United States General Accounting Office Report to the Chairman, Subcommittee on Nutrition and Investigations, Committee on Agriculture, Nutrition, and Forestry, U.S. Senate ; November 199@ + ;1 EMPLOYEE FINANCIAL i:‘ DISCLOSURE CFTC System Affords ReasonableProtection Against Conflicts of Inkrest United States General Accounting Office Washington, D.C. 20548 General Government Division R-241873 November 7, 1990 The Honorable Tom Harkin Chairman, Subcommittee on Nutrition and Investigations Committee on Agriculture, Nutrition, and Forestry ITnited States Senate Dear Mr. Chairman: This report, the third in response to your request, evaluates the employee financial disclosure system of the Commodity Futures Trading Commission (cF’I’c), an independent regulatory agency. As agreed with the Subcommittee, we determined whether CFTC's system reasonably ensures that conflicts between its employees’ duties and their outside interests will be prexrented and, when they exist, will be detected and resolved. We earlier reported to you on the disclosure systems of the Department of Agriculture and the Farm Credit Administration.’ CEX is subject to the Ethics in Government Act of 1978, as amended; related executive orders; and implementing regulations issued by the Office of Personnel Management (OPM) and the Office of Government Ethics (OGE).As such, CFTC is required to implement a system of finan- cial disclosure. The system is to provide for the (1) identification of employees who must file reports on their outside financial interests, (2) collection of the reports by dates specified in the 1978 act or agency instructions, and (3) review of the reports to ensure they are complete and to identify any conflicts of interest. Conflicts of interest that CFTC identifies are to be resolved by appropriate administrative action, such as having the employee dispose of the interests or changing the employee’s assigned duties. CFTC has established a system of controls that, under current require- ments, should provide reasonable assurance that conflicts of interest will be prevented. The agency’s approach to preventing conflicts is to (1) restrict employees’ outside financial interests and (2) annually require all employees to report outside interests for CFTC’S review or cer- tify they have no suc,h interests that conflict with their CFTC duties. ‘Fmancial Disclosure: IJSDA’h System Lrnited by Insufficient Top Management Support (GAO/GGD 90-100. July 13, 1990) and Employee Financial Disclosure: Farm Credit Administration System Is Generally Operating --__ Effectively (GAO/GGD-90-115. Sept. 27, 1990). Page 1 GAO/GGD919 Employee Financial Disclosure at CFl’C example, it did not make decisions on 19 public reports out of 31 filed in 1989 until more than 60 days (the maximum allowed by the 1978 act) and in some cases more than 180 days after CFTCreceived the reports. CFTC’also did not require employees filing confidential reports to disclose certain information (namely, employees’ financial transactions during the year and the dollar value of employees’ financial holdings at the end of the year) that, in our view, was necessary in reviewing outside inter- ests and making conflict decisions. CETCalso had not established an ethics training program. An agency of 558 employees in June 1989, CFTCis headed by a chairman Background and four commissioners nominated by the president and confirmed by the Senate. The agency is responsible for administering federal legisla- tion and developing comprehensive regulations to protect the public from fraud and manipulation in, and to ensure the financial integrity of, the commodity futures markets. CFTCoversees these markets by making regular or periodic examinations of self-regulatory organizations, such as the Chicago Board of Trade and the Chicago Mercantile Exchange; maintaining a surveillance system for oversight of daily trading activity; and reviewing and approving rules and rule changes. CETCprovides direct regulation primarily by rulemaking, investigating alleged wrong- doing. and hearing complaints of market participants. The 1978 act requires high-level federal employees, such as presidential appointees and senior executives, to file public disclosure reports by May 15 each year. OPMregulations require employees not covered by the above public disclosure requirements and in positions designated by agencies for confidential disclosure to report outside financial interests as of June 30 each year. The OPMregulations do not specify when the reports are to be submitted to agencies. CFTC’Sregulations on financial disclosure (17 C.F.R. 140.735) require employees in CFTC-designated positions to prepare confidential disclosure reports as of June 30. CFTC’S reporting instructions require employees to submit reports to CFTCby .July 15 each year. (WC‘ has named the General Counsel, who reports to the CFTCChairman, as the Designated Agency Ethics Official (DAEO).As such, the General Counsel is responsible under OGEregulations (5 C.F.R. 2638) for CFTC’S entire ethics program, including training and counseling, public and con- fidential disclosure, and ethics program evaluation. The General Counsel, and a Deputy General Counsel who acts as alternate DAEO,are authorized to make conflict-of-interest decisions for public disclosure Page 3 GAO/GGD-913 Employee Pinmcial Disclosure at CFlT E-241873 the 23 reports we selected. We also determined whether CFTC imple- mented recommendations made by OGE in 1986 to improve the CPX dis- closure system. Our review, made during the period from August 1989 to May 1990 at CFTC headquarters where disclosure reports were received, reviewed, and maintained, was done in accordance with generally accepted gov- ernment auditing standards. CFTC has reduced the risk of conflicts of interest by (1) restricting Employees’ Outside employees’ outside financial activities and (2) requiring all employees to Financial Interests Are file reports or certifications concerning their financial interests. Restricted and Must Be Reported CFTC Restricts Outside CFTC'S regulatory functions present significant risks of conflict bet,ween Financial Activities employees’ duties and their financial interests. Employees assigned to these functions have duties and responsibilities that can affect financial organizations and transactions outside CFTC. For example, economists in the Division of Economic, Analysis survey the commodity futures mar- kets to detect and prevent actions by companies to manipulate com- modity prices. Employees in this division analyze the terms of commodity futures contracts to ensure that they are not susceptible to price manipulation or distortion. These employees and those in other CETC offices and divisions, such as the Division of Trading and Markets and Division of Enforcement, are in positions to potentially benefit from their relationships with. or knowledge of, individuals and organizations outside CFTC. To deal with such risks, U-K prohibits or limits employees’ interests in outside entities that are subject to CFK oversight or direct regulation. The Commodity Exchange Act of 1936, as amended, imposes certain restrictions on CFTC employees’ outside interests, such as not allowing employees to direct,ly buy and sell commodity futures contracts. CFTC has implemented thesr restrictions and provided additional restrictions and guidance through its Code of Conduct. CFTC requires the Code to be distributed to all its employees when they begin employment with the agency. page5 GAO/GGDSI-3 Employee Financial Disclosure at CFTC - B241873 All Employees Must File CFTC monitors employees’ compliance with the Code and other require- ments, such as those in the 1978 act and related regulations, through its Financial Disclosure financial disclosure system. CFTC requires all employees to annually file Reports or Certify No either (1) a financial disclosure report (public or confidential) showing Conflict of Interest Exists interests outside WIT that are to be reviewed for conflicts of interest or (2) a certification of compliance indicating that no conflicts of interest exist. CE’TC’Sregulations include specific criteria on who must file each type of disclosure report and certifications of compliance. The regulations require annual confidential reporting by all employees at the GS-13 through GS-16 levels. Regardless of grade level, all attorneys, auditors, economists, investigators, and futures trading specialists must file confi- dential reports because they (1) have access to sensitive, nonpublic information and (2) can influence CFTC decisions through their collection and analysis of data. According to CFTC, other employees not covered by public and confiden- t,ial disclosure requirements also have access to sensitive, nonpublic information. Therefore. CFIY:requires every employee who is not required to file a public or confidential report to file certifications of compliance by July 15 chachyear. They must certify that they have no financial interests, including outside employment, that violate the Code. Thus, all CFTC employees must file reports on their outside interests or certifications of compliance at least annually. According to a CFTC per- sonnel official, as of May 1989, CETC had required public disclosure reports from 31 employc,es; confidential reports from 318 employees, such as economists, attorneys. and auditors; and certifications from the remaining employees. (‘FTC’had procedures for identifying employees who must file disclosure Employees Filed reports, notifying employees to file, and following up with late filing Required Disclosure tamployees. To identify clmployees who must file each year, CFTC officials Reports and Usually said the Office of Information Resources Management uses a computer program to identify from the automated payroll system each employee’s Did So by Due Dates grade/pay level. position, and type of appointment. The officials said this information allows them to determine the type of report (public, confidential, or certification) that each CFTC employee must file. Offi- cials in C'FTC'S Office of General Counsel and Office of Personnel said they use lists provided by Information Resources Management to notify all ('FTC employees of filing requirements. In 1989, General Counsel and Page 7 GAO/GGDSl-3 Employee Financial Disclosure at CFTC B-241873 of the Division of Economic Analysis obtain reports, within 5 days, from employees who should have filed by .July 15 but had not filed. Most (13 of 19) of the late confidential reports due from GS-15 employees were filed within 30 days after the due date. Six reports were filed more than 30 days after the due date. We do not know why these employees did not file their reports earlier. ~- When reviewing public and confidential reports, General Counsel and CFTC Report Reviews Personnel reviewers took steps to determine whether employees fol- Included Steps to lowed reporting guidelines and complied with prohibitions and limita- Detect Errors and tions on their outside financial interests. If the outside interests reported by employees do not meet the restrictions and other requirements, the Conflicts of Interest reviewers are to determine whether the employees should take remedial action such as to recuse themselves from certain CYK activities or dis- pose of the interest to meet requirements. Reviewers in General Counsel and Personnel required errors in disclo- sure reports, such as the omission of required information, to be cor- rected. For example, General Counsel reviewers required 6 of the 9 public reports in our sample to be corrected before making conflict-of- interest decisions. General Counsel and Personnel reviewers also ques- tioned employees’ interests in persons or organizations subject to CFTC oversight or direct regulation. Of the 9 public and 14 confidential reports that we reviewed, 6 reports (2 public and 4 confidential) dis- closed interests in large traders. The CFTC reviewers determined that none of the employees’ interests were in conflict with related CFTC restrictions. The CFK reviewers determined that none of the outside interests in the 23 reports posed apparent or possible conflicts of interest. We also determined, on the basis of information available during the review and requirements in the 1978 act and implementing regulations, that the reported interests did not present conflicts of interest. Although CFTC'S disclosure system was generally operating effectively, CFTC Can Strengthen CFTC can make certain improvements in the administration of the Certain Financial system. These improvements include (1) making more timely conflict-of- Disclosure Procedures interest decisions and (2) requiring additional information in confiden- tial disclosure reports for such decisions. Page 9 GAO/GGDSl-3 Employee Financial Disclosure at CFTC final and signed to indicate no conflicts of interest existed until Feb- ruary 1990. We believe that the lengthy delays, ranging up to more than 6 months, in completing the reviews of some public and confidential reports indicate t,hat review timeliness needs improving. Of the 26 public report reviews that were completed late, 20 were reviewed from 61 to 180 days after receipt, and 6 were completed more than 180 days after receipt. As t,able 3 shows, Personnel completed the final review of 64 of the 87 confiden- t,ial reports more t,han 60 days after the employees’ signature dates on the reports. Of these 54 reports, 24 were reviewed between 61 and 180 days, and 30 were reviewed more than 180 days after the employees’ signature dates. Until CFK completes its reviews of employees’ reported outside inter- ests, it runs the risk that conflicts of interest will exist but will not be detected and resolved. Accordingly, we believe that CFTC needs to estab- lish a time limit for completing reviews of confidential disclosure reports and ensure that both public and confidential reports are reviewed within the established time limit. Additional Information in In 1988 and 1989, CF’K did not require employees to provide information in confidential reports on (1) their financial transactions during the year Confidential Reports Is and (2) the value of their financial interests. Although current federal Needed for Monitoring regulations do not specifically require this information, we believe it is Outside Interests needed to help CFTC and its employees ensure that, outside interests meet (‘FTCrestrictions and other requirements. Financial Transactions Not (YK required employees filing confidential reports-unlike those filing Reported public reports-to annually report financial interests held on the last day of the reporting period (June 30) but did not require them to report changes in interests that occurred during the reporting year. Although the (‘FTC Code restricts employees’ outside financial interests that could pose conflicts of interest, we believe that information on employees’ transactions during the year, as well as their holdings at the end of the year, is needed for monitoring compliance with the Code. Currently, c~mployces can engagcain prohibited transactions, such as the purchase and sale of commodity futures contracts, during the year and not be required to disclose the transactions in their year-end disclosure reports because they do not hold the financial interests on the last day of the reporting period, .Juntx31). Page 11 GAO/GGD-91-3 Employee Financial Disclosure at CFK To improve the disclosure system, CFTC made changes in its report CFTC Implemented review procedures that OGErecommended in a January 1986 report to Most of OGE’s 1986 the DAEO. For example. in response to the OGEreport, the DAEO advised Recommendations OGGE that General Counsel and Personnel would (1) use consistent criteria in determining whether employees’ out,side interests pose conflicts of interest and (2) share information, such as Personnel’s microfiche list of CF’I’Cregistrants and large traders, that each needed to review reports. We determined in our review of selected public and confidential disclo- sure reports that General Counsel and Personnel reviewed reports using the same criteria and shared information in their respective reviews. Although the OGE recommendations dealt mainly with the disclosure system, OGE recommend(,d as well that the DAEO establish a crrc-specific ethics training program for all its employees. In October 1986, when OGE made a follow-up visit to CF’I’C,the DAEO said he had not established the recommended ethics training program because legislative changes were being considered that could affect restrictions on CFTC employees’ outside financial interests. According to OGE,an ethics training program has been required since passage of the Ethics in Government Act of 1978, but the requirement in the act and implementing regulations is very general. In April 1989, President Bush issued Executive Order 12674 containing specific requirements for ethics training. The order requires, among other things, that agency heads, in coordination with OGE, develop annual agency-specific ethics training plans. The order requires mandatory annual briefings on ethics and standards of conduct for those employees required to file public, or confidential disclosure reports.!’ In Sept,ember 1990, CYK still had not developed a program of regular ethics training for its employees. At that time, ethics training was lim- ited to new CFK employees and given as part of their orientation. According to CFTC General Counsel officials, changes in both the com- modity futures laws and ethics laws and regulations have delayed the development of a cYT(‘ vt hits training program. CF~‘Chas reduced the risk of conflicts of interest by restricting t,he finan- Conclusions cial interests of all its employees. In our view, on the basis of applicable !‘ln Scptembcr 1990, OGE pubbshui proposed regulations on executive agency ethics training pro- qxr~s (55 Frd. Reg 38,335) Page 13 GAO/GGD913 Employee Financial Disclosure at CFTC B-241873 Major contributors to this report are listed in appendix I. Please contact me on 275-5074 if you have any questions about this report. Sincerely yours, Bernard L. IJngar Director, Federal Human Resource Management Issues Page 15 GAO/GGDSl-3 Employee Financial Disclosure at CFl’C ordering Infornultion The first five copies of each GAO report are free. Additional copies are $2 each. Orders should be sent to the following address, accom- panied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6016 Gaithersburg, MD 20877 Orders may also be placed by calling (202) 275-6241. i Appendix I _--- Major Contributors to This Report James T. Campbell, Assistant Director, Federal Human Resource Man- General Government agement Issues Division, Washington, Gary V. Lawson, Evaluator-In-Charge D.C. - Ellen T. Wineholt, Evaluator Stuart M. Kaufman, Technical Advisor Valerie A. Miller, Technical Advisor - Michael R. Volpe, Assistant General Counsel Office of General Counsel, Washington, D.C. (966428) Page 16 GAO/GCB913 Employee Financial Disclosure at CFTC B-241873 requirements for financial disclosure, CETC’Ssystem provides a reason- able basis for monitoring compliance with the restrictions on employees’ outside interests. Although CFTC improved the system in response to OGErecommenda- tions, the administration of the system can be further improved. Specifi- cally, CETC needs to ensure that (1) conflict-of-interest decisions are made in a timely manner. (2) confidential reports provide all the infor- mation necessary for conflict-of-interest decisions, and (3) an ethics training program is established for all CFTC employees. To further reduce the risk of conflicts of interest and improve the CE’T( Recommendations disclosure system, wf’ recommend that the CFTCChairman direct the DAEO t0 . establish a time limit, such as 60 days after receipt, for completing reviews of confidential disclosure reports and ensure t,hat (1) confiden- tial report reviews are completed within that limit and (2) public report reviews are completed within the existing GO-day statutory limit; l require employees to include information on their financial transact,ions that occur during the year in their confidential reports; and l establish a program of regular ethics training for all CFTC employees. We discussed the cements of this report with the DAK0 and other General Agency Comments Counsel and Personnel officials, and their comments were considered when we prepared the final report. These officials agreed with the thrust of our recommendations but said they planned to defer making changes to the agency’s confidential disclosure requirements until OGE issues regulations on the subject. Given ( 1) the history of OGE's efforts to issue regulations on confidential requirements and (2) that CKXhas not committed to a firm publication date, we believe that CFK should make the recommended changes before the next annual filing period. __- - -~~- -___ __- 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 issm date. At that time, we will send copies to the CF~‘C Chairman and othc>r interested parties. Page 14 GAO/GGD-91.3 Employee Financial Disclosure at CFTC B-241873 CFX officials believed that the agency was complying with applicable requirements for disclosing financial transactions in confidential disclo- sure reports. We believe that applicable regulations do not clearly require information on financial transactions to be disclosed in confiden- tial reports. Even so, we believe that CFK needs this information for conflict-of-interest decisions and should require employees to provide it in their confidential disclosure reports, because without this information CF”K cannot review employees’ transactions during the year and deter- mine whether they meet CFTC restrictions and other requirements. The Department of Agriculture, like CFTC, did not require employees to report their financial transactions in confidential reports, but the Department has since agreed to request OGE approval to include this rcquiremcnt.i Hecauso current regulations are unclear regarding employees’ financial transactions, we recommended, in *June 1990, that OGErequire information on financial transactions to be reported in confi- dential disclosure reports8 The OGE Acting Director said this require- ment will be included in regulations now being developed. Value of Outside Interests Not UTC required employees to identify certain entities in which they had Reported financial interests but, did not require them to disclose in confidential reports the dollar or share value of such interests. As mentioned earlier, CFTC restricted certain employees’ holdings to a specific number of dol- lars or shares. such as $25,000 or 10 percent of the outstanding shares of entities trading commodity futures contract,s. Because CFTCdid not receive information in the reports to compare the values of employees’ holdings against t htb restrictions, Personnel had to contact filers to obtain this information when employees reported interests in entities subject to the restrict ions. Because CFTC needs information on employees’ financial transactions for making conflict-of-interest decisions, we believe that employees should be required to provide the information when filing their reports. We dis- cussed the need for this information with Personnel officials during our review. Subsequently, in ,June 1990, CFK issued instructions to require that employees inc4ude the number and value of shares held in reported entities. ‘Our report entitled Financial Disrlosure: IJSDA’s System Limited by Insufficient Top Management Supper-t (GAO/GGD-SO-IOO. hly 13, 1990) contains a more detailed discussion on current regulatory ments for disclosrw 111financial transactmns in confidential reports. Page 12 GAO/GGD-91-3 Employee Financial Disclosure at CFK B-241873 Conflict-Of-Interest General Counsel reviewers did not complete the review of public reports within the time required by the act-60 days after receipt-for 26 of Decisions Should Be More the total 60 public reports filed in 1988 and 1989, as table 2 shows. Timely Table 2: Public Report Review Timeliness 1988 1989 Total Total number of annual reports 29 31 60 Reww completeda Wlthr 60 days 22 12 34 More than 60 days 7 19 26 aWe used the rfwe’w”9 official‘s signature date on the report to mdlcate the review completion date CFTCdid not require confidential reports to be reviewed within any spec- ified period of time. Current federal regulations on confidential disclo- sure do not establish a time limit for these reviews. However, as stated earlier, the 1978 act imposes a 60.day standard for review of pub!ic reports. ow has proposed a 60-day standard for review of confidential reports.” Were a 60-day standard in effect for confidential reports, CFTC would not have met the standard for most of the 87 reports filed by GS- 15 employees in 1988 and 1989, as table 3 shows. Table 3: Confidential Report Review Timeliness Assuming a BO-Day Review 1988 1989 Total Requirement Total GSl5 annual reports filed 39 48 i7 Flew&i completeda With,” 60 days 7- 26 33 More than 60 days 32 22 54 aWe used the Personnel rwew~ng official‘s signature date on the report as the rewew complet,on date A General Counsel official responsible for reviewing public reports believed that. when compared to the number required to be reviewed and the other work required of the report reviewers, the number of public report, reviews completed late was not significant. A Personnel official said that, in 1989, some of the confidential reports that were not reviewed within 60 days had been initially reviewed within 60 days but, because of a misunderstanding within Personnel, were not reviewed in “OGE proposed the tiO-da? review standard in regulations published in the Bin December 19% In August IRHO, the Acting Director of OGE said OGE had reworked the r?gul;rtions m responsr to the Ethics Reform 4ct of 1989 and was consulting with OPM and the Department of .Justrc on the rwistvl rr~gld~nons ils wquired by presidential executwe order According to tht> Acting Director. no Rrm pnhlic,w)n date had been set, wnding completion of CGE’s ronsultatiun with OPM and .luslict’ Page 10 GAO/GGD-91-3 Employee Financial Disclosure at CFTC B-241873 Personnel sent notifications to employees at least 30 days before public reports were due on May 15 and before confidential reports and certifi- cations of compliance were due on July 15. We determined that in 1988 and 1989 all employees required to file annual public reports and all employees at the GS-15 level required to file annual confidential reports did so. Most of these employees filed reports on time in both years, as table 1 shows. Table 1: Timeliness of Annual Reports Filed for 1988 and 1989 1988 1989 Total Public reports Number reqwed 29 31 60 Number flied By due date 27 29 56 After due date 2 2 4 Confidential reports Number in GAO sample 39 40 87 Reoorts flled” By due date 29 39 68 After due date 10 9 19 aWe used employees’ signature dates on reports to ndlcate the flllng dates for confldentlal reports CFTC recorded receipt dates for public reports but not for confldentlal reports CETCtook steps to obtain late reports due in 1988 and 1989. CFTC employees who file public reports are few in number, and an Office of General Counsel official said that her office made contacts orally with employees to obtain late public reports. As table 1 shows, four public reports were late for the 2 years combined. Two reports were filed 7 days after the due date, and a third one was filed 79 days late. A Gen- eral Counsel official said, after consulting with OGE on the fourth report, that the employee who had since left CFTC filed a report but not until 203 days after the due date. The employee reported financial interests as of the date that the report was filed.” To obtain late confidential reports, Personnel sent letters to division and office heads requesting them to obtain employees’ reports. For example, on July 26, 1989, the Director of Personnel requested that the Director “The 1978 act did not prrwldts any penalty for late filing of public reports until it was amended by the Ethics Reform Act of 19X9 (I’ L. 101.194, Nov. 30, 1989). Beginning with reports due after January 1, 1991, a filing fee of $200 must be imposed against employees who file public reports more than 30 days after due dates or the extension dates approved by the agency, unless the filing fee is waived by the supervising ethics offiw w OGE for the rxecutive branch. Page 8 GAO/GGD91-3 Employee Financial Disclosure at CFTC B241873 Among other restrictions, the Code provides that CFK employees are not to have the following outside interests: l any beneficial interest in an organization regulated by such as reg- CFTC, istered futures commission merchants; . a significant beneficial ownership involving any person or organization required to file reports under the Commodity Exchange Act, such as large commodities traders; or l purchase or sell any securities of a company that is involved in a pending invtst,igation, a proceeding before CFTC or in which CFTC is CFTC a party, or other matters under CFTC’S consideration that could signifi- cantly affect the person or 0rganization.l The commodity futures markets were originally designed for agricul- tural-based products and have expanded to include contracts based on nonagricultural commodities such as metals, foreign currencies, and financial instruments. As these changes occurred, CFK supplemented the Code with related guidance on ethics matters and imposed new financial restrictions on employees. For example, in 1984, the DAEO pro- hibited all CFTC employees from participating in futures contracts on stock indexes and options on stock indexes, such as the Standard and Poor’s 500 Stock Price Index futures contra& traded on the Chicago Mercantile Exchange. The D.4EO determined that such financial instru- ments that are the subjects of futures contracts that CFTC has authorized for trading fall within the definition of the term “commodity” used in section 9(d) of the Commodity Exchange Act. Along with addressing changes in the futures markets, since 1982, the DAEO had provided guidance in areas such as post-employment, accept- ance of food and refreshment, and political activity. According to CEW officials, restrictions in the Code and guidance issued by the D.4~0 apply to all WIT employees-regardless of grade level and duties-their spouses, minor children, and other relatives who are residents of their immediate household. “CRC has defined terms uwd m the Code. For example, significant bencficlat ownership is defined to ~EUI rn~rf than 10 pern’nt or $25,000 of the outstanding stock of a person or organization subject to CFTC reporting requirrnwnth Employrvas may have finamial mf~rests in these entities up to these limitatwns. CFTC has idcmtifkd thr typrs of wtsldc entities that are the subjerts of the prohibitions and limitations. Page 6 GAO/GGD-91-3 Employee Financial Disclosure at CETC 5241873 reports. CETC has assigned responsibility to the Director of the Office of Personnel, who reports to the CFTC Executive Director, for administering the confidential disclosure system, including making conflict-of-interest decisions. IJnder the 1978 act, OGEis responsible for developing ethics policies for the executive branch. OGEreviews agency ethics programs, including financial disclosure systems, to determine whether the programs con- form with requirc\ments of the act and regulations. OGE last reported on CFTC'S disclosure system in January 1986. To determine how CFTC protects against employee conflicts of interest Objectives, Scope, and we ( 1) reviewed the agency’s policies and guidance to determine Methodology whether they reasonably restrict employees’ outside financial interests that could pose conflicts; (2) determined which of CFTC’S employees must submit reports on outside interests; and (3) compared CFTC’S disclosure system with related requirements in the 1978 act, executive orders, and regulations to determine whether the system adequately conforms with those requirements. To determine thfx timeliness of report filing and review we did the fol- lowing work: . We reviewed CFTC'S procedures for obtaining reports by due dates speci- fied in the 1978 act and related regulations and reviewed the reports within time periods required in the act. . We reviewed all public disclosure reports due by May 15 in both 1988 and 1989 (60 reports) and all confidential disclosure reports due by July 15 in 1988 and 1989 from employees at the GS-15 level (87 reports). We agreed with the Subcommittee that, because of the volume of confidential reports filed at CETC each year (318 in 1989, according to a CPTCPersonnel official), we would limit our review of confidential reports to those filed by GS-15 level employees. We assessed the adequacy of CFTC’Sprocedures for reviewing reports and making conflict-of-interest decisions according to the 1978 act and implementing regulations by reviewing a nonrepresentative sample of public and confidential disclosure reports. We selected the sample of reports by randomly picking 9 public reports from the universe of 3 1 filed in 1989 and 14 confidential reports from the total 48 annual reports filed by GS-15 employees in 1989. CFTC had previously reviewed Page 4 GAO/GGD913 Employee Financial Disclosure at CFFC E-241873 CFTCdefines in its Code of Conduct those financial interests, such as commodity futures contracts and certain investment transactions involving an actual commodity, that all employees are to avoid.” Over the years, CETC has added restrictions on employees’ outside interests to address new futures contracts that are based on commodities such as stock indexes and opl,ions on stock indexes.? CFTC uses its financial disclosure system to enforce these restrictions and guard against conflicts of interest. In 1989, CFTC required disclosure reports from 349 of its 558 employees. The 349 employees consisted of 3 1 high-level employees (presidential appointees and senior executives) who were required to file reports that were available to the public. In addition to these 31 employees, 318 other employees, such as econo- mists, attorneys, and audit,ors, were required to file disclosure reports that were to be kept confidential. CFTC required the remaining employees all of whom were in positions that CFTC determined to be less susceptible to conflicts of interest, to certify that, they had no conflicts of interest. For 1989, all but 2 of the 31 employees required by the 1978 act t,o file public reports by the annual due date did so. In addition, all but 9 of 48 GS-15 employees required to file confidential reports by the annual due date did so. CFTC took follow-up steps, such as sending notices to the supervisors of late filing employees, and obtained these 11 late public and confidential reports. We selected at random 23 reports filed in 1989 (9 public reports filed by high-level cmployccs and 14 confidential reports filed by GS-15 employees) and determined whether CFTC’S reviews of these reports detected apparent or potential conflicts of interest. After requiring cer- tain employees to supplement or clarify reports, CFTC determined that none of the reports presented conflicts of interest. We also determined that the 23 reports presented no financial interests that posed conflicts of interest. Although CFTC’S disclosure system works well overall, CFTC can improve its administration of the system. CFTC did not always make timely con- flict-of-interest decisions on public and confidential reports, For “An example of a stock mdw IS the’ Standard and Poor’s 500 Stock Pncc Index, which is a weighted index of the prices of stwk.s of 500 rompanirs. Page 2 GAO/GGD-91-3 Employee Financial Disclosure at CFTC
Employee Financial Disclosure: CFTC System Affords Reasonable Protection Against Conflicts of Interest
Published by the Government Accountability Office on 1990-11-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)