Financial Audit: Independent Counsel Expenditures for the Six	 
Months Ended September 30, 2003 (31-MAR-04, GAO-04-525).	 
                                                                 
Pursuant to a legislative requirement, GAO audited the		 
expenditures of two offices of independent counsel for the 6	 
months ended September 30, 2003.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-525 					        
    ACCNO:   A09650						        
  TITLE:     Financial Audit: Independent Counsel Expenditures for the
Six Months Ended September 30, 2003				 
     DATE:   03/31/2004 
  SUBJECT:   Financial records					 
	     Financial statement audits 			 
	     Independent counsels				 
	     Internal controls					 
	     Administrative costs				 
	     Reporting requirements				 

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GAO-04-525

Report to Congressional Committees

March 2004

FINANCIAL AUDIT

Independent Counsel Expenditures for the Six Months Ended September 30,
2003

Contents

March 31, 2004Letter

Congressional Committees

Enclosed is our report on the statements of expenditures of two offices of
independent counsel for the 6 months ended September 30, 2003. 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 of this report
will be made available to others upon request. This report will also be
available at no charge on GAO's Web site at www.gao.gov.

If you or your staffs have any questions concerning this report, please
contact me at (202) 512-6906 or Hodge Herry, Assistant Director, at (202)
512-9469. You can also reach us at [email protected] or [email protected].
Key contributors to this report were Kwabena Ansong and Carol Keightley.

McCoy Williams Director Financial Management and Assurance

Congressional CommitteesAuditor's Report

This report presents the results of our audits of expenditures1 reported
by two offices of independent counsel for the 6 months ended September 30,
2003. The independent counsels are required under 28 U.S.C. S: 596 (c)(1)
(2000) to report on their expenditures on a semiannual basis and we are
required under 28 U.S.C. S: 596 (c)(2) to audit these statements.

In our audits covering the 6 months ended September 30, 2003, we found

o the statements of expenditures presented in appendixes I and II, for the
offices of independent counsel (OIC) David M. Barrett and Julie F. Thomas,
respectively, are presented fairly, in all material respects, in
conformity with the basis of accounting described in note 1 of each
counsel's statement, which is principally the cash basis, a comprehensive
basis of accounting other than U.S. generally accepted accounting
principles;

o no material weaknesses in internal control over financial reporting
(including safeguarding assets) and compliance with laws and regulations;
and

o 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.

Background

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. S:S: 591-599
(2000)) was intended to preserve and promote the accountability and
integrity of public officials and of the institutions of the federal
government. The independent counsel law expired on June 30, 1999.
Provisions of that law allow the independent counsels serving at the
expiration date to continue investigating pending matters until they
determine that the investigations of such matters have been completed.

The independent counsel law directs the Department of Justice to pay all
costs relating to the establishment and operation of any office of
independent counsel. A permanent, indefinite appropriation was established
within the Department of Justice to pay all necessary expenses of
investigation and prosecutions by independent counsels appointed pursuant
to the independent counsel law or other law. The independent counsel law
also designates specific responsibilities to the Administrative Office of
the U.S. Courts (AOUSC) for independent counsels' administrative support.
The Department of Justice periodically disburses lump-sum payments to
AOUSC for this purpose.

During any 6-month reporting period, there may be other significant costs
incurred in support of the work of the counsels. These costs are paid from
appropriations other than the permanent, indefinite appropriation
established to fund independent counsel activities. These costs arise when
a counsel uses detailees from other federal agencies, such as the Federal
Bureau of Investigation. Independent counsels are not required to reflect
such costs in their statements of expenditures nor do they do so. For the
6 months ended September 30, 2003, there were no costs reported by other
agencies in support of independent counsel activities.

The offices of independent counsel Ralph I. Lancaster and Donald C. Smaltz
are officially closed and no longer prepare financial statements. However,
the U.S. Court of Appeals for the District of Columbia (D.C.) Circuit
awarded reimbursements of $1,447 and $18,758, respectively, for attorneys'
fees and expenses of individuals who had been investigated by Messrs.
Lancaster and Smaltz but not indicted, as authorized by 28 U.S.C. S:
593(f)(1). The U.S. Court of Appeals for the D.C. Circuit also awarded
reimbursements of $85,312 for attorney fees and expenses of individuals
who had been investigated by the office of independent counsel Thomas but
not indicted. These reimbursements were made from the permanent fund
established for the payment of judgments.

Opinion on Statements of Expenditures

The statements of expenditures, including the accompanying notes, for the
offices of independent counsel David M. Barrett and Julie F. Thomas
present fairly, in all material respects, the expenditures of these
counsels for the 6 months ended September 30, 2003, on the basis of
accounting described in note 1 of each office's statement.

The counsels prepared their statements of expenditures principally on a
cash basis of accounting, which is a comprehensive basis of accounting
other than U.S. generally accepted accounting principles. The basis of
accounting is described in note 1 of each counsel's statement.

Consideration of Internal Control

In planning and performing our audits, we considered internal control over
financial reporting and compliance.2 We did this to determine our
procedures for auditing the statements of expenditures, not to express an
opinion on internal control. Accordingly, we do not express an opinion on
internal control over financial reporting and compliance. However, for the
controls we tested, we found no material weaknesses in internal control
over financial reporting (including safeguarding assets) and compliance
for the 6-month period ended September 30, 2003. A material weakness is a
condition in which the design or operation of one or more of the internal
control components does not reduce to a relatively low level the risk that
errors, fraud, or noncompliance 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

Our tests for compliance with selected provisions of laws and regulations
disclosed no instances of noncompliance that would be reportable under
U.S. 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

The independent counsels are responsible for preparing statements of
expenditures in conformity with the basis of accounting described in the
accompanying notes. The counsels are also responsible for establishing,
maintaining, and assessing internal control to provide reasonable
assurance that the following internal control objectives are met and for
complying with applicable laws and regulations.

o Financial reporting: Transactions are properly recorded, processed, and
summarized to permit the preparation of the statements of expenditures in
conformity with the basis of accounting described in the notes to the
statements, and assets are safeguarded against loss from unauthorized
acquisition, use, or disposition.

o Compliance with laws and regulations: Transactions are executed in
accordance with laws and regulations that could have a direct and material
effect on the counsels' statements of expenditures.

We are responsible for (1) obtaining reasonable assurance about whether
the counsels' statements of expenditures are presented fairly, in all
material respects, in conformity with the basis of accounting described in
the notes accompanying their statements of expenditures; (2) obtaining a
sufficient understanding of internal control over financial reporting and
compliance to plan the audits; and (3) testing compliance with selected
provisions of laws and regulations that have a direct and material effect
on the statements.

In order to fulfill these responsibilities, for each counsel, we (1)
examined, on a test basis, evidence supporting the amounts and disclosures
in the statement of expenditures; (2) assessed the accounting principles
used by management; (3) evaluated the overall presentation of the
statement of expenditures; (4) obtained an understanding of internal
control related to financial reporting (including safeguarding assets) and
compliance with laws and regulations; and (5) tested compliance with
selected provisions of 28 U.S.C. S:S: 591-599 (2000), 5 U.S.C. Chapter 55,
and regulations relating to pay administration.

We limited our internal control testing to controls over financial
reporting and compliance. Because of inherent limitations in internal
control, misstatements due to error, fraud, losses, or noncompliance 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. In addition, we caution that our
internal control testing may not be sufficient for other purposes.

We did not test compliance with all laws and regulations applicable to the
offices of independent counsel. We limited our tests of compliance to
those laws and regulations that we deemed applicable to the statements of
expenditures. We caution that noncompliance may occur and not be detected
by these tests and that such testing may not be sufficient for other
purposes. We performed our audits in accordance with U.S. generally
accepted government auditing standards.

Agency Comments

We provided drafts of this report to the offices of independent counsel,
the Department of Justice, and AOUSC for review and comment. These
entities agreed with the facts and conclusions in our report.

McCoy Williams Director Financial Management and Assurance

March 15, 2004

List of Committees

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

The Honorable Susan M. Collins Chairman The Honorable Joseph I. Lieberman
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 C.W. Bill Young Chairman The Honorable David R. Obey Ranking
Minority Member Committee on Appropriations House of Representatives

The Honorable Tom Davis Chairman The Honorable Henry A. Waxman Ranking
Minority Member Committee on Government Reform House of Representatives

The Honorable F. James Sensenbrenner, Jr. Chairman The Honorable John
Conyers, Jr. Ranking Minority Member Committee on the Judiciary House of
Representatives

Statement of Expenditures for Independent Counsel Barrett Appendix I

Statement of Expenditures for Independent Counsel ThomasAppendix II

(195025)
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