Financial Audit: Expenditures by Six Independent Counsels for the Six
Months Ended September 30, 1994 (Letter Report, 03/31/95,
GAO/AIMD-95-113).
Pursuant to a legislative requirement, GAO audited the expenditures of
six independent counsels for the 6 months ended September 30, 1994.
GAO found that: (1) there was a material weakness in internal controls
over reported expenditures; (2) the independent counsels fulfilled their
financial reporting requirements by using summarized expenditure
reports; (3) the Administrative Office of the U.S. Courts (AOUSC)
reported expenditures for five independent counsels, while the
Department of Justice reported expenditures for the sixth counsel; (4)
the independent counsels took corrective action to improve internal
controls through greater segregation of duties, increased interaction
between independent counsel and AOUSC employees, and the ongoing
development of written guidance; and (5) there were no other material
instances of noncompliance for the periods ended September 30, 1994.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-95-113
TITLE: Financial Audit: Expenditures by Six Independent Counsels
for the Six Months Ended September 30, 1994
DATE: 03/31/95
SUBJECT: Financial statement audits
Internal controls
Accounting procedures
Lawyers
Administrative costs
Reporting requirements
Compliance
Financial records
Audit oversight
**************************************************************************
* This file contains an ASCII representation of the text of a GAO *
* report. Delineations within the text indicating chapter titles, *
* headings, and bullets are preserved. Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are *
* identified by double and single lines. The numbers on the right end *
* of these lines indicate the position of each of the subsections in the *
* document outline. These numbers do NOT correspond with the page *
* numbers of the printed product. *
* *
* No attempt has been made to display graphic images, although figure *
* captions are reproduced. Tables are included, but may not resemble *
* those in the printed version. *
* *
* A printed copy of this report may be obtained from the GAO Document *
* Distribution Facility by calling (202) 512-6000, by faxing your *
* request to (301) 258-4066, or by writing to P.O. Box 6015, *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time. *
**************************************************************************
Cover
================================================================ COVER
Report to Congressional Committees
March 1995
FINANCIAL AUDIT - EXPENDITURES BY
SIX INDEPENDENT
COUNSELS FOR THE
SIX MONTHS ENDED
SEPTEMBER 30, 1994
GAO/AIMD-95-113
Independent Counsels
Abbreviations
=============================================================== ABBREV
AOUSC - Administrative Office of the U.S. Courts
FBI - Federal Bureau of Investigation
Letter
=============================================================== LETTER
B-260054
March 31, 1995
Congressional Committees
This report presents the results of our audits of expenditures
reported by six independent counsels for the 6 months ended September
30, 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, as amended, and Public Law 100-202 to audit those expenditures.
We found the statements of expenditures presented in appendixes I
through VI, respectively, for independent counsels Arlin M. Adams,
Joseph E. diGenova, Robert B. Fiske, Jr., Donald C. Smaltz,
Kenneth W. Starr, 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 the beginning of 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 during this audit period are included in this
report.
During this audit period Kenneth W. Starr, who replaced Mr. Fiske,
and Donald C. Smaltz were appointed as independent counsels under
the reauthorized independent counsel law and expenditures incurred by
them for the periods from their appointments through September 30,
1994, are included in this report. In March 1994, Lawrence E.
Walsh's independent counsel office closed; however, certain costs
incurred prior to the closing of his office and paid by AOUSC after
Mr. Walsh's operations ceased are included in this report.
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., Donald C. Smaltz,
Kenneth W. Starr, and Lawrence E. Walsh present fairly, in all
material respects, the respective expenditures of these independent
counsel offices for the 6 months ended September 30, 1994. The
statements of expenditures and related notes regarding bases of
accounting and additional pertinent information are provided in
appendixes I through VI.
CONSIDERATION OF INTERNAL
CONTROL STRUCTURE
------------------------------------------------------------ Letter :3
For this audit period, the internal controls we considered for each
of the five active 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 have generally 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.
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 the
beginning of 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 September 30, 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 six 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
27, 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 six
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
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 SMALTZ
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)Appendix V
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL STARR
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)Appendix VI
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL WALSH
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)