Financial Audit: Expenditures by Six Independent Counsels (Letter Report,
09/29/95, GAO/AIMD-95-233).
This report presents the results of GAO's audit of expenditures reported
by six independent counsels for the six months ended March 31, 1995. GAO
found that 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 were reliable in all materials
respects.l GAO also did limited test of internal controls and discovered
a material weaknesses in internal controls over reporting of
expenditures. GAO found no reportable noncompliance with laws and
regulations that it tested.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-95-233
TITLE: Financial Audit: Expenditures by Six Independent Counsels
DATE: 09/29/95
SUBJECT: Financial statement audits
Administrative costs
Internal controls
Reporting requirements
Accounting errors
Financial records
Lawyers
Accounting procedures
Audit oversight
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Cover
================================================================ COVER
Report to Congressional Committees
September 1995
FINANCIAL AUDIT - EXPENDITURES BY
SIX INDEPENDENT COUNSELS FOR THE
SIX MONTHS ENDED MARCH 31, 1995
GAO/AIMD-95-233
Independent Counsels
(911698)
Abbreviations
=============================================================== ABBREV
AOUSC - Administrative Office of the U.S. Courts
FBI - Federal Bureau of Investigation
Letter
=============================================================== LETTER
B-265988
September 29, 1995
Congressional Committees
Enclosed is our opinion on the statements of expenditures by six
independent counsels for the 6 months ended March 31, 1995, as well
as our consideration of the internal control structure for this audit
period. This report also discusses our evaluation of the counsels'
compliance with laws and regulations for the 6 months ended March 31,
1995. This review was required by 28 U.S.C. 596(c)(2), as amended,
and Public Law 100-202.
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, Audit Oversight and Liaison
Letter
=============================================================== LETTER
B-265988
Congressional Committees
This report presents the results of our audits of expenditures\1
reported by six independent counsels for the 6 months ended March 31,
1995. The Department of Justice and the independent counsels are
required under 28 U.S.C. 594 (d)(2), (h), and 596 (c)(1) as amended
by section 3 (i) of the Independent Counsel Reauthorization Act of
1994, to report on expenditures from a permanent, indefinite
appropriation established within Justice to fund independent counsel
activities. To satisfy the requirements of 28 U.S.C. 596 (c)(2), as
amended, and Public Law 100-202, we audit the statements of
expenditures prepared by independent counsels.
We found that the statements of expenditures presented in appendixes
I through VI for independent counsels Arlin M. Adams,
Joseph E. diGenova, Robert B. Fiske, Jr., Donald C. Smaltz,
Kenneth W. Starr, and Lawrence E. Walsh, respectively, were
reliable in all material respects. Our audit also included limited
tests of internal controls that disclosed a material weakness in
internal controls over reporting of expenditures. As a result of
this weakness, we extended our substantive testing in order to opine
on the expenditure reports presented in the appendixes to this
report. Further, our audit included limited tests of compliance with
laws and regulations that disclosed no reportable 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.
--------------------
\1 The term expenditures as used in this report generally means cash
disbursed.
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 so as 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 independent counsels when the Attorney
General determines that reasonable grounds exist to warrant further
investigation of high-ranking government officials for certain
alleged crimes.
On June 30, 1994, the Independent Counsel Reauthorization Act of 1994
(Public Law 103-270) was enacted, reauthorizing the independent
counsel law for an additional 5 years. The independent counsel law
directs the Department of Justice to pay all costs relating to the
establishment and operation of independent counsel offices and
designates specific responsibilities to the Administrative Office of
the United States Courts (AOUSC) for independent counsels'
administrative support. Justice periodically disburses lump-sum
payments to AOUSC for this purpose. 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, Justice determined that the appropriation
established by Public Law 100-202 to fund expenditures by independent
counsels appointed under 28 U.S.C. 591-599, could also fund the
expenditures of Robert B. Fiske, Jr., who was appointed as a
regulatory independent counsel\2 by the Attorney General in January
1994. Since we are required to audit all expenditures from that
appropriation, the expenditures Mr. Fiske's office made during this
audit period are covered by this report. Also, 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 covered by this
report.
During any 6-month period, independent counsels may also incur other
significant 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). Independent counsels are not required to and do
not include such costs in their reports on expenditures. However,
these other significant costs are identified and discussed in the
notes to the statements of expenditures presented in the appendixes
to this report.
--------------------
\2 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 March 31, 1995. The
statements of expenditures and related notes regarding the basis of
accounting and additional pertinent information are 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 the
applicable basis 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 their duties.
Independent counsel offices 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
the 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,\3 AOUSC expenditure reports had errors, requiring us
to propose--and independent counsels to accept--audit adjustments.
These errors were caused by certain independent counsels submitting
incorrect information to AOUSC, or by AOUSC incorrectly recording
information submitted by independent counsels. We believe that
independent counsels may continue to experience problems reporting
their expenditures until they and AOUSC establish effective internal
controls for accurately processing and summarizing independent
counsel expenditures.
Subsequent to the audit period, and prior to the completion of our
audit, we noted that AOUSC and certain independent counsels had taken
additional steps to improve internal controls over financial
reporting. AOUSC hired a senior staff member with accounting and
financial reporting expertise whose duties include the review of
monthly AOUSC reports prior to their submission to independent
counsels. Also, certain independent counsels utilized the services
of a financial consultant to review transactions for appropriate
line-item coding prior to their submission to AOUSC for payment and
to review AOUSC reports and reconcile them to independent counsel
records.
--------------------
\3 Financial audit of expenditures by independent counsels
(GAO/AFMD-93-1, October 9, 1992; GAO/AFMD-93-60, April 21, 1993;
GAO/AIMD-94-76, April 15, 1994; GAO/AIMD-95-85, March 31, 1995;
GAO/AIMD-95-112, March 31, 1995; and GAO/AIMD-95-113, March 31,
1995).
COMPLIANCE WITH LAWS AND
REGULATIONS
------------------------------------------------------------ Letter :4
Our audit tests for compliance with selected provisions of laws and
regulations disclosed no instances of noncompliance that would be
reportable under generally accepted government auditing standards.
However, the objective of our audit was not to provide an opinion on
overall compliance with laws and regulations. Accordingly, we do not
express such an opinion.
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 basis of accounting described in the accompanying
notes). Also, we are 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.
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; Justice, including the
FBI; the Internal Revenue Service; the Office of Inspector General of
the Department of Housing and Urban Development; the Office of
Inspector General for the Department of Agriculture; the Office of
Investigations for the U.S. Customs Service; and the Postal
Inspection Service.
We discussed the results of our work with the six independent
counsels or their representatives and representatives of AOUSC and
Justice, and incorporated their comments where appropriate.
We performed our audits in accordance with generally accepted
government auditing standards.
David L. Clark
Director, Audit Oversight and Liaison
August 31, 1995
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 Ted Stevens
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
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
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
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL ADAMS
=========================================================== Appendix I
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL DIGENOVA
========================================================== Appendix II
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL FISKE
========================================================= Appendix III
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL SMALTZ
========================================================== Appendix IV
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL STARR
=========================================================== Appendix V
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL WALSH
========================================================== Appendix VI
(See figure in printed
edition.)
(See figure in printed
edition.)
(See figure in printed
edition.)
*** End of document. ***