Federal Inspectors General: An Historical Perspective (Testimony,
04/21/98, GAO/T-AIMD-98-146).

GAO discussed the evolution of the work of federal Inspectors General
(IG).

GAO noted that: (1) Congress created IGs throughout government as a
result of growing reports of serious and widespread internal control
breakdowns; (2) IGs were principally charged with detecting fraud,
waste, and mismanagement in agencies' programs and operations,
conducting audits and investigations, and recommending policies to
promote economy, efficiency, and effectiveness; (3) IGs have reported
success in carrying out this mission through billions of dollars in
savings and cost recoveries and thousands of prosecutions of criminal
cases resulting from their work; (4) since passage of the IG Act,
Congress has called for more efficient and effective management of
government programs through a range of legislative initiatives that
affect the way agencies operate; (5) the enactment of such statutes has
not only established a framework for broad management reforms by
agencies, it has also affected the IGs' role; and (6) in some cases, the
IGs were provided key new responsibilities, and in other instances, they
were given the opportunity to substantially influence the way agencies
operate programs.

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

 REPORTNUM:  T-AIMD-98-146
     TITLE:  Federal Inspectors General: An Historical Perspective
      DATE:  04/21/98
   SUBJECT:  Inspectors general
             Reporting requirements
             Financial management
             Law enforcement
             Investigations by federal agencies
             Internal controls
             Auditing standards
             Financial statement audits
             Information resources management
             Strategic planning
IDENTIFIER:  National Performance Review
             
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Cover
================================================================ COVER


Before the Subcommittee on Government Management, Information and
Technology, Committee on Government Reform and Oversight, House of
Representatives

For Release on Delivery
Expected at
10 a.m.
Tuesday,
April 21, 1998

FEDERAL INSPECTORS GENERAL - AN
HISTORICAL PERSPECTIVE

Statement of David L.  Clark
Director, Audit Oversight and Liaison
Accounting and Information Management Division

GAO/T-AIMD-98-146

GAO/AIMD-98-146


(911849)


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

  CFO -
  DOD -
  FFMIA -
  HHS -
  IG -
  OIG -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to discuss the evolution of the work of the inspectors
general (IG).  This oversight hearing by the Subcommittee provides an
excellent opportunity to review the IG concept established by the
Congress through the Inspector General Act of 1978 and to focus on
the IG community's important efforts. 

Two decades ago, the Congress created IGs throughout government as a
result of growing reports of serious and widespread internal control
breakdowns.  They were principally charged with detecting fraud,
waste, and mismanagement in agencies' programs and operations;
conducting audits and investigations; and recommending policies to
promote economy, efficiency, and effectiveness. 

In the intervening years, IGs have reported success in carrying out
this mission through billions of dollars in savings and cost
recoveries and thousands of prosecutions of criminal cases resulting
from their work.  For example, in fiscal year 1996, IGs reported
investigative recoveries totaling about $1 billion and successful
prosecution of over 12,500 criminal cases. 

Since passage of the IG Act, the Congress has called for more
efficient and effective management of government programs through a
range of legislative initiatives that affect the way agencies
operate.  For example, financial management reform is called for by
the Chief Financial Officers (CFO) Act, as expanded by the Government
Management Reform Act. 

The enactment of statutes such as these has not only established a
framework for broad management reforms by agencies, they have also
affected the IGs' role.  In some cases, the IGs were provided key new
responsibilities, and, in other instances, they were given the
opportunity to substantially influence the way agencies operate
programs. 

Because of the changing roles brought about by these legislative
mandates, you and the Committee Chairman have asked us to review
aspects of IG operations.  We began this effort with a survey of the
IGs' participation in strategic planning, which I will discuss today. 
Also, we have worked with the Committee staff to identify other areas
that may be studied.  This testimony will discuss the IGs' role as it
has evolved and some of the forces that have helped to shape the
current environment in which IGs function. 


   THE IGS' EVOLUTION AND
   ENVIRONMENT
---------------------------------------------------------- Chapter 0:1

The importance of legislative underpinnings for auditing in the
federal government dates back almost half a century--to the
Accounting and Auditing Act of 1950, which held federal agency heads
responsible for internal controls, including appropriate internal
audit.  The need to strengthen this requirement became evident when,
in 1976, we began to issue a series of reports on reviews at 157
fiscal offices in 11 major federal organizations.  These reports
indicated widespread and serious internal control weaknesses that
resulted in the waste of government money through fraud and
mismanagement. 

We reported that federal agencies did not use their internal auditors
to examine their financial operations and, when they did, no action
was taken on the auditors' recommendations.  We also found that
internal audit groups were not independent, they were underfunded and
understaffed, audit efforts were fragmented among several offices,
and problems found by the audits were not communicated to the agency
heads.  With rare exceptions, the executive agencies had not
adequately monitored or assessed or reviewed their own operations and
programs. 

As a result, the Congress passed the IG Act of 1978.  The IG Act, as
amended, and similar laws centralized the leadership of most major
federal agencies' audit and investigative functions under an
inspector general responsible only to the agency head or deputy and
having the independence needed to detect, investigate, evaluate, and
report on government fraud, waste, and mismanagement.  Under the act,
the IGs were given authority to detect fraud and mismanagement in
programs and operations of their agencies; conduct audits and
investigations; and recommend policies to promote economy,
efficiency, and effectiveness.  The IGs are to perform audits in
accordance with generally accepted government auditing standards as
promulgated by the Comptroller General. 

IGs at 27 departments and agencies, which are listed in attachment I,
are statutorily required to be appointed by the President and with
the advice and consent of the Senate.  IGs at 30 other entities,
which are listed in attachment II, are appointed by their entity
heads and have essentially the same powers and duties as the
presidentially-appointed IGs. 

Currently, the 57 offices of inspector general (OIG) have nearly
10,000 audit and investigative staff and spend about $1.1 billion
annually.  Of the total IG staff, about one-half are auditors,
one-quarter are investigators, and the remaining one-quarter are
administrative and other staff.  OIGs widely differ in size from the
Department of Defense (DOD) OIG with almost 1,300 staff to the
Appalachian Regional Commission OIG with 3 staff. 


      CONDUCTING LAW ENFORCEMENT
      ACTIVITIES
-------------------------------------------------------- Chapter 0:1.1

Each presidentially-appointed IG must appoint an assistant inspector
general for investigations, who has the responsibility to supervise
the investigations conducted.  IGs use their statutory investigative
authority, and their subpoena power, to inquire into allegations of
wrongdoing--both criminal and administrative.  The President's
Council on Integrity and Efficiency\1 has developed guidelines for
IGs' investigative efforts. 

The types of investigations conducted by the various IGs vary widely
and often depend on the mission, programs, and operations of the
agency they service.  For example, the DOD IG uses the bulk of a
cadre of criminal investigators to focus on frauds perpetrated
against the department by contractors and health care providers. 
Similarly, the Department of Health and Human Services (HHS) IG's
investigations focus largely on frauds against Medicare.  These and
other IGs use their investigators to uncover external criminal
activity affecting their departments' programs.  Simultaneously, they
must conduct criminal investigations of allegations of job-related
crimes perpetrated by agency employees. 

Most IGs also conduct, or at least supervise, agency administrative
investigations--those cases where allegations of noncriminal
misconduct (such as abuse of position and noncriminal conflicts of
interest) by agency employees have been made.  IGs use either
criminal or noncriminal investigators to carry out this mission. 

All IGs have the same basic investigative powers.  Some IGs also have
been granted limited law enforcement powers as well.  These powers
generally include the authority to make arrests and serve and execute
federal search or arrest warrants.  IGs using these additional tools
have either gained these authorities through statute or through
case-by-case deputation authority from the U.S.  Marshals Service as
approved by the Department of Justice.  Several IGs are part of an
ongoing pilot program wherein their criminal investigators are under
blanket (as opposed to case-by-case) deputation authority. 


--------------------
\1 The President's Council on Integrity and Efficiency was
established in 1981 to address common IG issues and consists
primarily of the presidentially appointed IGs. 


      REVIEWING IG OPERATIONS
-------------------------------------------------------- Chapter 0:1.2

Over the years, in response to specific requests from the Congress,
we have reviewed various aspects of the IGs' work.  For example, in
November 1993, we reported on actions needed to strengthen the OIGs
at designated federal entities (GAO/AIMD-94-39).  We recommended, for
example, that those IGs develop strategic plans that (1) assess their
respective entities' risks and problems, (2) describe the strategies
for resolving the risks and problems, (3) discuss the OIG resources
required and available to implement their strategies, and (4) provide
performance measures to evaluate their progress. 

Most recently, at your request, we surveyed the 48 IGs at agencies
covered by the Results Act to determine whether the IGs prepared
strategic plans.  The survey results showed that the IGs have
completed strategic plans or are developing them.  Also, the IGs'
responses to our survey indicate that their strategic plans contain
many of the elements outlined in the Results Act, such as mission
statements and goals and approaches.  We have advised your staff on
the preliminary results of this work, and we will be reporting to you
soon. 

In addition, the Vice President's 1993 National Performance Review
recommended changing the focus of IGs from compliance auditing to
evaluating management control systems and recasting their method of
operations to be more collaborative and less adversarial. 

In January 1994, the IGs adopted an "Inspectors General Vision
Statement" that says "We are agents of positive change striving for
continuous improvement in our agencies' management and program
operations and in our own offices."

This was an important step in defining the IGs' broader role while
reaffirming their statutory mission.  The vision statement addresses
ways for the IGs to work with agency heads and managers to improve
program management, maximize the positive impact of the IGs' reviews,
and provide recommendations to prevent problems before they occur. 


   MANAGEMENT REFORMS PROVIDE
   OPPORTUNITIES FOR IG EMPHASIS
---------------------------------------------------------- Chapter 0:2

We have long supported the IG concept and the legislation that
brought the concept into reality.  While not diminishing the
significance of the IGs' traditional role in fighting fraud, waste,
and mismanagement, we also recognize the potential for broadening the
IGs' role in concert with legislative initiatives that establish a
foundation requiring agencies to implement broad management reforms. 
Because these legislative initiatives have shaped the environment in
which IGs operate, they have created new means for the IGs to achieve
audit objectives and provided opportunities for the future direction
and emphasis of IG efforts. 

In this regard, the Chief Financial Officers Act of 1990, as expanded
by the Government Management Reform Act of 1994, gives the IGs at the
24 major departments and agencies responsibility for annually
auditing their agencies' financial statements.  The expanded CFO
Act's objective is to identify and correct financial management
weaknesses, reliably report the results of financial operations, and
provide reliable information for oversight and decision-making. 

The larger IG organizations across government have been engaged in
conducting or overseeing financial statement audits for the past
several years.  These efforts have provided audit coverage and
identified many control weaknesses and financial management systems
breakdowns that greatly contributed to IGs' statutory mission.  For
example, the HHS OIG's audits of the Health Care Financing
Administration's financial statements have identified billions of
dollars in improper Medicare payments due to factors such as
persistent fraudulent and wasteful claims and abusive billings. 

This work is also key to the CFO Act's requirement that we annually
audit the federal government's consolidated financial statements.  We
recently issued our first report to fulfill this requirement and
testified on the results before the Subcommittee.\2 We reported,
through close cooperation with the IGs, that significant financial
systems weaknesses, problems with fundamental recordkeeping,
incomplete documentation, and weak internal controls prevented the
government from accurately reporting a large portion of its assets,
liabilities, and costs. 

Separate legislation, the Federal Financial Management Improvement
Act (FFMIA) of 1996, requires auditors performing financial statement
audits under the expanded CFO Act to report whether agencies'
financial management systems comply with federal accounting
standards, federal financial management systems requirements, and the
U.S.  government's standard general ledger.  In carrying out this
responsibility in conjunction with financial statement audits, IGs
have found the continuing poor shape in which agencies find their
financial systems.  Thus, the act has opened a new avenue for the IGs
to identify deficiencies in financial systems and recommend ways to
strengthen controls. 

FFMIA also requires agency heads to establish remediation plans if an
agency's financial management systems do not comply with federal
accounting standards and financial systems requirements.  The IGs are
to monitor agency actions to implement these remediation plans and
report to the Congress instances and reasons when agencies have not
met established target dates. 

Further, the Single Audit Act expanded the focus of federal oversight
from a grant-by-grant examination to an overall financial audit of
the state or local government or agency receiving federal funds with
a specific focus on federal programs.  A single audit is expected to
address the states' or state agencies' overall financial statements
and compliance with major federal assistance program requirements. 
While single audit is an efficient and less burdensome way to use
auditing resources in satisfying federal accountability interests,
IGs continue to have a role in ensuring that single audits adequately
meet the objective of promoting financial accountability over federal
financial assistance. 

Also, the results of single audits can contribute toward achievement
of the CFO Act's financial statement audit objectives.  Since many
federal funds often flow to their ultimate beneficiaries through
multiple state and local entities, and because many of these amounts
are subject to single audit, the results of these audits can provide
information necessary for the successful completion of the required
federal agency and the federal government consolidated financial
statements. 

Also, the Government Performance and Results Act of 1993 provides a
potential new role for the IGs.  While the Results Act does not give
IGs explicit responsibilities, it emphasizes managing for results and
pinpointing opportunities for improved performance and increased
accountability.  Thus, the Results Act affords IGs new opportunities
to have a significant effect on improving the economy and efficiency
of government programs at their agencies. 

For example, IGs could provide valuable advice to agencies as they
prepare and update Results Act strategic plans and performance plans
and establish factors to be used for measuring performance.  Our
recent survey on IGs' participation in strategic planning, done at
your request, showed that greater IG involvement in developing
agencies' Results Act strategic plans is possible.  Also, IGs are
considering how best to evaluate performance measures that will be
used. 

The Clinger-Cohen Act of 1996 and the Paperwork Reduction Act of 1995
(1) explicitly focus on the application of information resources in
supporting agency missions and improving agency performance and (2)
set forth requirements for improving the efficiency and effectiveness
of operations and the delivery of services to the public through the
effective use of information technology.  Agencies are struggling to
deal with information technology issues, and we have identified the
information systems modernization efforts at several agencies as
high-risk areas.\3 Further, widespread computer control weaknesses
are placing enormous amounts of federal assets at risk of fraud and
misuse.  In the midst of implementing long-term information
technology improvements and strengthening computer controls, agencies
are faced with resolving an immediate situation--the Year 2000
problem.\4 These activities present potentially new roles and
challenges for the IGs. 


--------------------
\2 Financial Audit:  1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, March 31, 1998) and U.S. 
Government Financial Statements:  Results of GAO's Fiscal Year 1997
Audit (GAO/T-AIMD-98-128, April 1, 1998). 

\3 High-Risk Series:  An Overview (GAO/HR-97-1, February 1997) and
High-Risk Series:  Information Management and Technology
(GAO/HR-97-9, February 1997). 

\4 For the past several decades, information systems have typically
used two digits to represent the year, such as "98" for 1998, in
order to conserve electronic data storage and reduce operating costs. 
In this format, however, 2000 is indistinguishable from 1900 because
both are represented as "00." As a result, if not modified, computer
systems or applications that use dates or perform date- or
time-sensitive calculations may generate incorrect results beyond
1999. 


-------------------------------------------------------- Chapter 0:2.1

Mr.  Chairman, this concludes my statement.  I would be happy to
respond to any questions that you or other members of the
Subcommittee may have at this time. 


INSPECTORS GENERAL APPOINTED BY
THE PRESIDENT
=========================================================== Appendix I


   DEPARTMENTS
--------------------------------------------------------- Appendix I:1

Agriculture
Commerce
Defense
Education
Energy
Health and Human Services
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Veterans Affairs


   AGENCIES
--------------------------------------------------------- Appendix I:2

Agency for International Development
Central Intelligence Agency
Corporation for National Service
Environmental Protection Agency
Federal Deposit Insurance Corporation
Federal Emergency Management Agency
General Services Administration
National Aeronautics and Space Administration
Nuclear Regulatory Commission
Office of Personnel Management
Railroad Retirement Board
Small Business Administration
Social Security Administration


INSPECTORS GENERAL APPOINTED BY
ENTITY HEADS
========================================================== Appendix II

Amtrak
Appalachian Regional Commission
Commodity Futures Trading Commission
Consumer Product Safety Commission
Corporation for Public Broadcasting
Equal Employment Opportunity Commission
Farm Credit Administration
Federal Communications Commission
Federal Election Commission
Federal Labor Relations Authority
Federal Housing Finance Board
Federal Maritime Commission
Federal Reserve Board
Federal Trade Commission
Government Printing Office
Legal Services Corporation
National Archives and Records Administration
National Credit Union Administration
National Endowment for the Arts
National Endowment for the Humanities
National Labor Relations Board
National Science Foundation
Panama Canal Commission
Peace Corps
Pension Benefit Guaranty Corporation
Securities and Exchange Commission
Smithsonian Institution
Tennessee Valley Authority
U.S.  International Trade Commission
U.S.  Postal Service


*** End of document. ***