[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
 THE ROLES AND RESPONSIBILITIES OF INSPECTORS GENERAL WITHIN FINANCIAL 
                          REGULATORY AGENCIES

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


                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                     ORGANIZATION, AND PROCUREMENT

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2009

                               __________

                           Serial No. 111-49

                               __________

Printed for the use of the Committee on Oversight and Government Reform



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                LYNN A. WESTMORELAND, Georgia
GERALD E. CONNOLLY, Virginia         PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   BRIAN P. BILBRAY, California
    Columbia                         JIM JORDAN, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FLAKE, Arizona
DANNY K. DAVIS, Illinois             JEFF FORTENBERRY, Nebraska
CHRIS VAN HOLLEN, Maryland           JASON CHAFFETZ, Utah
HENRY CUELLAR, Texas                 AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------
------ ------
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

  Subcommittee on Government Management, Organization, and Procurement

                 DIANE E. WATSON, California, Chairman
PAUL E. KANJORSKI, Pennsylvania      BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                AARON SCHOCK, Illinois
GERALD E. CONNOLLY, Virginia         JOHN J. DUNCAN, Jr., Tennessee
HENRY CUELLAR, Texas                 JEFF FLAKE, Arizona
JACKIE SPEIER, California            ------ ------
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 25, 2009...................................     1
Statement of:
    Kepplinger, Gary L., general counsel, Government 
      Accountability Office......................................    10
    Kotz, H. David, inspector general, U.S. Securities and 
      Exchange Commission; William Desarno, inspector general, 
      National Credit Union Administration; A. Roy Lavik, 
      inspector general, Commodities Futures Trading Commission; 
      Vanessa K. Burrows, legislative attorney, Congressional 
      Research Service; Clark Kent Ervin, director, Homeland 
      Security Program, Aspen Institute; and Danielle Brian, 
      executive director, Project on Government Oversight........    31
        Brian, Danielle..........................................    78
        Burrows, Vanessa K.......................................    61
        Desarno, William.........................................    48
        Ervin, Clark Kent........................................    74
        Kotz, H. David...........................................    31
        Lavik, A. Roy............................................    55
    Larson, Hon. John B., a Representative in Congress from the 
      State of Connecticut.......................................     4
Letters, statements, etc., submitted for the record by:
    Brian, Danielle, executive director, Project on Government 
      Oversight, prepared statement of...........................    81
    Burrows, Vanessa K., legislative attorney, Congressional 
      Research Service, prepared statement of....................    63
    Desarno, William, inspector general, National Credit Union 
      Administration, prepared statement of......................    51
    Ervin, Clark Kent, director, Homeland Security Program, Aspen 
      Institute, prepared statement of...........................    76
    Kepplinger, Gary L., general counsel, Government 
      Accountability Office, prepared statement of...............    13
    Kotz, H. David, inspector general, U.S. Securities and 
      Exchange Commission, prepared statement of.................    35
    Larson, Hon. John B., a Representative in Congress from the 
      State of Connecticut, prepared statement of................     7
    Lavik, A. Roy, inspector general, Commodities Futures Trading 
      Commission, prepared statement of..........................    57


 THE ROLES AND RESPONSIBILITIES OF INSPECTORS GENERAL WITHIN FINANCIAL 
                          REGULATORY AGENCIES

                              ----------                              


                       WEDNESDAY, MARCH 25, 2009

                  House of Representatives,
            Subcommittee on Government Management, 
                     Organization, and Procurement,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m., in 
room 2247, Rayburn House Office Building, Hon. Diane Watson 
(chair of the subcommittee) presiding.
    Present: Representatives Watson, Cuellar, Speier, Bilbray, 
Platts, Duncan, and Towns [ex officio].
    Staff present: Bert Hammond, staff director; Valerie Van 
Buren, clerk; Adam Bordes, professional staff; Carla Hultberg, 
chief clerk, full committee; Jean Gosa, clerk, Domestic Policy 
Subcommittee and Information Policy, Census, and National 
Archives Subcommittee; Charles Phillips, minority chief counsel 
for policy; Dan Blankenburg, minority director of outreach and 
senior advisor; Adam Fromm, minority chief clerk and Member 
liaison; Stephen Castor, minority senior counsel; and Molly 
Boyl, minority professional staff member.
    Ms. Watson. I am sorry that the first thing I have to do is 
apologize for being so late.
    But I want to say hello and good afternoon to all of you. 
This is the Subcommittee on Government Management, 
Organization, and Procurement of the Committee on Oversight and 
Government Reform. So I will now call you and myself to order.
    Without objection, the Chair and the ranking minority 
member will have 5 minutes to make opening statements followed 
by opening statements not to exceed 3 minutes by any other 
Member who seeks recognition.
    I would like to welcome you to our first subcommittee 
hearing this session, ``The Roles and Responsibilities of the 
Inspectors General in the Financial Regulatory Community.'' As 
the chairwoman of the Subcommittee on Government Management, 
Organization, and Procurement, I look forward to working with 
Ranking Member Bilbray and the subcommittee members to ensure 
that our Federal bureaucracy is both effective and efficient in 
carrying out its responsibilities. I welcome our witnesses, 
especially my colleague Congressman John Larson. I look forward 
to hearing your testimony.
    Today's hearing could not come at a more critical time for 
our panel, as our financial markets continue to struggle with 
mounting losses and insufficient capital reserves to meet the 
credit needs of our domestic economy. As we begin to implement 
newly established market stabilization programs across the 
financial regulatory community, we must also look ahead to 
ensure that our financial regulators have an effective 
Inspector General component as part of their agency operations. 
Personally, I believe no regulatory or market structure reforms 
will prove successful if our market regulators lack an 
independent and objective IG to oversee their activities.
    The role of Inspectors General is an essential one for 
ensuring that our Federal agencies function both effectively 
and freely from undue political pressure or conflicting 
interests. These pervasive elements far too often creep into 
the culture of agencies, therefore compromising the very 
programs and staff that are charged with overseeing and 
enforcing the rule of law throughout the marketplace. In order 
to achieve this goal, we must ensure that our IGs are fully 
independent in their activities while also ensuring that they 
have adequate resources and legal authorities necessary for 
carrying out their duties. These elements are critical if we 
are to have faith in the regulatory mechanisms established to 
protect investors from reckless and fraudulent investment 
practices.
    Last fall, Congressman Cooper worked to enact the Inspector 
General Reform Act of 2008 which provided significant 
improvements in the authorities and responsibilities granted to 
the IGs for carrying out their duties. These include new law 
enforcement authorities, increased budget autonomy, a unified 
Government-wide IG council, and additional reporting 
responsibilities to improve agency transparency. Today, 
however, many IGs are still appointed by their agency heads or 
commission chairs, thus opening some IG offices to potential 
conflicts of interest with the same agency leadership they are 
charged with overseeing. While this is a complicated issue with 
valid points on both sides, I believe it is one that merits a 
serious discussion in order to ensure the independence and 
reliability of agencies' IGs.
    Today I hope that our panelists will be able to discuss 
their efforts to ensure that our market regulatory functions 
are being carried out efficiently by our agencies. Part of this 
must include how agency IGs are coordinating with the newly 
established Special IG for the Troubled Assets Relief Program 
[SIGTARP], in order to ensure that program funds are being 
spent appropriately and in accordance with the law. I am also 
hoping to hear about their ongoing activities to investigate 
where market regulators have failed in overseeing the very 
institutions that now require nearly $1 trillion in government 
assistance in order to remain viable.
    Furthermore, I look forward to hearing from Congressman 
Larson on his legislation, House of Representatives 885, the 
Improved Financial and Commodities Markets Oversight and 
Accountability Act. This bill would designate the IGs of 
several key financial market regulators to the level of 
Presidential appointments, therefore removing agency heads from 
having any role in the appointment or removal of an IG from 
office.
    So once again, I want to thank our panelists and I want to 
thank the Members for coming today to join us. And we look 
forward to their testimony.
    And at this point our co-chair, the minority leader, will 
have about 3 to 5 minutes for his statement.
    Mr. Bilbray. Madam Chair, I would just like to ask that my 
opening statement be introduced into the record.
    Ms. Watson. Without objection, so ordered.
    Mr. Bilbray. Thank you. And so, to get to the testimony as 
quickly as possible, let me just say that I appreciate you 
holding this hearing.
    And I would like to thank the Congressman for basically 
drafting this bill because I think it is really critical that 
now is the time that we take a look at this whole IG issue. I 
mean, the act was originally initiated in 1978, back in the 
olden days when some of us were young and just getting into 
politics. It is time that we look at this very periodically to 
make sure the good intentions that we have tried to wreck in 
the past are actually working, especially now at a time with 
bailouts. You have rescues; you have big spending.
    And Inspectors General are absolutely essential. I mean, if 
there was any concern in the past of when and where and how 
public funds were being used, right now the public has a 
hypersensitivity to it. And for good reason because of just the 
sheer numbers and the long-term impact that inefficiency can 
have.
    I would just like to say that we always talk about how this 
is not Democrat or is not Republican or whatever. That is all 
great in abstracts. But this is one issue where we really don't 
know where the answer is. We need to probe. And it really is an 
example of where politics is more of an art than a science. It 
is not as exact as a lot of people like to think. And I hope 
that this hearing is the beginning of that probing to find 
where is the fine tuning, where is the nuance, where can we 
improve the system. I think the Congressman has one proposal 
that we need to look at seriously and then compare it to other 
options along the road. And I really think that a hearing like 
this is exactly how we can do it.
    And I have to say, Madam Chair, I think a lot of people 
have been concerned that in crisis we do things quick, not 
well. And a lot of us, I know, are going back now and saying 
there were a lot of things done in the recent past that we wish 
we could go back and revisit. Here is a chance for us to get 
the facts, to work together, and to fine tune this before we 
ask the people of the United States to live with our decisions. 
And so I appreciate the ability to have this hearing. I 
appreciate the Congressman being here today. And I look forward 
to hearing all of the witnesses today so we can start that 
process of creating our work of art that hopefully will be 
something we will be proud of long after we are gone, 
especially one that makes sure that the voters are happy with 
the way we are handling their resources. This IG issue is 
obviously one of those issues that really is essential for us 
to do right if we are going to fulfill our responsibility of 
being the vanguards and the protectors of the taxpayers' money. 
And I appreciate the hearing again and yield back, Madam Chair.
    Ms. Watson. Thank you, Congressman Bilbray.
    Congressman Cuellar, would you like to have an opening 
statement?
    [Inaudible due to sound system malfunction.]
    Ms. Watson. Thank you. I would like to call on Congressman 
Platts at this time. Thank you for your leadership of this 
subcommittee. We appreciate the work that you do for the 
people.
    Mr. Platts. Well, I thank you, Madam Chair. It certainly 
was a honor for 4 years to chair this subcommittee with now the 
full committee chair, then the ranking member, Mr. Towns from 
New York. I am honored to stay part of this effort.
    Thank you for your hosting this hearing. One of the things 
we saw during those 4 years is the importance of IGs when it 
comes to truly ensuring efficiency and responsible operations 
of the Federal Government. And I want to commend our colleague, 
Mr. Larson, for his proposal for further enhancing the status 
and the independence of IGs of these five agencies, in 
particular given the challenges we are facing in our financial 
market. So I look forward to his testimony and to hopefully our 
successful movement of his legislation. Thank you, Madam Chair.
    Ms. Watson. Thank you. I now would like to welcome the 
chairman of the full committee, Mr. Towns, who decided to come 
and sit in with us on our first hearing. Would you like to make 
a statement?
    Chairman Towns. Let me say first of all, I want to 
congratulate you. And I want to say that I think this is the 
best subcommittee of all, I want you to know that, because this 
is the one that, of course, I was ranking member on and one 
that I had an opportunity to Chair as well. I had the 
opportunity to work with Congressman Platts on many, many 
issues.
    So I just want to say, Madam Chair, that I look forward to 
working with you. I would just like to yield back and wait to 
hear from Congressman Larson.
    Ms. Watson. Thank you so much. Let me call our committee to 
order. And we are honored to have with us as our first witness 
the Honorable John Larson. And thank you for your patience.

STATEMENT OF HON. JOHN B. LARSON, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF CONNECTICUT

    Mr. Larson. Thank you, Madam Chair.
    [Inaudible due to sound system malfunction.]
    Mr. Larson. So let me thank you all again for this 
opportunity. And most importantly, let me thank your committee, 
as I think the chair adequately and eloquently stated the 
outset, for the work that you have done, the fine legislation 
that you have produced that Jim Cooper was a part of, and the 
pleasure of working with Ed Towns and the committee in terms of 
shaping this current legislation, House of Representatives 885, 
that we have before you. I would like to quickly, if the Chair 
would agree, submit a testimony from the Public Citizen in 
support of this legislation.
    Ms. Watson. Without objection, so ordered.
    Mr. Larson. I also would like to revise and extend my 
remarks and submit my testimony. I will summarize if I can so 
any questions that you might have, we can get to those as 
quickly as possible.
    The need for this arose as we dealt with the issue of 
speculation more than a year ago in a nonpartisan basis, again 
recognizing the increased need for oversight and review. It was 
pointed out at the time that the CFTC did not have, it had an 
Inspector General, but it did not have independent status. That 
individual was hired by and reported directly to the CFTC. This 
committee waived jurisdiction but broadly supported it and this 
was taken to the floor and passed overwhelmingly, 
nonpartisanly. It unfortunately was not taken up in the Senate.
    Upon discussion with Mr. Towns earlier this year and with 
his staff, we said, you know, this goes beyond the CFTC. And if 
we look at the kind of troubled waters, as Chairwoman Watson 
pointed out, that we find ourselves in today with all of these 
financial institutions and the ramifications therein, it became 
apparent to me and I think certainly to this committee and Mr. 
Towns that there was a need for us to make sure that our 
Inspectors General, a law that was first adopted in 1978 and 
upgraded last year by this committee, that we further augment 
and bolster their responsibility and their credibility with the 
American public to make sure that Inspectors General in 
critical agencies have independent status.
    Now, under that legislation, there are two types of Igs. 
One is under Section 3 that has independent status. By that 
they are appointed by the President and confirmed by the U.S. 
Senate. Under Section 8, IGs also exist but in this case they 
are appointed by the president of the agency, the governing 
entity of the agency, and serve at the behest of that.
    I think especially in these troubled times and with the 
problems that we face only exponentially growing, it is the 
desire of the public to make sure, especially as it relates to 
governmental entities, that they are doing their responsibility 
of oversight and review, which of course this committee is 
specifically charged with.
    So this legislation is very simple. It says that we need to 
focus on the five agencies that have direct involvement in 
making sure that they are involved with the oversight of our 
financial institutions, both in the commodities and financial 
markets: the CFTC, the Board of Governors of the Federal 
Reserve, the National Credit Union Administration, the Pension 
Guaranteed Benefit Fund, and the Securities and Exchange 
Commission. All need to come under this kind of independent 
scrutiny that I think everyone in the U.S. Congress wants to 
see.
    And all this bill does is augment the fine work that you 
have already done by giving them that kind of status that 
already exists in the law under Section 3 of that code. That 
would make these Inspectors General independent in status. It 
would expand their scope and their independence and give them 
additional resources. This committee went a long way toward 
providing resources last year and understood this early on. 
This gives added importance and independence in this day and 
age.
    Now, how do I know that we need that and what kind of 
information do we have to back that up? We all know and can 
feel in our guts that intuitively this makes sense. But, in 
fact, we had the Congressional Research Service do a study and 
what that study showed was very clear. Amongst agencies that 
have an independent Inspector General appointed by the 
President and approved by the Senate, they are involved in more 
than 117 ongoing audits and investigations.
    Amongst their same counterparts who are not appointed by 
the President but appointed by the agency and work at the 
direction of the agency, they have currently done 12 and have 
11 that are under review. So in the case of independent 
Inspectors General appointed by the President and approved by 
the Senate, they do 10 times as many audits and reviews. At a 
time when every economist, every pundit, everyone who is 
looking at this situation says what we need and what we have 
needed all along is to make sure that we had greater oversight 
and review, I think this speaks volumes to the necessity for 
this legislation.
    It is my hope along with Mr. Platts, and I was happy to 
hear him say that, and in working with Mr. Towns that we can 
expedite this legislative process. I believe this could 
probably be put on our consent calendar because of its nature 
and the gravity of this situation, as Chairwoman Watson has 
pointed out. I look forward to working with Chairman Towns and 
I thank him for his help and support and his committee's aid.
    It was at their suggestion, I might add, that we look into 
expanding this because they had already done such a thorough 
job with the Cooper legislation last year. And with that, I 
will yield back the balance of my time and submit to any 
questions you might have.
    [The prepared statement of Hon. John B. Larson follows:]
    [GRAPHIC] [TIFF OMITTED] 56375.001
    
    [GRAPHIC] [TIFF OMITTED] 56375.002
    
    Ms. Watson. Thank you so much, Congressman. This concludes 
the Congressman's testimony. If any of the Members would like 
to raise a question, we will take about 5 minutes.
    [Inaudible due to sound system malfunction.]
    Ms. Watson. So again, I must apologize. I will recess for a 
time for us to go to the floor and vote. Then we will come back 
here and we will go on with our panelists. So are there any 
questions from committee members for Mr. Larson?
    Chairman Towns. Not a question, but I would just like to 
assure him that I look forward to working with him to make 
certain that we move this legislation forward. I think it is 
very, very much needed. And, of course, I agree with you. I 
think it is something we should be able to get on the consent 
calendar.
    Ms. Watson. Mr. Bilbray.
    Mr. Bilbray. Yes, I appreciate the item. Let me just say 
right off, one of the independent auditors who is handling the 
Agency for International Development, I will just tell you, and 
I have talked to the chairman about that, there is an agency 
that I think hasn't had enough auditing. I think in Afghanistan 
the big scandal is not going to be what has happened with the 
war but what hasn't happened with economic development. And 
with your encouragement of going from a few agencies, would you 
just discuss the aspect of rather than proving, expanding it in 
an evolutionary way, now it has been kind of encouraged to be 
revolutionary and sort of be much broader originally? Is there 
a degree of discomfort for the fact that we may regret that we 
haven't done one or the other? I mean done one first and then 
phased in the next?
    Mr. Larson. Well, I think this would be what President 
Obama has called the ``fierce urgency of now.'' And as 
Chairwoman Watson pointed out, with the severity of the times 
we find ourselves in, indeed in uncharted waters, and the need 
for us to have more expertise, more oversight, and more 
independent hands on the wheel, whether it was benign neglect 
or whether it was someone asleep at the switch, I think the 
American public has demanded that we have this kind of 
independent oversight and review. As my grandfather Nolan used 
to say, trust everyone but cut the cards.
    Mr. Bilbray. Well, let me just say that, you know, there 
was that old saying that if you can keep your head cool and 
calm while everybody else is losing it, you obviously don't 
understand the magnitude of the problem. [Laughter.]
    But a dirty little secret is everybody knows that I surf 
but they don't know I do a lot of sailing. And I remember 
somebody who was sailing in Mexico with me one time said, you 
know when we are in trouble and when we are in danger when 
Brian is quiet and introverted. I think sometimes keeping cool 
and not panicking, not just doing something is a very important 
part of a crisis.
    I just want to make sure we make a diligent step here 
because I do worry about how quickly we are jumping to things 
because of crisis. And remember, the line that you have to do 
something is what one lemming says to the other before jumping 
off a cliff. So I want to make sure that we do have that. I 
think that you have a good, sound proposal here. I just think 
that those of us by definition on oversight have to make sure 
that it is not a cliff but actually a step up in the direction 
we want to go. And I yield back, Madam Chair.
    Ms. Watson. Thank you. We are now going to take a brief 
recess. We will reconvene, I imagine it will be around 3:30 
p.m. So thank you so very much Mr. Larson.
    Mr. Larson. I thank the Chair, I thank the ranking member, 
and I thank our distinguished Chair and all the committee 
members for their time.
    [Recess.]
    Ms. Watson. We are now going to start with the second 
panel. It is a policy of the Committee on Oversight and 
Government Reform to swear in all witnesses before they 
testify. I would like to ask Mr. Kepplinger, I think you are 
the first in this set, to rise and raise your right hand.
    [Witness sworn.]
    Ms. Watson. Let the record reflect that the witness 
answered in the affirmative. I would now like to introduce Mr. 
Gary L. Kepplinger, who serves as the General Counsel of the 
Government Accountability Office. Prior to his appointment in 
2006, he served as Deputy General Counsel and Managing 
Associate General Counsel in charge of accounting, 
appropriations, information management, and special 
investigation matters. And I ask that the current witness give 
a brief summary of your testimony. Keep the summary, if you 
can, under 5 minutes in duration. Your complete written 
statement will be included in the hearing record. Thank you and 
you may begin.

 STATEMENT OF GARY L. KEPPLINGER, GENERAL COUNSEL, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Kepplinger. Thank you, Madam Chairwoman. It is always a 
challenge for me to stay under 5 minutes but I am going to give 
it my best shot.
    Our Nation is currently in the midst of one of the worst 
financial crises since the Great Depression. As we recently 
reported, the current U.S. financial regulatory system has 
relied on a fragmented and complex arrangement of Federal and 
State regulators that has not kept pace with major developments 
in financial markets and products, let alone with their 
associated risks. It is now quite apparent that the U.S. 
financial regulatory system is ill suited to meet the Nation's 
needs in the 21st century and that significant reforms are 
critically needed. Both the Congress and the administration are 
considering a number of options aimed at strengthening the 
financial regulatory system to reduce the likelihood that the 
Nation will experience a similar financial crisis in the 
future. Effective oversight is an important part of any 
consideration in modernizing our current outdated system.
    House of Representatives 885, the Improved Financial and 
Commodity Markets Oversight and Accountability Act, would 
provide for the Inspectors General at selected financial 
regulatory agencies, namely the Board of Governors of the 
Federal Reserve System; the Commodity Futures Trading 
Commission; NCUA, the National Credit Union Administration; 
Penny Benny, the Pension Benefit Guarantee Corp.; and the 
Securities and Exchange Commission, to be appointed by the 
President with Senate confirmation. These IGs are currently 
appointed by their agency heads and can be removed by their 
agency heads with advanced notification to the Congress. In our 
opinion, House of Representatives 885 would enhance the 
independence of these IGs either under the current financial 
regulatory system or a modernized system.
    In the past, Congress has taken actions to convert IGs from 
appointment by their agency heads to appointment by the 
President as a way to enhance independence. On the heels of the 
savings and loan and banking crisis two decades ago, Congress 
converted the IG at the Federal Deposit Insurance Corporation 
from agency appointment to appointment by the President due to 
the perceived limitation of the IG's independence resulting 
from the appointment process. In another example, Congress 
converted the Tennessee Valley Authority IG from appointment by 
the agency head to appointment by the President because of 
concerns about management interference with the IG's oversight. 
And there are others. In both of the examples I talked about, 
Congress recognized that changes in the appointment of the IGs 
would enhance their independence.
    As we have noted in prior reports and testimony, 
independence is one of the most important elements of an 
effective IG function. Professional auditing standards, the 
Generally Accepted Government Auditing Standards [GAGAS] that 
are issued by the Comptroller General, recognize that audit 
organizations located in government entities, including IGs 
appointed by their agency heads, can meet the requirement for 
organizational independence. Much of the IG Act provides 
specific protections for IGs to ensure that the audit and 
investigative functions located within the agency being 
reviewed is insulated from inappropriate management pressure. 
However, the difference in the appointment and removal 
processes between Presidentially appointed IGs and those 
appointed by their agency heads results in a clear difference 
in the level of IG organizational independence. In this regard, 
I think we would all agree with the common sense proposition 
that the further removed the appointment source is from the 
entity to be audited, the greater the level of independence. 
And I think the flip of that is similar with respect to the 
removal authority.
    The recently enacted IG Reform Act of 2008 amends the IG 
Act to further enhance the independence of the IGs. The agency 
appointed IGs will now be required to be selected without 
regard to political affiliation and solely on the basis of 
integrity and defined abilities, just like IGs appointed by the 
President.
    In addition, the Reform Act enhances the independence of 
the IGs by requiring notification to the Congress of the 
reasons for an IG removal or transfer at least 30 days prior to 
any such action rather than after the fact notification. The 
Reform Act also created the Council of IGs on Integrity and 
Efficiency to replace the administratively created councils 
that governed the Presidentially appointed IGs and those of 
agency heads. The new IG Council is expected to aid the IG 
community and foster Government-wide efforts to coordinate and 
improve IG oversight.
    Currently, considerable debate is underway over whether and 
how current financial regulatory systems should be changed, 
including calls for consolidating regulatory agencies, 
broadening certain regulators' authorities, or subjecting 
certain products or entities to more regulation. A strong, 
independent, and coordinated IG oversight and accountability 
function should be an important element of this reform.
    That is the end of my statement. I would be happy to take 
any questions, Madam Chair.
    [The prepared statement of Mr. Kepplinger follows:]
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    Ms. Watson. We are attempting, as you have heard, to really 
improve the efficacy of this particular position. Is there 
anything else that you would suggest to make this a more 
independent agency and a more reliable one? It is all going to 
come down with your evaluations and your recommendations, so 
what are we missing that you would like to see?
    Mr. Kepplinger. We have approached the issue also from a 
slightly different perspective. A number of the IGs, CFTC, SEC, 
I think they are relatively small in size. Another approach 
would be to consolidate those audit functions into existing, 
Presidentially appointed IGs. We had offered the concept before 
that you could make CFTC and SEC part of the Treasury IG and 
NCUA part of the FDIC IG's Office and Penny Benny part of the 
Department of Labor IG Office. Those are all Presidentially 
appointed IGs. We had in the past recommended that the IG at 
the Federal Reserve be Presidentially appointed because of the 
significance of the functions and the activities of that agency 
and its size.
    Ms. Watson. What bothers me is the politicizing of the IG 
reports and also the fact that the ideology from the 
administration is part and parcel of the IGs' function and 
office. So when you say political appointment, how can we guard 
against politicizing that particular position and the ideology 
that person might carry that aligns itself with the President?
    Mr. Kepplinger. I am a lawyer. I approach things as a 
lawyer. I would note that with respect to the DFEs, as a result 
of your colleagues, Mr. Cooper and Senator McCaskill's effort, 
that the DFE IGs, those that are agency head appointed, they 
are now supposed to be appointed without regard to political 
affiliation and solely on the basis of integrity and the 
defined abilities that would be relevant to an IG. That has 
been the law with respect to Presidential IGs since 1978. It 
was made explicit for DFEs in 2008.
    Ms. Watson. The turmoil that we are in at the current time 
and the fact that we are at a crisis unseen before, maybe even 
worse than it was at the end of the 1920's and 1930's, my 
concern is that the IG report be absolutely impeccable and 
represent the facts as they are found. Is there an evaluation 
component that we can add in that might help? I know you do 
recommendations at the end of your reports.
    Mr. Kepplinger. I am the General Counsel in an audit 
organization and I agree with you 110 percent, Madam Chair, 
that the objectivity and the credibility of the audit 
organization is its most important asset. And we at GAO are 
very, very, very, very protective of our objectivity and 
credibility. With respect to the IGs and the audit communities, 
there is now the Council of IGs for Integrity and Efficiency 
that has an integrity committee that looks at wrongdoing 
amongst the IGs. There are also peer reviews of their 
organizations and their activities. I believe it is on a 3-year 
cycle. And, you know, that should go a long way to ensuring the 
quality of the work of the auditors.
    Ms. Watson. Thank you for that. I would like to announce 
the presence of Congresswoman Jackie Speier who hails out of 
California, one of my colleagues many, many years ago in one of 
my other lives. Welcome to the committee and I welcome your 
presence here. Would you like to address Mr. Kepplinger with 
questions?
    Ms. Speier. Thank you, Madam Chair. I am honored to serve 
on this committee with you. Mr. Kepplinger, I couldn't be more 
in agreement with you, maybe more violently so, than you have 
already expressed. I believe strongly that the Inspector 
General function in this country has to be made stronger and 
more independent than it is right now. And I would agree with 
you that we should get rid of the agency appointed Inspectors 
General. I read in the analysis, Madam Chair, that there 
actually have been examples where recent investigations of IG 
Offices at the National Aeronautic and Space Administration and 
the Department of Commerce have raised some concerns because 
there just is a closeness that exists when you are actually 
appointed by that entity.
    It brings to mind a case in California, I believe after you 
left, where there were horrendous problems in the Department of 
Corrections. The investigations unit at the Department of 
Corrections was not operating properly. And I carried 
legislation to create an Inspector General that was independent 
of the department and that was appointed by the Governor for a 
specific timeframe so that if the Governor didn't like the 
kinds of inspections or the reports that the Inspector General 
came up with, that would not prevent the Inspector General from 
continuing to be in office. So I do applaud that kind of an 
approach.
    I think we really should get rid of the appointed 
Inspectors General from the departments. I am curious, Mr. 
Kepplinger, what your feelings are about term limits or at 
least a fixed term, I should say? And you can bleed a 
particular agency or starve a particular entity by just not 
giving it enough resources, so how do you guarantee the 
independent funding of an Inspector General's Office that is 
adequate to do the job?
    Mr. Kepplinger. Ms. Speier, there are I think about three 
questions in there and hopefully my memory will permit me to 
answer all three. First, with respect to the issue of the 
appointment, you know, it is a two sided coin, independence. To 
a certain extent, once you are appointed and you have the 
position, your real concern is more often focused on who can 
remove you. And my point has been the further removed you are 
from the entity you are auditing, the more independent you are 
going to be. So I think we are in violent agreement, maybe not 
mob violent, but violent agreement.
    With respect to the issue of term limits, the IGs are, I 
think, fairly characterized as executive branch employees. Term 
limits that limit the President's authority to oversee and to 
remove could pose significant issues in terms of the 
Executive's authority. There are, certainly, the Comptroller 
General who has as a unique position and other legislative 
Article 1 entities like the Court of Claims who have term 
positions. There are only a few.
    Well, the one executive branch position that has a term 
that I can think of is the Director of FBI. And that is because 
of the desire, and I think it is a political accommodation, not 
necessarily a legal one, but it is a political accommodation, 
between the two Branches that the FBI's need to be independent, 
credible, and objective in its investigations and enforcement 
actions, if you will, argue in favor for a term limit. I think 
it is a 7-year term for the Director of the FBI.
    Now, you had one other question and it is escaping my 
memory at this point. I was happy to see people up here with 
the purple banners in favor of Alzheimer's because at times I 
feel I have early stage dementia. But if you can remember your 
third question, I had a response for it.
    Ms. Speier. It was the funding issue and how you can starve 
an Inspector General's Office as a way of putting them out of 
business?
    Mr. Kepplinger. Well, I would commend again Mr. Cooper and 
Senator McCaskill because in the 2008 Reform Act a process was 
put in place to make the IGs' articulation of their funding 
needs transparent through the budget process.
    Ms. Speier. But let us say that an Inspector General is 
doing very good work but is embarrassing an administration. The 
budget for that Office could be reduced in a way that would 
then limit the ability of that Inspector General to do his or 
her job.
    Mr. Kepplinger. Under the Reform Act, the IGs' comments 
about their funding needs is part of the President's budget 
when submitted for the IG's account so it has transparency. And 
presumably it would be a matter for the appropriations process 
to deal with what is the right amount.
    Ms. Speier. Thank you.
    Ms. Watson. Thank you very much. I would like now to go to 
our Member from Tennessee, Mr. Duncan.
    Mr. Duncan. I have just a couple of questions since I just 
got here. Let me ask you, Mr. Kepplinger, are there any powers 
that a Presidentially appointed IG has that other Inspectors 
General do not have?
    Mr. Kepplinger. No, generally I think they have the same 
scope of authority.
    Mr. Duncan. All right.
    Mr. Kepplinger. There are a few exceptions but even those 
exceptions cut across Presidential appointees and agency head 
appointees.
    Mr. Duncan. All right. And I have noticed that with the 
exception of the top Cabinet members, it sometimes takes an 
awfully long time to get people appointed, like U.S. attorneys 
and so forth. It seems that they put them though a needlessly 
lengthy investigation of 13 or 14 months sometimes. How long 
has it generally taken to get a Presidentially appointed IG 
into office? Do you know?
    Mr. Kepplinger. Off the top of my head, I do not know.
    Mr. Duncan. All right. Thank you very much.
    Ms. Watson. Thank you so much. And thank you, Mr. 
Kepplinger for coming. I have one more question and it is a 
short one. Do we have enough protection in the long run for 
whistleblowers?
    Mr. Kepplinger. My response is yes. And I haven't, Madam 
Chair, made a study of this except in one regard. Legislation 
passed in the last Congress established a statutory IG in GAO. 
This was a first for us. And in the process of doing that, we 
transferred the whistleblower protections that are currently in 
place for the IGs into our own statute and made them applicable 
for our employees and our IG. At the time, my sense was that 
those were really quite adequate. But leaving open the 
possibilities that there is always an opportunity for 
improvement, my general response would be yes, I think they are 
adequate. But I don't say that with a heck of a lot of 
confidence or prior review of that issue. OK?
    Ms. Watson. The committee would like to thank you for your 
time and the information you have shared with us. Thank you 
very much.
    Mr. Kepplinger. Thank you very much. It was my pleasure. 
Thank you.
    Ms. Watson. Thank you. OK, it is now time to turn to the 
third and the last panel. If they would come up to the table, I 
will swear them in. Right now we are in recess for a couple of 
minutes while the current witnesses come to the table.
    [Recess.]
    Ms. Watson. It is the policy of the Committee on Oversight 
and Government Reform to swear in all witnesses before they 
testify. All of you are in place now. Would you raise your 
right hands?
    [Witnesses sworn.]
    Ms. Watson. Thank you. You may be seated. Let the record 
reflect that the witnesses answered in the affirmative. I would 
now like to take a moment to introduce our panel. Before we 
begin, I will note for the record that Ms. Elizabeth A. 
Coleman, the Inspector General of the Board of Governors of the 
Federal Reserve System was invited to testify today but was 
unable to join us. She did, however, submit a statement for the 
record. Without objection, we will enter that into the record.
    First I would like to introduce Mr. H. David Kotz. He is 
the Inspector General of the Securities and Exchange 
Commission. There he conducts audits and investigations of both 
agency functions and self-regulatory organization activities. 
Prior to his service at the SEC, he served as the Inspector 
General of the Peace Corps and as Assistant General Counsel.
    The next is Mr. William DeSarno. He is the inspector 
general of the National Credit Union Administration. There he 
developed his Office's first strategic plan and oversees all, 
including planning, budget, and staffing, issues. Mr. DeSarno 
began his NCUA career in 1997 as Assistant Inspector General 
for Audits and was named Inspector General in 2005.
    Then there is Mr. A. Roy Lavik. He is the Inspector General 
of the Commodities Futures Trading Commission. He has over 25 
years of Federal experience primarily in the area of anti-trust 
and regulatory law. He has served in his current position since 
1990. Prior to his time at CFTC, he worked at both the Federal 
Reserve Board and the Federal Trade Commission.
    And next we have Ms. Vanessa K. Burrows, a Legislative 
Attorney in the American Law Division of the Congressional 
Research Service. There she serves as an issue expert on 
matters relating to Inspectors General throughout the 
Government.
    And then Mr. Clark Kent Ervin--Clark Kent, I love that--Mr. 
Clark Kent Ervin, the director of the Aspen Institute's 
Homeland Security Program. He joined the Institute in 2005. 
Before doing so, he served as the first Inspector General of 
the U.S. Department of Homeland Security from January 2003 to 
December 2004. Prior to his service at DHS, he served as the 
Inspector General of the U.S. Department of State and the 
Broadcasting Board of Governors.
    And finally, Ms. Danielle Brian serves as the executive 
director of the Project on Government Oversight [POGO], a non-
profit, non-partisan watchdog organization that works with 
whistleblowers and government insiders to expose corruption, 
fraud, and abuse of power. She began her career with POGO in 
1986 and has degrees from Smith College and Johns Hopkins 
University.
    I will ask that each of the witnesses now give a brief 
summary of their testimony and to keep this summary, if you 
can, under 5 minutes in duration. Your complete written 
testimony will be included in the hearing record. And so we 
will start now with Mr. Kotz. Please proceed.

STATEMENTS OF H. DAVID KOTZ, INSPECTOR GENERAL, U.S. SECURITIES 
 AND EXCHANGE COMMISSION; WILLIAM DESARNO, INSPECTOR GENERAL, 
 NATIONAL CREDIT UNION ADMINISTRATION; A. ROY LAVIK, INSPECTOR 
  GENERAL, COMMODITIES FUTURES TRADING COMMISSION; VANESSA K. 
BURROWS, LEGISLATIVE ATTORNEY, CONGRESSIONAL RESEARCH SERVICE; 
 CLARK KENT ERVIN, DIRECTOR, HOMELAND SECURITY PROGRAM, ASPEN 
 INSTITUTE; AND DANIELLE BRIAN, EXECUTIVE DIRECTOR, PROJECT ON 
                      GOVERNMENT OVERSIGHT

                   STATEMENT OF H. DAVID KOTZ

    Mr. Kotz. Good afternoon. Thank you for the opportunity to 
testify today before this subcommittee as the Inspector General 
of the Securities and Exchange Commission. In my testimony 
today, I am representing the Office of Inspector General. The 
views I express are those of my Office and do not necessarily 
reflect the views of the Commission or any Commissioners.
    The mission of the Office of Inspector General is to 
promote the integrity, efficiency, and effectiveness of the 
critical programs and operations of the SEC. This mission has 
become increasingly important in light of the current economic 
crisis facing our Nation. My philosophy as an Inspector General 
is to focus on the significant issues and high risk areas, 
looking at big picture items relating to whether the programs 
and operations in the agency are working effectively rather 
than simply identifying isolated minor infractions or 
procedural violations. I believe that this approach is 
particularly important in light of current market conditions 
and the significant challenges facing the SEC and other 
governmental agencies that regulate our financial markets.
    I believe it is more important than ever that financial 
regulatory agencies such as the SEC have an independent, 
effective, and fully funded Office of Inspector General to 
assist the Commission in confronting these challenges. I am 
proud to report that over the past 14 months that I have served 
as the SEC's Inspector General, our Office has risen to these 
challenges and then some. Notwithstanding a small staff, we 
have issued numerous audit and investigative reports discussing 
issues critical to SEC operations and the investing public and 
making significant recommendations for improvement. Many of 
these reports have been critical of SEC operations, programs, 
and management. And I have not always been the most popular 
individual at my agency. Nonetheless, I feel it is my duty to 
the Commission, the Congress, and the investing public, 
particularly in these challenging times to conduct independent 
audits and investigations and to issue thoughtful, unbiased, 
and frank reports.
    I will provide you just a few examples of recent activities 
undertaken by my Office, some at the request of congressional 
committees. In September 2008, our audit unit issued a 
comprehensive report analyzing the Commission's oversight of 
the SEC's Consolidated Supervised Entities [CSE], program which 
included Bear Stearns, Goldman Sachs, Morgan Stanley, Merrill 
Lynch, and Lehman Brothers. The audit identified significant 
deficiencies in the CSE program and provided 26 recommendations 
to improve the Commission's oversight of the CSE firms.
    In response to the report's findings, former SEC Chairman 
Christopher Cox announced the end of the CSE program and 
promised to review and move to aggressively implement the 
report's recommendations. The Office of Inspector's General 
audit unit also issued a second report during that same time 
period analyzing the Commission's Broker-Dealer Risk Assessment 
Program and made several recommendations to improve that 
program.
    More recently, my Office has issued several other 
significant audit reports. In February we issued an audit 
report that analyzed the $178 million in disgorgement waivers 
that the Division of Enforcement had granted between October 
2005 and May 2008. We found that proper procedures were not 
always followed in recommending these waivers and provided 
several recommendations designed to improve the process. Just 
last week we issued a comprehensive audit report on 
Enforcement's practices and procedures for responding to and 
processing naked short selling complaints. Our report concluded 
that Enforcement's existing complaint receipt and processing 
procedures hinder its ability to respond effectively to naked 
short selling complaints and that Enforcement's procedures 
result in naked short selling complaints being treated 
differently than other types of complaints. We are also 
currently working on several additional audit reports that we 
plan to issue in the upcoming month that address issues 
currently of concern to the Commission and the investing 
public, including a comprehensive analysis of the SEC's 
oversight of the credit reporting agencies which may have 
played a critical role in the current economic crisis.
    We also have a vibrant and vigorous investigative unit that 
under my direction is conducting or has completed over 50 
comprehensive investigations of allegations of violations of 
statues, rules, regulations, and other misconduct. These 
investigative reports have been issued without management 
influence or pressure and have focused on all levels of 
employees including senior SEC staff. In addition, we are 
currently conducting a comprehensive investigation and 
evaluation of matters related to Bernard Madoff and affiliated 
entities.
    In late December 2008, former SEC Chairman Chris Cox 
contacted me and asked my Office to undertake an investigation 
into complaints received by the SEC regarding Mr. Madoff going 
back 10 years and the reasons why the agency found these 
complaints lacked credibility. Since that time, we have been 
working at a rapid pace to perform this important work and have 
made substantial progress to date. We have determined that the 
matters that must be analyzed regarding the Madoff 
investigation go well beyond the specific issues that former 
Chairman Cox asked us to investigate. Therefore, our oversight 
efforts will include an evaluation of broader issues regarding 
the overall operations of the SEC. We intend to provide 
overarching and comprehensive recommendations to ensure that 
the SEC is able to fulfil its mission.
    In order to strengthen the oversight of Federal financial 
regulatory structure as a whole, my Office works in tandem with 
other Federal financial regulatory IGs to provide coordinated 
oversight. For example, I currently serve on the Troubled 
Assets Relief Program [TARP], Inspector General Council along 
with the Special IG from the TARP and IGs from several 
financial regulatory agencies as well as the GAO which meets to 
discuss coordination of TARP related activities and oversight 
efforts. I also meet separately every month with additional 
Federal financial regulatory IGs to discuss coordinated 
oversight efforts among the financial regulatory IG community.
    I greatly appreciate the subcommittee's interest in 
assisting the IGs in performing their critical work. The 
recently enacted amendments to the Inspector General Act made 
great strides in enhancing Inspector General independence and 
ensuring that the Inspectors General receive sufficient 
appropriated funds to achieve their mission. The improvements 
in this legislation include the requiring of advance notice to 
Congress of the removal of an IG as well as provisions 
establishing pay parity on the part of both Presidentially 
appointed and Designated Federal Entity [DFE] IGs.
    Since I began my tenure as Inspector General of the SEC in 
December 2007, my Office's staffing levels have increased by 
nearly 80 percent and I have requested an increase of our 
overall budget of nearly 30 percent for fiscal year 2009, which 
I understand will be processed as soon as the funds become 
available. Notwithstanding these increases, additional 
resources would greatly assist my Office in continuing its 
important work. I specifically suggest that to the extent 
Congress provides additional appropriations to agencies such as 
the SEC for increased enforcement efforts, there be a 
commensurate and proportionate funding to the corresponding 
Office of Inspector General to provide for oversight of the 
additional funds allotted to the agency.
    Additionally, the legislation recently passed by the Senate 
to provide the Special Inspector General for the TARP 
[SIGTARP], with additional authorities and responsibilities is 
illustrative of measures that may be enacted to enhance 
Inspector General independence and effectiveness. For example, 
the SIGTARP legislation requires the Secretary of the Treasury 
to take action to address deficiencies identified by a report 
or investigation of the SIGTARP or to certify to the 
appropriate committees of Congress that no action is necessary 
or appropriate.
    Finally, I respectfully offer my opinion that converting 
IGs from DFE to Presidentially appointed is not necessary and 
in my view would not improve the current level of DFE IG 
oversight. Having been an Inspector General at two DFEs, at the 
Peace Corps and now at the SEC, I can state without any 
hesitation that one can be a completely independent and 
effective Inspector General within the DFE structure. Although 
I have issued numerous reports at both agencies that have been 
critical of those agencies' operations and management, no one 
has ever attempted to impair or question my independence. In my 
personal situation at the SEC, my Office's reports and approach 
to oversight have not diminished in any way with the recent 
change in administration or appointment of a new SEC chairman. 
I can report that politics play absolutely no role in my 
Office's decisions. For this reason, I do have some concerns 
that converting the Inspector General of the SEC or the IGs of 
other financial regulatory agencies from DFE to Presidentially 
appointed IGs could result in unnecessarily politicizing the 
Office of Inspector General. There are additional potential 
drawbacks to the Presidentially appointed IG process including 
the often lengthy vetting and confirmation process that may 
lead to the IG position being vacant for a significant period 
of time. During this time of financial crisis, it is more 
important than ever that there is continuity of the operations 
and oversight activities currently undertaken by IGs of 
financial regulatory agencies.
    In conclusion, I greatly appreciate this subcommittee's 
interest in the SEC and my Office. I believe that the 
subcommittee's and Congress's involvement with the SEC is 
extremely important to strengthen the accountability and the 
effectiveness of the Commission. Thank you.
    [The prepared statement of Mr. Kotz follows:]
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    Ms. Watson. Before we proceed, I have a question. You said 
something when you were referring to complaints that you were 
receiving from, I guess, whistleblowers, people on staff, and 
so on. You said they lacked credibility. Now, did I hear you 
correctly? Would you expand and explain what you said about the 
credibility?
    Mr. Kotz. Sure. In connection with the Madoff 
investigation, what we are investigating in the Bernard Madoff 
investigation is why is it that the SEC, not our Office but the 
SEC Enforcement Division, received complaints. There was one 
whistleblower, Harry Markopolos, who came forward with a 
complaint stating that he believed that Bernard Madoff was 
engaged in illegal activity and that complaint went to the SEC. 
It didn't go to the IG's Office, it went to the SEC.
    And obviously the SEC did not find that there was a Ponzi 
scheme because that did not come out until Bernard Madoff 
confessed on December 11th. So our investigation is to look at 
why it was that the SEC received these complaints and 
nevertheless was unable to find the Ponzi scheme. And that was 
the concern about credibility.
    Ms. Watson. That came from the SEC?
    Mr. Kotz. Yes, right.
    Ms. Watson. OK. I just wanted to place it where it should 
be.
    Mr. Kotz. Yes, yes.
    Ms. Watson. Thank you.
    Mr. Kotz. Thank you.
    Ms. Watson. We will now proceed to Mr. DeSarno.

                  STATEMENT OF WILLIAM DESARNO

    Mr. DeSarno. Chairwoman Watson and members of the 
subcommittee, I appreciate this opportunity to come before you 
today and testify on matters concerning the independence and 
authority of Designated Federal Entity Inspectors General, 
including House of Representatives 885. I thank you for calling 
this hearing and for your support of the IG community.
    My name is William DeSarno, inspector general of the 
National Credit Union Administration, whose primary mission is 
to ensure the safety and soundness of federally insured credit 
unions. I was appointed to the IG position at NCUA in 2005 
after having served since 1997 as assistant IG for Audits and 
then deputy IG at NCUA. Previously I was an audit manager at 
the Department of the Treasury, Office of Inspector General and 
before that an audit manager at what is now the Government 
Accountability Office. Finally, I began my Federal career 41 
years ago in the U.S. Army where I served in Vietnam.
    The NCUA Board appointed its first IG in 1989 in the wake 
of the 1988 amendments to the IG Act of 1978 which created 
statutory IGs at smaller Federal entities. The NCUA Board and 
the OIG have worked hard over this 20 year period to establish 
a relationship built on mutual respect and trust. House of 
Representatives 885 would amend the IG Act to make the IG at 
the NCUA an establishment IG appointed by the President and 
confirmed by the Senate. I do not believe that this change in 
the IG status at NCUA would enhance either the independence or 
the effectiveness of the IG. Rather, I believe it would work to 
the detriment of the IG role at NCUA.
    My independence as IG at NCUA has not been hampered because 
I was appointed by the NCUA Board. To the contrary, the Board 
has never attempted to interfere with an IG audit or 
investigation. Indeed, the NCUA Board has consistently 
expressed high expectations for oversight, stated its 
intolerance of fraud and abuse, and paid close attention to IG 
findings.
    The NCUA OIG, while small, has historically been adequately 
staffed and with adequate resources to carry out its statutory 
obligations. My Office formulates its own budget and has a 
separate line item in the agency's budget. The NCUA Board has 
consistently supported my staffing needs.
    The NCUA IG has had its own counsel since 1990 who reports 
exclusively to the Inspector General. The NCUA Board has also 
consistently approved funding for contract help when I have 
requested it. And let me also add that our audit and 
investigation reports are in no way filtered through either the 
Board or the chairman's office prior to issuance.
    Prior to the enactment of the IG Reform Act, the only area 
where the NCUA IG did not enjoy similar stature with other 
senior managers at NCUA was in the area of pay where the IG was 
paid significantly less than other NCUA senior staff. This 
situation was further exacerbated because the IG did not accept 
bonuses or cash awards as other NCUA senior managers regularly 
did. With the agency's implementation of the IG Reform Act's 
pay provisions, the IG salary was elevated to the average of 
the other senior managers and the pay disparity was resolved. 
Were House of Representatives 885 to pass, the Presidentially 
appointed IG's pay would be significantly less than the average 
total compensation of NCUA's senior level managers. Moreover, a 
Presidentially appointed NCUA IG could end up with an annual 
salary less than some of his or her subordinates in the OIG. 
This is precisely the outcome the IG Reform Act of 2008 sought 
to and did correct.
    Due to the current challenges facing the entire financial 
services industry, the NCUA OIG has a critical role in its 
oversight and accountability functions. For example, my Office 
has seen a growing material loss review workload in the past 
year. This work is mandated by the Federal Credit Union Act and 
the OIG currently has an unprecedented number of reviews either 
underway or in the planning process. We have redirected most of 
our audit resources to this review work. Were a Presidential 
appointee to replace an IG who is familiar with the unique 
nature of the credit union industry as well as the day to day 
functioning of an IG Office, the potential disruption to OIG 
operations in completing this critical work would, I believe, 
be significant.
    A final concern I have should House of Representatives 885 
change the appointment status of DFE IGs is that the selection 
process risks politicization which would significantly threaten 
IG independence. Congress required that IGs be nonpartisan and 
that the President appoint them without regard to political 
affiliation. In the 20 years that the IG concept has existed at 
NCUA, the NCUA Board has never appointed an IG on the basis of 
political affiliation.
    In conclusion, while I do not speak for the NCUA Board or 
the other DFE IGs, I do not believe that House of 
Representatives 885 would enhance the independence already 
afforded the NCUA IG. With the greater protections and enhanced 
independence afforded IGs by the IG Reform Act of 2008, the 
NCUA IG is well suited to carry out the responsibilities 
mandated by the act. Thank you again for the opportunity to 
appear before this subcommittee and I would be pleased to 
answer any questions you might have.
    [The prepared statement of Mr. DeSarno follows:]
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    Ms. Watson. Thank you so much. Mr. Lavik.

                   STATEMENT OF A. ROY LAVIK

    Mr. Lavik. I appreciate as the others do the opportunity to 
come before you all and give our view of the legislation and 
what we think is probably happening. And again, I will stand 
ready for questions. I don't think, given the time and so on 
that I will regurgitate my statement here. But let me just 
concentrate on a couple of things.
    One is the independence issue. And I can only speak for my 
own agency, not for the others. But for example, some time ago 
we investigated the chairman of our agency because there was a 
question of whether she had replaced someone at the behest of 
the White House or whether it was because of her own feelings 
about the situation. It was someone who we found was not, she 
just didn't like the head of the enforcement. But that shows 
you that we certainly were independent. I will give her much 
credit. She is now Mr. Kotz's boss in a sense. She is now 
chairman of the SEC, a very good person.
    We also more recently looked in at the behest of four 
Senators on the question of the huge price increase for barrels 
of oil this last July. It was called an interim report and was 
issued by CFTC staff and staff from other economic regulatory 
agencies. And what we found there is that in fact there had 
been a change in classification of one of the large oil 
companies into what is called speculative. That is a bad word 
these days. I am not so sure it should always be bad, but it is 
and at least it should be explained readily what was going on.
    We found that the agency had reclassified appropriately. 
The problem was that unless you were an expert in the field, 
someone who is constantly in it, you would not have understood 
the push and the shove of that. And we noted that in our report 
to the four Senators that there had been an inadequate 
explanation. I cite this again as an indication of 
independence. This was lobbying the chairman, not just the CFTC 
but other entities.
    The other thing I would say about House of Representatives 
885 is, there is an old cliche, you get what you pay for. And 
that is not always true. We had a chairman just prior to that 
who was willing to take the pay salary because he made a hell 
of a lot of money in the investment banking business. You can 
find that. But there are those of us who haven't and have kids 
in college and so on. Pay is a big consideration.
    I can tell you at my agency, and I think it is true of 
others but I will let them speak themselves, and I can be 
objective about this because I am at such an age I probably 
won't be around for more than another year or two, but my pay 
would be decreased on the order of about $40,000 a year. And 
that is relative to the other people at the CFTC. Now, if that 
is Congress's will, that is fine. I mean, that is your 
responsibility.
    But it seems to me, as you might guess given my advice, 
perverse. If you want to have good people, generally you have 
to pay for it. And I think cutting someone's salary $40,000, 
and again, I can be semi-objective because I don't plan to be 
around much longer, but I think this is something you ought to 
really think about and make your decision. That is all I really 
have to say. If you have any questions, whenever it will be 
fine.
    [The prepared statement of Mr. Lavik follows:]
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    Ms. Watson. Thank you so much. And now Ms. Burrows.

                STATEMENT OF VANESSA K. BURROWS

    Ms. Burrows. Thank you, Madam Chairwoman. Chairwoman Watson 
and members of the subcommittee, thank you for inviting me here 
today to comment on proposed changes effecting Offices of 
Inspectors General in House of Representatives 885. In 
particular, my testimony will focus on differences between the 
IGs located in Federal establishments and IGs located in the 
Designated Federal Entities. DFE IGs are typically found in the 
smaller agencies. Establishment and designated Federal entity 
differ in terms of their removal, appointment, transfer, 
budgets, applicable hiring laws, avenues for seeking legal 
counsel, and pay.
    The most notable difference between establishment IGs and 
Designated Federal Entity IGs is the individual who appoints 
and who may remove or transfer the IG. Establishment IGs are 
appointed by the President, as you know, with the advice and 
consent of the Senate. They may be removed or transferred only 
by the President except in case of impeachment. Designated 
Federal Entity IGs are appointed and may be removed or 
transferred by the agency head except in the case of 
impeachment. My written statement discusses the potential 
advantages and disadvantages of converting these five IGs into 
Presidentially appointed, Senate confirmed positions.
    Another difference between the establishment IGs and the 
Designated Federal Entity IGs is that by statue, establishment 
IGs receive a separate appropriations account or a line item in 
the establishment's appropriations. The Inspector General 
Reform Act of 2008 has increased and created additional 
safeguards in terms of the budgets of both establishment and 
Designated Federal Entity IGs. The IG Reform Act requires the 
IG to report an initial budget estimate to the head of the 
agency. The agency head must then include this information as 
well as comments of the Inspector General when transmitting the 
request to the President. The President in turn must then 
include in his budget submission the IG's initial budget 
estimate, the President's requested amounts, and the comments 
of the affected IG if the IG determines that the President's 
budget would substantially inhibit the IG from performing his 
or her duties.
    The two types of IGs also differ in terms of how they may 
select their own employees. DFE IGs, the Designated Federal 
Entity IGs, are exempt from the sections of the IG Act, and 
have always been since their creation in 1988, from the 
sections that mandate the selection, appointment, and 
employment of officers and employees in the establishment IG 
Offices according to civil service employment laws. And that is 
because, as Congress indicated in a House Report back in 1988, 
some of these entities do not have to follow those laws and are 
subject to different laws and regulations.
    Establishment and DFE IGs also differ in their ability to 
hire counsel or seek legal advice. These changes were created 
in the IG Reform Act of 2008, which addressed the use of legal 
counsel by the IG and specified that an establishment IG must 
seek legal advice from an attorney who they hire under civil 
service laws and who reports directly to that IG or to another 
IG.
    The Reform Act also provided three ways for a Designated 
Federal Entity IG to obtain counsel. First, the Designated 
Federal Entity IG could obtain counsel from an attorney 
appointed by that IG in accordance with the specific laws and 
regulations governing appointments in the agency within the 
Designated Federal Entity. This counsel would report directly 
to the appointing IG.
    Second, the Designated Federal Entity IGs, on a 
reimbursable basis, could obtain services from a counsel who 
was appointed by and who reports to another Inspector General. 
Third, the Designated Federal Entity IG may obtain the legal 
services of an appropriate person on the newly created Council 
of Inspectors General on Integrity and Efficiency.
    The IG Reform Act of 2008 also continued preexisting 
differences between establishment and Designated Federal Entity 
IGs. For example, the Reform Act increased the pay of the 
establishment IGs to the rate of Level III of the Executive 
Schedule plus 3 percent. And currently Level III of the 
Executive Schedule is $126,900. However, it included a 
provision which would allow the IGs who currently received 
higher pay to continue at that level. The IG Reform Act also 
increased the pay of Designated Federal Entity IGs but did not 
link them to the Executive Schedule. Some Designated Federal 
Entity IGs may make more than their establishment IG 
counterparts. The IG Reform Act also provided that Designated 
Federal Entity IGs should be classified for pay purposes at a 
level at or above the majority of the senior level executives 
of the Designated Federal Entity IG such as a General Counsel 
or Chief Financial Officer but that their pay could not be less 
than the average total compensation including bonuses of those 
senior level executives. The Reform Act also provided that the 
Designated Federal Entity IGs pay could not increase by more 
than 25 percent of the Designated Federal Entity IG's total pay 
for the previous three fiscal years.
    Madam Chairwoman, that concludes my prepared statement. I 
would be happy to answer question that you might have.
    [The prepared statement of Ms. Burrows follows:]
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    Ms. Watson. Thank you, Ms. Burrows. And now Mr. Ervin.

                 STATEMENT OF CLARK KENT ERVIN

    Mr. Ervin. Thank you, Madam Chair. Thank you very much for 
calling this very important hearing. I commend you for your 
leadership on this issue.
    We are learning the hard way because of the economic crisis 
that we are in. the midst of the greatest economic crisis since 
the Great Depression, yet again the importance of vigorous 
oversight and aggressive regulation. And it is absolutely 
critical to oversight that we have independent Inspectors 
General. As you see from my prepared remarks, I have made four 
recommendations that in my judgment would make Inspectors 
General more independent and therefore give them greater 
incentive to be aggressive in exercising the oversight 
responsibilities that they have been given.
    The first one goes, of course, to the very heart of the 
legislation that we are considering and that is that I strongly 
believe as you do that all of the Inspectors General in the 
Federal system, and especially the Inspectors General of these 
critical financial regulatory agencies--the Federal Reserve 
Board, the Securities and Exchange Commission, the CFTC--be 
Presidentially appointed. It simply stands to reason, as Mr. 
Kepplinger said. It is a matter of logic that an IG is more 
likely to stand up to an agency head if there is a disagreement 
between the agency head and the Inspector General as to a 
particular audit or investigation if ultimately the Inspector 
General cannot be removed by that agency head.
    I do not know Mr. Kotz, Mr. DeSarno, and Mr. Lavik. They 
are all, I am sure, fine gentleman. I take them at their word 
when they say that they themselves have been independent in the 
discharge of their responsibilities. I take them at their word 
when they say that their respective agency heads, boards, as 
the case may be, have never interfered with their work. But 
that is beside the point. The point is, I am concerned about 
their successors and whether their successors will likewise 
have the impeccable character and reputation and ability to 
stand up to pressure that they have. We shouldn't make it 
harder for Inspectors General to stand up to agency heads. We 
should make it easier. And it simply is a matter of logic as I 
said. I think it is noteworthy for example, that in Mr. Kotz's 
statement, he began essentially by saying, the testimony I am 
about to give is my own testimony, that of the Office of 
Inspector General and not the SEC. There would be no reason to 
say that if he were an appointee of the President. No one would 
think that any remarks that he would make in a forum like this 
would be those of the SEC.
    The second recommendation that I would have is that 
Inspectors General like the FBI Director, as Mr. Kepplinger 
noted, and I would note another example he could not think of 
one during his testimony, but another example of course is the 
Federal Reserve chairman, and the Federal Reserve chairman, 
which of course is exactly relevant here, likewise have a fixed 
term, not term limits, but a fixed term. And the reason for 
that, of course, is that these two officials are intended to be 
independent from Presidential administrations. Though they are 
appointed by a President, this fixed term is intended to 
insulate them to the maximum extent possible. It matters less 
to me exactly what the term is. It is more important that there 
be a term. It would be most helpful if the term were to be long 
enough to span Presidential terms. In the case of the FBI 
Director, it is 7 years. I would note also, of course, the 
Comptroller General has a 15 year term and that is intended to 
insulate the Comptroller General from pressure from the 
administration and also from the Congress.
    Third, of course, Inspectors General are human beings and 
therefore they are fallible like everybody else. So on occasion 
an Inspector General should be removed from office. But 
Inspectors General should be removed only for abusing their 
office, not simply for doing their jobs. An aggressive IG will 
occasionally, as I say, rub his or her agency head and the 
incumbent administration the wrong way. But that is not cause 
for removal. At present, a President need only notify Congress 
in writing 30 days before he removes an IG that he is doing so 
and why, with any reason given being reason enough. I think 
that Presidents should have the ability to remove an IG only 
for a cause that is spelled out in a statute. That is another 
recommendation I would make.
    And then fourth, no one to date has mentioned this, but 
there are provisions in certain Inspectors General statutes, 
Inspectors General who are appointed by the President that even 
there limits the ability of the Inspector General to carry out 
certain audits and investigations. In particular, there is a 
provision in the statute for the Treasury IG that allows the 
Treasury Secretary to prevent an Inspector General from 
accessing sensitive information concerning deliberations and 
decisions on policy matters, the disclosure of which could 
reasonably be expected to have significant influence on the 
economy or market behavior. As I say in my statement, it is 
easy to imagine a situation in which a Treasury Secretary could 
prevent an IG from looking at policies with regard to things 
like, years ago, subprime mortgage lending and the variety of 
exotic financial instruments that lie at the heart of the 
present crisis.
    So I think that we should look at all of the statutes that 
pertain specifically to a given Inspector General and remove 
those provisions that allow the agency head, even in those 
circumstances where at present an Inspector General is 
appointed by the President, that allows the agency head to 
prevent an Inspector General from looking at a particular 
matter either on the grounds of affecting market conditions or 
on national security grounds. There are like provisions in 
certain statutes of national security Inspectors General.
    Finally, the greater the amount of money, the greater the 
complexity of programs an Inspector General has to oversee, the 
greater should be the resources given to the Office of 
Inspector General. So I hope very much that efforts will be 
made to significantly increase the budgets of all of the 
financial regulatory Inspectors General during this critical 
time. Thank you, Madam Chair.
    [The prepared statement of Mr. Ervin follows:]
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    Ms. Watson. And thank you. We can now proceed to Ms. Brian.

                  STATEMENT OF DANIELLE BRIAN

    Ms. Brian. Thank you very much, Madam Chairwoman, for 
inviting me to discuss one of my favorite topics, the Federal 
Inspector General system.
    Over the past year and a half, POGO has been investigating 
both the independence and accountability of that system. Last 
week, we released our second report on IGs. Our first report, 
which was released last year, focused specifically on 
weaknesses that we believe hampered some of the IGs' 
independence and recommended some necessary changes to the law. 
The IG Reform Act of 2008, with the terrific leadership from 
Congressman Cooper and Senator McCaskill, included most of the 
improvements we believe were needed to enhance IG independence.
    Since that time, POGO has been examining the other side of 
that essential equation for Inspectors General which is 
accountability. And we have provided copies of our report to 
you today. Holding IGs accountable is a job that needs also to 
be embraced more thoughtfully by the Congress and accomplished 
more effectively by their peers through the IG Council's 
Integrity Committee. But the IG system is not broken. However, 
POGO urges the IG community to review its priorities.
    The most troubling finding we found in our most recent 
report is that IGs all to often treat those complainants or 
whistleblowers who come to them with problems in their agencies 
as mere afterthoughts. I need to point out this is not a 
specific concern regarding the IGs who I share the table with. 
But to answer your wonderful question, Madam Chairwoman, of the 
earlier panel, I would strongly suggest that at this point 
Federal employees do not have adequate whistleblower 
protections. And that is no fault of the House. The House has 
been regularly stalwart in insisting that Federal employees 
have better whistleblower protections. Our problem has been 
that the Senate has not accepted the strong recommendations 
from the House on that matter so they remain very 
underprotected, we believe.
    But as our country reels from the economic crisis, we are 
relying more on the IGs not only to detect and deter the misuse 
of public funds, but to help restore confidence in our 
Government's operations. I believe House of Representatives 885 
has been offered in that spirit in order to provide IGs of the 
financial regulatory agencies the independence that they 
require. But I would respectfully suggest that the tools given 
IGs in last year's legislation largely accomplish that goal.
    And I did want to react to some of the earlier testimony 
and offer a couple of cautionary notes. One thing is that IGs 
whose behavior has caused concerns about their independence 
have far more often actually been Presidential appointees. Two 
that were specifically noted before were that of NASA and 
Commerce. Those were Presidentially appointed IGs. I was also 
very concerned about the discussion of the use of numbers of 
audits or investigations as a measure of effectiveness of DFE 
IGs as opposed to Presidentially appointed IGs. That is a big 
part of the point of the report that we have offered to you. We 
don't believe it is a good way to measure the quality of work 
of an IG to measure the number of investigations or audits they 
complete. I have learned that you can double the number of 
audits by cutting in half the subject matter of the audits, and 
then suddenly you have double the number of audits. That is not 
a useful measure for measuring the quality of an IG. It also 
didn't recognize that over half the DFE IG Offices only have a 
total of six people. So it is important to keep in perspective 
how many of those DFE Offices are just absolutely tiny.
    I must admit that when I began focusing on the IG system 
over a year ago, I shared the perception that underlies House 
of Representatives 885, that DFE IGs are somehow less 
independent because they are appointed by their agency heads 
rather than the President. I have come to appreciate that in 
some cases there is some logic to the DFE structure especially 
for those agencies that are headed by a multi-person commission 
or board generally filled with bipartisan appointments rather 
than having a single agency head.
    So it may in fact be the case that some DFE IGs, many of 
those are those that are being discussed in this legislation, 
are actually more independent because, as one IG put it to me, 
I would have to PO five people to be removed as a DFE but as a 
Presidential appointee only one person would have to want me 
gone.
    My second reason for believing that House of 
Representatives 885, while very well intentioned, may be 
counterproductive is that which was discussed before with 
regards to the comparability pay structure because of these 
uniquely unusual pay structures for the financial regulatory 
agencies. And that would actually reverse the fix that had been 
accomplished through last year's legislation.
    Finally, while the legislation provides for the current IGs 
to remain in place until a Presidential appointee is confirmed, 
this change would then undercut the current IGs' authority by 
making them acting at a time we would want these IGs to be 
confident they can be bold and protected even when they are the 
messengers of bad news.
    Congress should be applauded for turning to the Inspectors 
General and worrying about whether they are able to be the 
aggressive watchdogs we need. But if the goal of this 
legislation is to strengthen the important work of these IGs, I 
would suggest respectfully that we may be focusing on the wrong 
issue and that making them Presidential appointments may merely 
be a distraction. I would suggest there are a few other changes 
that you might consider to enhance their roles. For example, 
most of these IGs are currently restricted from accessing 
information directly from the regulated entities. These IGs 
should have the capacity to subpoena both documents and 
testimony from the entities regulated by their agencies. A 
second valuable step forward, as mentioned earlier, would be to 
apply the provision in the SIGTARP legislation which requires 
the head of an agency to certify to Congress whether they are 
implementing IG recommendations and to explain why if they are 
not. A third improvement would be to give IGs control over 
their approved budgets which means not just that their budgets 
are more transparent, which was a very important improvement of 
last year, but DFEs still have trouble making hiring and 
promotion decisions within those budgets. And that is a change 
that I think would be very important to accomplish.
    And finally, the OIGs we are talking about today have not 
benefited from the extra funds provided to their agencies that 
have received stimulus funds. Increasing the resources 
available to these IGs commensurate with the new expectations 
of their Offices would be another real way of helping them do 
their work.
    So I applaud the Congress and I applaud you Madam 
Chairwoman and the subcommittee for turning your attention to 
this very important issue. And I look forward to working with 
the subcommittee as it endeavors to make sure the IGs are all 
they can be.
    [The prepared statement of Ms. Brian follows:]
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    Ms. Watson. I want to thank all of the panelists. I really 
appreciate your patience and coming up with something we can 
dig into. Ms. Brian, I was quite interested in your final 
remarks. You are an independent, private agency, right?
    Ms. Brian. Non-profit, yes, Madam.
    Ms. Watson. Non-profit?
    Ms. Brian. Yes, Madam.
    Ms. Watson. And I think you stated that information could 
not be shared with your, I guess, investigators and so on. 
Would you clarify that for me?
    Ms. Brian. Well, I wasn't talking about my own. I was 
talking, speaking to the IGs' access. Currently their capacity 
is to gather information, and it actually changes slightly 
agency by agency so you might ask my colleagues about their 
particular agencies, but a number of those in question have the 
capacity to look at what their agency has collected but can't 
reach out to the bank or the financial institution and subpoena 
documents. And they can't subpoena any testimony from anybody, 
currently. That is the kind of capacity we think could be 
really very valuable.
    Ms. Watson. Let me go back to Mr. Kotz. Do you find it very 
difficult to go into those lending agencies and get 
information? What are the hurdles and challenges that you face?
    Mr. Kotz. Yes. I mean, I do agree with those remarks that 
if we had the ability to subpoena individual testimony of 
lending agencies, of investment banks, of institutions that are 
regulated by the SEC, that would be very helpful in our 
operations. Right now, we can subpoena documents but not 
testimony. We can subpoena testimony of SEC individuals but not 
testimony of other folks. So we wanted to take the testimony of 
the General Counsel of a large bank and we were able to do it, 
but he would not submit to being under oath because we don't 
have the power to subpoena the testimony in that manner. So I 
would suggest that is a very good suggestion to improve our 
ability to do our job.
    Ms. Watson. Well, you know, I am stunned by the response 
that you cannot get all the information you need to do a 
credible job. And so with subpoenaing power, you think that 
would be possible?
    Mr. Kotz. Yes, I think that would be very helpful.
    Ms. Watson. Mr. DeSarno, would you like to speak to that 
concern?
    Mr. DeSarno. Well, I would echo the comments from David 
Kotz. At NCUA we have never had a problem in getting 
information because if we need information, either records or 
documents from the credit unions that NCUA supervises, we would 
go through the NCUA examination staff to get those documents. 
And of course, the agency had the authority to get those 
documents for us from the regulated credit unions. And we have 
been successful in every instance we have ever had so we have 
never had to use any subpoena authority. But David is correct. 
While we could, if we had to, subpoena records and documents 
from the credit unions, I don't believe we have the authority 
to actually force testimony from the employees of those credit 
unions.
    Ms. Watson. Is there anyone else on the panel that would 
like to address that concern?
    Mr. Lavik. I would just say that I have always found it 
very strange, the bifurcated manner that you can subpoena 
documents but not witness testimony. I think it goes back to 
someone I met in a conference, a Congressman from Texas. He 
explained to me that he just didn't trust us enough. He is no 
longer there. He is a very good fellow, by the way, let me 
hasten to add.
    Ms. Watson. Is it like taking the fifth?
    Mr. Lavik. Yes, sort of.
    Ms. Watson. I do not understand how an individual who has 
other people's money in their hands, Madoff, was able to get 
away with it this long. What happened? Where did the system 
break down? I understand he did his own accounting and all of 
his own paperwork. You know, we talk about it here as cooking 
the books. How in the world, I know there is a Ponzi scheme, 
but with the SEC, how in the world could he get away with it 
that long? I have people in my district that lost hundreds of 
millions of dollars through him. How in the world could he get 
away with that? Does anybody dare to give their idea of how he 
was able to carry on in this way?
    Mr. Kotz. I can only say that we will have that answer. We 
are working on a report of how the SEC let it happen and we 
will have an answer to all of those questions. And it will be a 
report that, as appropriate, will be very critical of SEC, you 
know, as an independent IG can do. So we will get to the bottom 
of it from the SEC perspective. That I can assure you.
    Ms. Watson. Well, thank you so much. When do you expect you 
will be able to get to the bottom?
    Mr. Kotz. We think we will have a report by the end of the 
summer. It will be a comprehensive report of all the different 
complaints that came into the SEC going back many years, all 
the different examinations and investigations that the SEC 
conducted and how it went wrong.
    Ms. Watson. Well, I am going to request of my staff that 
when that report is made public or given to Congress that we 
hold another hearing and let you go through it and have people 
to comment on it.
    Mr. Kotz. Thank you, absolutely.
    Ms. Watson. Now, I would like to continue to address areas 
of concern. I would like to talk about the legal authorities of 
the IG and whether the IGs at our financial regulatory agencies 
have adequate laws. Of course, we have already talked about the 
subpoenaing power. But is there anything else that you think 
would be necessary legally to get to the bottom line, get to 
the truth? Would anybody like to tackle that one?
    Well, let me give you an example. The Federal Reserve IG is 
required to examine all failed FDIC insured institutions that 
have resulted in a material loss to the Deposit Insurance Fund. 
Now, I would like to know whether any of the IGs here today 
have had similar statutory requirements that would permit them 
to examine financial institutions that have failed or that 
require Government assistance to remain solvent? Wouldn't such 
requirements for the IG from the SEC or the CFTC make sense if 
we should witness another Lehman Brothers or collapse of a 
hedge fund that is significantly leveraged in commodities or 
futures? What is it that you would need? Anyone can respond.
    Mr. DeSarno. Well, let me respond for the National Credit 
Union Admnistration. Like the FDIC and the Treasury, we have 
legislation in the Federal Credit Union Act that requires us to 
do a material loss review of any failed institution, in this 
case a credit union, that causes a loss of greater than $10 
million to the Shared Insurance Fund. We have already completed 
two of those reviews. Right now we are doing two more and we 
have about three or four more in the queue waiting to do those.
    So we have the authority we need to do those material loss 
reviews. We are doing the work. It is stretching our resources 
as far as we can possibly go. And the only thing I would 
request is I would wish that the Congress and the agency and 
the agencies that have the authority would provide the 
Inspectors General with whatever resources they need in order 
to get that work done.
    In my case, I did request additional staff. We are hiring 
an additional staff person. In fact, she will be coming on 
board on Monday and that will help alleviate some of our 
problems. We also requested additional funding, contract 
dollars. We did get the contract dollars in our budget so we 
can use the additional staff and contract dollars to augment 
some of our material loss review work. But we do have the 
authority that we need right now to look into those failed 
institutions.
    Ms. Watson. Well, you just answered my next question, if 
you had reasonable resources.
    Mr. DeSarno. Yes.
    Ms. Watson. And I understand you don't. Let me pose 
something else. Under current law, the heads of six Federal 
agencies including Treasury and the Federal Reserve are 
permitted to terminate or prevent an IG from carrying out an 
audit, investigation, examination, or other activities for 
specified reasons that include national security or criminal 
investigative matters.
    While I would never want an inquiry of any kind to 
jepordize a criminal or a national security matter, I am 
concerned that this type of exemption in power for an agency 
head is excessive over what is supposed to be an independent 
office. I would like to hear from any of you or each of you 
whether the law ought to be altered in some way to ensure that 
these exemptions are not misused.
    Now, let me give you an example. I suppose the Treasury 
Secretary or the Federal Reserve chairman could make a case 
that market instability or systemic risk may be a threat to 
national securit--how many times have you heard that?--so 
perhaps an examination of firms on the verge cf collapse is 
inappropriate. Now, would you consider this an inappropriate 
use of the law?
    But we as Congress, we are cutoff from the information, 
shall I say, linkages out of the White House. We stood in the 
dark on many things. When the whole economic crisis came out 
publically in September and we had to move really quickly, I 
was stunned. How did the market collapse so quickly and nobody 
forecasted it? That blows my mind. You know, I know people in 
futures; isn't that what futurists are all about? What 
happened? Mr. Ervin.
    Mr. Ervin. Thank you, Madam Chair. I can't comment on the 
futures aspect of this, but you began by asking about our 
position on these various provisions for certain IGs that allow 
the agency head to prevent the Inspector General from pursuing 
an investigation or audit on national security grounds. I 
touched on that in my prepared remarks. There is such a 
provision for the CIA Inspector General, for the Justice 
Department Inspector General, for the Department of Homeland 
Security Inspector General. So I was under that provision when 
I was the Inspector General there, and the Treasury Inspector 
General.
    But as I mentioned in my statement, a Treasury Secretary 
would not have to make the argument that a particular 
investigation might impinge upon national security. There is a 
specific provision in the Treasury IG statute that allows the 
Treasury Secretary to stymie an investigation if, in the 
judgment of the Treasury Secretary, there would be adverse 
market effects from such an investigation without having to 
show any national security nexus.
    And my position is that all such provisions should be 
excised from the applicable statutes because an agency head 
could use such provisions, as you were suggesting, merely to 
shield an administration from political embarrassment or 
because an investigation might in its conclusion be contrary to 
the ideology of a given administration. So I am very much 
opposed to those provisions.
    I had in my very first, and I will conclude, I had in my 
very first meeting with then Secretary-Designate Ridge a 
discussion about this very provision in the Department of 
Homeland Security statute. I told him that if I were to be 
confirmed that I would work very hard, in the spirit of full 
disclosure, with Congress to try to get that provision excised. 
He assured me that he would never use the provision, and to his 
credit he never did. But the fact that it was in the statute 
was always a potential sort of Damocles over the head of the 
Inspector General. And I think this present economic crisis 
that we are experiencing underscores how important it is to 
excise such provisions.
    Ms. Watson. Ms. Brian.
    Ms. Brian. I would just want to echo my friend Mr. Ervin's 
comments. I think it is a very problematic provision and I 
think it is something the Congress should be reviewing.
    Ms. Burrows. Madam Chairwoman, if I could also comment, I 
can't comment as CRS on whether it would be good or bad to 
remove this provision. But the way the provision works now is 
that, for the Federal Reserve for example, the chairman makes a 
statement to the IG that he is going to be exercising this 
power. Then the IG provides the explanatory statement to 
Congress within 30 days. One way or one approach might be that 
the statement can go directly to Congress from the chairman of 
the Federal Reserve or from the Secretary of the Treasury so 
that Congress receives direct notification. And you could place 
a time limit so it would occur within 3 days or 5 days or 
whatever so you would know immediately if such power was being 
exercised.
    Ms. Watson. Thank you. I would like to direct this to Mr. 
Kotz. In 2008, at a request of Senator Grassley's, your office 
completed two inquiries on the effectiveness of the SEC's 
Consolidated Supervised Entities and Broker-Dealer Risk 
Assessment Programs. These were done in response to the fall of 
Bear Stearns and Lehman Brothers. Your CSE report made 26 
recommendations to the SEC for areas needing improvement and 
several recommendations regarding the Risk Assessment Program. 
First, can you tell us how many of these recommendations are in 
the implementation stage by the SEC? Then let me just add the 
other couple of questions on the same issue.
    Mr. Kotz. OK, there is a process in our office. The agency 
comes to us and says, we would like to close these 
recommendations. Then we make a decision of whether we think 
that it is appropriate to close the recommendation and provide 
advice on that. So we recently received from the SEC numerous 
requests to close recommendations. Many, almost all were of the 
recommendations in the CSE report and many of the 
recommendations in the Broker-Dealer Risk Assessment report.
    However, I will tell you that we are looking at them very 
carefully to see if we believe that sufficient work has been 
done to close them. So there is certainly an effort on the part 
of the agency to try to demonstrate that they have implemented 
those recommendations but we have not completed our process as 
to whether we believe that they actually have been. And we are 
very careful. We scrutinize very carefully what the agency has 
done before we actually agree that something should be closed.
    Ms. Watson. Now, did you take initiative on your own to 
inquire how did Bear Stearns and Lehman Brothers got to where 
they are?
    Mr. Kotz. Yes. Well, I mean, we conducted that audit 
report. We conducted the audit looking at Bear Stearns to try 
to figure out how it is that this process went forward while 
the SEC was engaged in regulation and yet, as you said, it 
seemed to be a surprise to everybody. It is one thing for it to 
be a surprise to, you know, investors out there. It is another 
thing for it to be a surprise for the regulators who are 
meeting with the folks from the entities, you know, on a common 
basis. And going back to your previous point, it was raised 
somewhat in our audit that if we issue this report it would 
have some effect on the markets because it was very critical of 
the SEC. And there was no provision in place like with those 
other agencies. Those are all the Presidentially appointed IG 
agencies. In those cases, there was a provision that allowed 
the agency head to stop it. In our case, it was suggested that 
perhaps this would have an adverse impact and we simply said 
well, thank you very much, but we are going to go ahead and 
issue the report anyway. So this was a case where we did feel 
it was important to get out the information about what happened 
with the SEC's regulation of Bear Stearns, and so we provided a 
comprehensive report. And now we are following up to make sure 
they actually did what they said they were going to do.
    Ms. Watson. You know, it is like trying to unscramble eggs. 
I don't know if it can ever be done. But anyway, did you find 
that there was enough there before it was revealed to really 
get started investigating? I think I heard you say you were 
taking a look at it. You know, all of a sudden, this thing blew 
up to the public and I am wondering what were the indicators 
along the way?
    Mr. Kotz. We found that, you know, the SEC was aware of 
vulnerabilities on the part of Bear Stearns and did not place 
enough pressure on Bear Stearns to reduce its leverage or risk. 
You know, I mean, it is a little bit difficult because 
hindsight is 20/20. So at that point in time, after it 
happened, you look at the indicators and you say, oh, that was 
an indicator.
    Nevertheless we did find that there were situations where 
the agency was aware of potential risk factors and yet did not 
pressure Bear Stearns enough with respect to those risk 
factors. We also found, for example, that there were certain 
standards that the SEC could have been tougher with requiring 
Bear Stearns to comply with. We found that the SEC authorized 
those firms to have internal audit staff perform critical audit 
work.
    So they allowed internal audit staff to perform the audit 
work involving risk management rather than having an outside 
entity. Obviously if you have an outside entity, you are going 
to have better audit work. So there were specific areas that we 
found that we felt after looking at it, even with hindsight 
being 20/20, that said these are indicators--you missed these 
indicators--how come you didn't see this at the time? And then 
we made recommendations so the SEC now knows how to deal with 
things going forward.
    Ms. Watson. You deserve a drink of water.
    Mr. Kotz. Thank you.
    Ms. Watson. I am going to go to Mr. DeSarno now. What are, 
Mr. DeSarno, the greatest challenges that now face the NCUA in 
its oversight of the credit union industry? And are credit 
unions also experiencing higher default rates from market 
issues? Has the recession exposed an increasing number of NCUA 
insured institutions?
    Mr. DeSarno. Well, let me say first of all that I have been 
at NCUA for about 11 years and this is the first time we have 
had to do any material loss reviews. So what that means is that 
we have never had losses to the Shared Insurance Fund of $10 
million or more. And we are having them now. But with that 
said, I think I can comfortably say that the credit union 
industry is much better off than the banking industry. It may 
sound self-serving but it is because they really didn't get 
involved in a lot of the riskier investments.
    For the most part, credit unions did make mortgages and 
they did make mortgage loans, and they are having some higher 
default rates, but that is not causing them the problems of 
going out of business. The material loss reviews that we have 
done so far in two specific credit unions, the reason that 
those credit unions went down is because they got involved in 
very speculative real estate deals outside of their area of 
influence. These were credit unions in the middle of the 
country that decided they were going to get involved in the 
real estate market in Florida. And when the housing market went 
down, then they lost an awful lot of money. NCUA now is taking 
steps to prevent that from happening in the future.
    Looking forward, what are the most critical challenges 
right now? I think the most critical challenge right now for 
NCUA is dealing with the corporate credit union structure. They 
are taking action right now. That, because the corporate credit 
unions were the ones that were involved in investing in 
mortgage backed securities and of course they got bit by the 
mortgage backed security problem that everyone else has run 
into. And so NCUA right now is in the process of trying to 
restructure the corporate credit unions. And I think that will 
have a positive impact on the credit union industry as we go 
forward.
    Ms. Watson. OK, thank you. And Mr. Lavik.
    Mr. Lavik. The futures industry has had some instances of 
bankruptcy, failure, but certainly not to the same extent as 
commercial banks or, from what Bill says, credit unions. Partly 
I think it is because of the provision of margin. You have to 
put up margin to buy a futures contract and that is adjusted 
daily. So, for example, if your price of your futures goes 
down, you have to put up more margin.
    So there have been some failures but, interestingly enough, 
the two that I am aware of were not recently. They go back, the 
one case about 5 years. The fellow who was in charge of it was 
a rather big, what they call a futures commission merchant. He 
is now spending some time in jail. And there was one about 2 or 
3 years ago. But anyway, the point is I can't think of one 
right now of a large size that has been in the recent economic 
turmoil. We have been lucky.
    Ms. Watson. Yes, I always saw credit unions differently 
because it is the field of people who invest in their credit 
union and usually they are in----
    Mr. DeSarno. It is a cooperative move.
    Ms. Watson. It is a cooperative move. And they don't take 
the same kind of risks. And I have always been stunned by the 
fact that we don't know what is inside those portfolios. And 
when you make the wrong decision, we suffer. And so, not being 
able to get to that kind of information leaves it strung out.
    I want to know also, how has the newly combined Council on 
Inspectors General for Integrity and Efficiency improved the 
coordination and the efficacy of IGs? Anybody want to talk 
about improvement? Do you see it yet?
    Mr. Lavik. The one thing I would say is that when we met 
seperately there were usually 25 to 30 people in the room 
depending upon the particular time. Now there are almost 60. My 
impression generally is that, and I think there are some 
studies on this, the more people you have in a room can inhibit 
decisionmaking or consensus. Now, that has some pluses, but 
frankly, and I will defer to my Deputy back here, Ms. Judith 
Ringle, because she has actually gone to the meetings. They are 
crowded, she says. I have to say, as you can probably tell from 
my comments, I am not sure if it was a positive move to combine 
the two.
    Ms. Watson. Do they feel intimidated, do you think, that 
large group sitting among the experts?
    Mr. Lavik. You know, I don't know. I have always been an 
ECIE and I used to go to some of their meetings because I was 
an adjunct. I didn't feel intimidated. It is like--but that was 
smaller, that was 30 people--it is like anything. You find some 
really sharp PCIEs and you find some sharp maybe ECIEs and you 
find some who aren't that much.
    Mr. DeSarno. Let me, I just want to, you know, add a 
comment to that as well. We have only had, I think we have had 
maybe three joint meetings now so far as the CIGIE. And I think 
it is helpful. Even though it is a bigger room and it is a much 
bigger setting, I think it is good that everybody meets at the 
same time and we are all getting the same message at the same 
time. Because in the past, even though we, you know, we met 
individually as ECIE, it was a smaller group and a lot of times 
we weren't getting the same message as the PCIE, Presidentially 
appointed IGs. So I think now we are all getting the same 
message. We all have the same opportunities. So I think it will 
work out for the best.
    Ms. Watson. Thank you. Ms. Burrows, how are the DFE IGs 
currently evaluated when their agency heads have the 
appointment authority? Are there independent evaluations that 
are conducted or is it done by agency personnel? And is the 
process different from the Presidential appointment IGs?
    Ms. Burrows. Well, currently both the Presidentially 
appointed IGs and the Designated Federal Entity IGs have to be 
appointed without regard to political affiliation and solely 
based on their skills in auditing, management, and other types 
of skills. But I couldn't necessarilly speak to how each agency 
decides how to appoint its IG. It might vary between the 
agencies. I don't think there is necessarily any criteria that 
they are looking for. But that might be a question that I 
could, you know, research and get back to you.
    Ms. Watson. Could you do that?
    Ms. Burrows. Sure, of course. I would be happy to.
    Ms. Watson. Put it in writing. We appreciate that.
    Mr. Lavik. Excuse me, Madam. One of the things that our 
agency, when I was initially appointed, the person did rate me. 
But I would say it is well over 10 years ago now that we came 
to an agreement that we are not rated and we don't take 
bonuses. This was even before the legislation that now forbids 
it. And that is certainly very helpful because there are subtle 
pressures one can make in ratings and so on as we are all 
aware. But at least, as I say, in my agency, I can't speak for 
that though I think there are many others that are not 
evaluated, rated by their chairmen, but certainly the CFTC, we 
haven't been. And that goes back, I would say, to 1998, several 
years.
    Mr. DeSarno. Yes, the situation is very similar at NCUA. 
You know, we are on a merit pay system so I receive kind of 
like a pass/fail evaluation almost. But my average increase is 
just the average of what the other senior staff receive for 
that year. So it is not a written performance evaluation so I 
am not going to be downgraded or penalized if I issue a hard 
hitting report. I mean, that won't happen. And so my increase 
would just be the average of what the other senior staff 
members get.
    Ms. Burrows. If I could also add that in 2005 there was a 
controversy with the Legal Services Corp. that they had tried, 
the board of the Legal Services Corp. had tried to impose 
performance evaluations on their IG after their IG had issued 
some reports that were highly critical of how the agency was 
spending its resources. It is an agency that generally serves, 
provides legal services to the poor. And CRS had done an 
analysis to whether it was legally tenable to require 
performance evaluations of IGs. There is no specific part in 
the IG Act that would prohibit a performance evaluation but the 
general tenets of the IG Act in terms of independence and only 
general supervision by the agency head would seem to indicate 
that would not be a favorable avenue to pursue in terms of the 
agency head conducting a performance evaluation of its IG. But 
that could be something that Congress could clarify, that this 
would be a prohibited act to conduct a performance evaluation 
of an IG.
    Ms. Brian. Madam Chairwoman, in our review of the 
Inspectors General, our sense was the only time that was at all 
operative was prior to the legislation when some DFEs were 
actually receiving bonuses, many of which wouldn't accept them 
even though they were eligible.
    Ms. Watson. Please don't mention the B word, bonuses.
    Ms. Brian. Right, well, I mean and as you can imagine, 
there is an essential problem with that. And so the law then 
prohibited such bonuses and sort of removed that concept from 
the IG system as far as I understand.
    Mr. Ervin. And if I can add to that, in my experience as a 
Presidentially appointed IG, I would say a couple of things. 
There is, for Presidentially appointed IGs, there really isn't 
an evaluation process per se. Certainly there is no evaluation 
by the agency head. Of course if there are complaints against 
an IG, those could be lodged with the PCIE, under the old 
system and that system continues to this day. A complaint can 
be lodged and then it is investigated. In terms of salary, 
compensation as Ms. Brian said, the issue arose since a 
Presidentially appointed IG controlled his or her budget, in 
theory an IG could give himself or herself a bonus. But that 
was never done. Obviously it was frowned upon. If I just might 
take this occasion, also to say a quick word since we are 
talking about bonuses and salaries?
    Ms. Watson. Please do because you were the next I was going 
to call on and I think you are addressing most of my question. 
So go ahead.
    Mr. Ervin. On this salary issue, because it is tangentially 
related, a number of people have raised the point that one of 
the effects of this legislation that we are here to talk about 
would be in effect to lower the compensation of the Inspectors 
General who are not Presidentially appointed if they were to 
be. And certainly that is a legitimate concern. I think that 
should be addressed separately.
    Of course, I would not support an effect where as a 
consequence of this, their salaries would be diminished. But to 
me that is not an argument for not appointing, not making these 
Inspectors General Presidentially appointed. As I say, doing so 
clearly and only logically, it seems to me, would enhance their 
independence.
    Ms. Watson. Thank you so much. You covered some of the 
questions I was going to ask so we are going to go to our last 
witness now, Ms. Brian. Your recommendation in your most recent 
report on IGs states that Congress should consider adding more 
meaningful and reflective reporting requirements to statutorily 
required semi-annual reports. Please describe for us what some 
of these might be.
    Ms. Brian. Well, what I found is when we looked at the 
numbers, and this goes back to my earlier questioning of using 
numbers to measure the effectiveness of an IG's work, is that 
is one of the measures that an IG is required to report in 
their SAR. And we found, sadly, there is a lot of work that 
goes into these semi-annual reports or SARs. I am sad to report 
how few people read those reports because they are really 
boring. They are full of a lot of numbers.
    Ms. Watson. A lot of words, many pages.
    Ms. Brian. And you know, I am just calling it as it is. So 
one example of that is that they are to report the numbers of 
cases referred for prosecution. And that is a measurement that 
has been used, I was with a former Deputy Director of OMB where 
he was testifying that was a real measure of the quality of the 
work of an IG. But when we got behind those numbers, we found 
that it really doesn't tell you very much. So, for example, if 
the numbers of referrals for prosecution from an IG shop is 
declining, it is assumed that means they are working less hard. 
It could be, however, that they are taking on much more 
important, putting their resources into much more important 
audits that aren't beefing the numbers up but are taking a lot 
more resources. Another thing to keep in mind is we found over 
the last 10 years, we talked to a lot of prosecutors, and it 
turns out that the IG shops are referring fewer bad cases. What 
we found was a pretty high declination rate. They refer a lot 
of cases for prosecution. The U.S. attorneys would look at them 
and say this is a dog; I am not going to do it. So there is a 
pretty high declination rate. Now what we are finding is that 
the declination rate is much lower because the IGs are 
referring fewer but stronger cases and they are actually 
consulting with U.S. attorneys, you know, early on in a more 
consultative way. So those are sort of the examples of why the 
numbers aren't very effective.
    We thought the better way of approaching reports to 
Congress was to look at what the IG thought was the most 
important work. What were the things they really wanted the 
Congress to be aware of that was happening in their agencies? 
If that kind of reporting is done to really focus the SARs in 
those ways, then maybe you would be able to find out, you know, 
as an early warning in some of these crises that are 
approaching us and we are saying how did we find out about them 
after the fact.
    Ms. Watson. I appreciate that. We have seen a couple of 
cases in recent years where the IGs were found to have acted 
inappropriately or to have conflicts with the very agencies 
they are charged with overseeing. Are there adequate measures 
in place such as a peer review, which has been mentioned 
already, or external monitoring programs to keep check on these 
IG Offices?
    Ms. Brian. Thank you for that question. We looked at the 
mechanism that is used to evaluate an IG's poor conduct, the 
Integrity Committee, and that continues to be the case through 
the laws now statutorily created. And we think that is a pretty 
good model where it is other IGs reviewing allegations of 
misconduct. However, there are some flaws in its execution. One 
is that we have found what has been happening is the Integrity 
Committee will have a finding or will go through an entire 
lengthy investigation but then won't have an actual finding at 
the end of the day. In one fairly famous case, the conclusion 
was that the IG should be disciplined up to and including 
removal from office. It was in the last administration. And the 
OMB received this information and then came back to the 
Integrity Committee and said, so are you saying he should be 
removed? And because they hadn't really made that conclusion, 
they said, well, we didn't say that. And so nothing actually 
happened. So we think that is a change that needs to occur.
    The other flaw we believe is that the Integrity Committee 
is currently now statutorily headed up by a member of the FBI. 
And the problem with that is that the FBI is, of course, 
looking for criminality. Rarely, I would hope, is it going to 
be the case that an IG is accused of criminality. It is going 
to be more a case of poor judgment or inappropriate behavior 
for an IG. We had another case where an IG actually 
acknowledged that he had provided to the President--this was a 
Presidentially appointed IG--provided to the President a very 
controversial report prior to its release for his counsel's 
opportunity to redact information. The Integrity Committee 
concluded essentially that he didn't violate the law, which is 
true.
    However, I would believe most IGs would agree with me and I 
certainly believe that was really inappropriate behavior for an 
IG. So if that committee were headed up by an IG rather than a 
member of the FBI, I think the standards for conduct would be 
more appropriate.
    Ms. Watson. Well, I want to thank Mr. Kotz, Mr. DeSarno, 
Mr. Lavik, Ms. Burrows, Mr. Ervin, and Ms. Brian for your 
expert testimony. And believe me, we have taken a lot of this 
down. Our work is just beginning. And if there is one place 
that I think Congress has failed, and that is in its oversight 
duties. As the Secretary of Labor said in her acceptance 
speech, there is a new sheriff in town. So I want to thank my 
colleagues who were here and had to leave.
    I want to thank each and every one of you for the time you 
have given us this afternoon and the wealth of information to 
start our wheels rolling. I think you are going to see a 
difference now with a new administration and more openness and 
all our concerns about how did we get ourselves into this mess. 
We have to answer to the people who sent us here to Washington. 
We expect to be able to do that. And we expect to be able to 
mitigate some of these problems, provide solutions, so that 
they who pay their taxes will have a better quality of life.
    So without objection, this committee is adjourned with a 
sincere thanks to all of you.
    [Whereupon, at 5:15 p.m., the subcommittee was adjourned.]

                                 
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