United States General Accounting Office Washington, D.C. ‘20548 General Government Division B-275361 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 B-275361 RESULTS IN BRIEF 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 regulations. 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 B-275361 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. OBJECTIVE, SCOPE. AND METHODOLOGY 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 B-275361 AGENCY COMMENTS 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 Director Federal Management and Workforce Issues Enclosures - 2 GAO/GGP9737R Ex-Im Bank’s Retention Allowance Program ENCLOSURE I ENCLOSURE I RESPONSES TO COMMITTEE QUESTIONS ON EX-IM BANK’S USE OF RETENTION ALLOWANCES 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 issue? 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 regulations. 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 .C’ 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 assignment. 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 activities? 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 coo. 12 GAO/GGD-9737R Ex-Im Bank’s Retention Allowance Program ENCLOSUREII ENCLOSURE11 caqmdIu Gcncml of thr, unlmd strtcr Ww D.C. fodll Decision -Matter of: Export-Import Bank Employees-Waiver of ErroneousRetention Allowancesand Recruiment Bonuses File: B272467 Date: December13, 1996 DIGEST 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. DECISION 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$13.66,and for recruitment bonuses%203,520.00, for a total of %1,509,033.66. 13 GAO/GGD9737REx-Im Bank’s RetentionAllowanceProgram ENCLOSUREII ENCLOSURE11 whereasretention allowanceawards are paid at the same time and manner as the employee’sbasic pay. OPM has promulgatedregulations,set forth in 5 C.F.R. Part 375 (1996),to carry OUT the recnrianent and retention allowance authorities. The-regulationsrequire agenciesto preparea recn&ment bonus and retention allowanceplan containing (1) criteria that must be met or consideredin authorizingallowances,including criteria for determiningthe size of an allowance; (2) a designationof officials with authofity to review and approvepayment of recruitment bonusesand retention allowances;(3) proceduresfor paying allowances;and (4) documentationand recordkeepingrequirementssufficient to allow reconsuuction of the acrions taken to awardthe allowances. Accordingto the Fx-im Bank’s report to our Of&e in support of its waiver request, the Bank adopteda retention allowance and recruitment bonus plan in 1991and beganusing this authority on a limited basis in 1992. In 1993,E&m Bank managementdecidedto pursue a strategy of pay-for-pexformance meant to reward !3nanciallythe Bank’s highest perfom employees. As part of this strategy, the EC-ImBank’ssenior managementlinked consideraainnof retention bonusesto its . performanceappraisalprocess,and in effect used retention bonusesas a form of pay-for-performance awards. The Bank’s managementreasonedthat high pezfonnerswere most at risk of being lured away to higher paying, private sector jobs. At the end of the Ex-Im Bank’s performance review cycle in 1993,48retention allowanceswere awardedto the highest perionning employeesat the GS-13level and above. Subsequentperformancereview oycies resulted in an additional 62 employeesreceiving retention aUowance$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 ENCLOSURE II ENCLOSURE II 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 matter,illadequate!~ 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 datedMarch~,1996,~them~a~~forwaiveronbehalfofthe 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? 1!:81”13 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 ENCLOSURE 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 previousLy,~tbe 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 ontbecummtrecord ‘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 11181213 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 (410079) 19 GAOKXD9737R Ex-Im Bank’s Retention Allowance F’rogram Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 208846015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 5128000 or by using fax number (301) 2534066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. 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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)