Inspectors General: Department of Defense IG Peer Reviews
(21-DEC-01, GAO-02-253R).
A peer review is required by Government Auditing Standards at
least once every three years by an organization not affiliated
with the organization being reviewed. The 1997 peer review of the
Department of Defense (DOD) Inspector General (IG) was performed
by the Environmental Protection Agency IG and resulted in a
qualified opinion issued. The peer review report stated that the
DOD IG's quality assurance system was inadequate and that the
reviewed audits did not fully comply with Government Auditing
Standards. The 2000 peer review was performed by the Department
of the Treasury IG for Tax Administration (TIGTA) and resulted in
an unqualified opinion in August 2000. Although TIGTA noted a
number of isolated problems, the peer review report stated that
the DOD's IG quality assurance system provided reasonable
assurance of compliance with auditing standards. However, after
the peer review had been completed, the DOD IG, TIGTA, the Office
of Management and Budget, the Chairman of the Senate Armed
Services Committee, and representatives of the media, received a
letter dated December 2000, that questioned the integrity of the
documentation that the DOD IG provided to the TIGTA peer review
staff. Subsequently, a DOD IG internal investigation was
completed in February 2001, and confirmed that the work papers
for one of the audits selected for peer review had been
inappropriately altered and destroyed. The report concluded that
these inappropriate actions violated Government Auditing
Standards, internal DOD IG audit policies, and the expectations
of the external peer review staff. Based on this information,
TIGTA first withdrew the 2000 peer review opinion in March 2001,
and then issued a disclaimer of opinion in May 2001, citing an
inability to determine whether the substantiated allegations
would materially affect the DOD IG's system of quality control.
Because of these actions, the DOD IG did not meet the Government
Auditing Standards requirement for obtaining a peer review at
least once every three years. Beginning in early June 2001, the
DOD IG began qualifying audit reports it issued to explain the
lack of compliance with the peer review requirements as set forth
in Government Auditing Standards. The DOD obtained the 2001 peer
review from the Department of Health and Human Services (HHS) IG
and received a qualified opinion in November 2001. Similar to the
results in 1997, the 2001 peer review report stated that the
quality assurance system needs improvement and that audits were
not always in compliance. Consequently, the DOD IG received a
qualified opinion.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-253R
ACCNO: A02613
TITLE: Inspectors General: Department of Defense IG Peer Reviews
DATE: 12/21/2001
SUBJECT: Auditing standards
Inspectors general
Quality control
Audits
Audit reports
Quality assurance
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GAO-02-253R
GAO- 02- 253R DOD IG Peer Reviews
United States General Accounting Office Washington, DC 20548
December 21, 2001 The Honorable Carl Levin Chairman Committee on Armed
Services United States Senate
Subject: Inspectors General: Department of Defense IG Peer Reviews Dear Mr.
Chairman: This letter and its enclosure respond to your request for
information about the peer reviews of the Department of Defense Inspector
General (DOD IG). A peer review, known as an external quality control
review, is required by ?Government Auditing Standards? 1 to be performed at
least once every 3 years by an organization not affiliated with the
organization being reviewed. The objective of a peer review is to determine
whether the organization?s internal quality control system is in place and
operating effectively to provide reasonable assurance that established
policies and procedures and applicable auditing standards are being
followed.
As agreed with your staff, we are providing information about the results of
the peer reviews of the DOD IG completed in 1997, 2000, and 2001 and our
monitoring of the performance of the 2001 peer review as it was performed.
In order to meet these objectives, we reviewed the peer review work papers
and interviewed the IG peer review staff from the Environmental Protection
Agency (EPA), the Department of the Treasury IG for Tax Administration
(TIGTA), and the Department of Health and Human Services (HHS). We also
reviewed the work papers from the DOD IG?s own internal investigation
regarding allegations that work papers for the 2000 peer review had been
altered, and we interviewed DOD IG officials regarding the results of that
investigation and the results of the peer reviews. To monitor the 2001 peer
review, we met with the HHS IG peer review staff and discussed the
additional peer review steps taken; attended key meetings between HHS IG and
DOD IG officials; interviewed the HHS IG peer review staff on the results of
their review; and reviewed the HHS IG peer review work papers. On November
16, 2001, we provided your staff with a briefing covering the above
information. This letter transmits the materials used for that briefing.
1 ?Government Auditing Standards?, 1994 revision, was issued by the
Comptroller General of the United States. IGs are required to follow these
standards in their audit work.
GAO- 02- 253R DOD IG Peer Reviews Page 2 The 1997 peer review of the DOD IG
was performed by the EPA IG and resulted in a
qualified opinion issued on December 10, 1997. The peer review report stated
that the DOD IG?s quality assurance system was inadequate and that the
reviewed audits did not fully comply with ?Government Auditing Standards?.
For example, the EPA IG found that the DOD IG had not completed sufficient
internal quality reviews; some audits lacked sufficient supervision; audit
programs were not always prepared; independent referencing of the facts in
DOD IG reports was not always done; and summary information was not always
cross- referenced to the work papers.
The 2000 peer review was performed by TIGTA and resulted in an unqualified
opinion on August 9, 2000. While TIGTA noted a number of isolated problems,
the peer review report stated that the DOD IG?s quality assurance system
provided reasonable assurance of compliance with auditing standards.
However, after the peer review had been completed, the DOD IG, TIGTA, the
Office of Management and Budget, the Chairman of the Senate Armed Services
Committee, and others, including representatives of the media, received
serious allegations in a letter dated December 14, 2000, that questioned the
integrity of the documentation that the DOD IG provided to the TIGTA peer
review staff. Subsequently, the DOD IG?s internal investigation was
completed on February 14, 2001, and confirmed that the work papers for one
of the audits selected for peer review had been inappropriately altered and
destroyed. The report concluded that these inappropriate actions violated
?Government Auditing Standards?, internal DOD IG audit policies, and the
expectations of the external peer review staff. Based on this information,
TIGTA first withdrew the 2000 peer review opinion on March 15, 2001, and
then issued a disclaimer of opinion on May 25, 2001, citing an inability to
determine whether the substantiated allegations would materially affect the
DOD IG?s system of quality control.
As a consequence of these actions, the DOD IG did not meet the ?Government
Auditing Standards? requirement for obtaining a peer review at least once
every 3 years. Beginning in early June 2001, the DOD IG began qualifying
audit reports it issued to explain the lack of compliance with the peer
review requirements set forth in ?Government Auditing Standards?.
The DOD IG obtained the 2001 peer review from the HHS IG and received a
qualified opinion on November 19, 2001. At the request of your staff, we
monitored the performance of the 2001 peer review and the additional steps
taken by the HHS IG staff in consideration of the DOD IG?s past peer review
results and the previous altering of work papers provided to the TIGTA peer
review staff. These additional steps included obtaining the DOD IG work
papers for the selected audits without providing any advance notification to
the DOD IG staff about which audits had been selected; obtaining
attestations from the DOD IG audit managers that the work papers under
review had not been altered; issuing a questionnaire to DOD IG audit staff
for information about audit quality and any changes made to work papers
after reports were issued; increasing the number of sampled audits for
review; and increasing the emphasis on financial audits, which had been the
type of audit for
Page 3 GAO- 02- 253R DOD IG Peer Reviews which work papers had been altered
in the TIGTA peer review. These additional
steps by the HHS IG were sound and appropriate given the results of the
previous peer review and the seriousness of the confirmed allegations.
Similar to the results in 1997, the 2001 peer review report stated that the
quality assurance system needs improvement and that audits were not always
in compliance with ?Government Auditing Standards?. For example, DOD IG had
not completed sufficient internal quality reviews; supervision was not
always complete; audit plans were not always documented; work papers were
not always completed; and the auditors did not have sufficient independence
on one audit. Consequently, the DOD IG received a qualified opinion.
The 2001 peer review recommended that the DOD IG implement a comprehensive
corrective action plan, implement new policies and procedures, and schedule
the next external quality control review in 2 years. The DOD IG?s response
to the peer review includes an action plan intended to address the
weaknesses identified. Specifically, in accordance with the action plan, the
DOD IG requires work paper documentation of audit planning; has established
the Quality Management Council consisting of senior executive service level
audit personnel to monitor audit quality; requires evidence of supervision
before referencing can begin; and requires certification that the work
papers are complete before the final report is issued. In addition, the DOD
IG will study and adopt a best practice used by other audit organizations to
ensure auditor independence. Under the peer review guidance used by the IGs
the implemented results of this plan are to be reviewed during the next peer
review which the DOD IG has agreed will be completed within the next 2
years.
We obtained comments on a draft of this letter and the attached briefing
slides from IG officials at DOD, EPA, TIGTA, and HHS, who all agreed with
our presentation of the information. Our review was performed from June
through November 2001, in accordance with generally accepted government
auditing standards.
If you have any questions, please contact me at (202) 512- 2600 or by e-
mail at steinhoffj@ gao. gov or Jeanette M. Franzel, Acting Director, at
(202) 512- 9471, or by e- mail at franzelj@ gao. gov. Key contributors to
this letter and the enclosure were Jackson Hufnagle, James Pittrizzi, and
Clarence Whitt.
Sincerely yours, Jeffrey C. Steinhoff Managing Director Financial Management
and Assurance
Enclosure
GAO- 02- 253R DOD IG Peer Reviews Page 4 Enclosure
1 Financial Management and Assurance Team
Inspectors General: Department of Defense IG Peer Review Briefing for The
Honorable Carl Levin Chairman Committee on Armed Services U. S. Senate
Page 5 GAO- 02- 253R DOD IG Peer Reviews Enclosure
2 Introduction/ Objectives
You requested us to provide information about the peer reviews of the DOD
IG. As agreed with your staff, our objectives were to provide information
about the following:
*peer review requirements and purpose 1997, 2000, and 2001 peer reviews of
the DOD IG
GAO- 02- 253R DOD IG Peer Reviews Page 6 Enclosure
3 Scope and Methodology
In order to meet our objectives we
reviewed peer review work papers,
interviewed IG staff performing the peer reviews,
interviewed DOD IG staff regarding the peer review results,
reviewed work papers from DOD IG?s internal investigation,
interviewed DOD IG staff regarding their internal investigation, and
monitored the performance of the 2001 peer review as it was performed.
Page 7 GAO- 02- 253R DOD IG Peer Reviews Enclosure
4 Scope and Methodology
We conducted our work from June through November 2001, in accordance with
generally accepted government auditing standards.
We obtained comments on a draft set of these briefing slides from IG
officials at DOD, EPA, TIGTA, and HHS, who agreed with our presentation of
the information.
GAO- 02- 253R DOD IG Peer Reviews Page 8 Enclosure
5 Peer Review Requirements and Purpose
required by ?Government Auditing Standards? at least once every 3 years
performed by another federal audit organization
purpose is to determine if the quality control system provides reasonable
assurance that policies, procedures, and auditing standards are being
followed
Page 9 GAO- 02- 253R DOD IG Peer Reviews Enclosure
6 Peer Review Requirements and Purpose
Types of opinions possible for peer review:
unqualified opinion
qualified opinion
adverse opinion
disclaimer of opinion
GAO- 02- 253R DOD IG Peer Reviews Page 10 Enclosure
7 1997 Peer Review of the DOD IG
Environmental Protection Agency (EPA) IG staff performed the peer review.
Qualified opinion was issued on December 10, 1997.
Page 11 GAO- 02- 253R DOD IG Peer Reviews Enclosure
8 1997 Peer Review of the DOD IG
Peer review report stated that the DOD IG?s quality assurance was
inadequately designed and implemented in the following areas:
audit quality control
supervision audit programs
independent referencing
cross- referencing of summaries
GAO- 02- 253R DOD IG Peer Reviews Page 12 Enclosure
9 2000 Peer Review of the DOD IG
Treasury Inspector General for Tax Administration (TIGTA) staff performed
the peer review.
Unqualified opinion was issued on August 9, 2000, however, TIGTA?s
management letter identified isolated problems.
Allegation letter dated December 14, 2000, stated that work papers for an
audit selected for peer review had been altered by DOD IG staff.
Page 13 GAO- 02- 253R DOD IG Peer Reviews Enclosure
10 2000 Peer Review of the DOD IG
DOD IG?s internal investigation confirmed allegations on February 14, 2001,
and found that DOD IG staff inappropriately altered and destroyed work
papers for an audit selected for peer review.
DOD IG staff inserted newly created work papers for an audit selected for
peer review without the knowledge of the peer reviewers.
GAO- 02- 253R DOD IG Peer Reviews Page 14 Enclosure
11 2000 Peer Review of the DOD IG
TIGTA withdrew its unqualified opinion on March 15, 2001.
TIGTA issued a disclaimer of opinion on May 25, 2001.
DOD IG did not meet requirements for a peer review every 3 years as set
forth in ?Government Auditing Standards?.
DOD IG qualifies its own audit reports indicating the lack of compliance
with peer review requirements.
Page 15 GAO- 02- 253R DOD IG Peer Reviews Enclosure
12 2001 Peer Review of the DOD IG
Performed by Department of Health and Human Services (HHS) IG staff.
Qualified opinion was issued on November 19, 2001.
GAO- 02- 253R DOD IG Peer Reviews Page 16 Enclosure
13 2001 Peer Review of the DOD IG
Peer review report stated that the DOD IG?s quality control policies and
procedures were not always followed in the following areas:
audit planning
audit quality control
supervision work papers Also, auditor independence procedures not
appropriately designed
Page 17 GAO- 02- 253R DOD IG Peer Reviews Enclosure
14 2001 Peer Review of the DOD IG
HHS IG staff took the following additional steps in the 2001 peer review in
consideration of the DOD IG?s past peer review results:
Work papers for selected audits were obtained without prior notice to the
DOD IG staff.
DOD IG managers attested that work papers under review had not been
altered.
DOD IG auditors completed an audit quality questionnaire.
Additional audits were selected for review with an increased emphasis on
financial audits.
GAO- 02- 253R DOD IG Peer Reviews Page 18 Enclosure
15 2001 Peer Review of the DOD IG
DOD IG action plan intended to address peer review findings includes actions
already taken and planned:
improved work paper documentation for audit planning
Quality Management Council to monitor quality
evidence of supervisory review before referencing
certification that work papers are complete before the report is issued,
and certification will be tested by management
study and adoption of best practices used by other audit organizations to
ensure independence
Page 19 GAO- 02- 253R DOD IG Peer Reviews Enclosure
16 Future Actions
DOD IG will obtain another peer review in 2 years.
The next peer review is required to review implementation of DOD IG?s
corrective actions.
*** End of document. ***