Matter of: Export-Import Bank Employees-Waiver of Erroneous Retention Allowances and Recruitment Bonuses File: B-272467 Date: December 13, 1996

Matter of: Export-Import Bank Employees-Waiver of Erroneous Retention Allowances and Recruitment Bonuses File: B-272467 Date: December 13, 1996

Waiver is granted to Export-Import Bank employees who received erroneous payments in the form of retention allowances and recruitment bonuses from 1992 to 1996. Since the employees received the payments in good faith and without knowledge that they were erroneous, collection of the erroneous payments would be against equity and not in the best interest of the United States.

DECISION

This decision responds to a request from the General Counsel, Export- Import Bank (Ex-Im Bank), for waiver of erroneous payments under the provisions of 5 U.S.C. Sec. 5584 (1994). The erroneous payments involved recruitment bonuses and retention allowances that were awarded to numerous Ex-Im Bank employees from January 12, 1992, to January 20, 1996. The amount of the waiver for retention allowances is $1,305,513.66, and for recruitment bonuses $203,520.00, for a total of $1,509,033.66. For the reasons that follow, waiver is granted.

Background

The Federal Employees Pay Comparability Act of 1990, approved November 5, 1990, Pub. L. No. 101-509, 104 Stat. 1427, enacted into law two new pay provisions that gave the Office of Personnel Management (OPM) the authority to authorize the head of an agency to pay recruitment bonuses and retention allowances under regulations prescribed by OPM. Under 5 U.S.C. Sec. 5753 (1994), an agency may pay a recruitment bonus to a newly appointed employee if it determines that in the absence of a bonus it is likely that the agency would have difficulty in filling the position. Under 5 U.S.C. Sec. 5754 (1994), an agency may pay a retention allowance to an employee if (1) the employee's unusually high or unique qualifications, or a special need of the agency for the employee's services, makes it essential to retain the employee; and (2) the agency determines that the employee would be likely to leave in the absence of an allowance. Recruitment bonuses are paid in a lump sum, whereas retention allowance awards are paid at the same time and manner as the employee's basic pay.

OPM has promulgated regulations, set forth in 5 C.F.R. Part 575 (1996), to carry out the recruitment and retention allowance authorities. The regulations require agencies to prepare a recruitment bonus and retention allowance plan containing (1) criteria that must be met or considered in authorizing allowances, including criteria for determining the size of an allowance; (2) a designation of officials with authority to review and approve payment of recruitment bonuses and retention allowances; (3) procedures for paying allowances; and (4) documentation and recordkeeping requirements sufficient to allow reconstruction of the actions taken to award the allowances.

According to the Ex-Im Bank's report to our Office in support of its waiver request, the Bank adopted a retention allowance and recruitment bonus plan in 1991 and began using this authority on a limited basis in 1992. In 1993, Ex-Im Bank management decided to pursue a strategy of pay- for-performance meant to reward financially the Bank's highest performing employees. As part of this strategy, the Ex-Im Bank's senior management linked consideration of retention bonuses to its performance appraisal process, and in effect used retention bonuses as a form of pay-for- performance awards. The Bank's management reasoned that high performers were most at risk of being lured away to higher paying, private sector jobs.

At the end of the Ex-Im Bank's performance review cycle in 1993, 48 retention allowances were awarded to the highest performing employees at the GS-13 level and above. Subsequent performance review cycles resulted in an additional 52 employees receiving retention allowances in 1994, and 117 in 1995. A few additional retention allowance awards were made to individual employees at other times during 1994 and 1995. As of January 20, 1996, approximately 42 percent of the Ex-Im Bank's staff were current recipients of retention bonuses.

In response to a congressional request, the General Accounting Office initiated a review of the use of retention allowances by a number of federal agencies, including the Ex-Im Bank. [1] During meetings with Ex- Im Bank officials held in April and June of 1995, GAO staff members raised questions and expressed preliminary concerns about the Bank's extensive use of retention bonuses and its practice of linking such bonuses to performance appraisals. GAO also informed OPM of its preliminary compliance concerns. Subsequently, in furtherance of its oversight responsibility, OPM initiated an in-depth review of Ex-Im Bank's use of retention allowances and recruitment bonuses.

The last round of retention allowances were awarded at the conclusion of the Bank's 1995 performance appraisal cycle, and were effective on April 30, 1995. Payments attributable to current allowances continued as the GAO and OPM reviews proceeded. During the reviews, Ex-Im Bank management initially adhered to its view that the Bank's retention allowance practices complied with the law. On August 21, 1995, the Bank's Vice Chairman sent an e-mail message to all employees concerning the GAO and OPM reviews. His message concluded:

"I want to assure you that no decisions or recommendations have yet been made with regard to the Bank's retention allowance program. Certainly, we are confident that our program is within 'the letter of the law'."

On October 31, 1995, OPM provided the Ex-Im Bank with a draft report on its review of the Bank's use of retention allowances and recruitment bonuses. Among other things, the draft report expressed serious concerns about (1) the appropriateness of the process by which retention allowances were awarded (i.e., being linked to performance); (2) the large number of awards; (3) the appropriateness of the particular circumstances in which certain awards had been made (such as to retiring employees, to support staff, and to a student employee); and (4) the adequacy of the documentation supporting almost all of the awards.

Following a review of the OPM draft report, the Ex-Im Bank's counsel advised the Vice Chairman on November 30, of her conclusion--

"that the OPM draft report was substantially correct in its overall conclusion that the Bank's utilization of the retention allowance authority was, in an indeterminate number of cases, inappropriate and that documentation was, as a general matter, inadequate."

Later on that same day, November 30, the Vice Chairman met with the OPM official responsible for the draft report and agreed to take a number of remedial actions. These actions were to include having an outside expert review the Bank's retention allowance practices and revising the Bank's procedures to comply with applicable regulations. According to the Bank's report to our Office, OPM did not propose that ongoing payments be suspended or terminated.

On January 19, 1996, prior to completion of the Bank's remedial actions, OPM issued its final report. [2] The final report described Ex-Im Bank recruitment and retention payments as "illegal," suspended the Ex-Im Bank's delegated authority to administer the retention and recruitment programs, and required the Ex-Im Bank to justify all existing retention allowances and recruitment bonuses. With respect to the last point, the OPM report stated:

". . . The Bank will be required to justify all existing retention allowances and recruitment bonuses and have them approved by OPM within 60 days of receipt of this report, or take appropriate corrective action-- i.e., termination of the actions and collection or waiver of overpayments."

On February 7, 1996, Ex-Im Bank notified its employees by e-mail that it was suspending retention allowance payments effective January 20, 1996. Subsequently, on February 14, the Ex-Im Bank determined that all of the retention allowances and all but two of the recruitment bonuses at issue were inadequately documented and therefore erroneous. At that time, the Ex-Im Bank also determined that it would be impractical if not impossible to re-document existing retention allowances and submit them to OPM for approval. An e-mail notice to Ex-Im Bank employees dated March 12, 1996, advised them that a request for waiver on behalf of the employees would be sent to GAO.

Analysis

Under the provisions of 5 U.S.C. Sec. 5584 (1994), the Comptroller General may waive, in whole or in part, a claim arising out of an erroneous payment of pay to an employee if there is no indication of fraud, misrepresentation, fault, or lack of good faith on the part of the employee, and if collection of the payment would be against equity and good conscience and not in the best interests of the United States. [3] Under the terms of the statute and our implementing regulations, 4 C.F.R. Part 92 (1996), the appropriateness of waiver turns on the knowledge and conduct of the employees who have received erroneous payments, rather than the actions of the agency in making such payments. The principal test is whether an employee knew or reasonably should have known that an erroneous payment occurred and failed to bring the matter to the attention of the responsible officials. See 4 C.F.R. Sec. 91.5(b).

The OPM report identified 13 employees who received recruitment bonuses that OPM determined to be defective on the basis of substantive or procedural deficiencies. The bonuses were paid from September 1992 to May 1995. The record contains no indication that the recipients knew or had reason to know of these deficiencies. In fact, it appears that Ex-Im Bank's practices in awarding recruitment bonuses had not come under scrutiny at the time the bonuses were paid. [4] Therefore, we conclude that waiver is appropriate in the case of the erroneous recruitment bonuses.

We also conclude that waiver of erroneous retention allowance payments is appropriate. The retention allowances were awarded to a large number of Ex-Im Bank employees primarily during the Bank's performance appraisal cycles for 1993 through 1995. The 1993 and 1994 awards were made before any question had been raised concerning the Ex-Im Bank's retention allowance program. The 1995 awards occurred during the preliminary stages of the GAO review and before the OPM review was initiated. Payments under previously awarded allowances continued until all such payments were suspended effective January 20, 1996, the day after receipt of the final OPM report.

This case is similar to the situation in Panama Canal Commission, B-205126, June 17, 1982, where we granted waiver of erroneous payments that resulted when the Panama Canal Commission misinterpreted a statute and permitted payment for overtime in excess of a statutory limitation. At the time the payments were made, the Commission employees legitimately believed that the payments were proper. While the Commission recognized that issues existed concerning its legal interpretation, it continued to make the payments until their legality was resolved by a decision of our Office. See also International Trade Commission, B-203478, Dec. 30, 1981.

The Ex-Im Bank's report to our Office indicates that the vast majority of employees receiving retention allowance payments were only generally aware of the ongoing reviews concerning the Bank's retention allowance practices, and had no reason to believe that the payments were erroneous. Indeed, Ex-Im Bank management explicitly advised all employees in August 1995 of its conviction that the retention payments were legal. Even from the perspective of the Ex-Im Bank management personnel who were dealing directly with the GAO and OPM reviews, the retention allowance payments were not necessarily erroneous at the time they were suspended in response to OPM's final report. The OPM report did not determine the legality of any individual retention allowance. [5] In fact, OPM permitted all such payments to continue for a limited period pending consideration of whether they could be justified.

Finally, we note that four Ex-Im Bank employees received retention allowance payments after their applications for voluntary separation incentive payments ("buyouts") were approved by the Bank. Three of these employees were not awarded retention allowances until after their retirement dates had been set. The question of whether these four employees should be granted waiver needs to be addressed separately because of the apparent inconsistency in receiving both a retention allowance and a voluntary separation incentive payment.

While the Ex-Im Bank acknowledges that the payment of retention allowances to employees whose separation date was scheduled and whose application for a separation incentive had been approved was inappropriate, the Bank maintains that waiver should be granted because the individuals had no more basis than other Ex-Im Bank employees to know that their retention allowances were erroneous. [6] Specifically, the Ex-Im Bank states that the employees did not recognize the contradiction in receiving both retention allowance payments and separation incentive payments because they were not familiar with the criteria for the award of retention allowances, and it was understood by Ex-Im Bank employees that the retention allowance payments were awarded by management in recognition of superior job performance.

We agree that waiver should be granted for these four employees. As discussed previously, the Bank used retention allowances essentially as pay-for-performance awards. Thus, while the Form 50 Notifications of Personnel Action provided to these employees indicated that they were receiving a retention allowance, the word "congratulations" was written on the Form 50 for three of the employees. The Form 50 for the fourth employee stated that the retention allowance reflected a "raise" of 5 percent. Thus, the employees had reason to believe that they were receiving payments in recognition of superior job performance, rather than as an incentive to remain at the Bank.

Accordingly, having determined that the employees that received the erroneous payments of retention allowances and recruitment bonuses were not at fault and that collection would be against equity and good conscience, we hereby waive all of the overpayments the Ex-Im Bank made to the employees listed in the Bank's report. See Alan D. Zempel, B-260843, Oct. 24, 1996; Reuben O. Bowman, et al., B-208811, Aug. 2, 1983.

Robert P. Murphy General Counsel

1. Our review resulted in a report entitled Retention Allowances: Usage and Compliance Vary Among Federal Agencies, GAO/GGD-96-32 (December 1995).

2. Use of Retention Allowances & Recruitment Bonuses at the Export-Import Bank of the United States (January 1996).

3. The General Accounting Office Act of 1996, approved October 19, 1996, Pub. L. No. 104-316, 110 Stat. 3826, transferred the Comptroller General's waiver authority under 5 U.S.C. Sec. 5584 to the Director of the Office of Management and Budget, or the Director's delegatee, effective 60 days after the date of enactment of the Act. See Pub. L. No. 104-316, Secs. 101(a)(3), 101(e), and 103(d), 110 Stat. 3826-3828.

4. The GAO review addressed only retention allowances, not recruitment bonuses.

5. The report's cover letter stated that OPM had identified what it considered to be "illegal" payments. However, the body of the report described the legal deficiencies in terms of the Ex-Im Bank's general methods of awarding retention allowances and the lack of adequate justification statements and documentation to support awards on the current record.

6. Three of the employees received retroactive retention allowances. As a general rule, a pay increase may not be made retroactively. Marianna Mehutcs, B-261592, Nov. 13, 1995; Thomas L. Wild, B-240781, Feb. 5, 1991; Edward M. Wirth, B-228711, Dec. 8, 1988. However, the amounts paid retroactively likewise are appropriate for waiver in the absence of any indication that the employees knew or should have known of this defect.