Financial Audit: Expenditures by Independent Counsels (Testimony,
02/29/96, GAO/T-AIMD-96-48).
GAO discussed independent counsel expenditures, focusing on the: (1)
financial reporting and auditing requirements governing expenditures;
(2) operations expenditures for the 10-year period ended March 1995; and
(3) compliance with financial laws and regulations. GAO noted that: (1)
independent counsels are required by law to prepare statements of their
expenditures from permanent, indefinite appropriations within 3 months
of 6-month periods ending March 31 and September 30; (2) GAO is required
to audit those statements within 3 months of their due date; (3)
independent counsels have used summary expenditure reports prepared by
the Administrative Office of United States Courts (AOUSC) to prepare
their reports; (4) of the $95.5 million in operating expenditures
independent counsels accumulated over the 10-year period, most were
personnel expenses; (5) independent counsels have resolved most of the
concerns regarding their accounting procedures and internal control
weaknesses; and (6) independent counsels have improved their compliance
with laws and regulations by developing written guidance and Congress
has resolved financial reporting ambiguities when it enacted the
Independent Counsel Reauthorization Act.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-AIMD-96-48
TITLE: Financial Audit: Expenditures by Independent Counsels
DATE: 02/29/96
SUBJECT: Reporting requirements
Law enforcement
Financial statement audits
Lawyers
Accounting procedures
Internal controls
Compliance
Administrative costs
Audit oversight
Interagency relations
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Cover
================================================================ COVER
Before the Subcommittee on Crime
Committee on the Judiciary
House of Representatives
For Release on Delivery
Expected at
9:30 a.m.
Thursday,
February 29, 1996
FINANCIAL AUDIT - EXPENDITURES BY
INDEPENDENT COUNSELS
Statement of David L. Clark, Director
Audit Oversight and Liaison
Accounting and Information Management Division
GAO/T-AIMD-96-48
GAO/AIMD-96-48T
(911718)
Abbreviations
=============================================================== ABBREV
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss our financial audits of
independent counsel expenditures. Specifically, I will discuss (1)
independent counsels' financial reporting and auditing requirements,
(2) expenditures for independent counsel operations for the 10-year
period ended March 1995, and (3) independent counsels' compliance
with financial laws and regulations.
REPORTING AND AUDITING
REQUIREMENTS
---------------------------------------------------------- Chapter 0:1
Independent counsels are required by law to prepare statements of
their expenditures from a permanent, indefinite appropriation. GAO
is required by law to audit those reports. The reports cover the
6-month periods ended March 31 and September 30. Independent
counsels are required to prepare their reports within 3 months after
the end of the 6-month period, and we are required to issue our audit
reports within 3 months after that. Our last audit report was for
the 6-month period ended March 1995, and was issued in September
1995.\1 We are currently auditing independent counsel reports
prepared in December 1995 for the 6-month period ended September
1995, and plan to issue our audit report by the end of March 1996.
Our audit objectives are to determine whether independent counsels'
expenditure reports are reliable. We also review the internal
control structure over independent counsel expenditures and test for
compliance with selected provisions of laws and regulations. We do
not evaluate the efficiency or effectiveness of independent counsel
operations.
In addition to independent counsels' offices, we also perform audit
work at the Department of Justice and the Administrative Office of
the United States Courts (AOUSC). The law directs Justice to pay all
costs relating to the establishment and operation of independent
counsel offices. A permanent, indefinite appropriation has been
established by law to pay all necessary independent counsel expenses.
The Independent Counsel Reauthorization Act of 1994 directed AOUSC to
provide administrative support and guidance to independent counsels.
Prior to the act, AOUSC provided services to independent counsels
pursuant to formal agreement with Justice. Justice periodically
disburses lump-sum payments from the permanent, indefinite
appropriation to AOUSC for independent counsel expenditures.
Independent counsels submit financial information to AOUSC, which
expends funds on independent counsels' behalf and records the
expenditures in its accounting systems. AOUSC also prepares monthly
summarized expenditure reports and submits them to independent
counsels. Independent counsels have generally fulfilled their
financial reporting requirements by using the summarized expenditure
reports prepared by AOUSC.
Lastly, we obtain, but do not audit, information on the costs of
independent counsel operations that are not paid from the permanent,
indefinite appropriation. These costs relate primarily to employees
assigned to work with independent counsels from other federal
agencies, such as the Federal Bureau of Investigation.
--------------------
\1 Financial Audit: Expenditures by Six Independent Counsels for the
Six Months Ended March 31, 1995 (GAO/AIMD-95-233, September 29,
1995).
INDEPENDENT COUNSEL
EXPENDITURES
---------------------------------------------------------- Chapter 0:2
Enclosed is a schedule of independent counsel expenditures for the
10-year period ended March 1995. The schedule was compiled from
reports we have issued on expenditures by the independent counsels
who have been active since establishment of the permanent, indefinite
appropriation in 1987.\2 We are unable to verify most of the totals
on the schedule because of the poor condition of independent counsel
records prior to 1992. Also, the totals for some of the independent
counsels include unaudited information.
The schedule shows that expenditures for independent counsel
operations totaled approximately $95 million for the 10-year period
ended March 1995. Personnel compensation and benefits, including
compensation and benefits for employees assigned to work with
independent counsels from other federal agencies, such as the Federal
Bureau of Investigation, accounted for most of the $95 million.
In our 1992 audit of independent counsels, we reported that poor
financial records and serious internal control weaknesses resulted in
inaccurate financial reports.\3 These weaknesses included inadequate
procedures to ensure that expenditures were recorded properly and
inadequate segregation of duties. These weaknesses have been largely
resolved. For example, some independent counsels have hired a
financial officer, established more effective accounting systems,
reconciled information in their accounting systems with AOUSC
reports, and better segregated accounting duties. AOUSC has improved
accounting systems related to independent counsel expenditures and
taken other administrative steps such as establishing centralized
oversight of independent counsel transactions.
In our last audit report, we noted one remaining weakness in the
processing and summarizing of independent counsel expenditures, but
pointed out that independent counsels and AOUSC have taken steps to
resolve the weakness. The weakness resulted from certain independent
counsels submitting incorrect information to AOUSC, and from AOUSC
incorrectly recording information submitted by independent counsels.
To resolve this weakness, certain independent counsels have begun
utilizing the services of a financial consultant to assist them in
accounting, including determining that transactions have been
recorded properly and reconciling independent counsel financial
records with AOUSC records. AOUSC has hired a senior staff member
with accounting and financial reporting expertise to review AOUSC
records before they are provided to independent counsels.
--------------------
\2 Financial audits of expenditures by independent counsels:
GAO/AFMD-93-1, October 9, 1992; GAO/AFMD-93-60, April 21, 1993;
GAO/AIMD-94-76, April 15, 1994; GAO/AIMD-95-85, March 31, 1995;
GAO/AIMD-95-112, March 31, 1995; GAO/AIMD-95-113, March 31, 1995; and
GAO/AIMD-95-233, September 29, 1995.
\3 Financial Audit: Expenditures by Nine Independent Counsels
(GAO/AFMD-93-1, October 9, 1992).
COMPLIANCE WITH LAWS AND
REGULATIONS
---------------------------------------------------------- Chapter 0:3
In our 1992 audit of independent counsels, we found that some
expenditures were inconsistent with laws and regulations relating to
compensation, travel, and procurement. For example, we found that
489 out of 522 travel transactions we examined lacked written
authorizations or approvals, and that one independent counsel
received $78,000 in unallowable reimbursements for meals and lodging.
Some of the instances we identified may have been attributable to an
oversight or ambiguities in the independent counsel law and a lack of
comprehensive guidance to help independent counsels understand and
follow operational and administrative legal requirements. Other
instances were caused by independent counsels relying on erroneous
advice from AOUSC.
Independent counsels have taken steps to better ensure compliance
with laws and regulations through a number of steps including the
development of handbooks and other written guidance. Moreover, the
Congress addressed many of the problems we found when it enacted the
Independent Counsel Reauthorization Act of 1994. The act requires
independent counsels to generally comply with the established
policies of the Department of Justice regarding expenditure of funds
and by establishing additional restrictions on compensation and
travel. In our last four audits, our tests for compliance with
selected provisions of laws and regulations have disclosed no
reportable instances of noncompliance by independent counsels.
-------------------------------------------------------- Chapter 0:3.1
Mr. Chairman, this concludes my statement. I would be pleased to
respond to questions.
ATTACHMENT
=========================================================== Appendix 1
(See figure in printed
edition.)
*** End of document. ***