Financial Disclosure: Implementation of Statute Governing House and
Legislative Agency Personnel (Letter Report, 03/16/94, GAO/GGD-94-76).

Since the passage of the Ethics Reform Act of 1989, the House Committee
on Standards of Official Conduct has improved its financial disclosure
report review system. Today, state election offices are used to identify
candidates who must file reports, reports are reviewed within 60 days of
receipt, filers are notified when more information is needed, filers'
reporting errors are being corrected, and late filing fees are being
assessed. These actions are positive steps; however, some procedures can
be strengthened. For example, financial disclosure reports reviewed by
the Committee do not contain a reviewer's signature or a certification
statement that the report complies with laws and regulations. More than
2,000 congressional employees as well as employees of six legislative
branch agencies file financial disclosure statements with the Committee.
Although it can compare the reported information to statutory
limitations, the Committee staff is unlikely to have in-depth knowledge
of the types of work that each filer does and thus may not be in the
best position to identify all potential conflicts of interest. The
Senate and the executive branch have someone in the filer's supervisory
chain review them--someone with more direct knowledge of the filer's
duties and responsibilities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-76
     TITLE:  Financial Disclosure: Implementation of Statute Governing 
             House and Legislative Agency Personnel
      DATE:  03/16/94
   SUBJECT:  Conflict of interest
             Financial disclosure reporting
             Ethical conduct
             Congressional employees
             Oversight by Congress
             Compliance
             Internal controls
             Disclosure law
             Reporting requirements
             Political candidates

             
**************************************************************************
* This file contains an ASCII representation of the text of a GAO        *
* report.  Delineations within the text indicating chapter titles,       *
* headings, and bullets are preserved.  Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are           *
* identified by double and single lines.  The numbers on the right end   *
* of these lines indicate the position of each of the subsections in the *
* document outline.  These numbers do NOT correspond with the page       *
* numbers of the printed product.                                        *
*                                                                        *
* No attempt has been made to display graphic images, although figure    *
* captions are reproduced. Tables are included, but may not resemble     *
* those in the printed version.                                          *
*                                                                        *
* A printed copy of this report may be obtained from the GAO Document    *
* Distribution Facility by calling (202) 512-6000, by faxing your        *
* request to (301) 258-4066, or by writing to P.O. Box 6015,             *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time.                                    *
**************************************************************************


Cover
================================================================ COVER


Report to the Committee on Standards of Official Conduct, House of
Representatives

March 1994

FINANCIAL DISCLOSURE -
IMPLEMENTATION OF STATUTE
GOVERNING HOUSE AND LEGISLATIVE
AGENCY PERSONNEL

GAO/GGD-94-76

Financial Disclosure


Abbreviations
=============================================================== ABBREV

  ORR - Office of Records and Registration

Letter
=============================================================== LETTER


B-254224

March 16, 1994

The Honorable Jim McDermott, Chairman
The Honorable Fred Grandy
Ranking Minority Member
Committee on Standards of
 Official Conduct
House of Representatives

The Ethics in Government Act of 1978, as amended, requires us to
conduct studies regularly to determine whether the provisions of
title I governing financial disclosure of federal personnel are being
carried out.  This report, which focuses on the House of
Representatives, recognizes the progress that has been made in
implementing title I and points out certain issues that, in our
opinion, require further action or consideration by your Committee,
which is the supervising ethics office for the House. 

We are also issuing a companion report\1 to the Senate Select
Committee on Ethics, which focuses on the Committee's review of
financial disclosure reports in the Senate.  In 1993, we issued a
report on the judicial branch\2 addressing its procedures for
implementing the title I provisions of the act. 


--------------------
\1 Financial Disclosure:  Implementation of Statue Governing Senate
and Legislative Agency Personnel (GAO/GGD-94-77, Mar.  16, 1994). 

\2 Financial Disclosure:  Implementation of Statute Governing
Judicial Branch Personnel (GAO/GGD-93-85, Apr.  27, 1993). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Since the passage of the Ethics Reform Act of 1989, which amended the
Ethics in Government Act of 1978, the House Committee on Standards of
Official Conduct has modified and improved its financial disclosure
report review system.  Actions taken included using state election
offices to identify candidates who must file reports, reviewing
reports within 60 days of receipt, notifying filers when additional
information is needed, ensuring that filers' reporting errors are
corrected, and assessing late filing fees.  The actions that have
been taken are positive steps; however, some procedures can be
further improved.  For example, financial disclosure reports reviewed
by the Committee do not contain a reviewer's signature or a
certification statement that the report appears to be in compliance
with the applicable laws and regulations.  The reviewer's signature
and statement of compliance are required by title II of the Ethics
Reform Act of 1989. 

More than 2,000 House Members, House employees, and employees of 6
legislative agencies\3 file financial disclosure statements with the
Committee on Standards of Official Conduct.  Although the Committee
can compare the reported information to statutory limitations, the
Committee staff is not likely to have in-depth knowledge of the types
of work that each filer performs and thus may not be in the best
position to identify all potential conflicts between the filer's
duties and the reported financial interests.  The Senate and the
executive branch supplement their respective versions of the House
Committee's review by providing for a review by someone in the
filer's supervisory chain-- someone with more direct knowledge of the
filer's duties and responsibilities. 


--------------------
\3 The six legislative agencies that report to the House are
Architect of the Capitol, United States Botanic Garden, Congressional
Budget Office, Government Printing Office, Library of Congress, and
Copyright Royalty Tribunal. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Financial disclosure reports are designed to provide a system for
senior government officials to disclose, in a form open to public
scrutiny, their financial interests.  This procedure is done to
identify conflicts between the officials' financial interests and the
interests of the public they serve.  The law requires that filers
disclose income, financial transactions, assets, liabilities, and
certain other financial information. 

In 1991, 2,192 House Members, officers, employees, principal
assistants, candidates, and employees of certain legislative agencies
filed financial disclosure reports with the House of Representatives. 
Generally, financial disclosure reports were required from persons
who made $72,298 or more annually in 1990.  Table 1 presents the
number of filers by category. 



                           Table 1
           
            Number of Individuals Filing Financial
           Disclosure Reports for Each Category of
                        Filer in 1991

                                                      Number
                                                          of
Category of filer                                     filers
--------------------------------------------------  --------
Members and Delegates of the House of                    434
 Representatives
Officers and employees of the House                      728
Principal assistants in the House                        278
Terminating Members, officers, and employees of          153
 the House and legislative agencies
Candidates for the House                                 205
Legislative agencies' employees                          394
============================================================
Total                                                  2,192
------------------------------------------------------------
Source:  GAO's analysis of the U.S.  House of Representatives'
financial disclosure system's Registrant Reports By Category. 

Within the House of Representatives, the House Committee on Standards
of Official Conduct is responsible for reviewing financial disclosure
reports to ensure that the reports comply with applicable laws and
regulations.  The Committee's staff reviews the reports to ensure
that (1) the reported information is in the proper format; (2)
sufficient information is provided to allow the public, media, and
others viewing the reports to determine the nature and extent of the
filer's financial interests; and (3) the reports are in compliance
with certain restrictions, such as those dealing with receiving
honoraria, gifts, and outside employment and income that could
represent personal financial conflicts of interest.  (The laws and
regulations having relevance to financial disclosure reports filed in
the House of Representatives are presented in app.  I.)


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Section 108 of the Ethics in Government Act, as amended, requires the
Comptroller General to regularly perform studies of whether the
financial disclosure provisions contained in title I are being
carried out effectively by the executive, legislative, and judicial
branches.  We focused this review primarily on the House's system for
implementing new filing and reviewing provisions established by the
act. 

To determine how the statutory provisions addressing the review of
public disclosure reports in section 106 of the Ethics in Government
Act were being carried out by the supervisory ethics office for the
House of Representatives, we determined what policies, regulations,
and procedures had been established for implementing the provisions. 
To identify these policies, regulations, and procedures, we
interviewed the counsel and other staff members of the Committee on
Standards of Official Conduct.  The Committee is to establish the
procedures and its staff is to perform the reviews of financial
disclosure reports and recommend penalties.  We also met with the
staff of the Office of Records and Registration--the office that
receives the reports and makes them available to the public--and
legal and personnel officials who handle financial disclosure reports
in the three legislative agencies that have the most employees filing
with the House.  We also reviewed the House filing form and reporting
instructions, the House Rules, and the House Ethics Manual. 

To observe the internal controls for implementing the act's filing
and review provisions, we reviewed a random sample of 20 of the 2,192
financial disclosure reports filed in 1991.  We limited the sample
size because of corrective actions taken by the Committee in response
to a GAO report on the legislative branch's financial disclosure
systems.\4

Our review of the reports in our sample was aimed at (1) testing
whether established procedures for reviewing the reports were being
followed and (2) observing the Committee's actual practices in
administering applicable statutory controls for reviewing reports. 
In reviewing the reports, we completed a standard data collection
instrument to record data on implementation of various sections of
the act related to reviewing public reports.  Specifically, we
gathered data on the type of procedures used in reviewing reports,
the extent to which review was done on actions that could have
resulted in conflicts of interest, actions taken by the filers to
correct errors or omissions in reporting, and applicable laws and
regulations.  We did not attempt to second guess the reviewers'
judgments of the disclosure reports. 

Our review was done from April 1992 through June 1993 in accordance
with generally accepted government auditing standards. 


--------------------
\4 Financial Disclosure:  Legislative Branch Systems Improved But Can
Be Further Strengthened (GAO/GGD-89-103, Sept.  8, 1989). 


   THE HOUSE COMMITTEE ON
   STANDARDS OF OFFICIAL CONDUCT
   HAS IMPROVED ITS FINANCIAL
   DISCLOSURE FILING AND REVIEW
   SYSTEM
------------------------------------------------------------ Letter :4

Since the passage of the Ethics Reform Act of 1989, the Committee on
Standards of Official Conduct has modified its financial disclosure
review system in an effort to implement newly established provisions
of the Ethics in Government Act.  We found that the Committee
complied with the following new provisions added by the Ethics Reform
Act of 1989.  The Committee

  reviewed disclosure reports within 60 days of receipt, as required
     by section 106 (a)(2) of the act;

  determined when additional information was required and notified
     the filers of the information needed to complete their report,
     as required by section 106 (b)(2)(A) of the act;

  assessed $200 filing fee penalties for reports filed over 30 days
     late, as required by section 104 (d) of the act; and

  issued reporting instructions that incorporated all of the filing
     requirements imposed by the Ethics Reform Act of 1989 that had
     not been required by the previous legislation. 

The Committee also implemented several recommendations from our
September 1989 report, which dealt with the Committee's report filing
and review systems.  For example, our review showed that information
submitted by filers to correct reporting deficiencies was not
reviewed by the Committee to see whether the information corrected
the deficiencies.  In response, the Committee implemented procedures
so that timely and correct amendments were made to financial
disclosure reports that the Committee had found to be in error.  In
addition, we found that the Committee experienced difficulty in
identifying certain individuals who were required to file reports. 
The Committee took action to correct this problem by requesting that
the election offices of each state and the various legislative
agencies notify the Committee of all the candidates and employees who
meet the criteria requiring them to file financial disclosure
reports. 


   FINANCIAL DISCLOSURE REPORTS
   NEED TO BE SIGNED AND CERTIFIED
------------------------------------------------------------ Letter :5

The report form used by the Committee on Standards of Official
Conduct in 1991 did not contain a statement certifying that, in the
opinion of the reviewer, the financial information in the report was
in compliance with applicable laws and regulations.  The report form
also did not include a space for the reviewer's signature.  Section
106 (b)(1) of the act requires the reviewer to state on the report
whether in his/her opinion, the individual is in compliance with
applicable laws and regulations and to sign the report.  This
certification, which has been a long-standing requirement applicable
to reports filed by executive branch personnel, became effective
January 1, 1991, for legislative branch reports and is being
implemented for disclosure reports filed in the Senate. 

Under the House's procedures for report filing, filers are to send
the original and one copy of their report (two copies for Members) to
the Office of Records and Registration (ORR) in the Office of the
Clerk of the House of Representatives.  ORR is to forward the
original report to the Office of Advice and Education and make a
computerized copy of the remaining report.  The Committee is to then
decide within 30 days when copies of the reports are to be made
available to the public. 

Each report received by the Committee is assigned to and reviewed by
an auditor and an attorney, but neither places any comments on the
report.  Instead, the reviewers use a separate checklist.  The
auditor reviews the report first and initials and dates the checklist
when the review of the report is complete.  A Committee attorney then
reviews each report and checklist to decide whether any other
deficiencies exist and whether the deficiencies identified by the
auditor warrant further action, such as obtaining additional
information from the filer.  When the attorney makes a final
determination that the report is in compliance, the attorney initials
the checklist and places an upward arrow on the checklist.  Although
the Director of the Office of Advice and Education\5 said that these
initials signified that the report was in compliance with title I of
the Ethics in Government Act, we do not believe this procedure meets
the level of formal record that the statute requires for report
approval. 


--------------------
\5 The Office of Advice and Education is an office in the Committee
on Standards of Official Conduct, which was established in 1990 to
provide confidential advice to Members, officers, and employees of
the House of Representatives. 


   FINANCIAL CONFLICT-OF-INTEREST
   REVIEWS COULD BE MADE MORE
   COMPREHENSIVE
------------------------------------------------------------ Letter :6

The Committee on Standards of Official Conduct reviews personal
financial conflict-of-interest situations that can be assessed solely
on the basis of information contained in the reports.  Limitations on
the amounts of gifts and outside employment income a filer can
receive annually are examples of the types of situations that can be
assessed in this manner. 

Report reviewers in the House Committee on Standards of Official
Conduct are far removed from most filers and thus are not likely to
have in-depth knowledge of the types of work each report filer
performs.  Reviewers are able to use information contained in the
reports to evaluate some activities that relate to financial
conflicts of interest.  For example, the reviewers can and do
evaluate financial restrictions on (1) gift amounts, (2) donations to
charities in lieu of honorarium, and (3) outside employment and
income.  These restrictions, such as whether the value of gifts
received exceeds the $250 annual limitation, can be assessed from the
information presented in the report.  The Director of the Office of
Advice and Education has said that the staff in this office does not
have sufficient knowledge of the work performed by most of the
employees in the House and the six legislative agencies to compare
the type of work being performed to the filer's reported interests to
identify and resolve any other conflicts.  Officials also told us
that they do not believe it is the role of the Committee to review
for potential conflicts that are not solely discernable from the
information on the report. 

Historically, the House of Representatives has viewed the public,
rather than internal government reviewers, as the monitor for such
personal financial conflict-of-interest situations.  For example, the
House Bipartisan Task Force of Ethics described the objectives of
financial disclosure as follows: 

     "The principal objectives of financial disclosure are to inform
     the public about the financial interests of government officials
     in order to deter potential conflicts of interest and to
     increase public confidence in the integrity of government
     officials.  Public disclosure of the financial interests and
     outside business activities of Members of Congress enables their
     constituents to monitor any potential conflicts of interest and
     to evaluate their performance of official duties in light of
     those private interests and activities."

     "The task force believes, in light of the ten year history of
     the disclosure law under the Ethics in Government Act, that
     public financial disclosure, coupled with the discipline of the
     electoral process, remains the best safeguard and the most
     appropriate method to deter and monitor potential conflicts of
     interest in the legislative branch."

We agree that the public can and should be a monitor with respect to
Members; however, we also note that the executive branch and the
Senate use the employee forms more extensively.  In the executive
branch, designated ethics officials in each filer's agency normally
serve as the reviewing officials for the agency's disclosure reports. 
Regulations issued in April 1992 require these officials to consider
whether a supplemental review by the filer's supervisor should be
obtained before making determinations that no interest or position
disclosed on the form violates, or appears to violate, federal
conflict-of-interest statutes and other applicable criteria.  This
consideration allows for a review by a supervisor who has more direct
knowledge of the filer's duties and responsibilities than the
designated ethics official.  Also, Senate resolution 236 requires the
Senate Ethics Committee to return copies of the financial disclosure
reports to the filers' respective Senator or legislative agency. 
There are no similar requirements in the House. 

The Committee's Chief Counsel said that the Committee is considering
delegating responsibility to each legislative agency for reviewing
agency financial disclosure reports.  The Committee staff recognizes
that because agency officials are more familiar with the duties of
the filers and their agency's rules and regulations, they would be in
a better position to review the reports to identify potential
conflict-of-interest situations. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Although the House Committee on Standards of Official Conduct has
modified and improved its financial disclosure report review system,
additional actions could be taken to strengthen the system.  More
specifically, the procedure of initialing on a separate form, rather
than signing the report, and not providing any further statement of
opinion by the reviewing official that the report is in compliance
with applicable laws and regulations, does not meet the requirements
of section 106 (b)(1) of the act.  Also, opportunities exist to make
more extensive use of the forms if the Committee wishes to do so. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

We recommend that the House Committee on Standards of Official
Conduct revise the Committee's procedures and disclosure report form
to comply with statutory provisions requiring final reviewing
officials to sign the reports and provide a positive assurance
opinion. 


   MATTERS FOR CONSIDERATION BY
   THE COMMITTEE ON STANDARDS OF
   OFFICIAL CONDUCT
------------------------------------------------------------ Letter :9

The Committee may wish to consider ways in which financial disclosure
reports could be used more extensively.  For example, the Committee
could consider supplementing its review of legislative agency
employee statements by providing for a review by someone in the
filer's supervisory chain. 


   COMMITTEE COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :10

During an exit conference, we obtained the views of representatives
of the Committee on Standards of Official Conduct.  They suggested
technical changes to the report, which we made where appropriate. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to other interested parties, and
will also make copies available to others upon request. 

The major contributors to this report are listed in appendix II.  If
you have any questions about this report, please contact me on (202)
512-5074. 

Nancy Kingsbury
Director
Federal Human Resource
 Management Issues


WRITTEN CRITERIA APPLICABLE TO THE
REVIEW OF LEGISLATIVE BRANCH
PERSONNEL FINANCIAL DISCLOSURE
REPORTS
=========================================================== Appendix I

Title                         Description
----------------------------  --------------------------------------------------
Applicable laws

Title I of the Ethics in      Contains financial disclosure requirements of
Government Act of 1978, as    federal personnel.
amended

Titles III and VI of the      Contains provisions concerning gifts, outside
Ethics Reform Act of 1989     employment and income, and honoraria.

18 U.S.C. 201                 Prohibits receiving anything of value for
                              performing official acts other than as provided by
                              law.

18 U.S.C. 203                 Prohibits officer or employee from receiving
                              compensation for services rendered personally or
                              by another person before any government
                              department, court, or agency on any matter in
                              which the United States is a party or has a direct
                              and substantial interest.

18 U.S.C. 204                 Prohibits any Member of Congress from practicing
                              in the United States Claims Court or Court of
                              Appeals.

18 U.S.C. 205                 Prohibits officer or employee from acting as agent
                              or attorney for anyone in a claim against the
                              United States or before any department, agency, or
                              court in a matter in which the United States is a
                              party or has a direct or substantial interest.

18 U.S.C. 207                 Prohibits Members, officers, and employees
                              (including committee staff, leadership staff, and
                              legislative offices staff) for a period of 1 year
                              after leaving office, from knowingly making any
                              communication to specified federal officials with
                              the intent to influence.

18 U.S.C. 208                 Prohibits officers and employees of the executive
                              branch and General Accounting Office (does not
                              apply to other legislative agencies or Congress)
                              from substantial participation in a matter in
                              which the person has a financial interest. The
                              section also makes violators subject to criminal
                              penalties.

Regulations

House Rule 8                  Requires a Member to vote on each question, unless
                              the Member has a direct personal or pecuniary
                              interest in the event of question.

House Rule 43 (3)             Prohibits a Member, officer, or employee from
                              receiving compensation to the official's
                              beneficial interest from any source, the receipt
                              of which occurs by influence improperly exerted
                              from the official's position in Congress.

House Rule 43 (4)             Prohibits a Member, officer, or employee from
                              accepting gifts aggregating more than $250 from
                              any person during the calendar year, except to the
                              extent permitted by written waiver or if each
                              individual gift is less than $100.

House Rule 43 (5)             Prohibits a Member, officer, or employee from
                              accepting honorarium for a speech, writing for
                              publication, or other similar activity.

House Rule 43 (12)            Prohibits any employee required to file a
                              financial disclosure report from participating
                              personally as an employee of the House in contact
                              with any agency of the executive or judicial
                              branch with respect to nonlegislative financial
                              matters affecting any nongovernmental person in
                              which the employee has a significant interest.

House Rule 47 (1)             Member, officer, or employee may not have outside
                              earned income that exceeds 15 percent of the
                              specified annual basic pay.

House Rule 47 (2)             Discusses the limitations on outside income and
                              outside employment for Members, officers, and
                              employees.

House Rule 47 (3)             Prohibits a payment, in lieu of honorarium, to
                              exceed $2,000 or be made to a charitable
                              organization from which such individual or parent,
                              sibling, spouse, child, or dependent relative of
                              such individual derives any financial benefit.

Other written criteria

Financial disclosure          Describes the preparation, filing, and review of
statement instructions for    financial disclosure reports; public access to
House                         reports; and regulations governing reporting.

House Ethics Manual           Contains procedures and rules for implementing
                              title I of the Ethics Reform Act.
--------------------------------------------------------------------------------
Source:  Director, House Office of Advice and Education. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Timothy P.  Bowling, Associate Director, Federal Human Resource
 Management Issues
Norman A.  Stubenhofer, Assistant Director, Federal Human Resource
 Management Issues
Thomas C Davies, Jr., Evaluator-in-Charge
John J.  Tavares, Advisor
Jeffrey W.  Dawson, Evaluator


   OFFICE OF THE GENERAL COUNSEL,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:2

V.  Bruce Goddard, Senior Attorney

