oversight

Office of Government Ethics' Oversight Role

Published by the Government Accountability Office on 1990-06-05.

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

                   United States General Accounting Office                 /WAJ3

+iSA0              Testimony


                                                                                  141524

 For Release          Office           of Government   Ethics'        Oversight      Role
 On Delivery
 Expected    at
 9:30 a.m. EDT
 Tuesday
 June 5, 1990




                     Statement of
                     Bernard L. Ungar
                     Director, Federal  Human Resource                     Management
                        Issues
                     General Government Division
                     Before the
                     Subcommittee    on Oversight                of Government
                       Management
                     Committee on Governmental                   Affairs
                     United   States  Senate




                   * * ;,piI(I 1 f I
 GAO/T-GGD-90-48
                                                                              GAO Form 160 (12/87)
                Office    of Government       Ethics'     Oversight     Role
                               Summary Statement     by
                      Bernard L. Ungar, Director,        Federal
                       Human Resource Management Issues,
                           General Government    Division
GAO reviewed  the Office    of Government       Ethics'   (OGE) oversight    of
agency ethics   programs.     GAO focused      on recommendations    OGE made
to the Departments     of Agriculture      (USDA), State,    and Housing and
Urban Development     (HUD) during    calendar     years 1981 through     1989.
OGE's goal is to audit         each agency's     ethics      program every 3
years.       However, due to limited     staffing,       it has not met this
goal.     In GAO's view, the number of audits              that OGE made was
generally      reasonable   given the available        OGE staffing.          OGE's
audits    at USDA, HUD, and State were of sufficient                 scope and depth
to adequately       assess whether the programs met requirements                 of the
Ethics    in Government Act of 1978, executive               orders,    and
regulations.        However, the three departments            generally      had not
accepted      and begun to implement     OGE's recommendations            until     1988
or 1989 when State and HUD committed             additional       staff    to their
programs and in 1990 when USDA committed               more staff.
OGE issued audit      reports     in 1986 and 1987 to USDA, HUD, and State
and repeated      most of the recommendations           it had made in earlier
reports    to each department.         Moreover,     weaknesses still       existed
in the USDA and HUD programs when GAO reviewed                 them in 1989.        To
better    ensure agencies     take timely      corrective     action,    OGE should
strengthen     its oversight      through   (1) more aggressive        followup     on
its recommendations       and (2) requesting         agencies    to furnish
evidence     to demonstrate     they have taken the actions           agreed to.
OGE issued regulations,           effective        February      20, 1990, to
strengthen       its oversight       capability.         Under the new regulations,
OGE will     issue notices      of deficiencies           and corrective       orders      to
agency heads when their           ethics       programs do not meet requirements.
If deficiencies       still    exist     after     a specified      time period,       OGE is
to notify      the President      and Congress.           GAO believes      OGE's
approach,      with appropriate        followup,       should facilitate        its
efforts    to get agencies        to correct        deficiencies       in their     ethics
programs.
GAO believes       that OGE needs to further           strengthen      its oversight
efforts    by promptly      issuing     new regulations       on confidential
financial    disclosure.        The current      regulations,       issued      in 1968,
do not provide        adequate guidance       on what information           is to be
reported.      When OGE issues        its new regulations,          it needs to
clearly    specify     that financial      transactions       occurring       during    the
reporting    year are to be disclosed            in confidential         reports
similar    to the way in which transactions               are required        in public
disclosure     reports.
Mr. Chairman             and Members               of    the Subcommittee:


I am pleased            to be here             today        to participate                     in         this      hearing           on
the      Office       of Government              Ethics'              (OGE) oversight                      of executive
agency       ethics         programs.            As you requested,                       we obtained
information            on OGE's policies                    and practices                     for      carrying                out     its
oversight           responsibilities,                    with         particular              emphasis             on audits
OGE made at            the     Departments               of Agriculture                  (USDA),                 State,         and
Housing       and Urban             Development             (HUD).                Although           we have          not
reviewed          State's       ethics        program,                we recently              completed                  reviews            at
USDA and HUD.                Our report             on HUD's financial                         disclosure                  system
was issued            in February            1990.1             We also            received            comments                on a
draft      report,          which      we will           issue         in    final       soon,             on USDA's
disclosure            system.


My comments            today        will     focus        on OGE's overall                          approach              to
auditing          executive          agencies'            ethics            programs           and the             extent            that
it      has completed           audits        of        those         agencies.               I will             discuss         the
recommendations                OGE has made to USDA, HUD, and State                                                during            the
9 calendar           years      1981 through               1989,            the      status          of      those
recommendations,                and some steps                   that        OGE should               take         to better
ensure       that      agencies            implement            its      recommendations.




l-Government Ethics:  HUD Financial                                    Disclosure              Reports             Missing            or
Not Reviewed   (GAO/GGD-90-51,   Feb.                                  6, 1990).
BACKGROUND


OGE was established                          by the       Ethics          in Government                     Act     of      1978 and
has the           overall         responsibility                   of directing                     the    development               of
ethics        policies            for        the    executive             branch.              The 1978 act                  charged
OGE with            reviewing            and investigating                       compliance                with       the     act,
conflict            of     interest           statutes,            executive                orders,          and related
regulations.                  In line           with      those          responsibilities,                         OGE evaluates
the     effectiveness                   of    agency       programs              designed             to prevent
conflicts            of     interest.               OGE's other              responsibilities                         include
issuing           regulations;                providing            ethics         information,                     advice,          and
consultation;                 issuing           interpretative                   opinions;                reviewing
financial            disclosure               reports           filed       by certain                executive              branch
officials;               and monitoring                 and investigating                          individual             compliance
with       ethics          laws    and regulations.                        As of            May 1990,              OGE had a
total        of     41 employees                to carry           out     all        its      functions,                and 5
employees            were      responsible                for      auditing            agency             ethics         programs.


Until        October          1, 1989,             OGE was a component                         of     the     Office          of
Personnel            Management                (OPM).           As part          of     its        reauthorization
through           September           30,       1994,      OGE became an independent                                     executive
agency.            When reauthorized                      in November                 1988,         OGE was given
additional               responsibilities                  for      ensuring                that      executive
agencies'            financial               disclosure            procedures                 conform         with        the       1978
act,     executive             orders,             and related             requirements.                      At that           time,
the     1"978 act           was also            amended to clarify                          OGE's authority                   for

2
 ordering        specific                corrective            actions          to ensure                that         agencies'
procedures             meet applicable                     requirements                 and that              individual
officers         and employees                    comply        with      requirements                    on conflicts                     of
 interest        and standards                    of conduct.


AUDIT COVERAGE CONSTRAINED BY LIMITED                                                STAFFING


OGE's4goal             is     to audit            each        executive              agency's           ethics           program
every       3 years.               However,           due to          limited           staffing,               it      has not            been
able    to accomplish                     this     goal.             In our      view,           the      number             of audits
OGE made generally                        appeared            reasonable              given        the        available                 OGE
staffing.


Recognizing             that        it     did     not        have     enough           staff          to achieve                 its      3-
year    goal,          OGE developed                 an audit           strategy                that      generally
provided         for        covering             what    it     considered               to be major                    agencies
more frequently                    than      others           and for         showing            a "presence"                     at     as
many agencies                as possible,                including              field           locations.                   Each
year I OGE developed                       written            program         plans        that         set          forth        an audit
schedule        that         considered               such      factors          as agency                size          and
perceived         vulnerability                    to conflicts                 of      interest,               previous                audit
coverage        and findings,                     as well        as its          3-year            goal.              Consequently,
it   generally              did     not     cover        agency         headquarters                   operations                  once
every       3 years;              in many instances,                    its      audits           of      the         cabinet
departments have been limited                                   to    one or a small                     number              of
       rl
component agencies.

3
However,            OGE did                 make audits              at     11 of        the     14 cabinet                 departments
and the          Executive                   Office         of     the      President            at     least          once         in      the
past       3 calendar                      years.       Two departments                        (HUD and Veterans
Affairs)            had not                 been audited               in      the     past      3 years          but        were
audited          within               the      past     4 years.                 Except         for     an audit             of       the
Federal          Energy               Regulatory             Commission,                an independent                      commission
within        the Department                          of Energy,               OGE had not              audited             at      that
department                since             June 1983.               The audit             frequency             for        80 other
entities            varied            --3      had been audited                       3 times,          20 twice,                30 once--
and 27 entities                        had not          been audited                   during          the      9 years.
Attached            is     a list              of     the    95 executive                 branch          entities               that        OGE
considered                subject              to audit,             the       number          of audit          reports             issued
for      each,       and the                 date      of OGE's             last       report.


Staffing            for     Audits
Limited          Until           Recently


To carry            out         its         oversight             activities            and all           its     other
functions,                OGE had 26 employees                              in      1981 soon after                    it    began
operations,                and the              number            had increased                 to 41 by May 1990.
With       a few exceptions,                           the        number         of    staff          years      allocated                  to    the
audit       function                  between          1981 and 1990 ranged                            from      1.5        staff           years
in      1981 to           5.0         in     1990.          Because            of     reassignments               within             OGE and
separations,                only             two staff             were        available              to do audits                  from
April       until          August              1989,        but     OGE hired             three         additional                  staff
betwe*en August                       1989 and May 1990.

4
gum 1: OGE Staffing History
                                                 56     YEAR-END FULL TIME EWNALEMS




                                                 1911           1922     1922        1924       19811      lsm        lw7          1988      ls29        1QBOESt.

                                                 FISCAL YEARS

                                                        -         AUOGE STAFF
                                                        -1--      OGE AUDIT STAFF

                                                 SOURCE: OGE




           As figure              1 shows,            OGE's        overall          staff       size       began       to        increase           in
           fiscal          year     1988,        going           from    about         21 staff            in    September                1987      to
           an estimated               53 staff                 by September            1990.            According            to OGE, most
           of     the      additional            staff           hired       were      assigned            work      other          than
           auditing.              This      included               certain          administrative                 tasks          formerly
           done      for     OGE by OPM, reviews                         of     financial               disclosure               statements,
           development              of   new regulations,                       and         implementation                  of    OGE
           administrative                systems.                  According           to OGE's acting                  director,                OGE
           did      not     believe         it        could        devote       additional               staff       to audits              until
1989 and 1990,                 when some of                   these       other     activities            were under
better        control.


USDA, HUD, AND STATE AUDITS
OF SUFFICIENT               SCOPE AND DEPTH


On the        basis       of     our     reviews              at USDA and HUD and our                        analysis      of
two OGE reports                  on State's                  program,         we believe          that       OGE's audits
were     of    sufficient              scope          and depth              to adequately             assess      whether
the     programs          met requirements                       of    the     1978 act,          executive         orders,
and regulations.                   OGE staff                  used a written              audit        program      and
covered        key      aspects         of      all          three     departments'             ethics        program,
including         standards             of      conduct              regulations,            filing       and review          of
financial         disclosure              reports,               post-employment                restrictions,
ethics        training,           and management                      oversight.             The audit          program

provided         for      a review             of     all,       or a sample           of,       financial
disclosure             reports         filed          at agency            headquarters               and component
agencies        to      assess         the      agencies'              reviews       of      those       reports        and the
conflict-of-interest                      determinations.


RECOMMENDATIONS GENERALLY NOT
IMPLEMENTED UNTIL RECENTLY


Although        we believe              that          the quality              of OGE's audits                was good,
USDA, HUD, and State                      generally                  had not       accepted           and implemented
OGE';       recommendations                  until            recently.           OGE had completed                 six

6
          audits           at    USDA, HUD, and State                               headquarters               since        1981--one         at
          each        in       1982 or      1983 and a second                              one in        1986 or           1987.      On the
          basis        of       those      reviews,            OGE made a total                          of    32 recommendations                    in
           its    first          series      of        audits           and 76 in                its     second        series       of     audits.
          As figure              2 shows,          the        recommendations                          made in       the     six    reports
          addressed              weaknesses             in     practically                     all      aspects        of    the    programs,
          including              the      need to            (1)     establish                 or update            standards         of
          conduct          ,    (2)     obtain         and review                   all      required          financial           disclosure
          reports,              (3)     provide         more ethics                       training,           and    (4)     increase
          management              involvement                 with           and accountability                      for     the    program.

Figure 2: OGE Recommendations to
USDA, HUD, and State, by Type of                  20     Numbr ot Rocommondatlons
Weaknoas
                                                  18

                                                  16

                                                  14

                                                  12

                                                  10

                                                   8

                                                   8

                                                   4

                                                   2

                                                   0




                                                  Am d Wnknrs            in Ethic    Program

                                                         1         ) USDA
                                                                     HUD
                                                         m           stat0

                  *                               Note: OGE made a total of 108 recommendations. Of these, 39 were made to USDA, 40 to HUD,
                                                  and 29 to State.


          7
Most of          the      recommendations                 made in OGE's first                         reports           had not
been      implemented              when OGE made its                      later        audits         at each
department,               about      4 years          later.           When OGE returned                        to     the
agencies,           it     made recommendations                        addressing             generally               the       same
problems           identified            in    its     first          reports.            For example,                  of      13
recommendations                   that    OGE made to USDA in                          the    April        1982 report,
12 dealt          with       the     same kinds             of       problems          addressed           in OGE's
January          1986 report.                 OGE's second               report          on State          said         that         its
ethics        programs            had "significantly                     deteriorated."                    The second
report        on HUD showed               a continuing                 lack       of     attention             to     the       ethics
program          by the       designated             ethics           official.              In    its     second            reports
to all        three        departments,              OGE made an even                     larger          number         of
recommendations,                   as table          1 shows.

      Table     1: OGE Reports and Reccanmendations on USDA, HUD, and
              State Ethics Programs

                                         First report                                    Second report
      Department                Date         Recanmendations                      Date      Recanmendations
         USDA                Apr. 1982                13                      Jan. 1986                   26
         HUD                 May 1982                 15                    Mar. 1986                     25

         State               Feb. 1983                4                     Jul.       1987               25
           Total                                      =32                                                 76


When OGE made audits                      in    the       1982-83          time        frame,        it    found
weaknesses               in ethics        programs             not     only       at USDA, HUD, and State
but    at other agencies   as well.    Therefore,                                         OGE diverted                  some of
       w
its    audit  staff away from auditing     ethics                                        programs          to        training

8
 agency       ethics            officials             on-site       at both            headquarters              and field
 locations.              The OGE audit                  staff       held        28 training             sessions              in
 regional           cities,            plus      sessions          at     numerous         agency            headquarters
offices,            during         1983 through                 1986.


,During       this       same period,                  the      Offices         of     Inspector         General          at USDA
and HUD issued                   reports          recommending                 in many instances                  the     same
kinds        of     improvements                recommended               by OGE.          According             to     the
Office        of      Inspector               General        at    State,        it     had made no audit;                         of
the       ethics       program           through          May 1990.


Still,        many of            the     recommendations                   made by OGE and the                        Inspectors
General            had not        been implemented                      when we made our                 reviews          at
USDA and HUD in                    1989 and 1990.                   For example,             USDA and HUD had not
devoted            sufficient            resources              to establish             and maintain                 financial
disclosure             systems           that         met the       requirements             of        the     1978 act             and
implementing               regulations.                   We concluded,                 as had OGE, that                  there
was insufficient                    top-level             support          and oversight                of     the     ethics
programs.              Ethics           officials            and line          managers           in    those
departments              were not              held     accountable              for     implementing                 ethics
programs.              Although             we did        not      review        the     entire         ethics         programs
at       USDA and HUD, our draft                          report          contains         12 proposed
recommendations                   to the         Secretary              of Agriculture,                 and our          report
to HUD included                   9 recommendations                       to   the      Secretary            of HUD for
improving             financial             disclosure             systems.



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We believe              that      reports       issued          by GAO, OGE, and the                      Inspectors
General          show that           weaknesses           have       persisted           in    the    ethics
programs             of USDA and HUD over                  many years               because        management              in
those         departments            had not       taken        steps,            such as adding             more staff
to      the    ethics          programs       and developing                 procedures            and controls
for      financial             disclosure,         to demonstrate                   a serious         commitment                to
the      programs.


After         receiving           your      request,       we asked           State       ethics          officials             to
provide         information              on the        status        of     the     recommendations                 in OGE's
two reports.                   The information             provided               indicates        that      some of            the
weaknesses              reported         by OGE in         1983 and 1987 continue                          to exist
today.          For example,               by May 1990,              State         had not      reviewed            about
400 of         the      approximately            1,100      public           disclosure          reports            that
were      due May 15,              1989.       The 1978 act                 requires          these       reports          to be
reviewed          within          60 days      after       receipt.                By March      1990,           State
also      had not             provided       to OGE evidence                 required          by the        1978 act            to
show that            24 of        55 presidential               appointees,             who were confirmed                       by
the      Senate         for     State      Department           positions,             had complied               with      the
ethics         agreements           they      made in       1989 before                accepting           the
positions.               According           to OGE, in          May 1990,             State     provided
evidence          to OGE showing               that      20 of        the     24 appointees                met
requirements.


Although          weaknesses             had existed            in    all     three       departments'                ethics
progfams          for     many years,            all     three        have        recently       taken        steps        to

10
improve          their        programs.                     HUD, in            particular,                  took       a number          of
significant                 steps        in        the      past        year      to strengthen                       its      program.
The Secretary                 of      HUD outlined                       12 specific                  actions          he had taken--
and others              he planned                  to take--             to     improve              the     HUD program.                   The
steps       already            taken           include             (1)     creating                and staffing                 a new
ethics         office         within               HUD, (2) decentralizing                                  certain
responsibility                  to       regional               officials                for       identifying                 and
resolving             conflicts               of         interest,             and       (3)       eliminating                 a backlog           of
financial             disclosure                   reports           awaiting                review.


In May 1990,                 we also               received             a positive                 response            from      USDA's new
Assistant             Secretary               for         Administration                       on our         draft          report
concerning              weaknesses                  in     USDA's financial                          disclosure               system.
USDA has             taken,         or    promised                 to     take,         action             by specific               dates     on
almost         all      of    our        recommendations.


In May 1990,                 State        furnished                  information                   to us indicating                    that
it,     too,         has taken            steps            to      improve             its        ethics          program.
According             to State,               it     has designated                          a new agency                   ethics
official             who can spend more time                                   on the             ethics          program        and
increased             the     size        of        its      ethics            staff           from        four       to seven
employees.               Also,           in        1989,        State          decentralized                      some of        the
responsibility                  for       the        ethics             program              to    senior          officials           at
overseas             posts     and executive                         directors                 of bureaus              at State
headquarters.



11
As requested,                 we obtained              information               from    USDA, HUD, and State
on the           current          status       of    all      the    recommendations             made by OGE to
those        departments.                   As table          2 shows,           as of May 1990,           all            three
departments                said      they     had,         to varying            degrees,      begun      to        address
most        of    the OGE recommendations.

     Table 2:           Status of Recommendations Made to USDA, HUD, and State
                         as of May 1990
                                                Number of OGErecanmendations
     Department                   Fully     or partly implemented     Not implementeda Total
         USDA                                        22                                        17                          39
         HUD                                         38                                         2                          40
         State                                       19                                        10                          29
            Total               - 79
     aIncluded in these numbers are recommendations that the departments
     agreed to implement but for various reasons had not initiated
     implementing actions as of May 1990 and reccaumandations the agencies
     did not agree to implement.

REPORTING AND FOLLOWUP IMPROVEMENTS NEEDED


In light           of    untimely            corrective             actions        by USDA, HUD, and State,
we looked           at      how OGE might                  improve       the      communication           of        its      audit
results           and followup               to ensure           that      its     recommendations               are
accepted           and implemented.                        Specifically,            we offer        the    following
observations               on improving              OGE's reporting                    and followup           in         order
to obtain           timely          corrective              action       on its         recommendations.


First,           OGE's reports              were      addressed            to     the designated           ethics
officials           at USDA, HUD, and State                             who were         responsible           for


12
implementing                the    ethics              program          rather         than             to     the      agency       head.
According            to OGE, it                has since              changed          its         policy              and now sends               a
letter        summarizing                its         audit      results              to agency                 heads.          We agree
that       the     agency         head should                  receive          the     reports,                  and we believe
that       the     agency         head should                  use the          reports                 to hold          other
officials            accountable                for      establishing                  and maintaining                          an ethics
program           that     meets         the         requirements               of     the         1978 act,              executive
orders,           and OGE regulations.


Second,           OGE prepared                 detailed              reports         on the              reviews          of ethics
programs           at     USDA, HUD, and State                           but     did         not         always          send the
entire        reports            to the         agencies.                Rather,             it     usually              sent     brief
letters           on the       results            of     the     audits.               Although                 we believe             that
these       letters          accurately                 summarized              the     conclusions                      and
recommendations,                   the         letters          did      not     present                 the     evidence
developed            in    the     reviews             detailing               the     extent,                nature,          and
underlying               causes     of         the     problems.                Also,             the        letters       were not
always       clear         as to what                 was recommended                   and what                  was presented
just       as factual             information                 and OGE opinion.                               The audit           reports
clearly           identified          OGE's conclusions                          and recommendations                              as such.


According           to OGE, it                 has changed               its     policy             on providing                  audit
reports           to agencies             several             times       since         1981.                 As of May 1990,
its      policy          was to give              agencies             detailed              information                  on its        audit
results.            We agree          with            the     current           OGE policy.                       If    presented             to
agency       heads,         the     complete                 audit       results             could            be useful           in

13
convincing                them to hold              designated                 ethics          officials             and other
agency          officials           accountable                 for      taking          action          on OGE's
recommendations.


Third,          OGE did           not     always         obtain          USDA, HUD, and State                            responses
to      audit      reports          when they              were due             (60 days           after          the     audit)        and
was not          forceful           in     its      followup             to get          those          responses.
Although           OGE has authority                       to    require              agencies           to provide
information,                the     departments                 either          did      not      respond            at all        or
responded           many months                  after      OGE completed                  its          report.           For
example,           according              to OGE, State                  did     not      respond             at all        to OGE's
February           1983 report              and did             not      respond          to      its      July       1987 report
until       February              1988.          The latter              response          did          not     specifically
address          the      25 recommendations                          in OGE's July                1987 report.
According            to     the     audit         staff,         they       made phone                  calls        to get        timely
responses.                However,          the      OGE director                  did     not          make written
requests           for      responses             from      USDA, HUD, and State.                                    On May 31,
1990,       State         provided          OGE a more detailed                           response              to    the     July
1987 report.


OGE's audit               staff         generally           made 6-month                  followup              visits        after
issuing          reports           to USDA, HUD, and State.                                These           visits        consisted
of      a meeting           with        agency       ethics            officials           to      inquire            about        what
actions          had been taken                   on the         reports.                In these             meetings,            OGE
generally   did not request   specific, documentary  evidence   to
     w
demonstrate    that the agency had taken the actions    recommended                                                                     and

14
agreed       to.           In our            work     at both         USDA and HUD, we noted                                 several
instances           in which                 the     agencies         promised                to take       action               on
recommendations                        but    had not          done       so.          We believe            that           OGE could
strengthen               its       review           program        by requiring                  agencies              to    furnish
evidence           that          they        have     taken        the     actions             they      agreed             to     take.


Although          OGE's recommendations                             to     the         three      departments                    were
generally           not          implemented              until       recently,                OGE had not                  issued            any
orders       of     corrective                  action,           which         are     authorized               in     subsection
402(b)(9)           of         the      1978 act,          because              of questions               concerning                   its
authority           to         issue         the     orders.          The 1988 reauthorization                                    act
clarified           OGE's authority,                       and it          issued             regulations,                  effective
February           20,         1990,         that     strengthen                its     enforcement               capability.
Under       the     new regulations,                       OGE is          to         issue      notices           of
deficiencies                   and corrective                  orders           to agency            heads        when their
ethics       programs                  do not        comply        with         the     1978 act,           executive
orders,       OGE regulations,                          and related                   requirements.                    If    the
deficiencies                   still         exist      after       a specified                  time      period,               OGE is         to
notify       the     President                 and Congress                of         the deficiencies.


We believe           the           approach           provided            for         in OGE's new regulations
should,       with             appropriate             OGE followup,                    facilitate               its        efforts            to
get      agencies              to correct             deficiencies                    in their          ethics          programs.




15
 PROMPT ISSUANCE OF UPDATED REGULATIONS
ON    CONFIDENTIAL                  FINANCIAL           DISCLOSURE NEEDED


 In addition               to     the     above      actions,           we believe                that      OGE needs              to
further        strengthen                 its     efforts        by promptly                 issuing             updated
regulations                on confidential                  financial               disclosure             and by clearly
requiring            filers             to report         on financial                 transactions                that
occurred          during            the     reporting          year.


OGE has        long         recognized              the     need to update                   the        regulations
governing            confidential                 financial           disclosure               that        were     issued          by
OPM more          than           20 years         ago in September                     1968.          OGE published
proposed          regulations                   in December            1986 but            has yet          to     issue       final
regulations                for     several          reasons.            According              to OGE, the                 delay        in
issuing       the          regulations              resulted          primarily             from         the     clearance
process       within              the     executive           branch         and from             the      need for          OGE to
issue      various              other      regulations               after          passage        of      the     Ethics
Reform      Act       of         1989 in November               1989.


The regulations                    on confidential                   disclosure             currently              in effect
are     deficient.                 For     example,           they      do not          provide            adequate
criteria        for         determining              who should              file       confidential                disclosure
reports       and do not                  clearly         specify        what         period          of    time      (1 day or
365 days)          that          the      information           supplied              in    the       reports         is     to
cover.        Also,             some agencies               have deferred                  correcting              known
weaknesses            in        their      confidential               systems          or have             not     required

16
confidential                 financial             disclosure                 until           they        receive          OGE's         final
regulations.                     We have expressed                      concern              about         the      lack         of    updated
regulations                 in    the      past         and continue                  to believe                they       are        needed
promptly.


When OGE issues                     its      new regulations,                         it      needs        to c1earJ.y                specify
that      financial               transactions                  occurring                  during         the    reporting              year
are      to be disclosed                     in confidential                        reports            in a manner                similar
to     the   way in which                    transactions                   are       required             in public
disclosure            reports.                According                to OGE, agencies                         have       interpreted
the      current        regulations                 differently.                           Some agencies                require
transactions                 data         to be reported,                     but          most      do not         require            such
reporting.              OGE's view                 is      that        confidential                   filers           are       currently
not      required            to     report         transactions.


We believe            this          omission            is      a serious                  shortcoming            in       the
confidential                 disclosure              system            that       OGE should                address              as soon as
possible.             In our              view,     a financial                   disclosure                system           that       only
requires           filers           to report                their      financial                   interests           held          on a
single       day of any given                       year          is    inadequate                   to prevent              or detect
actual       and potential                    conflicts                of     interest.                 Such a system
enables        employees                  to acquire              and dispose                  of     financial              interests
that      could,        or do,             present            conflicts              with         their         jobs       for        364 days
a year       without              disclosure.                   They only              have          to disclose                 interests
on 1 day-- the                   day the          report          is    to cover.                    The public              financial
    Y


17
disclosure           system         requires          reporting      of    transactions,            and we see
no reason           why the         confidential           system     should      not      do so as well.


RECOMMENDATIONS TO THE DIRECTOR, OGE


To strengthen,OGE%                      oversight         and enforcement          program,          we
recommend           that      the      Director


     --   more aggressively                  follow       up on its        recommendations            and
          require          agencies        to provide         evidence        showing       promised
          corrective           actions          have been taken,


     --   promptly          issue       regulations         on confidential             financial
          disclosure,            and


     --   require          financial        transactions            to be reported           on
          confidential              financial         disclosure          statements.


We are       transmitting               these      recommendations            to OGE today.




That      concludes          my statement.                I would     welcome      any questions            and
comments        you may have.




ia
ATTACHMENT                                                              ATTACHMENT

                          OFFICE OF GOVERNMENT ETHICS AUDITS OF
                                 AGENCY ETHICS PROGRAMS
                       JANUARY 1, 1981, THROUGH DECEMBER 31, 1989
                                                                     Number       Number Last
                                                                        of         of     audit
               Executive      branch     enti tya                  employeesb    audits report
         1. Executive       Office of the President                      1,420     3    Apr.   88
              Office       of Management and Budget                                2    Dec.   a7

         Departments
         2. Agriculture                                               109,567      2    Jan.   86
              Food Safety       and Inspection         Service                     1    Mar.   88

         3. Commerce                                                   40,150      3    Nov.   a7

         4. Defense                                                 1,051,019      1    Oct.   a7
              Air Force                                                            1    Nov.   86
              Air Force Systems Command                                            1    Oct.   a3
              Army Materiel     Command                                            1    Mar.   a7
              Army and Air Force Exchange Service                                  1    Jan.   86
              Army Materiel     Command                                            1    Apr.   a3
              Defense Communications        Agency                                 1    Feb.   85
              Defense Contract      Audit Agency                                   1    Jan.   86
              Defense Intelligence       Agency                                    1    Apr.   89
              Defense Logistics      Agency                                        2    Jul.   88
              Defense Mapping Agency                                               1    Mar.   87
              Defense Nuclear      Agency                                          1    Sep.   85
              Naval  Sea Systems Command                                           1    Feb.   89
              Navy                                                                 2    Jun.   86
              Office  of the Secretary       of Defense                            1    Sep.   83
         5. Education                                                    4,424     2    Jan.   89
         6. Energy                                                     16,535      1    Jun.   a3
              Federal      Energy      Regulatory     Commission                   2    Mar.   88
         7. Health   and Human Services                               117,495      2    May    85
              Centers   for Disease Control                                        1    Sep.   81
              Food and Drug Administration                                         1    May    88
              National    Institutes      of Health                                1    Jun.   87
              Social   Security      Administration                                1    Sep.   87
         8. Housing     and Urban       Development                    13,212      2    Mar.   86
     u


19
ATTACHMENT                                                                ATTACHMENT

       9.    Interior                                                     71,372       2   Feb.   85
                Bureau of Land Management                                              1   May    a9
                Fish and Wildlife   Service                                            1   Oct.   88
                National Park Service                                                  1   Apr.   87
     10.     Justice                                                      76,402       2   Nov.   86
                Drug Enforcement  Administration                                       1   Mar.   88
                Immigration  and Naturalization                Service                 1   Jan.   88
     11.     Labor                                                        la,444       2   Feb.   85
               Employment and Training               Administration                    1   Aug.   88
               Pension Benefit Guaranty               Corporation                      2   Apr.   a9
     12.    State                                                         25,491       2   Jul.   87
     13.    Transportation                                                63,197       3   May    87
               United States Coast Guard                                               1   May    88
               Federal    Aviation Administration                                      1   June   84
     14.    Treasury                                                     154,432       2   Sep.   86
               Bureau    of   Engraving       and Printing                             1   Oct.   88
     15.    Veterans     Affairs                                         212,231       2   Aug.   86

     Agencies,    boards,
     commissions,     and other           entities
     16.    ACTION                                                            429      1   Jan.   84
     17.    Administrative         Conference      of the
               United States                                                   24
     la.    Advisory      Commission on Intergovernmental
               Relations                                                         2     1   Jul.   86
     19.    Advisory      Council     on Historic     Preservation             31
     20.    African     Development       Foundation                           30
     21.    Agency for International             Development               4,597       1   Sep.   85
     22.    American Battle          Monuments Commission                     386      1   Jun.   a7
     23.    Appalachian        Regional    Commission                          10
     24.    Architectural         and Transportation         Barriers
               Compliance       Board                                         27
     25.    Armed Services         Board of Contract         Appeals         259
     26.    Arms Control        and Disarmament       Agency                 178
     27.    Board for International             Broadcasting                  11       1   Aug.   85
     28.    Central     Intelligence       Agency                                  C   2   Apr.   89
     29.    Commission of Fine Arts                                                7
     30.    Commission on the Bicentennial               of the
               U.S. Constitution                                             100
     3%.    Commission on Civil           Rights                              73       1   Jul.   a5
     32.    Commodity Futures          Trading    Commission                 529       1   Jan.   86
20
ATTACHMENT                                                             ATTACHMENT

      33. Consumer Product           Safety Commission                     515    1   Mar.   84
      34. Defense Nuclear         Facilities         Safety    Board          d
      35. Environmental        Protection        Agency                14,088     3   Aug.   89
      36. Equal Employment Opportunity                 Commission       2,970     2   Aug.   88
      37. Export-Import        Bank of the United States                   318    1   Jan.   84
      38. Farm Credit      Administration                                  538    1   Jan.   85
     39. Federal     Communications            Commission               1,765     2   Aug.   88
      40. Federal    Deposit      Insurance        Corporation          3,120     2   Jun.   89
     41. Federal     Election       Commission                             251    1   Jan.   85
     42. Federal     Emergency Management Agency                        2,389     3   Jun.   87
     43. Federal     Financial        Institutions
            Examination        Council                                      15
     44. Federal     Home Loan Bank Board                                     e   2   Mar.   88
     45. Federal     Home Loan Mortgage Corporation                     1,868     1   May    85
     46. Federal     Housing Finance Board                              6,313
     47. Federal     Labor Relations            Authority                  245    1   Jan.   85
     48. Federal     Maritime      Commission                              218    2   Jan.   86
     49. Federal     Mediation        and Conciliation
            Service                                                        318    1   Jan.   87
     50. Federal     Mine Safety         and Health Review
            Commission                                                      51    1   Sep.   86
     51. Federal     Reserve System                                     1,488     1   Apr.   84
     52. Federal     Retirement        Thrift      Investment
            Board                                                           72
     53. Federal     Trade Commission                                      894    2   Feb.   89
     54. General Services          Administration                      19,246     2   Mar.   86
     55. Harry S. Truman Scholarship                  Foundation              3
     56. Institute      of Museum Services                                  15
     57. International         Joint     Commission                         30
     58. International         Trade Commission                            495    1   Jun.   85
     59. Interstate       Commerce Commission                              698    2   May    88
     60. Inter-American         Foundation                                  70    1   Mar.   87
     61. Japan/U.S.       Friendship        Commission                       5
     62. Marine Mammal Commission                                           12    1   Sep.   85
     63. Merit Systems Protection                Board                     301    2   Aug.   88
     64. National      Aeronautics         and Space
            Administration                                             23,054     2   Aug.   88
     65. National      Archives       and Records
            Administration                                                 631    1   Feb.   86
     66. National      Capital     Planning        Commission               41
     67. National      Commission For Employment
            Policies                                                        12
     68. National      Commission        on Libraries       and
            Information        Science                                      11
     69. National      Credit     Union Administration                     883    1   Apr.   87
     70. National      Endowment for the Arts                              260    1   Jun.   85
     11. National      Endowment for the Humanities                        253    1   Oct.   85
     72. National      Labor Relations           Board                  2,273     2   Jun.   89
     73. National      Mediation       Board                                53    1   Mar.   86
21
ATTACHMENT                                                                  ATTACHMENT

        74. National      Science Foundation                                    1,171               Mar.   86
        75. National      Security      Agency                                      C           f   Jul.   89
        76. National      Transportation         Safety Board                      324          2   Aug.   88
        77. Nuclear      Regulatory      Commission                             3,209           2   Feb.   89
        78. Occupational        Safety and Health Review
               Commission                                                            74         1   Mar.   88
        79. Office     of Personnel       Management                            5,655           2   Mar.   86
        80. Overseas Private          Investment      Corporation                  134
        81. Panama Canal Commission                                             8,682
        82. Peace Corps                                                         1,071           1   Feb.   86
        83. Pennsylvania        Avenue Development
               Corporation                                                         324          1   Jan.   86
        84. Postal     Rate Commission                                              57                      0
        85. President's       Commission        on Executive
               Exchange                                                            12
        86. Railroad      Retirement      Board                                    43
        87. Securities      and Exchange Commission                           2,053             2   Jul.   86
        88. Selective      Service     System                                    261            1   May    87
        89. Small     Business     Administration                            4,005              2   May    84
        90. Soldier's      and Airmen's        Home                              184
        91. Tennessee Valley          Authority                             23,056              2   Sep.   85
        92. Uniformed      Services      University      of the
              Health Sciences                                                   784
        93. United States        Information        Agency                   8,756              1   Apr.   85
        94. United States        Postal    Service                        797,043               2   Mar.   88
        95. United States        Railway     Association                                d   1       Aug.   86
                Total      audits
aAccording   to OGE, these 95 entities         comprise    its audit universe    and
represent   departments,    agencies,     boards,   and commissions    for which a
designated   agency ethics     official    has been named, as required        by OGE
regulations    (5 C.F.R.   738).      Data on audit    reports  were also obtained
from OGE.
bBudget of the United States   Government - Fiscal      Year 1991 was the
source for the number of employees      (full-time  equivalent)    for fiscal
year 1989.    The number of employees    represents  the total   for the office
or department   and component entities.
CData     not   available.
dAgencies       received       no funding       for     fiscal   year   1989.
eAgency      was abolished          in August         1989.
fin addition        to these 146 reports,        OGE issued reports                 on the basis of
61 visits    to     agencies'   regional    offices    and military                bases during  the
g-year period         1981 through    1989.
22