Inspectors General: Opportunities to Enhance Independence and	 
Accountability (11-JUL-07, GAO-07-1089T).			 
                                                                 
The federal inspectors general (IG) play a critical role in	 
addressing mismanagement of scarce taxpayer dollars. In the	 
coming years, as we enter a period of escalating deficits and	 
increasingly limited resources, GAO believes that the greatest	 
single source of savings will come from bold, decisive efforts to
transform what government does and how it does business, and to  
hold it accountable for results. Therefore, it is important that 
an independent, objective, and reliable IG structure be in place 
to ensure adequate audit and investigative coverage of federal	 
programs and operations. This statement offers GAO's views on (1)
the principles of independence and how they apply to IG offices, 
(2) leveraging IG work as a part of overall federal oversight,	 
(3) structural streamlining of IG offices for resource		 
efficiencies, and (4) matters discussed in a GAO forum on IG	 
issues. This statement draws on provisions of the IG Act,	 
professional auditing standards, prior GAO reports and testimony,
and information reported by the IGs.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1089T					        
    ACCNO:   A73307						        
  TITLE:     Inspectors General: Opportunities to Enhance Independence
and Accountability						 
     DATE:   07/11/2007 
  SUBJECT:   Accountability					 
	     Audit oversight					 
	     Audit reports					 
	     Auditing standards 				 
	     Auditors						 
	     Federal agencies					 
	     Financial statement audits 			 
	     Fraud						 
	     Independent agencies				 
	     Internal audits					 
	     Internal controls					 
	     Investigations by federal agencies 		 
	     Reporting requirements				 

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GAO-07-1089T

   

     * [1]Auditor and IG Independence
     * [2]Leveraging IG Offices as Part of Overall Federal Oversight
     * [3]Structural Streamlining of IG Offices for Resource Efficienc
     * [4]Results of the Comptroller General's Forum on IG Issues

          * [5]Terms of office and removal for cause
          * [6]IG budget submission
          * [7]IG Council
          * [8]IG pay and bonuses
          * [9]IG investigative and law enforcement authorities

     * [10]Concluding Observations
     * [11]GAO's Mission
     * [12]Obtaining Copies of GAO Reports and Testimony

          * [13]Order by Mail or Phone

     * [14]To Report Fraud, Waste, and Abuse in Federal Programs
     * [15]Congressional Relations
     * [16]Public Affairs

Statement for the Record

Committee on Homeland Security and Government Affairs, U. S. Senate

United States Government Accountability Office

GAO

To accompany the Committee hearing record of Wednesday, July 11, 2007

INSPECTORS GENERAL

Opportunities to Enhance Independence and Accountability

Statement for the Record by David M. Walker Comptroller General of the
United States

GAO-07-1089T

Mr. Chairman and Members of the Committee:

I am pleased to submit this statement for the record on issues surrounding
the important role of the inspectors general (IG) in providing independent
oversight within federal agencies. GAO has performed analysis and has
issued several reports over the past few years dealing with various
independence and effectiveness issues affecting the IGs. Given comments by
GAO and others about the independence of certain IG offices, we plan to
conduct additional work in the area of IG independence and the reporting
relationships of IGs in designated federal agencies with their respective
agency heads.

The IG offices were created to prevent and detect fraud, waste, abuse, and
mismanagement in their respective agencies' programs and operations;
conduct and supervise audits and investigations; and recommend policies to
promote economy, efficiency, and effectiveness. In the past almost three
decades since passage of the landmark Inspector General Act of 1978 (IG
Act), the IGs have played a key role in enhancing government
accountability and protecting the government against fraud, waste, abuse,
and mismanagement.

The IGs play a critical role in identifying mismanagement of scarce
taxpayer dollars. In the coming years, as we enter a period of escalating
deficits and increasingly limited resources, we believe that the greatest
single source of savings will come from bold, decisive efforts to
transform what government does and how it does business and to hold it
accountable for achieving real, positive, and sustainable results.

This statement discusses (1) the key principles of auditor independence
and how they apply to IG offices, (2) leveraging IG work as part of
overall federal oversight, (3) structural streamlining of IG offices to
capitalize on available resource efficiencies, and (4) additional issues
concerning the IG function discussed at a GAO forum I hosted in May 2006.
This statement draws primarily on our previous reports and testimony in
this area and on provisions of the IG Act, professional auditing
standards, and information reported by the IGs.

Auditor and IG Independence

Independence is the cornerstone of professional auditing. Without
independence, an audit organization cannot do independent audits.
Likewise, an IG who lacks independence cannot effectively fulfill the full
range of requirements for the office. Lacking this critical attribute, an
audit organization's work might be classified as studies, research
reports, consulting reports, or reviews, rather than independent audits.

Independence is one of the most important elements of an effective IG
function. In fact, much of the IG Act provides specific protections to IG
independence that are unprecedented for an audit and investigative
function located within the organization being reviewed. These protections
are necessary in large part because of the unusual reporting requirements
of the IGs, who are both subject to the general supervision and budget
processes of the agencies they audit, while at the same time being
expected to provide independent reports of their work externally to the
Congress.

Government Auditing Standards1  states, "in all matters relating to the
audit work, the audit organization and the individual auditor, whether
government or public, must be free from personal, external, and
organizational impairments to independence, and must avoid the appearance
of such impairments to independence. Auditors and audit organizations must
maintain independence so that their opinions, findings, conclusions,
judgments, and recommendations will be impartial and viewed as impartial
by objective third parties with knowledge of the relevant information."
[Emphasis added.]

           o Personal independence applies to individual auditors at all
           levels of the audit organization, including the head of the
           organization. Personal independence refers to the auditor's
           ability to remain objective and maintain an independent attitude
           in all matters relating to the audit, as well as the auditor's
           ability to be recognized by others as independent. The auditor
           needs an independent and objective state of mind that does not
           allow personal bias or the undue influence of others to override
           the auditor's professional judgments. This attitude is also
           referred to as intellectual honesty. The auditor must also be free
           from direct financial or managerial involvement with the audited
           entity or other potential conflicts of interest that might create
           the perception that the auditor is not independent.
           o External independence refers to both the auditor's and the audit
           organization's freedom to make independent and objective judgments
           free from external influences or pressures. Examples of
           impairments to external independence include restrictions on
           access to records, government officials, or other individuals
           needed to conduct the audit; external interference over the
           assignment, appointment, compensation, or promotion of audit
           personnel; restrictions on funds or other resources provided to
           the audit organization that adversely affect the audit
           organization's ability to carry out its responsibilities; or
           external authority to overrule or to inappropriately influence the
           auditors' judgment as to appropriate reporting content.
           o Organizational independence refers to the audit organization's
           placement in relation to the activities being audited.
           Professional auditing standards have different criteria for
           organizational independence for external and internal audit
           organizations. The IGs, in their statutory role of providing
           oversight of their agencies' operations, represent a unique hybrid
           of external and internal reporting responsibilities.

1GAO, Government Auditing Standards, January 2007 Revision,
[17]GAO-07-162G , Sections 3.02 and 3.03 (Washington, D.C.: January 2007).

Under professional auditing standards, external audit organizations are
organizationally independent when they are organizationally placed outside
of the entity under audit. In government, this is achieved when the audit
organization is in a different level of government (for example, federal
auditors auditing a state government program) or different branch of
government within the same level of government (for example, legislative
auditors, such as GAO, auditing an executive branch program). External
auditors also report externally, meaning that their audit reports are
disseminated to and used by third parties.

Internal audit organizations are defined as being organizationally
independent under professional auditing standards if the head of the audit
organization (1) is accountable to the head or deputy head of the
government entity or to those charged with governance; (2) reports the
audit results both to the head or deputy head of the government entity and
to those charged with governance; (3) is located organizationally outside
the staff or line-management function of the unit under audit; (4) has
access to those charged with governance; and (5) is sufficiently removed
from political pressures to conduct audits and report findings, opinions,
and conclusions objectively without fear of political reprisal. Under
internal auditing standards,2 internal auditors are generally limited to
reporting internally to the organization that they audit, except when
certain conditions are met, such as when mandated by statutory or
regulatory requirements.

2The Institute of Internal Auditors, Professional Practices Framework,
International Standards for the Professional Practice of Internal Auditing
(Altamonte Springs, Fla: March 2007).

The IG Act requires IGs to perform audits in compliance with Government
Auditing Standards. In addition, much of the act provides specific
protections to IG independence for all the work of the IGs. Protections to
IG independence include a prohibition on the ability of the agency head to
prevent or prohibit the IG from initiating, carrying out, or completing
any audit or investigation. This prohibition is directed at helping to
protect the IG office from external forces that could compromise an IG's
independence. The IG's personal independence and the need to appear
independent to knowledgeable third parties is also critical when the IG
makes decisions related to the nature and scope of audit and investigative
work performed by the IG office. The IG must determine how to utilize the
IG Act's protection of independence in conducting and pursuing the audit
and investigative work. The IG's personal independence is necessary to
make the proper decisions in such cases.

The IG Act also provides the IG with protections to external independence
by providing access to all agency documents and records, prompt access to
the agency head, the ability to select and appoint IG staff, the authority
to obtain services of experts, and the authority to enter into contracts.
The IG may choose whether to exercise the act's specific authority to
obtain access to information that is denied by agency officials. Again,
each IG must make decisions regarding the use of the IG Act's provisions
for access to information, and the IG's personal independence becomes key
in making these decisions.

The IG Act provides protections to the IGs' organizational independence
through key provisions that require certain IGs to be appointed by the
President with the advice and consent of the Senate. This appointment is
required to be without regard to political affiliation and is to be based
solely on an assessment of a candidate's integrity and demonstrated
ability. These presidentially appointed IGs can only be removed from
office by the President, who must communicate the reasons for removal to
both houses of Congress. However, this communication is not required to
occur prior to removal. Government Auditing Standards recognizes the
external appointment and removal of the IG as key independence
considerations to enable internal IG offices to report their work
externally.

In 1988, the original 1978 IG Act was amended to establish additional IG
offices in designated federal entities (DFE) named in the legislation.
Generally, these IGs have the same authorities and responsibilities as
those IGs established by the original 1978 act, but they have a clear
distinction in their appointment--they are appointed and removed by their
entity heads rather than by the President and are not subject to Senate
confirmation. Organizational independence differs between the offices of
presidentially appointed IGs and other IGs who are agency appointed.

The DFE IGs, while they are generally covered by many of the same
provisions of the IG Act as the IGs appointed by the President with Senate
confirmation, are more closely aligned to independence standards for
internal auditors than to those for external auditors. At the same time,
Government Auditing Standards recognizes that additional statutory
safeguards exist for DFE IG independence for reporting externally. These
safeguards include establishment by statute, communication of the reasons
for removal of the head of an audit organization to the cognizant
legislative oversight body, statutory protections that prevent the audited
entity from interfering with an audit, statutory requirements for the
audit organization to report to a legislative body on a recurring basis,
and statutory access to records and documents related to agency programs.

We believe that the differences in the appointment and removal processes
between presidentially appointed IGs and those appointed by the agency
head do result in a clear difference in the organizational independence
structures of the IGs. Those offices with IGs appointed by the President
are more closely aligned with the independence standards for external
audit organizations, while those offices with IGs appointed by the agency
head are more closely aligned with the independence standards for internal
audit organizations. The implementation of the IGs' reporting
relationships with their respective agency heads can also significantly
affect the independence of the IGs. Generally, the IGs represent a unique
hybrid of external auditing and internal auditing in their oversight roles
for federal agencies.

The IG offices, having been created to perform a unique role in overseeing
federal agency operations, have characteristics of both external audit
organizations and internal audit organizations. For example, the IGs have
external reporting requirements consistent with the reporting requirements
for external auditors while at the same time being part of their
respective agencies. IGs also have a dual reporting responsibility to the
Congress and the agency head.

To illustrate, the IGs' external reporting requirements in the IG Act
include reporting the results of their work in semiannual reports to the
Congress. Under the IG Act, the IGs are to report their findings without
alteration by their respective agencies, and these reports are to be made
available to the general public. The IG Act also directs the IGs to keep
the agency head and the Congress fully and currently informed, which they
do through
these semiannual reports and otherwise, of any problems, deficiencies,
abuses, fraud, or other serious problems relating to the administration of
programs and operations of their agencies. Also, the IGs are required to
report particularly serious or flagrant problems, abuses, or deficiencies
immediately to their agency heads, who are required to transmit the IG's
report to the Congress within 7 calendar days.

With the growing complexity of the federal government, the severity of the
problems it faces, and the fiscal constraints under which it operates, it
is important that an independent, objective, and reliable IG structure be
in place at federal agencies to ensure adequate audit and investigative
coverage of federal programs and operations. The IG Act provides each IG
with the ability to exercise judgment in the use of independence
protections specified in the act. The act also provides for IGs who, based
on their appointment process, are more closely aligned with internal audit
organizations, and other IGs who are more closely aligned with external
audit organizations. While the IG Act's provisions for IG independence are
vital, the ultimate success or failure of an IG office is largely
determined by the individual IG placed in that office and that person's
ability to maintain personal, external, and organizational independence
both in fact and appearance while reporting the results of the office's
work to both the agency head and to the Congress.

Leveraging IG Offices as Part of Overall Federal Oversight

One of the challenges facing the federal performance and accountability
community today is the need to meet increasing demands and challenges with
our current resources. In this regard, Executive Order No. 12805, issued
in 1992, directs the IGs to meet and coordinate as two groups to enhance
their work. The IGs appointed by the President and confirmed by the Senate
are members of the President's Council on Integrity and Efficiency (PCIE),
and the IGs appointed by their agency heads are members of the Executive
Council on Integrity and Efficiency (ECIE). The purpose of both PCIE and
ECIE is to (1) identify, review, and discuss areas of weakness and
vulnerability in federal programs and operations with respect to fraud,
waste, and abuse; (2) develop plans for coordinated governmentwide
activities that address these problems and promote economy and efficiency
in federal programs and operations; and (3) develop policies and
professional training to maintain a corps of well-trained and highly
skilled IG personnel. Both PCIE and ECIE are chaired by the Office of
Management and Budget's (OMB) Deputy Director for Management.

In a prior testimony3 I recommended establishing an IG Council in statute
with a designated funding source. We believe that by providing a statutory
basis for the council's roles and responsibilities, the permanence of the
council could be established and the ability to take on more sensitive
issues could be strengthened. In addition, we believe that effective,
ongoing coordination of the federal audit and oversight efforts of GAO and
the IGs is more critical than ever as a result of challenges and risks
currently facing our nation, including our immediate and long-term fiscal
challenges, increasing demands for federal programs, and changing risks.

The IG Act requires that the IGs coordinate with GAO to avoid duplicating
efforts. In practice, GAO has largely devoted its efforts to program
evaluations and policy analyses that look at programs and functions across
government and with a longer-term perspective. At the same time, the IGs
have been on the front line of combating fraud, waste, and abuse within
their respective agencies, and their work has generally concentrated on
specific program--related issues of immediate concern with more of their
resources going into uncovering inappropriate activities and expenditures
through an emphasis on investigations.

GAO and the IGs are, in many respects, natural partners. We both report
our findings, conclusions, and recommendations to the Congress and we
share common professional audit standards through Government Auditing
Standards. Closer strategic planning and ongoing coordination of audit
efforts between GAO and the IGs would help to enhance the effectiveness
and impact of work performed by federal auditors. Working together and in
our respective areas of expertise, GAO and the IGs can better leverage
each other's work and provide valuable input on the broad range of
high-risk programs and management challenges across government that need
significant attention or reform.

Significant and increased coordination is occurring between GAO and the
IGs on agency-specific issues and crosscutting issues. In May of this year
I hosted a meeting at GAO with the IGs for the principal purpose of
improving the coordination of federal oversight. In testifying4 in October
2003, on the 25th anniversary of the IG Act, I suggested, in light of the
increased need for a well-coordinated federal audit community, the
creation of a more formal mechanism going forward to include a
governmentwide council. The structure of this council could be similar in
concept to the Joint Financial Management Improvement Program (JFMIP),
whose principals5 meet at their discretion to discuss issues of mutual
concern to promote governmentwide financial management. A similar council
focused on accountability could share knowledge and coordinate activities
to enhance the overall effectiveness of government oversight and to
preclude duplicate actions.

3GAO, Inspectors General: Enhancing Federal Accountability,
[18]GAO-04-117T (Washington, D.C.: Oct. 8, 2003).

A good example of a strong formalized partnership between GAO and the IGs
is in the area of financial auditing. Under the Chief Financial Officers
Act of 1990, as amended, the IGs at the 24 agencies covered by the act are
responsible for the audits of their agencies' financial statements. In
meeting these responsibilities, most IGs have contracted with independent
public accountants (IPA) to conduct the audits either entirely or in part.
In some cases, GAO conducts the audits. GAO is responsible for the U.S.
government's consolidated financial statement audit, which is based
largely on the results of the agency-level audits. GAO and the IGs have
agreed on a common audit methodology described in the GAO-PCIE Financial
Audit Manual, which is an audit tool available to all auditors of federal
financial statements. In addition, we have established formal ongoing
coordination and information sharing throughout the audit process so that
both the IGs and GAO can successfully fulfill their respective
responsibilities effectively and efficiently.

A practical issue that should also be dealt with is the adequacy of
resources to provide for agency financial statement audits. Over the
years, a number of IGs have told us that the cost of agency financial
audits has taken resources away from their traditional work. In the
private sector, the cost of an annual financial audit is a routine
business expense borne by the entity being audited, and the cost of the
audit represents a very small percentage of total expenditures for the
audited entity. We support enacting legislation that would make agencies
responsible for paying the cost of their financial statement audits. We
also believe that an arrangement in which the agencies pay for their own
audits provides them with positive incentives for taking actions, such as
streamlining systems and cleaning up their financial records, prior to the
audit.

4 [19]GAO-04-117T .

5The principals are the Comptroller General, the Director of OMB, the
Secretary of the Treasury, and the Director of the Office of Personnel
Management. The JFMIP is authorized by 31 U.S.C. S 3511(d).

Under the arrangement in which agencies pay the cost of their own audits,
we believe the IG should continue in the current role of selecting and
overseeing audits in those cases in which the IG does not perform the
audit but hires an IPA to conduct the audit. This would leverage the IGs'
expertise to help ensure the quality of the audits. We also advocate an
approach whereby the IGs would be required to consult with the Comptroller
General during the IPA selection process to obtain input from the results
of GAO's reviews of the IPAs' previous work and the potential impact on
GAO's audit of the consolidated financial statements of the U.S.
government. We will continue in our coordination with the IGs to help
achieve our mutual goals of providing the oversight needed to help ensure
that the federal government operates in a transparent, economical,
efficient, effective, ethical, and equitable manner.

Structural Streamlining of IG Offices for Resource Efficiencies

One of the issues facing the IG community as well as others in the
performance and accountability community is how to use limited resources
most efficiently to achieve the greatest value. In fiscal year 2006, the
64 IG offices operated with total fiscal year budgets of about $1.9
billion and about 12,000 staff. (See encs. I and II for more detail on IG
budgets and staff.) Most IG offices for cabinet departments and major
agencies have IGs appointed by the President and confirmed by the Senate,
and have larger budgets and more staff than those IGs in DFEs who are
appointed by their agency heads. While agency-appointed IGs make up about
half of all IG offices, the total of their fiscal year 2006 budgets was
$267 million compared to $1.66 billion for presidentially appointed IGs.
The agency-appointed IGs at the United States Postal Service (USPS),
Special IG for Iraq Reconstruction (SIGIR), Amtrak, National Science
Foundation (NSF), and Federal Reserve Board (FRB) have budgets that are
comparable in size to those of presidentially appointed IGs. When the
staffing and budget figures for these IG offices are removed from the DFE
totals, the remaining 29 agency-appointed IGs have a total of 239 staff
and budgets that make up about 2 percent of all IG budgets. In addition,
19 of those 29 agency-appointed IG offices had 10 or fewer staff.

In a 2002 report,6 we presented the possible benefits of consolidating the
smallest IG offices with the offices of IGs appointed by the President. We
also suggested the conversion of agency-appointed IGs to presidential
appointment where their budgets were comparable to those of the
presidentially appointed IG offices. A benefit of consolidating the
offices of agency-appointed IGs with those of presidentially appointed IGs
would be to eliminate the differences in organizational independence
between their offices. The review of a designated federal entity provided
by a consolidated IG office would remove the need for the entity's
internal audit organization to report externally, remove the need to apply
the independence safeguards in Government Auditing Standards, and result
in improved independence provided through audits performed by an external
audit organization.

In addition, we believe that if properly structured and implemented, the
consolidation of IG offices could provide for a more effective and
efficient allocation of IG resources across government to address
high-risk and priority areas. It would not only achieve potential
economies of scale but also provide a critical mass of skills,
particularly given advancing technology and the ever-increasing need for
technical staff with specialized skills. We believe this point is
especially appropriate for the 19 IG offices with 10 or fewer staff. IG
staff now in smaller offices would, in large consolidated IG offices, have
immediate access to a broader range of resources to use in addressing
issues requiring technical expertise or areas of critical need.
Consolidation would also strengthen the IGs' ability to improve the
allocation of human capital and scarce financial resources within their
offices and to attract and retain a more professional workforce with
talents, multidisciplinary knowledge, and up-to-date skills. Consolidation
can also add flexibility and increase options for IG coverage and help
ensure that the IG function is better equipped to achieve its mission.
Consolidation would also increase the ability of larger IG offices to
provide methods and systems of quality control in the smaller agencies.

We recognize that there are potential risks resulting from consolidation
that would have to be mitigated through proactive and targeted actions in
order for the benefits of consolidation to be realized without adversely
affecting the audit coverage of small agencies. For example, the potential
reduction in day-to-day contact between the IG and officials at smaller
agencies as result of consolidation could be mitigated by posting IG staff
at the agencies to keep both the IG and the agency head informed and to
coordinate necessary meetings. In preparation for consolidation, staff in
the smaller IG offices could be consulted in planning oversight procedures
and audit coverage for their agencies. There may be fewer audits or even
less coverage of those issues currently audited by the IGs at smaller
agencies, but coverage by a consolidated IG could address areas of higher
risk, value, and priority, resulting in potentially more efficient and
effective use of IG resources across the government. Furthermore,
consolidation of selected IG offices could be coupled with a decentralized
deployment approach that establishes a minimum IG presence or coverage of
each DFE entity in order to mitigate risks related to any loss of audit
coverage. By providing such coverage from a centralized, external IG
organization, independence would also be enhanced.

6GAO, Inspectors General: Office Consolidation and Related Issues,
[20]GAO-02-575 (Washington, D.C.: Aug. 15, 2002).

Also important, consolidation of the IG offices at USPS, NSF, Corporation
for Public Broadcasting (CPB), and Legal Services Corporation (LSC) with
offices of presidentially appointed IGs may not be necessary to further
the independence of these IGs because they are appointed and may be
removed by their boards of directors. We believe that by requiring the
vote of a majority of board members for such actions regarding their IGs,
the potential for the independence of the IG to be impaired through the
threat of removal is greatly reduced as compared to appointment and
removal by an individual agency head. In addition, we continue to believe
that the consolidation of IG offices based on related agency missions
could help provide for more efficient use of increasingly scarce IG
resources. (See enc. III.) For example, the consolidation of the Amtrak IG
with the Department of Transportation IG would be appropriate given the
similar transportation--related subjects of their oversight.

Results of the Comptroller General's Forum on IG Issues

In May 2006, at the request of this committee, I convened a panel of
recognized leaders of the federal audit and investigative community to
discuss proposed amendments to the IG Act. We drew the panel from the
current IG leadership, former IGs, knowledgeable former and current
federal managers, representatives of academia and research institutions, a
former member of the Congress, and congressional staff, including the
congressional staff person closely involved in the development of the 1978
IG Act. Among other issues, the panel members discussed terms of office
and removal for cause, submission of IG budgets, a proposed IG Council, IG
pay and bonuses, and investigative and law enforcement authorities for
agency-appointed IGs. In September 2006 we issued the results of the panel
discussion.7 The overall perspectives of the panel are discussed below.

Terms of office and removal for cause

IGs serve at the pleasure of either the President or their agency heads,
depending on the nature of their appointments. The IGs appointed by the
President with Senate confirmation may be removed only by the President,
while the IGs appointed by their agency heads may be removed or
transferred from their offices only  by their agency heads. However, for
both types of IGs the reasons for removal must be communicated to the
Congress after the action has taken place.

The panel members discussed the possible effects of having a 7-year term
of office for each IG with more than one term possible, and a
removal-for-cause provision whereby an IG may be removed from office prior
to the expiration of his or her term only on the basis of permanent
incapacity, inefficiency, neglect of duty, malfeasance, conviction of a
felony, or conduct involving moral turpitude.

The majority of the panel participants did not favor statutorily
establishing a fixed term of office for IGs. The reasons included the
panelists' belief that the proposal could disrupt agency management and IG
relationships, and that agency flexibility is needed to remove a
poor-performing IG if necessary. On the other hand, a statutory term of
office and removal only for specified causes was viewed positively by some
panelists as a means of enhancing independence by relieving some of the
immediate pressure surrounding removal without appropriate justification.
The panel members also generally supported a statutory requirement to
notify the Congress in writing in advance of removing an IG, with an
explanation of the reason for removal. The participants cautioned that
this procedure should consist only of notification, without building in
additional steps or actions in the removal process.

IG budget submission

The IG Act Amendments of 1988 require the President's budget to include a
separate appropriation account for each of the IGs appointed by the
President or otherwise specified by the act. In this context, IG budget
requests are generally reviewed as part of each agency's budget process
and are submitted as a separate budget line item to OMB and the Congress
as a part of each agency's overall budget. In contrast, most IGs appointed
by their agency heads do not have separate appropriation accounts.

7GAO, Highlights of the Comptroller General's Panel on Federal Oversight
and the Inspectors General, [21]GAO-06-931SP (Washington, D.C.: Sept. 11,
2006).

The panel members discussed the possibility of having IGs justify their
funding requests directly to OMB and the Congress in addition to being a
part of their agencies' budget processes. In addition, the panel members
considered having the budget requests submitted by the IGs compared to the
funds requested by the agency heads for their IGs and including the
comparison in the Budget of the United States Government. Overall, the
panel members supported additional transparency for the IG budgets and
agreed that the funding and other resource needs of the IGs should be
clearly identified as a separate account or line item.

IG Council

The panel members considered a combined statutory IG Council with duties
and functions similar to PCIE and ECIE which includes an Integrity
Committee charged with receiving, reviewing, and referring for
investigation, where appropriate, allegations of wrongdoing against an IG
and members of the IG's senior staff operating with the IG's knowledge.

Currently, the Integrity Committee receives its authority under Executive
Order 12993, signed in 1996, and is chaired by a representative of the
Federal Bureau of Investigation. Other members of the committee are the
Special Counsel of the Office of Special Counsel, the Director of the
Office of Government Ethics, and three IGs representing PCIE and ECIE.
Cases investigated by members of the Integrity Committee may be forwarded
to the PCIE and ECIE Chairperson for further action.

As called for in prior testimony,8 I continue to support formalizing a
combined IG council in statute, along with the Integrity Committee. We
also strongly support the concept behind the Integrity Committee. We
believe it is imperative that the independence of the Integrity Committee
be preserved and the basic underpinnings not be changed. In contrast, the
participants in our May 2006 panel discussion had mixed views about
statutorily establishing a joint IG Council but did favor establishing a
funding mechanism for the councils.

8 [22]GAO-04-117T .

IG pay and bonuses

Issues over IG pay and bonuses have arisen over the past few years as a
result of recent requirements9 that rates of pay for the federal Senior
Executive Service be based on performance evaluations as part of a
certified performance management system. IGs who are subject to these
requirements must therefore receive performance evaluations in order to
qualify for increases to their pay. The IGs are provided general
supervision by their agency heads in accordance with the IG Act. However,
independence issues arise if the agency head is evaluating IG performance
when that evaluation is used as a basis for an increase in the IG's pay or
for providing a bonus. As a result, some IGs have effectively had their
pay capped without the ability to receive pay increases or bonuses.

The majority of panel participants believed that the pay structure for the
IGs needs to be addressed. The panelists emphasized the importance of
providing comparable compensation for IGs as appropriate, while
maintaining the IGs' independence in reporting the results of their work,
and providing them with performance evaluations that could be used to
justify higher pay. However, the panelists' views on IGs' receiving
performance bonuses were mixed, mainly because of uncertainty about the
overall framework that would be used to evaluate performance and make
decisions about bonuses. I believe that an independent framework could be
established through PCIE and ECIE, in cooperation with the Office of
Personnel Management, to provide IGs with performance evaluations
independent of undue influence by agency heads.

IG investigative and law enforcement authorities

The IG Act has been amended by subsequent legislation10 to provide IGs
appointed by the President with law enforcement powers to make arrests,
obtain and execute search warrants, and carry firearms. The IGs appointed
by their agency heads were not included under this amendment but may
obtain law enforcement authority by applying to the Attorney General for
deputation on a case-by-case basis. In addition, the Program Fraud Civil
Remedies Act of 198611 provides agencies with IGs appointed by the
President with the authority to investigate and report false claims and
recoup losses resulting from fraud below $150,000. The agencies with IGs
appointed by their agency heads do not have this authority. Also, the IG
Act provides all IGs with the authority to subpoena any information,
documents, reports, answers, records, accounts, papers, and other data and
documentary evidence necessary to perform the functions assigned by the IG
Act. This subpoena authority does not specifically address many forms of
data including electronically stored information.

9National Defense Authorization Act, Pub. L. No. 108-136, 117 Stat. 1392,
1638 (Nov. 24, 2003).

10The Homeland Security Act of 2002, Pub. L. No. 107-296, 116 Stat. 2135
(Nov. 25, 2002).

1131 U.S.C. SS 3801-3812.

Panel participants overwhelmingly supported the provisions to (1) allow
IGs appointed by their agency heads to apply to the Attorney General for
full law enforcement authority instead of having to renew their authority
on a case-by-case basis or through a blanket authority, (2) provide
designated federal entities with IGs appointed by their agency heads the
authority under the Program Fraud Civil Remedies Act to investigate and
report false claims and recoup losses resulting from fraud, and (3) define
IG subpoena power to include any medium of information and data.

Concluding Observations

The IG offices play a critical role in federal oversight. The independence
of the IGs through protections in the IG Act, adherence to standards, and
personal independence on the part of individual IGs and their staff are
key to ensuring the continued overall independence and effectiveness of
federal IG offices. As we enter a period where great transformation will
be needed in the way government does business, it will be increasingly
important to consider the IGs' role in this process and to take advantage
of opportunities to make the IG offices more efficient and effective. It
will also be critical to ensure IG coordination across government to
identify and build on opportunities to better leverage existing resources
for achieving effective federal oversight and accountability.

I would be pleased to meet with you or your staff to answer any questions
that you may have or to discuss this statement.

Enclosure I: Inspectors General Appointed by the President:
Fiscal Year 2006 Appropriated Budgets and Actual FTEs

      Federal departments and agencies                      Budgets   FTEs 
1  Department of Health and Human Services         $ 222,000,000  1,445 
2  Department of Defense                             206,772,130  1,370 
3  Treasury IG for Tax Administration                131,953,140    838 
4  Department of Housing and Urban Development       104,940,000    646 
5  Social Security Administration                     91,476,000    608 
6  Department of Homeland Security                    82,187,000    520 
7  Department of Agriculture                          80,336,000    598 
8  Department of Labor                                71,445,000    450 
9  Department of Veterans Affairs                     70,174,000    464 
10 Department of Justice                              68,000,000    411 
11 Department of Transportation                       61,874,000    419 
12 Environmental Protection Agency                    50,241,000    337 
13 Department of Education                            48,510,000    288 
14 General Services Administration                    42,900,000    293 
15 Department of Energy                               41,580,000    262 
16 Department of the Interior                         38,541,000    261 
17 Agency for International Development               36,640,000    172 
18 National Aeronautics and Space Administration      32,400,000    203 
19 Department of State                                30,945,000    186 
20 Federal Deposit Insurance Corporation              30,690,000    125 
21 Department of Commerce                             22,467,000    122 
22 Small Business Administration                      20,361,080     95 
23 Office of Personnel Management                     18,216,000    131 
24 Department of the Treasury                         16,830,000    116 
25 Tennessee Valley Authority                         14,700,000     90 
26 Nuclear Regulatory Commission                       8,308,000     49 
27 Railroad Retirement Board                           7,124,000     53 
28 Corporation for National and Community Service      5,940,000     23 
29 Export-Import Bank                                  1,000,000      0 
30 Central Intelligence Agency                                na     na 
      Totals                                         $1,658,550,350 10,575 

Sources: PCIE and ECIE.

Legend: FTE = Fill-time equivalent; na = not available.

aFiscal year 2007 FTEs.

bIG budget is not determined separately from the agencyï¿½s budget.

Enclosure II: Inspectors General Appointed by Agency Heads: Fiscal Year 2006
Appropriated Budgets and Actual FTEs

      Federal departments and agencies                  Budgets  FTEs 
1  United States Postal Service                 $158,000,000   916 
2  Special IG for Iraq Reconstruction             34,000,000   115 
3  Amtrak                                         16,984,000    87 
4  National Science Foundation                    11,500,000    62 
5  Federal Reserve Board                           5,118,740    33 
6  Government Printing Office                      4,950,200    23 
7  Pension Benefit Guaranty Corporation            4,038,990    21 
8  Peace Corps                                     3,064,000    19 
9  Federal Communications Commission               2,597,903    20 
10 Securities and Exchange Commission              2,507,300    10 
11 Legal Services Corporation                      2,507,000    18 
12 Library of Congress                             2,457,000    17 
13 National Archives and Records Administration    2,200,000    16 
14 Smithsonian Institution                         1,938,932    14 
15 Equal Employment Opportunity Commission         1,810,307    11 
16 National Credit Union Administration            1,764,926     8 
17 Election Assistance Commission                  1,600,000     1 
18 National Labor Relation Board                   1,080,327     7 
19 Farm Credit Administration                        998,248     5 
20 Federal Housing Finance Board                     959,271     4 
21 Federal Trade Commission                          917,500     5 
22 Corporation for Public Broadcasting               834,264     9 
23 Commodity Futures Trading Commission              795,000     4 
24 Federal Election Commission                       691,584     5 
25 National Endowment for the Humanities             589,600     5 
26 U.S. International Trade Commission               521,205     1 
27 Appalachian Regional Commission                   476,000     3 
28 Federal Maritime Commission                       469,885     2 
29 National Endowment for the Arts                   402,000     3 
30 Federal Labor Relations Authority                 284,487     1 
31 Consumer Product Safety Commission                241,270     2 
32 U.S. Capitol Police                               583,000    4a 
33 Denali Commission                                     nab     1 
34 Office of Director of National Intelligence            na    na 
      Totals                                        266,882,939 1,452 

Source: PCIE and ECIE and agency information.

Legend: FTE = Fill-time equivalent; na = not available.

aFiscal year 2007 FTEs.

bIG budget is not determined separately from the agency's budget.

Enclosure III: Potential IG Consolidations and Related Agency Missions

Illustrative examples of      Primary agency missions                      
agencies that could                                                        
consolidate IG oversight                                                   
Department of Agriculture     Enhance the quality of life by supporting    
                                 the production of agriculture.               
Farm Credit Administration    Promote a safe and sound competitive Farm    
                                 Credit System.                               
Department of Commerce        Promote job creation, economic growth and    
                                 sustain development and improved living      
                                 standards.                                   
Federal Communications        Regulation of communications by radio,       
Commission                    television, mire satellite, and cable.       
Corporation for Public        Provide grants to qualified public           
Broadcasting                  television and radio stations to be used     
                                 primarily for program production or          
                                 acquisition.                                 
Appalachian Regional          Support economic and social development in   
Commission                    the Appalachian region.                      
U.S. International Trade      Administer U.S. trade laws and provide       
Commission                    information on trade matters.                
Consumer Product Safety       Reduce the risk of injuries and deaths from  
Commission                    consumer products.                           
Department of Housing and     Promote a decent, safe, and sanitary home    
Urban Development             and living environment for all.              
Federal Housing Finance Board Regulate banks that help finance community   
                                 development needs.                           
Department of Justice         Enforcement of laws in the public interest.  
Legal Services Corporation    Ensure equal access to justice under law.    
Equal Employment Opportunity  Enforce federal statutes prohibiting         
Commission                    discrimination.                              
Federal Trade Commission      Prevent monopolies, restraints and unfair    
                                 and deceptive practices that affect free     
                                 enterprise.                                  
Department of the Treasury    Responsible for financial, economic, and tax 
                                 policy, as well as financial law enforcement 
                                 and the manufacturing of coins and currency. 
Securities and Exchange       Administer federal securities laws that seek 
Commission                    to provide protection for investors, to      
                                 ensure that securities markets are fair and  
                                 honest, and to provide the means to enforce  
                                 securities laws through sanctions.           
Commodity Futures Trading     Protect market participants against          
Commission                    manipulation, abusive trade practices, and   
                                 fraud.                                       
Federal Deposit Insurance     Contribute to the stability of and           
Corporation                   confidence in the nation's financial system. 
National Credit Union         Regulate and insure federal credit unions    
Administration                and insure state-chartered credit unions.    
General Services              Provide quality services, space, and         
Administration                products at competitive cost to enable       
                                 federal employees to accomplish their        
                                 missions.                                    
Smithsonian Institution       Hold artifacts and specimens for the         
                                 increase and diffusion of knowledge.         
National Archives and Records Preserve the nation's history by overseeing  
Administration                and managing federal records.                
National Endowment for the    Nurture human creativity and foster          
Arts                          appreciation of artistic accomplishments.    
National Endowment for the    Support research, education, and public      
Humanities                    programs in the humanities.                  
Federal Election Commission   Disclose campaign finance information,       
                                 enforce provisions of the Federal Election   
                                 Campaign Act, and oversee public funding of  
                                 presidential elections.                      
Department of Labor           Foster, promote, and develop the welfare of  
                                 U.S. wage earners.                           
Federal Labor Relations       Enforce the laws governing relations between 
Authority                     unions and employees.                        
National Labor Relations      Enforce the laws governing relations between 
Board                         unions and employees.                        
Pension Benefit Guaranty      Encourage the growth and operations of       
Corporation                   defined benefit pension plans.               
Department of State           Promote U.S. interests and the President's   
                                 foreign policy in shaping a free, secure,    
                                 and prosperous world.                        
Peace Corps                   Promote world peace and friendship.          
Department of Transportation  Develop policies for the national            
                                 transportation system with regard for need,  
                                 the environment, and national defense.       
Amtrak                        Develop modern rail service in meeting       
                                 inter-city passenger transportation needs.   
Federal Maritime Commission   Regulate shipping in foreign U.S. trade.     

Source: The United States Government Manual.

Related GAO Products

Inspectors General: Proposals to Strengthen Independence and
Accountability. [23] GAO-07-1021T . Washington, D.C.: June 20, 2007.

Inspectors General: Activities of the Department of State Office of
Inspector General [24]. GAO-07-138 . Washington, D.C.: March 23, 2007.

Highlights of the Comptroller General's Panel on Federal Oversight and the
Inspectors General. [25]GAO-06-931SP. Washington, D.C.: September 11,
2006.

United Nations: Funding Arrangements Impede Independence of Internal
Auditors [26]. GAO-06-575. Washington, D.C.: April 25, 2006.

Activities of the Treasury Inspector General for Tax Administration.
[27]GAO-05-999R. Washington, D.C.: September 27, 2005.

Kennedy Center: Stronger Oversight of Fire Safety Issues, Construction
Projects, and Financial Management Needed. [28] GAO-05-334. Washington,
D.C.: April 22, 2005.

Activities of the Amtrak Inspector General. [29] GAO-05-306R. Washington,
D.C.: March 4, 2005.

Inspectors General: Enhancing Federal Accountability. [30] GAO-04-117T.
Washington, D.C.: October 8, 2003.

Department of Health and Human Services: Review of the Management of
Inspector General Operations. [31]GAO-03-685 . Washington, D.C.: June 10,
2003.

Inspectors General: Office Consolidation and Related Issues.
[32]GAO-02-575 . Washington, D.C.: August 15, 2002.

Inspectors General: Comparison of Ways Law Enforcement Authority Is
Granted. [33]GAO-02-437 . Washington, D.C.: May 22, 2002

Inspectors General: Department of Defense IG Peer Reviews. [34]GAO-02-253R
. Washington, D.C.: December 21, 2001.

HUD Inspector General: Actions Needed to Strengthen Management and
Oversight of Operation Safe Home. [35]GAO-01-794 . Washington, D.C.: June
29, 2001.

U.S. Export-Import Bank: Views on Inspector General Oversight.
[36]GAO-01-1038R . Washington, D.C.: September 6, 200l.

(194711)

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Highlights of [44]GAO-07-1089T , a statement for the record to the
Committee on Homeland Security and Governmental Affairs, U.S. Senate.

July 11, 2007

INSPECTORS GENERAL

Opportunities to Enhance Independence and Accountability

The federal inspectors general (IG) play a critical role in addressing
mismanagement of scarce taxpayer dollars. In the coming years, as we enter
a period of escalating deficits and increasingly limited resources, GAO
believes that the greatest single source of savings will come from bold,
decisive efforts to transform what government does and how it does
business, and to hold it accountable for results. Therefore, it is
important that an independent, objective, and reliable IG structure be in
place to ensure adequate audit and investigative coverage of federal
programs and operations.

This statement offers GAO's

views on (1) the principles of independence and how they apply to IG
offices, (2) leveraging IG work as a part of overall federal oversight,
(3) structural streamlining of IG offices for resource efficiencies, and

(4) matters discussed in a GAO forum on IG issues.

This statement draws on provisions of the IG Act, professional auditing
standards, prior GAO reports and testimony, and information reported by
the IGs.

The independence of the IGs is key to the effectiveness of their offices.
The IGs, in their statutory role of providing oversight of their agencies'
operations, represent a unique hybrid of external and internal reporting
responsibilities. The IG Act requires the IGs to report the results of
their work both externally to the Congress and internally to the agency
head. It also provides certain independence protection to the IGs. This
protection includes specifying that agency heads and other officials may
not prevent or prohibit the IGs from performing any audit or investigation
and that IGs are to have access to all agency documents and records. In
addition, IGs are appointed either by the President with the advice and
consent of the Senate or by their agency heads with removal only by the
President or the agency head.

The work of the IGs is coordinated through the President's Council on
Integrity and Efficiency and the Executive Council on Integrity and
Efficiency, which were created by executive order to enhance the work of
the IGs. In prior testimony GAO has recommended establishing a statutory
IG Council with a permanent mission to address federal oversight
challenges and risks. GAO also believes that effective ongoing
coordination of the federal audit and oversight efforts of GAO and the IGs
is more critical than ever. In May of this year the Comptroller General
hosted a meeting with the IGs for the principal purpose of improving
federal oversight coordination. The Comptroller General has also suggested
the need for creating a more formal mechanism or council for the
coordination of audit activities on a governmentwide basis. The structure
of this council could be similar in concept to the Joint Financial
Management Improvement Program, whose principals meet to discuss issues of
mutual concern to promote governmentwide financial management.

In a prior report GAO presented the possible benefits of streamlining the
structure of IG offices to increase the use of limited IG resources
through consolidation of their offices. The benefits of consolidating the
smallest offices of IGs appointed by their agency heads with the larger
offices of IGs appointed by the President include immediate access to a
broader range of resources to use in dealing with issues requiring
technical expertise or areas of critical need. In addition, consolidation
would strengthen the ability of IGs to improve the allocation and use of
scarce financial resources.

In May 2006, at the request of this committee, the Comptroller General
convened a panel of recognized leaders to discuss the possible benefits of
proposed legislative changes to the IG Act. The panel members generally
supported advanced notification to the Congress of the reasons for removal
of an IG, separate IG budget line items, a funding mechanism for an IG
Council, the need for IG pay and bonus issues to be addressed, and
specific investigative and law enforcement authorities for the IGs.

References

Visible links
  17. http://www.gao.gov/cgi-bin/getrpt?GAO-07-162G
  18. http://www.gao.gov/cgi-bin/getrpt?GAO-04-117T
  19. http://www.gao.gov/cgi-bin/getrpt?GAO-04-117T
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-02-575
  21. http://www.gao.gov/cgi-bin/getrpt?GAO-06-931SP
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-04-117T
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1021T
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-07-138
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-06-931SP
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-06-575
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-999R
  28. http://www.gao.gov/cgi-bin/getrpt?GAO-05-334
  29. http://www.gao.gov/cgi-bin/getrpt?GAO-05-306R
  30. http://www.gao.gov/cgi-bin/getrpt?GAO-04-117T
  31. http://www.gao.gov/cgi-bin/getrpt?GAO-03-685
  32. http://www.gao.gov/cgi-bin/getrpt?GAO-02-575
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-02-437
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-02-253R
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-01-794
  36. http://www.gao.gov/cgi-bin/getrpt?GAO-01-1038R
  37. http://www.gao.gov/
  38. http://www.gao.gov/
  39. http://www.gao.gov/fraudnet/fraudnet.htm
  40. mailto:[email protected]
  41. mailto:[email protected]
  42. mailto:[email protected]
  43. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1089T
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1089T
*** End of document. ***