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

OFFICE OF INSPECTOR GENERAL

Evaluation and Inspection Services

#####  March 12, 2008  {#march-12-2008 .Enclosure-Number}

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

**TO:** Kent Talbert

General Counsel

Office of the General Counsel

**FROM:** Wanda A. Scott /s/

Assistant Inspector General

Evaluation, Inspection, and Management Services

**SUBJECT:** 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)

This final inspection report presents the results of our Review of the
Department of Education's (Department) Public Financial Disclosure
Reports for Employees Responsible for Oversight of the Federal Family
Education Loan (FFEL) Program and the Department's response to those
results.

BACKGROUND

On April 26, 2007, Congressman George Miller, the Chairman of the U.S.
House of Representatives Committee on Education and Labor, requested
that this office determine whether the Department's existing policies,
procedures, guidance and practices are adequate for ensuring the absence
of financial conflicts of interest among Department employees and
officers responsible for the oversight of FFEL. Specifically,
Congressman Miller requested that we review, for the six most recent
years, the Standard Form 278 Executive Branch Personnel Public Financial
Disclosure Reports (SF 278) for these employees and officers.
Congressman Miller also expressed interest in the extent to which the
Department informs, trains, or counsels existing and newly hired or
appointed officials of federal conflict of interest statutes and
standards of ethical conduct.

The Ethics in Government Act of 1978, as amended, requires senior
officials in the executive, legislative and judicial branches to file
public reports of their finances as well as other interests outside the
Government. The statute and the U.S. Office of Government Ethics' (OGE)
regulations at 5 C.F.R § 2634 provide the filing and reviewing
requirements for the SF 278. The statute specifies which officials in
the Executive Branch are required to file a public financial disclosure
report.

In the introduction to the "Instructions for Completing SF 278," OGE
emphasizes that it is important for the filer to provide complete and
accurate information on the report:

> A basic premise of the statutory financial disclosure requirements is
> that those having responsibility for review of reports filed pursuant
> to the Ethics in Government Act or permitted public access to reports
> must be given sufficient information by reporting individuals
> concerning the nature of their outside interests and activities so
> that an informed judgment can be made with respect to compliance with
> applicable conflict of interest laws and standards of conduct
> regulations. Therefore, it is important that you carefully complete
> the attached form. This report is a safeguard for you as well as the
> Government, in that it provides a mechanism for determining actual or
> potential conflicts between your public responsibilities and your
> private interests and activities and allows you and your agency to
> fashion appropriate protections against such conflicts when they first
> appear.

Accordingly, if the filer fails to report an item, those responsible for
reviewing the SF 278 are not in a position to determine if the item
presents any actual or potential conflicts.

On Schedule A of the report, filers are instructed to report each asset
held by the filer, the filer's spouse, and the filer's dependent
children for investment or the production of income which had a fair
market value exceeding \$1,000 at the close of the applicable reporting
period, or which generated more than \$200 in income during the
applicable reporting period, together with such income. On Schedule B,
Part I of the report, filers[^1] are instructed to report any purchase,
sale, or exchange during the applicable reporting period of any real
property, stocks, bonds, commodity futures, and other securities when
the amount of the transaction exceeded \$1,000.

OGE's regulations at 5 C.F.R. § 2634.605(b) provide the responsibilities
of the reviewing officials. Under 5 C.F.R. § 2634.605(b)(1) the
reviewing official is responsible for examining the report "to
determine, to his satisfaction that: (i) Each required item is
completed; and (ii) No interest or position disclosed on the form
violates or appears to violate" applicable laws and regulations. The
regulations at 5 C.F.R. § 2634.605(b)(2) provide that the reviewing
official does not need to audit the report to determine whether the
disclosures are correct and can take the disclosure at "face value" as
correct, unless there is a "patent omission or ambiguity or the official
has independent knowledge of matters outside the report."

The Ethics Division of the Department's Office of the General Counsel
(OGC) is responsible for certifying and maintaining the reports filed by
Department employees. OGC maintains an ethics file for each public filer
that includes public financial disclosure reports, communication with
the filer regarding the reports, and other ethics-related documentation.
As of December 21, 2007, 411 Department employees were required to file
reports and five attorneys in the Ethics Division were responsible for
reviewing and certifying the reports. These same attorneys were
responsible for developing training materials and newsletters, providing
ethics training throughout the year, and counseling all Department
employees on ethics issues or concerns as they arise.

The Department implements, regulates, and oversees the FFEL program. The
Department's Federal Student Aid (FSA) office has primary compliance and
oversight responsibility for the FFEL program.

INSPECTION RESULTS

The objectives of our inspection were to: 1) Determine whether the
Department's process for reviewing the SF 278 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 who are required to submit an SF 278; and 2) Determine the
extent to which the Department informs, trains, or counsels existing and
newly hired or appointed officials of federal conflict of interest
statutes and standards of ethical conduct.

**Finding #1: The Department's Review Process Was Adequate to Identify
and Address Financial Conflicts of Interest or the Appearance of
Conflicts of Interest**

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. This conclusion
is based on a review of all assets listed in the ethics files of 90 FSA
employees[^2] required to file a public financial disclosure report
between 2001 and 2007.[^3] In this review, we did not find any financial
conflicts of interest or appearances of conflicts of interest for the
assets reported by FSA employees responsible for oversight of the FFEL
program that the Department had not previously identified and addressed.

**Finding #2: The Department Informs, Trains, and Counsels All Employees
on All Federal Conflict of Interest Statutes and Standards of Ethical
Conduct**

In determining the extent to which the Department informs, trains, or
counsels existing and newly hired or appointed officials on federal
conflict of interest statutes and standards of ethical conduct, we found
that the Department covers all federal conflict of interest statutes and
standards of ethical conduct for all employees.

The Department utilizes a variety of means to educate and inform its
employees. It does so through: its intranet site; columns in the FSA and
Department-wide monthly newsletters; memoranda to employees; and various
documents regarding specific ethics-related topics, which are provided
to employees in briefings and training sessions. The Department trains
its employees through: orientation for new employees;[^4] individualized
ethics briefings for presidential appointees shortly after they enter
duty; annual ethics training that is required for selected employees and
available to all employees; and ethics briefings for senior management
in FSA. Additionally, the Department encourages its employees to seek
advice and counsel on any ethics-related issues.

Through the various ways mentioned above, the Department trains and
provides information to its employees on all of the conflict of interest
statutes that are applicable to executive branch employees (18 U.S.C.
Sections 203, 205, 207, 208, and 209) and all of the subparts of the
*Standards of Ethical Conduct for Employees of the Executive Branch.*

**Finding #3: The Department's Reviewers Did Not Consistently Address
Repeated Reporting Errors Made by Filers**

During the course of our review of the assets listed in the 90 ethics
files, we found that the Department's reviewers did not consistently
address reporting errors made by filers. Specifically, we found that
some filers' reports contained repeated errors, such as assets not
appropriately reconciled, required asset information not disclosed in a
clear and concise manner, and Excepted Investment Fund (EIF)[^5]
information not consistently and correctly reported for assets. In all
of these cases, the filers' reports contained sufficient information for
a reviewer to perform a conflict of interest analysis.

We found that some filers' reports repeatedly contained assets that were
not appropriately reconciled. Specifically, assets valued over \$15,000
on one year's Schedule A disappeared from the next year's Schedule A
without corresponding transaction information listed on Schedule B, Part
I; assets not listed on one year's Schedule A appeared on the next
year's Schedule A without corresponding transaction information on
Schedule B, Part I; and assets listed as purchases, sales, or exchanges
on Schedule B, Part I, were not listed on the corresponding Schedule A.

We also found that some filers repeatedly failed to disclose required
asset information in a clear and concise manner. Specifically, filers
did not list information to clearly distinguish assets; did not provide
the values of assets; and did not provide supplemental information that
was complete and correct. For example, filers listed the names of assets
differently from one report to the next making it difficult for a
reviewer to decipher whether an asset was listed on the prior report or
is a new entry. Filers also attached account statements as substitutes
for Schedules A and B that did not include asset values or did not cover
the complete required reporting period.

Additionally, we found that some filers incorrectly or inconsistently
designated assets as EIFs. For example, one filer incorrectly listed two
checking accounts as EIFs. Additionally, filers often inconsistently
designated assets as EIFs from year to year, which indicates that the
filers do not understand what qualifies as an EIF.

OGE's guide for reviewers,[^6] *Public Financial Disclosure: A
Reviewer's Reference (Second Edition)* (Reviewer's Guide), states that
the current report must reconcile with previous reports and that each
asset should normally either "continue on the next report, disappear (or
appear) because of a reported transaction or disappear because it
slipped below a threshold or dissipated." The Reviewer's Guide also
states that reviewers should seek additional information for a report
when the form is incomplete and when the form reveals one entry (or the
absence of one) that is inconsistent with another entry on the report or
on the filer\'s previous report(s). We found that reviewers did follow
up with filers when the reports were incomplete or when entries were
inconsistent; however, as we noted above, reviewers did not consistently
do so.

The Reviewer's Guide does encourage reviewers to exercise prudent
judgment when deciding whether to request additional information from
the filer:

> The decision . . . often involves the exercise of judgment on the part
> of the reviewer. This is especially true when two reports do not
> reconcile. Reviewers have the primary responsibility for conflict of
> interest counseling. Each reviewer should use more or less scrutiny,
> depending on the familiarity of the filer with the process, the
> technical accuracy of any previous report(s) and the possibility of
> conflicts of interest.

Since we did not find any financial conflicts of interest or appearances
of conflicts of interest in the 90 files we reviewed, it appears that
reviewers did exercise prudent judgment; however, OGC does not have
policies and procedures to ensure the consistent handling of reporting
errors.

Reports that contain repeated reporting errors indicate that filers did
not understand the reporting instructions. The Department does not
provide formal training to filers on the basics of completing a public
financial disclosure report. OGC does encourage filers to ask questions
and seek advice if they are having any difficulty completing the report,
but it does not appear that filers always seek that advice. Reviewers
informed us that they believe the filers would benefit from some form of
training related to filing public financial disclosure reports.

**Recommendation:**

We recommend that the General Counsel for OGC require the Ethics
Division to:

1.  Develop policies and procedures to ensure the consistent handling of
    reporting errors; and

2.  Develop a process to ensure that all filers receive appropriate
    training on public financial disclosure reports.

DEPARTMENT COMMENTS

On February 8, 2008, we provided the Department with a copy of our draft
report for comment. We received the Department's comments to the report
on March 10, 2008. The Department generally concurred with the findings
and recommendations of our report. The Department's response provided a
brief description of the steps they have already taken, or are planning
to take, to strengthen the Department's ethics program and, in
particular, to implement the report's recommendations. For those areas
where the Department did not completely agree with the information
presented in our report, we have summarized the Department's comments
and provided our responses below. The Department's response, in its
entirety, is attached.

*Department Comment*

The Department commented that there are many reasons why an asset
reported one year and not the next, or vice versa, has no corresponding
transaction in Schedule B. The Department stated that filers are not
required to report gifts given or received and that assets like common
stocks may disappear without a transaction when companies merge and
change names. The Department also commented that an asset may not have a
corresponding transaction on Schedule B if the asset simply loses value
and does not meet the reporting threshold.

*OIG Response*

During our review, we did not find any evidence in the files or on the
public financial disclosure reports that the assets that were not
appropriately reconciled were in fact gifts or were assets that
disappeared due to a merger. Additionally, these assets were valued over
\$15,000; therefore, it would be unreasonable to assume that they
dropped under the \$1,000 reporting threshold. We did not find any
evidence in the files or on the public financial disclosure reports that
the reviewers determined that the assets had dropped under the reporting
threshold.

*Department Comment*

The Department commented that our report's statement that five attorneys
were responsible for reviewing and certifying the reports was incorrect
because the Ethics Division had six attorneys who were responsible for
reviewing and certifying public financial disclosure reports during the
time period covered in our scope. The Department added that the Ethics
Division has three ethics program specialists who are involved in the
initial reviews of the reports to ensure completeness.

*OIG Response*

The statement in the report is accurate. As of December 21, 2007, five
attorneys in the Ethics Division were responsible for reviewing and
certifying the reports. This statement is based on information provided
by the Acting Assistant General Counsel for OGC's Ethics Division on
that date. The three ethics program specialists are not attorneys and do
not certify reports.

OBJECTIVES, SCOPE, AND METHODOLOGY

The original objectives of our inspection were to: 1) Determine whether
the Department's process for reviewing the SF 278 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 who are required to submit an SF 278; 2) Determine, to
the extent possible, whether any employees who are required to submit an
SF 278 failed to disclose potential conflicts of interest; and 3)
Determine the extent to which the Department informs, trains, or
counsels existing and newly hired or appointed officials of federal
conflict of interest statues and standards of ethical conduct. We
determined that the data to answer objective two was not readily
available and further work in answering the objective would not have
been an effective use of resources. As a result, we eliminated the
objective and informed the Department of the change in our objectives.

We began our fieldwork on June 18, 2007 and conducted an exit conference
on January 17, 2008.

We reviewed applicable conflict of interest laws and regulations. We
also reviewed OGE's *Public Financial Disclosure: A Reviewer's
Reference, (Second Edition)*; OGE program reviews of OGC's Ethics
Division; and the *Standards of Ethical Conduct for Employees of the
Executive Branch* issued by OGE. We reviewed conflict of interest
training materials and ethics-related information provided by OGC's
Ethics Division. We interviewed Department staff in the OGC Ethics
Division.

We requested that OGC provide a listing of all FSA employees required to
file public financial disclosure reports for each of the past six years.

To answer our first objective, we identified 90 FSA employees who we
determined to be primarily responsible for oversight of the FFEL program
for the time period covered by our review. We determined that employees
from the following FSA offices do not have FFEL program oversight
responsibilities: School Services and Training Channel, Application
Development Group, Enterprise IT Services Group, Funds Control and
Accounting Operations Branch, Budget Group, Budget Support Division,
Financial Management Systems Group, Project Management and Oversight
Group, Contracts Group, Communication Management Services, and
Facilities Security and Emergency Management Services. We determined
that employees from all other FSA offices could have FFEL program
oversight responsibilities. As a result, we identified 90 filers from
FSA who worked in these offices within the past six years.

The scope of our review included new entrant and annual reports filed in
2001; new entrant, annual, and termination reports filed between 2002
and 2007; and related documentation in the ethics files of the 90 FSA
employees with FFEL oversight responsibilities. We did not review
reports filed in 2007 that OGC had not certified. We performed extensive
reviews of approximately 3,000 assets listed in all applicable public
financial disclosure reports in the 90 ethics files to determine if
there were any financial conflicts of interest or appearances of
conflicts of interest related to the FFEL program that were not
identified and addressed by the Department.

We limited our review to the assets listed in the public financial
disclosure reports. As a result, we reviewed Schedule A and Schedule B,
Part I of the reports since Schedule A is required to contain a listing
of all assets and Schedule B, Part I is required to contain all
corresponding transaction information for those assets. After completing
our review of the files, we used listings of current FSA vendors and
FFEL participants provided by OGC and conducted extensive internet
searches to research all assets valued over \$15,000 for the 90 FSA
filers for possible connections to the FFEL program.

We identified 70 assets that required more complete information from OGC
before any conclusions could be made. We provided this list of assets to
OGC for further review and comment. OGC then provided the information
necessary for us to draw conclusions on those assets.

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

An electronic copy of this final inspection report has been provided to
your Audit Liaison Officer. We received your comments, which generally
concurred with our findings and recommendations.

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: Phil Rosenfelt, Deputy General Counsel

Susan Winchell, Acting Assistant General Counsel, Ethics Division

![](media/image2.jpeg){width="6.49375in" height="8.297222222222222in"}

![](media/image3.jpeg){width="6.459722222222222in"
height="8.254166666666666in"}

![](media/image4.jpeg){width="6.459722222222222in"
height="8.254166666666666in"}

![](media/image5.jpeg){width="6.459722222222222in"
height="8.254166666666666in"}

-   An internal Financial Disclosure Reviewers Handbook has been created
    and

> issued in draft last year. This Handbook *is* still in the development
> process and will be
>
> further supplemented with documents, guidance, and. other help aids
> for reviewers as they
>
> become available. In particular, and building on the OGE.reviewers
> guide, this
>
> Handbook will establish specific review policies and procedures to
> address the concerns
>
> raised in the report regarrding filers\' administrative errors and
> :consistency, thorough
>
> reviewer follow‑up. The Handbook will include guidance on using good
> judgment in
>
> determining when additional information is needed from a filer, basic
> requirements for
>
> reconciling reports from year to year and between Schedules A and B,
> and standards for
>
> reviewer documentation of follow-up communications with filers.
>
> The Ethics Division is also studying the feasibility of two additional
> strategies that may
>
> further enhance the review process: implementing a policy of not
> accepting brokerage
>
> statements in lieu of completing Schedules A and B of the form based
> on a determination
>
> that such statements are generally "not clear and concise," and
> offering filers an
>
> electronic filing option that will help to ensure that complete
> information is provided on
>
> each form.
>
> Finally, we would like to briefly correct a statement on page 3 of
> your report. You state
>
> that "five attorneys are responsible: for reviewing and certifying the
> reports." The Ethics
>
> Division has had an attorney vacancy for the past 13 months. Prior to
> that, including the
>
> time period during which the reports reviewed for this report were
> reviewed and certified
>
> by the Ethics Division, the Division had 6 attorneys who were
> responsible for
>
> reviewing and certifying the reports. Additionally, the Ethics
> Division has 3 ethics program
>
> specialists who are also involved in the initial reviews of the
> reports to ensure
>
> completeness.
>
> We appreciate your review of our public financial disclosure form
> review process and
>
> look forward to working with you as we continue to strengthen and
> enhance the
>
> Department*'*s Ethics program. Please let me or Susan Winchell know if
> you have any
>
> questions about any of our comments.
>
> Sincerely,
>
> Kent D. Talbert

[^1]: There are three different reporting status designations for
    filers: 1) New Entrant, Nominee, or Candidate, 2) Incumbent, and 3)
    Termination Filer. The reporting period and the required information
    vary for each reporting status. New Entrant, Nominee, and Candidate
    filers are not required to list transactions on Schedule B, Part I.

[^2]: One filer's public financial disclosure reports were not examined
    as part of this inspection due to a separate OIG matter.

[^3]: We did not review reports filed in 2007 that OGC had not
    certified.

[^4]: At the new employee training, the Department provides new
    employees a packet that includes the complete Standards of Ethical
    Conduct for Employees of the Executive Branch and other documents
    covering a wide range of ethical issues, including conflict of
    interest statutes.

[^5]: An EIF is an investment which is: 1. widely held, 2. (a)
    publicly-traded (or available) or (b) widely diversified, *and,* 3.
    independently managed, that is, arranged so that the filer neither
    exercises control nor has the ability to exercise control over the
    financial interests held by the fund.

[^6]: The stated purpose of this document is to "ensure the consistent,
    comprehensive and accurate review of executive branch employees'
    public financial disclosure reports." Further, "\[i\]t aims to
    increase Government efficiency by providing uniform guidance and
    interpretation to agency ethics officials."