REVIEW OF FINANCIAL DISCLOSURE STATEMENTS

The Department used a definition that ownership of securities having a value of less than $5,000 and less than 1 percent of the corporation's outstanding stock could not constitute a conflict of interest. However, the financial disclosure statements filed by employees show only the enterprises in which the employees have a financial interest and do not include either the number or percent of shares owned or the dollar value of the holding.

There are several statutes which impose absolute prohibitions on certain employees holding specific financial interests, but neither employees nor the jobs affected by these absolute prohibitions have been identified to insure enforcement. Instructions to employees for completing the financial disclosure statements ask the employee to list financial interests prohibited by statute or regulation and/ or those which exceed the $5,000 and 1 percent stock exemption.

Any reported financial interest therefore would be viewed as meeting either or both of the above criteria. The statements, however, do not require the employee to indicate which interests reported were considered prohibited by statute or regulation or were those which exceeded the exemption provision. We believe that management should determine what constitutes a prohibited interest; employees should not unilaterally make such determinations.

Using the Department's criteria, any holding in an agricultural-related interest should be questionable if it is reported. On this basis, when evaluating employees' financial holdings as listed on the statements, we questioned any reported financial interest in (1) companies that produce or use agricultural products, (2) companies that do business with the Department, and (3) farmland, timberland, and/or undeveloped land. An additional but important element which we included was the employee's duties and responsibilities as listed on the job description. We made a limited review of 429 employees' financial disclosure statements and found that:

--126 employees reported 191 interests in companies
that produce or use agricultural products or do
business with the Department. In some cases, the
holdings could be in violation of regulatory or
statutory prohibitions. We could not make a complete
evaluation of these interests because of the lack of

(1) interpretation of the prohibitions, (2) identification of affected employees, and (3) identification of companies affected by the prohibitions.

--245 employees reported 308 interests in timberland,
farmland, and/or undeveloped land; however, infor-
mation was not readily available on what use was made
of the land holdings and, if used for profitable pur-
poses, what types of businesses were conducted and
with what companies the employees had contracted.
some cases, employees may have been in positions to
have knowledge of the Department's proposed land ac-
quisitions or they may have been involved in the ac-
quisition process. Also, all records were not
readily available for our use due to some decentra-
lized statement review activities. As a result, we
could not completely evaluate these holdings, but we
included them so that a complete followup can be
made.

The review officials did not agree that most of the 191 corporate holdings were guestionable; however, they said that more detailed information should be obtained on 72 companies. We were told that the 119 holdings were less than $5,000 and represented less than 1 percent of outstanding stock and/or did not conflict with the employees' duties and responsibilities. We were also told that if the holdings met the less than $5,000 and less than 1 percent exemption criteria, the employees' duties and responsibilities were not reviewed. Generally, the officials said these financial interests were not such that the employees could benefit from any official action they might take. The employees in some cases reported all holdings because they did not understand the criteria.

We recognize that review officials have to use existing criteria when analyzing employees' financial interests. As pointed out on page 9, it is uncertain whether the financial interests are adequately reviewed because of the Department's failure to establish a clear, precise review criteria.

Also, some review officials agreed that additional information should have been obtained on the real property holdings to insure a thorough review of these interests. At the close of our review, these officials were in the process of obtaining the information necessary to make such a determination.

AGENCY COMMENTS

The Department has not been given an opportunity to .formally comment on this report. However, on June 17, 1976, we informally discussed our findings with officials responsible for implementing the financial disclosure system in the Department's Offices of General Counsel and Personnel.

Generally, these officials stated that a closer look at the Department's regulations was needed to clarify and resolve some of the issues raised in the report. They also commented that a review of the capabilities, training, and knowledge of the regulations by the various review officials is needed to insure that qualified personnel are reviewing statements and making determinations on employees' holdings.

After our meeting with these officials, the Acting Chief, Security and Employee Relations Division, Office of Personnel, informed us in a June 17, 1976, memorandum of recent actions the Department had taken to strengthen its conflict-of-interest program. We were informed that a task force was convened to review the Department's regulations in an effort to strengthen enforcement and adherence to such regulations. The task force recommended several changes to insure employee adherence. (See app. I.)

In addition, we were told that the Department had established, as one of its objectives in fiscal year 1977, a review of the administration of the conflict-of-interest program. A task force will be appointed to look at

--positions to determine whether employees not cur-
rently filing should do so;

--financial disclosure statements to determine the appropriateness of raising, lowering, or eliminating the $5,000 or 1 percent holding exemption;

--personnel assigned as deputy counselors; and

--followup procedures.

In September 1976 an official in the Department's Office of Audit told us that they were beginning an integrity auditing program which would involve reviews of the Department's standards of conduct regulations and the program's

administration.

CHAPTER 6

CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

The Department must maintain an effective financial disclosure system to protect its employees, itself, and the public. The Department does not have:

--Adequate criteria to insure that all employees whose jobs affect the agriculture industry are required to file financial disclosure statements. As a result, incumbents of at least 99 positions had not been required to file statements, although we believe their duties indicated that they should.

--Adequate procedures for collecting financial dis-
closure statements.

--Specific criteria for reviewing financial disclosure statements and clear interpretations of administrative or statutory prohibitions for use by employees and review officials.

We believe the Department's actions, as stated on page 15, should improve its financial disclosure system. Further we believe that the Department's task force, when conducting its review, should incorporate the following recommendations.

RECOMMENDATIONS

To improve the effectiveness of the Department's financial disclosure system, we recommend that the Secretary:

--Develop more specific criteria to determine which
employees should file statements and apply these
criteria to all Department positions.

--Clearly interpret the Department's regulations and statutory prohibitions and provide them to employees and review officials.

--Identify employees affected by statutory and regulatory prohibitions.

--Review all the questionable interests we identified

(companies that produce or use agricultural products; companies that do business with the Department; and

farmland, timberland, and/or undeveloped land), in accordance with the matters mentioned above.

--Develop procedures to insure prompt collection of employees' statements.

--Develop procedures to require the review officials to sign and date the statements and indicate that the financial interests listed were not conflicts of interest.

--Develop a system for coordinating and monitoring the activities of review officials to insure that consistent and adequate reviews of employees' holdings are being made.