[WPRT 108-12]
[From the U.S. Government Publishing Office]





108th Congress 
 1st Session                COMMITTEE PRINT                       WMCP:
                                                                 108-12
_______________________________________________________________________

 

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                            WRITTEN COMMENTS

                                   on

     H.R. 3625, THE ``DEPARTMENT OF THE TREASURY INSPECTOR GENERAL 
                      CONSOLIDATION ACT OF 2003''

                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                           DECEMBER 19, 2003

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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                    AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio                    EARL POMEROY, North Dakota
JERRY WELLER, Illinois               GERALD D. KLECZKA, Wisconsin
SCOTT MCINNIS, Colorado              MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida                  JOHN S. TANNER, Tennessee
SAM JOHNSON, Texas                   MAX SANDLIN, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of Tuesday, November 25, 2003, announcing request for 
  written comments on H.R. 3625, the ``Department of the Treasury 
  Inspector General Consolidation Act of 2003''..................     1

                                 ______

U.S. General Accounting Office, Jeanette M. Franzel, Director, 
  Financial Management and Assurance, letter and attachment......     2
Council for Citizens Against Government Waste, Thomas A. Schatz, 
  letter.........................................................    16
      

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
November 24, 2003
OV-8

                     Houghton Announces Request for

                   Written Comments on H.R. 3625, the

             ``Department of the Treasury Inspector General

                      Consolidation Act of 2003''

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee is requesting written comments for the record from all 
parties interested in H.R. 3625, the ``Department of the Treasury 
Inspector General Consolidation Act of 2003.'' This bill, introduced by 
Representative Rob Portman (R-OH), will consolidate the two existing 
Inspector General offices at the Department of the U.S. Treasury--the 
Office of Inspector General of the Treasury (OIG) and the Office of the 
Treasury Inspector General for Tax Administration (TIGTA)--into a new 
office called the Office of the Treasury Inspector General (TIG).
      

BACKGROUND:

      
    In 1988, Congress created OIG. In 1998, Congress, as part of the 
Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 
(P.L. 105-206), created a second Inspector General at Treasury--the 
TIGTA.
      
    With the creation of the U.S. Department of Homeland Security (DHS) 
one year ago, there have been significant downsizes at the Treasury 
Department. The U.S. Customs Service, the U.S. Secret Service, the 
Federal Law Enforcement Training Center, and most of the Bureau of 
Alcohol, Tobacco and Firearms were moved to DHS and the U.S. Department 
of Justice (DOJ). As a result, a substantial portion of OIG's budget 
and responsibilities also were transferred to DHS and DOJ.
      
    In order to maximize efficiencies and effectiveness, and to 
eliminate duplication, the President, in his fiscal year 2004 budget, 
recommended that OIG and TIGTA be merged into a new single entity, 
which would have the same powers and authorities as its predecessors 
have under current law. Treasury Secretary John W. Snow said in a 
recent letter to Representative Bill Thomas (R-CA), Chairman of the 
Committee on Ways and Means, the IRS now constitutes 87 percent of the 
remaining personnel resources at the Treasury. Having a separate 
Inspector General for the remaining 13 percent is no longer the correct 
structure for effective oversight of either the Department, or the IRS. 
. . . I strongly believe that this merger will result in better, more 
efficient oversight, not only for the IRS, but for the entire 
Department.''
      
    In announcing this request for comments, Chairman Houghton stated, 
``I have to believe that a single Inspector General at Treasury would 
give the Department the tools it needs to operate efficiently and 
effectively. I look forward to hearing from those who are interested in 
H.R. 3625.''
      
    Rep. Portman added, ``As the sponsor of the IRS Restructuring and 
Reform Act, I believe that the Department of the Treasury Inspector 
General Consolidation Act of 2003 will continue the comprehensive 
reform and oversight improvements at IRS that have occurred over the 
past 5 years.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit written comments for 
the record should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by close of business Friday, December 19, 2003. Please 
Note: Due to the change in House mail policy, the U.S. Capitol Police 
will refuse sealed-package deliveries to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

                                 

                                     U.S. General Accounting Office
                                               Washington, DC 20548
                                                   January 29, 2004

The Honorable Amo Houghton
Chairman
Subcommittee on Oversight
Committee on Ways and Means
House of Representatives

Dear Mr. Chairman:

    This letter responds to your November 24, 2003, request for written 
comments on the bill, H.R. 3625, Department of the Treasury Inspector 
General Consolidation Act of 2003. As agreed with your staff, this 
letter addresses the feasibility of consolidating the two Offices of 
Inspectors General currently established under the Inspector General 
(IG) Act of 1978, as amended, at the Department of the Treasury, and 
other matters in the bill. In our October 8, 2003,\1\ testimony we 
stated that the original concerns that led to the creation of an 
additional IG office at the Department of the Treasury are no longer as 
compelling.
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office, Inspectors General: Enhancing 
Federal Accountability, GAO-04-117T (Washington, D.C.: October 8, 
2003).
---------------------------------------------------------------------------
    The Treasury Department IG was established by the IG Act Amendments 
of 1988.\2\ In 1978, Treasury had established an administrative IG, 
appointed by the Secretary of the Treasury. The 1988 amendments require 
that the President appoint the IG, subject to Senate confirmation. The 
duties of the former administrative IG office and the internal audit 
offices of the United States Customs Service, United States Secret 
Service, and the Bureau of Alcohol, Tobacco, and Firearms were 
transferred to the newly established statutory Treasury IG. The 
Internal Revenue Service (IRS) Office of the Chief Inspector, also 
known as the Inspection Service, which was established in 1951, 
continued to be responsible for carrying out internal audits and 
investigations for the IRS. To clarify the role of the IG and the Chief 
Inspector, the IRS Commissioner and the Treasury IG entered into two 
memorandums of understanding.
---------------------------------------------------------------------------
    \2\ Public Law 100-504, 102 Stat. 2515 (1988).
---------------------------------------------------------------------------
    The Treasury IG for Tax Administration (TIGTA) was established by 
the Internal Revenue Service Restructuring and Reform Act of 1998,\3\ 
which amended the IG Act to include an additional IG at the Treasury 
Department to provide oversight of the IRS. The Office of the Chief 
Inspector and most of the Inspection Service staff were transferred to 
the newly established IG. The creation of TIGTA separate from the 
Treasury IG also addressed IRS officials' concerns that if the duties 
of the Chief Inspector were transferred to the Treasury IG, the 
transferred resources would be used to investigate or audit other 
Treasury bureaus--such as the United States Customs Service, United 
States Secret Service, and the Bureau of Alcohol, Firearms, and 
Tobacco--to the detriment of critical IRS oversight.
---------------------------------------------------------------------------
    \3\ Public Law 105-206, 112 Stat. 685,705 (1998).
---------------------------------------------------------------------------
    With passage of the Homeland Security Act of 2002,\4\ the United 
States Customs Service; United States Secret Service; Federal Law 
Enforcement Training Center; and most of the Bureau of Alcohol, 
Firearms, and Tobacco were transferred from the Department of the 
Treasury to the new Department of Homeland Security or the Department 
of Justice. Consequently, a substantial number of those areas 
traditionally audited and investigated by the Treasury IG are no longer 
a part of the Treasury Department, and resources in the Treasury IG 
Office have decreased accordingly. As a point of comparison, in fiscal 
year 2002 the Treasury IG had about 87 staff, whereas TIGTA had about 
940. This means that of the IGs appointed by the President, the 
Treasury IG now has one of the smallest offices while TIGTA is the 
third largest.
---------------------------------------------------------------------------
    \4\ Public Law 107-296, 116 Stat. 2135 (2002).
---------------------------------------------------------------------------
    Thus, prior concern that a single Treasury IG would use the 
combined oversight resources of the Treasury Department to investigate 
or audit other Treasury bureaus to the detriment of critical IRS 
oversight is no longer as compelling. We believe consolidation is 
appropriate given the relative activity levels of TIGTA and the 
Treasury IG, and the current scope and responsibility of the Department 
of the Treasury.
    Another area of the bill provides that any other audit or 
investigation of a matter must cease, or not be initiated if the 
Treasury IG notifies the affected Treasury organization that the matter 
is being audited or investigated by the IG. We believe that oversight 
organizations should exercise proper coordination of audits and 
investigations and that duplication of efforts should be avoided. 
However, we do not support this provision because the blanket 
prohibition of other audits and investigations would likely exclude 
proper audits and investigations of the same subject by other federal 
oversight organizations, as well as law enforcement agencies.
    Enclosed with this letter is our October 8, 2003, testimony 
entitled, Inspectors General: Enhancing Federal Accountability, which 
addresses this and other issues related to the IGs' role in federal 
accountability. If you have questions or would like to discuss this 
letter, please contact me at (202) 512-9471, or by e-mail at 
[email protected], or Jackson Hufnagle, Assistant Director, at (202) 
512-9470, or by e-mail at [email protected].

            Sincerely yours,
                                                Jeanette M. Franzel
                       Director, Financial Management and Assurance

                                                         Attachment

                               __________

    Mr. Chairman and Members of the Committee:
    I appreciate the opportunity to share my thoughts with you on the 
important role of the Inspectors General (IG), established in statute 
25 years ago this month to provide independent oversight within federal 
agencies. More significant for this discussion than the anniversary of 
landmark legislation, however, are the new and continuing challenges we 
face in assuring open, honest, effective, and accountable government 
and the critical role of the IGs, in partnership with GAO and other 
performance and accountability organizations, in addressing these 
challenges.
    A quarter of a century ago, Congress established statutory IGs in 
response to serious and widespread internal control breakdowns in major 
government departments and agencies, questions about integrity and 
accountability in government as a whole, and failures of oversight in 
the federal government. The IGs established by the Inspector General 
Act of 1978 (IG Act) were charged with preventing and detecting fraud 
and abuse in their agencies' programs and operations; conducting audits 
and investigations; and recommending policies to promote economy, 
efficiency, and effectiveness. The IG Act fortified the position of IG 
with provisions protecting independence, provided powers of 
investigation, and mandated reporting not just to the agency head but 
to Congress as well. (See app. I for a more detailed history of the IG 
Act.)
    In the years since passage of the IG Act, Congress has also enacted 
a series of laws to establish a foundation for efficient, effective, 
and accountable government. This body of legislation has given IGs new 
responsibilities and greater opportunities to play an increasing role 
in government oversight. Clearly, the IGs have made a significant 
difference in federal performance and accountability during the past 25 
years as indicated by their reports of billions of dollars in savings 
to the public and thousands of recommendations and civil and criminal 
referrals. They have earned a solid reputation for preventing and 
detecting fraud, waste, and abuse; promoting improvements in government 
operations; and providing helpful analyses on a host of governmentwide 
initiatives. It is safe to say that the federal government is a lot 
better off today because of the IGs' efforts.
    Notwithstanding the accomplishments of the past, we now face 
continuing challenges that demand even more from government performance 
and accountability professionals. For example, our nation is fighting 
international terrorism while much of the critical government 
infrastructure that we are trying to protect dates back to the 1950s. 
At the same time, this nation is facing a large and growing structural 
deficit due primarily to known demographic trends and rising health 
care costs. Recent corporate failures have shaken public confidence in 
financial reporting and accountability in the private sector. In 
response, Congress passed the Sarbanes-Oxley Act of 2002, which has 
significant new requirements for publicly traded companies and their 
auditors. Federal auditors can learn important lessons from the 
accountability breakdowns in the private sector and the resulting 
legislation passed by Congress.
    We have achieved many important successes in working across 
organizational lines with the IGs and state and local government 
auditors. An important recent effort in building closer ties in the 
government accountability community has been the domestic working 
group, which I established in 2001 to bring together key staff from 
GAO, the IGs, and state and local audit organizations to explore issues 
of mutual interest and concern. The annual roundtable discussions and 
interim activities of the domestic working group help to focus 
attention on key issues and shared challenges facing the government 
audit community and allow participants to compare notes on methods, 
tools, benchmarking results, and best practices. In the early 1970s, 
GAO organized the intergovernmental audit forums in cooperation with 
federal, state, and local audit organizations. These forums provided 
the means through which new intergovernmental audit relationships were 
developed and improved the usefulness of auditing at each level of 
government. Some IGs have become active participants with GAO at the 
forums to provide a means for exchanging views, solving common 
problems, and promoting the acceptance and implementation of government 
auditing standards. Other IGs, however, have not been very involved in 
these forums and, in my view, this needs to change.
    In addition, we have had the active participation of many IGs and 
state and local government auditors on the Comptroller General's 
Advisory Council on Government Auditing Standards. The Council provides 
advice and guidance on revisions to the Comptroller General's 
Government Auditing Standards, commonly known as the ``Yellow Book,'' 
which is used by government auditors at the federal, state, and local 
levels, as well as contracted independent public accountants (IPA), in 
the audits of government programs and activities. It is time, however, 
for IGs and other members of the federal accountability community to 
build on past successes by putting additional focus and efforts on 
reaching across institutional lines and forming new alliances to 
address the complex challenges facing our government and our nation.
    My statement today will focus on five main points:

      opportunities for increasing the effectiveness of the 
federal performance and accountability community through an enhanced 
strategic partnership between the IGs and GAO,
      coordination of the IG and GAO roles in agency financial 
statement audits and the audit of the U.S. government's consolidated 
financial statements,
      the IG role in federal financial management advisory 
committees,
      structural streamlining within the IG community to 
increase resource efficiencies, and
      matters for congressional consideration to enhance 
federal performance and accountability.

The Need for an Enhanced Strategic Partnership between the IGs and GAO
    One of the challenges facing the federal performance and 
accountability community today is the need to meet increasing demands 
and challenges with our current resources. Key to this challenge is 
determining how GAO and the IGs can best complement each other and 
coordinate their efforts. The IG Act requires that the IGs coordinate 
with GAO to avoid duplicating efforts. In practice, GAO has largely 
devoted its efforts to program evaluations and policy analyses that 
look at programs and functions across government, and with a longer-
term perspective; at the same time, the IGs have been on the front line 
of combating fraud, waste, and abuse within each agency, and their work 
has generally concentrated on issues of immediate concern with more of 
their resources going into uncovering inappropriate activities and 
expenditures through an emphasis on investigations. GAO and the IGs 
are, in many respects, natural partners. We both report our findings, 
conclusions, and recommendations to Congress. As I mentioned earlier, 
we share common professional audit standards through the Yellow Book, 
and I am proud to say that several current IGs and many of their staff 
are GAO alumni, including the Honorable Gaston Gianni, the IG of the 
Federal Deposit Insurance Corporation and Vice-Chair of the President's 
Council on Integrity and Efficiency, and Barry Snyder, the IG of the 
Federal Reserve Board and Vice-Chair of the Executive Council on 
Integrity and Efficiency, who are on the panel following me today.
    While GAO and the IGs make up the federal performance and 
accountability community, the division of responsibilities between them 
has not generally included, nor does the IG Act include, strategic 
planning and allocation of work across government programs based on 
risk and the relative competitive advantages of each organization. 
Traditionally, GAO and IG coordination has been applied on an ad-hoc, 
job-by-job or issue-by-issue basis. We now have both the need and the 
opportunity to enhance the effectiveness of federal oversight through 
more strategic and ongoing coordination of efforts between GAO and the 
IGs in the following areas:

      addressing major management challenges and program risks,
      monitoring the top challenges the government faces, such 
as implementation of the President's Management Agenda, and
      conducting the audit of the government's consolidated 
financial statements.

    Later in this testimony, I am suggesting that Congress consider 
establishing, through statute, assignment of responsibility to a select 
group of designated federal accountability and performance 
professionals to engage in a formal, periodic strategic planning and 
ongoing engagement coordination process to focus federal audit efforts 
across the federal government. This process would be in addition to, 
and would not replace, the current coordination of information sharing 
and technical cooperation being implemented by the domestic working 
group, the audit forums, and the President's Council on Integrity and 
Efficiency (PCIE) and the Executive Council on Integrity and Efficiency 
(ECIE).\1\
---------------------------------------------------------------------------
    \1\ These councils were established by Executive Order and are 
described later in this testimony.
---------------------------------------------------------------------------
Major Management Challenges and Program Risks
    GAO's latest high-risk report,\2\ released in January 2003, 
highlights areas across government that are at risk either due to their 
high vulnerability to waste, fraud, abuse, and mismanagement, or as 
major challenges associated with the economy, efficiency, and 
effectiveness of federal programs, policies, processes, functions, or 
activities. Many of the high-risk areas we identified involve essential 
government services, such as Medicare and mail delivery, that directly 
affect the well-being of the American people. Although some agencies 
have made strong efforts to address the deficiencies cited in the high-
risk reports--and some of the programs included on GAO's initial high-
risk list in 1990 have improved enough to warrant removal--we continue 
to identify many other areas of high risk. Greater strategic 
coordination between GAO and the IGs on a plan for monitoring and 
evaluating high-risk issues and keeping the pressure high to reduce the 
risk of these programs is not only desirable, it is essential if we are 
to reduce the risk of key government programs.
---------------------------------------------------------------------------
    \2\ U.S. General Accounting Office, High Risk Series: An Update, 
GAO-03-119 (Washington, D.C.: January 2003).
---------------------------------------------------------------------------
    At the request of Congress, the IGs annually report issues similar 
to those in GAO's high-risk report identifying the ``Top Management 
Challenges'' facing their agencies. In fiscal year 2002, the IGs ranked 
information technology, financial management, and human capital 
management among the most important challenges confronting their 
agencies governmentwide; other priorities included performance 
management, public health and safety, and grants management. Each of 
these areas closely corresponds to an area on GAO's high-risk list.
    Although both GAO and the IGs have efforts in place to identify 
major risks and challenges within government, there is no mechanism in 
place to carry out an integrated, strategic planning process as a means 
through which these issues will be monitored and evaluated in the 
future through combined and coordinated GAO and IG oversight.
President's Management Agenda
    The administration has signaled its commitment to government 
transformation with the President's Management Agenda (PMA), which 
targets 14 of the most glaring problem areas in government for 
immediate action. Five areas--strategic human capital, budget and 
performance integration, improved financial performance, expanded 
electronic government, and competitive sourcing--are governmentwide in 
scope, while 9 are agency specific. Each area has the potential for 
dramatic improvement and concrete results. The areas also reflect many 
of the concerns raised by both GAO's high-risk report and the IGs' top 
management challenge lists. So far, however, progress on PMA has been 
uneven. To achieve consistent progress, sustained attention from 
Congress, the administration, and the agencies is needed. I believe 
that GAO and the IGs can make important contributions, using our 
combined experience, to help monitor the implementation of this 
important initiative.
    Key policymakers increasingly need to think beyond quick fixes and 
carefully consider what the proper role of the federal government 
should be in the 21st century. Members of Congress and agency heads can 
start by undertaking a top-to-bottom review of federal programs and 
policies to determine which should remain priorities, which should be 
overhauled, and which have outlived their usefulness or are just no 
longer affordable given more pressing demands. Everything that forms 
the government's base must be on the table, including tax, spending, 
and regulatory policies. Policymakers will need to distinguish 
``wants,'' which are optional, from ``needs,'' which can be urgent. 
They need to make hard choices that take into account what the American 
people will support and what the federal government can afford and 
sustain over time. To make informed decisions, Congress and agency 
heads will require hard facts and professional analyses that are 
objective, fact based, timely, accurate, nonpartisan, fair, and 
balanced. GAO and the IGs are important sources of such objective 
information and analyses.
    With our respective areas of expertise in long-term challenges and 
agency-specific issues, GAO and the IGs can provide useful insights and 
constructive recommendations on programs that may warrant additional 
resources, consolidation, revision, or even elimination. Closer 
periodic strategic planning and ongoing engagement coordination between 
GAO and the IGs would help to ensure continued effective oversight of 
these key issues facing government.
Audit of the U.S. Government's Consolidated Financial Statements
    GAO and the IGs are already partners in one of the most far-
reaching financial management initiatives in government--the yearly 
audits of the federal government's consolidated financial statements. 
Under the Chief Financial Officers (CFO) Act of 1990 as expanded by the 
Government Management Reform Act of 1994, the IGs at the 24 agencies 
\3\ named in the CFO Act are responsible for the audits of their 
agencies' financial statements. In meeting these responsibilities, most 
IGs have contracted with IPAs to conduct the audits either entirely or 
in part. GAO is responsible for the U.S. government's consolidated 
financial statements audit, which by necessity is based largely on the 
results of the IGs' agency-level audits.
---------------------------------------------------------------------------
    \3\ The Federal Emergency Management Agency (FEMA), one of 24 
agencies named in the CFO Act, was transferred to the new Department of 
Homeland Security (DHS), effective March 1, 2003. With the transfer, 
FEMA will no longer be required to prepare audited stand-alone 
financial statements under the CFO Act. Consideration is now being 
given to making DHS a CFO Act agency, which would bring the number of 
CFO Act agencies back up to 24.
---------------------------------------------------------------------------
    Since 1997, GAO has been unable to give an opinion on the 
consolidated financial statements, in large part because of continuing 
financial management problems at several agencies that also have 
resulted in disclaimers of opinion by some IGs on their agency 
financial statements--most notably the Department of Defense (DOD). In 
recent years, we have seen progress in the results of the audits of the 
CFO Act agency financial statements with more and more IGs and their 
contracted IPAs moving from issuing a disclaimer of opinion to issuing 
an unqualified (``clean'') opinion on their respective agency financial 
statements. In fact, 21 of the 24 CFO Act agencies received an 
unqualified opinion on their fiscal year 2002 financial statements, up 
from only 6 agencies for fiscal year 1996. We anticipate that if 
sufficient progress continues to be made, there is a chance that we may 
be able to render a qualified opinion on the consolidated balance sheet 
in a few years as a first step toward rendering an opinion on the full 
set of financial statements.
    Our reviews of the work done by other IGs and IPAs on agency-level 
financial statement audits during the last 2 years identified 
opportunities for improvement in sampling, audit documentation, audit 
testing, analytical procedures, and auditing liabilities. The varying 
quality of the audit work has been of concern to us because of our need 
to use the work of the agency auditors to support expressing an opinion 
on the U.S. government's consolidated financial statements--an opinion 
for which, in the final analysis, GAO is solely responsible and 
accountable.
    Earlier involvement and access by GAO in the agency-level financial 
statement audits would help to strengthen the IG and IPA audit process 
and bolster our ability to use their work in rendering an opinion. At a 
minimum, GAO needs to (1) be involved up front in the planning phase of 
each agency-level audit; (2) have unrestricted access to IG and IPA 
audit documentation and personnel throughout the performance of the 
audit; (3) receive assurances that each agency-level audit is planned, 
performed, and reported in conformity with the Financial Audit Manual 
(FAM) developed jointly and adopted by GAO and the PCIE; and (4) be 
notified in advance of any planned deviation from the FAM's 
requirements that could affect GAO's ability to use the agency 
auditors' work.
    At one agency (Department of Energy), for the selected areas we 
reviewed, we found that the audit work was performed in conformity with 
the FAM and that we would have been able to use the work without having 
to perform additional audit procedures. The IG has an oversight team 
composed of senior level-staff who perform moderate-level quality 
control reviews of the contracted IPA's work throughout the audit 
process. The oversight team evaluates its IPA in areas such as audit 
planning and execution, audit documentation, and staff qualifications. 
These types of practices could be shared and expanded upon across the 
IG community. As an initial step to make the IG and IPA audit process 
stronger and enhance GAO's ability to use their work in rendering an 
opinion, we are considering holding a forum with the IGs and the IPAs 
to share information--based on GAO's review of the IG and IPA work--
regarding best practices and areas to focus on that need additional 
audit work, and to establish a framework for enhanced coordination of 
the financial statement audit work.
    Changes to enhance the agency financial statement audit process are 
especially important given the planned acceleration of reporting 
deadlines for agency audits. Although some agencies accelerated their 
reports for fiscal year 2002, starting with fiscal year 2004, the 
Office of Management and Budget (OMB) has required that agencies issue 
their audited financial statements no later than 45 days after the end 
of the fiscal year, with the consolidated financial statements to be 
issued 30 days later. In past years, when the reporting deadlines were 
4 and 5 months after the end of the fiscal year, agencies made 
extraordinary efforts in which they spent considerable resources on 
extensive ad hoc procedures and made adjustments of billions of dollars 
to produce financial statements months after the fiscal year had ended. 
Given the accelerated reporting dates, such extraordinary approaches 
will no longer be an option. Over the next few years, as the government 
addresses the impediments to receiving an opinion on its consolidated 
financial statements, and we move closer to being able to render an 
opinion on the consolidated financial statements, GAO will need to 
invest more resources in assuring that the work of the IGs and IPAs on 
the agency-level financial statement audits can be used by GAO to 
support the audit of the consolidated financial statements. This 
resource investment is necessary if GAO is to be able to render an 
opinion on the consolidated financial statements.
    Another matter of concern regarding the audit of the U.S. 
government's consolidated financial statements involves the approaches 
used by the IGs and IPAs for reporting on internal control at the 
agency level. Our position is that an opinion on internal control is 
important in the government environment and that the public should be 
able to expect audit assurance on the adequacy of internal control over 
financial reporting. We believe that auditor opinions on internal 
control are a critical component of monitoring the effectiveness of an 
entity's risk management and accountability systems. We also believe 
that auditor opinions on internal control are appropriate and necessary 
for major public entities such as the CFO Act agencies currently 
included in the U.S. government's consolidated financial statements.
    As does GAO in connection with our own audits, several agency 
auditors are voluntarily providing opinions on the agencies' internal 
control; but most do not. When an auditor renders an opinion on 
internal control, the auditor is providing reasonable assurance that 
the entity has maintained effective internal control over financial 
reporting (including safeguarding of assets) and compliance such that 
material misstatements, losses, or noncompliance that are material to 
the financial statements would be detected in a timely fashion. For 
fiscal year 2002, however, only 3 of the 24 CFO Act agencies received 
opinions on internal control from their auditors.\4\ The remaining 21 
reported on internal control, but provided no opinion on the 
effectiveness of the agency's internal control. As we move closer to 
being able to issue an opinion on the consolidated financial 
statements, a disparity in reporting on internal control would hinder 
our ability to provide an opinion on internal control for the 
consolidated audit. Current agency-level reporting on internal control 
would fall short of what the public should be able to expect from an 
audit, and, moreover, what is now legally required from the auditors of 
publicly traded companies.
---------------------------------------------------------------------------
    \4\ The three agencies receiving opinions on internal control for 
fiscal year 2002 are the Social Security Administration, General 
Services Administration, and Nuclear Regulatory Commission.
---------------------------------------------------------------------------
    Congress has prescribed auditor opinions on internal controls for 
publicly traded corporations under the Sarbanes-Oxley Act of 2002.\5\ A 
final rule issued by the Securities and Exchange Commission in June 
2003 and effective August 2003 provides guidance for implementation of 
section 404 of the act, which contains requirements for management and 
auditor reporting on internal controls. The final rule requires 
companies to obtain a report in which a registered public accounting 
firm expresses an opinion, or states that an opinion cannot be 
expressed, concerning management's assessment of the effectiveness of 
internal controls over financial reporting.
---------------------------------------------------------------------------
    \5\ Pub. L. No. 107-204, 116 Stat. 745 (2002).
---------------------------------------------------------------------------
    As you know, Mr. Chairman, we provided testimony before this 
Subcommittee several weeks ago on the challenges of establishing sound 
financial management within DHS.\6\ In that testimony, we supported 
provisions of H.R. 2886 that would require DHS to obtain an audit 
opinion on its internal controls. During the testimony, we also 
supported provisions of H.R. 2886 that would require the Chief 
Financial Officers Council and the PCIE to jointly study the potential 
costs and benefits of requiring CFO Act agencies to obtain audit 
opinions of their internal controls over financial reporting. In 
addition, the current version of H.R. 2886 would require GAO to perform 
an analysis of the information provided in the report and report the 
findings to the House Committee on Government Reform and the Senate 
Committee on Governmental Affairs. We believe that the study and 
related analysis are important first steps in to resolving the issues 
associated with the current reporting on internal control.
---------------------------------------------------------------------------
    \6\ U.S. General Accounting Office, Department of Homeland 
Security: Challenges and Steps in Establishing Sound Financial 
Management, GAO-03-1134T (Washington, D.C.: Sept. 10, 2003).
---------------------------------------------------------------------------
    Ultimately, we are hopeful that federal performance and 
accountability professionals will not settle for anything less than 
opinion-level work on internal control at the CFO Act agency level and 
on the governmentwide audit. Increased planning and coordination will 
be needed among GAO, IGs, and IPAs to determine the appropriate timing 
for requiring an opinion on controls at the agency level. The specific 
timing will depend on the current state of the agency's control efforts 
so that an audit opinion on internal control would add value and 
mitigate risk in a cost beneficial manner.
    A practical issue that should also be dealt with is the adequacy of 
resources to provide for the agency financial statement audits. Over 
the years, a number of IGs have told us that the cost of agency 
financial audits has taken resources away from their traditional work. 
In the private sector, the cost of an annual financial audit is a 
routine business expense borne by the entity being audited, and the 
cost of the audit represents a very small percentage of total 
expenditures for the audited entity. We support enacting legislation 
that would make agencies responsible for paying the cost of their 
financial statement audits. We also believe that an arrangement in 
which the agencies pay for their own audits provides them with positive 
incentives for taking actions--such as streamlining systems and 
cleaning up their financial records prior to the audit--in order to 
reduce the costs of the audit and avoid the ``heroic'' audit efforts 
that we have seen in the past at some agencies.
    Under the arrangement in which agencies pay the cost of their own 
audits, we believe the IG should continue in the current role of 
selecting and overseeing audits in those cases in which the IG does not 
perform the audit but hires an IPA to conduct the audit. This would 
leverage the IGs' expertise to help assure the quality of the audits. 
We also advocate an approach whereby the IGs would be required to 
consult with the Comptroller General during the IPA selection process 
to obtain input from the results of GAO's reviews of the IPAs' previous 
work and the potential impact on the consolidated audit.
The IG Role in Federal Financial Management Advisory Committees
    We envision an important role for the IGs in audit or financial 
management advisory committees established at the federal agency level 
for the purpose of overseeing an agency's financial management, audits, 
and performance.
    In the government arena, some state and local governments and 
federal government corporations, as well as several federal agencies, 
have adopted an audit committee, or ``financial management advisory 
committee,'' approach to governance. In the federal government, such 
audit committees or advisory committees are intended to protect the 
public interest by promoting and facilitating effective accountability 
and financial management by providing independent, objective, and 
experienced advice and counsel, including oversight of audit and 
internal control issues. Responsibilities of the committees would 
likely include communicating with the auditors about the audit and any 
related issues. The work of the IGs logically provides much of the 
basis for financial management advisory committees in overseeing 
agencies' financial management, audits, and internal control. The work 
of the IGs would also be critical for the financial management advisory 
committees in their general governance roles. Specific roles and 
responsibilities of the committees will most likely vary by agency. A 
recently published guide, Financial Management Advisory Committees for 
Federal Agencies,\7\ provides a helpful road map of suggested practices 
for federal agency financial management advisory committees.
---------------------------------------------------------------------------
    \7\ Financial Management Advisory Committees for Federal Agencies: 
Suggested Practices, March 2003, prepared by KPMG, LLP.
---------------------------------------------------------------------------
    The concept of financial management advisory committees is very 
similar to the audit committee structure being used in the private 
sector. To help facilitate the audit process and promote disclosure and 
transparency, the governing boards of publicly traded companies use 
audit committees. Audit committees generally oversee the independent 
audit of the organization's financial statements and address financial 
management, reporting, and internal control issues. The Sarbanes-Oxley 
Act has requirements for the audit committees of publicly traded 
companies and their auditors regarding communications and resolution of 
significant audit matters.
    We strongly support the implementation of financial management 
advisory committees for selected federal agencies, based on risk and 
value added. Some agencies,\8\ including GAO, which has had such a 
committee in place since 1995, have already implemented such an 
approach, even though the committees have not been mandated or 
established by statute. As these committees are implemented or required 
in government, we would advocate amending the IG Act to emphasize the 
IGs' unique role in reporting the results of their work to the advisory 
committees while maintaining their independence and dual reporting 
authority to Congress.
---------------------------------------------------------------------------
    \8\ Agencies that currently have audit committees or financial 
management advisory committees include the National Science Foundation, 
Federal Deposit Insurance Corporation, and the Architect of the 
Capitol.
---------------------------------------------------------------------------
Structural Streamlining to Increase Resource Efficiencies
    One of the issues facing the IG community as well as others in the 
performance and accountability community is how to use limited 
resources to the best effect. In fiscal year 2002, the 57 IG offices 
operated with total fiscal year budgets of about $1.6 billion and about 
11,000 staff. (See app. II for more detail on IG budgets and staffs.) 
Most IGs for cabinet departments and major agencies are appointed by 
the President and confirmed by the Senate; however, IGs for some 
agencies are appointed by the agency head, and these IGs generally have 
smaller budgets and fewer staff than IGs appointed by the President. 
While agency-appointed IGs make up about half of all IG offices, the 
total of their fiscal year 2002 budgets was $162.2 million, a little 
more than 10 percent of all IG budgets. Of these IGs, the offices at 
the U.S. Postal Service (USPS), Amtrak, National Science Foundation 
(NSF), and Federal Reserve Board (FRB) are exceptions and have budgets 
that are comparable in size to those of presidentially appointed IGs. 
The remaining 24 agency-appointed IGs have a total of 191 staff and 
have budgets that make up about 2 percent of all IG budgets. 
Importantly, 16 of the 28 agency-appointed IGs have fewer than 10 
staff.
Potential IG Office Consolidations
    Last year we reported the views of the IGs, as well as our own, on 
the possible benefits of consolidating the smallest IG offices with the 
offices of IGs appointed by the President.\9\ We also considered the 
conversion of agency-appointed IGs to presidential appointment where 
their budgets were comparable to the presidentially appointed IG 
offices. The August 2002 report contains several matters for 
congressional consideration to address issues of IG conversion and 
consolidation. We are reaffirming these views, which are included at 
the end of my statement.
---------------------------------------------------------------------------
    \9\ U.S. General Accounting Office, Inspectors General: Office 
Consolidation and Related Issues, GAO-02-575 (Washington, D.C.: August 
2002).
---------------------------------------------------------------------------
    We believe that if properly structured and implemented, the 
conversion or consolidation of IG offices could increase the overall 
independence, efficiency, and effectiveness of the IG community. 
Consolidation could provide for a more effective and efficient 
allocation of IG resources across government to address high-risk and 
priority areas. It would not only achieve potential economies of scale 
but also provide a critical mass of skills, particularly given 
advancing technology and the ever-increasing need for technical staff 
with specialized skills. This point is especially appropriate to the 12 
IG offices with five or fewer staff. IG staff now in smaller offices 
would, in a large, consolidated IG office, have immediate access to a 
broader range of resources to use in dealing with issues requiring 
technical expertise or areas of critical need.
    Consolidation would also strengthen the ability of IGs to improve 
the allocation of human capital and scarce financial resources within 
their offices and to attract and retain a work force with talents, 
multidisciplinary knowledge, and up-to-date skills to ensure that each 
IG office is equipped to achieve its mission. Consolidation would also 
increase the ability of larger IG offices to provide methods and 
systems of quality control in the smaller agencies.
    We also recognize that there are potential risks resulting from 
consolidation that would have to be mitigated through proactive and 
targeted actions in order for the benefits of consolidation to be 
realized without adversely affecting the audit coverage of small 
agencies. For example, the potential lack of day-to-day contact between 
the IG and officials at smaller agencies as a result of consolidation 
could be mitigated by posting IG staff at the agency to keep both the 
IG and the agency head informed and to coordinate necessary meetings. 
In preparation for consolidation, staff in the smaller IG offices could 
be consulted in planning oversight procedures and audit coverage for 
their agencies. There may be fewer audits or even less coverage of 
those issues currently audited by the IGs at smaller agencies, but 
coverage by a consolidated IG could address areas of higher risk, 
value, and priority, resulting in potentially more efficient and 
effective use of IG resources across the government.
    Results of the survey conducted for our August 2002 report indicate 
a clear delineation between the responses of the presidentially 
appointed IGs and the responses of the agency-appointed IGs. The 
presidentially appointed IGs generally indicated that agency-appointed 
IG independence, quality, and use of resources could be strengthened by 
conversion and consolidation. The agency-appointed IGs indicated that 
there would either be no impact or that these elements could be 
weakened. The difference in views is not surprising given the 
difference in the potential impact of consolidation on the interests of 
the two groups of IGs. We believe that this difference in perspective, 
more than any other factor, helps to explain the significant divergence 
in the responses to the survey.
    There are already some examples where consolidation of IG offices 
and oversight is working. The Department of State IG provides, through 
statute, oversight of the Broadcasting Board of Governors and the 
International Broadcasting Bureau. The IG at the Agency for 
International Development is authorized by specific statutes to provide 
oversight of the Overseas Private Investment Corporation, the Inter-
American Foundation, and the African Development Foundation.
    In terms of budget size, the agency-appointed IGs at the USPS, 
Amtrak, NSF, and FRB are comparable to the offices of IGs appointed by 
the President. Moreover, in the case of the Postal IG, the office is 
the fourth largest of all the IGs. (See app. II.) On that basis, these 
IGs could be considered for conversion to appointment by the President 
with Senate confirmation. While the Amtrak IG could be converted 
because of comparable budget size, oversight of Amtrak is closely 
related to the work of the Department of Transportation IG. Moreover, 
the Transportation IG currently provides some oversight of Amtrak 
programs. Therefore, the consolidation of the Amtrak IG with the 
Transportation IG could be considered, rather than conversion.
    Consideration has been given in the Fiscal Year 2004 Budget of the 
U.S. Government to the consolidation of the two IG offices at the 
Department of the Treasury, unique in the federal government. The 
original statutory IG for the Department of the Treasury was 
established by the IG Act amendments of 1988. The Treasury IG for Tax 
Administration was established in 1998 as part of an Internal Revenue 
Service (IRS) reorganization because the former IRS Inspection Service 
was not perceived as being sufficiently independent from management. 
Consequently, the IRS Office of the Chief Inspector, along with most of 
the Inspection Service staff, was transferred to the new IG office to 
ensure independent reviews.
    The separate office of Treasury IG for Tax Administration was 
created because IRS officials were concerned that if the resources of 
the IRS Inspection Service were transferred to the original Treasury IG 
office, they would be used to investigate or audit other Treasury 
bureaus to the detriment of critical IRS oversight. With the passage of 
the Homeland Security Act of 2002, and the transfer of Treasury's 
United States Customs Service and United States Secret Service to the 
new Department of Homeland Security, the original concerns about 
competition for resources within the department should no longer be as 
compelling.
IG Councils
    The PCIE is an interagency council comprising principally the 
presidentially appointed and Senate-confirmed IGs. It was established 
by Executive Order No. 12301 in 1981 to coordinate and enhance the work 
of the IGs. In 1992, Executive Order No. 12805 created the ECIE, which 
comprises primarily statutory IGs appointed by the heads of designated 
federal entities as defined in the IG Act. The Deputy Director for 
Management in OMB serves as the chair of both organizations. These IG 
councils have been effective in coordinating the activities of the IGs 
in their efforts to prevent and detect fraud, waste, and abuse 
throughout the federal government and in reporting these results to 
both the President and Congress.
    The IG councils have provided a valuable forum for auditor 
coordination. However, we believe that the current environment demands 
a more formal, action-oriented, and strategic approach for coordination 
among federal audit organizations and that the IG councils could be 
strengthened in a number of ways. First, by providing a statutory basis 
for their roles and responsibilities, the permanence of the councils 
could be established and their ability to take on more sensitive issues 
strengthened. In addition, the strategic focus of the councils could be 
clearly established. As such, the councils would also be key in the 
overall strategic planning process for federal audit oversight that I 
described earlier in this statement.
Matters for Congressional Consideration
    As I stated at the beginning of my testimony, IGs have made a 
significant difference in federal performance and accountability during 
the last quarter century. The 25th anniversary of the landmark 
legislation establishing the IGs is an opportune time to reflect on the 
IGs' success while also considering ways to enhance coordination and 
utilization of resources across the federal performance and 
accountability community.
    In order to enhance the effectiveness and impact of the federal 
accountability community, Congress may want to consider establishing, 
through statute, assignment of responsibility to a selected group of 
designated federal accountability officials, such as representatives 
from GAO, the PCIE, and the ECIE, to develop and implement a periodic, 
formal strategic planning and ongoing engagement coordination process 
for focusing GAO and IG work will be focused to provide oversight to 
high-risk areas and significant management challenges across 
government, while leveraging each other's work and minimizing 
duplication.
    In order to resolve resource issues and provide positive incentives 
to agencies to take prudent actions to reduce overall audit costs, 
Congress may want to consider enacting legislation that makes agencies 
responsible for paying the cost of their financial statement audits.
    In order to achieve potential efficiencies and increased 
effectiveness across the federal IG community, Congress may also want 
to consider whether to proceed with a restructuring of the IG 
community, which could include the following:

      amending the IG Act to elevate the IGs at USPS, NSF, and 
FRB to presidential status,
      amending the IG Act to consolidate agency-appointed IGs 
with presidentially appointed IGs based on related agency missions or 
where potential benefits to IG effectiveness can be shown, and
      establishing an IG council by statute that includes 
stated roles and responsibilities and designated funding sources.

    Mr. Chairman, that concludes my prepared statement. I would be 
happy to respond to any questions you or Members of the Subcommittee 
might have.
Appendix I: The Inspector General Act
    The Inspector General Act of 1978 was enacted following a series of 
events that emphasized the need for more-independent and coordinated 
audits and investigations in federal departments and agencies. First, 
in 1974, the Secretary of Agriculture abolished the department's 
administratively established IG office, demonstrating the impermanent 
nature of a nonstatutory IG. Later, in 1974 and 1975, a study by the 
Intergovernmental Relations and Human Resources Subcommittee of the 
House Government Operations Committee disclosed inadequacies in the 
internal audit and investigative procedures in the Department of 
Health, Education, and Welfare, now the Department of Health and Human 
Services. The need to deal more effectively with the danger of loss 
from fraud and abuse in the department's programs led to the 
establishment of the first statutory IG in 1976. The Congress also 
established an IG in the Department of Energy when that department was 
created in 1977.
    In 1977, the House Intergovernmental and Human Resources 
Subcommittee began a comprehensive inquiry to determine whether other 
federal departments and agencies had a similar need for statutory IGs. 
The Subcommittee's study revealed serious deficiencies in a number of 
department and agency audit and investigative efforts, including the 
following:

      No central leadership of auditors and investigators 
existed.
      Auditors and investigators exhibited a lack of 
independence by reporting to officials who had responsibility for 
programs that were being audited.
      No procedures had been established to ensure that the 
Congress was informed of serious problems.
      No program existed to look for possible fraud or abuse.

    As an initial effort to correct these deficiencies, the IG Act of 
1978 established 12 additional statutory OIGs to be patterned after the 
one at the Department of Health, Education, and Welfare. The act 
consolidated the audit and investigative responsibilities of each 
department and agency under the direction of one senior official--the 
Inspector General--who reports to the head of the agency or, if 
delegated, the official next in rank below the agency head. The 
President appoints the IGs, by and with the consent of the Senate, 
without regard to political affiliation and solely on the basis of 
integrity and demonstrated ability in accounting, financial analysis, 
law, management analysis, public administration, or investigations.
    The IGs are responsible for (1) conducting and supervising audits 
and investigations, (2) providing leadership and coordination and 
recommending policies to promote economy, efficiency, and 
effectiveness, and (3) detecting fraud and abuse in their agencies' 
programs and operations. In addition, the IG Act requires IGs to 
prepare semiannual reports which summarize the activities of the IG 
during the preceding 6-month period. The reports are forwarded to the 
department or agency head, who is responsible for transmitting them to 
the appropriate congressional committees.
    The act states that neither the agency head nor the official next 
in rank shall prevent or prohibit \10\ the IG from initiating, carrying 
out, or completing any audit or investigation, or from issuing any 
subpoena during the course of any audit or investigation. This enhances 
the independence of auditors and investigators by ensuring that they 
are free to carry out their work unobstructed by agency officials. The 
act further enhances independence by requiring IGs to comply with the 
Comptroller General's Government Auditing Standards. One of these 
standards requires auditors and audit organizations to be personally 
and organizationally independent and to maintain the appearance of 
independence so that opinions, conclusions, judgments, and 
recommendations will be impartial and will be viewed as such by 
knowledgeable third parties.
---------------------------------------------------------------------------
    \10\ The IG Act, as amended, does allow the heads of the 
Departments of Defense, Justice, and the Treasury to prohibit their IGs 
from initiating or carrying out audits and investigations in certain 
circumstances.
---------------------------------------------------------------------------
    Between the enactment of the IG Act in 1978 and 1988, the Congress 
passed legislation to establish statutory IGs, who are appointed by the 
President with Senate confirmation, in 8 additional departments and 
agencies. In 1988, the Congress enacted the Inspector General Act 
Amendments of 1988 and the Government Printing Office (GPO) Inspector 
General Act of 1988 (Titles I and II, Public Law 100-504) to establish 
additional presidentially appointed IGs in 5 departments and agencies 
and 34 IGs appointed by their agency heads (33 in designated federal 
entities and 1 in GPO) \11\ in order to strengthen the capability of 
the existing internal audit offices and improve audit oversight. Both 
GAO and the President's Council on Integrity and Efficiency (PCIE) had 
previously reported that the existing internal audit offices lacked 
independence, adequate coverage of important programs, and permanent 
investigative staff.
---------------------------------------------------------------------------
    \11\ The act defines the term ``designated federal entities'' by 
listing the entities covered.
---------------------------------------------------------------------------
Appendix II: Inspector General Budgets and Staffing

Table 1: Inspectors General Appointed by the President Fiscal Year 2002 Budgets and Full-Time Equivalents (FTEs)
----------------------------------------------------------------------------------------------------------------
                                           I60Federal Departments/Agencies                  Budgets        FTEs
----------------------------------------------------------------------------------------------------------------
 1                                        Department of Health and Human Services \a\      $227,000,000    1,569
----------------------------------------------------------------------------------------------------------------
 2                                                              Department of Defense       151,000,000    1,215
----------------------------------------------------------------------------------------------------------------
 3                                                 Treasury IG for Tax Administration       130,000,000      943
----------------------------------------------------------------------------------------------------------------
 4                                        Department of Housing and Urban Development        95,000,000      648
----------------------------------------------------------------------------------------------------------------
 5                                                     Social Security Administration        75,000,000      564
----------------------------------------------------------------------------------------------------------------
 6                                                          Department of Agriculture        75,000,000      642
----------------------------------------------------------------------------------------------------------------
 7                                                                     Department of Labor   67,000,000      426
----------------------------------------------------------------------------------------------------------------
 8                                                              Department of Justice        65,000,000      329
----------------------------------------------------------------------------------------------------------------
 9                                                     Department of Veterans Affairs        57,000,000      393
----------------------------------------------------------------------------------------------------------------
10                                                       Department of Transportation        50,000,000      454
----------------------------------------------------------------------------------------------------------------
11                                                    Department of Homeland Security        47,000,000      336
----------------------------------------------------------------------------------------------------------------
12                                                    Environmental Protection Agency        46,000,000      444
----------------------------------------------------------------------------------------------------------------
13                                                            Department of Education        39,000,000      276
----------------------------------------------------------------------------------------------------------------
14                                                         Department of the Interior        37,000,000      251
----------------------------------------------------------------------------------------------------------------
15                                                    General Services Administration        36,000,000      273
----------------------------------------------------------------------------------------------------------------
16                                                               Department of Energy        32,000,000      250
----------------------------------------------------------------------------------------------------------------
17                                               Agency for International Development        32,000,000      166
----------------------------------------------------------------------------------------------------------------
18                                              Federal Deposit Insurance Corporation        32,000,000      201
----------------------------------------------------------------------------------------------------------------
19                                                                Department of State        29,000,000      234
----------------------------------------------------------------------------------------------------------------
20                                      National Aeronautics and Space Administration        24,000,000      200
----------------------------------------------------------------------------------------------------------------
21                                                             Department of Commerce        21,000,000      136
----------------------------------------------------------------------------------------------------------------
22                                                      Small Business Administration        12,000,000      108
----------------------------------------------------------------------------------------------------------------
23                                                         Department of the Treasury        12,000,000       87
----------------------------------------------------------------------------------------------------------------
24                                                     Office of Personnel Management        11,000,000       89
----------------------------------------------------------------------------------------------------------------
25                                                         Tennessee Valley Authority         7,000,000       87
----------------------------------------------------------------------------------------------------------------
26                                                      Nuclear Regulatory Commission         6,000,000       41
----------------------------------------------------------------------------------------------------------------
27                                                          Railroad Retirement Board         6,000,000       51
----------------------------------------------------------------------------------------------------------------
28                                     Corporation for National and Community Service         5,000,000       16
----------------------------------------------------------------------------------------------------------------
29                                                    Central Intelligence Agency \b\                na       na
----------------------------------------------------------------------------------------------------------------
                                                                               Totals     1,426,000,000   10,429
----------------------------------------------------------------------------------------------------------------
Source: Budget authority and FTEs from Fiscal Year 2004 Budget of the U.S. Government.
\a\ Includes budget authority to combat health care fraud.
\b\ Budget and FTE information not available.


 Table 2: Inspectors General Appointed by Agency Heads Fiscal Year 2002 Budgets and Full-Time Equivalents (FTEs)
----------------------------------------------------------------------------------------------------------------
                                                 I60Federal Agencies                        Budgets        FTEs
----------------------------------------------------------------------------------------------------------------
 1                                                                U.S. Postal Service      $117,324,000      713
----------------------------------------------------------------------------------------------------------------
 2                                                                             Amtrak         8,706,539       64
----------------------------------------------------------------------------------------------------------------
 3                                                        National Science Foundation         6,760,000       50
----------------------------------------------------------------------------------------------------------------
 4                                                              Federal Reserve Board         3,878,000       29
----------------------------------------------------------------------------------------------------------------
 5                                                         Government Printing Office         3,400,000       24
----------------------------------------------------------------------------------------------------------------
 6                                                                                   Legal Ser2,500,000poratio15
----------------------------------------------------------------------------------------------------------------
 7                                                                        Peace Corps         2,006,000       16
----------------------------------------------------------------------------------------------------------------
 8                                                            Smithsonian Institution         1,800,000       17
----------------------------------------------------------------------------------------------------------------
 9                                                  Federal Communications Commission         1,569,000       10
----------------------------------------------------------------------------------------------------------------
10                                       National Archives and Records Administration         1,375,000       13
----------------------------------------------------------------------------------------------------------------
11                                                 Securities and Exchange Commission         1,372,559        8
----------------------------------------------------------------------------------------------------------------
12                                               National Credit Union Administration         1,338,135        7
----------------------------------------------------------------------------------------------------------------
13                                               Pension Benefit Guaranty Corporation         1,300,000       11
----------------------------------------------------------------------------------------------------------------
14                                            Equal Employment Opportunity Commission         1,106,119       10
----------------------------------------------------------------------------------------------------------------
15                                                      Federal Housing Finance Board           858,237        3
----------------------------------------------------------------------------------------------------------------
16                                                         Farm Credit Administration           829,621        5
----------------------------------------------------------------------------------------------------------------
17                                               Commodity Futures Trading Commission           735,800        4
----------------------------------------------------------------------------------------------------------------
18                                                Corporation for Public Broadcasting           735,000        9
----------------------------------------------------------------------------------------------------------------
19                                                                          National Labor Relat711,900ard     6
----------------------------------------------------------------------------------------------------------------
20                                                           Federal Trade Commission           710,000        5
----------------------------------------------------------------------------------------------------------------
21                                              National Endowment for the Humanities           497,000        5
----------------------------------------------------------------------------------------------------------------
22                                                    Appalachian Regional Commission           466,000        3
----------------------------------------------------------------------------------------------------------------
23                                                        Federal Maritime Commission           441,034        3
----------------------------------------------------------------------------------------------------------------
24                                                 Consumer Product Safety Commission           407,000        3
----------------------------------------------------------------------------------------------------------------
25                                                        Federal Election Commission           392,600        4
----------------------------------------------------------------------------------------------------------------
26                                                    National Endowment for the Arts           392,577        4
----------------------------------------------------------------------------------------------------------------
27                                                     International Trade Commission           389,500        4
----------------------------------------------------------------------------------------------------------------
28                                                                           Federal Labor Relat222,500thority 2
----------------------------------------------------------------------------------------------------------------
                                                                                Total      $162,224,121    1,047
----------------------------------------------------------------------------------------------------------------
Source: As reported by the ECIE.


  Table 3: Inspectors General Appointed by the President with Four Comparable Agency Appointed IGs Fiscal Year
                                                  2002 Budgets
----------------------------------------------------------------------------------------------------------------
                                                    I60Department/Agency IGs                         Budgets
----------------------------------------------------------------------------------------------------------------
 1                                                 Department of Health and Human Services \a\      $227,000,000
----------------------------------------------------------------------------------------------------------------
 2                                                                       Department of Defense       151,000,000
----------------------------------------------------------------------------------------------------------------
 3                                                        Treasury's IG for Tax Administration       130,000,000
----------------------------------------------------------------------------------------------------------------
 4                                                                     U.S. Postal Service \b\       117,324,000
----------------------------------------------------------------------------------------------------------------
 5                                                 Department of Housing and Urban Development        95,000,000
----------------------------------------------------------------------------------------------------------------
 6                                                                   Department of Agriculture        75,000,000
----------------------------------------------------------------------------------------------------------------
 7                                                              Social Security Administration        75,000,000
----------------------------------------------------------------------------------------------------------------
 8                                                                              Department of Labor   67,000,000
----------------------------------------------------------------------------------------------------------------
 9                                                                       Department of Justice        65,000,000
----------------------------------------------------------------------------------------------------------------
10                                                              Department of Veterans Affairs        57,000,000
----------------------------------------------------------------------------------------------------------------
11                                                                Department of Transportation        50,000,000
----------------------------------------------------------------------------------------------------------------
12                                                             Department of Homeland Security        47,000,000
----------------------------------------------------------------------------------------------------------------
13                                                             Environmental Protection Agency        46,000,000
----------------------------------------------------------------------------------------------------------------
14                                                                     Department of Education        39,000,000
----------------------------------------------------------------------------------------------------------------
15                                                                  Department of the Interior        37,000,000
----------------------------------------------------------------------------------------------------------------
16                                                             General Services Administration        36,000,000
----------------------------------------------------------------------------------------------------------------
17                                                                        Department of Energy        32,000,000
----------------------------------------------------------------------------------------------------------------
18                                                        Agency for International Development        32,000,000
----------------------------------------------------------------------------------------------------------------
19                                                       Federal Deposit Insurance Corporation        32,000,000
----------------------------------------------------------------------------------------------------------------
20                                                                         Department of State        29,000,000
----------------------------------------------------------------------------------------------------------------
21                                               National Aeronautics and Space Administration        24,000,000
----------------------------------------------------------------------------------------------------------------
22                                                                      Department of Commerce        21,000,000
----------------------------------------------------------------------------------------------------------------
23                                                                  Department of the Treasury        12,000,000
----------------------------------------------------------------------------------------------------------------
24                                                               Small Business Administration        12,000,000
----------------------------------------------------------------------------------------------------------------
25                                                              Office of Personnel Management        11,000,000
----------------------------------------------------------------------------------------------------------------
26                                                                                  Amtrak \b\         8,706,539
----------------------------------------------------------------------------------------------------------------
27                                                                  Tennessee Valley Authority         7,000,000
----------------------------------------------------------------------------------------------------------------
28                                                             National Science Foundation \b\         6,760,000
----------------------------------------------------------------------------------------------------------------
29                                                               Nuclear Regulatory Commission         6,000,000
----------------------------------------------------------------------------------------------------------------
30                                                                   Railroad Retirement Board         6,000,000
----------------------------------------------------------------------------------------------------------------
31                                              Corporation for National and Community Service         5,000,000
----------------------------------------------------------------------------------------------------------------
32                                                                   Federal Reserve Board \b\         3,878,000
----------------------------------------------------------------------------------------------------------------
33                                                             Central Intelligence Agency \c\                na
----------------------------------------------------------------------------------------------------------------
                                                                                         Total    $1,562,668,539
----------------------------------------------------------------------------------------------------------------
Source: Budget authority from Fiscal Year 2004 Budget of the U.S. Government.
Note: The four comparable agency appointed IGs are in bold.
a Includes budget authority to combat health care fraud.
b Information supplied by the ECIE.
c Budget information not available.

                                 

                      Council for Citizens Against Government Waste
                                               Washington, DC 20036
                                                     March 12, 2004

The Honorable Amory Houghton, Jr.
Chairman, Subcommittee on Oversight
Committee on Ways and Means
1136 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Houghton:

    On behalf of the more than one million members and supporters of 
the Council for Citizens Against Government Waste, I am writing to 
support your efforts to consolidate the two existing Inspector General 
offices at the Department of the U.S. Treasury--the Office of Inspector 
General of the Treasury (OIG) and the Office of the Treasury Inspector 
General for Tax Administration (TIGTA)--into a new office called the 
Office of the Treasury Inspector General (TIG).
    H.R. 3625, the Department of the Treasury Inspector General 
Consolidation Act of 2003, is a sound and practical way to save 
taxpayer dollars and to create a more cost-effective department. With 
the creation of the U.S. Department of Homeland Security (DHS), the 
Treasury Department has been downsized because several of its agencies 
were moved into DHS or the Department of Justice (DOJ). Naturally, a 
large portion of Treasury's OIG's responsibilities and budget were also 
transferred to DHS and DOJ.
    Treasury Secretary John W. Snow has said that the Internal Revenue 
Service now constitutes approximately 87 percent of the remaining 
personnel at the Department and having a separate IG for the remaining 
13 percent is no longer the proper arrangement for effective oversight. 
The President recommended, in both his fiscal year 2004 and 2005 
budgets, that the OIG and the TIGTA be combined into a single new 
office with the same powers and authorities that existed before the 
split. The Administration believes that the merger will result in 
better and more efficient oversight for the entire department. We 
agree.
    Please let us know whatever CCAGW can do to make sure H.R. 3625 
becomes law so this consolidation can occur. It's the right thing to 
do, for the Treasury Department and taxpayers.

            Sincerely,
                                                   Thomas A. Schatz
                                                          President

                                 
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