Financial Audit: Expenditures by Four Independent Counsels for the Six
Months Ended March 31, 1994 (Letter Report, 03/31/95, GAO/AIMD-95-112).
This report presents the results of GAO's audits of expenditures
reported by four independent counsels for the six months ended March 31,
1994. GAO found that the statements of expenditures for independent
counsels Arlin M. Adams, Joseph E. diGenova, Robert B. Fiske, Jr., and
Lawrence E. Walsh were reliable in all material respects. GAO did
discover a material weakness in internal controls over reporting of
expenditures, although there was no material noncompliance with laws and
regulations.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-95-112
TITLE: Financial Audit: Expenditures by Four Independent Counsels
for the Six Months Ended March 31, 1994
DATE: 03/31/95
SUBJECT: Financial statement audits
Internal controls
Accounting procedures
Lawyers
Administrative costs
Reporting requirements
Financial records
Audit oversight
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Cover
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Report to Congressional Committees
March 1995
FINANCIAL AUDIT - EXPENDITURES BY
FOUR INDEPENDENT COUNSELS FOR THE
SIX MONTHS ENDED MARCH 31, 1994
GAO/AIMD-95-112
Independent Counsels
(911694)
Abbreviations
=============================================================== ABBREV
AOUSC - Administrative Office of the U.S. Courts
FBI - Federal Bureau of Investigation
Letter
=============================================================== LETTER
B-260395
March 31, 1995
Congressional Committees
This report presents the results of our audits of expenditures
reported by four independent counsels for the 6 months ended March
31, 1994. Independent counsels and the Department of Justice are
required under 28 U.S.C. 594 to report on expenditures from a
permanent, indefinite appropriation established within Justice to
fund independent counsel activities. We are required under 28 U.S.C.
596, and Public Law 100-202 to audit those expenditures. We found
the statements of expenditures presented in appendixes I, II, III,
and IV for independent counsels Arlin M. Adams, Joseph E. diGenova,
Robert B. Fiske, Jr., and Lawrence E. Walsh were reliable in all
material respects.
Further, our audits included limited tests of internal controls and
compliance with laws and regulations that disclosed
-- a material weakness in internal controls over reporting of
expenditures and
-- no material noncompliance with laws and regulations we tested.
The following sections provide background information, outline each
conclusion in more detail, and discuss the scope of our audits.
BACKGROUND
------------------------------------------------------------ Letter :1
The independent counsel provisions of the Ethics in Government Act of
1978 (28 U.S.C. 591-599) established a process for the appointment
of independent counsels to preserve and promote the accountability
and integrity of public officials and of institutions of the federal
government. The law provides for the judicial appointment of
temporary, special prosecutors\1 when the Attorney General determines
that reasonable grounds exist to warrant further investigation of
high-ranking government officials for certain alleged crimes. The
independent counsel law expired on December 15, 1992; however, the
law's provisions allowed the three independent counsels serving in
that position on that date--Mr. Adams, Mr. diGenova, and Mr.
Walsh--to continue their work until completed.
On June 30, 1994, and subsequent to this audit period, the
Independent Counsel Reauthorization Act of 1994 (Public Law 103-270)
was enacted, reauthorizing the independent counsel law for an
additional 5 years. The act contains various amendments aimed at
addressing problems identified in our prior independent counsel
reports.\2 For example, these amendments require added cost controls
over independent counsel expenditures and designate specific
responsibilities to the Administrative Office of the United States
Courts (AOUSC) for independent counsels' administrative support.
The independent counsel law directs the Department of Justice to pay
all costs relating to the establishment and operation of independent
counsel offices. In 1987, Public Law 100-202 established a
permanent, indefinite appropriation within Justice to fund
expenditures by independent counsels. Independent counsels are
required to report their expenditures from the appropriation for each
6-month period in which they have operations. We are required to
audit expenditures from the independent counsel appropriation and to
report our findings to appropriate committees of the Congress.
In January 1994, the Department of Justice determined that the
appropriation established by Public Law 100-202 to fund expenditures
by independent counsels appointed pursuant to 28 U.S.C. 591-599
could also fund the expenditures of Robert B. Fiske, Jr., who was
appointed as a regulatory independent counsel\3 within Justice by the
Attorney General on January 20, 1994. Since we are required to audit
all expenditures from that appropriation, the expenditures of Mr.
Fiske's office made from the date of his appointment through March
31, 1994, are included in this report. Subsequent to this audit
period, Mr. Fiske's investigation was turned over to Kenneth W.
Starr, who was appointed independent counsel under the reauthorized
independent counsel law in August 1994.
Independent counsels may also incur costs that are paid from
appropriations other than the permanent, indefinite appropriation
established to fund independent counsel activities. These costs
arise, for example, from the use of detailees from other federal
agencies, such as the Federal Bureau of Investigation (FBI). While
independent counsels are not required to and do not include the cost
of all their activities in reported expenditures, the nature of these
other costs is identified and discussed in the notes to the
statements of expenditures presented in the appendixes to this
report.
--------------------
\1 In 1983, the title of these positions was changed from special
prosecutor to independent counsel.
\2 Financial audits of expenditures by independent counsels
(GAO/AFMD-93-1, October 9, 1992; GAO/AFMD-93-60, April 21, 1993; and
GAO/AIMD-94-76, April 15, 1994).
\3 Regulatory independent counsels are appointed pursuant to 5 U.S.C.
301; 25 U.S.C. 509, 510, and 543. See also 28 C.F.R. Parts 601 and
603 (1994).
OPINION ON STATEMENTS OF
EXPENDITURES
------------------------------------------------------------ Letter :2
The statements of expenditures for independent counsels Arlin M.
Adams, Joseph E. diGenova, Robert B. Fiske, Jr., and Lawrence E.
Walsh present fairly, in all material respects, the respective
expenditures of these independent counsel offices for the 6 months
ended March 31, 1994. The statements of expenditures and related
notes regarding bases of accounting and additional pertinent
information are provided in appendixes I through IV.
CONSIDERATION OF INTERNAL
CONTROL STRUCTURE
------------------------------------------------------------ Letter :3
For this audit period, the internal controls we considered for each
of the four independent counsels and for AOUSC and Justice regarding
the administrative support and accounting services they perform for
independent counsels were those designed to
-- safeguard assets against loss from unauthorized use or
disposition;
-- assure the execution of transactions in accordance with
management authority and with laws and regulations; and
-- properly record, process, and summarize transactions to permit
the preparation of expenditure statements in accordance with
applicable bases of accounting.
In this audit period, we continued to find a material weakness in
internal controls over the reporting of expenditures. A material
weakness is a condition in which the design or operation of one or
more of the internal control structure elements does not reduce to a
relatively low risk that errors or irregularities in amounts that
would be material to the expenditure statements may occur and not be
detected promptly by employees in the normal course of performing
their duties.
In 1986, Justice entered into an agreement with AOUSC to transfer the
processing of payments for independent counsel expenditures from
Justice to AOUSC, and Justice periodically disburses lump-sum
payments to AOUSC for this purpose. Independent counsel offices
typically submit payment vouchers, payroll information, and
supporting documentation to AOUSC. On the independent counsels'
behalf, AOUSC expends funds and records the expenditures in its
payroll and accounting systems. AOUSC also prepares monthly
summarized expenditure reports and submits them to independent
counsels. Justice performed similar functions for Mr. Fiske's
independent counsel office.
Independent Counsels Adams and diGenova fulfilled their financial
reporting requirements by using the summarized expenditure reports
prepared by AOUSC. During this audit period, and as discussed in our
prior reports,\4 AOUSC expenditure reports had errors, thus requiring
us to propose--and independent counsels to accept--audit adjustments.
During this audit period, Mr. Walsh's office continued to maintain
its own separate accounting system and performed procedures to
reconcile AOUSC reports to its own records, enabling it to identify
any errors in the AOUSC reports. We believe that independent
counsels may continue to experience problems reporting their
expenditures until AOUSC establishes effective internal controls for
accurately summarizing independent counsel expenditures.
In our prior reports, we identified other internal control weaknesses
at independent counsel offices and AOUSC including, for example,
inadequate segregation of duties and inadequate procedures to ensure
compliance with applicable laws. We attributed many of the problems
regarding independent counsels' noncompliance with certain laws and
regulations to a lack of comprehensive guidance, either in the
independent counsel law or elsewhere, regarding the financial
management structure and operation of independent counsel offices.
In response to our prior reports, independent counsels and AOUSC
officials acknowledged that corrective action was needed and have
taken steps to improve internal controls through greater segregation
of duties, increased interaction between independent counsel and
AOUSC employees, and the ongoing development of handbooks and other
written guidance.
Also, since the issuance of our prior reports, and subsequent to this
audit period, the Congress addressed many of the problems we found by
passing the Independent Counsel Reauthorization Act of 1994. The act
amends the independent counsel law by requiring independent counsels
to generally comply with the established policies of the Department
of Justice regarding expenditure of funds and by establishing
additional restrictions on the compensation and travel expenses paid
to independent counsels or their employees.
--------------------
\4 Financial audits of expenditures by independent counsels
(GAO/AFMD-93-1, October 9, 1992; GAO/AFMD-93-60, April 21, 1993; and
GAO/AIMD-94-76, April 15, 1994).
COMPLIANCE WITH LAWS AND
REGULATIONS
------------------------------------------------------------ Letter :4
Our tests for compliance with selected provisions of laws and
regulations disclosed no material instances of noncompliance during
the 6 months ended March 31, 1994.
OBJECTIVES, SCOPE, AND
METHODOLOGY
------------------------------------------------------------ Letter :5
In order to carry out their financial operations and to ensure
accountability, independent counsels are responsible for
-- preparing statements of expenditures,
-- establishing and maintaining internal controls and systems to
provide reasonable assurance that the internal control
objectives previously mentioned are met, and
-- complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether
the statements of expenditures reported by independent counsels are
reliable (free of material misstatement and presented fairly in
accordance with the bases of accounting described in accompanying
notes). We are also responsible for considering the internal control
structure in order to determine our auditing procedures for
expressing an opinion on the statements of expenditures, not to
provide assurance on the internal control structure. In addition, we
are responsible for testing compliance with selected provisions of
laws and regulations.
In order to fulfill these responsibilities, for each independent
counsel, we
-- examined, on a test basis, evidence supporting the amounts and
disclosures in the statement of expenditures and notes thereto,
except items indicated as unaudited;
-- assessed the accounting principles used and significant
estimates made by management;
-- evaluated the overall presentation of the statement of
expenditures;
-- obtained an understanding of the design of relevant internal
control structure policies and procedures, determined whether
they had been placed in operation, assessed the associated
control risk, and conducted limited tests of relevant internal
controls, including those over expenditure authorizations and
financial reporting; and
-- tested compliance with certain aspects of selected provisions of
the independent counsel provisions of the Ethics in Government
Act of 1978 (28 U.S.C. 591-599), 5 U.S.C. Chapter 55, and
implementing regulations, relating to pay administration.
It is important to note that because of inherent limitations in any
internal control structure, losses, noncompliance, or misstatements
may nevertheless occur and not be detected. Also, projecting any
evaluation to future periods is subject to the risk that controls may
become inadequate because of changes in conditions or that the degree
of compliance with controls may deteriorate. As a result of the
material internal control weakness over reported expenditures
previously discussed, we extended our substantive testing in order to
opine on the expenditure reports presented in the appendixes to this
report.
We obtained, but did not audit, information on costs that were not
paid from the permanent, indefinite appropriation established to fund
independent counsel activities. We obtained information on these
costs from the independent counsel offices; the Department of
Justice, including the FBI; the Internal Revenue Service; and the
Office of Inspector General of the Department of Housing and Urban
Development.
We discussed the results of our work with the four independent
counsels or their representatives and with representatives of AOUSC
and incorporated their comments where appropriate.
We performed our audits in accordance with generally accepted
government auditing standards. We completed our audit work on March
22, 1995.
---------------------------------------------------------- Letter :5.1
We are sending copies of this report to the Attorney General, the
Director of the Administrative Office of the U.S. Courts, the four
independent counsels included in our audit, and other interested
parties. Copies will be made available to others upon request.
David L. Clark
Director, Legislative Reviews
and Audit Oversight
List of Committees
The Honorable Mark O. Hatfield
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate
The Honorable William V. Roth, Jr.
Chairman
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate
The Honorable Orrin G. Hatch
Chairman
The Honorable Joseph R. Biden, Jr.
Ranking Minority Member
Committee on the Judiciary
United States Senate
The Honorable Robert L. Livingston
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives
The Honorable William F. Clinger, Jr.
Chairman
The Honorable Cardiss Collins
Ranking Minority Member
Committee on Government Reform and Oversight
House of Representatives
The Honorable Henry J. Hyde
Chairman
The Honorable John Conyers, Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives
(See figure in printed edition.)Appendix I
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL ADAMS
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)Appendix II
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL DIGENOVA
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)Appendix III
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL FISKE
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)Appendix IV
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL WALSH
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
*** End of document. ***