![](media/image1.pct)**UNITED STATES DEPARTMENT OF EDUCATION**

OFFICE OF INSPECTOR GENERAL

The Inspector General

#####  April 21, 2008  {#april-21-2008 .Enclosure-Number}

##### Memorandum {#memorandum .Enclosure-Number}

**TO:** David Dunn

Chief of Staff

Office of the Secretary

**FROM:** John P. Higgins, Jr. /s/

**SUBJECT:** Final Inspection Report

> Inspection to Evaluate the Adequacy of the Department's Procedures in
> Response to Section 306 of the Fiscal Year 2008 Appropriations Act --
> Maintenance of Integrity and Ethical Values Within the Department
> (ED-OIG/I13I0004)

This final inspection report presents the results of our inspection to
evaluate the adequacy of the Department of Education's (Department)
procedures in response to Section 306 of the Fiscal Year 2008
Appropriations Act -- Maintenance of Integrity and Ethical Values Within
the Department (Section 306).

INSPECTION RESULTS

The objective of our inspection was to evaluate the adequacy of the
procedures developed by the Department to comply with the requirements
of Section 306. Specifically, Section 306 required the Department to
implement procedures to assess and disclose whether an individual or
entity has a potential financial interest in, or impaired objectivity
towards, a product or service involving Department funds. These
procedures apply to Department officers and professional employees;
contractors, subcontractors, and their employees; consultants and
advisors; and peer reviewers.

Section 306 requires the OIG to evaluate the Department's procedures and
report on their adequacy along with any recommendations for
modifications within 60 days of implementation. The Department issued a
notification to all Department managers titled, "Procedures to Comply
with Section 306 of the 2008 Appropriations Act" on February 22, 2008.
Our work was limited to reviewing the written procedures. We did not
review the implementation of the procedures. If an individual fails to
disclose an item, those responsible for assessing potential financial
interests and impaired objectivity are not in a position to determine if
the item presents any actual or potential conflict.

We found that the Department's procedures, if fully implemented as
planned, are adequate to comply with the requirements of Section 306;
however, we did find that one aspect of the Department's procedures for
peer reviewers could be misinterpreted. As a result, we recommend that
the Department modify its peer reviewer certification procedure to
clarify the issue.

We summarized the Department's procedures using the following three
categories: 1) Department employees; 2) contractors, subcontractors, and
individuals hired by the contracted entity; and 3) peer reviewers.
According to the Department, an individual serving as a consultant or an
advisor is considered either a Department employee or a contractor and
would be subject to the applicable conflict of interest procedures.

1.  **Procedures for Department Employees**

The Department implements the Executive Branch-wide financial disclosure
reporting system required by the Ethics in Government Act of 1978 and
U.S. Office of Government Ethics regulations. Approximately 400
Department employees are required to file the Standard Form 278, also
known as the Public Financial Disclosure Report; and approximately 400
Department employees are required to file the Office of Government
Ethics (OGE) Form 450, also known as the Confidential Financial
Disclosure Report. The Department currently has approximately 4,500
employees.

The employees required to file public financial disclosure reports,
which include senior officials and political appointees, are
specifically defined in 5 C.F.R. § 2634.202 and the employees required
to file confidential disclosure reports are specifically defined in 5
C.F.R. § 2634.904. The definition in 5 C.F.R. § 2634.904 provides that
the Department will determine that an employee is a confidential filer
by concluding whether the employee's duties and responsibilities require
participation in a decision or the exercise of significant judgment,
without substantial supervision and review, in government actions
further specified in the section. Thus, the Department is required to
assess the responsibilities of all employees to determine their level of
involvement in the decision-making process. The Department has the
discretion to determine which employees are in a position that would
require filing a confidential financial disclosure report.

While both the public and confidential reports are primarily designed to
disclose and assess an employee's financial interests, both reports
contain sections that address whether an employee has impaired
objectivity. The sections require disclosure of positions held outside
of government; agreements or arrangements with former or future
employers; and gifts, reimbursements, and travel arrangements.

The Department also reaches out to employees through the Ethics Division
of the Office of the General Counsel (OGC), which provides training and
guidance on ethics requirements to all Department employees. The Ethics
Division also encourages all employees to seek advice and counsel on any
ethics-related issues. These efforts provide employees with significant
guidance and education on a variety of ethics-related issues.
Additionally, the efforts provide opportunities for employees to
disclose any potential connections that may impair their objectivity.

Further, on December 4, 2007, the Department issued an internal
directive to all employees titled, "Improving Administration and
Management of Department Programs." Through the directive, the
Department emphasizes the importance of objectivity and professionalism;
provides guidance on identifying and disclosing conflicts of interest;
stresses compliance with the prohibitions against controlling and
directing curriculum and instruction; strongly encourages early and
ongoing consultation with OGC; emphasizes the importance of cooperation
with OIG; and informs employees that they are required to participate in
annual internal control training.

On March 12, 2008, OIG issued the final inspection report, *Review of
the Department's Public Financial Disclosure Reports for Employees
Responsible for Oversight of the Federal Family Education Loan Program
(ED-OIG/I13H0005)*. We found that the Department's process for reviewing
public financial disclosure reports was adequate to identify and address
financial conflicts of interest or the appearance of conflicts of
interest among employees responsible for oversight of the FFEL program.
Additionally, we found that the Department informs, trains, and counsels
all employees on all federal conflict of interest statutes and standards
of ethical conduct.

The Office of Government Ethics' most recent published program review of
the Department's ethics program, dated February 12, 2004, found that the
ethics program is "essentially sound and appears to be appropriately
tailored to the needs of agency employees." OGE found that some of the
strong parts of the program include the ethics training, the provision
of useful ethics advice, and an enforcement process that promptly and
effectively deals with employee ethical breaches. On February 23, 2007,
OGE announced that the Department was one of its ethics training award
recipients. OGE stated in the announcement: "The award recipients
successfully met the challenge of developing creative, innovative
educational programs and tools.  Their products serve as models of
programs that can be adapted for use by other agencies."

Based on our analysis of the procedures and evidence that the ethics
program has and continues to adhere to all applicable ethics program
requirements, we conclude that the Department's procedures, if fully
implemented as planned, are adequate to assess and disclose the
existence of any potential financial interest or impaired objectivity
with regard to Department employees.

2.  **Procedures for Contractors, Subcontractors, and Individuals Hired
    by the Contracted Entity**

Since August 2007, the Department has included a requirement that
organizations responding to contract solicitations submit conflict of
interest plans and disclose all potential conflicts as part of their
proposals. In the conflict of interest plan, the organization is
required to provide details on its policies and procedures to identify
and avoid potential organizational or personal conflicts of interest (or
apparent conflicts of interest). The organization's plan should also
address procedures taken to neutralize or mitigate such conflicts, if
they have not been or cannot be avoided.

As part of a contract proposal, an organization must certify that it has
disclosed all information related to potential conflicts of interest for
itself, any subcontractor, and any individual hired by the contracted
entity. The certification specifically addresses impaired objectivity,
which includes but is not limited to: financial interests or reasonably
foreseeable financial interests; significant connections to teaching
methodologies; and significant identification with pedagogical or
philosophical viewpoints.

Department employees are required to use the Department's Contract
Monitoring Internal Directive and associated procedures when reviewing
the conflict of interest plans and certifications. Additionally, the
Department addresses Federal Acquisition Regulations Subpart 9.5, which
concerns organizational conflict of interest, through specific
procedures for identifying and addressing conflicts of interest when
planning acquisitions, soliciting proposals, and awarding and
administering contracts. These procedures explain the roles and
responsibilities of the heads of contracting activities, contracting
officers, contract specialists, contractors, program managers,
contracting officer's representatives, and other members of the
acquisition team in identifying and addressing conflicts of interest.
The three specific steps are to: 1) identify and avoid, neutralize, or
mitigate potential conflicts during acquisition planning and other
pre-award activity, 2) identify, evaluate, and resolve conflicts during
contract administration, and 3) brief subsequent acquisition team
members.

The Department's internal directive, "Improving Administration and
Management of Department Programs," emphasizes the need for early and
ongoing consultation with OGC. If a contract official is unsure of a
conflict of interest issue, the directive encourages that official to
seek advice from OGC.

We conclude that the Department's procedures, if fully implemented as
planned, are adequate to assess and disclose the existence of any
potential financial interest or impaired objectivity with regard to
contractors, subcontractors, and individuals hired by the contracted
entity.

3.  **Procedures for Peer Reviewers**

In its *Handbook for the Discretionary Grant Process,* the Department
provides detailed guidance and procedures for Department staff to
identify and assess possible conflicts of interest among peer reviewers
for discretionary grant competitions. The Department's internal
directive, "Improving Administration and Management of Department
Programs," sets forth similar guidance and procedures for the use of
peer reviewers in formula grant programs.

We conclude that the guidance and procedures in the Department's
handbook and internal directive, if properly implemented, are adequate
to assess the existence of any potential financial interest or impaired
objectivity with regard to a member of a peer review panel.

With regard to the disclosure of potential conflicts of interest, the
Department requires peer reviewers to certify that they do not have a
conflict of interest with respect to any of the applications being
considered as part of their review. The certification requires the
reviewer to agree to the following statement: "I understand that I will
be considered to have a 'conflict of interest' when I, or certain
individuals and entities with whom I have a relationship, have a
financial interest in the outcome of this competition." The
certification provides examples of direct financial conflicts and
examples of relationships with certain entities and individuals that
would create financial conflicts for the reviewer.

The certification also requires reviewers to agree that the examples
provided are not exhaustive and to agree that they will promptly notify
the appropriate Program Official if they become aware of any other
circumstances that might cause someone to question their impartiality in
serving as a reviewer for the competition. OGC officials informed us
that this statement is meant to apply to all other aspects of impaired
objectivity, not only financial interests.

We conclude that the procedures requiring the certification from peer
reviewers are adequate to disclose financial conflicts of interest;
however, the statement in the certification on impartiality could be
misinterpreted as applying only to financial conflicts because of the
context of the examples given in the certification. If the certification
does not provide clear examples of impaired objectivity, the Department
cannot be sure that reviewers are disclosing all circumstances that
could impact objectivity.

**Recommendations:**

We recommend that the Department:

1.  Clarify the statement regarding impartiality in the peer review
    certification by adding language that specifically identifies the
    types of non-financial interests that would impair objectivity so
    that non-financial interests, such as significant connections to
    teaching methodologies and significant identification with
    pedagogical or philosophical viewpoints, are disclosed; and

2.  Define the terms "significant connections to teaching methodologies"
    and "significant identification with pedagogical viewpoints."

DEPARTMENT COMMENTS

On April 4, 2008, we provided the Department with a copy of our draft
report for comment. We received the Department's comments to the report
on April 16, 2008.

*Department Comment*

The Department agreed with the findings but expressed concern that using
the terms mentioned in the draft report recommendation -- "teaching
methodologies" and "significant identification with pedagogical or
philosophical viewpoints" -- would be too vague and may cause confusion
and concern. The Department further stated that it believes the
recommendation should not include those terms. The Department stated
that it does intend to develop additional guidance about non-financial
interests that will include specific examples. The Department's
response, in its entirety, is attached.

*OIG Response*

In the Department's internal directive, *Contracting Monitoring For
Program Officials (OCFO: 2-108)*, "significant connections to teaching
methodologies" and "significant identification with pedagogical or
philosophical viewpoints" are specifically cited as types of impaired
objectivity that would cause a reasonable person with knowledge of the
relevant facts to question a person's objectivity. In our draft report
recommendation, we used these terms as types of impaired objectivity
that should be addressed when clarifying the statement regarding
impartiality. We did not recommend that these terms be specifically
included in the peer review certification. It is incumbent upon the
Department to ensure that these types of impaired objectivity are
addressed in the certification so that non-financial interests are
completely disclosed. We have added language to clarify the
recommendation. We have also added a recommendation based on the
Department's comment that the terms "teaching methodologies" and
"significant identification with pedagogical or philosophical
viewpoints" are vague.

OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our inspection was to evaluate the adequacy of the
procedures developed by the Department to comply with the requirements
of Section 306.

We began our fieldwork on February 29, 2008, and conducted an exit
conference on April 11, 2008.

The scope of our review included the procedures and any documents
referenced in the Department's notification to all Department managers
titled, "Procedures to Comply with Section 306 of the 2008
Appropriations Act." Our work was limited to only reviewing the written
procedures. We did not review the implementation of the procedures.

We reviewed the procedures identified in the Department's notification
to managers and all applicable documents referenced in those procedures.
We interviewed Department staff in OGC and in the Office of the Chief
Financial Officer's Contracts and Acquisitions Management office. We
also met with OGE officials who are responsible for performing ethics
program reviews at the Department. Additionally, we referred to OIG's
inspection report regarding the Department's public financial disclosure
process and OGE's 2004 ethics program review.

Our inspection was performed in accordance with the *2005 President's
Council on Integrity and Efficiency Quality Standards for Inspections*
appropriate to the scope of the inspection described above.

ADMINISTRATIVE MATTERS

Corrective actions proposed (resolution phase) and implemented (closure
phase) by your offices will be monitored and tracked through the
Department's Audit Accountability and Resolution Tracking System
(AARTS). Department policy requires that you enter your final corrective
action plan (CAP) for our review in the automated system within 30 days
of the issuance of this report.

In accordance with the Inspector General Act of 1978, as amended, the
Office of Inspector General is required to report to Congress twice a
year on the audits that remain unresolved after six months from the date
of issuance.

In accordance with the Freedom of Information Act (5 U.S.C. §552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

Electronic cc: Kent Talbert, General Counsel, Office of the General
Counsel

Lawrence Warder, Chief Financial Officer, Office of the Chief Financial
Officer

Thomas Skelly, Director, Budget Services

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