Financial Audit: Independent Counsel Expenditures for the Six Months
Ended September 30, 1997 (Letter Report, 03/31/98, GAO/AIMD-98-100).

Pursuant to a legislative requirement, GAO audited the expenditures
reported by the six offices of independent counsel for the 6 months
ended September 30, 1997.

GAO noted that: (1) the statements of expenditures for the offices of
independent counsel were reliable in all material respects; (2) GAO's
consideration of internal controls, which was limited for the purpose of
determining GAO's procedures for auditing the statements of
expenditures, disclosed no material weaknesses; and (3) GAO's audits
included limited tests of compliance with laws and regulations that
disclosed no reportable instances of noncompliance with the laws and
regulations tested.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-100
     TITLE:  Financial Audit: Independent Counsel Expenditures for the 
             Six Months Ended September 30, 1997
      DATE:  03/31/98
   SUBJECT:  Financial statement audits
             Internal controls
             Accounting procedures
             Lawyers
             Administrative costs
             Reporting requirements
             Financial records
             Audit oversight

             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1998

FINANCIAL AUDIT - INDEPENDENT
COUNSEL EXPENDITURES FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1997

GAO/AIMD-98-100

Independent Counsels

(911829)


Abbreviations
=============================================================== ABBREV

  AOUSC - Administrative Office of the U.S.  Courts
  FBI - Federal Bureau of Investigation
  IRS - Internal Revenue Service
  OIC - Office of Independent Counsel

Letter
=============================================================== LETTER


B-278605

March 31, 1998

Congressional Committees

Enclosed is our opinion on the statements of expenditures of six
offices of independent counsel for the 6 months ended September 30,
1997.  This audit was required by 28 U.S.C.  596(c)(2) (1994) 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
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-278605

Congressional Committees

This report presents the results of our audits of expenditures\1
reported by six offices of independent counsel for the 6 months ended
September 30, 1997.  The Department of Justice and the independent
counsels are required under 28 U.S.C.  594(d)(2),(h), and 596(c)(1)
(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) and
Public Law 100-202, we audit the statements of expenditures prepared
by the independent counsels. 

We found that the statements of expenditures presented in appendixes
I through VI, respectively, for the offices of independent counsel
(OIC) Arlin M.  Adams/Larry D.  Thompson, David M.  Barrett, Daniel
S.  Pearson,
Donald C.  Smaltz, Kenneth W.  Starr, and Curtis E.  von Kann
(formerly Independent Counsel Sealed-1996) were reliable in all
material respects.  Our consideration of internal controls, which was
limited for the purpose of determining our procedures for auditing
the statements of expenditures, disclosed no material weaknesses. 
Further, our audits included limited tests of compliance with laws
and regulations that disclosed no reportable instances of
noncompliance with the 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 Ethics in Government Act of 1978 amended title 28 of the United
States Code to authorize the judicial appointment of independent
counsels 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
(28 U.S.C.  591-599 (1994)) is intended to preserve and promote the
accountability and integrity of public officials and of the
institutions of the federal government.  The Independent Counsel
Reauthorization Act of 1994 further amended title 28 of the United
States Code to establish certain procedural requirements and extend
the law's expiration date to June 30, 1999. 

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 U.S.  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
permanent, indefinite appropriation and to report our findings to
appropriate congressional committees. 

During any 6-month period, other significant costs incurred in
support of the work of independent counsels are paid from
appropriations other than the permanent, indefinite appropriation
established to fund independent counsel activities.  These costs
arise when an independent counsel uses detailees from other federal
agencies, such as the Federal Bureau of Investigation (FBI). 
Independent counsels are not required to and do not reflect such
costs in their statements of expenditures.  However, these unaudited
costs are identified and discussed in the notes to the statements
presented in the appendixes or elsewhere in this report. 

Also, although he was not required to do so, OIC-Smaltz included
information in the notes to his statement regarding litigation and
referral actions he initiated.  This information did not include
expenditures, and we did not audit it. 

The statements and related notes in this report do not include
certain expenditures related to the investigation by former
independent counsel Joseph E.  diGenova/Michael F.  Zeldin.  This
office officially closed in June 1996 and no longer prepares
financial statements.  Court ordered awards of approximately $223,000
for attorneys' fees and expenses to individuals who had been
investigated by OIC-diGenova/Zeldin but not indicted were not
included in the prior financial statements. 


   OPINION ON STATEMENTS OF
   EXPENDITURES
------------------------------------------------------------ Letter :2

The statements of expenditures, including the accompanying notes, for
the offices of independent counsel Arlin M.  Adams/Larry D. 
Thompson,
David M.  Barrett, Daniel S.  Pearson, Donald C.  Smaltz, Kenneth W. 
Starr, and Curtis E.  von Kann present fairly, in all material
respects, in conformity with a comprehensive basis of accounting
other than generally accepted accounting principles, as described in
note 1 to each office's statement, the respective expenditures of
each office for the 6 months ended September 30, 1997.  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

We gained an understanding of internal controls whose objectives are
to

  -- safeguard assets against loss from unauthorized acquisition,
     use, or disposition;

  -- assure the execution of transactions in accordance with laws
     governing the use of budget authority and with other laws and
     regulations that have a direct and material effect on the
     statements of expenditures; and

  -- properly record, process, and summarize transactions to permit
     the preparation of reliable statements of expenditures and to
     maintain accountability for assets. 

The purpose of our consideration of internal controls was to
determine our procedures for auditing the statements of expenditures,
and accordingly we do not express an opinion on internal controls. 
However, for the controls we tested, we found no material weaknesses
in the internal control structure and its operations for the 6-month
period ended September 30, 1997.  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 level
the risk that errors or irregularities in amounts that would be
material to the statements of expenditures may occur and not be
detected promptly by employees in the normal course of performing
their duties.  Our internal control work would not necessarily
disclose all material weaknesses. 


   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 in conformity with the
     basis of accounting described in the accompanying notes,

  -- establishing and maintaining an internal control structure 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 all
material respects, in conformity with the basis of accounting
described in the accompanying notes).  Also, we are responsible for
obtaining a sufficient understanding of internal controls to plan the
audits, and 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 by management;

  -- evaluated the overall presentation of the statement of
     expenditures;

  -- obtained an understanding of the internal control structure
     related to safeguarding assets, compliance with laws and
     regulations including execution of transactions in accordance
     with budget authority, and financial reporting;

  -- tested relevant internal controls over safeguarding assets,
     compliance, and financial reporting; and

  -- tested compliance with certain aspects of selected provisions of
     the independent counsel provisions of 28 U.S.C.  591-599 (1994),
     5 U.S.C.  Chapter 55, and implementing regulations relating to
     pay administration. 

We limited our internal control testing to those controls necessary
to achieve the objectives outlined in our statement on internal
controls.  Because of inherent limitations in any internal control
structure, losses, noncompliance, or misstatements may nevertheless
occur and not be detected.  We also caution that projecting our
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. 

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 Department of the Treasury;
and the Office of Inspector General for the Department of
Agriculture. 

We discussed the results of our work with representatives of the six
offices of independent counsel 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


March 12, 1998

List of Committees

The Honorable Ted Stevens
Chairman
The Honorable Robert C.  Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable Fred Thompson
Chairman
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Orrin G.  Hatch
Chairman
The Honorable Patrick J.  Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate

The Honorable Bob Livingston
Chairman
The Honorable David R.  Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives

The Honorable Dan Burton
Chairman
The Honorable Henry A.  Waxman
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/THOMPSON
=========================================================== Appendix I



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL BARRETT
========================================================== Appendix II



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


STATEMENT OF EXPENDITURES FOR
INDEPENDENT COUNSEL PEARSON
========================================================= 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 VON KANN
========================================================== Appendix VI



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


*** End of document. ***