up to $5,000 may be assessed. It is also a
                        violation of the criminal statute 18 USC. 1001, which prohibits making
                        false statements to the federal government. USDA is improperly relieving
                        the employees of their responsibility to submit complete reports and cor-
                        rect them as necessary Also, if the employees are not required to cor-
                        rect the errors, we believe they will be more likely to repeat the errors in
                        later reports.




                        “See Financial Disclosure: Legislative   Branch Systems Improved But Can Be Further Strengthened
                        (GAO/GGDW103,         Sept 8, I989 )




                         Page 38                                             GAO/GGIWO-100     Financial   Disclosure   at USDA
Chapter 2
USDA Had Not Ensured That All Reports
Were Filed as Required and
Thoroughly  Reviewed




Available in 1982, the Handbook is to assist in providing for uniform
administration of the Department’s disclosure report review process.
The Handbook defines the responsibilities of various USDA officials for
obtaining and reviewing public and confidential disclosure reports and
provides detailed guidance for the reviews. The Director of OGE reviewed
the document and commented to the USDA Director of Personnel in Jan-
uary 1982 that it was a “first-rate guide” to the ethics program. How-
ever, reviewers at I'SDA headquarters and the agencies we visited were
either not aware of the Handbook or did not use it in their reviews.
According to SELRS officials, the Handbook was handed out at training
sessions as guidance, and its use in reviews was not mandatory. Audit
reports prepared by SPXRS on the agencies’ disclosure reviews did not
indicate that SELKS staff checked to see if the guidance was being used.

Although it may not be necessary to apply all the steps in all reviews,
we believe that the Handbook provides useful review guidance. For
example, the Handbook
              __-         states that reviewers should determine if
outside employment indicated on disclosure reports had been approved.
WC>identified 16 disclosure reports (14 public and 2 confidential) of the
64 reports in our sample in which employees indicated they had outside
employment of the nature requiring advance approval. In 14 of these 16
cases (13 public and 1 confidential), neither the disclosure files nor the
official personnel files contained approvals of the outside employment.
The files contained approvals of the employment disclosed in one public
and one confidential report.

In 1986, OGEreported that USDA had not adequately provided for the
review of outside employment and recommended that USDA update and
document the approval of outside employment determinations during
the annual review of disclosure reports. LJSDA did not address the OGE
recommendation that INDA review outside employment requests and
approvals as part of the review of disclosure reports. Rather, the DAEO
agreed to include in letters notifying employees to file public disclosure
reports each year that they have an obligation to get advance approval
of outside employment. The DAEO said SELRS would request the agencies
to do the same for employees who must file confidential reports. USDA
headquarters’ letter to employees required to file public disclosure
reports by May 15, 1989, included this reminder. However, the agencies
did not remind employees of this requirement in their notifications to
file confidential reports due April 30, 1989.

The specialists responsible for the reviews at [JSDA headquarters and the
apencics said they did not check outside employment records during


Page 38                                 GAO/GGD90-100FinancialDisclosureatUSDA
                                          Chapter 2
                                          USDA Had Not Ensured That All Reports
                                          Were Filed as Required and
                                          Thoroughly  Reviewed




                                          Although we used the signature dates on reports to indicate when
                                          employees filed, the dates may not have always been reliable. For
                                          example, one employee entered May 15, 1989, by his signature on a
                                          public disclosure report. The SELRS official responsible for receiving the
                                          reports said he remembered the report arriving in November 1989, more
                                          than 5 months after the due date. Because signature dates provided the
                                          only available indication of when employees filed reports, we used those
                                          dates to prepare table 2.2, which shows that some public and confiden-
                                          tial reports due in 1989 were signed late.

Table 2.2: Number of Disclosure Reports
in GAO Sample Signed by Employees                                                    Public                          Confidential
After Report Due Dates                                                                SELRS             ASCS        FmHA          FCIC        Total
                                          Number     of reports      in sample              46               55        105           86         246
                                          Reports    signed   late
                                             Number                                         14               11          19          68          98
                                             Percentage                                     30               20          18          79          40
                                          Number of days late           ~-
                                            1 to45                                           0                4          18          52          74
                                             More than 45                                     6               7           1          16          24’

                                          aAs of January 1990, 19 reports had been flied. and 5 (2 at ASCS and 3 at FCIC) still had not been filed


                                           IJSDAdid not require any reports to be prepared comparing the number
                                           of employees required to file reports with the number who did file.
                                           Although USDA regulations require the agencies to submit status reports
                                           on the review of confidential reports, the regulations do not require the
                                           agencies to show how many employees were required to file.

                                           Even so, FIIIHA showed in a status report submitted to the Chief of SELRS
                                           that 558 employees were required to file confidential disclosure reports
                                           by April 30, 1989. FMA reported that 238 of 558 employees (43 percent)
                                           had not filed required reports by May 31, 1989, but FIIIBA officials said
                                           that all 558 employees had filed by January 1990. Status reports sub-
                                           mitted by ASCS and E’CKdid not compare the number of reports required
                                           with the number filed in 1989.


                                           The reviews of disclosure reports at IJSDA headquarters and the agencies
Headquarters and                           were not always thorough. We believe this lack of thoroughness resulted
Agencies Did Not                           primarily because the reviewers did not follow a systematic approach in
                                           identifying and resolving conflicts of interest.
Follow a Systematic
Review Approach

                                           Page 34                                                GAO/GGD90-100FinancialDisclosureatUSDA
                                Chapter 2
                                USDA Had Not Ensured That All Reports
                                Were Filed aa Required and
                                Thoroughly  Reviewed




                                reports were received and the employees’ financial disclosure files con-
                                tained no documentation showing they had either requested or been
                                granted time extensions from USDA or OGE.

Follow-Up on Late Reports Not   Although the act and OGE regulations require time deadlines for filing
Emphasized                      and review of public disclosure reports, IJSDA had no written procedures
                                specifying what, when, and how follow-up steps were to be taken to
                                obtain late public disclosure reports. For those employees who had not
                                filed reports due May 15, SELRS officials said the practice was to begin
                                contacting them around June 15 to remind them to file. We could not
                                determine if and when late filers were actually contacted because SELRS
                                did not maintain records of these contacts with any of the 14 employees
                                in our sample who signed their reports after the required filing dates.

                                The informal practices just described do not permit USDA to effectively
                                monitor filing of public disclosure reports in order to ensure that certain
                                provisions of the act and OGF,regulations are met. These provisions
                                specify the dates that required reports must be submitted and actions to
                                be taken, such as granting additional time for filing by USDA and OGE,
                                when employees cannot meet filing deadlines. tinder the USDA regula-
                                tions, disciplinary action may be taken when employees fail to file dis-
                                closure reports by due dates. The act limits extensions for filing public
                                reports to 90 days and provides that the Attorney General may under
                                certain circumstances bring civil action against employees who know-
                                ingly and willfully fail to file.

                                The Reform Act of 1989 reemphasized timely filing of public disclosure
                                reports. Beginning with reports due after January 1, 1991, a mandatory
                                penalty of $200 is to be imposed against employees who file reports
                                more than 30 days after due dates or the extension date approved by
                                the agency. SELRS officials said this mandatory penalty would require
                                that they improve their monitoring of employees’ compliance with filing
                                dates.


Confidential Disclosure         OPM  and USDA regulations specify the dates by which covered employees
Report Filing                   are to file confidential disclosure reports. ASCS, F~HA, and FCIC did not
                                have written procedures for monitoring compliance with the due dates.

                                Employee relations specialists at the three agencies were responsible for
                                determining that employees met due dates for confidential disclosure




                                Page 32                                 GAO/GGD-SO-100   Financial   Disclosure   at USDA
                           Chapter 2
                           USDA Had Not Ensured That AU Rewrts
                           Were Filed as Required and
                           Thoroughly  Reviewed




                           USDA  agencies. However, he said no specific plan or timetable had been
                           established for improving the form and instructions. SELRS officials said
                           they had not established a specific plan or timetable for obtaining com-
                           plete and timely confidential disclosure reports because they were
                           waiting for OGE to issue final regulations on confidential disclosure.
                           Because USDA is not receiving the information needed for conflict-of-
                           interest determinations, it needs to revise its procedures, forms, and
                           instructions to require those employees in covered positions to report
                           financial transactions for a full year. OGE’s proposed regulations, though
                           not yet in final form, include this requirement.”


Employees Not Given 30-    USDA had not required that notifications to file confidential disclosure

Days’ Notice to File       reports be given to covered employees by a specific date each year.
                           However, the USDA Ethics Handbook, which provides guidance to the
                           agencies, says covered employees should be notified to file confidential
                           disclosure reports at least 1 month before the April 30 due date. In 1989,
                           ASCS, F~HA, and FCIC notified employees on April 3, April 10, and April
                           21, respectively. Thus, none of the agencies sent out notices 30 days in
                           advance, and FCIC notified employees only 9 days before the April 30
                           due date. All but one of the eight FCIC employees in our sample sub-
                           mitted their reports after April 30, 1989.


                           Neither USDA headquarters (SELRS) nor the three agencies (AXS, I+HA,
Headquarters and           and FCIC) followed procedures to ensure that employees filed public and
Agencies Informally        confidential disclosure reports by the dates required.
Monitored Compliance
With Filing Dates

Public Disclosure Report   SELRS informally monitored the filing of public disclosure reports, and
Filing                     the practices generally did not conform with criteria and guidance pro-
                           vided in the act and OGEregulations.

                           ‘According to OGE officials, scvrral factors have contributed to the delay in issuing final regulations.
                           The Department of Justice disagreed with OGE about whether the regulations should be mandatory
                           for executive branch agencies. For more information on this, see OUTreport Ethics: Office of Govem-
                           ment Ethics’ Pobcy Development Role, (GAO/GGD-89-3,         Oct. 5, 1988). The Reform Act dealt with
                           this issue by authorizing OGE to require employees to file confidential disclosure reports and to issue
                           regulations prescribing the information to be reported. CGE officials said the Reform Act also
                           Imposed requirements for OGE to issue several new regulations, which further delayed the confiden-
                           tial disclosure regulations. The OGE acting director said that he expects the regulations to be issued
                           by June 1991.




                           Page 30                                              GAO/GGDM-100        Financial   Disclosure   at USDA
                          Chapter2
                          USDA nad Not Ensured That Au Reports
                          Were Filed as Required and
                          Thoroughly  Reviewed




                          his previous employer. Details of this case are discussed later in this
                          chapter.


Employees Not Requested   AXS,  FmHA, and FCIC required covered employees to annually report

to Disclose Certain       financial interests held on the last day of the reporting period-March
                          31. They did not require the employees to disclose changes in interests
Required Financial        that occured during the period from the date of employees’ last report to
Information               March 31, if the interests were no longer held on March 31. Conse-
                          quently, the agencies did not receive certain information-information
                          we believe required by regulation-to     make conflict of interest
                          determinations.

                          OPM  regulations require employees to annually report changes in, and
                          additions to, the financial interests disclosed in the initial reports. In
                          these subsequent reports, interests are to be reported as of a date pre-
                          scribed by the agency and approved by OGE. If no changes or additions
                          occur in the employees’ financial interests, they are to file a report so
                          stating. IJSDA regulations contain virtually identical requirements and
                          specify that changes in the initial interests are to be reported as of
                          March 31 and submitted no later than April 30 each year.

                          SELKS  officials said they do not believe the current regulations require
                          filers to report all transactions occurring during the year. We agree that
                          the “as of”’ language stated in the OPM and USDA regulations is unclear as
                          to whether it requires reporting of (1) all changes in financial interests
                          occurring throughout, the period from the date of an employee’s last
                          report to the current report or (2) only the annual change between the
                          two report dates.

                          Nonet.heless, IJSDA needs information on employees’ financial transac-
                          tions during the year to effectively monitor compliance with its regula-
                          tions prohibiting certain outside financial interests. This need was
                          recognized by TISDA in its Ethics Handbook. The Handbook says the
                          annual confidential disclosure report “. . shall specify the employment
                          and financial interests of the employee from the date of the last report
                          through March 31 of thr reporting year.” We believe the USDA interpre-
                          tation in its Handbook is appropriate.

                          Contrary to the Handbook interpretation, LJSDX did not require
                          employees to report financial interests for the period since the date of
                          their last reports. VSI)AForm AD-392 and the instructions for confiden-
                          tial disclosure did not instruct employees to report transactions such as


                          Page28                                 GAO/GGD9@109   Financial   Disclosure   at USDA
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                                Were Filed as Required and
                                Thoroughly  Reviewed




                                In responding to OGE’S report, the DAEO said that all but 8 of the 167
                                cases had been resolved but did not indicate how they were resolved.
                                KIC’S personnel officer told us that the remaining eight cases, all
                                involving the employment of FCICemployees’ relatives, had been
                                resolved by limiting the employees’ duties (four cases), redrawing the
                                district lines (one case), reassignment (one case), and determinations
                                that no conflicts of interest existed (two cases).

                                The FCIC personnel officer did not know why the OGE recommendation on
                                the previously listed positions had not been implemented.


Other Agencies’ Positions       In addition to the positions at ASCS,~HA, and FCIC already discussed,
                                since April 1982, OGE had recommended 14 positions for confidential dis-
                                closure. These 14 positions involved numerous employees at 6 agencies.’
                                Of the I4 positions, 9 were below ~~-13, and 5 were GS/GM-13 or GS/GM-~~
                                positions. The agencies agreed with OGE on the need to require financial
                                disclosure reports for employees in some of the positions, but not in
                                others. For example, OGE recommended that employees in the following
                                positions and agencies be required to file confidential disclosure reports:

                            l supervisory agricultural commodity graders (GS-11) in the Federal Grain
                              Inspection Service,
                            . district rangers (GS-1 2) in the Forest Service, and
                            l certain supervisory economists (GM-Id) in the Economic Research
                              Service.

                                In April 1986, the DAEO informed OGE that the Federal Grain Inspection
                                Service and the Forest Service agreed to require confidential disclosure
                                reports from employees in the positions recommended by OGE. However,
                                the personnel director at Economic Research Service and the DAEO did
                                not agree that the reports were needed from the economists because
                                they did not believe their duties posed potential conflicts of interest.

                                USDA headquarters staff have questioned the agencies’ practice of
                                designating, for the filing of confidential disclosure reports, all positions
                                at or above GM-13 while designating few, if any, positions at or below GS-
                                12. The staff have pointed out that this practice can result in some
                                employees filing reports who should not and other employees not filing

                                ‘The six agencies were Food Safety and Inspection Service, Agricultural Marketing Service, Forest
                                Service, Food and Nutnt ion Sewice, Federal Grain Inspection Service, and Economic Research
                                Service.




                                Page 26                                            GAO/GGDSCb100      Financial   Disclosure   at USDA
                 Chapter 2
                 USDAHadNot     EnsuredThatAllReporta
                 Were Filed aa Required and
                 Thoroughly  Reviewed




                 world market prices for rice to determine the vulnerability of the posi-
                 tions to conflicts of interest and the need for disclosure reports. Officials
                 in the personnel offices of USDA headquarters and ASCSdid not believe
                 that the employees should be required to file disclosure reports because
                 the employees’ duties of developing world market prices were collateral
                 and assigned for a short period of time. The OIG did follow-up work in
                  1987 and again said that such employees should be required to file. As
                 of January 1990, ASCSstill had not required such employees to file.

                 We do not believe that the collateral and short-term nature of the above
                 employees’ duties negated the need for them to file financial disclosure
                 reports. The employees were responsible for making decisions having
                 economic impact on the private sector and thus met OGE criteria for
                 filing disclosure reports.


FmHA Positions   OGE   recommended to the DAEO in January 1986 that F~HA require confi-
                 dential reports from approximately 2,000 county supervisors, who head
                 FIIIHA'S county offices. County supervisors are ~~-10 through GS-12 fed-
                 eral employees responsible for approving farm and housing loans up to
                 $500,000.

                 The DAEO responded to OGE that, if adopted, the OGE recommendation
                 concerning county supervisors would add 2,000 reports to the personnel
                 division’s work load and that processing the reports would require an
                 additional 2.3 staff years. The DAEO said that FNIHA had only 14 conflict-
                 of-interest/outside-employment    cases investigated resulting in 6 discipli-
                 nary actions in calendar year 1985. FXIHAhad 13 cases resulting in 2
                 disciplinary actions in calendar year 1984. Because of concern about the
                 cost of implementing the OGE recommendation and anticipated budget
                 reductions, the DAEO did not believe the recommendation was cost
                 effective.

                  We believe that the DAEO'S comments demonstrate that USDA has not
                  properly applied criteria prescribed in OPM regulations and used by OGE
                  that employees in positions posing potential conflicts of interest should
                  file confidential disclosure reports. Although the criteria were met for
                  the county supervisors because of their loan-approval responsibilities,
                  USDA did not require these employees to file the reports because of
                  resource considerations.




                  Page 24                                GAO/GGIHt@lOO   Plnanclal   Dlschsure   at USJM
                 Chapter 2
                 USDA Had Not Ensured That All Reports
                 Were Filed as Required and
                 Thoroughly  Reviewed




                 OGE'S proposed regulations on confidential disclosure circulated for com-
                 ment in December 1986 do not make a distinction between positions
                 above and below Gs-13 in the criteria for financial disclosure. OGE offi-
                 cials have advised agencies that grade level should not be a factor in
                 deciding who should file confidential disclosure reports. In its reports on
                 USDA, OGE has applied criteria on employee responsibilities similar to
                 those that are contained in the OPM regulations.

                 The various USDA agencies, including the three we reviewed, required
                 employees in some or all positions at GS-13 through GS-15 to file confi-
                 dential disclosure reports. However, few agencies required any
                 employees in positions at and below Gs-12 to file. According to reports
                 furnished to USDA headquarters by the agencies, no employees at or
                 below GS-12 were required to file confidential disclosure reports in 24 of
                 36 USDA components (agencies and offices) in 1989. The other 12 compo-
                 nents required some but not all employees at or below GS-12 to file confi-
                 dential disclosure reports. ASCSand FmHA did not require any employees
                 at ~~-12 or below to file in 1989, and FCIC required 3 at Gs-I2 or below to
                 file.

                 Since 1982, OGE and the USDA'S OIG have both recommended that agen-
                 cies, including ASCS, FmIlA, and FCIC, require employees in certain posi-
                 tions, generally at and below GS-12 and primarily located in county
                 offices, to file confidential disclosure reports. USDA officials at headquar-
                 ters and the agencies generally have disagreed with OGE and OIG on the
                 need to require employees in these positions to file the reports. In
                 essence, USDA'S position has been that the risk of potential conflicts of
                 interest associated with the positions in question is not significant
                 enough to justify the additional staff necessary to obtain and review the
                 disclosure reports.

                 Although USDA agreed to obtain reports from employees in some agencies
                 as recommended by OC,F:, as of January 1990, USDAhad not requested
                 disclosure reports from any of the employees in AXS, F~HA, or FUC posi-
                 tions specified by AGEand/or OIG. We believe that these and other posi-
                 tions meet OGE and IXDA criteria for requiring confidential disclosure
                 reports and that the employees’ duties make them vulnerable to con-
                 flicts of interest.


ASCS Positions   In an April 1982 report, OGE recommended to the DAEO that MCS county
                 committee members file confidential disclosure reports. A county com-
                 mittee is composed of three members who are elected principally by


                 Page 22                                 GAO/GGDS@lOO   Financial   Disclomw   at USDA
Chapter 2

USDA Had Not Ensured That All Reports Were
Filed as Required and Thoroughly Reviewed

                                             USDA  headquarters and the three agencies we reviewed (ASCS,F~HA, and
                                             FCIC)did not have procedures to ensure that all disclosure reports were
                                             filed and reviewed according to the act and GGE regulations. Although
                                             the headquarters staff had recently improved certain practices, other
                                             practices that they and the three agencies followed did not ensure that
                                             all required reports were filed when due, that the reports were thor-
                                             oughly reviewed, and that all potential conflicts of interest were fully
                                             resolved.

                                             According to USDA, about 7,800, or about 6 percent, of its total
                                             employees filed either public or confidential disclosure reports in 1989,
                                             and about 93 percent of these reports were confidential. The percentage
                                             of ASCS, MA,  and FCIC employees who filed confidential disclosure
                                             reports ranged from less than 2 percent to about 10 percent. (See table
                                             2.1.)


Table 2.1: Number of Employees   Filing Public and Confidential     Disclosure Reports
                                           USDA-wide                       ASCS                         FmHA                          FCIC
                                        Number    Percent           Number     Percent            Number   Percent              Number    Percent
Total employeesa                        143,534         100            24,891         100           15,487      100                 884        100
Type of report filed
  Publtc                                    564          04                55          0.2               49         0.3                 2          0.2
  Confidential                    __-     7,275          5.1              333          1.3              558         3.6                a3          9.4
Total reports                             7.039          5.5              388          1.6             607          3.9                85         9.6
                                             %cludes full-time and part-time federal employees and part-time, nonfederal employees, such as
                                             county commlttee members in ASCS county offlces. In addltlon to the above employees, there were 51
                                             USDA advisory committees I” wstence I” 1989. USDA officials said no advisory committee members
                                             were required to file dlsclosure reports because they were not appointed as regular or special govern-
                                             ment employees. These offuals said that USDA had 6 expert/consultants     hired at the GS-15 salary level
                                             I” 1989, and we determlned that all of them filed disclosure reports



                                             The 1978 act and OGE regulations provide specific criteria and require-
Headquarters Had                             ments for identifying who must file public disclosure reports and what
Improved Procedures                          must be included in them. The practices followed by the employee rela-
for Identifying Public                       tions staff at USDA headquarters resulted in identifying employees who
                                             were required to file public disclosure reports and furnishing them with
Report Filers                                forms (SF-278) and instructions developed by OGE.

                                             SELRS had improved the practices for identifying employees who are
                                             required to file public disclosure reports. OGE reported in 1986 that USM
                                             had not identified these employees in an accurate and timely manner.
                                             Subsequently, SEWS began using a list generated each year from USDA’S


                                             page20                                               GAO/GGDw)-100Finnmid Disclosure at USM
    Chapter 1
    Introduction




    obtained from ASCSexcluded certain employees who actually filed
    reports in 1989. Thus, the lists provided to us and consequently used in
    our sample were not representative of the filing universe, so we could
    not use the sample t,o generalize about the universe.

    Early in our review. we also learned that IISDA'S disclosure systems had
    weaknesses that would prevent us from answering some basic questions
    about the systems, such as whether IJSDA employees filed reports on time
    and whether the reports as filed were complete. TWA had not imple-
    mented a requirement, contained in the 1978 act that public reports be
    dated when received and did not maintain records on time extensions
    that were requested and granted. Therefore, we could not fully evaluate
    the timeliness of filing and review. Also, the I'SDA report reviewers,
    rather than the filing employees, made changes to the reports. There-
    fore, we could not fully evaluate the accuracy and completeness of the
    reports filed by 1WA employees because the reviewers had changed
    reports and had not always documented the reasons.

    Because of these difficulties and the resulting impact on our reporting
    objectives, we agreed with the Subcommittee to reduce the scope of our
    review by limiting the number of IEDA agencies and the number of
    reports to be reviewed. We also agreed that we would focus our atten-
    tion on determining the extent to which lWA had implemented required
    financial disclosure systems and that we would use the smaller sample
    of 65 reports primarily to test the implementation of the systems.

    In reviewing the 65 reports, we used a standardized set of questions to
    determine

l whether employees who filed reports after the original due dates were
  granted time extensions and whether follow-up actions were taken to
  obtain late reports:
- whether reports were reviewed within prescribed time periods (60 days
  for public and 2 months for confidential) after receipt; and
- whether report reviewers identified and resolved errors, such as the
  omission of required information, and conflicts of interest before the
  reports were approved and within the time prescribed in the act and CGF,
  regulations.

     We selected a larger number of confidential disclosure reports to provide
     more complete information on the adequacy of the three selected agen-
     cies’ procedures for obtaining and reviewing reports on time. We
     selected for review the confidential disclosure reports that were to be


     Page 18                              GAO/GGGD90100   Financial   Disclosure   at USDA
Chapter1
lntrtJduction




The scope of our review encompassed both public and confidential dis-
closure systems. As agreed with the Subcommittee, we limited our
review to USDA headquarters and three agencies selected by the Subcom-
m&tee--Ascs, FIIIHA,and FCIC. From June 1989 through January 1990,
we reviewed the systems in operation at USDA headquarters and these
three agencies.

We compared the design and operation of USDA'S disclosure systems with
various legal and regulatory requirements for agency disclosure systems
contained in the Ethics in Government Act of 1978, as amended; Execu-
tive Orders 11222 dated May 8,1965, 12565 dated September 25,1986,
and 12674 dated April 12, 1989; OGE regulations on public disclosure (5
C.F.R. 2634) and ethics officials’ responsibilities (5 C.F.R. 2638); and
OPM regulations on confidential disclosure (5 C.F.R. 735).


We did not evaluate every aspect of USDA'S ethics program. Rather, we
concentrated on learning how USDA headquarters and the selected com-
ponents had satisfied financial disclosure requirements and resolved
conflicts of interest through its disclosure systems.

We reviewed USDA'S regulation (7 C.F.R. 0.735) on financial disclosure
and various other regulations, directives, and instructions on financial
disclosure in use at USDAand the three agencies at the time of our
review. We interviewed USDA'S DAEO; his alternate DAEO and his deputies;
the Department Counselor; and at each of the agencies, other ethics offi-
cials who were responsible for administering the public and confidential
disclosure systems. We also interviewed USDA OIG and OGE officials con-
cerning USDA'S systems and reviewed reports and related follow-up docu-
ments on reviews that USDA OIG and OGE had made of the USDA'S
disclosure systems since 1982.

We did not independently review USDA positions to determine whether
all positions that met criteria contained in the 1978 act and imple-
menting regulations had been designated for financial disclosure.
Rather, we reviewed the procedures and criteria that IJSDA and the three
agencies used for designating positions for disclosure. To determine if
USDA had properly applied criteria in determining who should file, we
relied primarily on the results of work done by the USDA-• IG and OGE on
USDA's designation of positions.


We obtained information, mainly through interviews with agency per-
sonnel, on the organizational placement, work load, training, and experi-
ence of staff who were primarily responsible for reviewing disclosure


Page16                               GAO/GGD90-100FinancialDisclosureatUSDA
                            Chapter 1
                            Introduction




                        l   County executive directors may not participate in decisions affecting
                            the approval of cost-sharing under the ASCSagricultural conservation
                            program on farms they or their family members own.”
                        l   County committee members may not participate in committee approvals
                            of an adjustment in a tobacco allotment or the transfer and lease of a
                            tobacco allotment for their own farms.’

                            MA’S Instruction 2045-BB, Employee Responsibilities and Conduct,
                            provides that employees may not purchase IMIA-financed property in
                            government inventory, FmHA-mortgaged property on which foreclosure
                            action has been initiated or taken by the government, or FmnA-financed
                            property being sold after foreclosure. They may not sell personal real
                            estate to an FKLHA applicant or borrower or act as an agent for a close
                            relative doing so. F~IIA employees and members of their families are not
                            eligible for MA loans except, with certain restrictions, rural housing
                            loans.

                            FCIC  Employee Responsibilities and Conduct Procedure also prohibits
                            certain activities by its employees. For example, FCICemployees may not
                            sell or service crop insurance policies or work for private contractors
                            selling or servicing FcIc-insured crop insurance policies. Exceptions to
                            this prohibition may be granted when it had been determined that no
                            actual or potential conflicts of interest exist and certain other conditions
                            are met.


USDA Ethics Officials       The Secretary of Agriculture named the Director of Personnel as USDA’S
                            DAEO-the official who has overall responsibility for the USDAethics pro-
                            gram. The Chief of the Security, Employee, and Labor Relations Staff
                            (SELRS) in the Office of Personnel was designated as the alternate DAEO.
                            The DAEOand alternate DAEOserving at the time of our review were des-
                            ignated as such in 1982 and 1984, respectively. The Chief of SELRSand
                            three employee relations personnel are primarily responsible for
                            reviewing and approving public disclosure reports and for monitoring
                            the confidential disclosure systems administered by the 18 personnel
                            offices serving 39 IJSDAoffices and agencies.

                            ‘Under this program, AK? shares costs with fanners and ranchers who agree to carry out certain
                            conservation and environmental protection practices that will result in long-term public benefits.
                            County committees work with local groups to identify such practices. Farmers and ranchers file
                            requests for cost-sharing with the county committees.

                            ‘Under ASXs production adJUstment programs, ASCS establishes marketing quotas for most kinds
                            of tobacco and for peanuts when supply prospects exceed specified levels. Properly established
                            quotas become mandatory for all producers.




                            Page 14                                            GAO/GGD90100        Financial   Disclosore   at USDA
                            Chapter 1
                            Introduction




                        n   a list of circumstances or situations that have resulted or may result in
                            conflicts of interest is maintained and published for the benefit of all
                            employees; and
                        l   agency standards of conduct are updated when internal or external
                            audits indicate changes are necessary.

                            In April 1989, President Bush issued Executive Order 12674 empha-
                            sizing agency heads’ ethics program responsibilities. Among other
                            things, the order assigned specific responsibilities to agencies for pro-
                            viding mandatory annual briefings on ethics and for ensuring that DAEOS
                            have the rank, authority, staffing, and resources necessary for effective
                            agency ethics programs.


                            The potential for conflicts of interest in any organization is related to
USDA’s Mission, Size,       such factors as its mission, size, and relationships to nonfederal entities.
and Ethics Program          USDA is one of the largest organizations in the federal government. It pro-

Structure                   vides billions of dollars annually to support farm incomes; boost produc-
                            tion and exports; ensure a safe food supply; manage the nation’s forests,
                            water, and land conservation efforts; and improve nutrition.

                            A complex system of farm support programs exists to accomplish the
                            above objectives. These programs and other USDA programs accounted
                            for a dramatic growth in USDA outlays in recent years. Farm assistance
                            spending alone by ASKS,FMA, and FCIC increased from $2.4 billion in
                            fiscal year 1979 to $10.3 billion in fiscal year 1989. This spending repre-
                            sents about 21 percent of 1ISDA’S fiscal year 1989 outlays, which totaled
                            $48.3 billion.

                            Local USDA offices are located in almost every county and in many cities
                            in the United States and are responsible for working directly with
                            farmers and ranchers to administer various agricultural laws and pro-
                            grams. The network of USDA employees is viewed aa providing a direct
                            link between the Department and farmers and ranchers.

                            ASCS administers farm commodity, conservation, environmental      protec-
                            tion, and emergency programs. State and county committees, whose
                            members are actively engaged in farming, and other county employees
                            administer the ASCS programs locally. FKIHA provides credit assistance,
                            on the basis of county committees’ eligibility determinations for certain
                            assistance, through various loan and grant programs to rural Ameri-
                            cans The purpose of this assistance is to encourage and support family
                            farm ownership and operation, provide adequate housing, install needed


                            Page 12                               GAO/GGD90-100   Financial   Dbclosure   at USDA
                            Chapter 1
                            introduction




                            and place for submission of the reports; (2) assuring that agencies desig-
                            nate positions for financial disclosure; and (3) assuring that agencies
                            properly administer their implementing regulations. The order also
                            stated that confidential disclosure reports filed under Executive Order
                            11222, OPM regulation (5 C.F.R. 735), and individual agency regulations
                            would continue to be held in confidence.

                            The OPM regulation requires agencies to issue regulations, after OPM has
                            approved them, on employee responsibilities and conduct. The regula-
                            tions issued by the various agencies are to establish systems for review
                            of confidential disclosure reports and resolution of potential conflicts of
                            interest. Like the public reports, confidential reports must include infor-
                            mation on financial int,erests of certain relatives.

                            In December 1986,~; proposed regulations in the Federal Register to
                            revise regulations issued by OPM in September 1968 on confidential dis-
                            closure. As of May 1990, OGE had not issued the regulations in final
                            form. Meanwhile, executive branch agencies, including IJSDA, have con-
                            tinued to cite Executive Order 11222 and the September 1968 OPM regu-
                            lations as authority for requiring confidential disclosure reports.


Recent Ethics Legislation    The Ethics Reform Act of 1989 (Public Law 101-194, Nov. 30, 1989)
                             amended certain provisions of the 1978 act on financial disclosure in the
                             three branches of government.’ Financial disclosure provisions of the
                             Reform Act took effect on January 1, 1990, and are applicable to reports
                             filed after January 1, 1991.

                             The Office of Government Ethics Reauthorization Act of 1988 (Public
                             Law 100-598, Nov. 3, 1988) amended the 1978 act and assigned OGE spe-
                             cific responsibilities for ensuring that (1) executive agencies have estab-
                             lished written procedures for obtaining, reviewing, and evaluating
                             disclosure reports, and, if applicable, making them publicly available
                             and (2) the procedures conform with relevant laws, rules, regulations,
                             and executive orders. CKXpublished interim regulations, effective Feb-
                             ruary 20, 1990, outlining procedures OGE will use for issuing notices of
                             deficiency and corrective orders to agency heads and issuing reports of




                             ‘The Ethics Act of 1978 prescribed requirements for financial disclosure in separate titles for the
                             legislative, executive, and judlcml branches. The Reform Act of 1989 revised certain of these reqmre-
                             ments for all three branches and combined the requirements m a single title.



                             Page 10                                            GAO/GGD90-100      financial   Dis&wure   at USDA
Introduction


                       Officers and employees in certain positions in the federal government
                       are required to report their financial interests to demonstrate that they
                       are carrying out their duties without compromising the public trust.
                       These reports provide information essential to the administration of
                       conflict-of-interest statutes, ethics regulations, and agency standards of
                       conduct, including any specific statutory and program restrictions on
                       employees’ outside financial interests and activities. The information is
                       to be reviewed and any conflicts between employees’ reported interests
                       and their official duties are to be resolved.

                       At the request of the Chairman of the Senate Subcommittee on Nutrition
                       and Investigations, Committee on Agriculture, Nutrition, and Forestry,
                       we determined whether the Department of Agriculture’s (USDA) financial
                       disclosure systems reasonably assure that conflicts of interest will be
                       detected and resolved. As agreed with the Subcommittee, we reviewed
                       those systems at ~JSDAheadquarters, the Agricultural Stabilization and
                       Conservation Service (AsCS), the Farmers Home Administration (F~HA),
                       and the Federal Crop Insurance Corporation (FCIC).


                       Financial disclosure reports filed by officers and employees are either
Financial Disclosure   public or confidential. Although the same basic steps are required in
Requirements           obtaining and reviewing the two types of reports, requirements differ as
                       to who must file, when the reports are due, and what must be reported.


Public Disclosure      Title II of the Ethics in Government Act of 1978, as amended, prescribes
                       requirements for public disclosure in the executive branch. Individuals
                       who must file public disclosure reports include (1) those nominated by
                       the president; (2) members of the Senior Executive Service; and (3)
                       employees classified or paid at General Schedule (GS) 16 or above,
                       including special government employees who work in the federal gov-
                       ernment more than 60 days in a calendar year.

                       Individuals nominated by the president must file within 5 days of trans-
                       mittal of the nomination to the Senate for confirmation. Other persons
                       required to file public reports must do so within 30 days after assuming
                       the position or leaving office unless the person has fulfilled filing obliga-
                       tions in a prior government position. Incumbents (those who worked
                       more than 60 days in a prior calendar year) must file on or before May
                       15. Created by title IV of the 1978 act, the Office of Government Ethics




                       Page8                                  GAO/GGJMW1OOFlmnchlDisclosureatUSDA
Contents


Executive Summary                                                                   2

Chapter 1                                                                            8
Introduction             Financial Disclosure Requirements
                         USDA’s Mission, Size, and Ethics Program Structure
                                                                                     8
                                                                                    12
                         Objective, Scope, and Methodology                          16

Chapter 2                                                                           20
USDA Had Not             Headquarters Had Improved Procedures for Identifying
                             Public Report Filers
                                                                                    20
Ensured That All         Employees in Certain Vulnerable Positions Not Required     21
Reports Were Filed as        to File Confidential Disclosure Reports
                         Agencies Had Not Properly Implemented Reporting            27
Required and                 Requirements for Covered Employees
Thoroughly Reviewed      Headquarters and Agencies Informally Monitored             30
                             Compliance With Filing Dates
                         Headquarters and Agencies Did Not Follow a Systematic      34
                             Review Approach

Chapter 3                                                                           44
Top Management Had       Insufficient Staff Assigned to Adequately Administer       44
                              Ethics Program
Not Devoted Sufficient   Top USDA Officials Had Not Regularly Reviewed the          48
Attention and Staff to        Ethics Program
Financial Disclosure     Weaknesses in USDA’s Financial Disclosure Systems Are      51
                              Long-Standing
Systems
Chapter 4                                                                           54
Conclusions and          Recommendations
                         Agency Comments and Our Evaluation
                                                                                    55
                                                                                    56
Recommendations
Appendixes               Appendix I: Comments From the Department of                68
                             Agriculture
                         Appendix II: Major Contributors to This Report             66

Tables                   Table 1.l: Location of Employees Included in GAO’s
                             Sample of Public and Confidential Disclosure Reports



                         Page6
                            ExecutiveSummary




Some Essential              USM employees filing confidential reports were not required to disclose
                            certain information, such as purchases and sales of income-producing
Information Not Requested   assets during the year, that was necessary for determining whether con-
                            flicts of interest existed. USDArequired these employees to report finan-
                            cial interests held on March 31 of each year and did not require financial
                            transactions during the year to be reported. (See pp. 28 and 29.)


Filing Timeliness Not       USDA headquarters and the agencies had not enforced requirements that
Effectively Monitored       reports be filed when due. For 14 of 46 public reports and 98 of 246
                            confidential reports in GAO'S sample, employees signed their reports
                            after the due dates. (See p. 34.)


Report Reviews and          USDA had not assigned sufficient staff to review public and confidential
Conflict-Of-Interest        disclosure reports within the 60 days required. For example, by the end
                            of September 1989, more than 4 months after the May 15 due date for
Determinations Not Timely   public reports, the employee relations specialist at USDA headquarters
or Thorough                 still had not completed reviews of about two-thirds of the 400 public
                            reports assigned to him. Specialists at two of the three agencies gener-
                            ally completed reviews within 60 days during 1989. The specialist at the
                            third agency (Federal Crop Insurance Corporation), who was hired in
                            June 1989 and had various duties in addition to reviewing disclosure
                            reports, reviewed 12 of the 83 reports filed in 1989 within the required
                            60 days. (See pp. 44-47.)

                            GAO reviewed a random sample of 46 public reports filed in 1989 by
                            employees in the Office of the Secretary and in the three selected agen-
                            cies and 19 confidential reports filed by GS-15 employees in the three
                            agencies. All but 1 of 65 reports had been approved by USDA when GAO
                            determined that (1) not all of them were complete and (2) not all con-
                            flicts of interest were identified and fully resolved. Of these 64, 11
                            reports (all public) did not disclose all required information on reported
                            interests, such as the nature and location of assets.

                            In GAO'S view, this information was necessary for determining whether
                            conflicts of interest existed. The information in 4 of these 11 reports and
                            in 6 other reports (3 public and 3 confidential) indicated conflict-of-
                            interest situations that IISDA did not identify as such or did not fully
                            resolve. For example. seven reports (six public and one confidential) dis-
                            closed interests not questioned by the reviewers that GAO believes posed
                            potential or apparent conflicts of interest because the employees had
                            duties that could allow them to influence their outside interests. For


                            page4                                 GA0/GGB90100FinmcialDieclasmatUSM
                                     --

Executive Summary


                   Every American has the right to expect public servants to abide by high
Purpose            ethical standards and not use their offices for personal gain. One of the
                   safeguards the government uses to protect that right is requiring certain
                   employees to disclose outside financial interests and resolve any con-
                   flicts between those interests and their official duties.

                   This report, requested by the Chairman of the Senate Subcommittee on
                   Nutrition and Investigations, Committee on Agriculture, Nutrition, and
                   Forestry, evaluates the Department of Agriculture’s (USDA) systems for
                   obtaining and reviewing financial disclosure reports. GAO'S objective was
                   to determine whether those systems reasonably assure that conflicts of
                   interest will be detected and resolved. (See p. 15.)


                   Title II of the Ethics in Government Act of 1978, as amended, and imple-
Background         menting regulations require certain employees to report information on
                   their financial interests outside of their federal positions. The reports
                   must be submitted and reviewed within specific time frames given in the
                   act and regulations. When the reviews disclose conflicts of interest, they
                   are to be resolved by appropriate administrative actions and sanctions,
                   such as having the employee dispose of the outside interest.

                   The Secretary of Agriculture has named the Director of Personnel, who
                   reports to the Assistant Secretary for Administration, as USDA'S key
                   ethics official. Disclosure reports filed by individuals nominated or
                   appointed by the president, and certain other high-level employees and
                   made available to the public are reviewed by the Director of Personnel
                   and employee relations specialists at USDA headquarters. Other disclo-
                   sure reports, generally filed by employees at and below the GS-15 level
                   and treated as confidential, are reviewed primarily by personnel direc-
                   tors and employee relations specialists within their respective USDA
                   offices and agencies.

                   GAO reviewed the disclosure systems at USDA headquarters and three
                   component agencies-the Agricultural Stabilization and Conservation
                   Service, the Farmers Home Administration, and the Federal Crop Insur-
                   ance Corporation. Together, these three agencies accounted for federal
                   outlays in fiscal year 1989 of $10.3 billion, about 2 1 percent of USDA'S
                   outlays that year. (See p. 12.)

                                         -
                   USDA'S disclosure systems do not reasonably assure that conflicts of
Results in Brief   interest will be detected and resolved. USDA has taken steps to improve


                   Page 2                                GAO/GGD-90100   Financial   Disdosure   at USDA