[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





 
                  SINGLE AUDIT ACT AMENDMENTS OF 1996

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 13, 1999

                               __________

                           Serial No. 106-81

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
62-468 CC                   WASHINGTON : 2000




                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
   Bonnie Heald, Director of Communications/Professional Staff Member
                          Mason Alinger, Clerk
                     Faith Weiss, Minority Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 13, 1999.....................................     1
Statement of:
    Lee, Diedre A., Acting Deputy Director for Management, Office 
      of Management and Budget; David L. Clark, Director, Audit 
      Oversight and Liaison, General Accounting Office; and 
      Auston G. Johnson, State auditor of Utah and chairman, 
      single audit committee, National State Auditors Association     3
Letters, statements, et cetera, submitted for the record by:
    Clark, David L., Director, Audit Oversight and Liaison, 
      General Accounting Office, prepared statement of...........    16
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     2
    Johnson, Auston G., State auditor of Utah and chairman, 
      single audit committee, National State Auditors 
      Association:
        Advirosy circular of FAA.................................    61
        Prepared statement of....................................    34
    Lee, Diedre A., Acting Deputy Director for Management, Office 
      of Management and Budget, prepared statement of............     6
    Sonntag, Brian, Washington State auditor, prepared statement 
      of.........................................................    41
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................    12


                  SINGLE AUDIT ACT AMENDMENTS OF 1996

                              ----------                              


                         THURSDAY, MAY 13, 1999

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2247, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn and Turner.
    Staff present: J. Russell George, staff director and chief 
counsel; Randy Kaplan, counsel; Matthew Ebert, policy advisor; 
Bonnie Heald, director of communications; Mason Alinger, clerk; 
Faith Weiss, minority counsel; Mark Stephenson, minority 
professional staff member; Ellen Rayner, minority chief clerk; 
and Earley Green, minority staff assistant.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order. Today we will 
discuss the status of the implementation of the Single Audit 
Act Amendments of 1996.
    The Single Audit Act of 1984 replaced a desperate and 
unmanageable approach to audits of State and local programs 
that receive Federal funding. Prior to its passage, there 
existed a system of multiple grant-by-grant audits. This 
created a scenario in which an organization that received 
Federal funds from more than one Federal agency could find 
itself spending vast amounts of time and resources managing 
several different Federal audits.
    In the early 1990's, three separate studies were conducted 
to determine the effectiveness of the act. These studies 
conducted by the General Accounting Office, and the President's 
Council on Integrity and Efficiency, and the National State 
Auditors Association prompted legislation to amend the Single 
Audit Act. Early in 1996, that legislation was moved by this 
subcommittee. In June 1996, Congress passed the Single Audit 
Act Amendments of 1996, which was subsequently signed into law 
on July 5, 1996.
    Today, we will explore how well the Federal, State, and 
local governments and their auditors are doing in implementing 
those amendments, and whether Congress needs to consider any 
further changes in the Single Audit Act.
    I welcome our distinguished panel, and I look forward to 
your testimony.
    [The prepared statement of Hon. Stephen Horn follows:]

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    Mr. Horn. Our witnesses today will be Ms. Deidre A. Lee, 
Acting Deputy Director for Management, Office of Management and 
Budget; Mr. David L. Clark, Director, Audit Oversight and 
Liaison, General Accounting Office; Mr. Auston G. Johnson, 
State Auditor of Utah, and chairman of the Single Audit 
Committee of the National State Auditors Association.
    Some of you know the routine here. Let me just repeat it 
for some of the newcomers. We are a subcommittee of the full 
Committee on Government Reform. All our witnesses are sworn 
witnesses in terms of their testimony. When we call on you, it 
will be generally in line with what the agenda states there. 
Your full statement will be in the record. We would like you to 
summarize the statement. With three witnesses, we don't have to 
rush ourselves today. So, if you want to go through more than a 
summary, that's fine.
    What we like to do, however, is have a dialog between the 
members of the subcommittee once all three witnesses have 
spoken. And, you are certainly welcome when another witness has 
said something you don't agree with or you do agree with, feel 
free to comment on that. This isn't strictly one-way dialog, 
not just a train where cars pop off into the siding and we 
never see them again.
    So, if you will all three stand, raise your right hands.
    [Witnesses sworn.]
    Mr. Horn. We will start with Ms. Deidre Lee, the Acting 
Deputy Director for Management of the Office of Management and 
Budget, known to all as OMB.

    STATEMENTS OF DIEDRE A. LEE, ACTING DEPUTY DIRECTOR FOR 
 MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; DAVID L. CLARK, 
   DIRECTOR, AUDIT OVERSIGHT AND LIAISON, GENERAL ACCOUNTING 
   OFFICE; AND AUSTON G. JOHNSON, STATE AUDITOR OF UTAH AND 
   CHAIRMAN, SINGLE AUDIT COMMITTEE, NATIONAL STATE AUDITORS 
                          ASSOCIATION

    Ms. Lee. Good morning, Chairman Horn. I appear before you 
today to discuss the Single Audit Act Amendments of 1996, and I 
would like to thank you, Mr. Chairman and members of the 
subcommittee, for your continued efforts to improve financial 
management throughout the Federal Government.
    The Single Audit Act of 1996 is one of several laws this 
subcommittee has used to promote financial accountability in 
government. The key financial management legislation of recent 
years, the Chief Financial Officers Act of 1990, the CFO Act, 
and the Government Management and Reform Act of 1994, which we 
refer to as GMRA, together require the Federal Government to 
prepare and have audited agency and governmentwide financial 
statements. These have received important support from the 
subcommittee.
    The interrelationship of these legislative initiatives 
becomes more apparent as the government gains experience in 
preparing audited financial statements. To make the CFO Act and 
the GMRA financial statement process work, the government 
relies on a single audit process to provide assurance over more 
than $300 billion in Federal funds which are expended annually 
by States, local governments, and nonprofit organizations.
    You very clearly outlined the background of this act and, 
of course, the history of the single audit amendment process. 
As you mentioned, one of the reasons behind this was to have 
some uniform audit requirements to reduce the burden on the 
governments and those that participated in the audits and also 
to have a more effective use of audit resources.
    Key features of the 1996 amendment included extending the 
coverage to all nonprofits as well as State and local 
governments which administer Federal programs; raising the 
threshold for the audit to $300,000; and authorizing a risk-
based approach in selecting programs for testing. We also 
accelerated the time period through which a single audit was 
due after the close of the entity's fiscal year and increased 
some administrative flexibility, primarily through use of pilot 
projects, and an increase in the threshold when it was 
appropriate.
    So what has been done so far in the last 3 years? Certainly 
we have now--and I have it here--another update of A-133. We 
have the A-133 compliance document, which is a very 
collaborative process that we worked on to provide guidance for 
single audit processes. It identifies compliance requirements 
as well as specific program guidance, and there are some 120 
programs that it addresses, which are about 90 percent of the 
dollars expended by these entities. Additionally, we've 
developed a governmentwide single audit data base, and we have 
the clearinghouse so we can look across and get, in fact, more 
consistent information on single audits. That is a work in 
process. I'll mention later some things that we are still 
working on.
    And additionally, one of the very fine things about this 
act has been the professional approach. We have worked with the 
American Institute of CPAs, the GAO, the grantmaking agencies 
themselves, the PCIE, the President's Council involving the 
IGs, and they are providing training for the State auditors and 
the entities that are involved in this as well as preparing 
guidelines which will be ready in July 1999. So a lot has been 
done.
    Additional future work including compliance updates: One of 
the things that the amendments mentioned is that the compliance 
supplements need to be kept current to provide people the 
guidance they need. As new programs or changes to the grants 
occur, we need to ensure they're picked up in the compliance 
supplement so the auditors can use them appropriately, and we 
are doing that.
    Also, we're trying to improve the clearinghouse with on-
line forms that will aid in self-editing so we can assure that 
people can easily respond to the requirements of the act. 
Additionally, we're coordinating with GAO in ensuring that 
additional audit requirements don't burden the single audit 
process, and I know that Mr. Clark will talk about that a 
little bit further. And we're working with the IGs, the PCIE, 
to ensure that we have some quality assurance procedures for 
these audits.
    We also just last week, with concurrence of the Congress, 
authorized a pilot program for the State of Washington where 
they're going to look across the State at statewide education 
programs at approximately 200 local education entities. They 
think that this pilot program is going to help the State to be 
able to look at the effectiveness of their programs and find 
out what the single audit tells us about the actual results of 
that education program. And we're working with the Department 
of Education on that.
    So certainly significant progress has been made. 
Implementation continues, and we look forward to furthering 
this process. And I thank the members of the subcommittee for 
their interest in financial management.
    Mr. Horn. Well, we thank you.
    [The prepared statement of Ms. Lee follows:]

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    Mr. Horn. Mr. Turner, the ranking minority member, has 
joined us. Mr. Turner, would you like to submit your statement 
or read your statement? We have plenty of time this morning.
    Mr. Turner. I'll submit it for the record. Thank you, Mr. 
Chairman.
    Mr. Horn. Without objection, please submit Mr. Turner's 
prepared statement and put it in as if read. Thank you.
    [The prepared statement of Hon. Jim Turner follows:]

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    Mr. Horn. We now go to Mr. Clark, the Director of Audit 
Oversight and Liaison for the General Accounting Office. Mr. 
Clark.
    Mr. Clark. Thank you, Mr. Chairman. I'm pleased to be here 
this morning to discuss the refinements to the single audit 
process called for in the Single Audit Act Amendments of 1996. 
The refinements along with OMB's implementing guidance, such as 
the compliance supplement, provide the underpinnings to improve 
the auditing for the more than $300 billion annually of Federal 
financial assistance provided to non-Federal entities. The 
refinements were developed through the collaborative efforts of 
the many stakeholders in the single audit process, including, 
for example, OMB and State auditors, the AICPA, and us.
    This subcommittee has played an important role in 
supporting the refinements. This hearing should help to keep 
attention on the refinements and ensure that the momentum 
achieved thus far in implementing them continues.
    This morning I would like to briefly highlight seven of the 
refinements and some of the actions taken to date to implement 
them. First, the refinements expand the act to cover all 
recipients of Federal financial assistance. Previously the act 
covered State and local governments, but not colleges, 
universities, hospitals, or other nonprofit organizations. OMB 
has helped implement this refinement by issuing one circular. 
Before we had two. That now provides consistent audit 
requirements for all recipients.
    Second, the refinements raise the threshold for which 
recipients must obtain a single audit. Previously, many small 
recipients were required to obtain single audits, even though 
collectively they accounted for a very small percentage of 
overall Federal financial assistance. The new threshold 
eliminates single audit requirements for many small recipients 
while still maintaining audit coverage for at least 95 percent 
of all Federal financial assistance. In Pennsylvania, for 
example, the new threshold eliminates single audit requirements 
for approximately 1,200 smaller entities.
    Third, the refinements allow auditors to use a broader 
risk-based approach for determining which programs to test in 
detail in their audits. Previously, dollar size drove the 
determination of programs to be tested. That resulted in the 
same programs being tested every year and other programs never 
being tested. Today, other factors, such as a program's 
inherent risk or vulnerability to fraud or other problems, also 
help to drive the determination of what programs are selected 
for detailed testing. This results in a better mix of testing.
    Fourth, the refinements reduce the timeframes for single 
audits to be completed and submitted to the Federal Government. 
Program managers and others had identified this refinement as 
critical to being able to use single audit reports effectively. 
The timeframe is now 9 months, or will be 9 months when it is 
phased in, and it is our hope that single audits in the future 
can be completed even faster than that.
    Fifth, and my personal favorite, the refinements call for 
auditors to provide a summary of their single audit results, 
thereby allowing readers to focus on the message and critical 
information resulting from the audits. Both OMB and the public 
accounting profession have now issued guidance to auditors on 
how to better summarize the reports. Today, I believe, the 
reports are much easier to follow.
    Six, the refinements spurred the creation of a Federal 
automated data base of all single audit results. The Bureau of 
Census, which was designated by OMB as the Federal 
clearinghouse for all single audit reports, has made great 
progress in developing an automated data base. When fully up 
and running, the data base will greatly enhance users' ability 
to quickly and accurately analyze single audit results and 
should help to better focus other Federal monitoring and 
oversight efforts.
    And seventh, the refinements provide the opportunity for 
pilot projects to test ways to further streamline the single 
audit process and to make single audit reports more useful. The 
Washington State auditor, in his written comments provided for 
this hearing, discusses a pilot project which we believe has 
great potential to improve the single audit process and lead to 
greater accountability.
    Mr. Chairman, because of the phased-in effective dates in 
the law and OMB's implementing guidance, it's too early to 
fully assess the effectiveness of all the refinements. 
Nevertheless it's important to underscore the significant steps 
that have already been taken and, as I mentioned, the 
importance of ensuring that the momentum achieved thus far 
continues.
    I want to note that GAO is committed to overseeing the 
continued successful implementation of refinements, including 
assurances that there are no future conflicts with the Single 
Audit Act. We intend to work closely with all stakeholders as 
we have over the last few years in the single audit process to 
identify any implementation issues that may arise, to help 
develop and propose solutions, and to keep this subcommittee 
and the Congress fully informed on those actions and the 
progress being made. This concludes my summary.
    Mr. Horn. We thank you for that very helpful testimony.
    [The prepared statement of Mr. Clark follows:]

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    Mr. Horn. Our last witness will be Mr. Auston G. Johnson, 
the State Auditor of Utah. He is also the chairman of the 
Single Audit Committee of the National State Auditors 
Association. Besides his remarks going into the record at this 
point, we will also attach with them the statement from Brian 
Sonntag, the Washington State auditor. It's roughly 12 or 13 
pages, and that will go following Mr. Johnson's testimony.
    Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here today and to address this subcommittee. 
The State audit community is basically where all of the 
theories and philosophies of the Single Audit Act come 
together. It's where the rubber hits the road, I guess you'd 
say. We are the ones who try to implement all of the provisions 
that have been delineated in the different documents, and try 
to make the Single Audit Act work.
    In the broadest terms, the Single Audit Act has been a 
tremendous success. The act of 1984 was great in moving forward 
the overall auditing of Federal programs, and the refinements 
that came about in the 1996 amendments went a long way to 
taking care of some of the problems. Mainly the problem with 
auditing of the major programs is that we were auditing the 
same programs over and over every year because we were only 
auditing the largest programs. With the risk-based approach, we 
were able to look at problems that we were able to identify 
from a lot of work we had done at States that had a greater 
risk than some of the larger programs that had been audited for 
10 years at that time.
    We have had some concerns with the Single Audit Act, the 
implementation, but those concerns are in the written statement 
that I've submitted, and in actuality they seem a lot worse in 
writing than they really are. Whenever you have a new program 
in its implementation process, you're going to have problems, 
and this one has created problems. I think there's been some 
Federal departments that have jumped the gun a little bit and 
have put some pressure on us to do things that would have been 
better left a couple of years until we could get a better 
handle on this, but those things are being worked out through 
cooperative efforts with the State auditors, the GAO, OMB, 
mainly through the intergovernmental audit forums where we can 
meet with the Inspectors General of the various departments and 
work through these issues, and we have solved a lot of the 
issues that have come up, and I think we will continue to solve 
the issues.
    There is one situation that I think is beyond what we can 
do through the forums, and that is going to take a legal or a 
legislative action, and that would be access to records. And 
quite frankly, some of this is outside the realm of a single 
audit, but I think as State auditors we see the expenditure of 
all tax dollars, whether they be State or Federal, as our 
responsibility. And in doing single audits, we have access to a 
lot of records that we would like to check against other 
records, and with computers available to us, we can do that, 
but there are different privacy acts that are in place, 
confidentiality acts, department by department, that don't 
allow us to cross-match records from one Federal department to 
another. And we think that there could be some benefit gained 
by being able to do that, but like I say, in some cases it is 
outside the realm of the Single Audit Act, but we would like to 
pursue that, and it might take some clarifications in the law 
that would allow us access to those records. Actually, we do 
have access to the records. We just don't have the ability to 
use them in auditing other programs.
    Mr. Horn. You make an excellent point, and I think when we 
discuss the privacy bill a few months from now, maybe that's 
where we could tuck it in, because you're absolutely correct. 
You ought to have that cross-reference.
    Mr. Johnson. I think we could do some great things. It may 
make some people nervous, but I think we could do some great 
things in being able to do that.
    Some of the things that need to take place are, first of 
all, we need to have continued support of the intergovernmental 
audit forums, the ability to sit down and openly and clearly, 
honestly discuss issues and bring them to a conclusion that's 
mutually beneficial to everyone.
    The compliance supplement needs to continue to be updated 
annually. When the compliance supplement was first put 
together--I think we got it in August, June, or August--it was 
way too late for us to use. We're up to the point now where 
it's dated May 1. The efforts of OMB, I think, have been 
tremendous in being able to get that document out in the 
timeframe that's beneficial to State audits. Most States have a 
fiscal year end of June 30, and in order for us to really make 
use of that document, we need it in March in order to assist in 
our planning, and I think it's getting closer. That will 
continue to improve. I think there's over 100 programs, 118 
programs, I think, now in the current supplement. There can't 
be that many more programs that are significant, so I think 
we've hit the point where it will be easier to update that 
thing each year, and the problem of timeliness will go away.
    And we need GAO to continue to review legislation so that 
individual audit requirements don't creep into legislation for 
specific departments that would conflict with the Single Audit 
Act without a real open public debate between State auditors, 
GAO, OMB, and the department on why that has to be. And that, 
Mr. Chairman, would conclude my remarks.
    Mr. Horn. Well, thank you very much.
    [The prepared statements of Mr. Johnson and Mr. Sonntag 
follow:]

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    Mr. Horn. Mr. Turner, do you wish to start the questioning?
    Mr. Turner. No, you can go ahead, Mr. Chairman.
    Mr. Horn. Mr. Johnson, in your written testimony, you 
stated there were initial problems with the submission of the 
data collection form. You stated that some reports indicated 
that more than 90 percent were rejected, and that this was 
caused in large part because of the rush to get something on 
the street even though we appreciate what OMB did when we're 
talking about the guidelines. So, would you first describe for 
us the purpose of the data collection form?
    Mr. Johnson. Yes. The data collection form, in all the time 
we've been doing single audits, we've never actually 
accumulated data on what was happening, what programs were 
being audited, what was the extent of coverage of Federal 
dollars out there. And the data collection form allowed--will 
allow the collection of data that will be beneficial in setting 
parameters for future single audits or amendments to single 
audits again.
    The form is just a way for the auditee and the auditor to 
put down information, findings that were issued, question costs 
that were a result of the audit, the programs that were 
audited, the type of opinion that was given, that type of 
information.
    I think the reason we had problems with submission is that 
the form was being formulated and put together at the same time 
that the compliance supplement was being put together, and we 
were running up against deadlines to submit reports, and 
something had to be put out, and it came out. And I think it 
was very confusing because it asked questions that auditors and 
auditees never had to answer before. It showed that there was 
some gaps in knowledge out there about oversight agencies and 
cognizant agencies and different fine points of the Single 
Audit Act, and because of that--and I think also it was because 
of the way the clearinghouse was tasked in entering the data. 
They were not doing desk reviews. They weren't correcting 
anything. If there was the slightest error at all, it was 
rejected and sent back for resubmission. I think that's why it 
added to the large number of problems there, the rejections in 
the first go-around, but I understand it's getting better, and 
I think it will continue to get better as people become aware 
of how that form is supposed to work.
    Mr. Horn. So you're optimistic about it.
    Mr. Johnson. Oh, yes.
    Mr. Horn. Ms. Lee, do you have any comments on that? Do you 
agree with that?
    Ms. Lee. The group is working together. This is a very 
collegial group. One of the things they're trying to do is make 
the form electronic, which in itself will have some self-edit. 
The person trying to enter it, if they try to enter it 
incomplete--or with wrong data, they will immediately know that 
they need to make some changes. There won't be this frustration 
of, ``I sent in and I get it back.'' So I think that's an 
improvement that's going to work.
    Mr. Horn. Mr. Clark, do you have any comment on that?
    Mr. Clark. I want to underscore the importance of it, and I 
think what we're seeing is a product of the recognition that 
the data collection form and the creation of the data base 
really has a lot of potential, and I'm glad that we're dealing 
with the problems now. I think it's worth the investment, and 
the progress, I think, is fine. The first year there were 
problems, but again, going back to the audit forum process, 
those problems were identified immediately. The right 
stakeholders got together and worked on it. I think it's been 
solved fairly fast.
    Mr. Horn. Just as a general question, is there anything now 
that you've had some experience with the single audit that you 
feel we should add to the law, or can it all be done by 
regulation, and if so, what are the things--now that you've 
experienced this, we missed?
    Mr. Johnson. I think the one that I brought up about 
access.
    Mr. Horn. That's a good point.
    Mr. Johnson. Information, the ability to cross-test would 
be nice. If it was in the Single Audit Act, I think it would 
clarify the issue if that was able to supersede some of the 
privacy acts. And we understand as State auditors that we would 
be subject to the same confidentiality, but we handle 
confidential records all the time, so it's not an issue, I 
don't believe. Otherwise I think the Single Audit Act pretty 
well covers everything we need. I think everything else can be 
handled through regulation working with GAO and OMB on this.
    Mr. Horn. Mr. Clark, do you have any suggestions on this 
after you sort of lived reviewing this?
    Mr. Clark. I have lived most of my life doing this. If we 
go back to the 1996 amendments, that was a product of a 6-year 
effort. Every stakeholder was involved. The State auditors had 
done a study of the single audit. The Inspectors General had 
done a study of the single audit. We took our time, and we did 
it right. I think when the amendments passed, we had more than 
consensus. I think we almost had unanimity on what needed to be 
done.
    We have this phase-in approach, as I mentioned. We're going 
to be beginning some studies. We're going to be looking to see 
how this is working; whether, in fact, everything everybody 
wanted is being achieved.
    The act provides a lot more flexibility--the amendments 
provide a lot more flexibility to the act than it did before, 
things like the pilot program. OMB has some authority to raise 
the threshold. I would like to keep that current.
    There may be a point a few years down the road where, based 
on reviews that we may have done or issues identified by the 
people, that a consensus will begin to emerge, or maybe 
something will need to be done. But at this point I'm not aware 
of anybody coming to the table and saying there's something 
about the act, or about the amendments or, about OMB's role 
that needs to be addressed.
    Mr. Horn. Ms. Lee, do you have anything after you have gone 
through this comma by comma or semicolon?
    Ms. Lee. Just again, on the threshold, I anticipate we need 
a couple of years, 2 years, before we will look at that 
threshold and say is that still the appropriate threshold. I 
think, again, the collection of data and the clearinghouse is 
going to give us a lot of information to show us what programs 
were looked at to what level, to what degree, and from there 
then we probably will get back congenially and say, OK, are we 
about right on the threshold? Is there more time? Where should 
we be? But we've got that flexibility in the act.
    Mr. Horn. Well, let's get back a minute to the sensitive 
bit and the crosstabs and all the rest.
    To what degree do State auditors generally transfer their 
responsibility on an audit of an agency or a Federal grant 
program to that agency with a public accounting firm rather 
than with their own State personnel, and would that be a 
problem? I will ask all three of you in terms of, say, a 
contract for an audit with a private firm as opposed to 
government auditors of State, Federal Government, local, 
regional, special district, whatever. How do you feel about 
that? Is there a problem there?
    Mr. Johnson. I don't believe there would be, the reason 
being in the early stages of the single audit, we almost had to 
fight with some CPA firms to get them to release records to the 
Federal Government. I think that there is that client/auditor 
relationship that requires confidentiality on their part the 
same as it would on anyone handling those records. If there 
was, it would be a matter of putting it in contract and making 
sure that they understood their responsibilities.
    We have never had a problem in access to, as I said, State 
records of any kind and Federal records as long as we used them 
in testing that Federal program. The issue we had specifically 
was that we wanted to look at unemployment records and student 
records at the universities. We wanted to run a test to see how 
many students were full-time students and collecting 
unemployment. As long as we used student records to test 
student programs, there was no problem with access. We had 
everything we needed. As soon as we wanted to take it outside 
of higher ed programs, that was where the problem came up.
    Mr. Horn. The clientele, let's say, of a social service 
agency, is that what we're thinking of?
    Mr. Johnson. Right. For instance, you have USDA that runs 
commodity programs and food stamp programs and those types of 
things, and HHS runs several other social assistance programs. 
It would be nice to be able to cross-match some of those 
records to see if eligibility income limits for people 
receiving different programs were reported the same. It would 
be nice to run Social Security Administration records against 
welfare records to see if we're paying dead people, those types 
of things.
    Mr. Horn. You're not even near Chicago. I think you make a 
very good point. When L.A. County welfare went to pictures, 
photographs, an identification card, 1,000 people dropped off 
the welfare rolls voluntarily. But I think you're right on 
that.
    The gentleman from Texas, Mr. Turner. Please proceed.
    Mr. Turner. In terms of questions, let me followup, Mr. 
Chairman, on this privacy issue. Perhaps Ms. Lee is the right 
one to ask to kind of get an administration perspective.
    It seems to me in terms of the privacy issue, maybe where 
it ought to be dealt with is on the front end. If someone 
applies for a government benefit, I assume that under existing 
law, they don't sign any form or any waiver of any privacy 
rights, but perhaps they should. That is to say when a person 
receives a benefit from the Federal Government, whether it's a 
student loan or welfare benefit, perhaps it should be incumbent 
upon them at the same time to waive access to certain other 
records so that it can be verified that they're eligible.
    Do we do that now, and if not, do you think we should be 
doing it? Would that be a more appropriate way to deal with the 
privacy issue than simply on the back end to give auditors the 
authority to look into it when the recipient hadn't had any 
role in that process at all?
    Ms. Lee. Mr. Turner, as you're so familiar, the whole issue 
of privacy--confidentiality of records and access to records, 
who has access to them and what their uses are is a large issue 
that we're working together on. We want to try to figure out 
what the best solutions are. I believe you're correct in saying 
that currently there's an issue now if an individual says, 
``You're going to use my data for this and only this.'' We 
cannot use it for other purposes, so we need to get all those 
issues straightened out and determine whether or not it's 
appropriate to tell the recipient up front what the uses are or 
whether we can make a determination that that's appropriate. 
It's privacy, confidentiality, and it's a pretty sticky wicket 
right now, but I know you're working on issues.
    Mr. Turner. Do you think it makes sense to try to catalog 
the types of information that an auditor would need to verify 
that an individual is, in fact, eligible for certain government 
programs and then to put in the statute a provision that says 
when a person applies for that particular benefit, they sign a 
waiver allowing certain auditors to have access to that 
information for that specific purpose?
    Ms. Lee. I think that's a possible solution. The data issue 
goes beyond just auditing. I think it goes into eligibility for 
some programs. It cross-cuts many of the programs. Right now 
we're discussing what records you can access to determine if a 
person is eligible for particular programs, in particular your 
tax records.
    Mr. Turner. I guess the thing that concerns me about it if 
we simply say in law that auditors, State auditors, can have 
access to certain information, once you get the information and 
you determine there's some perhaps fraud involved, it seems 
like then you're obligated to do something with that 
information, and that's when it seems to me to become a more 
significant problem for the recipient, and it just might be 
better if we required recipients of government loans and 
benefits up front acknowledge that certain people will have 
access to certain records of theirs relating to their receipt 
of that benefit and really kind of pin it down so everybody 
knows up front what they're getting into, and it might have a 
deterring effect to ensure that there's not fraud on the front 
end by an applicant for a government benefit. Are there any 
problems with that?
    Ms. Lee. I think there's certainly an option. Right off the 
top of my head, I can't tell you how many programs that would 
mean and whether or not we want to do that only for the States; 
or whether there are other programs that we need to look at 
beyond just the State auditing, Federal programs, or other 
local programs. I think we need to look at the whole package.
    Mr. Turner. Mr. Johnson, do you have any comment on that?
    Mr. Johnson. Just on your initial question are there 
releases on the forms now. From personal experience I have a 
son that just qualified for SSI and Medicaid, and there's a 
statement on that form that says, don't worry, this will be 
kept confidential and not released to anybody else for any 
reason. So it's just the opposite, at least on those programs.
    Mr. Turner. There may be legitimate reasons for that person 
to not want that information to be released. It just seems to 
me addressing it on the front end--and I didn't realize we are 
doing exactly the opposite now, advising people that this is 
confidential.
    Mr. Johnson. And I don't know if that's true in all 
programs, but it was on those.
    Mr. Turner. That statement that you just referred to 
appears to be sort of a blanket assurance that nobody is going 
to get ahold of it for any reason, and it seems to me that 
perhaps there are some legitimate reasons for making certain 
information available that may be--if it were specifically set 
forth, then the recipient signs, acknowledges they understand 
up front that particular entity will be able to get that 
information about them.
    Mr. Johnson. I think it's certainly something to look at to 
see if that would work.
    Mr. Turner. Mr. Clark, is my idea off base here?
    Mr. Clark. This is an issue that I personally have not 
looked at. I don't know whether GAO has a position on it.
    I would like to make a comment, though, with respect to the 
single audit process and whether you all want to look at this 
issue as part of the Single Audit Act or in another vehicle. 
Single audit is not designed to be an absolute thorough 
determination of the actual extent of compliance with any 
particular program. That's not its purpose. We like to say 
there's not enough audit resources to go around. We need to 
allocate those resources.
    The single audit sets up a foundation or a starting point. 
I'll try to use a simple example here one that I always use. If 
I'm a program person, and I have $100, and I send $1 to each of 
100 recipients, I, of course, would like to know the absolute 
extent to which each of those recipients spent my dollar and 
all the bells and whistles and requirements that come with it, 
but that's very costly. So I would like to be a little smarter 
and maybe a little more rational.
    So single audit comes back and says to me as a program 
person, if done right through an automated data base, we're 
going to tell you, Mr. Clark, as a program person which of your 
recipients appear to have good financial management, which one 
of them appear to have good controls, which ones appear to be 
struggling, which ones can't put statements together, which 
ones have system problems. We're going to give you a sense of 
which recipients are experiencing compliance problems. And I 
may get the single audit reports back, and I may say, OK, looks 
like I have a success story with 80, but with 20 there's a 
problem.
    Single audit becomes the foundation for me as a program 
person to begin targeting all the tools that I may have, 
including this very sensitive, powerful issue of computers and 
matching and the like. I think then we might have a better 
determination of the extent to which we want to give these 
powers to the Federal Government, State auditors, the public 
accounting profession, and put in the necessary safeguards.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Horn. OK. Let me, Mr. Johnson, pursue in just a little 
more detail--for the record. It's in your statement, but you 
noted there's a couple of examples of additional audit 
requirements, and one was the Environmental Protection Agency. 
Another was the Federal Aviation Administration. Could you sort 
of spell out now what was your concern on those?
    Mr. Johnson. With the Environmental Protection Agency, they 
came out with a statement that basically said, we will not 
accept the single audit. It doesn't meet our needs. We want 
separate audits done of the clean water funds and now the 
drinking water funds in States, and that will be separate 
financial statements for those programs with an auditor's 
opinion on them done on an annual basis.
    Mr. Horn. So separate statements are for the water program?
    Mr. Johnson. Yes. The clean water----
    Mr. Horn. Clean Water Act.
    Mr. Johnson. And also the Drinking Water Act. So there are 
actually two programs now that require separate audits.
    In the act itself and also in the circular it says that if 
the single audit doesn't meet the needs of an agency, they can 
request additional auditing that they would have to pay for the 
add-on auditing. That is the loophole that EPA has gone 
through, although I don't know why at this point they need 
separate financial statements on their programs with separate 
opinions.
    When this came out, that position--where they said you must 
do that, they modified that slightly and said that where States 
won't do it, we will come in and do it, and I'm not sure of the 
numbers though, but I think there are roughly 12 to 14 States 
who do not audit the programs where EPA sends their own 
auditors in to audit that program on an annual basis.
    Even though--an example, our State, the State revolving 
fund is a major program, and it has been audited on an annual 
basis. We do look at compliance. They come in and do a separate 
audit, issue separate financial statements with a separate 
opinion on them. It seems like a real duplication of effort in 
that.
    We need to sit down, put a work group together with State 
auditors, OMB, GAO, EPA, find out why they can't accept the 
single audit and what type of adjustments need to be in the 
regulations so that they can accept it.
    Mr. Horn. How can we deal with that, Ms. Lee? Do you get 
them all in around your desk?
    Ms. Lee. Well, I agree we need to put a group together and 
find out what the issues are. We have authority in the act to 
make changes as appropriate, or even use a pilot program if 
there's a need.
    Also, from an OMB standpoint, we have a way of encouraging 
the agencies through the President's Management Council. So as 
we identify these kinds of issues, we can take it to that group 
and say, here are some issues.
    Part of what Mr. Clark mentioned for this act, we had a 
fairly good consensus and the agencies agreed that the Single 
Audit Act would work for them. We have to find out why it is 
and then take appropriate action.
    Mr. Horn. You'll followup on this?
    Ms. Lee. Yes, sir.
    Mr. Horn. Then we'll know that it is in good hands.
    Mr. Johnson, that State revolving fund is also related to 
the Clean Water Act, is it?
    Mr. Johnson. There are two separate programs, but I think 
they address basically the same----
    Mr. Horn. It will get bigger and bigger, and I sit on that 
subcommittee also. I will be watching for it when it comes 
through to see what, if anything, can be put in that language.
    Mr. Johnson. Mr. Chairman, it may very well be that they do 
need a separate audit, but given the fact that the amendments 
just passed in 1996, and immediately this requirement came out, 
the concern is that the act wasn't given a chance. One of the 
major ideas behind the amendments in 1996 were that we would go 
to risk-based auditing and that we would look at programs that 
have demonstrated a risk, whether that be designated by Federal 
Government or through audit experience. When any department 
comes through and automatically declares a separate audit, or 
designates a major program under any circumstances, it takes 
away from that very basic idea of what we're trying to 
accomplish, and I think from the State audit community, we 
would have liked to have gone through some of these situations 
before they were mandated to us.
    Mr. Horn. Do we know if EPA had their own staff of 
auditors? And, this would sort of put them out of business if 
the State audited it and they didn't?
    Mr. Johnson. I don't think any department's auditors would 
be out of business. One of the ideas behind the single audit is 
that, as Mr. Clark pointed out, the single audit identifies 
broad problems, or it can question costs, findings that are 
there, weaknesses in internal controls where the Federal 
departments can then come in and find out the extent of the 
problem and deal with it specifically and resolve the problem 
with the auditee.
    There's no way that the single audit will ferret out all 
the problems or get to the root cause of all the problems. I 
don't think there's a danger of losing auditors in any 
departments.
    Mr. Horn. Ms. Lee is going to solve that one.
    How about the Federal Aviation Administration? What's that 
situation?
    Mr. Johnson. Federal Aviation Administration--and this was 
or may have been just a timing issue here because their 
advisory came out in 1996, but it says that they had concerns 
about diversion of funds within airports, and that whenever 
their program was audited as a major program as part of the 
Single Audit Act, there had to be a separate review of the 
diversion of funds and an opinion given on that review.
    Mr. Horn. Could this be under the trust fund, the Aviation 
Improvement Act? Is the adding of a runway or improving the 
infrastructure at a particular airport the type of thing we're 
thinking of from them, or is there a separate pot of money 
somewhere for something else?
    Mr. Johnson. Mr. Chairman, I have never audited an airport. 
We don't have those. This came to me as a----
    Mr. Horn. You simply ski in Utah?
    Mr. Johnson. That's right.
    Mr. Horn. I watched those planes going into Salt Lake City. 
You've got a great skiing----
    Mr. Johnson. That's Salt Lake City, and Salt Lake City 
audits that, so I've never dealt with this problem. It came to 
me as a request to add it into the testimony from another 
State, so I really can't comment on exactly what the program is 
or exactly what the problem is. I hope somebody else here could 
specify on it, but it was an add-on problem.
    Mr. Horn. Apparently some of your colleagues have had that 
problem. Could we sort of get a document we can put in the 
record at this point if you can phone up a few of your State 
counterparts and say, hey, what were the questions, what was 
the problem?
    Mr. Johnson. I will do that.
    Mr. Horn. We'd just sort of like to round it out here if 
you wouldn't mind.
    Mr. Johnson. Yes, I will do that.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED]62468.044
    
    [GRAPHIC] [TIFF OMITTED]62468.045
    
    [GRAPHIC] [TIFF OMITTED]62468.046
    
    [GRAPHIC] [TIFF OMITTED]62468.047
    
    Mr. Horn. Now, Mr. Clark, the General Accounting Office has 
the responsibility to review provisions requiring financial 
audits of non-Federal entities; is that correct?
    Mr. Clark. That is correct.
    Mr. Horn. Do you agree that the EPA requirements 
contradicted the intent of the Single Audit Act?
    Mr. Clark. If I could back up and then answer that 
question. First, to be fair here, I do want to say that the EPA 
issue and the FAA issue were a problem. And I think the timing 
was horrible, close to when the amendments were passed. We had 
two Federal agencies who, by the way, were not evil. They 
honestly wanted accountability over their funds. They're in a 
hurry. They were getting a lot of pressure, and they wanted to 
get going, and sometimes they want everything audited, and so 
they went ahead.
    And I think from the State auditors perspective--and again, 
if I were a State auditor, I'd have the same concern--State 
auditors, I think, may, if I can speak for you, Auston, look at 
the Federal Government as one and count on OMB, GAO and the IGs 
working together to communicate. When an agency on its own, 
like EPA or FAA, goes out with an action like this without it 
being announced, without it being floated through the audit 
forums, and all the other mechanisms we had to do that, there's 
perhaps a sense of distrust.
    It is important to look at the EPA and the FAA issues. I 
would like to say, though, these are exceptions. I think the 
norm is that we do a very good job. We monitor. We are required 
under the law to monitor all legislation. Technically the 
amendments tell us to identify legislation as reported out of a 
committee, and then we have some requirements to notify. We 
actually get involved now much earlier in the process. We try 
to identify any bill that's introduced, and with 5,000, 10,000 
bills being introduced every Congress, this is an enormous 
effort. We're trying to involve everybody in the process here, 
and, before we get to the point where we have legislation and 
we have a conflict, we can look at what everybody's purpose is, 
what they're tying to accomplish.
    We've had a lot of success stories here of sitting down 
with program people, with IGs, with the State auditors, 
listening to what is needed and fashioning a solution that is 
less than the legislative issue. Once the FAA issue was put on 
the table, I think we struck a compromise from that point 
forward, struck an excellent compromise, and still stayed 
within the constraints of the Single Audit Act.
    Again, as I said in my statement, we're going to continue 
to do this monitoring effort. It is taxing, it is tedious, but 
it is rewarding, because I think in the end we have everybody 
on the same page.
    Mr. Horn. Let me go back a minute to the attachment I put 
in the record that Mr. Johnson had from his colleague in the 
State of Washington, Mr. Brian Sonntag, the State auditor, the 
State of Washington. Unfortunately, he couldn't be here. He was 
able to submit a statement, and I think as Ms. Lee pointed out 
in her testimony, the State of Washington has submitted a 
proposal for a pilot project under the act, and the amendments 
of 1996 give OMB that authority to authorize pilot projects.
    Have you received any other proposals besides Mr. 
Sonntag's?
    Ms. Lee. Not that I'm aware of.
    Mr. Horn. Is there anything that OMB or Federal agencies 
could be doing to promote more interest in pilot projects?
    Ms. Lee. I think that we should continue to work in the 
groups and as people identify potential pilots, to encourage 
them. There's also a lot of people looking to this pilot 
program in Washington and saying, ``OK, what happens here.'' I 
think we'll have some further requests or further ideas from 
this very pilot program.
    Mr. Horn. Mr. Johnson, do you have any thoughts on why 
there have not been more pilot projects from the State auditor 
community in particular?
    Mr. Johnson. I think the newness of the program. We've been 
busy just getting our arms around what we have to do, not 
looking at ways to improve. I do think the State of Georgia was 
looking at a very similar project to what Washington was, and I 
think they're just waiting to see what happens with the one in 
Washington. But they had the same issue on auditing school 
districts on a statewide basis.
    Mr. Horn. What's the sort of feeling, Ms. Lee, that you 
have in OMB on what type of projects we are looking for?
    Ms. Lee. I think we're just looking for anything that will 
meet the needs of the act: the reduced burden, more 
accountability, good insight. One of the pieces of the act that 
hasn't really been exercised yet, but I think is going to come 
into fruition, is the program accountability. You know, right 
now we're doing the consistency audits and the financial 
background, but now there's still another piece of the act 
which is going to evolve, which is actual programmability. This 
is going to tell us something about the programs themselves.
    Mr. Horn. Is there any movement to have, say, 
simplification of what might have been a very complex approach 
to something?
    Ms. Lee. Just as it evolves from these groups from their 
ideas on that, and from working with the circular, and from 
this particular test program. But as far as a big rush to 
further simplify, it's not there yet.
    Mr. Horn. You're very good with that demonstrative pile.
    Ms. Lee. I'd love to leave this with you, sir.
    Mr. Horn. No, I want you to stay awake at night and use it 
for curing insomnia, but, that looks frightening to say the 
least.
    Mr. Johnson. Mr. Chairman, if I might, there have been big 
advances in that document from when it started. There's been 
some matrixes added, some clarifications. OMB has done a great 
job in getting rid of--I hesitate to use the word ridiculous, 
but unnecessary audit requirements that some departments 
wanted. It has been simplified and has been streamlined a great 
deal, and it's a much more useful document than when we first 
started.
    Ms. Lee. And we're putting it on the Internet now so 
everybody can access it easily.
    Mr. Horn. Given that proposal in front of you, is OMB 
committed to reviewing proposals in a timely way?
    Ms. Lee. Yes, sir. In fact, I'm interested in trying to 
move it up a month so it is more useful.
    Mr. Horn. Mr. Turner doesn't have any more questions. I 
don't have any more questions. And I must say this is about the 
most civilized group I've ever had in a hearing. One, we're 
getting out of here in 51 minutes; and No. 2, everybody is so 
nice to everybody else. Nobody is shouting and saying, that's 
the craziest idea I've ever heard.
    So, we thank you all three for coming, and obviously you 
have all the knowledge in your brains. We don't. But we welcome 
you to work together as you have been and keep this thing 
moving, because I think it's in all of our interest to do that 
as long as we can catch fraud, waste, and abuse in the process. 
So no more questions. We adjourn this hearing, and we thank you 
all for coming.
    I want to thank the staff in particular that put this 
together. Mr. George is over there with the phone in his ear. 
That's because he's from New York, and everybody has a phone in 
their ear in New York. He's staff director and general counsel.
    Bonnie Heald is in the back of the room probably, the 
director of communications.
    And I regret to say that the gentleman to my left and your 
right, Larry Malenich, is from the General Accounting Office, 
and he will be leaving us after this assignment. And we thank 
him for all that he's done. He and other GAO people have just 
done a terrific job for the Congress.
    And I thank Mason Alinger, our faithful clerk here; and 
Faith Weiss, the minority counsel; and Earley Green, the 
minority staff assistant. And the court reporters this morning 
are Julia Thomas and Laurie Harris, and we thank you all.
    With that we are adjourned.
    [Whereupon, at 10:53 p.m., the subcommittee was adjourned.]

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