September 14, 1994
                                   DO-94-031

MEMORANDUM

TO:       Designated Agency Ethics Officials

FROM:     Stephen D. Potts
          Director

SUBJECT:  Improving the confidential financial disclosure system


     Over the past several months, the Office of Government Ethics'
(OGE's) Office of Program Assistance and Review has been conducting
a study to determine the effectiveness of the confidential
financial disclosure system.  After interviewing ethics officials
at 75 agencies and analyzing their comments, we believe that a
number of improvements should be instituted.  

     The most consistent concern which agencies expressed about the
system was the process of designating positions in which employees
are required to file an SF 450.  While the 1992 regulation offered
greater flexibility to agencies, it had the unintended effect of
increasing the number of filers.  In order to correct this over-
designation and to insure that only those employees whose duties
present potential conflicts have to file, we strongly urge agencies
to reevaluate their designations.  If you want to accomplish this
in connection with the upcoming annual filing cycle on October 31,
you may grant a blanket extension of the due date, under your
authority in 5 C.F.R. § 2634.903(d), while you are performing that
reevaluation.  Some agencies, however, may find this task more
time-consuming and will need to postpone their reevaluation of
designations until next year's filing.  

     In reevaluating which positions require confidential
disclosure, consider the following guidance:

      For those positions involving responsibilities enumerated in
     5 C.F.R. § 2634.904(a)(1), the regulation compels designation
     only if the employee will be required to participate
     personally and substantially through decision or the exercise
     of significant judgment.  For assistance with the terms
     "personal and substantial," see the definitions at 5 C.F.R.
     §§ 2635.402(b)(4) and 2637.201(d).  Additionally, the
     exclusion criteria in § 2634.905 should be considered in
     conjunction with the designation process, to eliminate
     designation of positions where, for example, there is a
     substantial degree of supervision or only a remote possibility
     of a conflict of interest.  Thus, not all employees who must
     sign a procurement integrity certification under the Office of
     Federal Procurement Policy Act must also be required to file
     a confidential financial disclosure report.  Agencies may use
     an appropriate demarcation, such as a position's monetary
     level of procurement authority, a de facto pay grade floor, or
     degree of supervision over the position.  

      For positions being designated under the more general
     criteria in 5 C.F.R. § 2634.904(a)(2), designations should be
     limited to those pay grades where the duties and
     responsibilities clearly make filing necessary and relevant. 
     As a concrete example, I have recently reviewed our filer
     designations at OGE and have determined that those desk
     officers, management analysts, and attorneys who have
     previously been designated for filing under § 2634.904(a)(2)
     but who do not have supervisory responsibilities will no
     longer be required to file.  Applying the designation criteria
     in § 2634.904(a)(2) and the exclusion criteria in § 2634.905,
     I no longer believe that employees in these positions need to
     file, because the possibility of a conflict of interest in
     their work is remote and because there is a substantial degree
     of supervision and review over their positions.  This cutoff
     at the supervisor level may not be suitable for all agencies
     or for all positions.  As other alternatives, agencies may
     wish to establish de facto pay grade floors or limit
     designations for certain positions to those with discrete
     levels of technical responsibility.

     The other major concerns expressed by agency ethics officials
during our study centered on the degree and nature of required
disclosures.  I believe that the experience which we have gained
over the past two years with the new confidential disclosure
system, coupled with our recent study, supports the need for some
changes in this regard.  However, I want to insure that agencies
have a voice in this reconsideration process.  Therefore, I plan to
hold one or more brown bag lunches this fall to specifically
consider appropriate policy changes to the substantive disclosure
requirements of the confidential system.  This may ultimately lead
to regulatory amendments, as well as revisions to the SF 450.  In
the interim, please continue to use the current SF 450 and any
alternative or supplementary systems which OGE has previously
approved for your agency.  For any questions that arise, please
consult with your OGE desk officer.

     I look forward to working with you in improving our
confidential financial disclosure system, so that it will continue
to serve as an effective tool in conflict prevention and
counseling.