Ex-Im Bank's Retention Allowance Program

Published by the Government Accountability Office on 1997-02-19.

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

United States
General Accounting Office
Washington, D.C. ‘20548

General   Government   Division


February 19, 1997

The Honorable Alfonse M. D’Amato
Chairman, Committee on Banking,
  Housing, and Urban Affairs
United States Senate

Dear Mr. Chairman:

This letter responds to your September 4, 1996, request for additional
information on the Export-Import Bank’s (Ex-Im Bank) noncompliance with
statutory and regulatory requirements in awarding retention allowances to its
employees. You cited recent reports by us and the Office of Personnel
Management (OPM) on the issue and asked 12 series of questions regarding
actions taken by Ex-In-t Bank officials in response to our1 and OPM’s2audit
findings and recommendations.

In general, you asked us to determine the number and dollar value of illegally
awarded allowances, what actions the Chief Operating Officer (COO) took in
response to our and OPM’s concerns, the roles of the Office of Management and
Budget COMB) and the National Performance Review (NPR) in advising and
approving the Ex-Int Bank’s actions, and the status of the Ex-Irn Bank’s current
retention allowance program. Our answers are summarized below, and detailed
responses to each series of questions are presented in enclosure I.

You were also interested in the extent of employee turnover at the Ex-Ii-n Bank
and how the Bank’s turnover rates compared with those of similar agencies.
As agreed with your office, we wil.I address these issues in a later product.

‘Retention Allowances: Usage and Comnliance Varv Among Federal Agencies
(GAO/GGD-96-32, Dec. 11, 1995).
2Use of Retention Ahowances and Recruitment Bonuses at the Exnort-Import
Bank of the United States. Merit Svstems Oversight Review, January 19, 1996.
                                  GAO/GGD-9747R Ex-Im Bank’s Retention Allowance hogram


During our and OPM’s reviews of the Ex-Im Bank’s retention allowance program, 217
employees were receiving retention allowances. OPM determined that these 217
allowances, as well as those received by 6 other employees prior to OPM’s review,
were not approved in accordance with applicable law and regulations. From the
program’s inception in fiscal year 1992.until the termination of the existing allowances
effective January 21, 1996, 223 employees received retention allowances totaling
$1,305,514. In a legal decision, we granted the Ex-Im Bank’s request for waivers of
repayment for the 223 employees. In granting the waivers, we determined that the
employees received the allowances in good faith and with no knowledge that they
were erroneous. Thus, collection of the erroneous overpayments would be against
equity and not in the best interest of the United States. (See enclosure Il.)

We conveyed our preliminary compliance concerns to Ex-h-n Bank officials on April 4,
1995. However, on the basis of previous questions we had raised about the Ex-Im
Bank’s policy and practices, Bank staff had already informed the COO on March 30,
1995, that we had compliance concerns. The Ex-Im Bank received OPM’s draft report
identifying its serious concerns on October 31, 1995, and received OPM’s conclusion
that the Ex-Im Bank’s use of retention allowance authority was illegal in its January
 19, 1996, final report. The COO began taking actions to respond to OPM’s concerns
following a meeting with OPM on November 30, 1995. Actions taken from then until
September 19, 1996, included relieving the Bank’s Vice President for Management
Services and Human Resources of personnel responsibilities, suspending all retention
allowances, hiring the National Academy of Public Administration (NAPA) to review
the Bank’s retention allowance justifications for compliance with regulations and to
identify ways in which the program could be improved, hiring a Counsel for
Administration to provide senior management with legal advice on human resource
 issues, and modifying its retention ahowance plan to comply with federal law and

While Ex-Im Bank officials discussed the Bank’s plan for streamlining its workforce
and several of its pay-for-performance strategies with OMB, both OMB and Ex-Im
Bank officials agreed that the Bank’s streamlining plan did not discuss specific
strategies for rewarding performance or retaining highly skilled staff. They also
agreed that OMB officials had not officially approved any of the Bank’s pay-for-
performance strategies, including the use of retention allowances. Also, the Ex-Im
Bank’s Chief Financial Officer told us that Ex-Im Bank officials have no recollection of
substantive discussions with NPR concerning the streamlining plan or pay-for-
performance strategies, such as retention allowances, and they acknowledged that
NPR did not approve any of these initiatives.

 OPM officials said the Ex-Im Bank’s current retention allowance program is in
 compliance with applicable laws and regulations. In this regard, OPM reviewed and
 approved the awards for the eight Ex-Im Bank employees who received retention

 2                                           GAO/GGD-9737REx-Im Bank’s Retention Allowance Program
allowances after January 21, 1996, and the Bank incorporated OPM’s suggestions in its
September 19, 1996, revision to its retention allowance plan. Our review of the Ex-Im
Bank’s current retention allowance plan indicated that it resolves the deficiencies we
identified in the previous administration of the program.


The objective of this letter is to provide information on the Ex-Im Bank’s retention
allowance program. We were asked to provide answers to 12 series of questions
concerning the Ex-Im Bank’s failure to comply with federal laws and regulations in
awarding retention allowances, the corrective actions taken by the Bank to address
deficiencies in awarding allowances, and the current status of the Bank’s retention
allowance program.

To accomplish our objective, we interviewed, and obtained various policy documents
and statistical information from, officials of the Ex-Im Bank, OPM, NAPA, OMB, and
NPR. To determine when the COO became aware of our and OPM’s concerns, the
actions taken by the Ex-Im Bank in response to those concerns, and the reasons for
those actions, we queried Ex-Im Bank officials and reviewed Bank documents, such as
internal memorandums and the retention allowance plan. To validate statements made
by Ex-Im Bank officials concerning input and approvals received from OPM, NAPA,
OMB, and NPR, we interviewed officials from these agencies who had met with Ex-Im
Bank officials and reviewed reports, retention allowance plan comments, and other
documents these agencies had developed during their reviews of the Ex-Im Bank and
interactions with Ex-Im Bank officials.

To determine the numbers and amounts of the Ex-Im Bank’s retention allowances, we
obtained from the Bank the employees’ names and award amounts for all retention
allowances awarded for fiscal years 1992 through 1996. To verify the number and
amounts of current awards provided by the Bank, we obtained an extract from OPM’s
Centralized Personnel Data File that identified Ex-Im Bank employees who were
receiving retention allowances between January 21, 1996, and September 30, 1996, and
compared the employees’ names and award amounts with those provided by the Ex-Im
Bank. As agreed, we did not review the justifications for these awards since we
determined they all had been reviewed and approved by OPM and we found no
discrepancies between the Ex-Im Bank and OPM data.

We did our work in Washington, D.C., from October through December 1996. Our
work was done in accordance with generally accepted government auditing standards.
We provided a draft of this letter to the President of Ex-Im Bank, the Directors of
OPM and OMB, and the President of NAPA for their review and comment.

3                                          GAO/GGD-9737R Ex-Im Bank’s Retention Allowance Program

Ex-Im Bank, OPM, and NAPA provided comments on a draft of this letter. We
received oral comments from the Chief Financial Officer, General Counsel, and
Director of Personnel, Ex-Im Bank, on January 29, 1997; the Deputy Chief of Staff,
OPM, on January 28, 1997; and the Project Director, NAPA, on February 4, 1997. The
three agencies agreed that the information presented in the letter is accurate. The Ex-
Im Bank also provided technical comments, which we incorporated where appropriate.
The Director of OMB did not provide comments.

We are sending copies of this letter to the Ranking Minority Member of the Senate
Committee on Banking, Housing, and Urban Affairs; the Chairman, Ex-h-n Bank; the
Directors of OPM, OMB, and NPR; and the President of NAPA. We will also make
copies available to others who may have an interest in these matters.

Major contributors to this letter were Larry Endy, Tom Davies, and Jeff Dawson. We
trust that this information satisfactorily responds to your request. If you have
questions concerning this letter, please contact me at (202) 512-8676.

Sincerely yours,

L. Nye Stevens
Federal Management
   and Workforce Issues

Enclosures - 2

                                             GAO/GGP9737R Ex-Im Bank’s Retention Allowance Program
ENCLOSURE I                                                               ENCLOSURE I


1. During GAO’s review, the Ex-Im Bank reported 100 employees were
receiving retention allowances, while during OPM’s review the Bank reported
over 200 employees were receiving allowances.     When did the additional
employees begin receiving “illegal” retention allowances, and who made this
decision?    How many additional   allowances were awarded during the reviews?
At what point did the Ex-Im Bank stop adding new employees to receive the
illegal allowances?

We reviewed Ex-Im Bank’s retention allowance program from November 1994 to
December 1995, and our review was limited to data on the 100 allowances awarded
during fiscal year 1994. OPM reviewed the program from July 1995 to January 1996,
during which period 217 allowances were in effect. We first raised questions about
the Ex-h-n Bank’s criteria for awarding allowances in March 1995, and we expressed
our preliminary compliance concerns in a meeting with the Bank’s Vice President for
Management Services and Human Resources and a senior personnel specialist on April
4, 1995. Effective April 30, 1995, the Bank made first-time allowance awards to 116
employees and renewed or continued to pay allowances to 99 employees. In August
and September 1995, the Bank decided to make 2 first-time awards and renew 10
existing allowances. The Bank approved the last allowance on September 3, 1995.
OPM reported on January 19, 1996, that the current and past allowances were not paid
in accordance with law and regulations.

Four levels of Ex-Im Bank supervisors and managers were involved in nominating,
reviewing, and approving the allowances awarded on April 30, 1995. Initial
recommendations were made by the employees’immediate supervisors. These
recommended awards were forwarded to second level supervisors for review and
approval. A list of nominated employees resulting from the second level review was
then compiled and reviewed by the Director of Personnel and the Vice President for
Management Services and Human Resources. A final list of recommended awardees
was then presented to the COO, who made the final decisions.

The process supervisors and managers used to evaluate whether an employee was
qualified for an allowance emphasized the employee’s “current and expected levels of
performance” as the key criterion in determining whether an employee should receive
a retention allowance, although this is not stated as a criterion in the statute and
regulations. The retention allowance plan did include the requirement that an
allowance could not be paid unless a determination was made that an employee was
likely to leave the federal government absent an allowance. However, the likelihood
of leaving was incorrectly equated with an employee’s high level of performance.
According to the Director of Personnel, she, under the supervision of the Vice

5                                         GAO/GGD-9737R Ek-Im Bank’s Retention Allowance hogram
ENCLOSURE I                                                                 ENCLOSURE I

President for Management Services and Human Resources, was the official responsible
for developing the retention allowance plan used during fiscal years 1994 and 1995.
She said that OPM’s guidance at that time did not indicate that it was inappropriate to
use a high level of performance as a criterion for determining whether an employee
was likely to leave, and that therefore she and other Ex-Im Bank officials did not
believe the criterion was inconsistent with OPM’s regulations.

2. When did OPM initiate its review of the Ex-Im Bank’s retention   allowance
program?    When and how did OPM initially notify the Ex-Im Bank that there
were problems with its application of the retention allowance authority?    When
did the Ex-Im Bank receive OPM’s conclusions?

In June 1995, we met with OPM officials to discuss our concerns about the Bank’s
retention allowance program. After these discussions, and in furtherance of its
oversight responsibility, OPM notified the Bank in a July 21, 1995, letter that it was
initiating a review of the Bank’s retention allowance program and other pay matters.
In its letter, OPM noted that we had raised questions about the Bank’s use of retention
allowances and that the Bank had approved allowances to an extent that appeared out
of proportion to its size, as well as for employees whose occupations and grade levels
made retention allowances appear to be inappropriate.

On October 31, 1995, OPM provided its draft audit report on the retention allowance
program to the Ex-Im Bank. The draft report stated that OPM had serious concerns
about the appropriateness of the Bank’s use of its retention allowance authority. Both
Ex-Im Bank and OPM officials agree that this was the first time OPM’s concerns were
conveyed to the Bank. The Ex-Im Bank officially received OPM’s conclusion that the
allowance payments were not being made in accordance with law and regulations, and
that OPM was suspending the Bank’s delegated authority to grant or recertify
allowances, when OPM transmitted its January 19, 1996, report.

3. What official did the Bank hold accountable for the mismanagement     of the
retention  allowance program ? What steps did the COO take to ensure the new
retention  allowance program complied with laws? What actions were taken
internally to correct management problems related to the retention   allowance

The Bank’s Vice President for Management Services and Human Resources was held
accountable. She was relieved of her personnel responsibilities and reassigned by the
COO to a nonpersonnel-related position immediately following a November 30, 1995,
meeting of Ex-Im Bank and OPM officials to discuss OPM’s draft report. According to
Ex-Im Bank and OPM officials, this decision was made by the Bank’s COO.

 The COO also proposed during the meeting that the Bank (1) recruit an outside expert
 for the purpose of reviewing the Bank’s retention allowance justifications for

 6                                           GAO/GGD-9737R Ek-Im Bank’s Retention Allowance Program
ENCLOSURE I                                                                 ENCLOSURE I

compliance with regulations, as well as to identify ways in which the program could
be improved, and (2) modify its retention allowance procedures to comply with federal

The Ex-Irn Bank took several steps to eliminate previous problems and to attempt to
make its program comply with federal regulations. On February 7, 1996, it notified the
current 200 recipients of retention allowances that the allowances would be
terminated as of January 21, 1996.3 In February, the Ex-Im Bank also contracted with
NAPA, as an independent organization with human resource expertise, to review the
Bank’s retention allowance program and procedures for compliance with federal law,
regulation, and guidance. Using those sources, NAPA developed criteria to use in
 determining whether the documentation submitted for an individual employee would
meet the requirements for receiving a retention allowance. Using the criteria, the Ex-
Im Bank’s supervisors reevaluated the documentation for their employees’ allowances
and submitted revised supporting documentation for those employees who appeared
to meet the criteria. NAPA, based on its review of supporting documentation and
interviews with supervisors, recommended to the Ex-Im Bank that 3 of the suspended
 allowances met the criteria and that 12 other suspended allowances could possibly
 meet the criteria with some additional support. The Ex-Im Bank ultimately submitted
justifications for 8 of these 15 employees to OPM for review and approval.

NAPA and OPM also provided recommendations for revising the Ex-Im Bank’s
retention allowance plan to comply with applicable regulations. The Ex-Im Bank
revised its plan to address these recommendations. The Ex-Im Bank also hired a
Counsel for Administration on July 30, 1996, to provide senior management with legal
advice on human resource issues, including personnel regulations.

4. When was the COO first apprised of GAO’s        inquiry into the use of retention
allowances?    When did the COO first learn of     GAO’s concerns about the Bank’s
policies for using retention allowances. 3 What     internal actions did this official
take, including whether he suspended the use       of retention   allowances when
fmst apprised of the problem?

The COO was initially notified of our review of the Ex-Im Bank’s retention allowance
program on November 30, 1994. The COO’s first documented notification of our
concerns with the Bank’s program policies and practices was an internal memorandum
from a senior personnel specialist on March 30, 1995, shortly after we raised questions
based on our limited review of employees’ allowance justifications. Ex-Im Bank
officials could not remember whether the COO had been informed of our concerns at

3From February 6, 1995, through January 21, 1996, 17 employees’ retention allowances
were terminated. Of these, 10 resulted from employees resigning from the Ex-Im Bank,
and in the other 7 cases, employees’ allowances were terminated.
7                                          GAO/C&D-97-37R Ex-Im Bank’s Retention Allowance Program

ENCLOSURE I                                                                 ENCLOSURE I

an earlier date. The specialist, based on our questions, indicated that we were
concerned about the Bank’s practice of using high performance as a criterion for
awarding retention allowances. In the memorandum, the specialist said that “law and
regulations allow agencies to use retention allowances ‘only’ when there is a real
threat that an employee will leave the government.” In his written response to the
specialist the next day, the COO requested that the specialist disclose completely to us
the Bank’s policy and strategy for using retention allowances. In our April 4, 1995,
meeting in which we expressed our preliminary compliance concerns, the specialist
and the Vice President for Management Services and Human Resources thoroughly
explained the Ex-Im Bank’s policy and strategy and why they believed the Bank’s
actions were appropriate. They said that the retention allowance program was an
integral part of the implementation of the Ex-Im Bank’s streamlining plan to
restructure both its workforce and its performance management strategy.

The COO did not consider it necessary to terminate the retention allowances until he
received and considered OPM’s January 19, 1996, report indicating that the retention
allowance payments were inappropriate and did not comply with federal requirements.
The report provided a 68day review period to determine whether individual retention
allowances should be continued. The report was accompanied by a cover letter,
however, that stated that the allowances were illegal. The Ex-Im Bank’s Chief
Financial Officer questioned whether OPM had in fact made a finding of illegality, in
which case certifying the Bank’s payroll, including retention allowance payments,
would be inappropriate. Ex-Im Bank officials asked OPM to clarify its position, and
on February 6, 1996, OPM’s General Counsel, in a letter to the Ex-Im Bank, stated that
the Bank’s use of retention allowances was illegal. Based on this response and the
 Chief Financial Officer’s concern, the Ex-Im Bank terminated payment of existing
allowances on February 7, 1996, effective January 21, 1996.

5. What did the COO do to correct procedural  shortcuts in documentation  and
the reasoning behind those decisions between September 1995 and the tie
GAO’s and OPM’s reports were released ? When did the Ex-Im Bank stop
making additional  retention allowance awards? Did the Ex-Im Bank’s actions
comply with the law and OPM regulations?

After receiving OPM’s draft report on October 31, 1995, the COO directed the Acting
General Counsel to review the drafts of our and OPM’s reports, the relevant laws and
regulations, and the process by which awards had been made, and to prepare an
analysis of the propriety of the Bank’s use of the retention allowance authority. The
staff attorney assigned to the analysis concluded that the Bank’s use of the retention
allowance authority exceeded the apparent intent of the statute and that the Bank’s
documentation of awards generally did not meet the statutory and regulatory
requirements. The COO took several corrective actions on the basis of the staff
attorney’s response and the November 30, 1995, meeting with OPM. (See response to
question number 3.) However, none of the actions taken prior to issuance of OPM’s

 8                                           GAO/GGD-9737R Ex-Im Bank’s Retention Allowance Program
ENCLOSURE I                                                                ENCLOSURE I

report on January 19, 1996, addressed procedural shortcuts. Ex-Im Bank officials said
that no actions were taken with regard to documentation or other procedures because
the Bank did not approve any retention allowances from September 1995 until March
31, 1996.

6. The COO sent a letter to GAO representing         that the Ex-Im Bank had
worked on a pay-for-performance        strategy with OMB and NPR to execute the
Bank’s streamlining    plan. Identify by name and position the officials from
OMB, NPR, and the Ex-Im Bank who were involved in discussions regarding the
Bank’s pay-for-performance     strategy to execute its “streamlining  plan.” Who
from OMB and NPR approved the plan? Did OMB or NBR specifically             and
officially approve the Ex-Im Bank’s use of retention allowances?

At various times during fiscal years 1993 and 1994, OMB representatives Rodney Bent,
Economic Affairs Branch Chief, and Michael Casella, Examiner, had discussions about
the Bank’s streamlining plan and pay flexibility matters with Ex-Im Bank
representatives Martin Kamarck, COO; Tamzen Reitan, Vice President for Management
Services and Human Resources; and James Hess, Chief Financial Officer.

Mr. Casella told us that OMB reviewed and commented on agencies’streamlining plans
but never officially approved them. He said OMB reviewed the Ex-Im Bank’s
streamlining plan for conformity with OMB guidelines as part of its responsibility for
overseeing executive branch agencies’efforts to meet the NPR goals to achieve
specific reductions in targeted positions, as well as to ensure that agencies’
workforces corresponded to anticipated budgetary resources. According to Mr.
Casella, discussions about the Ex-Im Bank’s plan did not address specific remedies for
retaining employees, such as retention allowances. He noted, in fact, that OMB did
not agree that the Bank had retention problems. We reviewed the Ex-Im Bank’s
streamlining plan and found that it did not address retention allowances.

According to Mr. Casella, Ex-Im Bank sought OMB’s support for statutory authority to
“administratively determine’ pay for many of its positions, as well as to solicit OPM’s
approval to initiate a pay demonstration project. He said that, while OMB was
generally supportive of the Ex-Im Bank’s effort to work with OPM to initiate a pay
demonstration project, OMB did not concur with the Ex-Im Bank’s need for additional
statutory pay authority. He also said that, although he did not recall specific
discussions about the Ex-Im Bank’s use of retention allowances, OMB would not have
endorsed the manner in which the Bank exercised its retention allowance authority.

John Kamensky, Deputy Director, NPR, told us that the NPR staff member who had
been responsible for dealing with Ex-Im Bank affairs during fiscal years 1993 and 1994
had left the federal government. We contacted the ex-staffer’s former federal agency
and telephone directory assistance where he was thought to have relocated, but we
were unable to locate the individual. The Deputy Director said that the agencies’

9                                           GAO/GGD-97-37XEMm Bank’s Retention Allowance Program
ENCLOSURE I                                                                ENCLOSURE I

streamlining plans were principally a workforce restructuring initiative that would not
have involved an agency’s pay-for-performance management strategy or retention
allowance program. He also said that NPR does not approve streamlining plans.

In responding to us on this series of questions, the Bank acknowledged that the
streamlining plan does not discuss specific strategies for rewarding performance or
retaining highly skilled staff, and that OMB officials had not officially approved the
streamlining plan or pay-for-performance strategies, such as retention allowances. In
responding to the questions, the Chief F’inancial Officer told us that Bank officials
have no recollection of substantive discussions with NPR regarding the streamlining
plan, pay-for-performance strategies, or any NPR approval of these initiatives.

‘7. How many of Ex-Im Bank’s suspended awardees did NAPA recommend be
submitted to OPM to continue to receive a retention   allowance, and how many
employees are currently receiving retention allowances?

NAPA, on the basis of its review of supporting documentation and interviews with
supervisors, concluded that 3 of the suspended allowances met the criteria for
receiving retention iluowances, and that 12 other suspended allowances could possibly
meet the criteria with some additional support. Ex-Im Bank officials reviewed NAPA’s
input and on March 4, 1996, submitted to OPM justifications for 8 of these 15
employees, as well as for 2 other employees Ex-Im Bank officials believed met the
approval criteria After discussions with OPM officials, E&-b-n Bank withdrew two of
the nominations, and OPM then approved retention allowances for the remaining eight
employees-two of which allowances were effective on March 31, 1996, and six on
April 14, 1996. Of the eight employees, seven were receiving retention allowances as
of September 30, 1996, and one had left the Ex-Im Bank. No other Ex-Im Bank
 employees were receiving retention allowances at that time.

8. Is Ex-Im Bank’s current retention allowance program in compliance                with
the law? Does the Bank have an acceptable retention   allowance plan?

 We and OPM believe that the Ex-Im Bank’s current retention allowance program,
 including its retention allowance plan, is in compliance with applicable statutory and
 regulatory requirements. OPM officials, who had previously been involved in the
 review of Ex-Im Bank and in discussions with Bank officials regarding the use of
 various pay authorities, said that the Ex-Im Bank’s current retention allowance
 program is in compliance with applicable law and regulations. OPM officials based
 this conclusion on the fact that OPM reviewed and approved the awards for all seven
  of the Ex-Im Bank employees currently receiving retention allowances and for the one

 10                                          GAO/GGD9737R Ex-Im Bank’s Retention Allowance Program
ENCLOSURE I                                                                ENCLOSURE I

employee who has since left the Bank.4 The OPM officials said that OPM reinstated
the Ex-Im Bank’s retention allowance authority on April 12, 1996, based on its belief
that the Bank was prepared to administer its retention allowance authority
appropriately. As agreed with the Committee staff, we did not independently evaluate
retention allowances that had already been reviewed and approved by OPM.

The Ex-Im Bank’s Retention Allowance Plan, dated September 19, 1996, responds to
recommendations made by us, OPM, and NAPA, and complies with federal law and
regulations. In our previous report on governmentwide implementation of the
retention allowance program, we recommended that the Ex-Im Bank revise its
retention allowance plan to include the required criteria for determining the value of
retention allowances. The Bank’s current plan contains five criteria for determining
the amount of an allowance, including one which specifies that the supervisor may
consider the amount necessary to match a nonfederal salary offer. OPM officials also
stated that the Ex-Im Bank’s plan adequately addressed suggestions made by OPM in
August 1996.

Previously, the Ex-Im Bank had contracted with NAPA on February 1, 1996, to
perform an independent assessment of the validity of the Ex-Im Bank’s retention
allowances and to make recommendations to bring the Bank’s retention allowance
program into compliance with applicable law and regulations. In its report, Retention
Allowances of the Exnort-Import Bank of the United States, dated March 1, 1996,
NAPA identified remedial measures that would improve the program and possibly
prevent recurrence of noncompliance issues. One recommended measure was that the
Ex-Im Bank modify the provisions of its retention allowance plan to clarify that the
requirements specified by law and regulation must be met.

9. Are there currently   any highly unusual cases of retention allowance
recipients, such as employees also receiving buyouts, and if so, are these cases
consistent with applicable law?

OPM has reviewed and approved all of the current Ex-Im Bank retention allowances.
In addition, we found no instances where any of the eight employees who were
ultimately approved to receive retention allowances also received a buyout incentive.

10. How much did the Ex-Im Bank spend in total on retention allowances?
How much was spent on retention   allowances OPM later determined to be
erroneous? Who determined   whether illegal retention allowance funds should

4We compared the Ex-Im Bank’s list of employees receiving retention allowances as of
September 30, 1996, with a list of the Bank’s retention allowance awardees provided
by OPM for the same period, and did not find any discrepancies.
11                                         GAOEGD-9737R Ex-Im Bank’s Retention Allowance Program
ENCLOSURE I                                                                ENCLOSURE I .

be paid back, and what is the status of this determination?         Were there any
conclusions of that determination?

During fiscal years 1992 through 1996, the Ex-Im Bank paid $1341,315 in retention
allowances to 223 employees. The Ex-Im Bank requested repayment waivers from us
for the $1,305,514 in erroneous payments to the 223 employees prior to January 21,
1996. In addition, OPM approved the Bank’s revised justifications for 8 of the 223
employees, and they received a total of $35,801 between March 31, 1996, and
September 30, 1996.

On June 28, 1996, the Ex-Im Bank submitted a written request to us for waiver of
repayment for all 223 employees who had received retention allowances. We issued a
decision on December 13, 1996, granting a repayment waiver to alI 223 Ex-Im Bank
employees who had erroneously received retention allowances during part or all of
fiscal years 1992 through 1996 (see enclosure II). In granting the waivers, we
determined that the employees received the allowances in good faith and with no
knowledge that they were erroneous. Thus, we concluded that collection of the
erroneous overpayments would be against equity and not in the best interests of the
United States.

11. Detail whether or not the Bank had a problem retaining its top employees
over the past 5 years. How many employees have left the Bank? How does
this compare with the turnover rates of other similar agencies? Was the use of
retention  allowances successful in retaining employees? How many employees
left the agency that were receiving retention allowances?

As agreed with the Committee staff, this analysis will be performed as a separate

12. Who is presently the COO of the Ex-Im Bank? Is this individual
responsible for the human resource decisions and the pay-for-performance
initiative? If the position is vacant, who is responsible for those functions           and

MS, Julie Belaga is presently the Ex-Im Bank’s COO and is responsible for the Bank’s
human resource decisions and its pay-for-performance initiative. Human resource
decisions and the pay-for-performance initiative are the immediate responsibility of the
Director of Personnel, who reports to the Executive Vice President, who reports to the

 12                                         GAO/GGD-9737R Ex-Im Bank’s Retention Allowance Program
ENCLOSUREII                                                              ENCLOSURE11

              caqmdIu Gcncml
              of thr, unlmd strtcr
              Ww          D.C. fodll


              -Matter of:     Export-Import Bank Employees-Waiver of ErroneousRetention
                              Allowancesand Recruiment Bonuses

              File:           B272467

              Date:           December13, 1996


              Waiver is grantedto Export-Import Bank employeeswho receivederroneous
              paymentsin the form of retention allowancesand recruitment bonusesfrom 1992to
              1996. Since the employeesreceived the paymentsin good f&b and withour
              knowiedgethat they were erroneous,coikction of the erroneouspaymentswould
              be agajnstequity and not in the best interest of the United States.

              This decisionrespondsto a requestloom the General Counsel,Ekport-Import Bank
              (&c&n Bank), for waiver of erroneouspaymentsunder the provisions of 5 U.S.C.
              § %4 (19%). The erroneouspaymentsinvolved recn&ment bonusesand retention
              allowames that were awarded to numerous&-Ink Bank employeesfrom January
              12, 1992,to January20,1996.’ For the reasonsthat follow, waiver is granted.

          The FederalEmployeesPay ComparabiliityAct of 1990,approvedNovember5, 1990,
          Pub. L No. lOlM39, 104Stat 1427,enactedinto Iaw two new pay provisions that
          gave the Oflice of Personnel Management(OPM) the authority to authorizethe head
          of an agencyto pay recruitment bonusesand retention allowances under
          ~g&tiON     prescribedby OPM. Under 6 U.S.C. P 6763(1994),an agencymay pay a
          recruitment  bonus to a newly appointedemployeeif it determinesthat in the
          abeme of a bonus it is likely that the agencywould have dilllcuity in fliling the
          position Under 8’U.S.C. I 5754(1994),an agency may pay a retention allowance to
          an employeeif (1) the employee’sunusuallyhigh or unique qual&ations, or a
          special need of the agencyfor the employee’ssenrices,makes it essentialto retain
          the employee;and (2) the agency determinesthat the employeewould be likely to
          leave in the absenceof an allowance. Recn&nent bonusesare paid in a lump sum,

          tie amount of the waiver for retention allowancesis $1,306$13.66,and for
          recruitment bonuses%203,520.00, for a total of %1,509,033.66.

13                                           GAO/GGD9737REx-Im Bank’s RetentionAllowanceProgram
ENCLOSUREII                                                              ENCLOSURE11

              whereasretention allowanceawards are paid at the same time and manner as the
              employee’sbasic pay.

              OPM has promulgatedregulations,set forth in 5 C.F.R. Part 375 (1996),to carry OUT
              the recnrianent and retention allowance authorities. The-regulationsrequire
              agenciesto preparea recn&ment bonus and retention allowanceplan containing
              (1) criteria that must be met or consideredin authorizingallowances,including
              criteria for determiningthe size of an allowance; (2) a designationof officials with
              authofity to review and approvepayment of recruitment bonusesand retention
              allowances;(3) proceduresfor paying allowances;and (4) documentationand
              recordkeepingrequirementssufficient to allow reconsuuction of the acrions taken
              to awardthe allowances.
              Accordingto the Fx-im Bank’s report to our Of&e in support of its waiver request,
              the Bank adopteda retention allowance and recruitment bonus plan in 1991and
              beganusing this authority on a limited basis in 1992. In 1993,E&m Bank
              managementdecidedto pursue a strategy of pay-for-pexformance    meant to reward
              !3nanciallythe Bank’s highest perfom     employees. As part of this strategy, the
              EC-ImBank’ssenior managementlinked consideraainnof retention bonusesto its .
              performanceappraisalprocess,and in effect used retention bonusesas a form of
              pay-for-performance awards. The Bank’s managementreasonedthat high
              pezfonnerswere most at risk of being lured away to higher paying, private sector

              At the end of the Ex-Im Bank’s performance review cycle in 1993,48retention
              allowanceswere awardedto the highest perionning employeesat the GS-13level
              and above. Subsequentperformancereview oycies resulted in an additional
              62 employeesreceiving retention aUowance$in 1994,and 117in 1996. A few
              additionalretention allowance awards were made to individual employeesat other
              -es during 1994and 1996. As of January 20,1996, approximate&4 percent of
              the Ex-Im Bank’s staff were current recipients of retenlion bonuses.
              In responseto a congressionalrequest,the General Accounting Of&e initiated a
              review of the use of retention allowancesby a number of federal agencies,inciuding
              the ti-Im Bat&.2 During meetingswith E&m Bank oiYScialsheld in April and June
              of 1996,GAO staff membersraised quesdoru and expressedpNimmary concerns
              about the Bank’s extensive use of retention bonusesand its practice of linking such
              bonrws to performanceappraisals GAO also informed OPM of its preliminary
              complianceconcerns. Subsequently,in furtherance of its oversightresponsibility,

              *Our review resulted in a report entitled Retention       ?
              Br@         Varv Amom                       GAO/GGD-SW2(December1995).

 14                                          GAOIGGD9737RJCx-ImBank’sRetentionAllowanceProtzrm
        II                                                               ENCLOSURE

             OPM initiated an indepth review of fi.Im Bank’s use of rerendon allowancesand
             recruiunent bonuses.
             The last round of retention allowanceswere awardedat the condusion of the
             Bank’s 1996performanceappraisal cycle, and were effective on April 30, 1996.
             PaymentsatuibutabL to current allowancescontinued as the GAO and OPM
             reviews proceeded. During the reviews, E&I Bank managementinitially adhered
             to ita view that the Bank’s retention allowancepractices complied with the law. On
             August 21, 1996,the Bank’s Vice Chainnansent an e-mail messageto all employees
             concerningthe GAO and OPM reviews. His messageconciudti
                       “I want to assureyou that no decisionsor recommendations
                       have yet beep made with regard to the Banks retention
                       allowanceprogram. Certainly, we are cotident that our
                       program is within ‘the letter of the la*.”
             On October 31,1996, OPM provided the IkIm Bank with a draft report on its
             review of the Banh use of retention allowancw and recndnnent bonuses. Among
             other w      the draft report expressed3erioui concernsabout (1) the
             appropxiaten~ of the process by which retention allowanceswere awarded (&
             being linked to pexfomatxe);   (2) the large number of awards; (3) the
             appropriatenessof the particular circumstancesin which certain awards had been
             made (such = to r&zing employees,to support staff, and to a student employee);
             and (4) the adequacyof the documentationsupportingalmost aJl of the awards.
             Following a review of the OPM draft report, the Ex-Im Bank’scounsel advisedthe
             Vice Chairmanon November30, of her conclusion-
                       “that the OPM dait report wa9 sub3tantiaUycorrect in its
                       0veraUconclusion that the BanVs Wzation of the retention
                       allowance authority was, in an indemminate number of cases,
                       inappropriate and that domnemation was, as a general
             L&r on that same day, November30, the Vice chainnan met with the OPM official
             responsiblefor the draft report and agreedto take a number of remedial acdons.
             TheseacUonswere to include having an outside expert review the Bank’sretention
             allowancepracti~ and rev&&g the Bank’s proceduresto comply with applicable
             regulationa According to the Fknk’s report to our Of&e, OPM did not propose
             that ongoingpayment8be suspendedor terminated

15                                          GAOIGGD-973’iR Ek-LmBank’sRetentionAllowanceProgram
ENCLOSUREII                                                             ENCLOSIJREII

              On January 19, 1996,prior to completion of the Bank’s remedial acdons.OPM
              issuedits final repoR’ The final report describedEx-Im Bank recruitment and
              retention paymentsas “illegal,”suspendedthe Ex-Im Bank’s delegatedauthority to
              admini~er the retention and recruiment programs,and required the Ex-Im Bank to
              jusdfy all emstingretention allowancesand recruitment bonuses. With respect to
              the last poim, the OPM report stated:
                    *. . . The Bank will be required to justify all Wg   retention
                    allowancesand recruitment bonusesand have them approvedby
                    OPM within 60 days of receipt of this report, or take appropriate
                    corrective action-i-e., term&&on of the actions and collection or
                    waiver of overpayments.”

              On Febnmry 7, 1996,Ex-Im Bank notihd ita employeesby e-mail that it was
              suspendingretention allowance paymentseffective January20, 1996. Subsequently,
              on February 14,the Ex-Im Bank determinedthat all of the retention allowancesand
              all but two of the rectuitment bonusesat issue were inadequaMy documentedand
              therefore erroneous. At that time, the Ex-EmBank also determinedthat it would be
              impractical if not impossible to m-documentexisdng retention allowancesand
              submit them to OPM for approval. An e-mail not& to Ex-Im Bank employees
              employeeswould be sent to GAO.

              Under the provisions of 6 USC. 5 6684(1994),the Comptroller Generalmay waive,
              in whole or in pa a cl&n aristng out of an erroneouspaymentof pay to an
              employeeif there is no indkatIon of fraud, misrepresentatton,fault, or lack of good
              faith on the part of the employee,and if collection of the payment would be against
              equity and good conscienceand not in the best interests of the United States’
              Under the terms of the statute and our impl~enting regulations,4 C.F.R. Part 92
              (lsss>, the approprkitenessof waiver turns on the knowledgeand conduct of the
              empioyeeswho have received erroneousp-en&           rather than the acdons of the
              agenq in maMng such payments- The ptincipal test is whether an empioyeeknew

              ju.SeOf Retenkn Allowances & Recruitment Bonusesat the Export-Import Bank of
              the United States (January 1996).
              ?‘he General Accounting Of&e Act of 1996, approvedOctober 19,1996,Pub. L. No.
              104416,110Stat 3826,transzerredthe Comptroller General’swaiver authority under
              6 USC. 8 6634to the Director of the 01!6ceof Xanagementand Budget,or the
              Director‘s deiegatee,effective 60 days after the date of enacunentof the Act. W
              Pub. L. Xo. 104316,§S 101(a)(3);101(e),and 103(d), 110Stat 36263323.
              -44                                                                        3.-‘??46?

 16                                           GAOGGD-9737R Ek-hn Banks Ftetention Allowance Program
ENCLOSUREII                                                            ENCLOSUREII

              or reasonablyshould have known that an erroneouspayment occurred and failed to
              bring the matter to the attention of the responsibleoffkials. & 4 C.F.R. 8 91.3(b).
              The OPM report identified 13 employeeswho receivedrecruitment bonuseschat
              OPM detenined to be defective on the ba@ of substantiveor procedural
              deficiencies. The bonuseswere paid from September1992to -May1996. The
              record containsno indication that the recipientsknew or had reasonto know of
              these deficiencies. In fact, it appear3that Ex-lm Bank’spractices in awarding
              recruitment bonuseshad not come under scrutiny at the time the bonuseswere
              paid’ Therefore,we conclude that waiver is appropriate in the case of the
              erroneousrecruitment bonuses.
               We also concludethat waiver of enoneousretention allowance paymentsis
               appropriate. The retention allowanceswere awardedto a large number of E&n
               Bank employeesprim&ly during the Bank’sperformanceappraisal cycle3 for 1993
              tbrougb 1996. The 1993and 1994awardswere made before any question had been
              raised concerningthe Ex-Im Bank’s retention allowanceprogran~ The 1996awards
              occurred during the preliminary stag- of the GAO review and before the OPM
              review was initiated Paymentsunder prwiousiy awardedallowancescontinued
              until ail such paymentawere suspendedeffectiveJanuary20,1996, the day after
              receipt of the final OPM report.
                                                                          . .
              Tldacaseissimiiartothesituadonin~                                 E206126,
              June 17,1982,where we granted waiver of erroneouspaymenu that resulted when
              the PanamaCanai Commissionmisinterpreteda statute and permitted payment for
              overtime in excessof a statutory limitation. At the time the paymenmwere made,
              the Commission employees 1egiWately believedthat the paymentswere proper.
              While the Commissionrecognizedthat issue dsted concerningit3 leg&
              inteqmtatto~ it continued to make the paymentsuntil their IegaJitywa3 resolved
                                                                              . .
              by a decision of our OfBe. &g &Q p                                   5203478,
              Dec. 30,1981.

              The Er-kn Bank’sreport to our Office indicatesthat the vast majority of employees
              txcebhg retentbn allowance paymentswere oniy generallyaware of the ongoing
              rmdewaconcexn&@    the Bank’s retention allowancepractices, and had no reawn to
              believethat the paymentswere erroneous Indeed,Ex-Im Bank management
              e@icitiy advisedail employeesin August 1996of i& conviction that the retention
              paymenmwefelegal Evenfmmtheperspective of the Edm Bank management
              personnelwho were dealingdirectly with the GAO and OPM review%the retention
              ailowancepaymenu were not necess&ly erroneousat the tune they were
              suspendedin responseto OPM’s gnal repor& The OPM report did not determine

              bTheGAO review addressedonly retention allowancea,not recruitment bonuses.

17                                        GAO/GGD9737REx-JmBanks RetentionAllowanceProgram
        II                                                              ENCLOSUREII

             the legality of any individual retention allowance.’In fact, 0P.V permitted atl such
             paymentsto continue for a limited period pending considerationof wherher they
             could be .iustUied.

             FinaLlY, we note that four Rx-hn Bank employeesreceived retention allowance
             payment9after their applicationsfor vohmtary separationincentive payments
             (“buyouts”)were approvedby the Bank. Three of these employeeswere not
             awardedretention aUowancesuntil after their retirement dates had been set. The
             questionof whether these four employeesshould be granted waiver needsto be
             addressedseparatelybecauseof the apparentinconsistencyin receiving both a
             retention aUowanceand a voluntary separationincentive payment.
             While the Rx-Im Bank achowkdges that the payment of retention allowancesto
             employee3whose separationdate was scheduledand whose application for a
             separationincentive had been approvedwas inappropfiate, the Bank maim&s that
             waiver 8houidbe granted becausethe individuals had no more basis than other
             Ex-Im Bank employeesto know that their retention ailowanceswere erroneous’
             SpecifIcally,the k-Lm Bank states that the employeesdid not recognize the
             conuadktion in nxeiving both retention allowancepaymentsand separation
             incentivepaymentsbecausethey were not faxniW with the criteria for the award of -
             retention aUowancw,and it was understoodby Rx-im Bank employeesthat the
             retention allowance paymentswere awardedby managementin recognition of
             superiorjob performance.
             We agreethat waiver should be grantedfor these four employees As d&cussed
                           Bank used retention ailowances es9entiaUy as pay-for-performance
             award% Thus, while the Form 60 NoUzaaions of PersonnelAction provided to
             these employeesindicated that they were receMng a retention allowance,the word
             “congran&tions’was written on the Form 60 for three of the employees. The Form
             60 for the fourth employee stated that the retention allowance reflected a “raise” of

             ?he report’s cover letter stated that OPM had idenU¶edwhat it consideredto be
             “ilkgal’ paymenU. However,the body of the report describedthe legal deficiencies
             in terms of the EHm Bank’s general methodsof awarding retention allowances and
             the lack of adequate justification statemenu and documentationto support awards
             ‘Three of the employees received retroactive retention allowances    As a general
             rule, a pay increasemay not be made retroactive&. Manianna       E261692,
             Nov. 13, 1996;v            8240781,Feb. 6, 1991;Edward M Wktb., B-228711,
             Dec. 8,1988 However, the amountspaid retroactive4 bkewise are approptie for
             waiver in the aixence of any indication that the employees kmw or should have
             known of this defer
             Page6                                                                         8-E2167

 18                                         GAOKXD9737R Rx&n Bank’s RetentionAllowanceProgram
ENCLOSUREII                                                          ENCLOSURE11

              5 percent Thus, the employeeshad reasonto believe chat they were receiving
              paymentsin recognitionof superior job performance,rather than as an mcennve to
              remain at the Bank.
              .~ccordingly,havingdeterminedchat the employeesthat received the erroneous
              paymentsof retention allowancesand recruitment bonuseswere not at fault and
              that collection would be against equity and good conscience,we hereby wave aU of
              the overpayments the Ex-Im Bank made to the employeeslisted in the Bank’s
              report. & -Uan              8260843,Oct 54, 1996;ReubenO..Bowman.et &
              E208811,Aug. a, 1983.

              Robert P. Murphy
              General Counsei

              page 7


19                                       GAOKXD9737R Ex-Im Bank’s Retention Allowance F’rogram
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