The S&T Directorate consists of four offices responsible for managing and executing DHS’s R&D programs: (1) the Office of Programs, Plans and Budgets (PPB); (2) Office of Research and Development (ORD); (3) Homeland Security Advanced Research Projects Agency (HSARPA); and (4) Systems Engineering and Development (SED), as seen in figure 1 below. Under Secretary for Science and Technology Development (ORD) Agency (HSARPA) & Development (SED) Prepares deployment, systems development, (including DOE labs) On June 29, 2005, a Chief Financial Officer position was created for the S&T Directorate to consolidate and execute budgetary planning. Because the budgetary responsibility for the S&T Directorate was moved out of the Office of Programs, Plans, and Budgets, its name was changed to the Office of Programs, Plans and Requirements (PPR). This new position and name change are not reflected in this figure. In the first few years of DHS’s existence, the S&T Directorate focused on the urgency of organizing itself to meet the nation’s homeland security research and development requirements, and had few resources devoted to developing its management infrastructure, including the management controls to guard against conflicts of interest. In our 2004 report on DHS’s potential use of the national laboratories, we noted that when the S&T Directorate began operating in March 2003, they sought and hired scientists, engineers, and experts in needed disciplines from federal laboratories, universities, and elsewhere in the federal government. These individuals were brought into the S&T Directorate to use their knowledge in ways that would help the Directorate achieve its mission quickly and effectively. DHS officials told us that these individuals came to DHS out of a sense of urgency and motivated by a strong sense of patriotism. Some of these scientists were hired from the national laboratories, and they came with the understanding that they would return to their laboratories following their time at DHS. As part of their responsibilities, portfolio managers led and facilitated Integrated Project Teams (IPT), which included representatives from ORD, HSARPA, and SED. In addition to identifying R&D projects and budgets, IPTs were responsible for determining which office (ORD, HSARPA, or SED) within the S&T Directorate would be responsible for them. These determinations were important because it influenced whether the project and associated funds went to the public or private sector. According to a March 2004 Office of Inspector General report, ORD generally executes programs that involve the national laboratories and which the private sector should not, could not, or would not perform. HSARPA generally executes programs for which technology development involves the private sector. SED generally executes programs employing proven technologies and resulting in transition to operational systems. As previously discussed, IPA employees are generally subject to the same laws and regulations that govern the ethical conduct of other federal employees. Section 208 of Title 18 of the United States Code, a criminal statute, generally precludes federal employees from personally and substantially participating in any particular matter that would have a direct and predictable effect on their financial interests, or the financial interest of any organization attributable to them. An employee’s participation is “substantial” if their participation is meaningful to the matter. An employee can be personally and substantially involved in a variety of ways, including making a recommendation, rendering advice, or making a decision on a particular matter. The law can be waived if the employee first makes a full disclosure of the conflict of interest to the official responsible for his or her appointment, “and receives in advance a written determination made (i.e., waiver) by such official that the interest is not so substantial as to be deemed likely to affect the integrity of the services which the government may expect.” Executive departments and agencies are required to forward documentation of such waivers to OGE. Waivers cannot be granted to cover past activities. In addition to avoiding conflicts of interest, executive branch employees must avoid even the appearance of a conflict of interest. However, when there is potential for such an appearance of a conflict, an employee can be granted an “authorization” to work on a matter even in situations where a reasonable person with knowledge of the relevant facts can question the employee’s impartiality in a matter. As mentioned earlier, OMB requires agencies to establish a set of management controls and GAO issues standards for internal control in the federal government. In addition, GAO developed the Internal Control Management and Evaluation Tool to help managers and evaluators determine how well an agency’s internal control is designed and functioning and help determine what, where, and how improvements, when needed, may be implemented. The five standards for internal control are: control environment, risk assessment, control activities, information and communications, and monitoring. Two of these standards, control environment and control activities, include key factors related to conflicts of interest. If effectively implemented, these internal controls can help to guard against employees participating in actions that present a personal conflict of interest. Examples of relevant key factors that address the establishment and maintenance of an effective control environment of an agency are: establishment and use of a formal code of conduct and other policies communicating appropriate ethical and moral behavioral standards and addressing acceptable operational practices and conflicts of interest; establishment of an ethical tone at the top of the organization and communicated throughout the agency; and implementation of policies and procedures for hiring employees. Internal control activities are the policies, procedures, techniques, and mechanisms that help ensure that management’s directives to mitigate identified risks are carried out. Examples of relevant key factors that address internal control activities are: existence of appropriate policies, procedures, techniques, and mechanisms with respect to each of the agency’s activities; providing appropriate training and other control activities to give employees the tools they need to perform their duties and responsibilities to meet the demands of changing organizational needs; and documentation of transactions and other significant events is complete and accurate and facilitates tracing the transaction or event and related information from authorization and initiation, through its processing, to after it is completed. DHS’s S&T Directorate has implemented several management controls to help its IPA portfolio managers comply with conflict of interest laws and regulations. Most of these were implemented during the course of our review. Since the S&T Directorate was created in 2003, individuals employed in the S&T Directorate under the IPA have completed an “assignment agreement”, as required by OPM. Having procedures in place for hiring employees and implementing them is one aspect of an effective management control environment. The assignment agreements include a section on conflicts of interest and employee conduct. As part of the assignment agreement, each applicant must acknowledge that: “applicable Federal, State or local conflict-of-interest laws have been reviewed with the employee to assure that conflict-of-interest situations do not inadvertently arise during this assignment”; and “the employee has been notified of laws, rules and regulations, and policies on employee conduct which apply to him/her while on this assignment.” We reviewed the IPA assignment agreements for all of the IPA portfolio managers and found that the IPA portfolio managers acknowledged these provisions. The S&T Directorate’s leadership took steps to establish an ethical tone and communicate it through a March 15, 2004, memorandum from DHS’s Undersecretary for S&T to all S&T Directorate employees emphasizing that they should strictly adhere to all applicable ethics laws. The memo summarized ethics laws, called attention to the consequences of noncompliance, provided points of contact for those with questions, and explained that S&T employees “have the responsibility to be scrupulous in complying with all applicable ethics laws.” Further, the memo specifically mentioned that employees hired under the IPA may not participate in matters involving their “home” institution (which, in the S&T Directorate, has often been a DOE national laboratory). The memo explained provisions of 18 U.S.C. § 208, stating that an employee may not participate “personally and substantially” in a particular matter that may affect an entity in which he has a financial interest and that “personal and substantial participation can occur if the employee participates in a decision, approval, disapproval, recommendation, investigation, or the rendering of advice on the matter.” According to DHS’s DAEO, the IPAs in the S&T Directorate were employed before a process was in place to screen them for personal conflict of interest issues. On June 30, 2005, the S&T Directorate issued new, internal procedures for hiring employees under the IPA. These new procedures outline the responsibilities of the parties involved in the hiring process and detail the steps necessary to hire an IPA. These steps include a preliminary review of financial disclosure forms by DHS’s Office of General Counsel (OGC) to determine whether conflicts of interest exist based on the roles and responsibilities of the proposed position. Along with these new hiring procedures, the S&T Directorate began requiring applicants being considered under the IPA to complete written disqualification statements meant to bar their involvement in any matter that could reasonably be perceived to affect the interests of their national laboratory or other employer. In addition, once hired, IPAs can complete a memorandum that provides their supervisor with a written recusal from “certain Government matters” that affect the institution to which they will return after their employment at DHS, and allows them “to describe the screening arrangement” they are implementing to ensure that they comply with their “obligation to recuse.” In this memorandum, the employee then lists each asset, entity, or other interest that gives rise to a disqualifying interest under 18 U.S.C. § 208. DHS officials told us that S&T Directorate employees, including those hired under the IPA, are offered the same new employee and annual ethics training as are all new DHS employees. Having training and orientation programs for new employees, with ongoing training for all employees, are key activities for establishing effective controls.