It’s no secret that financial issues are the number one reason for security clearance denials. So, it logically follows that financial issues are also the most difficult to mitigate, right? Wrong. Many concerns related to financial issues can be relatively easy to mitigate when the applicant or clearance holder takes the right steps. Yet, many struggle to understand how to appropriately mitigate the risk of denial. In my experience, the reasons for this generally fall into one or more of three major categories: 1) resistance to full disclosure because the applicant fails to understand why financial issues could compromise their eligibility; 2) avoidance of the problem because confronting debt can be deeply emotional and often intertwined with other personal hardships; and/or 3) plain old (often systemic) disorganization.
9 Steps to Reporting (and Mitigating) Financial Issues
Regardless of the reason, the steps to reporting and mitigating financial issues are the same and addressed below.
Step 1: Understand Why It Matters
Understanding why financial issues matter to the government is often an important first step. Without this context, applicants tend to underestimate the threat to their eligibility and, as a result, fail to address important details necessary to mitigate the government’s concerns.
If you don’t need an explanation before you open up your heart and your financial records to the feds, feel free to move on to Step 2. For everyone else, here’s what you need to know about the government’s perspective on your bottom line. From the government’s perspective:
- Financial trouble may signal poor self-control, poor judgment, or an unwillingness to abide by rules and regulations;
- Financial trouble may signal other security-significant issues such as mental health issues, excessive gambling, and substance misuse or dependence (including alcohol);
- Those with financial troubles are at greater risk of engaging in “illegal or otherwise questionable acts” for financial gain; and
- Unexplained affluence (a much less common issue and not one covered by this article) may indicate criminal activity, including espionage.
That said, as with each of the Adjudicative Guidelines, the government is ultimately trying to gauge the individual’s trustworthiness, reliability, and good judgment. So, while financial trouble will likely mean a more invasive investigation, the government will also consider factors that may explain why the applicant’s financial troubles do not raise any of the potential concerns referenced above.
Step 2: Commit to Confronting the Issue
Confronting a financial problem can be emotional and, as a result, many people find reasons to avoid the problem or otherwise procrastinate. In the clearance world, however, avoidance is not an option. An applicant who wants to get or keep a clearance is going to have to address the issue; so buckle up, set some deadlines for yourself, and get moving.
Step 3: Get Organized
The next step to a proper self-report is organization. But, before you give up, I’m not here to preach about color coding or pretty binders. For our purposes, organization means 1) gathering all relevant documents (this includes credit reports, emails, relevant bank records, and the napkin with notes from when you spoke with Tyler from billing that one time); 2) putting them in chronological order; and 3) circling back with any entity involved in the debt to close any holes that may exist in your documentation. Can it be a heavy lift? Sure. As heavy as endless job applications because you lost your clearance after you decided searching your email was too hard? Not a chance.
This step is vital for several, equally important, reasons:
- Figuring out exactly how much you owe, to whom, and why, are necessary to resolving the debt, and it’s in your best interest to make sure you understand and agree with the amount allegedly owed.
- Organizing all of the documentation will help jog your memory as to any efforts made to resolve the issue earlier on (and why that didn’t pan out).
- It will help shore up the timeline so that when you discuss mitigating factors that led to the financial issue (medical issues, unexpected job loss, period of depression due to a death in the family, etc.), you can explain (and verify) when certain events took place (see Step 4).
- Providing organized documentation to the adjudicator is key to resolving financial concerns as quickly as possible (see Step 7).
Step 4: Get Real
As you work through your documents and corroborate your timeline, pay attention to significant life events that may have contributed to a financial hardship. Unusual circumstances and circumstances outside of one’s control may contribute to mitigation where the individual acted responsibly under the circumstances. And, even if the individual didn’t act responsibly at the time, it’s better late than never (see Step 6).
Step 5: Ask for Help
Another mitigating factor in cases involving financial hardship is whether the individual has received or is receiving financial counseling from a legitimate and creditable source, such as a non-profit credit counseling service. State government websites may be a good resource for free, legitimate options.
Be wary, however, of for-profit advisors that recommend actions that may improve your credit score but still amount to avoiding financial obligations. These tactics, such as waiting until a debt falls off your credit report or falls outside a statute of limitations, are generally not accepted by the government as good faith resolution of a debt.
Step 6: Do Something
An important factor in adjudicating financial issues is whether the individual acted reasonably under the circumstances. This does not necessarily mean paying off a debt in full—what is reasonable (and responsible) will vary based on the circumstances. For some, this may mean setting up a payment plan that is within their means; but keep in mind that it will be necessary to make consistent and timely payments on any agreed upon plan.
Step 7: Bring Receipts
As you work your way through these steps, document, document, document. Keep paper copies and electronic copies for yourself and for the investigator or other official if you receive a Letter of Interrogatory (LOI) or a Statement of Reasons (SOR). This is not limited to literal receipts of payments, but proof of relevant facts such as conversations with debt collectors, emails, and even proof of life circumstance if they are the reason for the debt. For example, someone who fell behind on their mortgage and credit card debt because they were unemployed for six months should save documentation related to the period of unemployment. Is it possible you won’t need it? Sure. Is it the best way to corroborate your timeline and ideal to have on hand, if needed? You betcha.
Step 8: Close the Loop
If, after reporting a debt or responding to an LOI or SOR, you resolve a debt or have made multiple additional payments, send updated information showing resolution of the debt or continued compliance (especially if the first communication occurred early in a payment plan). Many applicants figure that if someone wants more information, they will ask for it. Wrong. If it helps you and you have it, shout it from the rooftop, my friend.
Step 9: Keep it Up
Last but not least, once an applicant takes the above steps, it is important to keep on top of any continued obligations, exercise financial responsibility, and proactively enter into payment agreements to resolve any new unexpected debt that the individual cannot pay in full at the time it is due.
In sum, financial issues can be daunting and deeply personal, but for many clearance holders and clearance hopefuls, there is a path forward if you are willing to open up and break it down. Try to remember that security clearance adjudications are not personal judgments on life decisions or circumstances but, rather, metrics to help the government make an informed risk assessment. Make sure you do your part in providing any information that might help the adjudicator reach a favorable decision.
The above content is not legal advice and does not create an attorney-client relationship. The handling and outcome of any legal matter depends on varying factors unique to each matter, and results cannot be predicted or guaranteed. Do not act upon information without seeking legal counsel.
