[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
PRESIDENTIAL AND EXECUTIVE OFFICE FINANCIAL ACCOUNTABILITY ACT OF 1997 
              AND SPECIAL GOVERNMENT EMPLOYEE ACT OF 1997
=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM
                             AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 1, 1997

                               __________

                           Serial No. 105-54

                               __________

Printed for the use of the Committee on Government Reform and Oversight





                       U. S. GOVERNMENT PRINTING OFFICE
44-930                          WASHINGTON : 1997
___________________________________________________________________________
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico            EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida             DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona             ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio           DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South     JOHN F. TIERNEY, Massachusetts
    Carolina                         JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire        THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas                 HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey                       ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
ROB PORTMAN, Ohio
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas                 CAROLYN B. MALONEY, New York
THOMAS DAVIS, Virginia               PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida             MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South     ROD R. BLAGOJEVICH, Illinois
    Carolina                         DANNY K. DAVIS, Illinois
JOHN E. SUNUNU, New Hampshire
ROB PORTMAN, Ohio

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
             J. Russell George, Staff Director and Counsel
                 Anna Miller, Professional Staff Member
                 John Hynes, Professional Staff Member
                          Andrea Miller, Clerk
           David McMillen, Minority Professional Staff Member
          Mark Stephenson, Minority Professional Staff Member





                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 1, 1997......................................     1
Statement of:
    Mazur, Edward J., vice president, administration and finance, 
      Virginia State University, and former Controller, Office of 
      Federal Financial Management, Office of Management and 
      Budget; and Cornelius E. Tierney, director, center for 
      public financial management, George Washington University 
      School of Business and Public Management...................    45
    Mica, Hon. John L., a Representative in Congress from the 
      State of Florida...........................................    22
    Potts, Stephen, Director, Office of Government Ethics, 
      accompanied by Jane S. Ley, Deputy Director, Office of 
      Government Ethics; and Gregory S. Walden, counsel, Mayer, 
      Brown & Platt, and former Assistant General Counsel in the 
      White House................................................    72
Letters, statements, etc., submitted for the record by:
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California:
        House bills..............................................     2
        Prepared statement of....................................    19
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............    35
    Mazur, Edward J., vice president, administration and finance, 
      Virginia State University, and former Controller, Office of 
      Federal Financial Management, Office of Management and 
      Budget, prepared statement of..............................    48
    Mica, Hon. John L., a Representative in Congress from the 
      State of Florida:
        Examples of savings......................................    37
        List of nonpaid volunteers...............................    25
        Prepared statement of....................................    28
    Posey, Ada L., Acting Director, Office of the Administration, 
      Executive Office of the President, prepared statement of...    13
    Potts, Stephen, Director, Office of Government Ethics, 
      prepared statement of......................................    74
    Tierney, Cornelius E., director, center for public financial 
      management, George Washington University School of Business 
      and Public Management, prepared statement of...............    58
    Walden, Gregory S., counsel, Mayer, Brown & Platt, and former 
      Assistant General Counsel in the White House, prepared 
      statement of...............................................    78

 
PRESIDENTIAL AND EXECUTIVE OFFICE FINANCIAL ACCOUNTABILITY ACT OF 1997 
              AND SPECIAL GOVERNMENT EMPLOYEE ACT OF 1997

                              ----------                              


                         THURSDAY, MAY 1, 1997

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 311, Cannon House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Sessions, Davis of Virginia, 
Sununu, and Maloney.
    Staff present: J. Russell George, staff director and 
counsel; Anna Miller and John Hynes, professional staff 
members; Andrea Miller, clerk; and David McMillian and Mark 
Stephenson, minority professional staff members.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order.
    Today, the subcommittee reviews two pieces of legislation 
that would bring increased accountability to the Executive 
Office of the President. Both bills were part of the original 
Presidential and Executive Office Accountability Act of 1996, 
which passed the House by an overwhelming margin of 410 to 5 
last September. I was a co-sponsor of that bill, which was 
authored by Mr. Mica, who will be a witness today.
    Unfortunately, time was short at that point and several 
provisions of the House-passed bill, including those we are 
considering today, were removed prior to the passage in the 
Senate.
    [The House bills follow:]
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    Mr. Horn. Too often, the financial activities and the back-
room advisors of the White House have remained hidden in the 
shadows, regardless of administration. The continuing spate of 
allegations about mismanagement at the White House have been 
frequent reminders of the need for serious statutory changes in 
the way the White House is run.
    The Presidential and Executive Office Financial 
Accountability Act of 1997 establishes a Chief Financial Office 
and a Deputy Chief Financial Officer, as well as a Chief 
Financial Officer for the Executive Office of the President. 
The Special Government Employee Act of 1997 updates the 
definition of a, ``special Government employee,'' to cover 
unpaid, informal advisors.
    The Chief Financial Officers Act of 1990, the CFO Act, was 
intended to help executive branch agencies improve their 
financial operations. It has been effective in doing so, 
although much remains to be done. And we know that two 
agencies, the Department of Defense and the Internal Revenue 
Service, are still in deep financial difficulty and probably 
will not be able to submit their balance sheets to us by the 
mandatory ruling of the law, which would be September of this 
year.
    It is abundantly clear that the Executive Office of the 
President could benefit from the fiscal discipline imposed by 
the Chief Financial Officer Act.
    The Chief Financial Officer Act would bring accountability 
to the financial operations in the White House. If there had 
been a Chief Financial Officer in the White House, the 
unorthodox accounting practices that prevailed in the Travel 
Office and which were used by the White House to justify the 
firing of longtime employees who had done no wrong, would never 
have been permitted. A Chief Financial Officer would have 
provided the Travel Office managers with the guidance and 
expert advice they sorely needed.
    A Chief Financial Officer acts as a control to prevent 
abuses of power, whether minor, as in petty stealing, or 
serious, as in destroying records of national interest. Those 
are financial records.
    Other examples of egregious waste and abuse in the 
Executive Office of the President have been directly traceable 
to these deficient accounting controls. We learned in the last 
Congress, for instance, that the White House Communications 
Agency had unvalidated obligations of $14.5 million. The 
Department of Defense's Inspector General reported that the 
White House Communications Agency paid only 17 percent of its 
bills on time. Taxpayers got stuck for penalties and interest 
on the other 83 percent of its obligations.
    The Presidential and Executive Office Financial 
Accountability Act of 1997 would make the White House more 
accountable for its own operations by establishing an Office of 
Chief Financial Officer in the Executive Office of the 
President. The Chief Financial Officer, which is found in other 
Federal agencies, including the Departments of Defense, 
Justice, and the Central Intelligence Agency, would review and 
audit the White House's financial systems and records. A system 
of internal control would be established to prevent and correct 
errors.
    The Special Government Employee Act of 1997 is important 
for similar reasons. Foremost is the need for accountability 
and adherence to conflict of interest and other disclosure 
requirements.
    The White House has a history of using informal advisors 
who are present in the White House on an ongoing basis and 
regularly affect public policy. Since this is the week that we 
are establishing a monument to President Franklin Delano 
Roosevelt, we should remember that Harry Hopkins, one of his 
most important advisors, actually lived in the White House 
through most of the Second World War, and yet these individuals 
are utterly unaccountable to the public. The laws have changed 
substantially since the end of the Second World War, with 
ethics statements that all the rest of us file, these people 
need to file. Who actually works in the White House, who is 
whispering in the President's ear are always daily grist for 
the media and certainly of concern to many citizens. These are 
questions that all Americans have a right to ask and to have 
answered fully and openly. Too often advisors to the President 
remain hidden in the shadows.
    This bill will shine light on those back-room advisors by 
providing clearer guidelines for special Government employees. 
It will expand the definition of ``special Government 
employee'' to cover unpaid, informal advisors to the President 
so that they come under the same conflict of interest and 
financial disclosure statutes as regular White House staff.
    Hearings before the full Committee on Government Reform and 
Oversight in the last Congress demonstrated that certain 
associates of the President used their access to President 
Clinton, the First Lady and the staff of the Executive Office 
of the President to promote their own business interests, even 
to the extent of encouraging the termination of career 
employees of the White House.
    This proposal would amend the current definitions to make 
it completely clear that in the future, similarly situated 
informal advisors would be, ``special Government employees,'' 
who come under the conflict of interest and other disclosure 
requirements. This includes a functional test that focuses on 
what the advisors actually do and on whether or not they are 
actually involved in the Government's deliberative processes. 
The bill will help put a stop to abuses of power, the unelected 
and the unaccountable.
    We welcome our guests today, Representative John L. Mica, 
Republican of Florida, who in the last Congress introduced H.R. 
3452, the Executive Office Accountability Act, and is a strong 
supporter of accountability in the Federal Government. He will 
explain to us why the two bills are sorely needed.
    We had invited Ada L. Posey, Acting Director, Office of the 
Administration, Executive Office of the President, to testify 
on the proposed legislation and how the provisions would affect 
the Executive Office of the President. Unfortunately, she is 
unable to attend today but has submitted a written statement 
for the record.
    [The prepared statement of Ms. Posey follows:]
    [GRAPHIC] [TIFF OMITTED] 44930.010
    
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    [GRAPHIC] [TIFF OMITTED] 44930.014
    
    Mr. Horn. The second panel will feature two witnesses 
testifying in support of the Presidential and Executive Office 
Financial Accountability Act of 1997. Edward J. Mazur is the 
vice president, administration and finance, Virginia State 
University, former Controller, Office of Federal Financial 
Management, Office of Management and Budget. Mr. Mazur was the 
first Controller to be appointed after the passage of the Chief 
Financial Officers Act and oversaw its implementation in the 
executive branch agencies.
    Cornelius E. Tierney is the director, center for public 
financial management, George Washington University School of 
Business and Public Management. He has authored authoritative 
texts on Federal Government accounting and auditing, was 
formerly chairman and National Director of the Governmental 
Practice Section of Ernst & Young. He was instrumental in the 
drafting of the Chief Financial Officers Act and in guiding its 
subsequent implementation.
    The last panel will provide testimony on the Special 
Government Employee Act of 1997. Testifying are Gregory S. 
Walden, counsel, Mayer, Brown & Platt, and former Assistant 
General Counsel in the White House, and Stephen Potts, 
Director, Office of Government Ethics, accompanied by Jane Ley, 
Deputy Director.
    I am glad to see you all here today and am looking forward 
to hearing your testimony. For the record, I should note that 
Mr. Sessions arrived during my opening statement and a quorum 
is present and ready to do business.
    We will now start with our colleague, Mr. Mica, the author 
of the legislation the President approved last year, and he 
will tell us what remains to be done. The gentleman from 
Florida is recognized for as much time as he would like.
    [The prepared statement of Hon. Stephen Horn follows:]
    [GRAPHIC] [TIFF OMITTED] 44930.015
    
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    [GRAPHIC] [TIFF OMITTED] 44930.017
    
 STATEMENT OF HON. JOHN L. MICA, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF FLORIDA

    Mr. Mica. Well, I thank you, Mr. Chairman. I really 
couldn't start without commending your leadership. I know they 
often do this in a laudatory fashion before hearings, but you 
certainly deserve a great deal of the credit and responsibility 
for the passage of the legislation that we passed last time.
    As you know, we sit on the panels in Congress and we sit on 
the investigations and we conduct various investigations. 
Sometimes that's where the action ends, but you were able to 
help push through some changes and reforms that we saw as a 
result of what was disclosed in those hearings about the way 
the White House operated.
    And I think that the essence of the difference that really 
delineates the United States from banana republics or Third 
World countries; that we conduct that oversight and we make the 
changes.
    And as you said, part of the changes were incorporated in 
the legislation we passed together, but there are a couple of 
elements that are missing and I would like to speak to them 
today.
    The subjects covered by the bills which you have outlined 
really are identical to provisions included in the Presidential 
and Executive Office Accountability Act that I sponsored last 
year. Despite all of our hard work, the Senate did not go 
along, and the need for those items still remain today.
    Like many Americans, I have become concerned about the 
operation, management, and financing of the White House, which 
even to the casual observer today, lacks accountability and the 
White House often operates without responsible restraints.
    These bills address significant problems that our hearings 
and investigations have uncovered. As you know, one creates a 
financial officer to improve the financial management at the 
White House. The other would clarify the term ``special 
Government employee.'' And I think that that need--still 
remains and should be addressed by the legislation proposed 
here.
    Hearings during the past Congress showed that the White 
House financial operations lacked both accountability and 
structure. The Travelgate hearings, which we participated in, 
highlighted some of the shortcomings in White House fiscal 
responsibility.
    Mr. Chairman, had there been a Chief Financial Officer at 
the White House back then, it is my belief that that officer 
would have reviewed the Travel Office's financial management 
practices and many of the problems the White House experienced 
and problems that came up and were uncovered as a result of our 
hearings could have been detected and any deficiencies would 
have helped the Travel Office managers to correct them.
    Long-term White House employees unfortunately were used as 
scapegoats, and then the matter ended up before the Congress 
and a huge reimbursement was required before the matter was 
closed. But much of that could have been avoided.
    Likewise, Mr. Chairman, hearings before the subcommittee on 
which I serve, National Security, International Affairs, and 
Criminal Justice, revealed very serious deficiencies at the 
White House Communications Agency.
    Accounting controls were so poor that the Agency recently 
had paid $14 million in unvalidated obligations. Equipment and 
services that it no longer needed were paid for, along with 
items that were never even delivered to the Agency. They also 
paid for many of these same items twice.
    An audit by the Department of Defense IG also found that 
the Agency paid only 17 percent of its bills on time, causing 
the taxpayers to pay interest and penalties on the remaining 83 
percent.
    These incidents, unfortunately, are not just ancient 
history, Mr. Chairman, but enduring reminders. Similar 
scandals, I predict, will arise in the future in the White 
House.
    The objective of this special Government employee 
legislation is to require more public accountability by so-
called volunteers or people who just pop up at the White House 
directing, influencing, or becoming involved in policy 
development or operations of the White House and then we have 
no standard or ability to demand responsibility or 
accountability from these individuals.
    These individuals often advise the President and employees 
in the highest responsibilities of the Executive Office of the 
President. They function as Federal employees, even though they 
are not formally employed. As chairman of the House Civil 
Service Subcommittee, that gives me a great deal of concern. 
They are not subject in many instances to financial disclosure, 
ethics requirements and even the barest minimum standards of 
accountability and responsibility that we have set for Federal 
employees.
    Once again, Mr. Chairman, the Travelgate hearings revealed 
Congress must take action. I was particularly dismayed by the 
activities of Harry Thomason, which came to light in our 
investigation. Our hearings revealed Mr. Thomason, a Clinton 
operative, an unpaid volunteer, had office accommodations 
around the halls of the White House, participated in meetings 
with employees, actually staged many of the White House events 
involving the President, and we saw attempts where he tried to, 
in conflict--potential conflict of interest situations--
influence a policy set by the White House. In short, he acted 
as if he was a White House employee but he was, indeed, a 
walking conflict of interest.
    Mr. Thomason advocated the dismissal of the Travel Office 
employees and promoted an air charter company in which he had 
an interest, a business interest. Clearly, if he had been a 
Federal employee or some designated employee, this would have 
fallen into that realm.
    Mr. Chairman, without an adequate definition of special 
Government employee, this activity is unacceptable by any 
standard. Unfortunately, it has become standard operating 
procedure at this White House.
    More recently, we discovered that the White House has used 
the services of some 41 volunteers who were actually drawing 
salaries from private organizations. More than half of them 
were paid by the Democratic National Committee. The rest were 
paid by other organizations, various organizations, who could 
have had potential conflicts of interest. Some of them even had 
grants from the Federal Government.
    The positions these volunteers held were not menial, and I 
have a list of some of their positions for the record. I will 
be glad to provide them.
    Among the people to whom these volunteers, so called----
    Mr. Horn. Without objection, that will be inserted in the 
record, Mr. Mica.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] 44930.018
    
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    Mr. Mica. Thank you, Mr. Chairman.
    Among the people to whom these so-called volunteers 
reported were such high key level administration officials as 
Harold Ickes, then Deputy Chief of Staff, Melanee Verveer, 
Deputy Chief of Staff to the First Lady, Jack Quinn, then Chief 
of Staff to Vice President Gore, and Alexis Herman, then 
Assistant to the President.
    Mr. Chairman, when individuals who depend on a private 
organization for their livelihood are put on--placed on the 
White House staff, opportunities for such conflicts of interest 
unfortunately abound.
    The most obvious question, of course, is who is the master? 
Is it the President, for whom they ostensibly work, or is it 
the person who signs their paycheck?
    When paid employees of private organizations develop 
Government policies, opportunities for promoting self-interest 
are plentiful. The disclosure of these so-called volunteers 
reinforces the conclusion we reached last year, Mr. Chairman: 
The laws defining special Government employees must be 
tightened and clarified. The American people must know that 
volunteers who perform the functions of Federal employees are 
subject to all the same rules, regulations, conflict of 
interest and ethics laws, and requirements we impose on other 
Federal employees if we are to maintain confidence in our 
Federal Government, and particularly at the highest level of 
our Government, the Executive Office of the President.
    Mr. Chairman, we do not allow this in the Congress in our 
policy development. We should not allow it in the White House, 
the highest office in our land, that, again, is charged with 
immediate response on national security issues and numerous 
other responsibilities, again at the very highest level.
    The reforms that your bill proposes are long overdue. They 
are minimal as far as requirements for responsibility and 
accountability. I look forward to working with you, Mr. 
Chairman, in any way I can assist. I still have the highest, 
very highest, regard for the work you did last time. When 
others said that legislation wouldn't pass, you worked 
tirelessly, right up to, I think, the last day of the session, 
and secured at least some reform that brought the White House 
at least partially under the same laws as everyone else, which 
we found not to be the case in our previous investigations. And 
the rest of the job remains to be done.
    I am determined to work with you, your subcommittee, to get 
this badly needed legislation enacted.
    Thank you, again.
    [The prepared statement of Hon. John L. Mica follows:]
    [GRAPHIC] [TIFF OMITTED] 44930.020
    
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    [GRAPHIC] [TIFF OMITTED] 44930.022
    
    Mr. Horn. Well, I thank you very much for your kind 
comments, and the credit is to you. I saw you work the floor to 
get, what, 100-and-some signatures on your bill before it was 
ever introduced? What was it, 106, something like that?
    Mr. Mica. Well, we did have bipartisan support.
    Mr. Horn. Right.
    Mr. Mica. And people understood the problem, that Congress 
was required to live under the same laws as everyone else. It 
is a simple thing to explain to folks. And the White House 
should be required to live under the same laws as everyone 
else.
    Now, Mr. Chairman we have a situation where we have these 
people running around the White House influencing policy. We 
can't do that here in the Congress. They should not be able to 
do that there. So we must institute that.
    When you don't have a Chief Financial Officer in the White 
House, how can you expect financial accountability and 
responsibility? We as the Congress, we as an investigation and 
oversight subcommittee, saw what went on in the White House. It 
was a financial mismanagement menagerie that we should not 
allow to continue. And we have seen that the White House is not 
a small potatoes operation. It is huge, with hundreds and 
hundreds of employees, and with thousands of detailees and with 
money spent, hard earned taxpayer money spent, in a totally 
unacceptable fashion for which there is no accountability.
    So the other measure, the Chief Financial Officer and 
Financial Accountability, should be instituted. It doesn't 
matter whether it is Bill Clinton, George Bush or some future 
President. That is the least we can do as a Congress to ensure 
that taxpayer funds are properly expended.
    Mr. Horn. Well, I know your time is pressed, but I would 
like----
    Mr. Mica. No, I have time.
    Mr. Horn [continuing]. If you have time, I would like my 
colleagues, starting with Mr. Sessions, who was the first to 
arrive, to be able to ask you questions if that's acceptable.
    Mr. Mica. I can stay for the next 6 hours.
    Mr. Horn. Very good. OK.
    Mr. Sessions, the gentleman from Texas, is recognized.
    Mr. Sessions. Thank you, Mr. Horn.
    Mr. Mica, thank you for being here today. Certainly the 
intuitive nature that you have in dealing with this subject is 
one that is interesting to me, and I have got just a few 
questions. Would the First Lady fit under this?
    Mr. Mica. Well, the First Lady is already covered by, I 
would imagine, covered by certain responsibilities. But this 
deals with, again, folks who are wandering around the White 
House doing official functions in the guise of volunteers or 
without any accountability.
    I think the First Lady does fall under certain requirements 
and, again, specifically this isn't geared at the First Lady's 
office.
    Mr. Sessions. OK. Would this be geared, in your opinion, at 
people who have been--who are known in the press as FOB's, 
``Friends of Bill''?
    Mr. Mica. Well, again, I am not interested in doing this 
just because there is one President, one administration, or one 
First Lady. We have got to think beyond that. A Chief Financial 
Officer is long overdue in the White House, whether it is a 
Republican President or a Democrat President. The use of----
    Mr. Horn. Excuse me. I think we ought to define at that 
point, when we say ``White House,'' it is the Executive Office 
of the President.
    Mr. Mica. Yes.
    Mr. Horn. Which includes the White House, the Office of 
Management and Budget and about 10 other agencies.
    Mr. Mica. Exactly. It goes beyond that. So I think that 
that is a basic requirement.
    The definition of ``special Government employee'' is just 
to get a handle on this, on people who are influencing policy, 
who are in the White House, who have access to information and 
yet no accountability, no responsibility, no conflict of 
interest, no financial disclosure.
    And I just happened to cite some from this administration. 
The White House Communications Agency, which we investigated, 
was just as horrendously operated under the last administration 
as this administration. So these are a couple of areas that we 
have an opportunity and a responsibility, as a Congress, to get 
a handle on. Otherwise, again, this is what separates us, as I 
said, from the Third World countries and the banana republics. 
They don't change it. They look the other way and the stuff 
goes on.
    Here, we bring it to light. We air it in the public. We 
work in a bipartisan fashion to correct it and improve the 
system. That's the only intent.
    Mr. Sessions. Well, what my comments are really meant to 
say is, does this address situations that we see today? The 
intent of the legislation is meant that if there is someone who 
is in the White House, who is either formally or informally 
assuming some role where they either have authority or 
responsibility, or perceived authority or responsibility, they 
are influencing Government and that's what the intent of this 
is about.
    Mr. Mica. This is for today and tomorrow.
    Mr. Sessions. Absolutely. But it addresses situations that 
exist today.
    Mr. Mica. Situations that we have seen.
    Mr. Sessions. Or that we are aware of.
    Mr. Mica. Yes, that we are aware of, yes.
    Mr. Sessions. That we are aware of.
    Would you believe that--and I am looking at the Special 
Government Employees Act of 1997, page 3, line 14, No. C, 
Serving Involuntarily. Are there any time constraints that's 
given in that? Or if someone is in there and they are serving 
involuntarily, they would automatically comply as opposed to 
130 days?
    Mr. Mica. Well, we are trying to put--we are trying to put 
some----
    Mr. Sessions. Reasonableness.
    Mr. Mica. Yes, some timeframe and some reasonableness to 
this.
    You can't hire, in your congressional office--or have a 
volunteer unless they are connected with an educational 
program. And some of that may be justified by the same 
standard. But bringing folks in off the street who are paid by 
some other organization or have a potential conflict of 
interest, we have to have some parameters and some definition.
    Mr. Sessions. But that quite probably would be day one?
    Mr. Mica. The provision that you cite affects the military 
only. I think it is the 130-day.
    Mr. Sessions. OK. Thank you, Mr. Chairman.
    Mr. Horn. I thank you. I now recognize the ranking minority 
member, ranking Democrat, Mrs. Maloney of New York, if she has 
an opening statement or would like to combine that with 
questioning. Let's start, since we have two more also, 10 
minutes to a side.
    So the gentlelady is recognized.
    Mrs. Maloney. Thank you, Mr. Chairman. At this moment, on 
the floor is the housing bill on another committee, the Banking 
Committee, on which I serve and I have several amendments on 
that bill and I am going to have to go to the floor. But I do 
want to add my voice, with yours and others, today as we 
consider the Presidential and Executive Office Financial 
Accountability Act and the Special Government Employee Act. 
Both of these bills were originally included as provisions of 
H.R. 3452, the Presidential and Executive Office Accountability 
Act, which is now Public Law 104-331.
    These provisions were unfortunately deleted from H.R. 3452 
prior to final passage by the other body, by the Senate, last 
year. H.R. 3452 extended certain labor and civil rights laws to 
the White House, much as the Congressional Accountability Act 
did for Congress.
    I believe this is a very good idea, and the majority worked 
with us in a bipartisan manner to pass that legislation, and I 
thank the chairman. The Presidential and Executive Office 
Financial Accountability Act would require the appointment of a 
Chief Financial Officer in the Executive Office of the 
President. The Chief Financial Officer Act of 1990, brought 
needed improvements to the executive branch by requiring sound 
financial management practices, automated financial systems, 
and annual reports to Congress.
    Putting a Chief Financial Officer in the Executive Office 
of the President is a good idea and one which the White House 
supports in principle. The Special Government Employee Act 
would change the definition of a special Government employee to 
require a functional test. This bill mirrors an amendment I 
offered last year to H.R. 3452, with the support of the 
chairman, and has the support of ethics experts from both sides 
of the aisle.
    Persons covered under the definition would be required to 
comply with the criminal conflict of interest and financial 
disclosure statutes. Under this bill, a special Government 
employee is an individual who works less than 130 days in any 
year and performs a Federal function. A Federal function would 
include providing regular advice to high level officials, 
including Members of Congress, and conducting meetings 
involving such persons as part of the Government's internal 
deliberative process.
    As the committee report on H.R. 3452 makes clear, this 
definition is intended to exclude informal ``kitchen cabinet'' 
advisors.
    Mr. Chairman, I support both of these provisions. I 
supported them last year and I continue to support them. While 
neither of these bills has yet been introduced, the draft 
legislation I have seen is quite promising and I just am glad 
to be here with you. And I just congratulate my colleague, Mr. 
Mica.
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]
[GRAPHIC] [TIFF OMITTED] 44930.023

    Mrs. Maloney. One of the things I did want to ask Mr. Mica, 
both your statement and Chairman Horn's actually made 
references to financial problems encountered by the White House 
Communications Agency. And I would simply just like to note for 
the record that that Agency is not part of the Executive Office 
of the President and would not be covered by this legislation. 
We are considering today the White House Communication Agency 
as under the statutory authority of the Department of Defense. 
So I just wanted to make that clear.
    Do you want to comment on that?
    Mr. Mica. Well, I would say that the lady is correct in 
addressing the point that she made. However, we found that some 
of the folks that were directing operations of--there is 
almost--there are over 1,000 military assigned to the White 
House, and we found the special employees directing some of 
these folks, which also raises a number of eyebrows.
    We also found a mix of accounts in the way money was spent, 
some attributed to the White House and some attributed to the 
defense agency. In fact, there were numerous instances where 
money could be saved if we had had, I think, a Chief Financial 
Officer working with the Agency to see where economies could be 
made. And I would be glad to provide for the subcommittee some 
specific instances where this legislation would have saved 
substantial money if there had been some structure and 
organization from the White House to that Agency.
    Mr. Horn. Without objection, that exhibit will be put in 
the record at this point.
    Mr. Mica. Thank you.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] 44930.024
    
    Mrs. Maloney. I would like a clarification. Does your 
bill--the Special Government Employee Act, would that apply to 
Members of Congress?
    Mr. Mica. Well, no, I don't--I think we are already 
covered.
    Mrs. Maloney. No, we are not.
    Mr. Mica. Well, we are covered under certain accountability 
and disclosure----
    Mrs. Maloney. But not with respect to the Government 
Employee Act.
    Mr. Mica. On the 15th, we will be filing disclosure. In 
fact, we do have some accountability. But I would imagine, I am 
not an attorney, if you got into a situation where you had a 
Member of Congress influencing policy and spending time at the 
White House, there may be provisions that they would fall under 
in addition to their current responsibility. But I can't see 
somebody from the Congress serving in both of those capacities.
    Mrs. Maloney. But we certainly influence policy in the 
House, influence policy in a lot of ways, so possibly it should 
apply to us now.
    Second, the Chief Financial Officer, we don't have a Chief 
Financial Officer for Congress. Do you believe we should have a 
Chief Financial Officer for Congress, too? And wouldn't that be 
consistent with the spirit of the Congressional Accountability 
Act?
    Mr. Mica. Well, I think that it may be statutorily time to 
include some type of a provision. I just joined the House 
Oversight Committee yesterday, and that may be a topic for 
discussion. I know that the new majority has put certain 
safeguards in by rules or by their structure and some of that 
may require a statutory provision.
    Mr. Horn. I congratulate the gentleman on his appointment 
to that committee, and I hope his visitors center will also be 
implemented. I looked with joy upon your appointment.
    And I think Mrs. Maloney makes an important point. We do 
have an Inspector General who was of great help when he went 
through all of the accounts. And as you know, we had the first 
audit since 1788, when we took over in 1995. But the point is 
well-taken on a Chief Financial Officer. Maybe you can pursue 
that with the same tenacity and focus you have done this 
legislation.
    Mr. Mica. We will take them one at a time, Mr. Chairman.
    Mrs. Maloney. Just for clarification.
    Mr. Mica. Yes.
    Mrs. Maloney. Certainly Members cannot be special 
Government employees in advising the White House, but they can 
hire or use them themselves in policies that we are developing 
in the House. So maybe it should be expanded to cover the 
House, too; Congress, too.
    Mr. Mica. Well, you may have a very good point, that we may 
want to extend the same thing to the House as we learned from 
the White House--I am sorry, the Congressional Accountability 
Act. If we have gaps there that should be filled, we may want 
to address that.
    At this juncture, though, we do have the experiences we 
have seen from several White Houses that we should institute a 
Chief Financial Officer; that we should clarify the definition 
of a special Government employee there.
    It is not as easy, the way the Founding Fathers set up this 
legislative mechanism, to influence 218 and 60 in the Senate. 
We do have one Chief Executive Officer and one Chief Executive 
Office. We want that to run at as high a standard as we can 
possibly set.
    I do want to end, though. I had commended Mr. Horn for his 
leadership on this issue, and I want to take a moment to 
commend Mrs. Maloney, because you cannot achieve any 
legislative success without bipartisan cooperation. And you 
have certainly been a leader in making the progress that we 
have made and I look forward to working with you.
    And if there are amendments, corrections in this 
legislation, I am committed to work with you. And if there are 
other avenues we can pursue to improve the operation of the 
Congress, now with my powerful appointment to the House 
Oversight Committee, I am committed to work with you.
    Mrs. Maloney. Thank you.
    Mr. Horn. I thank the gentlelady for the good questions. 
And I now yield 10 minutes to the gentleman from New Hampshire, 
Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman. I will consume far 
less than 10 minutes.
    Thank you, Mr. Mica, for your participation today and your 
testimony. It is of terrific value to the committee, I am sure.
    A couple of quick questions about the implementation of the 
CFO at the White House. First, who would the individual report 
to and who would they be accountable to directly, and what kind 
of a communication might exist between that individual and, 
say, the GAO?
    Mr. Mica. Are you talking about a Chief Financial Officer?
    Mr. Sununu. Chief Financial Officer, yes.
    Mr. Mica. Well, first of all, you statutorily create the 
position so it does have some requirements. There are certain 
structures already within the Executive Office of the President 
for operations. But this individual would be pinpointed by law 
as being responsible for the financial operations and 
management in the White House.
    So that's basically the position you are creating and the 
responsibility and the charge.
    Right now, who is responsible?
    Mr. Sununu. Are you asking me?
    Mr. Mica. Well, I point that out.
    Mr. Sununu. That was my next question to you.
    Mr. Mica. We do have--I guess, the President is, and that 
individual would also report to the President. But we do have--
--
    Mr. Sununu. He would report to the President as opposed to 
the Chief of Staff?
    Mr. Mica. Right. But we do--I am sure that there will be 
internal--there is enough flexibility in the law to allow a 
proper structure as far as chain of command and reporting.
    Right now, it is sort of like it is the responsibility of 
the President but no one in particular. So we are creating a 
position with specific responsibility, accountability and, 
again, somewhere where we can pinpoint this.
    As I point out, too, the White House is not a small 
operation. It is huge. It has got hundreds of employees, 
Executive Office of the President.
    Mr. Sununu. 1,500 or so full-time?
    Mr. Mica. Yes. And it deals with millions and millions of 
dollars and operations. When you bring in Defense and other 
supporting agencies, it is a mammoth operation. So we are just 
trying to, based on the experience we have seen over several 
administrations, ensure that there is some system of, again, 
financial responsibility and accountability.
    Mr. Sununu. And I would imagine it has varied a great deal 
from administration to administration, and even from department 
to department.
    But in general terms, who has picked up the responsibility 
or who has been given the obligation of fulfilling some of 
these financial requirements within the White House?
    Mr. Mica. In the past, it has been sort of an arbitrary 
decision of the President in the structure that is developed by 
each administration. There is a certain amount of 
responsibility, through various offices and agencies. I guess 
OMB and some of the others would get involved.
    But, again, there is no specific financial officer required 
now. That's the big change that this makes and pinpoints 
responsibility.
    Mr. Sununu. With regard to the concern over volunteers and 
clarifying what would constitute a volunteer or a special 
employee, in the reviews and hearings that you have 
participated in, could you give an example of a fairly clear-
cut conflict of interest that could exist with that type of 
personnel in the White House?
    Mr. Mica. Well, I will give a couple. For example, we 
looked at some of the organizations that paid volunteers who 
have done substantial business with the Federal Government. For 
example, the National Council of La Raza, received over $1 
million in Federal grants between the fourth quarter of 1995 
and the third quarter of 1996. Likewise, I believe it is called 
Montefiore Medical Center, I am sorry, received some 58 grants 
during that period of time for hundreds of thousands of 
dollars, and several of these organizations had so-called 
volunteers operating at the White House.
    So those are a couple of examples. I also cited several 
others in my testimony. But there are specific examples where 
there is a potential conflict of interest, where folks who are 
dealing with the Government and are receiving grants or 
assistance from the Government, are placing folks in there to 
do work.
    It just isn't right. It doesn't meet the smell test, as you 
would say.
    Mr. Sununu. And the current administration is supportive of 
this clarification?
    Mr. Mica. Of the clarification? Well, I am not sure.
    Mr. Horn. That was the comment of the ranking Democrat, and 
there are a couple of questions I will be exploring with Mr. 
Walden when he is on the witness stand, on the definition of 
special Government employee. That's one of the reservations. No 
problem with the Chief Financial Officer Act and--or she had 
understood that both bills were now supported by the 
administration. But I think we want to tighten up that special 
Government employee definition so that we aren't getting in 
individuals that the President might want to talk to every day 
by telephone.
    Mr. Mica. Absolutely, and a cabinet member, or Members of 
Congress, or others.
    Mr. Horn. I am thinking of ones that are not Government 
employees.
    Mr. Mica. I am sorry. When I said ``cabinet,'' I meant 
informal.
    Mr. Horn. Ex-cabinet members?
    Mr. Mica. Informal cabinet. But what you are trying to do 
is ensure that someone who is around the White House, who is 
directing personnel, who is directing activities----
    Mr. Horn. Exactly.
    Mr. Mica [continuing]. Who looks like a Federal employee, 
who barks like a Federal employee, who gives commands like a 
Federal employee, who has access like a Federal employee, or 
even a political appointment, is accountable.
    I don't care who the President has in there, but a little 
bit of financial disclosure, a little bit of compliance with 
that because they understand that if they are there in the 
highest office in the land, that they do comply with some of 
these things that shows that we are all operating at the 
highest standards. So whether it is in the White House or the 
Congress, we have got to set that highest standard. And that's 
the intent.
    Now, if the language we have now or we have proposed now 
doesn't do that, we are willing to work with them. This isn't 
geared just for this administration.
    Mr. Horn. Right.
    Mr. Mica. It is geared for the future. And we want to do 
the right thing. Maybe you could talk to your staff to give us 
some guidance.
    Mrs. Maloney. Could I just ask a question quickly?
    Mr. Horn. Certainly.
    Mrs. Maloney. I certainly support the intent of both of 
them, and I would like you to know that the White House is not 
opposing these two bills. I don't know if they are supporting 
them or not. Just to clarify it.
    I would support the special Government employee functional 
definition, but I think it has to be clarified because I think 
a President should be able to talk to whomever they want. If 
President Clinton wants to talk to George Bush 130 days out of 
the year for advice, I don't think George Bush should have to 
disclose and be treated--I just think that needs to be defined 
better.
    And I would like to ask on the Chief Financial Officer, do 
you see one Chief Financial Officer for the White House or do 
you see one in every single office of the White House? Do you 
see one chief--how is that defined?
    Mr. Mica. I think that you will end up probably with one 
Chief Financial Officer so we have some accountability, and 
then that individual can appoint other people. But you have 
pinpointed responsibility for the finances under that activity, 
and then sub-activities.
    Again, I think you can't get to--you need to leave enough 
flexibility but you want that accountability and responsibility 
pinpointed. That's how I envision the position.
    And again, I don't want to tie the hands of this 
administration or future administrations. Just, again, try to 
get some handle on this and some accountability.
    You ought to call some of these folks in and ask them who 
is doing what and who is responsible for what? And you would 
see folks pointing this way and that way. There is nobody.
    The President is in charge, but I mean, granted, whether it 
is Bill Clinton or George Bush, or whomever the future 
President may be, he is not the financial officer from a 
practical standpoint. But he is going to take the heat for it.
    So I think that some things that this administration has 
gotten in trouble for could have been avoided if there had been 
in place someone who was responsible, who was pinpointed with 
that financial responsibility and we can avoid problems in the 
future by instituting this. So I am willing to work with 
anyone. We don't want to tie anyone's hands. I try to avoid 
using this administration as an example, and I am sure we can 
find other problems in other administrations. But our job is to 
make the thing work right.
    Mrs. Maloney. OK. I look forward to Mr. Walden's testimony. 
His written testimony last year led me to drafting the special 
employee functional definition, and I just--maybe he can help 
us clarify it more so that it fits your description and more of 
what I want.
    I have to go back to the floor. Excuse me. I apologize, Mr. 
Chairman.
    Mr. Mica. Thank you.
    Mrs. Maloney. I apologize to Mr. Walden. I was looking 
forward to hearing your testimony.
    Mr. Horn. Thank you.
    The gentleman from New Hampshire.
    Mr. Sununu. I yield back the balance of my time, Mr. 
Chairman. Thank you.
    Mr. Horn. All right.
    Mr. Sununu. Thank you, Mr. Mica.
    Mr. Horn. I now yield 10 minutes to the gentleman from 
Virginia, Mr. Davis.
    Mr. Davis of Virginia. John, let me just ask you, what is 
wrong with being able to, theoretically, for a congressional 
office, where you are not allowed to do this, or the Office of 
the President to be able to utilize volunteers, people who want 
to come in and help stuff envelopes, answer mail and the like?
    Mr. Mica. Well, first of all, I think you violate some 
labor laws.
    Mr. Davis of Virginia. But conceptually, outside of this?
    Mr. Mica. Conceptually.
    Mr. Davis of Virginia. Why should taxpayers have to pay to 
hire people when we can have volunteers to do some of this?
    Mr. Mica. Again, I would like to have volunteers, too. I 
think it could be useful, but it does violate the laws.
    Mr. Davis of Virginia. I agree.
    Mr. Mica. Paying folks minimum wage.
    In a position like the Executive Office of the President, 
where you have folks that might have some potential conflict of 
interest, and there are many, I mean----
    Mr. Davis of Virginia. Well, you could do disclosure.
    Mr. Mica. I mean, there are thousands and thousands of 
grants and largess or some decision coming out of the White 
House can greatly impact an industry or an association or an 
activity. So you don't want that appearance where someone is 
coming in and volunteering. And I, as chair of the House Civil 
Service Subcommittee, can go investigate what Federal employees 
are doing or you can look at certain White House employees; but 
these people are not accountable. They are not accountable 
under conflict of interest. They are not accountable under 
ethics. They are not accountable under financial disclosure.
    They are nice to have around probably, but it just doesn't 
meet, like I said, the smell test.
    Mr. Davis of Virginia. Well, I went to lunch with a CEO in 
my district who is the head of a company. It is about a $300 
million a year company. And we were talking and he gets paid $1 
a year. Now he has some options that if he turns the company 
around and things of that nature, but his salary is zip. He has 
made money in life. He likes the challenge. A lot of people 
used to come to Government for the challenge. There were a lot 
of dollar a year men who would come down, lend their expertise, 
didn't ask for anything out of there.
    There is nothing wrong with having people who could file 
under the disclosure law, but I think we ought to be 
encouraging people who want to give something. They are going 
to be accountable to somebody along the way. I just want to 
make sure we get the proper balance as we go through there. 
There is absolutely nothing wrong with people wanting to help 
their Government and be willing to work for nothing, whether it 
is volunteer or whatever. I think we make a mistake not looking 
at it in that way.
    Mr. Mica. Mr. Chairman, there are plenty of opportunities 
and no one has access to more appointment opportunities for 
volunteer positions than the President of the United States.
    I recommend to you the ``plum'' book, I recommend to you 
the countless commissions, boards, task forces, all kinds of 
groups that the President appoints so they can participate. 
They can even influence policy through those legislative or 
created----
    Mr. Davis of Virginia. John, I think the point----
    Mr. Horn. Appointing advisory committees.
    Mr. Mica. It is working in the White House, access to 
staff, whether it is a military staff, access to resources, 
access to national security information, access to influencing 
policy in that fashion in the guise of being a Federal 
employee.
    Mr. Davis of Virginia. I understand.
    Mr. Mica. People who are volunteering information to the 
President, Counsel to the President, suggestions----
    Mr. Davis of Virginia. But there are tons of people who 
never see the President who can be out there working in some of 
these offices.
    Mr. Mica. It doesn't mean moving in, getting a phone, 
directing staff and policy, though, and having no 
responsibility. I would even be glad if they would sign up 
under $1 a day or something but meet these--the same criteria.
    Mr. Davis of Virginia. I am not quarreling with the 
disclosure requirement. I just think sometimes we lose sight, 
we spend so much time and effort making sure somebody is not in 
conflict, some imaginary conflict that we can't utilize some of 
the great talent that's out there that really wants to help and 
has no hidden agenda. So it is a proper balance. I am not sure 
that the bill doesn't reach that balance. I just want to say, 
coming from the other direction, we don't want to lose sight of 
the fact that there are people who can contribute a lot 
sometimes and we end up discouraging sometimes by 
overregulating what volunteers can do.
    That's not to say that this legislation doesn't do some 
very good things and I am not going to support it. But I just 
want to kind of get that off my chest.
    Mr. Horn. I understand the gentleman's concern, but the 
intent of this legislation is not to stop in any way the right 
of the President of the United States to communicate and get 
the advice of any person he wants to get.
    Mr. Davis of Virginia. Right.
    Mr. Horn. What it is trying to stop is when a friend of any 
President, as the gentleman from Florida said, is roaming the 
halls of the White House giving orders to Government employees 
and there is no accountability with that individual.
    Mr. Davis of Virginia. Right.
    Mr. Horn. But people assume, knowing a close relationship 
to the President, in either a campaign or as a personal friend 
or they read the society pages, they assume that's an order 
from the President.
    Mr. Davis of Virginia. And it probably is sometimes, and 
sometimes it is not.
    Mr. Horn. It might well be. But those are the people we 
need to have some accountability. I am really not concerned 
about the wonderful people that help in the mail room in 
administrations regardless of party.
    Mr. Davis of Virginia. Right.
    Mr. Horn. Those are devoted volunteers.
    Mr. Davis of Virginia. Right.
    Mr. Horn. I don't believe they are paid anything.
    Mr. Davis of Virginia. They are not.
    Mr. Horn. If I remember on that. But with the thousands of 
letters the White House receives every day, there is nothing 
wrong with volunteers helping on the mail.
    Mr. Davis of Virginia. Right.
    Mr. Horn. Now, we, for example, are restricted from having 
individuals, unless they are interns tied to an academic 
program.
    Mr. Mica. Right.
    Mr. Horn. I think there is now a provision where you can 
have 2 or 4 people over 65 as a senior intern or something. But 
we have been fairly tight on that. There is nobody roaming 
around giving our office orders.
    Mr. Davis of Virginia. We have a lot of people in our 
office giving orders.
    Mr. Horn. Well, they give us orders.
    Mr. Davis of Virginia. OK. I appreciate your comments, 
John. I think it is thoughtful. I think from a Federal 
employee's perspective it has some safeguards built into it. I 
just want to make sure we get it in the right balance.
    Thanks. I yield back.
    Mr. Horn. I thank the gentleman.
    Are there any further questions from anyone on the panel? 
If not, we thank the gentleman from Florida for his usual 
concise, focused comments and we appreciate it.
    Mr. Mica. Thank you.
    Mr. Horn. Thank you.
    We will now go to the second panel and that's the panel 
with Edward J. Mazur and Cornelius E. Tierney. If you will 
please come forward. As you know, with the exception of 
Members, who we assume tell the truth--and when they don't, we 
don't talk to them again--you gentlemen will raise your right 
hands.
    [Witnesses sworn.]
    Mr. Horn. Both witnesses have affirmed, the clerk will 
note. If it is OK with you, we will start just as the outline 
is on the schedule.
    Edward J. Mazur is the vice president, administration and 
finance, Virginia State University, former Controller, Office 
of Federal Financial Management, one of our favorite agencies, 
and Office of Management and Budget.

 STATEMENTS OF EDWARD J. MAZUR, VICE PRESIDENT, ADMINISTRATION 
AND FINANCE, VIRGINIA STATE UNIVERSITY, AND FORMER CONTROLLER, 
 OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT 
  AND BUDGET; AND CORNELIUS E. TIERNEY, DIRECTOR, CENTER FOR 
   PUBLIC FINANCIAL MANAGEMENT, GEORGE WASHINGTON UNIVERSITY 
            SCHOOL OF BUSINESS AND PUBLIC MANAGEMENT

    Mr. Mazur. Mr. Chairman and members of the subcommittee, 
good afternoon.
    Mr. Chairman, I strongly support the central thrust of the 
Presidential Executive Office Financial Accountability Act of 
1997. But I would like to offer this afternoon a few 
modifications that I believe would make the legislation more 
effective and perhaps more thoughtfully tailored to the 
operating circumstances found in the Executive Office of the 
President.
    Mr. Chairman, as long as the Congress or the American 
public intend to hold our President responsible and politically 
accountable for what happens fiscally in the White House, then 
he needs to be provided with help and someone who will clearly 
shoulder questions about fiscal accountability, as they might 
arise in the future.
    The President of the United States, whose duties are 
awesome and from whom we expect so very, very much and toward 
whom our society appears to have little tolerance for error, 
should have available to him in the Executive Office of the 
President a Chief Financial Officer who would have two basic 
requisite credentials.
    First, the person must have a proven understanding of what 
constitutes sound accounting and financial controls and 
appropriate financial management practices.
    Second, the person must have confidence in the authority 
granted to them by the legislation you are now contemplating, 
and the self-confidence to provide thoughtful, balanced and 
decisive advice concerning the financial activities of the 
Executive Office of the President.
    In short, Mr. Chairman, the person must have the confidence 
and the judgment, when required, to say no.
    I am very much of the mind that the Executive Office of the 
President is unique, in contrast to almost all other areas of 
the Government. Its role in national security is undeniable 
and, accordingly, my proposed modifications reflect two core 
beliefs.
    First, the President truly needs and will benefit from a 
Chief Financial Officer who can focus undivided attention on 
the financial management practices of the EOP and be responsive 
to the President.
    Second, the Congress cannot afford to lay out in public the 
business and the structure of the White House in such a free 
flowing manner that it could be used by individuals in this 
world who would wish to do harm to the operating heart of our 
Government.
    In short, Mr. Chairman, if some overworked staff member in 
the White House mishandles a financial matter, I don't think we 
need to tell the world about it, but we certainly need to fix 
the problem.
    With this in mind, my recommended modifications to the 
legislation are as follows: That the idea of establishing an 
Inspector General in the EOP be permanently set aside and that 
the legislation include, instead, a provision that would 
require the EOP to secure the services of an outside public 
accounting firm to perform an audit in conformance with the 
standards promulgated by the Controller General.
    Second, that the legislation be modified to provide that 
this outside public accounting firm be selected by a committee, 
chaired by the Deputy Director for Management in OMB, and 
comprised of the Chief Financial Officer of the Executive 
Office of the President, OMB Legal Counsel, the Controller of 
the Office of Federal Financial Management, the Assistant 
Controller General for Accounting and Financial Reporting 
Division of the U.S. General Accounting Office, and the Vice 
Chair of the President's Council on Integrity and Efficiency, 
which is the group of Inspectors General.
    Three, that the legislation clearly set a requirement for 
the Chief Financial Officer to prepare annually financial 
statements under guidelines issued by the Office of Management 
and Budget, consistent with the provisions of the Chief 
Financial Officer Act.
    As an aside, Mr. Chairman, I believe that we can have one 
set of statements for all 12 areas, combining their operations.
    The fourth modification, that the outside auditor engaged 
by the Executive Office of the President address its audit 
report directly to the President and provide copies to the 
Chief of Staff of the White House, the Chief Financial Officer 
of the EOP, the Director of the Office of Management and 
Budget, and either the Senate and House committees with 
oversight responsibilities for the Central Intelligence Agency 
or the oversight committees of jurisdiction, if that report is 
received under a seal of confidentiality.
    The fifth modification, that the legislation clarify that 
all accounting, financial reporting and financial analysis 
functions now in existence in the Executive Office of the 
President be transferred in full, together with all associated 
staff, to an organization under the responsibility of the Chief 
Financial Officer of the EOP.
    Sixth, that the proposed legislation restrict access by the 
Chief Financial Officer to information, policies, 
communications, and records that relate to the processing of 
the EOP financial transactions, the maintenance of all budgets 
affiliated with EOP as set forth in the budget of the U.S. 
Government and other associated financial affairs in EOP, 
unless that restriction of access is waived by the President's 
Chief of Staff.
    And the final or seventh modification would be that the 
full duties of the Deputy Director for Management of the Office 
of Management and Budget, as contemplated in the CFO's Act, 
apply to the selection of the Chief Financial Officer of the 
EOP.
    These modifications, Mr. Chairman, I believe would provide 
adequate internal controls in the EOP and a Chief Financial 
Officer, with the confidence and the background to ensure that 
the fiscal affairs of the EOP are always carried out in a 
responsible manner. These modifications would also ensure that 
a person selected for the Chief Financial Officer position 
would have clear authority and a higher probability of carrying 
out his or her duties successfully.
    I would be avoiding the issue if I did not speak, although 
just for a second, on the White House Travel Office matter. The 
inefficiencies and inadequacies of internal controls and other 
operating deficiencies in the White House Travel Office could 
have been readily addressed by a Chief Financial Officer if one 
had been in place at the time.
    The identification of fiscal and operating deficiencies is 
something that all CFOs throughout Government consider as a 
normal part of their efforts, as is an expeditious resolution 
or correction of such deficiencies. Such matters do not have to 
become politically explosive when they are viewed as the 
responsible and timely improvement of inadequate conditions.
    In closing, Mr. Chairman, the bottom line is that I believe 
that we cannot afford to have our President distracted in any 
way by how financial transactions and other fiscal matters are 
handled in the Executive Office of the President. Someone must 
accept the responsibility, as provided in this act, to keep 
fiscal matters straight and to be the one to step forward and 
be politically accountable to the Congress if something appears 
to be going wrong.
    I really appreciate the opportunity to be here this 
afternoon and would be happy to answer questions later.
    [The prepared statement of Mr. Mazur follows:]
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    Mr. Horn. I thank you for your very full and helpful 
written statement that you have submitted to the committee, and 
your summary of that statement. I am sure we will have a lot of 
questions as we discuss it. It is very helpful.
    Our next panelist is Cornelius E. Tierney, the director, 
Center of Public Financial Management, George Washington 
University School of Business and Public Management.
    Dr. Tierney.
    Mr. Tierney. Thank you very much, Mr. Chairman. Thank you 
for the opportunity to provide some comments and views on this 
legislative hearing dealing with the Presidential and Executive 
Office Financial Accountability Act of 1997.
    I understand this proposed legislation to be an initiative 
to apply the major provisions of the CFO Act, as amended, to 
the Executive Office of the President.
    I must admit my initial reaction was one of surprise that 
the Executive Office of the President had not voluntarily 
complied with the CFO Act of 1990. I was not aware that during 
any of the hearings, studies, discussions, that preceded the 
passage of the 1990 act, or held subsequently by any party, 
that anyone thought that the Executive Office of the President, 
particularly those operating entities, would not come into 
compliance.
    In 1982, and later in 1987, I chaired two non-Federal 
initiatives that examined the Federal Government's financial 
management processes--its managers, systems, controls, 
policies, procedures, and practices in the financial arena. The 
recommendations of those studies are among some of the major 
provisions of the CFO Act of 1990 and as amended.
    These studies document the very serious problems, the 
weakened nonfinancial management practices and, at times, the 
lack of accountability that was permitted to exist within the 
Federal Government for years, for decades and the better part 
of two centuries.
    With respect to the proposed legislation, I would like to 
offer the following half dozen summary comments.
    First, I had noted the research by the Congressional 
Research Services legal analysis to point out some of the 
involvements of the entities in the EOP with issues of national 
security, confidential policy matters, and it discussed issues 
as arrogation, encroachment and aggrandizement, et cetera.
    These points do not seem relevant to, and I do not feel 
they should be viewed as obstacles or impediments to the 
implementation of good financial management.
    Somewhat related, I do not believe the proposed act is an 
intrusion by a CFO or making the CFO a party to any secret or 
confidential or intelligence deliberations or national security 
discussions. I guess I think it is somewhat of a stretch for 
anyone to assert that the adoption of sound financial 
management practices by the EOP entities would somehow disrupt 
management functions or somehow interfere impermissibly with 
the performance of a constitutional function.
    Second, as drafted, the proposed legislation exempts both 
the proposed chief and the deputy financial officers from the 
qualification standards promulgated by OMB. I sincerely hope 
that these exemptions are not viewed as condoning a diminution 
of the desired quality of financial management and these 
financial executives. I don't believe meeting these criteria 
would ever be a significant hurdle to the type of candidate 
that would aspire to such a position as the CFO of the 
Executive Office of the President.
    Third, achievement of effective financial management 
practices, sound controls, requires a commitment to high 
integrity, strong ethical values, by the most senior 
executives. There is a premise in the accounting profession 
that effective controls, sound financial practices, full 
accountability, is established by the ``tone at the top.'' If 
those at the top are not concerned, then few others will worry 
either. In the Federal Government the tone has to be set by the 
Executive Office of the President.
    Fourth, some may raise the issue of whether the appointment 
of a CFO to the Executive Office of the President might intrude 
or somehow disrupt the performance of financial management 
activities as currently practiced there. Once again, I find it 
difficult to envision sound management practices as being an 
intrusion or a disruption to any activities.
    Additionally, we should keep in mind that technically and 
financially the Executive Office of the President is a 
relatively simple financial management operation.
    Fifth, the relative insignificance of budgets, and I use 
that advisedly because they are about $200 million, depending 
on how one counts the dollars, to other entities and other 
Federal operations should not be a factor for not complying 
with this proposed legislation. I think, regardless of size, 
the leadership expressed by the Executive Office of the 
President will be seen as the example or the standard that 
other financial managers would follow.
    Last, not mentioned yet is the issue of tenure. The short 
tenure itself of senior Federal executives is another reason 
for ensuring that financial management controls are sound, 
consistently applied and regularly monitored. The National 
Academy of Public Administration has reported on many occasions 
that in the executive branch, senior financial management 
leadership changes, on the average, are every 18 months. This 
turnover of short-timers seriously undermines the stability and 
the dedication needed to ensure that jobs started are 
completed, and that there is uniformity and consistency of 
financial practices.
    No private concern or nonprofit could long tolerate the 
tenure--turnover ratio that is prevalent among senior financial 
executives--Federal executives. For this reason, I see the 
appointment of a Deputy CFO at the EOP, having the 
qualifications outlined in the act, as significantly addressing 
that management void or gap related to tenure in office.
    In summary, the Chief Financial Officer Act of 1990 began 
the important and enormous task of making internal controls and 
accounting and reporting systems the safeguards they were 
intended to be. Further success will require the unswerving 
commitment of all professionals in protecting, preserving and 
accounting for Federal resources. For these reasons, I believe 
and endorse and accept the conditions set forth in the proposed 
Presidential and Executive Office Financial Accountability Act 
of 1997. This act, adopted by the Executive Office of the 
President, will send a clear message that sound and practiced 
financial management is a high priority of the Federal 
Government.
    Mr. Chairman, this completes my oral comments. I have 
separately provided a more detailed paper on this issue. Thank 
you very much.
    [The prepared statement of Mr. Tierney follows:]
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    Mr. Horn. We thank you for that helpful testimony. And as 
you know, your full statements are automatically put in the 
record once we introduce you, and then your summary follows 
that.
    Let me ask a series of questions of both of you. And don't 
feel bashful about chiming in. I would like this to be a 
dialog, not just questions and answers. So if one of you 
disagrees with the other, say so. It will be helpful.
    I guess one question to begin with is: Why do you think the 
Executive Office of the President has not voluntarily complied 
with the Chief Financial Officers Act? OMB is complying with 
the Government Performance and Results Act. Should it not have 
complied with the CFO Act before now? What is the feeling on 
that?
    Mr. Mazur. I could speak to the time I was there, which was 
about a 19-month period. And with all the other parts of the 
CFO Act to attend to at that time, it did not come up. It was 
not very actively considered or discussed, that I can think of.
    The White House was something that appeared to operate. 
They have a long number of years, under some processes, for 
operating. It wasn't until, I think, the Travel Office issue 
hit and one had a chance to sort of see how everyone started 
scurrying that you got a sense that there wasn't one person to 
come forward. So I think this legislation is timely.
    Mr. Horn. Do they ever borrow the staff from OMB? And now I 
am asking you for sort of a historical understanding or 
institutional memory on this and what you have heard about it. 
This is strictly hearsay.
    Have any Presidents borrowed some expert in finance from 
OMB to go look around the place and make sure that things are 
accounted for?
    Mr. Mazur. When I was there, I could not--I can't recall 
any general request to take a broad look around. Again, I think 
at the time we were pretty busy getting a lot of the major 
agencies set up and perhaps it was omitted for that purpose.
    Certainly, when the Travel Office issue hit, there were a 
couple of fellows who worked for me, respected professionals, 
who did go over and spend some time and reported their findings 
to, I think, the Director of Administration and perhaps a 
couple of others, and tried to be helpful with suggestions. And 
I would imagine that might still take place from time to time.
    Mr. Horn. Speaking of the Director of Administration, the 
Office of Administration in the White House has argued that the 
Executive Office of the President cannot reorganize to have one 
Chief Financial Officer and prepare one set of statements to be 
audited. Instead, the Office of Administration in the past, and 
this is last year when we were in these discussions, argued in 
favor of surrogate Chief Financial Officers in each of the 12 
divisions of the Executive Office of the President and the 
preparation of 12 sets of financial statements.
    Now, 7 of these divisions have fewer than 45 full-time 
equivalent employees. Let me just put in the record here the 
full-time equivalent to get an understanding of this. Office of 
the Vice President, 21 full-time equivalents; Office of Policy 
Development, 30 full-time equivalents; Council of Economic 
Advisors, 28 full-time equivalents; Council on Environmental 
Quality and Office of Environmental Quality, 16 full-time 
equivalents; National Security Council, 44 full-time 
equivalents; Office of the National Drug Control Policy, 38 
full-time equivalents; Office of Science and Technology, 35 
full-time equivalents.
    I am not sure this represents the whole executive branch, 
and I want to take a look at the White House office who 
obviously has 387 full-time equivalents as of fiscal year 1996, 
and I guess we don't have the updates for fiscal year 1997 
because we are in that year right now. We are past 1996. But we 
will put the actual amount in the record at this point without 
objection.
    You have got the Executive Residence at the White House, 
86. We have mentioned the Vice President; we have mentioned 
Economic Advisors; we have mentioned Environmental Quality; we 
have mentioned Policy Development; National Security Council; 
Office of Administration happens to have 182 full-time 
equivalents; Office of Management and Budget, 522 full-time 
equivalents; Office of the National Drug Control Policy, we 
mentioned; and Office of Science and Technology we mentioned; 
Office of the U.S. Trade Representative, 159 full-time 
equivalents.
    Anyhow, the summary for fiscal year 1996, the full-time 
equivalents, is 1,548. Now, a lot of people as we know, and 
this goes back certainly to at least the Roosevelt 
administration, maybe a few before, are detailees from the 
various departments. Now, I think Congress has tried to slow 
that down or stop it at various times, but am I correct that my 
understanding is there is still a number of people that are 
detailed over to the Executive Office of the President one way 
or the other?
    Mr. Mazur. I don't have a current understanding of that. My 
general understanding when I was here was that that was 
something that happened--something that probably happened from 
time to time. I did not see a lot of that with my own eyes.
    But your earlier question was, why might they be opposed to 
having one set of financials? I am a little perplexed by that. 
I think from a technical point of view, and Mr. Tierney 
probably could speak better to this, I can't envision any 
impediment at all to bringing together a set of financial 
statements or a combined set where you would see the financial 
activity of each 1 of those 12 activities and then pulled into 
one. As Neil pointed out, I don't believe it is very complex 
and sophisticated vis-a-vis the fiscal affairs of some of our 
larger Federal agencies, a lot of salary, a lot of travel, and 
a lot of supplies and things like that.
    I suspect the opposition probably comes from tradition and 
perhaps the notion that each one of these separate units is a 
bit--although within the EOP, a bit independent, but that is 
just a suspicion on my part, but I can't think of any technical 
impediment.
    Mr. Tierney. As to why the noncompliance, I guess when I 
read the proposed legislation, Mr. Congressman, I was rather 
stunned. I had led a major study effort by the Association of 
Government Accountants and a much more detailed one by the 
American Institute of Certified Public Accountants (CPA) back 
in the 1980's, and many discussions here on the Hill with 
people in the Executive Office of the President, OMB. There was 
not a whisper that it would not comply, so I was really 
surprised.
    With respect to the borrowed staff, just coincidentally I 
got a phone call before coming up here from a long-time 
colleague saying, what are you going to do this afternoon, and 
so I mentioned it to him. And he said, do you remember--I 
hadn't--but one of the problems, the only problem I saw with 
the Executive Office of the President once this gentleman 
reminded me was that cost accounting was an enormous effort.
    There was a study about 17 years ago with volunteer 
assistance from CPAs, certified public accountants, and the 
American Institute of CPAs, where they did a study of the 
Executive Office of the President to try to find out what was 
the cost--the President was interested in the cost of running 
the White House at that time.
    The cost accounting was complex, to say the least, because 
there were no records, but everyone knew that the Air Force jet 
costs money, the Interior, the Parks Service costs money, the 
Secret Service, the Marine Guard, and it went on and on; an 
estimate of maybe several hundred, maybe over 1,000 people. 
None of this cost, of course, is recorded in the books of the 
Executive Office of the President.
    The work was substantially completed, although I think I am 
correct in saying a report was never issued on this because of 
the ``detailee-type'' issue.
    So that was the only thing that I saw was complex because 
the individual agencies were reluctant to release the cost or 
pleaded that they did not have the cost of loaned personnel. 
But I have to admit, I had to have my memory refreshed about 2 
hours ago on that.
    Mr. Horn. That was either the Carter administration----
    Mr. Tierney. It was, yes.
    Mr. Horn. And I wonder if that study is in the papers of 
President Carter in his fine library in Atlanta?
    Mr. Tierney. I know the study was substantially completed. 
I am not sure, maybe a draft was prepared. No report was ever 
issued because being certified public accountants, they just 
couldn't come to conclusion of the costs. It was elusive to say 
the least.
    Mr. Horn. Well, I will ask the staff to contact the Carter 
Library, which is one of my favorite libraries, I have spent a 
lot of time there, and see if we can't find that document 
somewhere. It would be interesting to see. It was probably the 
first and the last President to ever ask that question.
    Mr. Tierney. Well, he is the only one that I know.
    You ran down a list of the people, and, of course, to a lot 
of people 1,000 full-time equivalents is a big staff. When you 
look at the groups, they are kind of bunched into a couple of 
organizations, and it seemed like maybe the major ones could 
indeed have a financial statement, and the others could be 
treated as an office. I don't see it as a very complex 
accounting or financial management issue, but I do see the 
issue as enormously important. I quite honestly would hate to 
have it get out that the Executive Office of the President is 
not complying with the CFO Act. I don't know what that would do 
to the financial mindset of the financial managers in the 
Federal Government.
    Mr. Horn. I suspect they all know that.
    Mr. Tierney. I didn't. I was surprised to learn that.
    Mr. Horn. Do we know how many funds that the President has 
complete discretion over in terms of, say, the hospitality fund 
or whatever? I think the President ought to be left with 
discretion in some of those areas. I suspect he has got an 
Intelligence fund somewhere, unless that pot is over in the CIA 
and audited by the CIA people.
    But I am trying to divide this thing into some manageable 
ways, because it just seems to me one Chief Financial Officer 
could advise all of these agencies, and maybe a Deputy and a 
very small staff, because this is not a major problem in the 
number of people with financial transactions, I would think.
    Mr. Mazur. If I may make a comment?
    Mr. Horn. Sure.
    Mr. Mazur. The budget that was submitted in March under the 
Office of Administration on page 63, I guess it is, the 
appendix talks about the Office of Administration's mission is 
to provide high-quality, cost-effective administrative services 
to the Executive Office of the President, and that wording does 
not limit it to any of those 12 that you have cited. And it 
says, ``these services as defined by Executive Order 1202(a) of 
1977 include financial,'' and then it goes on to say, 
``personnel, library record services, information management 
systems support, and general offices services.''
    The question that was asked earlier of Congressman Mica was 
where would this CFO go? There is no unit--there is no physical 
unit with people in it called the Executive Office of the 
President from a funding point of view. It is really these 12 
separate areas that are funded, but the Office of 
Administration, already delegated with that responsibility, 
would seem to be the likely place to house a Chief Financial 
Officer and a Deputy. And what I am envisioning is that this 
legislation would, in effect, cause that office functionally to 
be split. Not uncommon is the split that often takes place in 
the agencies with the creation of the CFO. If you remember, a 
lot of those were preceded by assistant secretaries for 
administration. Well, those things were split out, and you have 
your CFO focusing on financial systems and financial matters 
and reports, and then you have an Assistant Secretary still 
continuing on with a lot of the other things.
    Mr. Horn. You are generally right on that, but I must say I 
still boil when you see some departments, such as Treasury, 
merge the two offices, and when I see the basket case of the 
Internal Revenue Service within Treasury, and you wonder where 
is the CFO. The fact is there is no single CFO. It is merged 
under the Assistant Secretary for Management, and if I had a 
case like that, there would be a full-time CFO, and that was 
the congressional intent.
    Mr. Mazur. And I think----
    Mr. Horn. That is why we have to change that law maybe in 
the process.
    Mr. Mazur. Or make it tougher, right, because there are 
distributions of responsibilities.
    But in this case, if you could look to one person that 
would work collegially within the White House to clarify and 
set policies. Lately in the news, you read about funds coming 
into the White House under various circumstances. Well, and 
perhaps they have rules and procedures for how they handle 
these things, and a lot of good Americans get excited and 
enthused and all the best intentions, will send checks in with 
notes saying, we love you, here, use it for good purpose or for 
that, or it is a gift, or fix the rug in the Roosevelt room, 
whatever it might be. There are 1,548 individuals over there in 
the White House, and if suddenly somebody thrusts something in 
their hand, they ought to know exactly what they do with that, 
and hopefully it would involve turning it over immediately to a 
CFO, who would send it back or move it to where it needs to be 
and maintain logs along the way.
    I don't think it is necessarily going to be the most 
sophisticated financial management environment, but one that is 
going to take discipline and a confidence in the CFO to use the 
authority judiciously and professionally but firmly to bring in 
line anything of an activity that relates to finance that is 
not correct today.
    Mr. Horn. I think that is a good suggestion. And do you see 
the CFO role as a mixture of, say, vice president for finance 
and controller?
    Mr. Tierney. Yes, certainly.
    Mr. Horn. What function am I missing there? Are they also 
the business manager?
    Mr. Tierney. I think I also see a systems responsibility. 
Instead of just accounting or financial, I think they go hand 
in hand with systems, the information systems, because then you 
have the ability to define what costs shall be. How do you 
account the costs? How do you report the costs?
    Mr. Horn. Does that mean we also need a chief information 
officer in the White House?
    Mr. Tierney. No, I wouldn't go--I think if the CFO just had 
the responsibility, because under the CFO Act there is 
information systems responsibilities.
    Mr. Horn. As I remember, some of the recent administrations 
that have gone into the White House could not believe how 
arcane and antique some of the computer systems were.
    Mr. Tierney. Yes.
    Mr. Horn. It seems to me the President of the United States 
ought to have the latest version, the latest generation.
    Mr. Tierney. Well, it would seem so. He of all people is 
somebody that could afford it.
    Mr. Horn. He could sure reprogram some money without 
objection by Congress. What the President gets is what the 
President wants in the Executive Office of the President.
    Mr. Tierney. On that point, I think the challenge--I think 
it is a relatively simple--it is not a complex operation. But I 
think the talent that one might see applying for the CFO or the 
Executive Office of the President, I think you are going to see 
some quality professionals, certainly capable of handling the 
task if there was one established.
    Mr. Horn. Well, let me look at a few more things I wanted 
to pursue. Some were in your testimony, and I want to make sure 
I have hit a few items that I have noted here.
    Really, one of the proposals they made to us last year was, 
well, we don't like the idea of one Chief Financial Officer, 
but we would like to have one in every division. It doesn't 
make sense to me, frankly, to have one in every division. But I 
tell you this is something that does concern me and I think 
ought to concern the President. How would you ensure that the 
confidentiality of information contained in the financial 
statements is maintained if you contract out an audit to either 
an independent accounting firm or even to OMB, which is 
prepared to do audits, or even do you need to contract out the 
audits there?
    Mr. Mazur. In my testimony I proposed having the audit 
prepared by an outside firm.
    Mr. Horn. Having the committee select that, as I recall.
    Mr. Mazur. Yes, and the reason I did that was, first of 
all, I thought it might possibly add to the benefit of the 
Congress and perhaps even to the benefit of the President 
through that independence even more credibility to the results.
    In addition, I do not see personally the Executive Office 
of the President being a place that could effectively use an 
Inspector General staff of several individuals. Typically for 
an audit of financial statements in the case of what we are 
talking about here, a couple of hundred million dollars and 
1,500 people, we are talking about a relatively small group of 
individuals coming in for a few months at most and getting it 
done and issuing their report on internal controls, and off 
they go.
    There are firms that work throughout Government today, and 
I am certain that there are rules of confidentiality both 
within the firms that exist. As an old CPA, I can remember 
those and certainly security clearances and other things that 
could come to bear and preserve that confidentiality.
    My notions of confidentiality in terms of sharing the 
financial report are more, again--I don't think it does the 
country any good that if somebody over in the White House, 
inadvertently or whatever, can't get 2 and 2 together to equal 
4, it is a problem that needs fixing. I don't think that is 
something that we need to share with the whole world, and the 
Congress needs to be assured that it is going to be fixed and 
fixed on a timely basis.
    Mr. Tierney. If there is a security issue, I don't think 
that is a valid one. I do know major firms, their senior 
management, the management committee of the major CPA firms, I 
know are automatically cleared to secret and top secret. For 
many years I held a top secret security clearance because I was 
consulting with Government, doing their audits, and the entire 
staff held very high security clearances.
    Those types of responsibilities have been handled by 
independent accounting firms for decades, and I have never 
heard a leakage on that. So I don't think that would be--
security, I don't believe, is an issue, a real issue.
    Mr. Horn. Mr. Mazur, I noticed in your testimony on page 5, 
your point 6, that the proposed legislation restricts access by 
the Chief Financial Officer to information, policies, 
communications and records that relate to processing of EOP, 
Executive Office of the President, financial transactions, the 
maintenance of all budgets affiliated with the Executive Office 
of the President in the budget of the U.S. Government, and 
other associated financial affairs of the Executive Office of 
the President, unless that restriction of access is waived by 
the President's Chief of Staff.
    And I was curious what type of situations are you worried 
about there? And is the President's Chief of Staff the proper 
one to do that?
    Mr. Mazur. It is a supposition on my part, but if I 
remember correctly, the legislation calls for the President to 
designate for himself a head of agency. My personal sense was 
that might be the Chief of Staff.
    The idea here is that in reading some of the background 
information, particularly the letter that was received by the 
committee about the possible interference with the President's 
authority, that it would be important and a positive thing to 
reduce any fears in the White House that this particular 
position was going to be focusing on financial matters. And, 
yet, if in pursuing the development of policy--and as I 
mentioned this before, the President receives thousands of 
letters every day, and I will bet you if you went over there, 
there are a dozen of them that for some reason or another have 
checks in them. What do you do with that? How is it handled?
    I think in establishing policy that might affect or 
influence how some of these 1,548 folks might handle unique 
situations they get themselves in, I think the CFO would want 
to be able to do that and might need the release of the Chief 
of Staff in order to sit and have discussions relative to those 
issues.
    So, it was an attempt to balance out concerns for too great 
of an encroachment against the need to have access and thought 
the Chief of Staff would want to be the responsible person.
    Mr. Horn. Do you have any comment, Dr. Tierney, on that?
    Mr. Tierney. No, I hadn't thought about that. I thought 
more of the executive branch budget-type issues and the 
preparation of this plan. Those are things I think that 
Congress and the President have already worked out over the 
years.
    Mr. Horn. Now, the Office of Administration, obviously, Mr. 
Mazur, you must have worked with it fairly closely, I would 
think, when you were in OMB.
    Mr. Mazur. Not closely, but somewhat.
    Mr. Horn. I just wondered what your feeling as to how 
effective that office is in setting up some standards, systems, 
policies to advise people who are very busy in all of these 
offices? These are all 7-day-a-week offices, and the question 
is is there any sort of system; and when one President leaves, 
usually everything, including the policy manuals, are taken 
with him unless they work out something with the incoming 
President or the incoming President asked, I'd appreciate 
knowing how you did it? And President Eisenhower had McKinsay & 
Co., go and do a study of everything in the whole executive 
branch.
    Mr. Mazur. President Bush was in town in my city several 
days ago and speaking to a group, and one of the first things 
he said was to note his praise for the White House staff, the 
permanent staff that was there.
    I was not there enough in that unit at all to form any 
opinions as to their expertise, but I will give you a 
supposition. The supposition is that probably the whole thing 
now works. There is a mechanism there. I sense that there are 
probably long-term employees and even directors of 
administration. I knew the last one who was either full or 
acting, Frank Reeder. He used to be a suite-mate of mine, an 
absolutely superb public servant, and I am sure while he was 
there for 19 months, he tried to do a good job and tried to 
have the job done better.
    The point of your legislation, though, is that with a 
couple of hundred million dollars around and 1,548 individuals, 
let's guarantee that there is speaking to these issues in the 
EOP a person clearly with the competence and the experience 
necessary to speak with authority about financial affairs.
    And, you know, I told a little story in my testimony about 
an exciting conversation I had one time with Senator Robb.
    Mr. Horn. I enjoyed reading that, that you ruined his 
Christmas holidays.
    Mr. Mazur. It was. Because when he pushed back as we were 
debating that issue vigorously and said what he said, which is 
that, you are ruining my Christmas vacation, if I wasn't sure 
of my vision of financial management or my authority or my 
responsibilities, I could have just as easily sort of wilted, 
picked up my papers, apologized for ruining his vacation and 
left the room.
    I didn't. We stayed the course and debated the issue 
further. He arrived at a wonderful decision, and he is one of 
the finest financial-management-oriented Governors we have ever 
had.
    You have to have someone who, in the heady environment in 
the White House, with all of these wonderful talents and egos 
to go with it, is going to recognize when someone is off base 
on something and will have the force of confidence to say no.
    I have said no to Governors. I have said no to Attorney 
Generals. It wasn't a common thing, but you had to be prepared 
to do it and stand at least the moment of displeasure when you 
did it. That is the kind of person you need.
    This does no good to the President of the United States or 
to the Presidency to have anyone in the United States think 
that there is anything other than the highest effort and the 
highest of integrity going on in the White House, and that is 
why I decided to accept your invitation, and I am pleased to be 
here to speak about this thing. We need to help our President 
and future Presidents just not have any question at all about 
what goes on over there and how it is done.
    Mr. Horn. You are absolutely right. And it seems to me any 
President that takes that office, the first thing they ought to 
do is have the conversation that you and Governor Robb had.
    Some of you have heard this story, but my first day as a 
university president I called in the controller and I said, 
look, there is a business manager that you report to, and there 
is a vice president for administration, finance, that he 
reports to. And I said, I don't give a hoot about the 
hierarchy; when you see something cross your desk that would be 
a headline in the L.A. Times, you walk around both of them into 
my office. He did that 2 weeks later and saved my scalp by just 
saying, hey, this does not make sense.
    And you need some sort of system like that where people 
say, it doesn't matter who the heck it is burning, let's tell 
the boss about it. And usually the boss is the last to know in 
a large bureaucracy, which, frankly, was two or three times the 
size of the White House full-time equivalent. But that is just 
basic wisdom, and you learn over time, and I am amazed some of 
the Presidents have not learned it.
    And that is one of the problems down there. They come in. A 
lot of them have run very little, but--if they came from the 
Senate, a Senate office, if that, and if they went to the 
Senate, they probably had a law office. And they were maybe the 
managing partner, or they were maybe a loner, and so they are 
not used to running things in a complicated organization, and 
that is one of the problems. We ought to institutionalize a few 
of these functions by making them responsible and responsive to 
the President if he takes the heat when something goes wrong 
down there.
    I thank you both. It has been very helpful testimony, and 
it has raised a number of questions that I think we need to 
have answered before we can go back to the drafting board, if 
you will, and before we put these bills in. So I thank you very 
much for coming.
    We will now go to panel three, and that is Stephen Potts, 
Director, Office of Government Ethics. He is accompanied by 
Jane A--I assume it is pronounced Ley, Deputy Director, Office 
of Government Ethics; and Gregory S. Walden, who has been here 
before, counsel for Mayer, Brown & Platt, former Assistant 
General Counsel in the White House.
    Mr. Potts. Mr. Chairman, it is Ms. Ley.
    Mr. Horn. If you would raise your right hand?
    [Witnesses sworn.]
    Mr. Horn. All three witnesses have affirmed. And if it is 
OK with you, we can start with Mr. Potts. You are the first one 
on the panel three list. And Ms. Ley, the Deputy Director, is 
accompanying you. So welcome, we are glad to hear from the 
Office of Government Ethics.

  STATEMENTS OF STEPHEN POTTS, DIRECTOR, OFFICE OF GOVERNMENT 
ETHICS, ACCOMPANIED BY JANE S. LEY, DEPUTY DIRECTOR, OFFICE OF 
GOVERNMENT ETHICS; AND GREGORY S. WALDEN, COUNSEL, MAYER, BROWN 
  & PLATT, AND FORMER ASSISTANT GENERAL COUNSEL IN THE WHITE 
                             HOUSE

    Mr. Potts. Thank you, Mr. Chairman. I want to thank you 
very much, first of all, for the opportunity to testify today 
on a draft bill entitled the Special Government Employee Act of 
1997.
    This draft bill would amend section 202 of Title 18 to 
clarify the definition of ``special Government employee.'' In 
doing so, it also, for the first time, sets forth the standard 
definition of ``officer'' or ``employee.''
    We believe with the clarity changes discussed in my written 
testimony that the draft you provided us does accurately 
reflect the present text and interpretive gloss given the term 
``special Government employee'' and the terms ``officer'' or 
``employee.''
    The term ``special Government employee'' and the concept it 
represents was introduced into the Criminal Conflicts of 
Interest Code way back in 1962. Since then the term has been 
used widely in all aspects of the executive branch ethics 
program. In addition to the criminal conflict statutes, it is 
used in public financial disclosure law, the confidential 
financial disclosure regulations of the executive branch, the 
civil ethics statutes of Title 5 U.S.C., appendix, and finally 
the executive branch administrative standards of conduct.
    In most of these statutes or regulations, there is a 
specific reference to 18 U.S.C. section 202, as the primary 
source of the term. Consequently, we have a very real interest 
that any amendments to section 202 and the definition of 
``special Government employee'' continue to reflect long-
standing interpretations.
    Again, the draft bill which we reviewed does this, as well 
as make the definition more easily read. And accordingly, we 
are pleased to support both of those concepts.
    That would complete my oral statement, and I would like to 
have my more complete written testimony submitted for the 
record, and I am happy to answer any questions Mr. Chairman.
    Mr. Horn. Well, we appreciate that. And we appreciate your 
support. We obviously look to you to give us the correct 
language if we are ever in error in some of this. You can be 
sure that we will be checking with you. So I thank you for 
coming. And stay with us so that we can have a dialog after Mr. 
Walden finishes.
    Mr. Potts. Thank you.
    [The prepared statement of Mr. Potts follows:]
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    Mr. Horn. So we now have Mr. Walden, and your book we have 
all taken a look at on Best Behavior: The Clinton 
Administration and Ethics in Government. And we appreciate that 
bit of scholarship, and we hope you are not losing too many 
clients as a result of that, but welcome.
    Mr. Walden. Thank you, Mr. Chairman. My name is Gregory 
Walden. I am counsel with the law firm of Mayer, Brown & Platt. 
The testimony I will provide today, however, is solely my own, 
and it is based largely on my experience as Associate Counsel 
to President Bush where I served as day-to-day ethics advisor 
to the White House staff.
    I am pleased to endorse the bill before you as it is the 
same provision which passed the House last year as part of H.R. 
3452.
    This legislation is needed because the current statutory 
definition of ``special Government employee'' does not provide 
fair notice that informal advisors who act as de facto 
Government staff are subject to the criminal conflict of 
interest provisions and financial disclosure obligations. 
Clearer standards as to what conduct triggers application of 
the conflict of interest laws are needed in order to safeguard 
the public interest against improper access and influence by 
outside consultants on behalf of private interests.
    Initially, the Clinton administration failed to appreciate 
the serious ethics concerns resulting from its heavy reliance 
on outside consultants. Only belatedly did the White House 
recognize that it needed to take steps to alleviate the 
public's suspicion. The current administration's difficulties 
and the likelihood that future administrations will also 
stumble confirm my conviction that reform is needed.
    The bill would not change the substantive definition of 
``special Government employee'' as that term has been 
interpreted and applied by the Justice Department and the 
Office of Government Ethics. But the DOJ and OGE 
interpretations are not well-known even, I suspect, within the 
ethics community. The functional test enunciated in these 
interpretations, which looks to whether and to what extent the 
informal advisor is performing a Federal function, apparently 
has not been the subject of frequent application or further 
elucidation for the benefit of agency management and ethics 
officials. Consequently, informal advisors are currently at 
risk of becoming a special Government employee without knowing 
it.
    Perhaps more significant, the public confidence in the 
integrity of Government decisionmaking suffers when outsiders 
are free to act as de facto Government staff without being 
subject to the ethics restrictions intended to maintain the 
public's trust.
    The bill before you does about as good a job as any in 
addressing a problem without creating additional ones or 
raising questions as to its possible over- or 
underinclusiveness. Indeed, the restructuring of section 202 
and the codification in Title 18 of the definition of 
``officer'' or ``employee'' are additional improvements in the 
clarity of the law.
    That said, codifying the functional test will not obviate 
the exercise of judgment and fact-specific determinations. The 
bill adopts the functional test by providing that advisors or 
consultants who are not expected to work more than 130 days in 
any 365-day period are SGEs if they perform a Federal function 
under authority of law or an executive act. The bill defines 
``Federal function'' to include supervising, managing, 
directing, or overseeing other Federal employees, obligating 
Federal funds, or conducting or organizing meetings, or 
regularly providing advice to Federal employees as part of the 
Government's internal deliberative process.
    The bill properly excludes representatives who are 
appointed for the very purpose of representing a private or 
non-Federal interest on an advisory committee or board. The 
bill also properly excludes independent contractors, although 
not expressly, because they are not under the supervision of 
any Federal employee, and supervision is a requirement in the 
bill.
    The provision with the most play in it, yet perhaps the 
most important clarification of the law, is the regular advice 
trigger. The word ``regular'' is intended to exclude the single 
visit or occasionally held meetings. The term ``deliberative 
process'' is well-known to executive branch agencies. It 
consists of inter- and intra-agency discussions and written 
communications which lead to an agency decision.
    By confining this provision to the Government's internal 
deliberative process, the provision is intended to exclude 
situations where outsiders meet with or call up Government 
officials to complain, explain, lobby or ask for help.
    Frequent Hill contacts by lobbyists or a constituent would 
not make that person an SGE unless he or she were to function 
as a de facto staffer regularly participating in meetings 
closed to the public in which legislative policy, strategy and 
tactics are discussed.
    Again, the occasional internal meeting in which an outsider 
is invited to participate would not by itself make the outsider 
a special Government employee.
    So I do not think that this bill would chill the regular 
exchange between the President and outside advisors or between 
Members of the House or Senate and their constituents or other 
members of the public.
    I thank you for the opportunity to provide these views and 
remain available to answer any of your questions.
    Mr. Horn. Well, we thank you both for your statement, which 
is in the record, as well as the summary.
    [The prepared statement of Mr. Walden follows:]
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    Mr. Horn. You heard, perhaps, the discussion of the ranking 
Democrat, Mrs. Maloney of New York, and her concerns. What is 
your reaction to that?
    Mr. Walden. I don't believe the bill as drafted poses any 
threat to the regular exchange of communications between the 
President and outside informal advisors, with this caveat: It 
is one thing for any President to call up a friend or someone 
on the outside and to speak with that person on a regular basis 
on issues of Government policy. It is quite another thing to 
invite that same person inside the White House to participate 
in meetings with other White House or executive branch 
staffers, where those meetings are held to arrive at a 
Government policy or decision.
    If that is done on a regular basis, there really is no 
functional distinction, no factual distinction, between the 
outside advisor and the full-time Government employee. And in 
those situations, the informal advisor should be deemed a 
special Government employee and subject to the ethics laws as 
if he or she were a full-time Government employee.
    This bill will not, however, chill the exercise of the 
President soliciting advice from outsiders or Members from 
soliciting outsiders. As an example, if the President wanted 
to--any President wanted to, on a weekly basis, have the 
president of the AFL-CIO in on Mondays and the president of the 
Chamber of Commerce in on Tuesdays, 52 weeks a year, for one-
on-ones to get their outside views on what labor wants or what 
business wants, I do not believe that would make them special 
Government employees.
    Mr. Horn. What would they have to do to become a special 
Government employee? Suppose the President said, boy, I'd sure 
like that carried out, and expressed his interest, and one of 
these gentlemen or women, as they walk out of the White House, 
go in to see the assistant to the President in charge of that 
area and say, by the way, Pete, the boss and I were just 
talking, and he wants this done. Does that trigger the special 
Government employee?
    Mr. Walden. Well, it might if it is done on a regular 
basis. Certainly, the way I would read the bill, if the 
President is deputizing an outside consultant to supervise or 
carry out a Federal policy by supervising or directing other 
Federal employees, then that is covered by the bill, and it 
ought to be covered by it.
    Mr. Horn. Is that directing or just giving the assistant a 
hot tip about what the boss plans to do?
    Mr. Walden. Well, this goes back to what I said before, 
that even the best crafted bill is not going to obviate the 
exercise of discretion or fact-specific determinations. And 
mere conduit information perhaps would not trigger the 
requirement that someone be supervising or directing, but 
again, with high-profile friends or associates of a President 
communicating Presidential wishes and desires to lower level 
officials, I think implicit in that is that it is not simply a 
communication of information, but that the President has 
deputized that person to carry out a Presidential directive.
    Mr. Horn. Well, let's say in his chat with the President, 
the President says, as Roosevelt certainly had, the problems--
since this is the week for his monument to go up--the arguments 
between, say, Louis Howe, informal advisor, and Harry Hopkins, 
informal advisor; the habit he had of setting agencies and 
Cabinet Secretaries against each other in competition in the 
case of Hopkins of WPA and Ickes of PWA as he walked out and 
talks to the President, and he says, hey, I have a problem with 
a bunch of these guys. One wants to do this, and the other 
wants to do that. And maybe if they did it strongly enough, I 
could get this other character who is too important to me 
politically for me to really turn down, but I could accept 
something someone else does. And in a sense it is a tip that, 
hey, why don't you mobilize this person--he didn't say it 
directly--and get that person to really get moving and get his 
staff working on the right memoranda and paper and all the rest 
so I can sign off on this thing. Does that conversation make 
any difference?
    Mr. Walden. A single conversation, I don't believe, would 
give me or should give us a problem. I would want to know 
whether that is a single occurrence or whether, after the tip 
or the information is provided, whether the outsider stays in 
the matter and follows up to see that that is carried out. If 
there is followup, it looks as if the person is again acting as 
a supervisor. But if, after that one meeting with the 
President, the person on the way out goes over to the Old 
Executive Office Building, knocks on the door and says, I just 
had a meeting with your boss, and this is what he wants done, 
and I have a plane to catch, and that is the end of it, and 
that informal advisor doesn't come back and doesn't follow up 
on the issue, I don't think that makes the person a special 
Government employee.
    Mr. Horn. Suppose he dictates a memorandum for the 
assistant to sign on his way to the airport or before he leaves 
for the airplane. Does that dictation of a memorandum, which 
looks like now the assistant is recommending it, does that 
trigger the special Government employee?
    Mr. Walden. If that is done on a regular basis, I think 
yes.
    Mr. Horn. What you are saying is that there needs to be a 
pattern and practice of behavior.
    Mr. Walden. That is right.
    Mr. Horn. Not just one or two instances.
    Mr. Walden. That is right. I think regularity modifies the 
provision of advice and the conduct of meetings. I think if you 
are obligating funds or you are supervising, I don't believe 
there is a regular--I don't think ``regular'' in the bill as 
drafted right now modifies supervision or direction or 
management, but I believe that is implicit in the bill. Again, 
if it is just passing along information, it probably doesn't 
amount to supervision because there is no followup.
    Mr. Horn. Suppose the President has a retreat at Camp David 
for the Cabinet, and at one retreat, maybe he does this every 6 
months, he has in the president of the AFL-CIO, for example, 
and they are sitting there arguing over everything in terms of 
what the policies ought to be, not just in labor, but health 
and human services, education. The AFL-CIO has a broad agenda. 
And in another 6 months he brings in the head of the U.S. 
Chamber of Commerce, same thing. He is an active participant 
while the Cabinet is away with their shirtsleeves thinking, 
where do we go from here? Does that trigger anything?
    Mr. Walden. Well, if it is done on a single-time basis, I 
don't believe it does under the bill as drafted.
    Mr. Horn. So they have to suffer through two or three 
retreats on a regular basis?
    Mr. Walden. Well, I don't know if a number fairly can be 
placed on this. I think you have to look and see again what is 
actually being done by this advisor or consultant. Is it 
something that without the person knowing the identity and 
profession of the person, an outside observer, coming into the 
room not knowing anybody where they work, would say, oh, yes 
they are all Federal employees. If the outsider is acting as if 
he is a Federal employee--and I hate to say you know when you 
see it, because that was the standard that Potter Stewart used 
to define obscenity. This bill is far more precisely drafted, 
and I endorse it on that basis, but there is still play in it, 
and there is still flexibility, and it still depends a lot on 
the facts.
    I don't believe that anyone would be prosecuted for 
violating the conflict of interest laws in a situation where 
the application of the special Government employee definition 
to that person would be subject to reasonable dispute.
    Mr. Horn. Of course. It is dubious if anyone would be 
prosecuted for anything if the President is the appointee of 
the U.S. attorney. I doubt if somebody is going to bring 
charges, right? We have a real problem there in any 
administration. Your friendly U.S. attorney gets a call from 
the President and says, what are you doing to my boy, et 
cetera. So maybe it is not a worry on this.
    I am curious on the degree to which this applies to 
congressional staff, and are there different examples that 
perhaps have you had experience from or that can you frame that 
relate to congressional staff doing something like some of the 
examples we have talked about in relation to the Executive 
Office of the President? Any feelings on that, gentlemen? Ms. 
Ley.
    Mr. Walden. Well, I would just say that the current law 
applies to special or Government employees retained to advise 
the legislative branch as well as the executive branch, and 
this bill would continue application to both the executive and 
the legislative branches, I think there may be some different 
concerns or considerations involved as to the extent to which 
this definition applies to outside advisors who participate on 
the Hill. But as currently drafted, I again do not believe that 
it would affect the routine and regular requests that Members 
and staff make to outsiders to provide advice, perhaps even to 
submit draft legislation for the review of a committee or a 
Member.
    Mr. Horn. Before my time here, starting in 1993, there were 
well-known cases of where spouses who were not on the payroll 
pretty much ran the congressional office; either the spouse 
that was the elected Member who was along in years, perhaps 
senile, and spouses just ran the place. Now, does that trigger 
the special Government employee?
    Mr. Walden. I believe it would. If the spouse of a Member 
were functioning as de facto administrative assistant or Chief 
of Staff, I don't believe there is any.
    Mr. Horn. Any instances in the Office of Government Ethics?
    Ms. Ley. Actually it might trigger the definition of a 
full-time Government employee, not just a special Government 
employee.
    Mr. Horn. What is the trigger, the number of hours a week?
    Mr. Walden. 130 days within any consecutive 365-day period.
    The virtue of this legislation as drafted is that by 
defining ``officer'' and ``employee'' and ``special Government 
employee'' similarly, with the one distinction, or the one 
major distinction, of time served. If you are full-time, then 
you have the full panoply of ethics restrictions. If you are a 
special Government employee, you have the conflict of interest 
restrictions and some financial disclosure obligations, but 
other ethics restrictions to a lesser degree.
    Mr. Horn. As you know, our ethics filings in office staffs 
are different than the executive branch, as I remember, in the 
sense that you pick one person--it is automatically triggered 
by a certain salary level, but you can pick another person that 
is less than that salary level, or you could put them all in 
for that matter, but it is much more discretionary than I think 
it is in the executive branch. Have you ever been consulted on 
cases like this?
    Mr. Potts. I am not sure what you mean, consulted. You are 
absolutely accurate, Mr. Chairman, in describing our system as 
the financial disclosure system being pretty much dictated by 
the statute we operate under, even down to the categories of 
the financial worth of the assets that are disclosed.
    So, we really don't have a lot of flexibility in 
establishing our 278 financial disclosure form. Then we do have 
a separate, less burdensome confidential disclosure system, 
which we developed for lower ranking employees, and which is 
not available to the public, but is available within the agency 
to supervisors to make sure that, for example, the procurement 
officer doesn't have a conflict of interest in contracting.
    Mr. Horn. You mentioned, I think, in your testimony, it 
goes back to about 1962. Was that Bayless Manning's book on 
conflict of interest in the Kennedy administration? Is that the 
origin of the office primarily?
    Mr. Potts. I am really not sure. I think it was really more 
certain kinds of scandals and whatever, that it occurred. In 
fact, I would say in my office when I arrived 6 years ago, the 
initial way staff would describe certain provisions in the 
ethics laws was that was the Meese amendment or something like 
that.
    Mr. Horn. Sure.
    Mr. Potts. Usually these amendments in the acts really were 
a reaction to certain kinds of scandals that had erupted.
    Mr. Horn. Ms. Ley, any comments?
    Ms. Ley. I was just going to say I think that term arose in 
1962 out of this whole period of time previous to that for the, 
quote, ``dollar-a-year men,'' and they decided that there 
needed to be some concept of people who provided less than 
full-time or intermittent services to the Government either on 
a paid or unpaid basis, and that they should be--if they were 
carrying out Federal functions and had met the three-part 
test--that they should meet the conflict of interest 
restrictions.
    Mr. Horn. Interesting.
    Mr. Walden.
    Mr. Walden. There was a question earlier by another Member 
about the use of volunteers in the White House.
    Mr. Horn. Right.
    Mr. Walden. Unless the law has changed since I worked 
there, I would like to offer this: The Bush White House had a 
number of volunteers who worked at administrative 
responsibilities, such as White House mail, because I think the 
President each year would get something like 10,000 letters, or 
maybe that is 10,000 gifts, and maybe it is 100,000 or a 
million letters, but I think it is more than what the taxpayer 
would want to pay for full-time employees to go through mail.
    And so there were a number of volunteers. The volunteers--
the retaining of those volunteers didn't violate any law 
because the minimum pay requirements do not--did not at that 
time, and perhaps still do not, apply to the White House 
office, and that was a determination made by the Justice 
Department's Office of Legal Counsel, so there was no legal 
prohibition with retaining volunteers.
    The point of this bill is that if those volunteers are not 
simply--well, those volunteers, if they are working and 
performing a Federal function, something that would ordinarily 
be done by a Federal staffer, then they would be subject to the 
definition of ``special Government employee,'' but it would not 
be onerous to them because their responsibility is such they 
would never really be in a conflict situation. They would not 
have to worry about divesting or recusing. And they would also 
probably not be--it would not be necessary for them to file 
even a confidential financial disclosure requirement.
    So I don't think it is a problem. I don't think that this 
bill would in any way prohibit or restrict the White House's 
ability to retain those volunteers. I think there is a problem, 
however, as Congressman Mica said, when you have not someone 
just simply answering mail, but serving in a policy function 
and working full time and having their salary paid from an 
outside interest.
    Mr. Horn. Should we add an exception for those performing 
routine clerical functions? Would that cover the White House 
mail and perhaps tours and other things that volunteers might 
do there?
    Mr. Potts. If I might add, I want to support what Mr. 
Walden said, because I don't think that would be necessary. It 
wouldn't be harmful to have that because it wouldn't be 
necessary for the reasons he stated.
    Right now, the vast majority of Federal employees do not 
file either a public or a confidential financial disclosure 
statement. It is only triggered by certain categories, either 
by rank or by responsibility, such as being a procurement 
official or something.
    So I would agree that there would not be, under this, any 
kind of onerous financial disclosure responsibilities or other 
potential liabilities under the ethics laws imposed on special 
Government employees that were volunteers as such.
    Ms. Ley. If I may, though, I don't know that you would want 
to necessarily put in a specific exemption for volunteers, 
because if you found a volunteer who was giving tours--and, 
please, Mr. Walden, correct me if I am wrong--if you found a 
volunteer giving tours, but making sure that anybody who took 
his tour had to pay him, who was selling that access to the 
White House, you certainly would want to have some statute 
somewhere to say, no, this is wrong.
    Mr. Horn. I suspect anybody that gave a tour and charged 
for it would be out on their ear within about 10 minutes.
    Mr. Potts. I would hope so.
    Mr. Horn. You might be right.
    Mr. Potts. Mr. Chairman, I wanted to go back and just pick 
up on one point just to make sure, because I know this is 
something that all three of your panel members feel should be 
done. And I am addressing the draft statute on page 4, lines 
17, 18, and 19. And I believe Mr. Walden referred to this 
phrase as--and this is talking about that you are a special--to 
be a special Government employee, you have got to provide 
regular advice, counsel or recommendations to the President, et 
cetera, Member of Congress, or Federal or District of Columbia 
officer or employee, or conducting meetings involving any of 
those individuals. And then it has the parenthetical phrase, as 
part of the Federal or District of Columbia government's 
internal deliberative process.
    Our joint concern is that that phrase is really meant to 
modify both the first part of that statement as well as the 
phrase, conducting meetings involving any of those individuals.
    Currently it might be a little ambiguous as to whether the 
last phrase, as part of the Federal or District of Columbia 
government's internal deliberative process, only modifies 
``conducting meetings,'' but it should also be redrafted to 
make it clear that it covers the first part of that, providing 
regular advice, counsel, et cetera.
    Mr. Walden. And I think as redrafted, it would respond to 
the concerns expressed by more than one Member, I believe, 
perhaps the ranking member, that we do not want to, by this 
legislation, chill the regular communication between the 
President or Members and outsiders.
    Mr. Horn. Now, obviously, someone is going to raise the 
problem, is there a spouse situation here? I assume under the 
ethics laws whatever the President files, the spouse is 
involved in that, and there is no worry about that this is 
directed at any spouse, male or female.
    Mr. Potts. Right. The public financial disclosure statement 
that must be filed by high-ranking, including the President, 
Government officials, Federal Government officials, in the 
executive branch is a filing which covers the assets, for 
example, of the filer, spouse and dependent children.
    Mr. Horn. Right, and does it go beyond dependent children 
at all to others?
    Mr. Potts. No.
    Mr. Walden. I think there is a concern outside of financial 
disclosure with the application of section 208, which is the 
conflict of interest statute. The President is exempt from the 
application of section 208, as are Members of Congress, as are 
congressional staff. It is an open question in the sense that 
it has never been resolved by a court as to whether the First 
Lady is covered by section 208 either as a full-time Government 
employee or as a special Government employee.
    I believe, and I wrote this in my book, that when the First 
Lady was delegated the responsibility for supervising the 
health care legislative task force effort, she became a special 
Government employee for that purpose. Of course, that avoids 
the question of whether any First Lady in their traditional 
role of supervising White House staff, other Federal employees, 
is a full-time employee.
    I think this issue deserves consideration by Congress 
because it is likely to come up in the future in an increasing 
manner, and we ought to be very clear as to whether the First 
Lady is covered or not covered by the criminal conflict of 
interest laws.
    Mr. Horn. Well, the First Lady, as you suggest, has headed 
a Federal staff assigned to her for, what, six administrations 
at least? When did it go back? I don't know if Eleanor 
Roosevelt had any staff, but didn't Mrs. Truman at least have a 
secretary? Usually the staff and the First Lady work together, 
and should we exempt that type of Federal function and strictly 
get into it if there is a policy aspect?
    Mr. Walden. There may be a policy reason whereby the 
traditional function of First Ladies, that is, somewhat 
diplomatic, somewhat ceremonial, would not--a First Lady who 
confines herself or a First Spouse confines himself to those 
traditional responsibilities, perhaps as a policy matter--
should not trigger the full panoply of the ethics restrictions, 
although there would be financial disclosure obligations on the 
President, and therefore, as Director Potts said, it would 
cover the First Lady or the First Spouse.
    But I do think that we are likely to see again, and I think 
we have in the White House right now, although there is no 
analog, I guess, to the Health Care Task Force in 1993 and 
1994, I believe that Mrs. Clinton is functioning and giving 
regular advice.
    This is not to be critical of Mrs. Clinton. It is simply 
that if she is being treated, and others in the future are 
being treated, as de facto Chiefs of Staff or assistants to the 
President and chairing meetings and supervising the conduct of 
White House policy, then I believe as a policy matter they 
ought to be subject to the ethics restrictions.
    Mr. Horn. Besides the First Spouse, do we have any sort of 
automatic de facto staff that you have seen in looking at the 
House and how it functions? Are there other positions that fall 
into being de facto staff?
    Mr. Walden. I think in the early days of the first term of 
the Clinton administration, there were several former campaign 
officials who were involved on a regular basis in meetings to 
determine the President's economic policy and other matters. I 
base this on public reports and on several books on the first 
term of the Clinton administration.
    I think, and I wrote this in my book, I think Paul Begala, 
probably because of the regularity of his presence in White 
House meetings and because he was tasked by the President to 
come up with proposals and strategies, was a special Government 
employee. But I am not so sure about James Carville and Stanley 
Greenberg and Mandy Grunwald. Although they were in on a 
regular basis, they may have been only at political strategy 
meetings. I think their involvement was a lot less.
    I would say that, again, based on public reports, Dick 
Morris, in 1995 or 1996 was probably a special Government 
employee. I don't know what he is doing right now. It's a very, 
very interesting question, if you are simply a broker between 
branches of Government, what that makes you. But I certainly 
think that based on what he did in 1995, inside the White 
House, and 1996, he should have been treated as a special 
Government employee.
    And I think the White House----
    Mr. Horn. Now, is that because one could say some of these 
individuals are in private enterprise, they are representing 
clients besides the President and might well be considered 
special interest advocates, lobbyists, or whatever? Would that 
automatically trigger a financial disclosure, an ethics 
disclosure of some type?
    Mr. Walden. The fact that an outside advisor might have 
outside interests and is expected to have outside interests and 
perhaps clients, that is the concern that justifies applying 
the ethics laws to that person because of the definition of a 
special Government employee. But in determining whether or not 
someone is a special Government employee, you would not look to 
what they are doing on the outside. You would look to what they 
are doing on the inside.
    Mr. Horn. Now, some would argue over the years that whether 
you are a Member of Congress or President of the United States, 
you stand for election, and that the people ought to decide 
those questions if an ethical question is raised in the 
campaign. Is that enough, or is more needed?
    In other words, the right to know, you freely don't know 
fully unless you have a signed statement, and even then people 
can lie, but there are punishments for lying on those. So what 
is your feeling that in the case of the President, why does he 
need to have any of his advisors, who might well be lobbyists--
and we know a lot of people have left the White House in both 
Democratic and Republican administrations and become some of 
the key people in this city, that are legislative advocates. 
And presumably when they come up here in Congress, they are 
supposed to file that they are backing or opposing a particular 
bill. Who looks at it? None of us do.
    I have thought maybe we ought to have them get a button on 
them when they come in, I am for H.R. 1012, and I get $100,000 
a month for doing it. And then we could sort of weigh it one 
way or the other. But none of us really have the time to go 
tracking them down as to have they filed the statements and all 
the rest.
    The law, as you know, on lobbying disclosure up here has 
been filled with loopholes that really a lot of the most active 
lobbyists are State and local governmental officials. In fact, 
we have a room full of them today, and we had a whole--several 
rooms of them for the last few days. It is sort of the week for 
governmental officials.
    Now, because they are governmental, they really don't have 
to file on a lot of these things. I don't know if the executive 
branch is the same way, but I would suspect mayors, Governors 
are pretty intense in trying to get something done.
    What do you think on some of those problems?
    Mr. Potts. Well, if I could comment, I think from some of 
the underlying purposes of our ethics program, throughout the 
Government, but especially in my area of the executive branch, 
what we are trying to do is to give citizens reason to have 
confidence that decisions that are being made in the executive 
branch are not being motivated and improperly influenced by 
selfish reasons, selfish financial gain.
    And the technique here is really transparency. I guess it 
is somewhat similar to the way the SEC operates. It doesn't 
dictate what you do, but what you do, you have to disclose.
    And that is certainly the instance with the President. And 
in his instance, where, as Greg has pointed out, he is not 
subject to 208, which is the conflict provision, we rely there 
on the citizens to, you know, throw a rascal out if they have--
if they are acting as President just to feather their own nest.
    With the other officials that are subject to 208, and this 
comes up immediately, for example, with a Presidential nominee, 
the White House and the agency and my office finally does an 
ethics scrub of the financial disclosure statement of the 
nominee to find if there are any conflicts disclosed with the 
job that that nominee is to assume upon confirmation.
    And I would estimate in maybe 30 percent of the cases we 
find there is some either small or large conflict, and we then 
negotiate an ethics agreement with the nominee, which the 
nominee would agree to either divest, set up a blind trust or, 
you know, some other means of resolving those conflicts of 
interest upon confirmation.
    Mr. Horn. Yes, Mr. Walden?
    Mr. Walden. I think with regard to the President and, to a 
lesser extent Senators and Members of Congress, they stand for 
election, and their activities are closely watched by would-be 
opponents, by critics, by gadflies and by the media. This 
clearly is the case with the President.
    So that if there is any allegation or suspicion that the 
President is engaged in a conflict or maybe doing something 
improper, it is likely to be seen and reported and publicly 
alleged, but not so with the White House staff and with lower 
ranking officials who operate perhaps largely outside the 
public view. There we do need structures in place to ensure 
that they do not willingly or unwittingly run afoul of the 
ethics laws.
    Mr. Horn. Well, your comments have been very helpful. There 
might be a few questions that staff will followup with that 
relate to specific drafting or something as we reread it for 
the 10th time that we are not quite clear on ourself as to the 
scope. We plan to put the bill in within the next week, and we 
certainly appreciate all the advice and help you have given us. 
Thank you very much for coming.
    Mr. Potts. Thank you, Mr. Chairman.
    Mr. Walden. Thank you.
    Mr. Horn. You are welcome.
    Let me just thank the staff that have helped prepare this 
hearing. We start with the staff director, J. Russell George, 
who is modestly sitting over there, without which nothing would 
get done; Anna Miller on my left, the professional staff member 
responsible for this particular hearing; John Hynes, who is not 
here, professional staff member for communications; Andrea 
Miller is our clerk, who does a terrific job; and the minority 
we have David McMillen and Mark Stephenson, professional staff 
members; Jean Gosa is clerk; and our court reporters, Mindi 
Colchico, I guess it is pronounced, and Joe Strickland. Thank 
you very much.
    The hearing is adjourned.
    [Whereupon, at 4:30 p.m., the subcommittee was adjourned.]

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