Thank you again, Mr. Chairman for
holding this hearing. | look forward to
hearing the testimony, and | look
forward to finding some solutions to the
problem of debt collection.


123

By law (the IG Act) the nominees must have specific background experience and
understand they are not political appointees. I must assume they will have the
required intelligence. Beyond this I'd say they must have intestinal fortitude or
plain guts. They should have common sense and judgment and the ability to work
with others, and I believe they must understand and have an appreciation of how
this government works. The “political ways” of government and political with a

small “p.”

Question 4: How should they be selected?

The Inspector General nominees should be very carefully selected by a White
House with in-depth knowledge of the requirements of the IG Act as to
backgrounds and experience required by IG nominees, and with the understanding
these appointees will be the focal point of integrity in their departments and
agencies. The White House should select the best non-political people for these
jobs and only after securing the best should the issue of diversity, and affirmative
action be considered. Finally, there should be a carefully prepared orientation for
IG nominees prior to their names going forward to the Senate for confirmation.
All should know what they are getting into and the responsibilities they are taking

on.


25

Available resources have always been limited, and no increases
are expected. However, the small size of many designated IGs
raises question about proportional budget reductions of IG oper-
ations in line with potential large reductions at some entities. To
reduce a very small IG staff by 20 to 50 percent raises serious
questions about the viability of the remaining office.

The semiannual reports for each IG and the PCIE/ECIE annual
report are good avenues for reporting to Congress. Also, it has been
my experience that Congress is generally alerted on a timely basis
about significant IG activities on issues of concern to Congress.

Mr. Chairman, this concludes my formal statement, and the des-
ignated IGs look forward to working with you and your staff.

(The prepared statement of Mr. Sparks follows:]


154

u

to wait on an independent IG who many have competing Congressional demands on
his/her resources.

Professional Non-Political Career Service. The Congress should immediately step up
its oversight role in addressing the critical failure of the NPR to address the need for
competent professional management, protected from politicizing pressures and actions,
to lead the massive restructuring now underway.

Large corporations undergoing major restructuring, and other countries doing the same,
place great emphasis on the need for experienced managers trained (o handle new and
different challenges. NPR is doing the opposite. It should also be noted that these other
countries, such as the UK, Canada, and Australia, assiduously avoid building the costly
political layering that exists in the national government of the United States

No amount of IG or other oversight activity can compensate for this serious NPR
failure to give priority to developing and retaining highly competent managers,
protected from political intervention in their work.


149

6

batting average of some IGs to be high with respect to accurate reporting of hard facts, although
at times the reporting has been incomplete in my view and, therefore, somewhat misleading

In the area of qualitative judgments, such as assessing the wisdom of program and
administrative decisions, or evaluating the economic risks in a proposed action, I have not relied
onIGs. In part, this is because IGs have great difficulty staffing such areas with the experience
and specialized expertise that would be needed for quality work. It should be remembered that
the training and experience of IG staffs are geared far more toward investigative skills than
managerial or program assessments and recommendations.

As this Committee reviews the IG function, it would be useful to learn what percentage
of IG findings are upheld by administrative law judges and the courts, and, further, what types
of findings are most often supported, and what types are most often rejected.

If Congress presses IGs into areas which are highly judgmental, a course which concerns
me, it should not accept the IG version as gospel, but should also weigh the views of the
program people before arriving at conclusions or sharing IG information with the media.

Lack of Accountability.

On paper, IG offices are a part of their agencies and report to the agency head. But, as
a practical matter, many IGs regard the Congress as their true boss. One IG boasted that he was
more independent of his agency than was the GAO. Others believe that, as a practical matter,
they report to both the agency head and the Congress. This reporting to two bosses contributes
toa lack of accountability to anyone. There is little meaningful oversight of IG activities except
in cases of alleged misconduct. We often hear the complaint that "no one oversees the
overseers”. To what extent does anyone review the claims of savings as a result of IG
tecommendations? And who looks at the extent to which those claims take into account the
added cost of installing and administering the additional procedures often contained in their
recommendations?

I believe this lack of accountability contributes to an unacceptably wide range in quality
of work from outstanding to terrible. Basic to ensuring quality work. of course, is the
appointment of highly qualified IGs who leave politics and personal vendettas totally out of their


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Min
DAN BURTON, Indiana HENRY A. WAXMAN, California

J. DENNIS HASTERT, Illinois TOM LANTOS, California

CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, JR, West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York

STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, JR., South Carolina
WILLIAM H. ZELIFF, JR, New Hampshire LOUISE McINTOSH SLAUGHTER, New
JOHN M. McHUGH, New York York

STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, Californi

PETER BLUTE, Massachusetts COLLIN C. PETERSON, Minnesota
‘THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida

DAVID M. McINTOSH, In CAROLYN B. MALONEY, New York
JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin
RANDY TATE, Washington GENE TAYLOR, Mississippi

DICK CHRYSLER,

BARBARA-ROSE COLLINS, Micl

GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of
MARK E. SOUDER, Indiana Columbia

WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia

JOE SCARBOROUGH, Florida GENE GREEN, Texas

JOHN B. SHADEGG, A1 CARRIE P. MEEK, Florida

MICHAEL PATRICK FLANAGAN, [lines CHAKA FATTAH, Penneylvania
CHARLES F. BASS, New Hampshire BILL BREWSTER, Oklahoma

STEVEN C. LATOURETTE, Ohio ‘TIM HOLDEN, Pennsylvania

MARSHALL “MARK* SANFORD, South —_
Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR., Maryland (Independent)
JAMES L. CLARKE, Staff Director
KEVIN SABO, General Counsel
dJupiTd McCoy, Chief Clerk
Bup MYERS, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

MICHAEL PATRICK FLANAGAN, Illinois CAROLYN B. MALONEY, New York
tts MAJOR R. OWENS, New York

ROBERT E. WISE, Jr., West Virgini
JOHN M. SPRATT, JR., South Carolina
PAUL E, KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida COLLIN C. PETERSON, Minnesota
CHARLES F. BASS, New Hampshire

Ex OFFICIO

WILLIAM F. CLINGER, JR., Pennsylvania.  CARDISS COLLINS, Ilinoie
J. RUSSELL GEORGE, Staff Director
MARK UNCAPHER, Professional Sta/f Member
ANNA GOWANS YOUNG, Professional Staff Member
ANDREW G. RICHARDSON, Clerk
Dave MCMILLEN, Minority Professional Staff

ay


119

President of the Association of Federal Investigators (1977 and 1978)

* Elected to the National Academy of Public Administration

I retired in January 1985 and opened a consulting firm. In 1985 I co-authored and
co-produced Responsibility Systems, a management control and effectiveness
technique which has been successfully taught to and implemented by more than
2,500 managers at Federal agencies (e.g., Interior, State, Commerce, HUD, DOD,
Education, IRS, and the Trade and Development Program) as well as the states of
Tennessee and Rhode Island. This program was designed to successfully meet the
requirements of the Federal Manager’s Financial Integrity Act (FMFIA) passed in

1982.

Several of my consulting assignments include advising in the implementation of
the Office of Inspector General for the Tennessee Valley Authority and chairing
the Task Force and advising on implementation of the Office of Investigation at
GAO. Other Federal clients include the EEOC and Departments of HUD, State,

United States Postal Service, Commerce, Interior, Treasury HRC and NASA.

In addition, I have performed reviews, studies and analyses and other assignments
for the Offices of Inspector General at TVA, Agriculture, AID, Farm Credit

Administration, NASA, U.S. Postal Service, Treasury and Interior Departments.


68

I just repeat that we need to integrate the technical training
with the interpersonal training, so that we mesh the two effec-
tively. The mission statement is a good example, I think, of rein-
forcing what most of us think we have been doing for a long time;
but maybe folks didn’t see it quite as well as we did or didn’t think
we were doing as well.

But I think combining the technical subjects, which we're very
strong on, with some of the other interpersonal skills that I thin!
need reinforcing is where we should go.

Mr. Horn. I take it OPM has not had much of a role in develop-
ment of training modules or anything.

Mr. Bass, do you have any further questions?

Mr. Bass. No further questions, Mr. Chairman.

Mr. Horn. Are there any further questions we ought to worry
about here?

(No response.]

Mr. Horn. We'll do some for the record. You might get a letter
or two from us. If you would be good enough to respond, that would
be helpful. Weill, we thank you both for coming and representing
your peers in this important assignment. And it is a very impor-
tant assignment, not just on money and return to the ury,
which is obviously wonderful, but just basic integrity of govern-
mental systems and citizen response. So thank you very much.

Panel two, we have the Honorable Valerie , the Honorable
Frank DeGeorge, and Mr. William Esposito. If you would come for-
ward, stand and raise your right hand.

{Witnesses sworn.

Mr. Horn. All three witnesses affirmed. We will begin with the
Honorable Valerie Lau, Chairman of the PCIE Audit Committee
and Inspector General of the Department of the Treasury. Wel-
come. .

STATEMENTS OF VALERIE LAU, CHAIRMAN, PCIE AUDIT COM-
MITTEE AND INSPECTOR GENERAL, DEPARTMENT OF THE
TREASURY; FRANK DeGEORGE, INSPECTOR GENERAL, DE-
PARTMENT OF COMMERCE; AND WILLIAM ESPOSITO, CHAIR-
MAN, PCIE INTEGRITY COMMITTEE AND ACTING DEPUTY DI-
RECTOR, CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BU-
REAU OF INVESTIGATION

Ms. Lau. Thank you. Mr. Chairman and members of the sub-
committee. Thank you for the opportunity to discuss with you sev-
eral issues of importance to the IG community. As you mentioned,
I appear here today as the Audit Committee Chair of the Presi-
dent's Council on Integrity and Efficiency. And also as you know,
since my confirmation in October 1994, I am also the Inspector
General for the Department of the Treasury.

The PCIE’s Audit Committee takes the lead on audit issues af-
fecting the IG community. The subcommittee expressed an interest
in several of those issues. These are addressed in full in my written
statement, which I would like to submit for the record.

Mr. Horn. Thank you. As we said previously, automatically, all
statements are submitted. And then we would like you to summa-
rize in 5 minutes.


152

9

J suggest that IGs and former IGs such as Mr. Dempsey be asked to recommend
measures which might increase their incentive toward objectivity, rather than continue to provide
recognition only for criticizing people and their actions. However. I agree with Mr. Dempsey
that the practice of departmental management giving bonuses to IGs, creates the image of
management trying to "buy" favorable reports and should be stopped.

Workload Impact of NPR.

1 do not know the extent to which the IGs have assessed the impact of the National
Performance Review on their future workload, but I suspect it may be much greater than most
people realize, perhaps well beyond their current staff capacity. This another reason I suggest
a sharper focus for the IGs.

First, any government-wide series of significant changes in the management philosophy,
structure, and systems of operation will increase for a time the opportunity for mistakes,
confusion, and violation of laws and regulations. The NPR is moving forward with such
an agenda on an unprecedented scale, substantially increasing the likely workload for
IGs.

In addition to the NPR, the Government Performance and Results Act (GPRA), whatever
its positive factors for better management, is likely to also greatly increase the terrain in
which IGs examine agency processes whereby the components of GPRA are developed
and administered, especially benchmarks and outcomes.

‘A word of caution. Agencies need time after structural and systems reform for
implementation. IGs will need to be careful not to label the new policies, directives, and
emerging practices as “mismanagement” for lack of final form while they are still in the
stage of a reasonable transition and undergoing a shake-down period.

Second, the increased management flexibility and the extent of delegations of authority
contained in the NPR, when lacking the guidelines and oversight normally required for
decentralization, increases vulnerability to mismanagement and abuse to a very high
level, further increasing the demand for future IG investigations.


79

development of the proposed revisions. The PCIE, through the
Audit Committee, has been heavily involved in this effort. staff
that support the Audit Committee on single audit issues have been
working closely with OMB and GAO throughout the development of
the proposed revisions.

In 1993, the PCIE issued a report,

Audit Process. The study found that the Single Audit Act has
been fairly successful in meeting its objectives, but that
changes are needed to improve the effectiveness of the single
audit process. The report contains over 75 recommendations for
improving the single audit process, including many that require
revising the Act. I am happy to report that the proposed
revisions to the Act and the circulars incorporate most of the
recommendations in our report.

Among the proposed changes to the Act that we support are the
following two key provisions:

* Raising the Thresholds. The current threshold of
$25,000 for requiring an audit is far too low and needs
to be raised. We recommended that the threshold be
raised in our study. We also support the provision
allowing the Director of OMB to adjust the threshold
levels in the future. This will allow future
adjustments to the thresholds to achieve or maintain
the optimum level of audit coverage, without waiting
for legislative changes.

Risk-Based Selection of Programs. The proposed
revision provides for selecting programs to be audited
based on risk, rather than dollar value alone. We
recommended this approach in our study and we continue
to believe it is a necessary change. Currently,
programs are selected to be audited based on dollar
value alone. This has resulted in the same programs
being audited year after year, even if they had no
history of problems. There is no flexibility to allow
replacing these "clean" programs with other more risky
programs. The proposed revisions would allow this
flexibility to concentrate the audit in the areas of
the highest risk.

In conclusion, we agree that the Single Audit Act needs to be
revised and we are in general agreement with the latest draft of
the revised Act.


15

‘Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

the Administration and the Congress find ways to achieve a government that truly works better
and costs less.

Lam pleased that many members of Congress work with the IGs, review reports which deal with
specific programs of interest, and consult agency semi-annual reports for information regarding
the activities of the IGs. This concludes my testimony and thank you for this opportunity to
testify today.

oust Government Reform and Oversight Commitee

‘August 1998
Subcommitiee on Government Management, Information, and Technology

Page 12


128

person who appoints and fires them and one the IG’s don’t investigate. A
Presidential bonus for outstanding work would be appropriate. All would aim

toward and work for this.

(4) Grading and Ratin; f Inspector Gener

I believe its time to rate and grade IG performance. Perhaps annually. GAO,
Department of Justice, FBI, National Association of U.S. Attorneys or District
Attorneys, and/or other pertinent associations, and the heads and top staff of OMB,
OPM and the IG’s own Departments and Agencies should be asked to comment
and/or rate the performance of Inspector Generals - Perhaps we can get an answer

to the oft stated question, “Who checks the Inspector Generals?”

(5) Use of Audit Staff by Department Officials other than IG

There is nothing in the IG Act that precludes other Department officials from
having auditors or evaluators on their staffs. If I were a CFO or Assistant
Secretary for Management, I would want my own small audit or evaluation staff
however, it must be understood that all reports and data gathered by forwarded to
the office of Inspector General. This would prevent duplication and also result in

“sunshine” of review activities.


134

The thrust of what Paul wrote in his book was that the IGs too
often were not concerned with performance of the activities they
were responsible for but rather of looking at sometimes peripheral
issues. I’m not saying financial audits or efficiency audits are pe-
ripheral, but they don’t come to the guts of how government pro-
grams are run. That requires performance audits.

And performance audits admittedly are very difficult. They rely
upon measures that would be tough to quantify. And very often,
they place the auditors in very sharp conflict with program offi-
cials.

Another problem here is that if you’re going to do a good, hard-
digging performance audit, you’re going to touch on matters of poe
icy. And virtually all program and management officials in the Fed-
eral Government look on that as taboo for IGs. It’s simply strictly
off limits.

I ran into this in State, because I was required by separate legis-
lation to look at foreign policy—how effectively it was being man-
aged at headquarters and in the field and the embassies. And
whenever we came up with administrative deficiencies, no problem.
Everybody either agreed with us, or mild disagreement.

But when we came to matters of policy, whether the policy was
being carried out effectively, the blood was all over the floor. And
what’s going to happen with the IGs, as they more and more focus
on performance audits, there’s going to be more blood on the floor.

e question is asked, “Does the institutional independence of
IGs undermine their usefulness?” I have been working for a good
part of this past year with the Control Department of the Office of
the President of the Russian Federation and also with the Govern-
ment of Brazil, generally in the area of fraud and corruption in
government and ways to combat both more effectively.

They bitterly envy us our resources, that the FBI has, that the
IGs have, the GAO has. They bitterly envy that. They envy even
more the fact that we have access to documents and records and
people. But most of all, they envy our independence. In fact, they
envy it to the point where they regard it with awe. And that’s
something I do not want to ever go away.

Are we undermining our usefulness with independence? Abso-
lutely not. It reminds me of the question—I think Hubert Sparks
referred to it earlier, of straddling the barbed wire fence, the fact
that IGs report to you on the Hill as well as to our agency heads.

The fact is that this is a very difficult process. Everybody on the
Hill thinks that the IGs are being co-opted by their agencies, just
as everybody in their agency thinks that we’re finking to the Hill
all the time.

The fact is, a middle line must be walked with difficulty, and the
same thing applies to independence. This independence was won
dearly. It was won painfully. And it’s going to be maintained equal-
ly painfully and dearly. at are the skills necessary for effective

Mr. Horn. I’m going to have to ask you to wind it up.

Mr. Funk. I would just as soon as soon go right to the question
period, Mr. Chairman.

[The prepared statement of Mr. Funk follows:]


74

illustrate, we at Treasury have independent public accountants
(IPAs) performing CFo work under contract at one of our large
Bureaus and several smaller Department entities and trust funds.
This year we will obligate over $3.3 million for CFO-related IPA
work. As budgets tighten, our inability to pay for this contract
work may cause us to further direct our own in-house staff to
financial statement work.

Adding to this problem is the difficulty of converting non-
financial auditors into financial statement auditors. Our non-
financial auditors are typically not CPAs. Financial statement
audits of this scope and magnitude require CPAs to direct and
supervise the work. Our office needs to grow to most effectively
meet this new mission. Budget cuts intensify this difficulty and
make the goals of GMRA problematic for an organization in
transition.

PARTNERSHIP WITH CFOs

Another important aspect of the CFO Act/GMRA objective is how the
IG community works with the CFOs within their Departments. To be
successful in generating audited government-wide financial
statements, the IGs must be accepted as partners in the CFO
process and looked upon as reliable expert resources in improving
financial management.

At Treasury, we have established sound working relationships with
CFOs both at the Department and Bureau level. At the Department
level, we sit on the Department's Financial Statement Advisory
Committee to assist in developing a model for Treasury's
financial statements in accordance with the GMRA. This type of
pro-active, up-front involvement with the Department has a
mutually beneficial impact on the CFO process. Also, the
Department has regularly sought our technical advice on financial
issues of importance. Recently, we were asked to review and
provide advice to the Department on certain audit procedures to
be performed by other auditors on internal controls over Mexican
oil revenues pledged against Exchange Stabilization Fund
guarantees of Mexican borrowings.

Also, at the Treasury Bureau level, we have been working with the
CFOs of several of our major Bureaus. For instance, at the
Bureau, of Alcohol, Tobacco and Firearms, we have been advising
the CFO on a wide range of financial issues including those
relating to the Bureau's preparation for its first financial
statement audit. In this capacity we believe the Bureau views us
as a valued financial management advisor. In providing such
advice, we are careful to maintain our independence. We do not
become involved in their management decisions.


32

OGs have developed new ways of working with management through the establishment of
inspection and evaluation units. While the activities of these units vary considerably, it is my
understanding that, in most cases, these units were established to fill important gaps in traditional
OIG coverage identified by a significant number of IGs, and permit use of additional analytical
techniques and reduced timeframes. The principle focus of inspection and evaluation units is the
effectiveness of agency organizations and their programs.

The designated IGs, in response to a legislative proposal by Congressman Spratt, noted general
support for separate inspection and evaluation units and activities as a means of providing timely
and relevant reports and service on priority issues needing immediate attention.

A second point is that I have heard management and program officials describe the Vision
Statement as a partnership between IGs and management. This is a positive step, but I would
suggest that a partnership requires at least two active players who clearly demonstrate
commitment to the partnership. The Vision Statement is a unilateral document signed by 61 IGs,
and I do not believe unilateral actions afford the best chance for success. Management has yet
to formerly be heard from on how their staff is to deal with OIG staff. Thus, a brief, formal
statement by senior management (department and entity heads) endorsing management support
for positive relations with IGs that could be distributed to all employees would be more effective
in identifying tone and commitment than occasional management comments that do not reach
many employees.

While endorsing the Vision Statement and recognizing the underlying issues noted in the NPR,
1 would be remiss if 1 did not emphasize that we do not generally agree with comments or
conclusions that OIGs are a primary cause of management failure to be innovative or take risks;
nor do we believe OIGs instill fear in audit clients. In most instances, the worst cases make the
headlines while the many routine positive dealings and actions that occur daily often go
unnoticed, Certainly, the presence of any reviewers, be they IG, GAO, Congressional, or intemal
auditors or investigators, makes people uneasy. However, an oversight function should also
provide an effective deterrent; and a healthy tension is to be expected if the oversight function
is to be effective. Assuming effective implementation of Vision Statement principles, to continue
to translate such staff tension or uneasiness into the IG being a substantive impediment to good
management or improved operational practices, would be an unreasonable stretch.

Also, we support the Vision Statement purposes and specifics, particularly since it reinforces
actions and strategies that many of us have viewed as a longstanding and necessary basis for
successful operation. The following comments highlight overall actions in line with the seven
reinvention principles noted in the Vision Statement.

© Working with Agency Heads and the Congress to Improve Program
Management--Designated 1Gs are emphasizing more cooperation and
collaborative efforts including increased involvement of management in the
planning process and timely ongoing communications with respect to improving
operations.


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39

APPENDIX B

‘The Current Designated Inspectors General
Amtrak - Fred E. Weiderhold, Jr.
ARC - Hubert N. Sparks
BIB - Brian T. Conniff
CFTC - A. Roy Lavik
CPSC - Thomas F. Stein
CPB - Lester J. Latney
EEOC - Aletha L. Brown, Acting
FCA - Eldon W. Stochr
FCC - H. Walker Feaster, III, Acting
FEC - Lynne A. McFarland
FHFB - Edward Kelley
FLRA - Robert Andary
FMC = Tony P. Kominoth
FRB - Brent L. Bowen
FTC - Frederick J. Zirkel
GPO - Lewis L. Small
Icc - James J. McKay
LSC - Edouard R. Quatrevaux
NARA - Robert Taylor, Acting
NCUA - H. Frank Thomas
NEA - Leon B. Lilly
NEH - Sheldon L. Bernstein
NLRB - John E. Higgins, Jr., Acting
NSF - Linda G. Sundro
PCC - Peter A. Lichr
PC - Charles C. Maddox, Acting
PBGC - Wayne Robert Poll
SEC - Walter J. Stachnik
SI - Thomas D. Blair
TVA ~ George T. Prosser
USITC - Jane E. Altenhofen

USPS - Kenneth Hunter


164

They report to not the mayor or the President or the commis-
sioner, but to the IG office on their work. And they are exempt
from political pressures and any other type of pressure and totally
a professional operation. And what are your comments on that?

Mr. FUNK. Mrs. Maloney, the difficulty is, the Federal Govern-
ment in Washington is not a city. Presidential appointment carries
an enormous clout in the Federal Government. And the ability of
an IG to succeed rests largely upon the ability of the IG to per-
suade his or her peers that a certain course of action they may not
like is the best thing for the government to do or that agency to
do or that manager to do.

And that means that the IG must be listened to. And you can’t
do this through force alone. It requires some kind of consensus.
And the difficulty about pulling the IG out of the appointee situa-
tion would remove the IG from this peer relationship with the
other Assistant Secretaries.

Mrs. MALONEY. From clout, really. They have more clout with a
Presidential appointee.

Mr. Funk. They really do.

Mrs. MALONEY. It’s the exact opposite of your point of view.

Mr. LicHT. Well, look. The issue of what the IGs are doing right
now is this blended objective. Can they be simultaneously the
strong right arm of the Secretary and also an aggressive and asser-
tive presence in investigating fraud, waste, and abuse, leading all
the way to the Secretary’s o! ?

There have been calls over the years for a central IG, for exam-
ple, to support governmentwide investigations. We have a version
of that in the Special Counsel legislation, the statute that we see
exercised from time to time.

Mrs. MALONEY. But it’s not continuing.

Mr. Licur. Right.

Mrs. MALONEY. It’s not continuing.

Mr. LIGHT. One source of clout is to imagine a return to the kind
of ability to suspend programs that existed in the early model of
the IG at the State Department. It’s an extreme action which some
IGs could handle and others couldn't.

My sense is that the clout of the IGs is in the quality of their
work and in the ability of audiences here on Capitol Hill and else-
where to pay attention to it, not necessarily through the Presi-
dential appointee process. As we have layered up the executive
suite of departments, being an Assistant Secretary rank appointee
is not necessarily the great clout that it once was.

Mr. INK. Well, ’'m totally opposed to giving them the authorit)
to suspend programs. I don’t think that’s their proper role. I thin
that puts them in an operational role rather than an oversight role.
I don’t think they have the capability and the staff capability to
make those judgments, anyway.

Mr. DEMPSEY. The key word that was mentioned here is the
word “oversight.” The IG isn’t really going to be successful unless
there’s accountability. And there has got to be better oversight by
the Congress on the Yas.

Now, I can pick out certain departments—HHS for one. They’ve
had three excellent IGs—Tom Morris, Dick Russerrow, June
Brown—three top professionals. And all of them testify a great deal


64

have streamlined a lot of things as an effect of this decision that
she made.

Mr. Horn. So the Federal agencies you need to secure coopera-
tion from, you feel, have been cooperative, be it the FBI or others?

Ms. Brown. Yes, I do.

Mr. Horn. Mr. Bass, do you have any further questions?

Mr. Bass. No further questions.

Mr. Horn. Mr. Tate, the gentleman from Washington.

Mr. TaTE. Thank you, Mr. Chairman.

Thank you for coming. A couple of questions. I've had a series of
town hall meetings in my district and more specifically on the issue
of Medicare and what we're working on back here in Washington,
DC, in respect to preserving and protecting Medicare.

One of the things that I had suggested to the people when I
mailed to them and when I came, they all gave me their stories of
waste, fraud, and abuse that they had seen. And I can give you a
nice, big stack of suggestions, details long letters, documenting
through the process of what they would consider waste or fraud or
just many times flat-out abuse.

And I've also seen a number bantered around of $40 billion by
the General Accounting Office of waste, fraud, and abuse between
Medicare and Medicaid. Where does that number come from?

Ms. Brown. That was a number that the General Accounting Of-
fice came up with, which was approximately 10 percent of the
amount Spent in those two programs. And based on a lot of work
that has been done, they came up with that estimate. We have
tried to prove it. A lot of people have inquired as to whether there
was a sound basis.

Mr. TarE. Is it sound?

Ms. BRown. It was loosely determined, but I think it’s in the
ballpark, certainly.

Mr. TATE. Because that doesn’t obviously include the ones that
came to my town hall meeting, because they probably hadn’t
turned them in. What would you suggest to these individuals that
do come up with these? Where do they send them? I’ve got a stack,
and my staff is wading through them. Do we send them to you?

Ms. Brown. Yes, absolutely. And we have a number.

Mr. TATE. Is that a 1-800 number?

Ms. Brown. HHS-TIPS, 1-800-HHS-TIPS. We have a team of
people that are waiting for those calls and taking action on them.

ir. TATE. And we kind of laugh about it, but it’s very serious
to them, when we're talking about Medicare. And just in the 9th
District of Washington State, they’re coming up with that.

T’'ve looked through some of your audit initiatives. And you're
talking about partnerships between the State and the Federal Gov-
ernment. One of the ideas bantered around right now is giving the
senior citizens, for example, on Medicare, a percentage of the
waste, fraud, and abuse that they uncover, and it would 10 per-
cent—they find $100, they get $10. Would that be something that
would assist in your process of determining waste, fraud, and
abuse that may be out in the system?

Ms. Brown. Well, let me put it this way. There is a qui tam leg-
islation which gives people from 10 to 25 percent of anything. And
we have—a lot of people have collected millions of dollars through


148

5

It is my view that a particularly dangerous consequence of the unrealistic expansion
of the IG charter is the extent to which it reduces the attention that is focused by a number
of IGs on the most serious failures in financial management, some of which are quite
shocking. It has been my lot to enter four independent agencies which tuned out to have the
most fundamental deficiencies in their financial management. In one case, I discovered that no
career program manager was permitted to know what his or her unobligated balance was. In
another, there were a series of large illegal payments over a period of time with serious
international implications, payments which basic financial controls would have caught at once.
In one agency which had a huge training program, those managing the training program had
virtually no cost data from the accountants because the system was not capable of producing the
information.

In each of these cases, upon my joining the agency in a leadership role, the IG provided
me with useful information about certain deficiencies in the financial management system, but
in no instance did the IG reports or briefings come close to revealing the far more basic
failures that existed.

Part of the reason for these IG inadequacies, in my view, was the fact that they were
drawn into program management and evaluation areas for which they were ill-equipped, and
therefore, very time consuming. As a result, they were unable to give financial management
the attention it deserved, an area for which IGs could more readily secure and train the
necessary expertise. Another problem was that Congressional offices kept drawing upon limited
IG resources for investigation of allegations of problems pertaining to individual transactions.
often involving only one of their constituents. These were important to the constituent, but they
either (a) gave surprisingly few clues to the more fundamental systemic failures or (b) the IG
offices felt they had insufficient resources left to pursue the broader issues.

Objectivity.

Program managers believe there is a widespread view on the Hill that IG findings and
conclusions are totally accurate and impeccable as to judgment. When there is disagreement on
an issue, agency managers complain that Congress regards an IG criticism as uncontestable
evidence that the criticism is valid no matter what the program manager says. I have found the


35

THE ROLE AND RELATIONSHIP OF OIGs
WITH THE REST OF THEIR ORGANIZATIONS
AND
‘THE CURRENT STATE OF THE RESOURCES
AND INDEPENDENCE OF OIGs

‘We have previously commented on our support for the Vision Statement that substantially deals
with the OIG role and relationship with the rest of the organization. Also, we have alluded to
the fact that the role of oversight always creates some inherent tension since audits and
investigations and resulting recommendations, no matter how necessary or constructive, are not
always viewed positively by those subject to the criticism. With this understanding, we believe
the IG role, as noted in the IG Act, effectively and prudently addresses these sensitive issues and
provides for an organizational and reporting structure that provides for sufficient independence
to allow IGs to fulfill their mission.

‘As previously noted, we support the need to have an effective working relationship with our
organizations. Regardless of any protestations to the contrary, we need to accept constructive
criticism about our role and relationships, not because of any statutory requirements but simply
to afford increased opportunities to have positive impacts on Government operations. However,
such roles and relationships should not create conflicts of interest that dilute or detract IGs from
mandated responsibilities simply to achieve warm and fuzzy relationships with management. The
common expression that IGs walk a barbed wire fence remains a constant.

On the overall issue of roles and relationships, designated IGs have contact with entity heads and
senior staff on a frequent basis and are often used as a sounding board for a wide range of issues
from policy to compliance questions. Therefore, we have opportunity to foster a nonadversarial

ionshi istance while scrupulously avoiding any reduction of independence
ies. In sum, the size of our entity often requires us to establish
effective relationships if we are to make positive contributions over the long haul.

The designated IGs also operate within what might be termed some constraints related to
operating methodologies, independence, resources, and removal. Although the IG Act affords
all IGs a similar degree of statutory independence, there is, in my opinion, a practical and
operational distinction when IGs are selected by the head of the entity as is the case for
designated IGs. While there have been few instances of designated 1G removal or transfer and
every designated IG would proclaim we truly act independently, it is human nature that IG
decisions can be impacted, even if subtly or subliminally, when IG removal or transfer can be
accomplished instantaneously by the head of the entity. While we do not believe that change of
appointment methods are currently practical, we do believe that removal for cause provisions
would provide an added and reasonable clement of independence. Although we have not
achieved a consensus on appropriate removal causes, we overwhelmingly believe removal should
be tied to misconduct problems; whereas, at present and notwithstanding civil service protections
under which most designated IGs fall, there are no real constraints, especially with respect to IG
transfer to another unit in the entity.


67

In talking with my fellow colleagues who are into areas like
banking regulation and employee fraud, the U.S. attorneys seem to
be putting more emphasis on these types of cases. The FBI, for ex-
ample, is on the ECIE and PCIE, which gives us an entree to the
Department of Justice.

In the grantmaking agencies, such as mine, we get a lot of co-
operation from State and local authorities. For a U.S. attorney, it
may be too small for a small grantee Problem; but State and local
authorities are very cooperative. But I’ve seen an overall improve-
ment. I think the fact that the IGs are now known—we were kind
of secret in 1978.

I think the Congress, the public, the media, and the U.S. attor-
neys all know more about us now. And I think this has helped im-
prove the climate for cooperation and action.

Mr. Horn. On the training, Glynco has been mentioned, the De-
partment of Agriculture Graduate School. The Office of Personnel
Management has not been mentioned. Do they conduct courses in
this area? Should they conduct courses in this area? How much ini-
tiative do they seem to be taking in relation to the education and
training and professionalism of IGs?

Ms. Brown. I think they do have some executive level training.
They have managerial training, things like that. I thought the ear-
lier question was about accounting and auditing techniques specifi-
cally, and usually, that’s so specialized that most of it isn’t done
through OPM.

Mr. Horn. I’m even willing to throw in assertiveness training,
should anybody be too shy, or politeness if they’re too aggressive.
Civility should not be a lost cause, even in enforcement agencies.

Ms. Brown. Well, there is a lot of the tangential training that
we do through OPM. And we have found them very effective.

Mr. Horn. Any suggestions in the training area that you would
like to make that you haven’t made? What else should we be look-
ing to here?

Is. BROWN. I don’t think so, except for the budget allowing
enough money that we can continue giving people the training they
need.

Mr. Horn. In some professions, dentistry, medicine, law, there’s
a time requirement that you put in every so often, every 3 years,
to be relicensed. Should we think in those terms with investigators,
inspectors, reviewers, and all the rest? Is there any need of that,
plus a dose of ethics?

Ms. Brown. There is a requirement that they have the ethics
training every year. They also have, I believe, it’s 40 hours of train-
ing for auditors every year. And in the investigative side, we also
have compulsory training. And, of course, their weapon training
has to be renewed on a regular basis. So we do have a lot of those
standards that we are living by.

Mr. Horn. Mr. Sparks, do you want to add anything?

Mr. Sparks. I agree with that. I think—well, auditors are re-
quired under our continuing professional education requirements to
have 80 hours training every 2 years. And I think investigators, in
their quality standards, have some basic training requirements.
Maybe inspectors do, too.


104

Mr. Horn. Well, we thank you very much, Mr. Esposito.

I now yield to the ranking minority member, Mrs. Maloney of
New York.

Mrs. MALONEY. I will defer to you, Mr. Chairman.

Mr. Horn. Let’s go through a number of things, some of which
we went through with the previous panel. I want your perspectives
on it. Picking up on really your last comment, I guess I would ask
the question, should the PCIE and the ECIE, the President’s Coun-
cil on Integrity and Efficiency and the Executive Council on Integ-
rity and Efficiency, should they be merged?

should one be abolished? Is it just a matter of size, where there
would be too many people in the room? What is it? What are we
getting out of two separate operations?

Mr. DEGEORGE. Any time you get 10 or 15 IGs in a room, it’s dif-
ficult to make a decision. {(Laughter.]

When you get 60 IGs, I would say it’s impossible. I really think
there is a common interest and we have a focal point. It is the Dep-
uty Director of OMB who is responsible and relates to each com-
mittee. And I think there are a pretty sizable number of IGs. And
I don’t think there would be any advantage to combining them.

Mr. Horn. There would be no advantage to combine?

Mr. DEGEORCE. No, I don’t think so.

vt, Horn. And there would be no advantage to get rid of one of
them?

Mr. DEGEORGE. No, I don’t think so. That would be combining
them, wouldn’t it?

Mr. Horn. OK.

Ms. Lau. Mr. Horn, I’m new to the IG committee, but in my ex-
perience in this less than 1 year, both on the Audit Committee and
the PCIE, we have Mr. Sparks as our representative of the ECIE,
and he provides a valuable linkage and connection with the smaller
IG organizations.

Also, in my community, I meet monthly with the financial insti-
tution IGs, so that means some PCIE members, such as the FDIC
and the RTC, and some of our smaller members from the NCUA
and the SEC and some of the other similar functional IGs.

And we get together informally on a regular basis to talk about
common issues. In one instance, we’re trying to share our audit
plans with one another so we can schedule work in a certain time-
frame and perhaps combine the results of our reviews across orga-
nizations, so we can get a bigger picture of certain situations as
they face the financial institutions. So we have found a way to
work together that’s outside of the separate organizational entities.

Mr. Horn. A lot of your activity which is related to auditing is
obviously dependent upon a sensible, decent set of numbers coming
up through the financial system, whatever it is. And as you know,
we expect a balance sheet that will stand the test of any outside
auditor in 1997.

Now, one of the things that concerns me is that in some cases,
the Chief Financial Officer of the agency is not able to devote full
time to being Chief Financial Officer. In some agencies, that job is
part of the portfolio of the Assistant Secretary for Management. Do
you think there should be a separate Chief Financial Officer and


167

heads up a team which looks at the entire operations of the depart-
ment and in some depth, with assistance from maybe 100 other
people.

When the scrutiny is finished, the Prime Minister is personally
briefed by the people who conducted that scrutiny. And after that,
the Prime Minister calls in the minister and has a session with
that minister. When Margaret Thatcher was the Prime Minister, I
understand those sessions were an exercise in pure terror. And it
worked.

Believe me that every recommendation in that scrutiny was al-
most inevitably complied with afterward. Whether it works now
with Mr. Major, I don’t know.

But there’s a need for oversight programs which cut across agen-
cy lines. And right now, the only recourse is to OMB. And the Con-
gress, because of its division of committee structure, has a hard
time getting a hold of that, as well, here. OMB should be the natu-
ral for it. But OMB really can’t deal with that, either.

Mr. Horn. Why is that?

Mr. Funk. It goes into a kind of no man’s land.

Mr. Horn. Well, is it because they haven’t put enough resources
into the management function of OMB, or are the budget examin-
ers simply overwhelmed with budgetary problems?

Mr. FUNK. The budget people are not the ones to do it. It’s the
management side that must do it. And the management side is
very, very thinly staffed within OMB.

Mr. Horn. So they don’t have enough resources. If you could
wave a wand, how would the management side of OMB look? What
kind of things would they be doing? How many professionals would
they need to do it?

ir, FUNK. In an ideal world, there would be at least as many
on the management side as on the budget side.

Mr. Horn. You're talking about several hundred, aren’t you?

Mr. FUNK. It would mean about that. The size of the U.S. Gov-
ernment, no matter how downsized, is extreme.

Mr. Horn. And what would they do? What would the ideal func-
tion of that management professional staff be, as opposed to the IG
role?

Mr. FUNK. To picking up on the work done not just by the IGs
but by the GAO, all investigative reporters tro the media
across the board, and above all, by the reports that come out of the
program managers themselves. I agree wholly with Dwight Ink
that one of the overlooked resources are the program managers.
And they should be looking at that, as well as the IG stuff.

Mr. INK. And the OMB used to have that function and had the
staff. It’s a role—he’s not talking about something theoretical. This
actually existed, and it has eroded over the years. And now, what
was left a couple of years ago has virtually vanished in OMB. And
I would say you don’t really need as many in the management staff
as on the budget side.

Mr. Funk. I would agree.

Mr. INK. I had about 50 people, and we did most of what he’s
talking about, plus writing the President’s Executive orders, plus
issuing circulars, and a lot of testifying. It does require leadership.
It requires qualifications.


126

They are overall excellent and I think they tell what’s going on. I sometimes feel,
as an outsider, the newspaper reporters do a better job reading the IG reports than

perhaps some staffers on the committees. - I would hope this has changed.

It must be said however, that proper attention to the IG semi annual reports will
not be done by either Congressional staffers nor Department or Agency officials
unless and until Congress holds oversight hearings on these reports each year - If

this is done, perhaps the word “accountability” will mean something.

There are several other areas I'd like to comment upon.

(1) The CFO Act and the Inspector Generals

Under the CFO Act the IGs are required to perform financial statement audits. 1
personally believe these should be done by GAO. This requirement has resulted in
the IG’s taking some of their best, skilled CPA Auditors for assignment to
financial reviews. Combine the loss of these auditors from program reviews - with
the thrust of the NPR for more cost effective or results oriented audits and you
have an overall loss of IG audit coverage. This combined with reductions in

resources really cuts the 1G audit activities at the knees. The IG’s need additional


45

powers, and duties of the Office of Inspector General and to obtain the temporary
or intermittent services of experts or consultants or an organization thereof,
subject to the applicable laws and regulations that govern such selections,
appointments, and employment, and the obtaining of such services, within the
designated Federal entity. (5 U.S.C. App. 3, s. 8E(g)(2))

The IG is authorized to enter into contracts and other arrangements for audits,
studies, analysis, and other services with public agencies and private persons, and
make such payments as may be necessary to carry out the provisions of the Act.
(5 U.S.C. App. 3, s. 6(a)(9))

The entity head shall provide the Office of Inspector General with appropriate and
adequate office space, together with such equipment, office supplies, and
communications facilities and services as may be necessary. (5 U.S.C. App. 3,
8. 6{c})

implementing Guidance: In exercising their personnel and procurement authorities,
DFE IGs need the assistance of support staff skilled in these functions. When it is
not cost effective for an IG to have such support staff within his/her office, the IG
will need to rely upon support from entity personnel and procurement functions.
Entity heads should ensure that these functions understand the distinct personnel
and procurement authorities of the IG, and the need expeditiously to support the IG
in the exercise of those authorities.

8. BUDGET FORMULATION AND EXECUTION

Legal Authority/Reauirement: Each IG shall report to and be under the general
‘supervision of the head of the designated Federal entity, but shall not report to, or
be subject to supervision by, any other officer or employee of such designated
Federal entity. (5 U.S.C., App. 3, s. 8E(d))

The head of each agency shall prepare and submit to the President each
appropriation request for the agency. (31 U.S.C. s. 1108 (b)(1))

The President shall include in the supporting detail accompanying each Budget
submitted on or after January 1, 1983, a separate statement, with respect to each
department and establishment, of the amounts of appropriations requested by the
President for the Office of Inspector General, if any, of each such establishment or
department. (31 U.S.C. s. 1105(a)(25))

: Because of the IG reporting relationship established by

Implementing Guidance:
the IG Act, entity heads must make entity budget formulation and budget
execution decisions affecting the IG. Such decisions cannot be delegated to an

6


87

What We Find

We find pervasive problems and issues, including:

inadequate up-front planning

unnecessary, excessive, and poorly stated systems requirements

predetermined systems without consideration of real alternatives

acquisition strategies that will lead to high costs and dubious performance

technical specifications that do not describe coherent systems

work statements that are incomplete, inconsistent, and ambiguous

‘government program offices that lack sufficient organizational stature, credibility, and
skills to do their job

“unrealistic schedules and low-ball cost estimates

contract requirements and contract negotiations that invite contractor buy-in, followed by
poor contractor performance

projects undergoing continual rounds of revision, replanning, and delays, as schedules

expand, costs grow, and system capabilities and performance decline

‘Ultimately, we find disappointed users, frustrated managers, litigious contractors, a dissatisfied

Congress, and citizens who do not receive value for their taxes.

Recent OIG Efforts

To give some concreteness to these problems, I would like to describe some of our efforts,

including some successes and some frustrations.


Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

+ The Department of Interior OIG has continued to involve senior level
departmental and bureau officials in its audit planning process by requesting
written input for the plan and following up on the input through meetings with
officials. Also, the OIG drafted a customer survey questionnaire for distribution
to auditees, which will assist the OIG in ensuring that its audits are of benefit to
departmental and bureau officials and in learning where improvements may be
needed in its audit operations

+ The OIG at the Department of Agriculture historically interacts with agency
managers to solicit their input for the annual planning process. This collaboration
helps ensure that OIG audit, investigative and evaluative efforts address those
issues of greatest concer to management and cover those areas where managers
indicate that control weaknesses exist. This past fiscal year, the OIG expanded
the involvement of agency program management by inviting them to a mid-year
planning session to discuss the work completed and work in the planning stages.

* At the HHS OIG, we redesigned our work planning process to more thoroughly
involve the Department's operating division in its development. The staff meets
periodically with operating division staff (particularly in the early stages of the
year's work planning cycle) to discuss the programs and to develop a strategic
focus for the work plan. Once the work plan is drafted, it is distributed to
operating division senior managers for comment and is changed to incorporate
new of refocused areas. Involving the operating divisions up front, enables our
work to be more relevant, timely and useful.

* The Department of Commerce OIG was among the first in the PCIE community
to commission a survey to solicit opinions on where improvements could be made
in its audit and inspection products and services and in its relationships with its
“customers.” A client survey reached 261 Commerce managers, Office of
Management and Budget personnel, and congressional staffers. Although about
two-thirds of the respondents gave the OIG average or better ratings, there were
recommendations for improving operations. The OIG developed an action plan to
implement recommendations.

* The Federal Emergency Management Agency (FEMA) OIG launched a
customer service initiative during fiscal year 1994 by conducting focus group
interviews with an important customer group - FEMA program managers. The
focus groups provided reflective, balanced and candid views and constructive

nae Governed Raarn and Overigh Cones “Kagan F199
a wa Page



INSPECTOR GENERAL ACT OVERSIGHT

TUESDAY, AUGUST 1, 1995

House OF REPRESENTATIVES,
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 2:04 p.m., in room
2247, Rayburn House ice Building, Hon. Stephen Horn (chair-
man of the subcommittee) Presiding.

Present: Representatives Horn, Davis, Tate, Bass, and Maloney.

Staff present: J. Russell George, staff director; Mark Uncapher
and Anna Gowans Young, professional staff members; Andrew G.
Richardson, clerk; and Dave McMillen, minority professional staff.

Mr. Horn. The Subcommittee on Government Management, In-
formation, and Technology will come to order. Today, we hold the
first. oversight hearing in 7 years on the Inspector eral Act of
1978. The executive branch has 61 Inspectors General, or IGs, of
whom about half are nominated by the President and the rest by
the heads of the smaller agencies.

They do earn their money. Last year, their findings led to over
14,000 successful criminal and civil prosecutions, $1.9 billion in in-
vestigative recoveries, and $24 billion in recommendations that
their agencies’ funds be used more efficiently and effectively.

Presidentially appointed IGs sit on the President’s Council on In-
tegrity and Efficiency, or the PCIE as it is known, while smaller
agencies’ Inspectors General are members of the Executive Council
on Integrity and Efficiency, or ECIE. We will hear from both of
these groups today.

IGs are unquestionably a valuable tool in making the rest of the
Federal Government accountable, but the Inspectors General them-
selves must also be accountable. Critics argue that too many IGs.
have a “gotcha” mentality that stifles innovation instead of encour-
aging improvement.

The IG community, for its parts has pledged greater future co-
operation with management. Today, we will look at strengthening
the Inspector Generals’ effectiveness.

Our witnesses include current Inspectors General from the Presi-
dent’s and Executive Councils on Integrity and Efficiency and the
Departments of Commerce, Justice, and the Treasury. We will also
hear from two former IGs from the Institute of Public Administra-
tion’s president emeritus, Dr. Dwight Ink, and from Dr. Paul Light,
author of “Monitoring Government: Inspectors General and the
Search for Accountability.”

mM


150

7

work. A poorly qualified IG, or one with a political agenda, can do enormous damage. Also
important is the need to select men and women whose primary interest is professional
performance rather than garnering media attention. What quality control measures exist with
respect to the appointment of IGs and their staffs?

The two-boss problem also creates confusion with respect to IG priorities, and often
weakens the capacity of agency heads to call upon the IG for quick investigation of problems
before they grow more serious and become public issues.

The Congressional role has strengthened the hand of IGs in standing up to executive
branch pressures to water down investigations and recommendations. This is good. But it has
also created certain difficulties for many [Gs in their efforts to meet Congressional needs.
When, for example, a program manager first learns of damaging IG allegations from a
Congressionally inspired press inquiry asking for immediate comment before the paper or TV
station releases its negative story, agency personnel become defensive rather than concentrating
on first ascertaining the facts and determining whether corrective action may be warranted.

Further, the story as told on the evening TV news may be much more damaging than the
actual IG statements, especially if the source was simply an informal heads-up conversation
between an IG and Congressional staff concerning preliminary findings. In such cases,
additional fact finding prior to the final report may reduce the seriousness of the allegations
appreciably, but by then the negative Congressional and public judgments have been made
concerning the agency and its leadership. Most IGs deplore premature releases of this type, but
nonetheless feel compelled under the statute to keep the Congress “fully and currently informed
about problems” through a continuing dialogue with Congressional members and staff who are
at times more interested in press stories than waiting until all the facts are in.

Far more serious, in my experience, have been occasions in which, as an agency or
bureau head, I have been unable to mount an audit or investigation as quickly as I needed
because the resources were under the control of an IG who had competing demands, often from
the Congress. These situations handicapped me, as an accountable official, in quickly
establishing the extent 10 which serious problems might be unfolding and my ability to take quick
corrective action before the situation worsened. This type of situation is wrong and the system
which permits such circumstances should not be tolerated by the Congress.


42

designated Federal entity shall promptly communicate in writing the reasons for
any such removal or transfer to both Houses of the Congress. (5 U.S.C. App. 3,
s. 8E(e)}

Implementing Guidance: Actions to remove or transfer an IG should be taken
Strictly in accordance with applicable personnel laws and regulations. The
Congressional notification -- in the form of letters to the chairpersons and Ranking
Minority members of the House Committee on Government Operations, the Senate
Committee on Governmental Affairs, and the House and Senate authorizing and
appropriations committees or other oversight committees as applicable -- must
Present the reasons for removal or transfer.

Entity heads are requested to provide copies of the Congressional notifications to
the Chairperson of the Executive Council on Integrity and Efficiency.

4H. RELATIONSHIP BETWEEN THE ENTITY HEAD AND THE DFE IG

A. GENERAL SUPERVISION BY THE ENTITY HEAD

horit ire : Each IG shall report to and be under the general
supervision of the head of the designated Federal entity, but shall not report to, or
be subject to supervision by, any other officer or employee of such designated
Fedéral entity. The head of the designated Federal entity shall not prevent or
Prohibit the IG from initiating, carrying out, or completing any audit or
investigation, or from issuing any subpoena during the course of any audit or
investigation, except as otherwise provided by law. (5 U.S.C. App. 3, s. BE(d))

Annually, the Director of OMB, after consultation with the Comptroller General,
shall publish in the Federal Register a list of the designated Federal entities and the
head of each such entity in accordance with definitions stipulated in the IG Act.

(5 U.S.C. App. 3, s. 8E(h)(1))

Implementing Guidance: The key points in these citations from the IG Act are that
{i) only the official(s) designated in the Federal Register listing as entity head may
exercise general supervision of the IG; but (ii) general supervision of an IG may not
extend to operational matters pertaining to audits, investigations, or issuance of
subpoenas. Since referrals to the Justice Department are an integral part of the
investigative process, it follows that agency heads should not prevent, prohibit, or
otherwise inhibit such referrals.


161

Mr. Horn. Let me mention, your testimony mentions that the
General Accounting Office had prepared a draft report on the ques-
tion of the auditors and their career interests and their leaving the
IG’s role. Has that still not been released? You apparently could
not get your hands on it.

Mr. LicuT. I was not as persuasive, perhaps, as a Chair of a
House subcommittee might be.

Mr. Horn. Let’s see if he’s right on that and send a letter to
Comptroller General Bowsher.

Mr. Licut. As I dug about, they had apparently prepared or had
the work underway doing an assessment of the quality of the OIG
staff, how well were they doing in recruiting auditors and inves-
tigators from the upper quartile of graduating classes, how well
were they doing in pay and personnel.

This is what I picked up in my conversations in the research for
this project. I could not get access to the work papers or a draft
report if such a report existed.

Mr. Horn. Let me yield to Mrs. Maloney, the ranking minority
member.

Mrs. MALONEY. I would like to follow up on Dr. Light’s testimon:
of the “junk yard dog or man’s best friend.” And I would like to as!
all of the panelists, which of these roles has the higher payoff in
the long run, investigations or IGs who work with managers to im-
prove management techniques? And just your comment, really, on
his assessment, “junk yard dog or man’s best friend.” Which is
More important, and can we have both roles? What do you see is
the best way for the IGs to go forward?

Mr. Funk. “A little of both, Gov’nor.” Really, it’s hard to be all
one or all the other. One of the difficulties of being an IG is that
you come to realize after a while that your clout you carry around
is not enough by itself. You have to be able to jawbone and per-
suade people to change courses, change actions.

Frank DeGeorge talked about the mish-mash of information sys-
tems and all of their difficulties. That has been talked about by IGs
since I’ve been in government, since they had IGs. And apparently,
little has been done about it. Every agency is still reinventing the
same problems they had before. So where are the IGs when these
things come up, and why are they perpetuating?

I would suggest that man’s best friend is a real need. When
you're talking to distraught parents, the distraught realties, say of
people caught up in the Pan Am disaster, you have to have one ap-
proach. When you're talking to somebody whom you know is guilty
or you have reason to suspect is guilty of severe mismanagement,
you have another approach. Like everybody else, as with any attor-
ney, you have to gear your reaction to the people you're talking
wit]

Mrs. MALONEY. Would anyone else like to comment?

Mr. DEMPSEY. I always felt as an IG that you wore four hats: an
audit hat, an investigation hat, management tool hat, and ombuds-
man hat. Depending on the issue of the day is which hat I put on.
There were some days I wore all four. A lot depends upon the rela-
tionship with your Secretary. A lot depends on your relationship
with the department higher staff.


3

the Air Force identified almost $28 billion of previously
undisclosed contingent liabilities for items such as contract
appeals and civil law and litigation clains.

As you know, the Government Management Reform Act of 1994 (GMRA)
expanded on'the CFO Act. The GMRA requires each executive agency
identified in the CFo Act to prepare and have audited department-
wide financial statements for FY 1996. This Act also requires
preparation and audit of a government-wide consolidated financial
statement for FY 1997. In order to accomplish these mandates,
the General Accounting Office (GAO), the Office of Management and
Budget (OMB), and the Department of the Treasury jointly
organized the Governnent-wide Audited Financial statement Task
Force. The task force comprises representatives from the CFO and
IG communities, GAO, and OMB who seek to unite leaders in the
financial community to achieve the goal of an audited government-
wide financial statement for FY 1997.

In his comments before you last week, Comptroller General Bowsher
described the progress made and challenges ahead for CFOs and IGs
in achieving the goals of the CFO Act. Here are some key
concerns from the viewpoint of the IG community.

RESOURCE CHALLENGES

As a member of the Government-wide Task Force and Chair of the
PCIE’ Audit Committee, I am particularly concerned that the audit
plans for performing this work and building towards it are not
being linked with the budget decisions of the congressional
appropriations committees. Most IGs and the GAO will face budget
cuts through and beyond FY 1996. To successfully complete the
first government-wide audit, we must bring together, in a unified
plan, the budget decisions for the IG offices and the GAO over
several fiscal years. The audit of the government-wide financial
statement will be the largest financial statement audit ever
performed. We cannot make budget decisions for individual
agencies in a vacuum and expect somehow to be successful in our
goal. These multiple decisions are interrelated and need to be
planned now over several years and these commitments must be kept
or the objectives of GMRA cannot be reached.

For example, 18 months ago my own audit office was almost totally
devoted to compliance and performance audit work. In contrast,
today half of our audit resources have been diverted to financial
statement audits, primarily those of the U.S. Customs Service
($23 billion in annual revenue) and the Bureau of Alcohol,
Tobacco, and Firearms ($13.5 billion in annual revenue). The
House Appropriations Committee's mark for FY 1996 puts our
office's budget at the FY 1995 level. As budgets are reduced,
meeting GMRA requirements will result in an even larger share of
audit staff resources assigned to financial statement work. To

3


82

What I would like to leave you with is an understanding of the
kind of pervasive problems and issues that we find: inadequate up-
front planning; unnecessary, excessive, and poorly stated systems
requirements; acquisition strategies that will generally lead to
higher costs and dubious performance; specifications that do not
describe the systems; work statements that are incomplete, incon-
sistent, and ambiguous; government program offices that lack suffi-
cient organizational stature, credibility, and skills to do their job;
unrealistic schedules; low-ball estimates from contractors; et cetera.
Unfortunately, we also find disappointed users, frustrated man-
rs, litigious contractors, a dissatisfied Congress, and citizens
who do not receive value for their taxes. I had intended to talk
more, Mr. Chairman, but we'll leave it at that.
[The prepared statement of Mr. DeGeorge follows:]


INSPECTOR GENERAL ACT OVERSIGHT

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

AUGUST 1, 1995

Printed for the use of the Committee on Government Reform and Oversight

oe

U.S. GOVERNMENT PRINTING OFFICE
96-613 CC WASHINGTON : 1996

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

3 ISBN 0-16-053833-5
SPO,



108

ESTIMATEO AUDIT COSTS: COMPLIANCE WITH THE CHIEF FINANCIAL OFFIERS ACT/GMRA.

BY AGENCIES SPECIFIED IN THE CFO ACT ~

FISCAL YEARS 1996-1997

r

FTEs OIGCOST__ CONTRACT COST _TOTALCosT

‘Dept. of Agriculture 142 $14,271,000) $680,000) $14,951,000!
Dept. of Commerce 40| $4,400,000 $3,816,000/ $8,216,000!
Dept. of Defense 1,990] $109,128,000 so] $09,128,000
Dept of Education 18} $1,316,000 $1,470,000} $2,786,000
Dept. of Energy 102) $8,000,000 $5,000,000] $13,000,000
Deptof Health & Human Services 320| $22,080,000 $18,600,000) $40,680,000
Deptot Housing & Urban Dev. 31) $2,739,000 $1,760,000] $4,499,000
Dept. of Interior 60] $4,774,380 $0} $4,774,980)
Dept of Justice 47| $15,658,000 $19,522,000] $29,180,000
Dept of Labor 45| $8,764,000 $6,255,000] $12,019,000
Dept of Stato 23| $1,396,852 $735,000] $2,131,882
Dept of the Treasury 183] $13,520,769 $4,048,447) $17,569,216
‘Dept. of Transportation 97| $6,003,616 $70,000} $7,063,616
Dept of Veterans Attairs 92) $6,528,000 $156,000] $6,684,000)
‘Agency for int Development 95! $3,200,000 $800,000} $4,000,000)
Environmental Protection Agency 90] $6,200,000 $0] $6,200,000
Fed. Emerg. Management Agency a $520,000 $601,000] $1,121,000)
General Services Administration 6 $985,884 $1,495,972} $1,881,856
Nat! Aeronautics & Space Admin. ° $0 $1,600,000] $1,600,000
National Science Foundation 8 ‘$600,000 $850,000] $1,450,000)
Nuclear Regulatory Commission a $710,000 '$550,000{ $1,260,000
Office of Personnel Management 35} $2,297,000) $200,000} $2,497,000
‘Small Business Administration 1 $80,000 ‘$800,000 $880,000]
Social Security Administration 4 $276,000 '$9,000,000] $3,276,000

2,764 | $230,838 501 $66 005,470) $256 647,520)



131

“We must never throw our weight around or threaten. We are diggers and
doubters, but we must dig and doubt without rough edges, and without

abrasiveness.

“Then, finally, you brief those doing new business with your department, and this
takes a great deal of your time. They must know your role, both in prevention as
well as detection. They must know the powers of the act and how quickly you will

move to enforce this act.

“When those doing business with the Government have high standards and do
quality work, work with integrity and efficiency, the IG’s should work with them

and help them to do a better job with professionalism and mutual cooperation.

“But on the other hand, when the opposite is true and when there’s wrongdoing,
comer cutting, or at worse, criminal acts, the IG must move quickly and
aggressively. And those persons doing business with the Government must know
that the IG carries a big stick and will use it appropriately; and knows how and
where to use it. And believe me, Mr. Chairman, that’s a comfort level. It is what
an IG is all about. It’s letting them know what they can do and what they can’t

do.” And calling it like it is.


159

First, how do we know whether what the iGs are currently doing is helpful? The answer is. I am afraid.
1s that we simply do not know. The OIGs. while skilled at collecting volumes of information on cases
opened. audits closed. dollars put to better use, staff deployed. and a host of other activity oriented
‘measures. have not been very good at developing strong performance measures for themselves. How well
has the IG concept worked. for example. in restoring public confidence that government does not waste
taxpayer money? In theory, the yearly records in stopping fraud, waste, and abuse should somehow add
up to a growing public sense that goverment is. indeed. doing better. In fact, public confidence is
plummeting. { do not suggest that the Gs. and the IGs alone. can reduce this deep public disaffection.
‘At the same time, I do believe the IGs should step up to the issue of broad performance measurement.

tis not enough merely to total up the activity measures. The IGs need to develop meaningful outcome
measures directly tied to the overall performance of their departments and agencies. If their organizations
are not getting better as a result of OIG audits and invesugations, perhaps we should put the dollars and
FTE elsewhere. Rate. indeed. is the IG ready to stand up before Congress or the president to declare that
next year will show a decline in the statistical accomplishments that so many of us have used to measure
their success in the past.

Second, what might the IGs do differently in the future? At the risk of repeating my conclusions from
Monitoring Government. { do not believe the IGs are doing their job poorly, but may be doing the wrong
job in the first place. As should be clear from my comments above, there is far too little focus on
prevention in the current OIG mission. Congress. the presidency. the media, and the public are all
partially to blame, for we have an unsatiable appetite for the kind of horror stories that IG investigations
and audits so often produce, We also want to root the waste out of government, and cannot abide the
thought of a welfare cheat or contractor getting away with “it.” Yet, in devoting so much of their energy
to catching the past abuse, the [Gs are making a decision of sorts to underemphasize prevention. In the
past, IGs have been far too reluctant to engage their departments and agencies in meaningful conversation
about how to design programs for greater workability, how to reorganize hierarchies for maximum
efficiency, or how to build incentives for higher performance.

1 know that the traditionalists in public administration will argue that this is precisely not the IGs" job.
It belongs to OMB (or an Office of Federal Management), or the Government Operations Committee. or
the National Academy of Public Administration, or to just about anyone but the IGs. This may be one
area where the traditionalists and the IGs actually agree, for most of the IGs are absolutely opposed to
designing programs. It would compromise their audit independence, the IGs often argue, weaken their
authority in testifying before Congress. and absorb precious resources from the audit and investigation
units. Some also argue that an emphasis on prevention would violate their stanutory mandate. 1 will not
well long on the issue of audit independence, for the IGs are more talented at building firewalls within
their units than they might like to acknowledge. 1 would note, however, that prevention is very much
in the IG mandate. Indeed, the organic starute clearly provides that the [Gs are to assess legislation and
regulations for their potential impact on the economy and efficiency of their departmental or agency
‘operations. It is a gaping mandate that the [Gs could easily use to claim a place at the table in designing
more effective policy.

Such a role is not without serious political risk, of course. Imagine the HHS IG appearing before
Congress to explain why the Clinton health care plan might not work? Imagine the Labor IG appearing
before Congress t0 explain why a prized jobs bill will fail? It is not the kind of testimony one readily
imagines giving, unless. of course, one has a job waiting on the outside. This is all part of the problem
in blending the lone wolf mode! with the strong right arm. IGs cannot be a secretary's strong right arm

3




109

Mr. Horn. Do you know if that has been done?

Ms. Lau. I know that some preliminary figures were gathered,
but not as comprehensive as you just laid out.

Mr. Horn. In other words, you have gathered figures. Are those
just simply based on in-house staff, or did you contact possible out-
side accounting firms?

Ms. Lau. Well, for example, Mr. Chairman, at Treasury, we con-
duct our financial audits in a number of ways. We do contract with
independent public accountants for some of the work. We do some
of the work ourselves. And the IRS, which you already mentioned,
is audited by GAO with the assistance of the IRS Chief Inspector's

ice.

So having looked at the figures for Treasury on the preliminary
information that I have, I know it is not comprehensive to include
all of those items. And so I would prefer to give you a very com-
plete record.

Mr. Horn. So you would give us that, then, in terms of the full-
time equivalents, in-house staff, or contracting with outside ac-
counting firms?

Ms. Lau. Yes. Because I think when you're looking at the audit
requirements and the budget requirements for each department,
that you have to look in the totality. And there still is a hybrid of
certain audits that are conducted in a department by GAO and oth-
ers which are conducted by the IG or CPAs contracted for by the

Ss.

Mr. Horn. Since you're Chair of the Audit Committee, then, has
that been done for each of the agencies that have an IG?

Ms. Lau. No, we have not done that comprehensively yet.

Mr. Horn. How many IGs have been examined with the cost pos-
sibility of their own staff or outside auditors, and are they gather-
ing the data, or is the Audit Committee gathering the data?

's. Lau. The Audit Committee will compile this information and
provide it to you.

Mr. Horn. When might that be done?

Ms. Lav. As soon as possible, sir.

Mr. Horn. Is that within 1 year, 6 months, or 3 months? I won-
dered if we’re on some form of government time, that’s all. I need
to know what time.

Ms. Lau. As soon as possible within the next 2 weeks, sir.

Mr. Horn. OK. Fine. Well, we'll give you all of the month of Au-
gust, since hopefully we won't be here.

Ms. Lav. Thank you.

Mr. Horn. The staff will be here, but they would like to get a
rest, too. So we'll have the cost projections and also our cost esti-
mates available for the Government Management Reform Act re-
quirements? ’

Ms. Lav. Yes.

Mr. Horn. And that leads us to the question of what are we now
inspecting in some processes? The emphasis of the government his-
torically has been on inputs and outputs. In other words, we have
a process. It takes so many people, it takes so many cars, it takes
so much support staff.

And we look at it, and we say, “Well, what are you doing?” “Well,
we're driving cars, we're meeting with people, we're passing paper,


30

assistance to designated IGs in a wide variety of areas that has enabled designated IGs to more
effectively implement our responsibilities. This has been particularly evident with respect to
investigative resources where the availability of PCE member staff on detail has enabled some
of us to effectively conduct various inquiries despite the absence of investigative staff. Other
coordinated activities include PCIE/ECIE executive and senior staff forums where topics of
interest are surfaced for all OIGs.

The ECIE operates essentially similar to PCIE in that we meet monthly, discuss issues affecting
the OIG community, utilize committees to address specific areas of OIG responsibilities,
coordinate and exchange information, and recommend, initiate or participate on projects intended
to improve Government and/or OIG operations.

‘The ECIE also provides an important avenue for designated IGs to discuss and forward
tecommendations on concems or issues that may be particularly relevant to designated IGs and
may not be particularly significant to PCIE. With a few exceptions, we believe that the concept
of two councils is an efficient and practical way to address interests of the 61 Inspectors General.

A couple of examples of ECIE activity include development of a "Best Practices" paper dealing
with relationships between designated IGs and Entity Heads (copy attached as Appendix C) and
initiation of an automated information sharing system to exchange information about our
operations and activities. We are continuing to explore the development of a voluntary external
quality review system for investigative activities that will provide independent assessments of the
application of investigative standards.

‘The “Best Practices” paper, which evolved from a joint PCIE/ECIE effort and is formally
identified as OMB Memorandum 93-01, titled Inspectors General in Designated Federal
Entities: Key Statutory Provisions and Implementing Guidance, succinctly summarizes the
respective roles and responsibilities of IG and management in line with IG Act requirements and
interpretations and was intended to foster an independent and constructive IG presence within
designated entities. This document is consistent with current emphasis on improved
OIG/Management relationships and, while currently directed at designated entities, could be
utilized by all IG offices and agencies as an important tool in this process.

Designated IGs have responded positively to the Inspectors General Vision Statement and to
some National Performance Review conclusions, and a few examples are noted in the next
section of this testimony.


89

would lead to contract disputes that would be difficult to resolve, and (3) would not provide for a

coherent engineering process.

We recommended that the solicitation be thoroughly reviewed and revised prior to contract
negotiations, The agency did not implement our recommendations, stating that the schedule
‘would permit no further delays. AWIPS is now undergoing its second round of replanning since
1992, with NOAA currently renegotiating the Development Phase contract, as the problems we
predicted have developed. Since 1992, the AWIPS schedule has slipped 2-1/2 years. We
believe that NOAA’s ineffective management and schedule-driven approach will continue to cause

problems.

On the positive side, our review of CAMS, the Commerce Administrative Management System,
and in particular, the new accounting system, has been productive. We have increased the
agencies’ appreciation for having strong financial management teams, sound financial management
practices, and reliable data before implementing a new accounting system. After we analyzed and
explained why Census was a poor choice to be a test agency for the new accounting system, the
‘Department dropped it as a pilot bureau. We contributed to an improved solicitation for the new
accounting system, including more accurate cost estimates, and we have continually highlighted
the importance of strategic thinking and planning when dealing with a family of systems like
CAMS. At this time, the Department has selected what appears to be a capable contracting team
and a good software package for the accounting system. As we recommended, it is focusing

resources at a single bureau, NIST, and it has put financial managers in place at Census, The


84

acquisition and management are deep and systemic and must be dealt with through policy and

management changes,

Information Technology Systems at Commerce
The Department of Commerce spends more than $600 million each year on information
technology. We are in the midst of four costly, complex, and critical modernization
programs—modernization of the National Weather Service, of the Patent and Trademark Office,
of the Department’s accounting and administrative systems, and of the systems for conducting the
2000 Decennial Census. Commerce also purchases many millions of dollars worth of smaller

systems, generally, but not always, commercial off the shelf.

Despite the importance of information technology and its enormous cost, Commerce, like most
other civilian agencies, often does a poor job of planning, acquiring and managing its systems. It
lacks personne in leadership and management postions with adequate experience, expertise, and
understanding of system acquisition principles and discipline, and it lacks meaningful processes,
criteria, and methodologies for program managers to adapt to their own systems and
circumstances. As a result, system acquisitions are disorganized and ad hoc. The results speak for
themselves, There are serious problems in most of Commerce’s major systems modernization
programs, and pervasive inefficiency and mismanagement in planning and purchasing commercial

systems and equipment.


12

‘Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

Such actions include terminations, formal reprimands, suspensions and
demotions.

In addition to the above, the HHS IG has additional authorities which provide altematives to
criminal or civil prosecution following an investigation. If the DoJ declines a case for criminal
or civil prosecution, the OIG may exercise the Department's administrative authorities for
imposing sanctions as provided for in the Civil Monetary Penalty Law and the mandatory
exclusion provisions in the Social Security Act. Utilizing these authorities, in FY 1994, we at
HHS assisted in the collection of more than $440 million in penalties and assessments and
imposed 1,265 administrative exclusions.

‘The following are examples of the types of investigations conducted by the OlGs:

+ As result of a Department of Agriculture investigation, 43 individuals were
arrested in New York City for allegedly obtaining food stamp authorizations for
“sham” retail stores through which they laundered millions of dollars in illegally
obtained food stamps. It was estimated that over $40 million in food stamps were
redeemed through the bogus stores.

+ A Department of State OIG investigation determined that five Delaware
residents had used a fictitious fund allegedly sponsored by the Department of
State to defraud two Miami churches of more than $125,000. The defendants
were named in a 20-count indictment from a Federal grand jury in Miami on
charges of wire fraud, mail fraud, conspiracy, money laundering, and interstate
transportation of stolen money acquired by fraud. Warrants Upon Indictment
were issued, and three of the five defendants were arrested by OIG agents, who
also executed search warrants, resulting in the seizure of additional evidence, two
vehicles, and a large quantity of cash.

The first of the three defendants pleaded guilty to all charges and was
subsequently sentenced in Federal District Court at Miami to 9 years’
imprisonment, 3 years’ probation, $125,450 restitution, and a $1,000 assessment.
After a 3-week trial, a jury found the other two defendants guilty on all charges.
‘The second defendant, who played a more minor role in the scheme, was
sentenced to 18 months’ imprisonment, 2 years’ supervised probation, and a $50
assessment. The third individual was sentenced to 78 months’ imprisonment,
fined $15,000, and ordered to pay $125,000 in restitution.

+ A Department of Defense investigation found that Rexon Technology
Corporation, a manufacturer of military fuses for artillery shells, mines and other

ouse Coverament Reform and Oversight Commitice Ragan 1 13S
Subcomitce on Government Management, Information, and Techalogy Page


This administration has emphasized
the role of IGs as management
consultants rather than investigators.
Expending more effort on good
management should lessen our need for
investigation.


96

FUNCTION AS AN INTERNAL AFFAIRS UNIT FOR THE INSPECTOR
GENERAL COMMUNITY.

1 BELIEVE IT WILL BE HELPFUL TO PROVIDE YOU WITH
AN OVERVIEW OF HOW THE COMMITTEE OPERATES PRESENTLY.
ALLEGATIONS ARE RECEIVED AT FBI HEADQUARTERS FROM
SEVERAL SOURCES INCLUDING REFERRALS FROM IGS AND
HEADS OF AGENCIES, AND DIRECTLY FROM PRIVATE CITIZENS.
IN THE FIVE YEARS THE FB! HAS BEEN CHAIRING THE INTEGRITY
COMMITTEE OR IT’S PREDECESSOR THE ALLEGATIONS REVIEW
SUBCOMMITTEE, WE HAVE HANDLED 121 CASES, 88 OF THESE
HAVE BEEN BROUGHT TO CLOSURE AND THE REMAINING 33 ARE
PENDING.

UPON RECEIPT, THE ALLEGATIONS ARE NUMBERED
FOR TRACKING PURPOSES AND A LETTER IS SENT TO THE
COMPLAINANT ACKNOWLEDGING THEIR RECEIPT. THEY ARE
THEN COPIED IN THEIR ENTIRETY AND REFERRED TO THE PUBLIC
INTEGRITY SECTION AT THE DEPARTMENT OF JUSTICE FOR A
DETERMINATION AS TO WHETHER THE ALLEGATIONS, IF PROVEN,
WOULD CONSTITUTE A PROSECUTABLE VIOLATION OF FEDERAL
CRIMINAL LAW.


15

We also have developed a productive relationship with the U.s.
Customs Service. Customs has received disclaimers of opinion on
its financial statement for the last few years because internal
control weaknesses have prevented them from producing timely,
auditable financial information. To assist them in addressing
these problems, we sit on their ADP Steering Committee in an
advisory capacity as they develop and implement improved
procedures. We also provide advice on improving controls over
goods entering into the commerce of the United States, or being
exported, and in the proper assessment of duties, taxes and fees.

EINANCIAL AUDITS ARE BUT ONE MANAGEMENT TOOL

While audited financial statements are important, a "clean
opinion" is not the sole indicator of sound financial management
within an agency. All information reported in the financial
statements is a tool that must be properly used to assess and
evaluate the organization's financial and performance status.
Far too often readers overlook serious financial management
conditions disclosed in the accompanying reports on internal
control and compliance with laws and regulations simply because
the audited entity received an unqualified ("clean") opinion on
its statements. Unqualified opinions are a positive step in
improving financial management but they do not tell the whole
story.

For example, we have a Bureau in the Treasury Department that
received it's first unqualified opinion in its third year of
audit. However, the internal control report described several
ongoing material weaknesses. An uninformed reader might look at
the opinion alone and assume that all is well when, in fact,
major financial management and system problems still exist.

Audited financial statements provide agency managers and
oversight entities such as the IGs and GAO, information which can
be used in measuring organizational performance and evaluating
fiscal responsibility. As we move into an era where the
Government will have to "do more with less," information provided
in audited financial statements will be critical in making the
difficult spending decisions ahead.

GOVERNMENT PERFORMANCE AND RESULTS ACT

The GPRA requires Federal agencies to develop five year strategic
plans, and annual performance plans that are consistent with the
strategic plan. A key element to the planning is identification
of a set of performance measures that measure results in terms of
outcomes and that can be tracked over time. These performance
measures will become the driving force for agency management and
budget decisions. The Chief Financial officers Council,

5


36

‘The clause in the [G Act noting that IGs are under the general supervision of the head of the
establishment also impacts designated IGs. Heads of establishments that personally selected the
designated IG tend to interpret general supervision as being more inclusive; and, as such, we
have and may continue to have instances where entity heads believe general supervision involves
direct review and approval of routine IG and OIG staff actions relative to budget execution. The
Best Practices paper, which I previously noted, is an excellent product for providing useful
guidance on avoiding independence related problems. Also, as a general proposition, I believe
acceptable understandings between designated IG and entity heads can be achieved without
additional legislation; but we should not close the door to legislative recommendations to address
issues of concer that can constrain us from accomplishing our mission.

Resources is a moot issue at most designated IGs, and we have concentrated our recent efforts
on effective utilization of scarce resources since there is little potential for additional resources.
However, we are concerned that proportionate reductions of OIG resources similar to reductions
the entity must incur can have disproportionately adverse impacts on the ability of some
designated IGs to continue as viable entities. For example, where entities are subject to large
budgetary reductions, ¢.g., 20-50 percent, a similar reduction of IG staffs that are currently
operating with what many in the community consider to be a minimum staffing level to provide
effective deterrence against fraud, waste, and abuse, ¢.g., 3-6 persons, could render the OIG
incapable of meeting its basic responsibilities. Consequently, while we fully support efforts to
reduce spending, we encourage the Executive and Legislative Branches to use prudence when
identifying across-the-board budgetary reductions.

ll


48

The Comptroller General's "Government Auditing Standards” provide that
organizations conducting government audits should have an external quality control
review at least once every 3 years by an organization not affiliated with the
organization being reviewed. The IG Act requires that such reviews be conducted
by an audit entity in the Federal Government. To meet these requirements, the
Executive Council on Integrity and Efficiency facilitates a peer review approach by
which designated Federal entity IGs can utilize other designated IGs to conduct
external quality control reviews.

With respect to investigations, the statutory requirement is that the IG report
expeditiously to the Attorney General whenever the Inspector General has
reasonable grounds to believe there has been a violation of Federal criminal law.
This requirement leaves the IG no latitude in determining whether to report to the
Attorney General. Further, the requirement is clearly for the IG to report directly to
the Attorney General at the earliest possible date, which in almost all cases will be
prior to completion of the investigation. Early referral ensures that the Department
of Justice is provided the opportunity to direct subsequent investigative work.

In carrying out audits and investigations, IGs periodically need legal advice and
assistance. This may be accomplished by employing counsel within the OIG,
which minimizes conflicts of interest for the attorney serving the OIG. However,
for some IGs, it is not cost effective to have attorneys on-staff; and the IGs
therefore need to rely on the entity General Counsel, contractor resources, or
memoranda of understanding with other Offices of Inspector General. In order to
preserve the operational independence of the IG, IGs and entity General Counsels
are urged to enter into written memoranda of understanding delineating the role of
the General Counsel when providing legal advice and assistance to the IG.

The statutory prohibition on the IG’s having program operating responsibilities does
not preclude the IG from assisting the entity and its committees and project teams,
if the IG determines that such assistance will help the entity reduce fraud and
waste and such assistance by the Office of Inspector General would not
compromise its independence in subsequent reviews of the subject matter.

B. LEGISLATION AND REGULATORY REVIEW

Legal Authoritv/Requirement: The Inspector General shall review existing and
proposed legislation and regulations relating to the program and operations of the
agency and make recommendations in the semiannual reports to the Congress
concerning the impact of such legislation or regulation on the economy and
efficiency in the administration of programs and operations administered or



117

those hearings, were really an indictment of Federal management.
So we have an IG Act.

Now we have had IGs for 17 years. Are things perfect? No. There
have been errors and mistakes. Perhaps some haven't operated as
they should have at times. Scandals have been found. Most times.
it was the IGs who found them. But overall, the IG concept and
the IG Act have proven to be successful.

Today, it is tough to be an Inspector General. It seems that the
IG concept, the act, and the IGs themselves are not held in high
regard the NPR and its leaders. The NPR has attempted to
chan; e focus of IGs, reorient them, they say. I look at it as a
possible attempt to muzzle the Inspectors General.

I consider the vote in the House that was discussed here earlier
today, 388 to 6 in 1978. Only six in the entire Congress voted
against it: Mr. Jeffords—and the only two left are now in the exec-
utive branch, Mr. Gore and Mr. Panetta. I have to wonder just how
objective the NPR is. And I try not to be too cynical, but I must
say, I’m really Tooking. at this through a long tunnel.

I agree with the NPR when they recommend criteria be estab-
lished for grading IG performance, because I firmly believe that
proper accountability helps performance. The NPR stresses
empowerment and innovation, and I’ve worked for some very fine
managers who were empowered and innovative long before NPR
and who did much to make government work better.

But I must confess, ’'ve known my share of charlatans and
thieves, and every one of those were empowered and very innova-
tive. The key word is “accountability.” I don’t see much of this in
the NPR. This is why I commend these hearings. And I hope that
there are additional hearings on the focus of the Inspectors Gen-
eral. Because unless the IGs continue to keep a close watch on gov-
ernment honesty, we can expect many more scandals in the months
ahead.

Now, in an article in the Congressional Quarterly, October 23,
1993, titled “Taming the Watchdog: A New Role for the Inspector
General,” which was written after the NPR, it speaks of the NPR.
And in the article, Senator Glenn is quoted as saying, “The IGs are
a force for good.” And Congressman Dingle said that “The change
recommended by Mr. Gore and the NPR should not come at the
cost of compliance enforcement.”

And then, he said to Mr. Gore, “I anticipate the need for vigorous
behavior by the Inspectors General will not end in your lifetime or
mine.” I agree with that quote. I thank you for having these hear-
ings. This concludes my statement.

e prepared statement of Mr. Dempsey follows:]


We have placed a heavy burden on
the Inspectors General. We ask them to
take the lead in ferreting out fraud and
waste in their agency. And at the same
time, we ask them to recommend
improved management practices that
would prevent fraud and waste before it
happens, rather than investigate after
the fact. We ask them to stand
independent from their colleagues, and
at the same time to work with them as
colleagues.


138

One possibility is the screening of IG candidates by a special committee of incumbent
IGs. For nearly five years, i served on such a committee, composed of three IGs. It
was an ad hoc process, with absolutely no formal status or powers. Whenever
Presidential Personnel coughed up an IG candidate, he or she was referred, quite
informally, to the PCIE Chairman who, quite informally, referred the candidate to our
committee, whereupon we, quite informally, would interview her or him. We had no
Yea or Nay authority; after each interview, our informal chairman, Jim Richards, would
communicate the results of our interview to the PCIE chair who in turn would pass this
on to Presidential Personnel. Informal or not, the system appeared to work; only once,
in the entire life of the committee, were negative comments ignored.

But there were major weaknesses in this process. Apart from its lack of any
legitimacy, the committee did very little recruitment outside of the OIG community. We
rarely solicited candidates from the private sector nor, indeed, from federal, state, or
local agencies beyond our ken. (We of course had no authority to solicit anyone.) This
meant that the committee's work, over time, became increasingly inbred.. and triggered
a kind of incestuous politicking within the OIG community.

it would seem more appropriate if the White house, if it seriously wishes to surface
outstanding IG candidates, would establish a forma! mechanism for recruiting and
screening potential |Gs. This would be rather similar to the manner in which bar
associations and an ABA committee screen potential federal judges who, like IGs, must
be non-partisan and professionally capable. As with our internal IG committee, such a
group would have no approval or veto power, but could only suggest. Possible
membership of the group could include, perhaps on a rotating basis, an incumbent IG
and senior representatives of such organizations as the AICPA, Justice Department, a
major management consulting firm, NAPA, academia, and the program side of a major
federal agency.

The White House may weil object to this process as a possible infringement upon.
executive power. It may well feel that such a group, despite its lack of decision
authority, would tie the White House down by possible leaks. It may well regard it as a
dangerous precedent. If not this, however, then what? Certainly the present situation
is not viable. | told Secretary Christopher on December 15, 1993 that | intended to
resign two months later, hoping that this would give the White House enough time to
come up with a good candidate to succeed me not too long after that. In fact, my
successor did not come on board until last month... 17 months after | gave notice. It
has taken much longer to fill other IG vacancies. Because of the unique authorities
given to IGs, this lengthy an interregnum creates severe difficulties for the OIGs
concerned,


49

financed by the agency, or the prevention of fraud and abuse in such programs and
operations. (5 U.S.C. App. 3, s. 4(a)(2))

i : The Agency head should ensure that agency procedures
for reviewing legislation and regulations include provisions that allow the Inspector
General to fulfill the statutory requirement.

C. IG ACCESS TO AGENCY RECORDS

Legal Authority/Reauirement: The Inspector General shall have access to all
records, reports, audits, reviews, documents, papers, recommendations, or other
material available to the entity which relate to the programs and operations of the
entity. (5 U.S.C. App. 3, s. 6(a)(1))

Whenever such information or assistance is, in the judgment of the Inspector
General, unreasonably refused or not provided, the Inspector General shall report
the circumstances to the head of the entity without delay. (5 U.S.C. App. 3,

s. 6(bI(2))

The IG‘s semiannual report to the Congress shall include a summary of each such
report made to the entity head during the reporting period. (5 U.S.C. App. 3,
s. 5(a)(5)}

Implementing Guidance: Entity operating guidelines should clearly state (i) the IG’s
right to access documents, (ii) the responsibility of each entity officer and

mployee for cooperating fully in audits or investigations conducted by the IG; and
ii) the responsibility of cognizant entity officials for communicating to entity
contractors, grantees, and regulated entities their responsibility for cooperating
fully in audits of investigations conducted by the IG.

10


78

OBJECTIVES OF THE FAEC'S PEER REVIEW REPORT

The FAEC's report will address five concerns of the PCIE: (1)
whether the objectives of the peer reviews should be expanded to
include a review and determination of the effectiveness of OIGs;
(2) whether the scope of the reviews should be expanded to
include other OIG activities including investigations and
inspections; (3) whether the PCIE should take steps to amend the
IG Act to allow external reviews to be contracted out, i.e., to
IPAs; (4) whether the PCIE guidance should specify that reviewers
be people currently working in some capacity in the audit process
as opposed to working in an internal quality assurance process;
and (5) the make-up of the team structures and how decisions
should be made as to who reviews whom.

INDEPENDENT PUBLIC ACCOUNTANTS PERFORMING PEER REVIEWS OF FEDERAL
AUDIT ENTITIES

One issue of controversy being addressed by the FAEC Peer Review
study is whether IPAs should be allowed to perform peer reviews
of Federal audit organizations. The IG Act as amended in 1988
requires that external reviews of IG audit operations be
conducted by Federal audit organizations only. Some IGs have
expressed interest in seeking to remove this statutory limitation
so they might contract with IPAs to conduct the reviews. Among
their reasons for wanting this flexibility are: (a) it may be
less costly, (b) it would be easier to identify an organization
who could do the review, and (c) it would eliminate the
appearance of a lack of impartiality caused by a relatively small
IG community reviewing itself.

on the other hand, while IPAs for the most part are highly
qualified to perform financial audit related peer reviews, not
many IPAs have the experience needed to adequately evaluate
performance audit standards and results -- a very significant
portion of an OIG's audit work. In addition, having external
audit organizations performing reviews of working papers
containing Privacy Act protected and/or security sensitive
information requires additional considerations which would need
to be addressed.

When the results of the FAEC study have been issued to and
accepted by the PCIE, I would be happy to share them with the
committee.

PROPOSED SINGLE AUDIT ACT REVISIONS

The Audit Committee is very supportive of the effort underway to -
revise the Single Audit Act of 1984 and the related OMB audit
circulars. Both GAO and OMB have been very collaborative in the

8


88

‘One success story is our ongoing involvement in NEXRAD, the Next Generation Weather Radar
program, which has led to substantial cost savings and numerous improvements in the program’s
management, technical approach, and contracting. At the invitation of the Department and
NOAA, we provided advice and counsel during the renegotiation of the NEXRAD prime
contract. Our independent advice was solicited on systems and software engineering, as well as
program management, contract, and legal issues and was used in making substantial revisions to
‘the contract. In subsequent work, we found that NOAA was being substantially overcharged for
certain NEXRAD spare parts and have worked collaboratively with the agency to improve spare
parts procurement. This effort thus far has resulted in savings of $39 million, a figure we expect
to increase. Our inspections have also led to improvements in the government’s management of
the NEXRAD contract and the prime contractor's management of its software development
process. The new radars are working exceptionally well, with NOAA recently accepting the 100%

unit.

While NEXRAD has been a success story since contract renegotiation, another system of the
‘weather service modernization, AWIPS (Advanced Weather Interactive Processing System), has
been a continuing source of problems and frustration. Over the past several years, we have
identified and analyzed the serious management, engineering, and contractual problems on
AWIBS, providing NOAA management with early wamings of system development and
acquisition risks and recommending corrective actions. In 1992, we reported that NOAA's

approach to AWIPS development (1) would not form the basis for an enforceable contract, (2)


43

The latest Federal Register listing of designated Federal entity heads is presented in
the Attachment to this paper.

The general supervision responsibility of the designated entity head entails, for
example: (i) developing @ performance plan (including critical performance
elements and performance standards) for the IG, in consultation with the !G; (ii)
conducting the annual performance evaluation of the IG; and (iii) making decisions
on IG budget proposals. Entity heads may not delegate such responsibilities.
However, in cases where Boards of Directors or other bodies have been designated
by OMB as agency heads, the membership may commission their chairperson to
act on their behalf in these matters.

The general supervision responsibilities of the designated entity head also indicate
that the IG should keep the entity head generally informed as to the OIG's plans,
activities, and accomplishments. Entity heads and IGs need to ensure that this
result is obtained without infringing on the operational independence of the IG.
(See Section IV.A of this document for the IG’s responsibility for keeping the entity
head fully and currently informed about specific audit/investigative findings and
results.)

B. 1G ACCESS TO ENTITY HEAD

Legal Authority/Reauirement: The Inspector General shall have direct and prompt
access to the agency head when necessary for any purpose pertaining to the
performance of functions and responsibilities under the Act. (5 U.S.C. App. 3,

s. 6(a)(6))

: Regular meetings between the entity head and the IG are
@ good means of (i) establishing the IG’s access to and direct reporting relationship
with the entity head, and (ii) keeping the entity head generally apprised of the IG’s
plans, activities, and accomplishments.

C. ENTITY HEAD AND IG SEMIANNUAL REPORTS TO THE CONGRESS

Legal Authority/Requirement: !Gs shall prepare semiannual reports to the
Congress, summarizing the activities of their offices as of March 31 and
September 30 of each year. These reports shall be provided to the entity head no
later than April 30 and October 31 of each year. Within 30 days after receipt of
such 8 report, the entity head shall transmit it to the appropriate committees or

4


129

(6) Sixty Inspector Generals

There are now over 60 Inspector Generals - 26 are appointed by the President and
34 designated by their agency head. When these additional 34 were created by the
88 Amendments to the IG Act, some of us recommended at the time that one
presidentially appointed IG be named for all those smaller agencies with the
exception of the U.S. Postal Service and the Tennessee Valley Authority. And al!
auditors and the very few investigators of the remaining agencies be assigned to
this one IG office. It was cost effective and would in my opinion add to a more
efficient way to manage their agencies. It is hoped that the Congress will address

this recommendation in its oversight hearings.

Finally --

The Inspector General’s job is a tough job - He or she is under the general
supervision of the head of the Department or Agency yet can only be fired by the
President. He or she reports to both the Department or Agency head and the
Congress. The IG walks a tightrope in doing this and remaining independent. In

testifying before the Congress on August 4, 1988 at a hearing before the


113

And so that’s part and parcel of this CFO work that we're talking
about. And I think in support of your debt collection bill and your
focus on bringing back money to the government, which is sorely
needed, that this is probably the best way to identify what’s out
there overdue and ways to identify it.

Mrs. MALONEY. Is there a department in Treasury that collects?
Whose responsibility is it to collect in Treasury what's owed it?

Ms. Lau. I will have to provide that answer for the record, Mrs.
Maloney.

Mrs. MALONEY. And Treasury is the information center for many
items in government.

Ms. Lav. That’s right.

Mrs. MALONEY. Do you think it would be a good idea to central-
ize collections, say, in Treasury, every 180 days, report what’s owed
the government? When we did our study, there’s some items that
have been owed for 10 years. Why haven’t they acted? They should
have a timeframe in which you act or you write it off.

Tm just curious what you thought of that. I know you're the
central melting pot of information a lot of times. Why not central-
ize collections in Treasury?

Ms. Lau. That’s right. The Federal Management Services pro-
vides a bookkeeping and accounting function for the government as
a whole. In terms of Treasury’s role in the debt collection process,
I know that the Assistant Secretary for Management has been very
much involved in those initiatives. And so I would like to defer and
research that question and provide the answer to you for the
record.

Mrs. MALONEY. Thank you very much.

Mr. Horn. If I could follow up on that. Where in Treasury does
the responsibility rest for the collection of debts? In what office?

Ms, Lav. I don’t believe that you would have a single office that
would be responsible for all debt. Because, for example, the IRS
collects revenues due from taxpayers. I know they have their own
collections function. Similarly, any other bureau that has as its pri-
mary function taxation and revenue collection would also need to
have a collections function.

So I don’t believe that there is a particular centralized function
within Treasury, but to be sure, I would like to give you a complete
answer.

Mr. Horn. Do either you or Inspector General DeGeorge know of
reports that have been made by Inspectors General about the debt
collection problem in their particular agencies? Has that been

lone?

Mr. DEGEORGE. Actually, most of our debt is within the Eco-
nomic Development Administration, within the Department of
Commerce. And they produce monthly statements pretty much de-
tailing the recoveries and the outstanding indebtedness. We're not
very successful at getting it back, but that’s another issue. But we
do have monthly reports.

We also have a process which is relatively small compared to
that of recoveries for various audit resolutions, which is policed
rather vigorously between the department and ourselves. So from
the Commerce viewpoint, these are the two big areas.


122

(3) Sec. 3 - Provide a means to keep the head of the establishment and the
Congress fully and currently informed about problems and deficiencies.

(4) Under Appointment and Removal - Section 3, The IG is appointed by the
President - with advice and consent of the Senate without regard to political
affiliation and from specific background.

(5) That the IG reports to the head of the department and no other in that
department and that the head of the establishment nor others can prevent or
prohibit the IG from initiating, carrying out, or completing any audit or

investigation or from issuing any subpoena necessary.

At this point that Cabinet Secretary or Agency Administrator starts to look at you
in a different way. You're not totally one of theirs by LAW and you must be
independent by LAW and you both have sworn under oath to carry out these
LAWS. However, having said this, the IG must also realize the importance of the
statement in the law - regarding “Prevent and Detect” - For in Prevention efforts
the IG must work with Department management and cannot use the
“independence” issue as a “cop-out” or reason to say [ can’t work with you on
prevention effort as I must remain independent so I can review you later - It’s a

tightrope situation but it can and must be done. But it must be understood by all -

Question 3: What are the skills and qualities necessary for effective IG’s?


127

resources to do this work. If not all should understand there will be a loss of audit

coverage.

(2) Counsels to the Inspector Generals

It is absolutely necessary that the Inspector Generals have their own counsels
reporting to and working for the IG. Most Departments and Agencies have gone
to this. But a recent Treasury Department situation regarding the release of a draft
investigation report by the General Counsel office for possible political purposes is
proof positive of the need for IG’s to have their own Counsels. Only through
Congressional oversight hearings aimed toward correcting this problem will this be

accomplished.

(3) Bonus for Inspector General

This is one area that I agree with the NPR statement on Inspector Generals: No
Inspector General should be in a position to receive a bonus from the person he
may be investigating and/or auditing: The image and perception issue alone
should have been enough for IG’s to have taken themselves out of consideration
for a bonus - However, OMB or the PCIE should set up some procedure or

apparatus for Inspectors General to receive consideration from the President, the


151

8

I regard as unacceptable any situation in which a program manager is held
accountable for that program, and yet may be restricted in his or her ability to utilize
existing resources needed to ensure the integrity of the program.

I recommend that the Congress clarify the accountability of IGs. If the Congress
intended the statute placing them in the Executive Branch to be taken seriously, as I assume it
did, then it should make that clear in report language.

Perhaps there also should be a provision that some entity, possibly GAO, provide
technical oversight. In doing so, it would be important to make clear that the ability of IGs 10
report their independent findings not be infringed upon. In this connection, I believe it is not
too difficult for IGs to respond promptly to urgent needs of management for investigations and
yet retain the independence of the resultant findings. Several outstanding IGs have done exactly
that for years, and taken pride in doing so.

IG Incentives.

External recognition for IGs and their staffs come chiefly from revealing what is wrong,
not from producing balanced reports on agency actions. This may be appropriate when
investigating allegations of fraud and abuse, but it is not an environment which is geared to
producing objectivity in evaluating the wisdom of decisions or the quality of program or
administrative management. How many IGs have been commended for finding something
positive? In fact, some IGs have been criticized as being “soft” or engaging in a whitewash
when they have tried to provide balance. It is my impression that the IGs who have gained the
‘most stature are those who have risen above these circumstances, and taken pride in presenting
objective reports, but it is not an easy task.

Again, the difficulty increases as the IG task moves along the continuum from skilled
investigations of hard facts to assessing the wisdom of discretionary program actions. To the
extent that these discretionary actions involve specialized fields for which IGs do not have staffs
‘or adequate resources needed to contract for such expertise, the value of IG conclusions and
recommendations decreases, This is another reason I have deep concerns about the unrealistic
breadth of the IG charter.


155

Mr. Horn. Thank you, Dr. Ink, for that very helpful statement.

We now have Dr. Paul C. Light, the director of the policy pro-
gram at the Pew Charitable Trust in Philadelphia. He’s author of
the book “Monitoring Government: Inspectors General and the
Search for Accountability.”

Dr. Light.

Mr. LIGHT. It’s a pleasure to be here. I would have been here a
little bit earlier, and I should have sat between Dwight and Sher-
man. I sort of am a buffer between the two sides of this issue. It’s
a pleasure to be before the committee.

Mr. Horn. Remember, you’re under oath when you make state-
ments like that. [Laughter.]

Mr. LicHT. It’s a pleasure to offer some tepid insights on the IGs.
As a congressional historian yourself, it is an interesting story that
brings us to this particular hearing, dating all the way back to the
Continental Congress which created the first IG over 200 years
ago.

As I point out in my testimony, which I will just briefly summa-
rize, the modern IG really was a product of the reorganizations
that stripped the General Accounting Office of its responsibilities
in actually auditing agency financial records. And Congress re-
sponded in part to that by creating a greater presence in the execu-
tive branch to provide information on basic operations of agencies.

The first modern IG, as near as I could tell, was created at the
Department of State in the late 1950’s and reflects what I call the
“lone wolf” model of IG oversight. This IG really did not report to
the Secretary, per se, and had extraordinary authority to suspend
programs that the IG thought were failing to achieve program
goals.

I do not detect in any of the history that this IG ever used that
authority, but it was a profound authority which today’s IG does
not have. The notion that an IG would be able to immediately stop
a program that was failing is really a remarkable expression of au-
thority, one which I would feel quite comfortable giving to a Sher-
man Funk or a Chuck Dempsey, but which I think would raise
some questions in terms of the proper recruitment and retention of
talent in the IG pool today, perhaps.

Orville Freeman, the distinguished Secretary of Agriculture from
the State of Minnesota, my home State, invented the second model
of the IG, which was the strong right arm model, following the
Billy Sol Estes investigation, which i refer to in the testimony as
being conducted, I believe, by the great, great grandparent of your
current committee here. So you are, in a sense, the descendants of
that noble subcommittee that created the first IG.

Mr. Horn. Almost as old as the Colonial Army.

Mr. Licut. That’s correct. That’s right. This strong right arm of
the Secretary really reported only to the Secretary. This was an as-
sembling of audit investigation at a senior level and was designed
to consolidate authority.

And it was these two models that emerged from the 1960's. As
we started to consider IG reform in the mid-1970’s, then guess
what? Congress in its infinite wisdom decided to take both models
and combine them into today’s IG.


CONTENTS

Page
Hearing held on August 1, 1996 ........ sasananssee eons 1
Statement of:

Brown, June Gibbs, Vice-Chair, President’s Council on Integrity and Effi-
ciency and Ing) r General of the Department of Health and Human
Services; and Hubert Sparks, Vice-Chair, Executive Council on Integ-
rity and Efficiency and Inspector General, Appalachian Regional Com- 2
mission

Dempsey, Charles, former Vice-Chair, PCIE and former Inspector Gen-
eral, tment of Housing and Urban Development; Sherman Funk,
former Inspector General, Departments of "and Commerce:

Dwight Ink , president emeritus, Institute of Public Administration;
1C, Light, director, Public Policy Program, the PEW Charitable
‘Trusts and au 116

Lau, Valerie, chairman, PCIE Audit Committee and Inspector General,
Department of the Treasury; Frank DeGeorge, Inspector General, De-
partment of Commerce; and William Esposito, chairman, PCIE Integ-
rity Committee and Me moet Director, Criminal Investigative
Division, Federal Bureau tion ... 68

Letters, statements, ete submitted for the? record by:

Brown, June Gibbs, Vice-Chair, Presideat’s Council on Integrity
Efficiency and eapetor General of the Department of Health an
Human Services, prepared statement of ... eaeeseneesunsesseenners 4

DeGeorge, Frank, Inspector General, Department of Commerce, prepared
ssi os nsssoonsnsnasooroseasooononanenne sssnassesnaeensnsesnacovenaae 83

, Charles, former Vice-Chair, PCIE and former Inspector Ge
rtment of Housing and Urban Development, prepared state-
va of 118
Esposito, William, chairman, PCIE Integrity Committee and g Del
uty Investigative Division, Federal Bureau of Inve
rush Se prepared statement o} 95
Sherman, former Inspector General, Departments of State and
merce, prepared statement of sinsaveseanssnnesonseesneee 135
ink, Dwight, president emeritus, Institute of Public Administration, pre-
pared statement of ... messenvornscssee 144

Lau, Valerie, chairman, PCIE ‘Audit ‘Committee “and Inspector General,

Department of the Treasury:
faformation concerni: catimated audit costs 107
statement o! ual

Li Pre ul C., director, Public Policy Program, ‘the PEW “Charitable

‘rusts and author, prepared statement of ... 157

Maloney, Hon. Cereiyn B. a Representative in
of New York, prepared statement of 52

Sparks, Hubert, Vice-Chair, Executive Cou sgrity a1
ciency and Inspector General, Appalachian Regional Commission, pre-

statement of 26

«ay


145

2

the field of investigating fraud and abuse, however, I regard our experience with IG performance
as very mixed. I should like to list several important issues for consideration of this Committee,
most of which were not addressed by the National Performance Review

Confusion Over Oversight Role,

Despite the growth of the IG movement over the past several decades, there is a
perception that waste and corruption in government has increased, not decreased. Some of this
perception of government is wrong, but most knowledgeable observers believe the general level
of professional management in government has declined significantly. It is my own view that
the erosion in management capability is much more serious than people realize. Although the
IGs are not responsible for this problem, I suggest that the question of why this deterioration has
continued despite increased IG activity is very relevant to this hearing.

Some of the major scandals in recent years would have been either avoided or stopped
in the early stages had we retained more of the capacity we once had to prevent serious
management deficiencies and to mount quick corrective action in those instances we failed to
correct. There were instances, however, in which an agency never had this capability or in
which political intervention swept aside these managerial safeguards, making it necessary to
establish some independent mechanism such as the IGs.

In the beginning, many concerned members of Congress believed that the IGs would not
only be important tools to ferret out abuse, but would also help departments strengthen their
‘management effectiveness. For the most part, this second result has not materialized. One of
the reasons, but only one of several, is that too many in both Congress and the Executive Branch
have tended to relax attention to departmental management, in the mistaken belief that the new
IG offices would ensure quality management in the departments. This was a totally unrealistic
understanding of the role of an independent oversight organization, and created unfair
expectations of the IGs.

One manifestation of this confusion has been the strengthening of the IG offices (which
was generally desirable) at the expense of department managers who are responsible for good
management. The unfortunate transfer of all auditing activities from the assistant secretary for
administration to the IG in a number of departments, for example, made it more difficult for


106

Going back to your first question about the ECIE and the PCIE,
I’m not an Inspector General, and we do not have an Inspector
General in the FBI. But I am amazed how well they do, the Chair
of the PCIE and ECIE, and the Vice-Chair, how they coordinate.
They do meet on a regular basis once a month, and I’ve seen, since
I’ve only been in Washington a short time, how they do seem to be
focused and are addressing issues.

Mr. Horn. You raise a very interesting question, that there’s no
Inspector General in the FBI. (Laughter |”

Mr. Esposito. There is an Inspector General in the Department
of Justice.

Mr. Horn. And that intrigues me, because if lesser agencies in
the Department of the Treasury and other large conglomerations
have Inspectors General, one wonders why an agency as complex,
as extensive, as powerful as the Federal Bureau of Investigation
doesn’t have one. Is there any history on that? J. Edgar Hoover
wasn't alive when that act was passed. So what other excuse is
there?

Mr. Esposito, We do have an Inspector General in the Depart-
ment of Justice. And also, there is an Office of Professional Respon-
sibility in the Department of Justice. We have our own inspection
division, where they go out and conduct inspections of all our field
office and headquarters entities on a regular basis.

They also conduct audits on a regular basis. We have an audit
shop that’s in the inspection division. And we also have an Office
of Planning and Evaluation. So basically, they do the same func-
tions as the Inspectors General.

Mr. Horn. I understand that the budget constraints are often
cited as a barrier to complying with the CFO Act. And, indeed, Ms.
Lau, you mentioned that. Has the PCIE collected cost estimates for
the financial audits that are required by the CFO Act either in
terms of full-time equivalents or in-house staff or for contracting
with outside accounting firms?

Ms. Lau. We would be happy to provide that information for the
record, Mr. Chairman.

{The information referred to follows:]


66

training in the agencies where you have served as an Inspector
General?

And then I would like to ask your colleague to what extent he
feels there’s sufficient training in the agencies with which he has
been involved. But why don’t you start?

Ms. BRown. Well, we of course hire auditors that have a college
degree in accounting. Of our 478 auditors, 188 of them, or about
39 percent, are CPAs. We use the—we have an investigator Inspec-
tor General training center at Fort Belvoir. We provide people
training there. There also is the U.S. Department of Agriculture
Graduate School. They provide training in specific areas.

And I have sent a lot of my people down to the investigator
training school in Glynco, GA, the Federal law enforcement train-
ing center, to learn more about handling fraud cases. Because we
do use them to determine the amount of fraud and so on, so that
we can successfully fight these cases in court. And so we have ex-
tensive training for our auditors.

Cuts, of course, in budget are going to affect that, because we'll
have to—all we have is really the pay, travel, and their training.

Mr. Horn. Would you like to add to that, Mr. Sparks?

Mr. SpaRKS. Well, I agree. Basically, I think we put—in the des-
ignated IGs, also, and only a few are subject to the Chief Financial

fficers Act—but generally on training, that’s one of the priorities
of PCIE and ECIE internally. We put an awful lot of emphasis on
the training. The assessment of training is the tricky part, coming
up with a performance measure as to whether the training has
paid off in better performance or reduction of the “gotcha” attitude.

id I think since the CFO or just financial accounting, which
was done before the CFO Act, financial auditing, we have to com-
bine the skills of common sense, logic, and prioritization with the
outcomes of our financial statement audits, so that we can
prioritize what’s important on the statements, as opposed to rec-
ommending another 3,000 controls.

I think this is an area that we have got to integrate somewhat
better. We have got to have better reports that the layperson un-
derstands. And I think training and report writing and communica-
tion should be tied together.

As Ms. Brown said, many of us are now having auditors go to
investigative basic training and investigators go to audit basic
training so that these two staffs can mesh their disciplines in a
more effective way. Because investigations can provide good man-
agement findings and recommendations.

In the past, it was pretty much investigators going to the US.
attorney for indictments and convictions. I think their ideas as to
what's wrong with programs can be used effectively. So we're try-
ing to mesh our own disciplines first as we proceed in the process.

ir. HorN. I wonder, Mr. Sparks, if you would like to go back to
the question of cooperation of U.S. attorneys. Have you had any
problems or have the smaller agencies in getting their attention?

Mr. SPARKS. In the past years, I think it has improved. My expe:
rience goes way back to where you had smaller dollar impacts. Ob-
viously, the priorities of U.S. attorneys were generally on larger
impact items, which we could understand.


52

STATEMENT OF HON.
CAROLYN MALONEY
ON THE REVIEW OF
THE INSPECTOR GENERAL ACT
August 1, 1995
Thank you, Mr. Chairman. | am
pleased that we are examining the
Inspector General Act today. The
Inspectors General play an important
role in reducing waste at government
agencies and fraud in government
programs. Much of the rhetoric about
cutting the size of government assumes
waste and fraud, but few have turned to
the experts to ask what should be done.


101

AND PRESENT SUGGESTIONS TO THE FULL COMMITTEE. WE
EXAMINED SEVERAL ALTERNATIVE SOLUTIONS FOR RESOLVING
THIS ISSUE. THESE SUGGESTIONS INVOLVED THE EXPANSION OF
MANDATE OF THE OFFICE OF SPECIAL COUNSEL TO INCLUDE
NON-CRIMINAL INVESTIGATIONS OF IGS; THE CREATION OF AN
INVESTIGATIVE MISSION FOR THE OFFICE OF GOVERNMENT
ETHICS; AND THE EMPOWERMENT OF THE FEDERAL BUREAU OF
INVESTIGATION OR THE OFFICES OF INSPECTOR GENERAL OR
BOTH TO CONDUCT NON-CRIMINAL INVESTIGATIONS OF
ALLEGATIONS AGAINST IGS.

THESE ISSUES HAVE BEEN CONSIDERED BY A
WORKING GROUP WITHIN THE INTEGRITY COMMITTEE WHICH
COORDINATED WITH THE PCIE AND ECIE MEMBERS TO GIVE ALL
THEIR MEMBERS ADEQUATE OPPORTUNITY TO PROVIDE THEIR
COMMENTS AND SUGGESTIONS. EACH OF THE PROPOSED
SOLUTIONS HAS POSITIVE AND NEGATIVE FEATURES AND EACH
PROPOSAL INVOLVES A DIFFERENT SET OF LEGAL
CONSIDERATIONS AND POLICY IMPLICATIONS.

LET ME CLOSE BY SAYING THAT THE FBI IS COMMITTED
TO SUPPORTING THE IG COMMUNITY IN THE RESOLUTION OF

7


26

STATEMENT OF HUBERT N. SPARKS
TO THE SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY
OF THE GOVERNMENT REFORM AND OVERSIGHT COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES
AUGUST 1, 1995

Mr. Chairman, Members of the Committee, I welcome the opportunity to appear before you today
as a representative of Inspectors General (IGs) of the designated Federal entities. As a member
of the civilian IG community since its administrative introduction at the Department of
Agriculture in 1962, I would also like to take the opportunity to thank the Congressional
Oversight Committees for their strong and continued support of the Inspector General concept
through the years, including the substantial expansion provided in the 1988 Amendments to the
Inspector General Act.

Lam one of 32 current IGs whose position was created by the 1988 Amendments to the Inspector
General Act, and I assumed the position as Vice Chair of the Executive Council on Integrity and
Efficiency, which essentially represents designated IGs,” upon its creation in May of 1992. Thus,
my prepared testimony and statement presents views of designated IGs as well as personal
opinions based on over 32 years in the civilian IG community, including 5 years as a designated
IG.

Thave previously heard our group referred to as an “extension of a sound idea.” Designated IGs
are the new kids on the block in the Inspector General community, and we have been working
diligently to institutionalize the civilian OIG concept at designated entities.

As you know, the number of statutory offices of Inspector General is now 61; two new terms of
art were introduced by the 1988 Amendments--"designated Federal entities" and "Federal
entities.” Along with the term "establishments" (created by the Act in 1978), these terms define
groups of departments, agencies, affiliated Government corporations, etc. These three groups are
covered by the Act in three different ways:

(1) “establishments” have Inspectors General appointed by the President, confirmed
by the Senate;

¥ The 1988 Amendments identified 34 Federal entities, but the Federal Deposit Insurance
Corporation and the Corporation for National and Community Service (formerly ACTION) were
legislatively changed to establishments in recent years. This group also includes the Inspector
General of the Government Printing Office (GPO), whose position was established by the 1988
Amendments. His authorities and responsibilities are virtually identical, although GPO was
treated separately in the Act.


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105

not have that tucked in under the Assistant Secretary for Manage-
ment? What’s your feeling, Mrs. Lau?

Ms. Lau. I can’t speak for all the IGs on this issue. I can only
speak from my personal experience at Treasury, where we are very
fortunate at the present moment to have a Chief Financial Officer
who is both a CPA and an attorney. And the way his o1 ‘ization
is set up, I feel that he is totally on top of the financial manage-
ment issues. He also happens to be the Vice-Chair of the CFO
Council.

And it is our experience, our happy experience at Treasury, that
precisely because he is also the Assistant Secretary for Manage-
ment, that the implications of the budgetary resources needed to
fund new systems, to have integrated financial management sys-
tems, to provide educational resources in order to train financial
management staff, that these are all forthcoming because of his
particular emphasis.

Mr. Horn. Well, that’s very noble, but the facts are that you
can’t devote full time to being Chief Financial Officer. Now, it may
be easier to talk to yourself to get budgetary resources, which is
the implication of your answer. But the question comes, who is giv-
ing focus and who is concentrating on meeting that 1997 deadline?

IRS is a part of Treasury. When the then Government Oper-
ations Committee investigated their balance sheets last year, one
of my colleagues was heard to tell them that if they were a private
firm submitting such a balance sheet to the IRS, they would prob-
ably have been indicted. Well, nobody has indicted IRS, but they
have among the worst financial records in the whole government.
So it seems that somewhere, we haven't had focus to deal with
some of these situations.

Mr. DEGEORGE. Mr. Chairman, could I add a point?

Mr. Horn. Yes.

Mr. DEGEoRGE. My personal preference would be that the CFO
be basically separated from the Assistant Secretary for Administra-
tion for a number of reasons, We're trying to implement new ac-
counting systems, balance sheets, get statements changed, even do
as elementary things as create double-entry bookkeeping in some
cases in our department.

But more importantly than that, I think you want to look at a
level below. We have had a problem in even getting agencies within
the department to pick and be directed to pick Chief Financial Offi-
cers. So the issue goes within the department. You can concentrate
on it, but we really need assistance and push and drive to get agen-
cies within principal departments to get CFOs, as well.

Mr. Horn. Mr. Esposito, what’s your view on some of these ques-
tions? I realize you’re representing the FBI and not the IGs. But
have you had any problems in terms of getting the full attention
of Chief Financial Officers if they aren’t full-time Chief Financial
Officers?

Mr. Esposiro. No, we have not experienced that problem. In the
FBI, the Chief Financial Officer is also the person who looks after
our budget and to hold the vision we have. I don’t see that there’s
a problem. As far as us dealing with Chief Financial Officers in
other agencies, we have not had a problem.


162

I was in a department which was—well, every 7 years—it was
like a locust—you had a scandal. And it was because of the pro-

‘ams. The programs were made to order for scandal. And some

ecretaries would say to me, “Keep me clean. Protect me. Make
sure we don’t have any problems.” And others, you knew they
didn’t want to have you around. It all depends on the time. But you
can walk that tightrope, and it can be done. But you have to select
the right person to do it.

Mr. INK. As ar agency head, I found that something similar to.
though not quite fitting, the description of “mean as a junk yard
dog” was very important and essential in dealing with fraud and
abuse. When the work extended, however, into judgmental areas in
programs, I did not feel that they were my best friend, because I
didn’t think they were qualified to deal with those areas.

And their objectivity, I think, is little—the credibility of their ob-
jectivity is handicapped to the extent to which the incentives for an
Inspector General are largely negative, because the only reward
system for Inspectors General is what is wrong, not what is good.
And that works against accepting the judgment of an IG in evalu-
ating programs.

Mrs. LONEY. Thank you. And going back to Mr. Dempsey’s
comment, you have to get the right person for the right job, Presi-
dent Clinton went outside of the IG community in some of his ap-
pointments. I would like your statements on that. And most re-
cently, we created Presidentially appointed IGs at the Corporation
for Community and National Service and at the Department for the
Community Investment Development Board. And do you think that
that’s a good trend?

Also, in this time, we have heard some comments about the
downsizing of government. And Steve Katz, a former Senate Gov-
ernmenta) Affairs staff member, recently referred to the IGs as
“the safety net for management.” And as agencies are reducing the
number of middle managers, do you think that IG offices should
face the same downsizing, or should they be exempt? Just your
comments on those three questions.

Mr. DEMPSEY. Well, when you take a big pie and the pie is split
and you try to do maybe 50 percent internal audits and 50 percent
external, and then they came along with this Chief Financial Offi-
cers Act, and they say, “Just a minute; you now have to do finan-
cial statements”—so you take most times your best auditors, CPAs,
and you pull them out of the regular line. And you've got to train
them to do these.

Then, along comes Mr. Gore. And he says, “Wait a minute, now.
I want you to stop doing compliance, and I want you to do this,”
all with those vision statements. You pull that one out, and you put
it on—then, what have you got left? When OMB comes along and
says, “You're going to lose X number of FTEs, you're not going to
have the travel money,” which is the blood of any organization,
“you can’t have this,” you’re expecting too much of these people,
when they can’t do it all. They need-—absolutely need the re-
sources to do the job.

Mr. INK. I agree. I think that the expectations are totally unreal-
istic, particularly as we look ahead for the increased workload and
some of the deficiencies that some of us see in the NPR, which are


165

in front of this Congress. Dick Russerrow told me 1 day, 1 year,
he testified more than 50 times. That means that somebody’s look-
ing at you. Your staffs know it. Those inside the departments know
it.

it.

From 1978 until 1983, I didn’t testify one time before the House
Banking Committee. And you had the scandal 5 years later. I’m not
surprised. Not once. I couldn’t get them.

Mrs. MALONEY. You were where, Commerce? Where were you?

Mr. DempsEY. I was at HUD. I left HUD in late 1984. And no-
body wanted to hear about it. We kept sending up report after re-
port after report.

Mrs. MALONEY. The reports documented the problems?

Mr. Dempsey. Yes. And the reporters when they looked at it in
1989—and I’ve got the clips—said, “The Congress ignored it. The
Congress didn’t do its homework. The oversight wasn’t there.”

But if you have that oversight, if you have oversight on IGs—I
begged the House Government Operations staff in 1984 to please
hold hearings and just let me send up the departmental people who
were not carrying out or agreeing to an audit recommendation and
then not doing it. Just let me send them up and hold one hearing.
One hearing would do it. They never did it.

Mr. INK. Mr. Dempsey’s absolutely right. In addition to that,
there’s a lack of congressional oversight on the internal manage-
ment of the departments.

Mr. Horn. There’s no question since 1789 and the first Congress,
the major function of Congress, which has been slighted by Con-
gress, is the oversight function. And you've given some nice recent
examples of that.

Mr. FuNK. Let me est give a tiny bit of history to straighten
something out here. The State Department, as was correctly said
by Dr. Light, has the oldest civilian IG, starting back in 1956. But
earlier—and this is a startling bit of history—when TR asked the
Secretary of State, John Hay, to create an Inspection Corps back
shortly after the turn of the century, they did.

And the inspectors went around the world, and they had the
power to suspend any person on the spot, any consul or any em-
bassy employee on the spot and send them back to Washington—
there were no hers then; they were all men—back to Washington.

Then, they take an inspector and put that inspector in the same
slot until they were replaced. In those days, consuls received no
salary. They only received $1 for every visa that was issued. So you
can understand the conflict of interest that was there, because it
was entirely possible for somebody to be appointed to a consulate
in which the visas could make them, in effect, a very wealthy per-
son. That stopped dead in the 1920's.

The IG did have the power to suspend programs. It was very
rarely used, if ever. But what we did—and I commend this for con-
sideration—we wrote personnel evaluations of every single Ambas-
sador and every Deputy Chief and every Assistant Secretary and
Deputy Assistant Secretary when we did an inspection, political or
nonpolitical. And I don’t think anybody else ever did something as
difficult as that.

Because what it did, it certainly grabbed People's attention.
When you had a personnel rating—in the case of the Assistant Sec-


169

ports. They are. They should be. Investigation reports are just the
facts. But you don’t want auditors and investigators writing head-
lines, and you have to remember that.

Mr. Horn. I completely agree with you. I’ve known a few that
all they liked doing, was writing headlines. And it was absolutely
counterproductive. They were usually dead wrong in the facts of it.

Let me ask one last question, then I’m going to have to adjourn
the hearing. We mentioned the power of a Presidentially appointed
Inspector General. Is that a pleasure appointment, or a term ap-
pointment? And what should it be?

Mr. FUNK. It’s a pleasure appointment,

Mr. Horn, It’s pleasure. That’s why President Reagan was able
to remove all of the Carter Inspectors General. Should it be a term
appointment?

ir. FUNK. Yes, sir.

Mr. Horn. Four years?

Mr. Funk. I prefer 7. My colleague prefers 5. I think 7 is more
realistic for some of the larger agencies.

Mr. DEMPSEY. Five or seven. It should be.

Mr. Funk. But I can live with 5.

Mr. INK. I agree it should be term.

Mr. Horn. What years would you put on it?

Mr. INK. I would put 6.

Mr. Horn. You have the final word, Professor Light.

Mr. LicuT. I think a term would create a presumption in favor
of continuing the appointment over a Presidential transition, but it
should only be the presumption; 6 years, 7 years, it doesn’t matter.

Mr. Horn. If you have a bad one, that’s just a square peg t ing
to drive themselves in a small pinhole, you've got 7 years of tha

Mr. Licut. No. A term, you cannot fix a term. They must be re-
movable. But a term, a simple term, an expectation that they serve
for a period of 5, 6, 7 years would be very helpful, I think.

Mr. Horn. Well, I thank you all for coming. You've as usual ren-
dered some excellent testimony.

Let me thank those that prepared this hearing: J. Russell
George, the staff director, Mark Uncapher, professional staff mem-
ber and counsel; Anna Gowans Young, professional staff member;
Tony Polzak, our LEGIS fellow; Andrew Richardson, our clerk; and
on the minority staff, professional staff members Dave McMillen,
Matt Pinkus, and Mark Stephenson, and the official reporter, Beth

elds.

Thank you very much. And we are now adjourned at 4:32.

(Whereupon, at 4:32 p.m., the subcommittee was adjourned, sub-
ject to the call of the Chair.]

1)


34

THE AUDIT AND INVESTIGATIVE PRIORITIES
OF THE OFFICES OF INSPECTORS GENERAL

‘The audit and investigative priorities of designated Inspectors General (IGs) are consistent with
the intent of the IG Act, which emphasizes prevention and detection of fraud and abuse and
promotion of economy, efficiency, and effectiveness of programs and operations, and in line with
good management practices of utilizing scarce resources to achieve maximum results. Thus, risk
assessments and strategic planning become critical elements for identifying where scarce
resources can be used to accomplish our overall responsibilities identified in the Act and have
an impact by having meaningful implemented recommendations that are consistent with
Executive and Legislative initiatives for improving Government operations and service delivery.

One area of concern, especially to designated IGs with limited resources, is the increasing
number of mandated OIG reviews that result from the inclusion of required OIG work and
reports in various pieces of legislation. While cach such requirement may have overall
significance, the all inclusive nature of reports by all IGs, regardless of whether the particular
issue, regulation, or program is significant to that entity, can have adverse impacts on effective
use of resources. Thus, we would recommend cither a reduction/elimination of using individual
legislation to mandate OIG work or a more flexible approach that allows IGs the option of
performing work in the subject area if it is significant or sensitive at their agency. These
recommendations recognize that there always will be occasions where special requests are
necessary and appropriate but are directed at a proliferation of special requirements at a time
when resources are declining.


115

and another third in the middle was sort of, “Well, I guess we can
put up with you.”

Mr. Horn. That sounds like the American attitude during the
revolution, but go ahead. [Laughter.]

Mr. DeGeorce. I think the issue really comes down to does the
individual IG see his role as aggressively looking at the operational
side of the agency and not at specific grants. If you look at process,
how you make awards, if you look at how you are managing the
program rather than trying to go after a specific loan or loan guar-
antee, if you can improve the process. For instance, Commerce has
had vast new investment grant programs over the last 3 years,
maybe a billion dollars that wasn’t there to spend before.

We have seen our job as to look at the way the agencies were
issuing their grants, were they competitive, were they even per-
ceived correctly or incorrectly, did, in effect, they make the judg-
ments fairly, did they have an audit trial, could they explain the
winners and losers? I think that’s much more productive than us
at this point going after individual grants. We have been fairly suc-
cessful at that.

So I don’t really see it as an immense change. I think the Vice
President’s change in his initial hearings was one of listening to
the employees, and the employees said they thought there was too
much “gotcha.” I think that was an unbalanced statement, and I
think it’s more back to reality now.

Mr. Horn. Do you know of any situations where the Inspector
General is part of the internal departmental Cabinet that reports
and works with the Deputy Secretary or the Undersecretary, who-
ever is in charge of departmental operations?

Mr. DEGEORGE. Remember, our responsibility is to report to the
Secretary or Deputy Secretary. “Report” is probably not the right
word. We live in his house, and we spend his resources, but we
don’t take orders from the Secretary, and we don’t respond to some-
thing he does or does not want in the way of audits and investiga-
tions.

In my case, I report technically to the Deputy Secretary, and I
meet with him periodically. I also meet with the Secretary periodi-
cally. But it’s not to—it’s normally on my call to tell them about
something that’s wrong that I think ought to be fixed.

There is always this concern of who we work for. The Secreta
thinks I work for you. And all too often, the agencies think I worl
for the Secretary. So as long as I have you both on a happy, I guess
it’s all right.

Mr. Horn. That’s a very good question. Let me ask you, do you
think it would be inappropriate if an Inspector General sat in the
weekly meetings?

Mr. DEGEORGE. Not at all.

Mr. Horn. So it seems to me, if I were the chief executive, I
would want the Inspector General at the meeting.

Mr. DEGEORGE. I would want him there, too. Yes, sir.

Mr. Horn. Because you can tell when we're setting up some
crazy process, “Look, youve done that, and it’s a stupid way to go
about it. And here’s why.”


136

managers regard as off limits to IGs. At State, | was required by separate legislation to
assess how well the bureaus in Washington and our embassies oversees were carrying
‘out U.S. foreign policy. Very few officials went to the mat with us when we reported
administrative deficiencies. When w cited policy shortfalls, however, the blood spilled
freely. This is a price IGs will have to pay if they are to become more deeply engaged
in substantive program evaluations.

‘The second question we were asked is: Does the institutional independence of OIGs
pone au ?

For much of the past year, i have been assisting officials in the Control Department of
the Office of the President of the Russian Federation as they establish a national
inspection program. Their goal is to set up a system to track the flow of program
monies out of Moscow, and to determine the integrity and effectiveness with which
these funds are spent and services are delivered. Last week, in three states of Brazil, i
met with judges, prosecutors, police, auditors, and financial managers, to discuss ways
of combating fraud and corruption in government. Both in Russia and in Brazil, they
envy the resources we put into the IGs and into the GAO, the FBI, and other law
enforcement and oversight authorities. But they envy even more the total access IGs
have to all documents, books, records, computer data, and employees in their
agencies...and, most of all, they envy the independence guaranteed to the IGs by the
1978 Act. They regard this almost with awe.

Does it "undermine" the usefulness of the OlGs? No, it ensure their usefuiness. To be
‘sure, it poses continual problems, in much the same way the requirement that IGs must
report not only to their agency head but also to the Congress generates difficulties.

The Hill, deep down, is always suspicious that the IGs are being co-opted by their
agencies, and the latter, deep down, always suspect that their |Gs are finking to the Hill.
But this independence, so dearly and painfully maintained, is beyond price. | cannot
conceive of any arrangement that will replace it without sacrificing the ability of the IGs
to develop an honest picture of what is really happening in their agencies, and to truly
identify, without fear or favor, those people and systems responsible for fraud, waste,
and abuse.

The third question is: What are the skills and qualities necessary for effective |Gs?

Paramount here is the ability of IGs to live effectively within their grant of independence.
What this does nat mean is for the |Gs to constantly bleat about their independence
and rub it into the faces of the rest of their agency. This may please the OIG staff and
indeed may win a few battles with program officials, but almost certainly will lose the
war. Ultimately, such a tactic will so alienate every one outside the OIG that they will
become increasingly reluctant to work closely with that office. The OIG mission is to
effect positive change. Such a change results primarily from the agency agreeing with,
and carrying out, OIG recommendations. But if the program side of an agency digs its
heels in and fights every recommendation, little or no change will result. Thus, IGs
must know how to succeed by persuasion, by jawboning, by emphasizing the benefits


| look forward to our discussions
today, and | am interested in what can
be done to improve the Inspector
General Act. But I hope that in the
discussions today we will address what
the IGs can do to improve debt
collection. There seems to be a serious
failure in the government’s ability to
collect these funds. The expertise in
the IG offices should be brought to bear

on this problem.


112

systems, communications systems, et cetera. Do you think that’s a
good idea?

Mr. DEGEORGE. No, I don’t. I think that the issue is not buying
off-the-shelf hardware, computers, CPUs, any type of computers.
The issue is the design of the systems, the engineering of the sys-
tems, the programming, making judgments on the sizing, making
judgments as to how you defend what you're going to fo and to
stop the continuous reengineering of the process once it’s in place.

Program staff seem unaccustomed to letting the procurement
people just buy a system. They never stop engineering. I’ve worked
at Social Security, the Department of Energy, and the Veterans Ad-
ministration, and I’ve never seen it differ in any of those agencies.
Basically, you try, if you’re in charge of an agency, to go for the
new version, the next largest CPU, et cetera.

You really do not have as your particular emphasis—as long as
there’s money in the budget—the requirement that you look——

Mrs. MALONEY. Maybe we should have an IG task force on this
to work on recommendations of how we should manage this area

etter.

Mr. DEGEORGE. I think what you're doing right now in an over-
sight capacity should add to the questions. I think each Inspector
General should basically address the issues that are within his
agency. Twenty years ago, Social Security had to reform its total
system and wound up spending many billions of dollars and stum-
bled through it pretty badly, FTS—2000.

The FAA's present system, the IRS, they all have difficult prob-
lems. And if you don’t have anyone whose job it is to watch the
store, and I think that’s what the IG’s job is, then in effect, you
won't get the type of appraisals and analytical work that you re-
quire. I think you have to ask. I think you have to expect. And the
1Gs have to feel that that’s part of their role.

Mrs. MALONEY. How long have you been at Commerce?

Mr. DEGEoRGE. Eight years.

Mrs. MALONEY. I just can’t resist this question. Do you believe
the Department of Commerce should be abolished?

Mr. DEGEORGE. No, I do not.

Mrs. MALONEY. I don’t think it should, either.

I would like to ask, Ms. Lau, in Treasury, I recently issued a re-
port that showed you that you owe the Federal Government $377
million in delinquent nontax receivables which need to be collected
in everything from financial management service loans to custom
duties and other areas. How do you think you could improve your
collections to bring these dollars in? We could buy a whole new
computer system for Commerce with that $377 million.

Mr. DEGEORGE. You could buy the whole department.

Mrs. MALONEY. Half a computer system.

Ms. Lav. Talking about computer systems, and we have been
talking also about CFO financial statements, as you know, those fi-
nancial audits are not only for the sole purpose of generating opin-
ions about the accuracy of the financial statements themselves,
they are to look at the underlying systems and processes that the
department and the bureaus have for collecting Customs duties, for
collecting past due payments.


16

established by the CFO Act, stated the purpose of GPRA quite
well. The Council said:

“GPRA places new management expectations and
requirements on federal agencies by creating a
framework for more effective planning, budgeting,
program evaluations and fiscal accountability for
federal programs. The intent of the GPRA is to improve
public confidence in federal agency performance, by
holding agencies accountable for achieving program
results and to improve congressional decision making by
clarifying and stating program performance goals,
measures and costs ‘up front’.

IG ROLE IN GPRA PROCESS

In this early period of GPRA implementation, the IG role is
evolving in varied ways with different approaches being tested
among the IGs. In some cases such as the Department of Labor,
the IG has audited performance measures in the early stages of
GPRA implementation and advised programs on their measures. At
the Department of Health and Human Services, the IG intends to
work on the development of performance measures when invited to
do so by the programs. At Treasury we are working with the
department on the GPRA processes. We are looking at the steps
necessary for GPRA implementation including strategic planning,
coordination between planners and budgeters, and systems for
collecting data to measure performance. Initially, this is
taking the form of some self-assessment tools that Bureaus and
offices can use to review their own processes. Later these tools
will serve as a framework for our assessments and reviews. I
hope that this approach will result in our working in new ways
with the Department to address issues early.

In the early implementation of GPRA, agencies will have to ensure
that the methods and systems used to collect performance data can
withstand rigorous validity testing by the IGs, GAO or other
outside analysts. They can do this through continuous self-
assessment and improvement. Invariably, we will use performance
indicators developed under GPRA as well as those financial
benchmarks established by the CFO Act and the GPRA as part of our
overall evaluation of agency performance. While we must be
careful to maintain a level of objectivity and independence, I
believe we can work with Treasury management to assist the GPRA
processes and reach a mutual understanding with the Department
and Bureaus on how to achieve improved performance.

In this early stage of GPRA implementation, the IG role must be
reflective of the specific programs and operations of the IG's
individual departments, and therefore, the approach to GPRA will
differ from OIG to OIG. The challenge we face is working with
our respective departments to achieve improved programs and


28

Although some concerns or issues related to resources, budget discretion, and independence arise
periodically, we strongly believe we are well on our way to achieving the overall mission
objectives laid out for us in the 1988 Amendments. While the size of many of our entities are
small and thus recognized quantifications of success are not always apparent, it is my belief that
the on-site presence of an independent audit and investigative oversight function, which
communicates directly with our entity heads and Congress, has had a very beneficial impact by
providing an on-board deterrent, setting a tone for accountability and deterrence, and providing
management with objective information on which to effect improved operations.

‘As one of my colleagues regularly notes, the presence of Inspectors General at our entities has
changed the equation for the better as to how management conducts its business. The value
added results of IGs, as a deterrent and identifier of problems needing correction, far exceeds,
in my opinion, the costs of designated OIG operations.

Our accomplishments to date are noted in semiannual reports and in the PCIE/ECIE annual
report; and thus, I will not dwell on this. However, we have, as a community, implemented the
full range of OIG audit, investigation, and inspection and evaluation responsibilities and, as
necessary, have utilized a variety of operating strategies such as sharing of other OIG
investigative resources to compensate for limited resources. Recently, we have also been
encouraged by increased Congressional interest with respect to our work. We look forward to
continued good relations with applicable Congressional sources as we address the sensitive and
complex issues facing Government.

FY 1995 staffing levels approximated 282 auditors, 65 investigators, and over 2,000 Postal
Service designated IG staff. Activities included audits that identified $82.2 million in questioned
costs and $71 million in recommendations that funds be put to better use, investigative recoveries
of $104.5 million, and 10,633 successful prosecutions. The US Postal Service, a designated OIG,
accounted for the bulk of actions, but audit and monetary results and/or recommendations for
program improvements were noted by all designated IGs.


94

Chair of the PCIE. If it is credible, then we send a letter to the
agency head and ask them to conduct an investigation.

And basically, that sums up the process. There’s more to it, but
I would be glad to answer any questions along that line.

[The prepared statement of Mr. Esposito follows:]


Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

suggestions. The agency plans to survey its other customers and will publicize
the results and actions taken to implement recommendations.

+ The Office of Investigations at the Railroad Retirement Board (RRB) OIG
released a customer service survey to all RRB field service personnel. The survey
asked the field service staff to provide input on the level of service provided and
ways to improve the service. Over 65 survey responses were received to date. A
task force of auditors, investigators and support staff has begun analyzing the
results.

+ The PCIE commissioned a task force to develop “Customer Service Survey
Working Principles.” This document provides guidelines for the development,
implementation and analyses of IG customer surveys. The document was well
received by the PCIE community and is considered a valuable resource in
assessing customer needs.

As stated previously, audit priorities are driven by agency-specific goals and program priorities
as well as those areas identified as having a high-vulnerability for fraud, waste and abuse. The
individual IGs work closely with agency management and are cognizant, based upon previous
audit and investigative activities, on which areas should gamer the most attention during any
given period. The following examples highlight individual OIG audit and investigative priorities
during fiscal year 1994:

+ Using commercially developed computer security software, the Defense OIG
audited the controls for several Defense computer systems. Material internal
control weaknesses in security were identified at five computer centers supporting
the Defense Finance and Accounting Service. As a result of the audit findings,
the DoD undertook a number of initiatives to improve computer security, such as
the establishment of a task force to detect and prevent financial fraud via
computer, know as “Operation Mongoose.” The team will target areas for
computer matches to identify trends and anomalies that indicate potential integrity
breaches of DoD financial systems by employees, retirees, contractors and other
unauthorized individuals. Successful matches will be repeated routinely in the
future as internal management controls.

* The student financial assistance programs continue to be the number one high
risk area for the Department of Education. With the advent of the new Federal
Direct Student Loan (Direct Loan) program, loan capital is provided directly to
students and parent borrowers by the Federal Government rather than through

rouse Government Reform and Oversight Committee Ragas 7, 1995
‘Subcommittee on Government Management, Information, and Technology Pageé


7

services whether through direct involvement with the GPRA process
or by carrying out more traditional Ic activities to address
fraud and inefficiencies in operations.

IG_REPORTING REQUIREMENTS

The GMRA provides no audit requirement, per se, related to
performance measurement information. However, the Act allows
agencies to include all program performance information required
to be included in its annual program performance report in annual
financial statements prepared in accordance with the CFO Act. It
is anticipated that many agencies will meet the annual reporting
requirements of GPRA by including their performance measurement
information in the Overview section of their annual CFO Act
report. Therefore, the performance measurement information will
be subjected to limited audit procedures as outlined in OMB
guidance entitled Audit Requirements for Federal Financial

. Those procedures require the auditor to understand
how the agency makes sure the data is correct, and that reported
performance measures are properly recorded and summarized.

PEER REVIEW PROCESS

Over the last few years, the PCIE has been concerned that their
internal peer review process has not provided useful insight into
the total quality of audit products being produced. Also peer
reviews were not providing opinions on other important aspects of
IG activities such as investigations, thereby failing to provide
member IGs with a complete picture of their organizational
performance.

The PCIE Peer Review process began in 1988 when the PCIE, in
order to conform with revisions to Government Auditing Standards,
developed a peer review process and guide. The peer review's
objectives are to assure that the OIGs' internal quality control
systems are in place and operating effectively and the
established policies, procedures, and applicable standards are
being followed in their audit work. Originally, the PCIE was not
involved in determining which IG would review which. Each IG
determined who would perform their peer reviews. As this process
evolved many questions were raised as to the depth and usefulness
of the peer reviews and discussion ensued as to how the process
could be improved. The Federal Audit Executive Committee (FAEC),
comprised primarily of the heads of each PCIE member's audit
operations, has initiated an evaluation of the PCIE Peer Review
process. They intend to issue a report to the PCIE through the
Audit Committee by early fall.


83

STATEMENT BY

FRANK DEGEORGE
INSPECTOR GENERAL
U.S, DEPARTMENT OF COMMERCE
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION AND
TECHNOLOGY
HOUSE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

AUGUST 1, 1995

Mr. Chairman and members of the Subcommittee, I am pleased to be here today to present my
views on the role of Inspectors General in the oversight of information systems acquisition and

management and to discuss how our office approaches this area. You also asked for information

on how IGs are monitoring information technology acti in their agencies and how the
increased use of information technology is affecting the OIG’s role. Before doing so, however, I
would like to provide a brief overview of the system management and acquisition issues agencies

face.

Although information systems hold the promise of helping agencies to perform their missions
more efficiently and effectively, all too often this promise is not fulfilled. Cost overruns, schedule
delays, and technical performance failures are the familiar litany on too many projects.
‘Aggressive, early, and effective OIG oversight can help agencies to avoid pitfalls and achieve
greater success in planning, developing, acquiring, and operating information systems. However,

oversight alone is not enough, and as I will point out in my statement, the problems in systems


Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

1G Vision Statement

The last several years have exhibited an increased focus on customer service within the entire
Federal government. In response, agencies are developing comprehensive mission and vision
statements, strategic plans and performance indicators. In addition, agencies are surveying their
customers to ensure that their needs are being met, In keeping with the government wide
initiatives, the PCIE and ECIE unanimously adopted an IG Vision Statement in January 1994,
The Vision Statement --

“We are agents of positive change striving for continuous improvement in our
agencies’ management and program operations, and in our own offices.”

and guiding principles, which I request be submitted for the record, are articulations of the way
in which IG offices have consistently operated. As an IG since 1979 at 5 agencies, I have always
managed my office with the following primary goal -- provide agency decision makers with the
solid factual information which will enable them to make timely and informed policy decisions
and which protect their beneficiaries. Let me assure you that my philosophy and that underlying
the Vision and guiding principles in no way abandon or dilute the statutory responsibilities of the
Inspectors General. Rather, they illustrate how we can best carry out our duties in collaboration
with our agency managers and concurrently accomplish our legislatively mandated mission.

Under the original and revised Executive Orders creating the PCIE and ECIE, the Chair of the
Councils has an obligation to report to the President on the activities of the PCIE and ECIE.
Since 1981, the Chair has met that obligation through issuance of PCIE progress reports.
Beginning in fiscal year (FY) 1993, this report was issued jointly by the PCIE and ECIE. The
FY 1994 report, which will be published in the next several weeks, focuses on innovative ,
effective and complex actions in support of the principles in our Vision Statement. The
following examples illustrate the efforts taken to develop positive agency relationships leading to
positive program improvements:

+ The Commerce Department OIG collaborated with the Secretary of Commerce
Executive Management Team to develop a set of principles to guide O1G-agency
interactions. Those “Principles for Progress,” signed by the Secretary, the
Inspector General and 17 other top Department officials, describe how they will
work together for positive change and continuous improvement through a spirit of
cooperation and openness.

+ The OIG at Housing and Urban Development (HUD) has been an active
participant in the proposed restructuring of their Department,, The HUD OIG

House Government Reform and Oversight Commitee Koger 1.1995
‘on Gi emer, and Te Page?



111

ber of pages in it. And then, I thought it might be my staff who
got bored with it and just left it there.

So ['m willing to give him the benefit of the doubt as an IG pro-
gram. But if has want to get something read, leave it in the barber
shop around here.

Ms. Lau. Point well taken.

Mr. Horn. The ranking member, Mrs. Maloney.

Mrs. MALONEY. Yes. Mr. DeGeorge, in your testimony, you talked
about the acquisition of information tec! nology systems as being
“disorganized and ad hoc” and really not well thought out. And ’'m
asking you—and being huge amounts of money, $600 million a year
in your department alone.

d I’m sure it’s the same, if not more, throughout the other de-
partments. How do you account for the inattention to information
technology amon e IG community, and how could we improve
that? We just had a series of hearings on FTS-2000, the new tele-
phone communications network for government.

But if your computer system—and, in fact, we just had an audit
of the legislature that said that our computer technology was not
modern and up-to-date. How could we improve that?

Mr. DEGEORGE. Well, I think there are people who are charged
with that responsibility, including the General Accounting Office,
GSA in its procurement policy delegation roles, and the Offices of
Information Resources Management in the various agencies. But I
think they see their jobs within the agencies as being supportive
of the agencies’ requirements and how do we get a delegation of au-
thority, how do we get the contract funds.

They don’t really see their jobs within the Assistant Secretary's
office, in my judgment, as asking the tough questions or whether
it’s needed and the requirements of a job well-defined. It has been
a deficiency I’ve felt within our department and others for a long
time.

The Department of Commerce has made some movement in that
direction. I think we'll improve. But across the IG sector, I would
say that most of the emphasis up till now has been looking inter-
nally within the IG community about looking at transactional anal-
yses within systems that exist or maybe the payment systems at
the Social Security Administration or the VA.

They have not normally put the resources that I feel are nec-
essary to address the requirements, whether you need the system
at all.

Mrs. MALONEY. So how do we correct that? You pointed out it is
a problem. How do we correct it?

Mr. DEGEORGE, Well, I think you ask the IGs to do that type of
work directly from this committee, or you ask the IGs perhaps to
report on that type of work, or you ask the General Accounting Of-
fice their views. I think you have to give strong charisma to build-
ing that kind of a technical staff, as my testimony talks to.

‘is is not a job just for auditors. This is a job that involves de-
tailed, technical staffs that should be critics and not just supporters
of the agency’s procurements.

Mrs. LONEY. And, in fact, we have a procurement bill that is
moving through committee that actually takes away all oversight
of procurement on any “commercial product,” including computer


81

Mr. Horn. Well, we thank you.

Mr. DeGeorge.

Mr. DEGEORGE. Mr. Chairman, I'll try to paraphrase briefly from.
my statement. Although information systems hold the promise of
helping agencies to perform their missions more effectively, all too
often, this promise is not fulfilled.

Cost overruns, schedule delays, and technical performance fail-
ures are a familiar litany on too many projects. essive, early,
and effective oversight on the part of the [G can help agencies to
avoid pitfalls and achieve greater success in planning, developing,
acquiring, and operating information systems.

lowever, oversight is not enough. I will point out, the prob-
lems in systems acquisition and management are deep and sys-
temic and must be dealt with through policy and management
changes.

The Department of Commerce spends more than $600 million an-
nually on information technology. We are in the midst of four cost-
y complex, and critical modernization programs: the National

eather Service, the Patent and Trademark Office, the depart-
ment’s accounting and administrative systems, and the systems for
conducting the 2000 census. Commerce also purchases many mil-
lions of dollars worth of smaller systems, generally, but not always,
commercially off the shelf.

Despite the importance of information technology and its enor-
mous costs, Commerce, like most other civilian agencies, often does
a Roor job of planning, acquiring, and managing its systems. It
lacks personnel and leadership in management positions with expe-
rience, expertise, and understanding of systems acquisitions.

It lacks meaningful processes, criteria, and methodologies for
program managers to adapt to their own systems and cir-
cumstances. As a result, systems acquisitions are often disorga-
nized and ad hoc. The results speak for themselves.

There are serious problems with most of Commerce’s major sys-
tems modernization programs. Because of the importance of the in-
formation systems to the department and its many critical missions
and its poor track record, we have made systems evaluation and
oversight in our office one of the highest priorities.

To do this job, we formed the Office of Systems Evaluation. This
office reports directly to me and is managed by an Assistant In-
spector General for systems evaluation, a senior executive position
we created to focus specifically and exclusively on information sys-
tems and technology issues. We conduct our reviews as early as
possible in order to obtain timely improvements and avoid costly
mistakes.

Our office brings a set of capabilities to systems evaluation and
oversight that I believe is unique in fovernment, combining highly
experienced computer scientists with extensive hands-on experi-
ence in developing large, complex systems in industry and govern-
ment. Our multidisciplinary approach and in-depth technical
knowledge allow us to attain a comprehensive, integrated under-
standing of complex management, technical contracts, and oper-
ational issues.

I have submitted attached to my statement, Mr. Chairman, a
long list of projects and evaluations that we have conducted.


107

ESTIMATED AUDIT COSTS: COMPLIANCE WITH THE CHIEF FINANCIAL OFFICERS ACT
BY AGENCIES SPECIFIED IN THE CFO ACT ~~ FISCAL YEARS 1990-1995,

FTE's OIGCOST__CONTRACTCOST TOTAL COST
Dept. of Agriculture 488 $38,855,000] $2,511,000] $41,966,000
Dept. of Commerce 44; $4,089,431 $4,257,881, $8,907,282
Dept. of Defense 1,928! $142,059,000 $0} $142,059,000
Dept. of Education 48, $2,945,000 $1,962,000] $4,907,000
Dept of Energy 33} $9,000,000 $12,000,000] $18,000,000
Dept. of Health & Human Services| 164) $6,170,919) $3,929,081 $10,100,000}
Dept. of Housing & Urban Dev. 20; $1,989,200 $6,620,663/ $8,209,872
Dept. of Interior 116| $9,297,397 $0| $9,237,397
Dept of Justice 64; $6,852,000 $6,212,000] $13,064,000
Dept. of Labor 93) $10,290,205) $17,370,627) $27,660,632
Dept of State 27} $1,981,814 $794,931) $2,176,745
Dept. of Transportation ea] $5,457,471 $130,000) $5,587,471
Dept of the Treasury 111] $7,294,708 $8,060,196 $15,294,809
Dept of Veterans Affairs 198| $12,192,000 $1,757,000] $19,889,000
Agency for Int'l Development 13} $1,936,000) $1,972,500) $3,908,500
Environmental Protection Agency 59} $2,700,000 $3,100,000} $5,800,000
Fed. Emerg Management Agency, "7 $870,000 $1,072,000] $1,942,000
‘General Services Administration 12 $680,949 $3,835,007] $4,518,956
Nat'l Aeronautics & Space Admin, 43| $2,785,758 $0| $2,785,758
National Science Foundation " $676,000) $0 ‘$676,000
‘Nuclear Regulatory Commission W $929,000] $781,300} $1,710,300
Office of Personnel Management 42| $2,904,000 $867,000] $3,171,000
‘Smell Business Administration 2 $87,100] $1,877,870| $1,964,970
‘Social Security Administration 9 $567,000) $0} $867,000
Totals 3,628 | $264,589,958 | $79,311,024] $343,900,982



92

inability of personnel at the front line to do their jobs. A highly skilled systems management

workforce is vital as we reinvent government and empower the federal worker.

What Other OIGs Do

In response to your question concerning what other OIGs do, we have sent out a questionnaire
and are still receiving responses. Our initial reaction is that OIG activities in this area appear to be
mixed, not only in the emphasis that is placed on information technology oversight, but also in the
types of staff used and the types of issues addressed. Specifically, most appear to use auditors.
Some supplement their auditors with computer specialists. Some conduct audits specifically of
information technology issues, while others address these issues as an adjunct to other audits.

And finally, some have indicated a willingness to do more, but because of budget limitations have
had to curtail their efforts. We will get back to the Committee after we have finished compiling

the questionnaire responses

This completes my statement. I have attached a list of our systems evaluation reports that might

be helpful to the Committee and will be glad to provide copies.

1 will be pleased to answer any questions, Mr. Chairman


60

Mrs. MALONEY. As you know, Mr. Chairman, the days aren’t long
enough. We’re running from 15 meetings. I thank you for having
this hearing here today. I think it’s critically important. A very im-
portant part of government is an independent and effective IG sys-

tem.

And I would like to follow up on some of the questions of Charlie
Bass on the independence of the IGs. There has been a great deal
of talk in Congress about term limits. And I would like your com-
ments on maybe should there be term limits for IGs in particular
agencies. Do you become too friendly with the agency and not keep-
ing as much of a critical eye?

econd, as we all know, when President Reagan came to office,
he fired all of the IGs. And what does that do to independence?
Would it be better for IGs not to be appointed by a President, a
Democrat or Republican, but to be appointed by, say, some profes-
sional IG body?

Not to mention any particular city, but there was at one point
a series of scandals with IGs in a particular city. And these IGs
were ap inted by a mayor. And if he didn’t like their information,
he woul then cover up their information.

So then, a very important piece of legislation passed that created
an independent body for IGs. And the IGs, of course, informed to
administrators and to commissioners and to mayors, but they real-
ly responded to the IG’s office. And the information they put for-
ward, the integrity of it was always upheld.

So I would just like your comments on the integrity of the office.
Do you think being a Presidential employee or a Presidential ap-
pointee gives you enough independence? The term limits argument.
that we’re hearing in Congress about Congress, that maybe Con-
gress Members become too much a part of a system, would that
apply, those particular arguments, to becoming too familiar with a
particular agency?

And I would like your comments on the independence of the of-
fice and whether you think the present system is working well, if
the independence of the reports are really held sacred and if you
think it would be a better system, the one that I described that
some cities have implemented, that of a totally independent IG’s of-
fice that not only appoints the representatives in the positions.

Ms. BROWN. Thank you. I do feel that there is enough independ-
ence in the office as far as our reporting relationships. And I don’t
feel we have the same situation that you might have in a city. The
President and, of course, his aides select people from whom they
choose IGs. And we have a unique authority in the Federal Govern-
ment where we also have direct access to Congress. And that’s a
good check and balance, where we can maintain our independence.

Because if any agency had tried to cover up findings or ignore
them, why, we certainly have regular reporting procedures that we

o through with our semiannual reports. We have a 7-day report
for something of a more critical nature, where we would send some-
thing forward to the agency head, and they in turn would have to
provide it to Congress within 7 days. And this has proven to be a
very effective means of maintaining our independence.

Mrs. MALONEY. Do you think the position should be a Presi-
dential appointee?


| am particularly interested in the
role IGs have to play in debt collection.
As you may know, | asked each agency
to provide me with an estimate of their
uncollected debt. For 1994 it totaled
over $50 billion, and that doesn’t
include what is owed for taxes. Frankly,

| was astounded.


18

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ureddord, Suruuojiad wos uone|sisay Aq paureg are ay

‘suopreado pure sureiZoad quautuzea0y Jo Malad SO]

ay) Woy jYaueq pue Hoddns oym suakedxey ayy pur ‘saa
-fojdura Aouage ‘suonepuaunuosai Dy Uo Joe OYM SpeIOUIO
uonensnmupy pue sie8eueur wesoad apnpout 0 siaw0ysno
‘Areurd omy asayy puofag puarxa siaUG}SsNo Mo ‘ayUNY
-ssauduog ain pue speay AouaFe yyoq apnpUt ,stauroysn,
JDaIIP Bsoym STEIOMJO may AVA aly Fuoure ase ay “sant
-isuodsaa Sunyodax fenp aaey ‘sH] se ‘ay ‘sula|qozd uaz
uo wodai pue puy am pur ‘swarqoad amany sayep pue qua
-e8eueul uresZoud aanoayse pur juatoyja ajouioid 01 0m
am sa] JDuUNSTp Omt aney (SOD) TexUaN sIOJadsuy se ‘aM,

SW TdIONTUd NOLLNGANIGY
UNO AlddV OL SAISALVaLS


AT

The inspector General shall keep the entity head and the Congress fully and
currently informed concerning fraud and other serious problems, abuses, and
deficiencies relating to the administration of programs and operations administered
or financed by the agency. (5 U.S.C. App. 3, s. 4(a)(5i)

The head of the designated Federal entity shail not prevent or prohibit the
Inspector General from initiating, carrying out, or completing any audit or
investigation, or from issuing any subpoena during the course of any audit or
investigation. (5 U.S.C. App. 3, s. BE(d))

The Inspector General shall comply with standards established by the Comptroller
General of the United States for audits of Federal establishments, organizations,
Programs, activities, and functions. (5 U.S.C. App. 3, s. 4(b)(1))

Reviews to determine IG compliance with established audit standards, policies, and
procedures shall be performed exclusively by an audit entity in the Federal
Government. (5 U.S.C. App. 3, s. 4(b)(2))

Each Inspector General shall report expeditiously to the Attorney General whenever
the Inspector General has reasonable grounds to believe there has been a violation
of Federal criminal law. (5 U.S.C. App. 3, s. 4(c))

There shall not be transferred to any Office of Inspector General any program
operating responsibilities. (5 U.S.C. App. 3, s. BE(b)}

Implementing Guidance: As a general rule, entity audit and investigative functions
should be carried out by the Office of Inspector General. Exceptions to this rule
include audits and investigations that are part of operating programs (e.g.,
investigations conducted in support of a regulatory function).

Designated Federal entities, unless exempted by law, are subject to OMB circulars.
With respect to audits, the following OMB Circulars apply: A-50, Audit Followup;
A-73, Audit of Federal Operations and Programs; A-128, Audits of State and Local
Governments; and A-133, Audits of Institutions of Higher Education and Other
Nonprofit institutions.

The statutory requirement for operational independence with respect to IG audits
does not preclude communication and cooperation between the IG and entity
management. In addition to keeping the entity head fully and currently informed of
significant audit/investigative findings and results, the IG should solicit
management's views in developing the annual audit plan; conduct entrance and
exit conferences as standard parts of every audit; communicate findings as they
are developed during the course of the audit; solicit management's views on draft
audit reports; and acknowledge management's views in final audit reports.

8


51

nal and civil prosecutions, $1.9 billion in investigative recoveries,
and | $24 billion in recommendations that agencies’ funds be better
used.

Can you give me an example since 1978, in your opinion, the best
accomplishment of an JG in, for example, HUD? What, is it from
your perspective? I didn’t want to put any words in your mouth.

Ms. Brown. Well, I think there has been a lot of very far-reach-
ing reviews. And I’m not familiar with all of them. I can mention
a_ couple that I am familiar with. When I was IG of Department
of Defense, we had the Ill Wind investigation, which was through-
out the country, where there was a conspiracy among people in bid-
ding government contracts and seeking information that was not to
be obtained by the bidders.

We certainly have an extremely troublesome problem with fraud
in the Medicare and Medicaid program. And my office alone
brought back $8 billion last year to be put to better use or to reim-
burse the trust funds or go into the U.S. Treasury. And I think
that those are very significant deterrents, as well, to those who
want to defraud these programs.

Mr. Bass. Mr. Sparks, any ideas?

Mr. SPARKS. My experience is primarily with the larger agencies,
with the larger investigative staff. It’s just a large array of signifi-
cant investigations, farticularly when I was with Agriculture and
the investigators in the food stamp and crop subsidy programs. Ag-
riculture has a diverse set of programs, the welfare queens, so to
speak, with the huge expenditures of ineligible food stamps, which
was basically addressed through a combination of audit and inves-
tigations with computer matches, in one of the innovating tall sol-
diers where you pick out high risk recipients and vendors to look

at.

I think each IG office has pretty significant investigative results
in relation to the size of their agency.

Mr. Bass. Thank you very much, Mr. Chairman.

Mr. Horn. Thank you.

And I now yield to the ranking minority member, Mrs. Maloney
of New York. Did you have an opening statement?

Mrs. MALONEY. I certainly do. And may I put it into the record?

Mr. Horn. Certainly. It will be put right after my opening state-
ment at the beginning of the transcript.

[The prepared statement of Hon. Carolyn B. Maloney follows:]


80

FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD

‘The Audit Committee believes the work of FASAB is critical to
improving the financial management of the Federal Government and
that it has done a credible job in establishing accounting
standards. Soon after FASAB became operational, the Audit
Committee changed the procedures for assuring that the Inspectors
General have input to the standards-setting process. As a
result, the PCIE as an organization has not commented on the more
recent standards recommended by FASAB. Instead, it has been left
up to the individual Inspectors General to provide comments to
the FASAB. However, we believe that the standards recommended
to date have not caused any unreasonably onerous audit burden, or
other adverse effect, on the role of the Inspectors General.

CLOSING

In closing Mr. Chairman, I would like to say that the CFO Act,
GMRA, GPRA and other legislative initiatives such as the IG Act
are instrumental in assuring that Congress and Federal managers
have the information necessary to make the hard fiscal decisions
facing the nation in the years ahead.

The IG community appreciates the interest and support of
congressional oversight committees such as yours. However, if we
are to achieve the goals laid out in these laws, we also face
hard decisions. We have a choice. We must either find, with
your help, the additional resources needed to accomplish the many
IG mandated missions or acknowledge that some services expected
of the IGs may no longer be possible under current budget and
staff limitations.

Mr. Chairman, thank you. I would be happy to answer any
questions.

10


142

Mr. Horn. Well, it’s very perceptive testimony.

Let’s ask Dr. Dwight Ink, president emeritus of the Institute of
Public Administration, to summarize his statement.

Mr. Ink. Mr. Chairman, I appreciate the opportunity to appear
today. Most of your witnesses represent the perspective of inves-
tigators. My comments represent a very different perspective—
namely, that of those who are held accountable for agency perform-
ance, the managers. They reflect my experience as an agency head
and in other managerial roles.

In summary, I believe that the IGs perform a very necessary
function and have made important contributions. The capability to
ferret out wrongdoing without fear of agency cover-up is essential
and must not be weakened. At the same time, I believe there are
serious problems with the IG activities.

Despite the growth of the IG movement, there is a perception
that waste and corruption in the government have increased, not
decreased. Some of this perception is wrong, but most agree that
the general level of professional management has declined signifi-
cant » thereby increasing our vulnerability to mismanagement and
scandals.

One reason for this decline, I believe, has been confusion over
oversight roles. We tend to forget that the basic responsibility for
oversight lies with the program and administrative managers, not
the IGs or the GAO. Oversight is a fundamental element of super-
vision for which every manager is held responsible. It is the man-
agers who are our first line of defense against waste and abuse,
and they should be equipped to provide that defense.

Clearly, there must also be the independent oversight provided
by the IG. But that oversight should never be permitted to sub-
stitute for or weaken the task of the manager to oversee his or her
organization.

The basic statute prescribes too broad a charter for the IG. It
says “to provide leadership and coordination and recommend poli-
cies for activities designed A: to promote economy, efficiency, and
effectiveness; and B: to prevent and detect fraud and abuse in such
programs.” I think combining the words “leadership and coordina-
tion” with the phrase “economy, efficiency, and effectiveness” in the
administration of an agency, constitutes an inappropriate role for
the IG.

First, a literal reading of the law would draw an IG into a mana-

erial role in which the office would have a conflict of interest, as
the IG provided this leadership and coordination and then later re-
viewed these same activities or policies in the role of an auditor/
investigator.

Second, as a practical matter, the broad statutory charter places
a greater potential workload on IG offices than they can carry out.
Further, bringing IGs into noninvestigative activities for which
they are not well-equipped can waste an enormous amount of time
and weaken the ability of good managers to manage.

Finally, I believe a particularly dangerous consequence of this
unrealistic scope of the IG charter is the extent to which it reduces
the attention that a number of IGs are able to focus on the most
serious failures in financial management, some of which are quite
shocking.


185

SHERMAN M. FUNK

Mr. Chairman, and Members of the Subcommittee:

This is the first time | have testified before the Congress since | resigned in February
1994, after serving for six and a half years as |G of Commerce and another six and a
half years as IG of State and ACDA. During that period, | testified on the Hill with great
frequency.

| will not speak more frankly today, however, then | did then, because | always have
been candid. Indeed, if a test of candor is the willingness to disagree in public with
senior officials of my department, | passed that test repeatedly. Some of you may
recall my appearance alongside appointees who were running major programs.
Typically, they would assert that their programs were being managed efficiently,
economically, and effectively, after which, too often, | would be compelled to state, with
documented examples, that their programs were rarely efficient, more rarely
economical, and more rarely still, effective.

But if my candor can be no greater now that it was as a incumbent IG, the past year
and a half as a private citizen has given me the time and distance to think about the IG
business with greater objectivity than was possible while | served in the trenches.

The first question this panel has been asked to address is: How are the |Gs currently
performing?

One answer I would give essentially parallels a criticism made some years ago by Paul
Light. | agreed with it then and feel even more strongly about it today. Too much of the
work by IGs tends to be unfocused, to be spread so widely among various programs
and operations of these agencies that it fails to reach a critical mass. Why is it that the
current search by the Congress, Administration, think tanks, and assorted pundits for
ways of sensibly reducing the size and costs of major government programs relies so
little on the products of OlGs? Admittedly, whenever significant scandals break, the
agencies make a big point of immediately referring them, with attendant publicity, to
their !Gs. But the IG Act was not created by the forerunner of this committee 17 years
ago to provide a convenient escape valve for officials under fire. The Act was designed
to help make the government run better, not just more honestly.

It is no accident that the single largest component of each OIG is its audit staff.
However, unless these auditors are trained, equipped, motivated, and directed to
assess how well programs are performing, the OlGs will not be in a position to make
any meaningful contribution to the dialogue of how to downsize, to realign, to sharpen
‘the cutting edge of, programs and operations in their agencies.

To be sure, performance audits are difficult to conduct. Unlike financial audits, which
offer few targets for criticism, performance audits require evaluations which often hinge
on performance measures tough to quantify, and may place the auditors in sharp
conflict with program officials. An ancillary problem here is that the findings of
performance audits almost inevitably touch on matters of policy, a subject which agency


13

Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

munitions, attempted to export illegally 300,000 sets of M739A\ artillery fuse
components to the Al Fao State Organization under an export license that only
authorized it to export to the Jordanian Armed Forces. Al Fao is an Iraqi military
procurement ministry. As a result of the investigation, Rexon was placed on 6
months probation and ordered to pay $500,000 fine and a $125 special
assessment. In addition, the company was to be dissolved within 180 days.

Reporting

Statute requires the IGs to report to the agency head through individual reports and communicate
to the Congress through the agency head via the semi-annual report. Individual report
development and issuance procedures are dictated by the auditing standards set by the
Comptroller General of the United States. Draft audit reports are sent to the agency program
director for review and comment. Comments received from the agency are subsequently
published with the final report, The Semi-Annual report summarizes IG initiatives,
recommendations for program improvement and accomplishments. The report is sent to the
agency head for a thirty day comment period although the agency may not make any substantive
changes. The IG subsequently issues the report to the agency head who in tum forwards the
report to Congress.

Resources

The ability to participate in agency-wide program improvement teams, conduct adequate
planning activities, fulfill customer needs, and ensure the professionalism of our staff is highly
dependent upon available resources. IG resources are diminishing at a rapid pace, however. But
our efforts continue to result in impressive savings to the taxpayer.

Statistics for all PCIE 1G’s together show that Agency managers agreed with over $12 billion in
audit and inspection recommendations that funds be put to better use; and that $3.4 billion in
questioned costs be disallowed. That means, as a result of audits and inspections conducted by
the IGs, $15.4 billion taxpayer dollars were not spent by the agencies. In addition, FY 1994
PCIE IG investigations led over $1.8 billion in investigative recoveries. In FY 1994, my office
alone, saved $8 billion -- a return on investment of $80 to every $1 spent an average of $6.4
million per OIG employee.

Unfortunately, as IG resources decrease so will our accomplishments. In addition, we are also
bound by other statutes, such as the Chief Financial Officers Act, to implement other
requirements for which many of us are not funded. These statutes further limit our resource use
and are yet another factor to consider when setting our priorities.

Houre Government Reform and Oversight Commilice Ragas 11995
on Ge Management, to wand Te Page 10



187

of what they recommend, rather than by arrogantly emphasizing their independent
authority.

Nevertheless, that authority is there to be called upon when really needed, and this too
the IGs must know how to handle. In effect, the IGs should be adept in following TR's
dictum: speak softly but carry a big stick. (They should also follow President Reagan's
advice: trust everyone, but cut the cards.)

In addition to these qualities, it would be very helpful -- indeed, it is now required -- if
the 1Gs were knowledgeable in at least one of the OIG disciplines, i.e., auditing,
program evaluation, investigation, inspection, or the law. It would be helpful too if IGs
were conversant with, or better yet, fully at home with, computers and other aspects of
modern office technology.

It is often overlooked that we one inescapable requirement of {Gs is that they be quick
and absorbent readers. OiGs turn out a prodigious volume of reports and other
papers. OlGs are also faced with the need to know what is going on elsewhere in their
agencies and, hence, to read an astonishing amount of information generated outside
their own office. IGs who are unable to keep up with this paper load must be
dependent upon their own people who screen it for them. This dependency is fraught
with peril.

Finally, at risk of laboring the obvious, | would stress the importance of IGs possessing
the capacity for leadership. It is not enough for IGs to manage well. If necessary, tight
and efficient management can be demanded of the deputy IG and assistant !Gs. But
no other person in an OIG can supplant the leadership role by the |G. The several
components of an OIG often ride to their own trumpets; unless they can be motivated --
led -- to ride in tandem, much of the benefits of consolidating these separate disciplines
will be dissipated or lost, and the OIG mission badly degraded. Also, the IG will often
require extraordinary efforts by the OIG staff. These possibly can be demanded on
occasion, but it is far better to inspire them. The OIG staff will accept a manager, but
they will follow a leader.

The fourth question is: How should IGs be selected?

It would be a rare and lucky throw of Presidential Personnel dice if the qualities and
skills noted above were to arise from the usual methods of selecting Executive level IV
appointees. The odds are heavily against it, short of a recruitment and screening effort
comparable to that which marked IG selection in the first years of the Reagan
Administration... an effort marked by the labor-intensive use of senior personnel almost
exclusively to finding the right IGs for specific agencies. Assuming that such a process
is unlikely in future administrations, other methodologies warrant consideration.


This is especially important when we
are reducing the number of managers in
the government. As we increase the
number of persons a manager
supervises, it is increasingly important
that the manager have the necessary
tools to do her job well. If not,
downsizing will have the unintended

consequence of increasing waste.


2

We thank you all for joining us, and we look forward to your tes-
timony. If panel one would come forward. The tradition of this com-
mittee is to swear in the witnesses. As you know, we will put your
full statement in the record. We have a pretty full day here today,
with 9 witnesses.

If you could summarize it in 5 minutes, please try. If not, we'll
creep a little beyond that. And then we'll use the rest of the time
for questions. A quorum being present, I will now swear you in. If
you would rise and raise your right hand.

[Witnesses sworn.]

Mr. Horn. Both witnesses affirmed. We are delighted to have
with us as the first witness the Honorable June Gibbs Brown, who
is Vice-Chair of the President’s Council on Integrity and Efficiency,
and Inspector General of the Department of Health and Human
Services.

Ms. Brown.

STATEMENTS OF JUNE GIBBS BROWN, VICE-CHAIR, PRESI-
DENT’S COUNCIL ON INTEGRITY AND EFFICIENCY AND IN-
SPECTOR GENERAL OF THE DEPARTMENT OF HEALTH AND
HUMAN SERVICES; AND HUBERT SPARKS, VICE-CHAIR, EX-
ECUTIVE COUNCIL ON INTEGRITY AND EFFICIENCY AND IN-
SPECTOR GENERAL, APPALACHIAN REGIONAL COMMISSION

Ms. Brown. Thank you, Mr. Chairman. In my prepared state-
ment, I’ve provided you with basic Inspector General background
information about our activities as individual IGs and as members
of the President’s Council on Integrity and Efficiency. And I would
like to include that in the record.

Mr. Horn. Without objection, that will be included.

Ms. Brown. The IG was passed by Congress in 1978 in re-
sponse to concern over the integrity and efficiency of government

rograms. The primary mission of IGs is to prevent and detect
fraud, waste, and abuse in agency Fe ‘ams and operations and to
promote economy, effectiveness, and efficiency within the agency.

Based upon my previous experience as an IG at four agencies
and now as the Inspector General for both the Department of
Health and Human Services and interim IG at Social Security Ad-
ministration and as the Vice-Chair of the PCIE, my oral statement
will focus on two areas—what you should expect from all IGs, and
the hot issues facing the IG community.

As reflected on my chart, all IGs must exercise objectivity, inde-
pendence, and professionalism in the performance of their audits,
inspections, and investigations. As pointed out in my prepared
statement, in fiscal year 1994, $15.4 billion taxpayer dollars were
not spent by agencies as a result of audits and inspections con-
ducted by the 29 PCIE IGs.

In addition, investigations, both criminal and civil, led to over
$1.8 billion in investigative recoveries and 4,433 successful pros-
ecutions. We also excluded or debarred 4,148 persons or entities
from participating in Federal programs for fraud or beneficiary
abuse.

Today, the Congress, the administration, and the American peo-
ple are examining the nature and structure of government. This is
a time of great change, but then it always is. We must take stock


163

rather striking in a number of respects. First, I think that we have
too broad a charter for the IGs, which is going to make it difficult
for them to be effective in any of the areas. And I think that’s a
disservice to the IGs.

Second, I am deeply distressed at the lack of interest or attention
to the quality of managers in government. Mr. Dempsey talks
about the quality of IGs, and I couldn’t agree with him more. It’s
absolutely essential. But we don’t pay much attention to the qual-
ity of the managers. The Assistant Secretaries for Administration
are political now.

There’s very little attention given to their quality. So how in the
world are they going to provide that kind of professional leader-
ship?

Mrs. MALONEY, Do you think the IGs are political?

Mr. INK. I said the Assistant Secretaries for Administration.

Mrs. MALONEY, Are political. But the IGs are not?

Mr. INK. Not very many of them. Some of them I found are, but
I don’t think most of them.

Mr. LIGHT. May I address the question generally? I should start
by saying that the seed of the research that led to my more recent
book on the thickening of government was the examination of the
organizational structure of the IGs. There has been a fair amount
of bulking up in the IGs over the last 15 years, and I see no reason
why they should be exempt from cuts in personnel and de-layering
that affect the rest of government. I just see no excuse for it.

If they are to be effective in persuading departments about the
merits of their findings, especially when it comes time to rec-
ommending change in how departments operate, they need to be a
leader in showing departments in part how it can be done. I just
do not agree that they should be exempt.

I would say that at the core of this conversation is the overall
quality of the OIG staffs and the quality of the appointees. One
way to remedy this issue is to start with some hard questions
about how competent the OIGs are to do their mission. Is this a
function of too much mission for the IGs, or not the proper quality
of staff?

And second, to confront the issue of asking for an appointment
mechanism that would emphasize the highest quality and inde-
pendence possible. I’m not sure you get the right mix of IG talent
through the Presidential appointments process as it’s currently
configured.

And I argue in “Monitoring Government” for a different appoint-
ments mechanism that would be modeled on the mechanism we use
currently for the appointment of the Comptroller General of the
United States.

Mrs. MALONEY. I would like to request that maybe you could let
the committee members and staff read your two books, if we don’t
have them.

Mr. LicuT. Well, they’re on remainder tables all over America.
(Laughter.]

Mrs. MALONEY. We'll go and buy them. Good point. We'll go and
buy them. Free enterprise system. I want to ask you a question I
asked earlier. And that was, a famous city just decided to take the
IGs and keep them separate, create professional qualifications.


12

(b) developing and representing the opinion of the PCIE on
single audit and other non-federal audit issues
including formulating answers to questions and
interpretations of requirements effecting the role of
the IGs;

(c) serving as a focal point for the PCIE regarding the
Chief Financial Officers (CFO) Act;

(d) providing technical guidance for peer review of PCIE
menbers;

(e) coordinating audits and other projects dealing with
significant multi-agency oversight and policy issues;

(f) leading and participating in non-federal audit quality
initiatives; and

(g) serving as the Board of Directors for the Inspectors
General Auditor Training Institute.

THE ISSUES

Today I would like to talk to you about: (1) IG responsibilities
and concerns under the CFO Act; (2) ‘the IG role under the
Government Performance and Results Act (GPRA); (3) the PCIE's
progress in revising its peer review process; (4) the PCIE's
opinion on recent revisions to the Single Audit Act; and (5) the
PCIE's position on recent pronouncements by the Federal
Accounting Standards Advisory Board (FASAB) .

HE CFO

The CFO Act requires that certain activities of government
agencies have annual audits of their financial statements. The
Act provides that agencies with IGs are to have the financial
audits performed by the IG or an independent external auditor as
determined by the IG. These audits range in size and complexity
from small trust funds with less than $500,000 in assets to huge
service organizations like the Internal Revenue Service (IRS)
which collects over $1.2 trillion in revenue per year, the Social
Security Administration which disburses over $300 billion in
benefits annually, and manufacturing entities such as the U.S.
Mint with assets in excess of $10 billion. These audits in
themselves will be difficult. Compounding the difficulty is the
fact that many of these organizations have never undergone
financial statement audits. Experience shows that early
financial audits present unique challenges to the agency and
auditor alike. For example, in its financial audit for FY 1994


27

(2) “designated Federal entities" have Inspectors General appointed by the head of the
entity;

() "Federal entities” have minimal reporting requirements on audit and investigative
activity only.

L BACKGROUND

With the exception of the appointing authority, there is virtually no difference between the
“establishment” IGs and the “designated Federal entity" IGs. The general mission, authorities,
and responsibilities are identical” The ways in which we (1) carry out our mission, (2) exercise
our authorities, and (3) discharge our responsibilities vary only to the extent that the missions of
our respective agencies vary.

The designated IGs represent a diverse group of Federal executive agencies. For example, they
include independent regulatory agencies, boards, commissions, Government-chartered
corporations, and one Congressional Agency (GPO). The functions performed by these entities
include grant-making, manufacturing, regulation of private sector industries, providing services
to the pubic, and law enforcement. ‘The names of the entities and the Inspectors General are
attached to my testimony as Appendices A and B.

Our group also varies as to whether predecessor Offices of Inspector General or internal oversight
functions existed at the time of the 1988 Amendments. A few offices were fully functioning,
having been administratively created. Many offices had internal audit units that reported to a
level somewhere below top management. Several had no intemal audit or investigation function.

Other important ways in which we differ include our personnel systems and grade and pay
structures. Some of us are not under the Federal civil service, and grade and pay range from
GM-15 to Senior Executive Service or equivalent ratings. We also have a wide variety of
budget systems. Some entities do not go through the Office of Management and Budget (OMB)
for their budgets; some rely on their own revenues rather than on appropriated funds from
Congress. These issues become particularly important when trying to solve problems that various
designated IGs have encountered with hiring authorities, pay comparability, and independent
budget authority. The designated IG community also varies substantially in staff size; and
generally, OIG resources amount to about .5 percent of entity budgets.

% The general mission of all [Gs is to prevent and detect fraud, waste, and abuse in Government
programs and operations. Authorities include access to Government records, the authority to
administer oaths and take affidavits, and subpoena power over non-Federal entities.
Responsibilities flow from the general mission and also include submitting semiannual reports.


70

The IG community appreciates the interest and support of con-
gressional oversight committees such as yours. However, if we are
to achieve the goals laid out in these laws, we also face tough deci-
sions. We have a choice. We must either find, with your help, the
additional resources needed to accomplish the many IG mandates,
or we must acknowledge that some services expected of the IGs
may no longer be possible under current budget and staff limita-
tions. Thank you.

(The prepared statement of Ms. Lau follows:]


146

3

program and administrative managers to use auditors in the prevention of waste and abuse. Both
the IGs and the assistant secretaries had need for auditors, though for different purposes. Chief
Financial Officers also now have auditors and an important piece of management, thereby
increasing management fragmentation within departments. We also now have chiefs of staff.
and today no one has clear-cut management leadership responsibility short of the Secretary or
Deputy Secretary, neither of whom devote much attention to such matters

HUD is a good example of a department which had an excellent Inspector General, but
increasingly saw little need for management leadership anywhere else in the department. So
while the IG was sounding the alarm about growing mismanagement and worse, the departmental
capacity to prevent or correct such problems was permitted to virtually vanish, making scandal
and mismanagement inevitable. Leadership for encouraging new approaches to departmental
‘management and maintaining a high level of managerial competence throughout the department
also largely disappeared.

We need to remind ourselves that most of the oversight required for effective program
‘management is the responsibility of the managers themselves, not the IGs or GAO. It is a basic
supervisory element of any manager's job. They are our first line of defense against
mismanagement and corruption, and should be trained and equipped to provide that defense.

Unrealistic Charter.

In addition to the basic IG role of audits and investigations, the organic statute, PL 95-
452, adds an enormously wide scope to their charter. Specifically, it describes their purpose as:

(2) to provide leadership and coordination and recommend policies for activities
designed (A) to promote economy, efficiency, and effectiveness in the
administration of, and (B) to prevent and detect fraud and abuse in, such
programs and operations;...”

‘The combination of the words "leadership" and "coordination" with the phrase “economy,
efficiency, and effectiveness in the administration” of an agency suggests a highly inappropriate
role for the IG if one reads them literally.


63

to show why a cause and an effect occurred, some things like that
that were very successful in gaining successful prosecutions in the
procurement area, for instance. And they increased substantially
the number of cases they prosecuted then.

Mr. Horn. You were an Inspector General in the Department of
Defense. They would have rather complex procurement cases. They
would be dealing with rather large corporations. Did the fact that
some of them might be large corporations scare off the U.S. attor-
ney, in terms of the counsel resources that he or she might face in
a Federal court?

Ms. Brown. No, I don’t think I could ever say that. Usually,
when it was a large corporation, it was a very small part of that
operation. And so I don’t really think I ever experienced a U.S. at-
torney backing off because they didn’t want to face high-paid attor-
neys that migh t challenge them.

lowever, they were complex cases. And we worked closely and
sometimes even provided training in certain areas so that some of
the assistant U.S. attorneys became quite familiar with what we
were working with.

Mr. Horn. Anyhow, it’s your conclusion, then, given Attorney
General Reno’s policy in placing this as No. 2 of the priorities to
be addressed by her staff, that throughout the country, there has
been cooperation with the efforts of HHS Inspectors General?

Ms. BRown. Yes, sir.

Mr. Horn. And we haven't had any cases where they haven't
been cooperative?

Ms. BROWN. No. I don’t think there has been any that without
some reason that would become obvious to us that they have ever
refused to work on our cases.

Mr. Horn. This committee held a hearing in the last Congress
about the allocation of U.S. attorney resources. And it was very
clear that historically, there hasn’t been much sense in terms of
how some of these resources are allocated, and it’s who was there
when, partly in a political situation, that made sure the resources
flowed in one direction rather than another.

And we certainly urge the Department of Justice to get a little
more rational system based on caseload, based on need, and chang-
ing circumstances. So these questions are designed to see if you
feel there’s much change in the field, or is this just a matter of the
Attorney General saying, “I care, and let’s do something about it.”
A boss can often get a few results that way.

Ms. BROWN. Well I think it’s more than saying she cares, be-
cause we do have this—there’s a high-level official, Gerald Stern,
that she appointed just for health care. And, as I say, we meet reg-
ularly between HCFA, the IG’s Office, the FBI. We have exchanged
personnel. We have FBI people working in our office and ours in
theirs to keep these cases moving.

We meet at least once a month and go over the larger cases or
anything that stalls in the process. We have streamlined proce-
dures, so that they have direct access to some of our data bases
and we have access to some of their materials.

They have given us blanket deputization to save time in getting
people deputized in order to make arrests or issue subpoenas anc
things where they need to have a weapon with them. And so we


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37

HOW CAN IGs MOST EFFECTIVELY
REPORT THEIR ACTIVITIES TO CONGRESS

Currently, OIG and management reporting requirements that provide for semiannual reports to
Congress and an annual report summarizing PCIE and ECIE activities, combined with the
availability of all OIG reports and IG initiatives to keep the Executive and Legislative Branches
informed of particularly important and/or sensitive initiatives or developments, provides, in our
opinion, a balanced approach to keeping Congress informed about OIG activities. In this regard,
it has also been my experience that Congress has become effective in requesting information
from IGs on matters of Congressional concern; and this provides another reporting approach.

In most instances, IGs have established good working relations with Committees responsible for
their entities’ programs which provides Congress current information on overall IG activities and
initiatives. This, in my opinion, also offsets, for example, the need to forward all OIG reports
routinely to Congress, which could create a substantial paper increase without assurance of need
or use.

The IG Act also provides for what is known as a "7-day letter,” which requires the IG to report
immediately to the head of the establishment involved whenever the IG becomes aware of
particularly serious or flagrant problems, abuses, or deficiencies relating to the administration of
programs and operations of the establishment. Further, the head of the establishment shall
transmit any such report to the appropriate committees or subcommittees of Congress within
7 calendar days, together with a report by the head of the establishment containing any comments
such head deems appropriate. The last statistics I saw with respect to the use of the 7-day letter
indicated limited use of this tool by IGs. Nevertheless, this reporting approach is viewed as an
important tool, if prudently used, by designated IGs; and if this last ditch notification is to be
effective, Congressional response needs to be appropriate.

Mr. Chairman, Members of the Committee, the designated [Gs look forward to working with you

and your staff regarding the activities of the IGs. This concludes my testimony and thank you
for this opportunity to testify today.

12


187

PAUL C. LIGHT
DIRECTOR, PUBLIC POLICY PROGRAM
‘THE PEW CHARITABLE TRUSTS

i am pleased to appear before the House Goverment Reform and Oversight Subcommittee today to
discuss the federal Inspectors General. My comments today flow from my book Monizoring Government:
Federal Inspectors General and the Search for Accountabitiry. which was published jointly by the
Brookings Institution and the Governance institute in 1993. The following testimony does not represent
the views of either my publisher or The Pew Charitable Trusts.

‘As you may know, the Inspector General concept has been part of American govemment ever since the
Continental Congress created an inspector Generalship to monitor alleged abuses in George Washingwon's
colonial army. However. it was not unt the late 1950s that the concept was resurrected as a formal
device for giving deparments and agencies a high-level mechanism for monitoring goverment. The first
moder IG was created under the 1959 amendments 19 the Mutual Security Act, and was tasked to monitor
foreign aid expenditures. Under further amendments in 1961. the IGA, as it was abbreviated, was also
given the authority to suspend all or part of any project or operation “with respect to which he has
conducted or is conducting an inspection.” In other words. the IGA had the power to immediately stop
a program that was failing.

This first starutory 1G falls under what might be called the “lone wolf" model of government oversight.
The IGA had rather impressive powers to demand information from within the Department and had full
authority to compe! documents from any other agency of government concemed with foreign assistance.
Under the 1961 amendments, the IG was also given authority to assess whether foreign assistance
programs were aiding in the attainment of their objectives, a precursor to the modem performance
‘management approach represented by the Government Performance and Results Act. Finally, the IGA was
‘given authority to determine the “efficiency and economy” with which foreign assistance was being
discharged. All in all it was a very strong model of independence. When coupled with the authority to
suspend operations. the IGA was no small potential force for reform.

Itis not quite clear what happened to the IGA. We know that it never used its authority, never suspended
a program. and faded away in the late 1960s. We also know that it was not discussed in any of the
hearings leading up to creation of the current generation of IGs in the mid 1970s, Although the {GA
model was never used again, imagine, for a moment, what a Charles Dempsey, Richard Kusserow. June
Gibbs Brown, Tom Morris, or Sherman Funk might do with such authority. Would the HUD scandal have
gone so deep? Would welfare fraud continue so long? Would poorly designed programs endure forever?
As the IG community struggles with the essentially minor issues of search and warrant authority or
firearms, we can only muse about the bigger issues implied in giving the IGs greater authority to act once
they spot a serious program weakness. For now. they only have the power to identify the problem.

Such speculation notwithstanding, a second approach to IG oversight was created by Agriculture
Department Secretary Orville Freeman in the wake of the 1962 Billie Sol Estes Scandal. If I trace the
committee lineage correctly, Freeman's decision was actually sparked an investigation by the precursor
to this subommittee. However. in contrast to the IGA, when Congress moved first, Freeman elected to
create a non-statutory IG under secretarial order. {t was an IGship that existed until the early 1970s. when
an obscure assistant secretary for administration named Joe Wright abolished it in an effort to regain
control of the audit function. In one of the great examples of Miles" !aw (where you stand depends on
where you sit), Wright later became one of the greatest supporters of the IG concept. What made no sense


57

The NPR has come forward with a
proposal to improve debt collection by
consolidating it at the Department of
Treasury. They came in and briefed me
on their plan last week. | must say | was
somewhat disappointed when | learned
the effort would only increase
collections by $1 billion. That is only 2
percent of the non-tax debt, and less
than 1 percent of the total.


23

Mr. Horn. Thank you very much.

Before we ask questions, we'll also ask Mr. Hubert Sparks, the
Vice-Chair of the Executive Council on Integrity and Efficiency,
and who is Inspector General with the Appalachian Regional Com-
mission, to give his testimony. Then, we'll question both of you.

Mr. Sparks. Thank you. Mr. Chairman, members of the commit-
tee, thank you for the invitation to appear today as a representa-
tive of the Inspector General of the designated Federal entities. I
am 1 of 32 current IGs whose position was created by the 1988
amendments to the Inspector General Act, and I assumed the posi-
tion of Vice-Chair of the ECIE in May 1992.

My prepared testimony, which I request be entered in the record,
and my oral statement present the views of designated IGs, as well
as a few personal opinions based on over 32 years in the civilian
IG community.

Designated IGs are appointed by the head of the entity. With the
exception of the appointing authority, there is virtually no dif-
ference between the establishment or Presidentially appointed IGs
and the designated Federal entity IGs. The general mission, au-
thorities, and responsibilities are identical.

The designated IGs represent an extremely diverse group of Fed-
eral executive agencies, independent regulatory agencies, boards,
commissions, government chartered corporations, and one congres-
sional agency, the Government Printing Office. Operational dif-
ferences include our personnel systems, grade and pay structures,
reporting and budget systems.

In most instances, we believe we are well on our way to achiev-
ing the overall objectives laid out for us in the 1988 amendments.
‘ile the size of our entities and OIG operations vary substan-
tially, and thus, overall quantifications of success are often dif-
ficult, it is my belief that the presence of an independent audit and
investigative oversight functions—sometimes for the first time—
has had a very beneficial impact by providing an in-house deter-
rent, setting a tone for accountability, and by j providing manage-
ment with objective information on which to effect improved oper-
ations.

We also agree with the comments previously made in the pre-
pared statement submitted by June Brown, PCIE Vice-Chair. And

will briefly touch on the issues noted in the hearing agenda.

ECIE was established by Executive order in 1992. Essentially,
ECIE functions similarly to the PCIE and shares the same overall
mission and objectives. As such, ECIE members serve on PCIE
committees and participate in sponsored projects and forums, as
well as independently addressing ECIE issues through committees,
projects, training, and information exchanges.

A high level of cooperation exists between PCIE and ECIE, as
best noted by PCIE resource sharing with designated IGs, particu-
larly in the investigative area.

‘ithin the ECIB, initiatives have included actions to address
National Performance Review recommendations and vision state-
ment rinciples, development of a best practices paper dealing with
the role and relationship of IGs and entity heads, establishment of
a computer bulletin board to facilitate exchanges of information
ideas, and continuing efforts to establish a voluntary, independent



144

Testimony of Dwight Ink
Before the
House Subcommittee on
Government Management, Information and Technology

INSPECTORS GENERAL

Mr. Chairman, I am pleased to appear before this Committee as it continues its
remarkably ambitious series of hearings on federal management. Most of your witnesses today
represent the perspective of the Inspectors General (IGs). My comments represent a different
perspective, namely that of those who are held accountable for agency performance. They
reflect my experience with IGs in a number of agencies, both as an agency head and a bureau
head, as well as experience with similar functions before IGs existed. 1 would hope the
Committee would hear the views of additional managers, since they and their organizations are
heavily impacted by the actions of IGs. These views are my own, and not those of any
organization with which I am affiliated.

In summary, I believe that IGs perform an important function and have made important
contributions. At the same time, I also believe the basic stamte is flawed. Even more
important, because of serious failures on the part of program and administrative managers. the
decline of an OMB management leadership capability and a misplaced focus of much of the
Congressional oversight, 1 believe we have (a) looked far too much to IGs to perform non-
investigative roles for which they are not equipped, diluting their capacity to do the things for
which they are best equipped, and (b) not looked enough at the need for revitalizing the
management leadership in the agencies necessary to reduce waste and minimize abuse.

T have found most IGs to be highly-motivated allies in pressing hard for honest,
cormuption-free, agency management. I particularly recall cases in which abuse or corrupt

came to light through IG persistence in pursuing investigations that others thought were witch-
hunts. This capability to ferret out wrong doing without fear of agency cover-up is essential.
and must not be weakened. Perhaps it needs to be strengthened. Once one moves away from


90

Department is also making progress in correcting financial management deficiencies at several

other bureaus,

‘One area that is getting more attention throughout the government, as it should, is business
Process reengineering. In many instances, substantially altering business processes to make them
more appropriate and efficient before they are automated can be a high-leverage undertaking. But
we have found that it can also be much more difficult to do this effectively than all the excitement
would suggest. A very important reengineering project that we are currently evaluating is the
Census Bureau’s efforts to fundamentally change the way it will conduct the 2000 Decennial
Census. Because of the changing population and current budget environment, Census has no
choice but to make radical changes. But designing and implementing these changes are a
monumental effort. The results will be the basis for the design of the automated systems for
census data collection and processing. More importantly, they will determine the cost of the

census and the quality and public acceptability of the statistical data.

Our previous systems evaluation work at Census has also led to savings in commercial equipment
purchases and improved planning of its computing resources. We identified excessive
requirements for disk storage and automated tape handling equipment, resulting in savings of
nearly $40 million. At the Patent and Trademark Office, we are reviewing its new approach for
continuing the systems modernization, and have provided recommendations and assistance to

PTO that we feel will reduce risk as it plans and implements its new systems approach.


44

subcommittees of the Congress, along with a report containing (i) any comments
the entity head deems appropriate; and (ii) specified data on management actions
with respect to audit recommendations. (5 U.S.C. App. 3, s. S(a)(b})

Implementing Guidance: Key aspects of these semiannual reporting requirements
include the following:

- The IG is not required to clear his/her semiannual report with the entity
head. (However, the IG may choose to circulate the semiannual report in
draft format to the entity head and other appropriate entity officials for
technical comments.)

-- The entity head may not change the IG’s report.
~- Preparation of the entity head report is wholly a management responsibility.

- The entity head must submit the IG’s report and the entity head report to
the Congress as a package.

The statutory intention is clearly that the 1G and entity head reports be prepared
independently. However, it is important to note that both reports must contain
Specified statistical data on audit followup. Since these data relate to the same
universe of audit reports, management and the IG should routinely be reconciling
their audit followup data; and the semiannual reports should explain any
differences in the audit followup data being reported by the two parties.

It is recommended that the entity head provide copies of the IG and entity head
reports to the chairpersons and ranking minority members of the following
Congressional committees: House Committee on Government Operations; Senate
Committee on Governmental Affairs; and House and Senate authorizing and
appropriations committees/subcommittees or other oversight committees as
applicable. Entity heads are also asked to provide one copy of each report to the
Chairperson of the Executive Council on Integrity and Efficiency, and 10 copies of
each report to OMB’s Management Integrity Branch.

Ul. ADMINISTRATION OF OFFICES OF INSPECTOR GENERAL

A. PERSONNEL, PROCUREMENT, AND LOGISTICAL SUPPORT

Legal Authority/Requirement: The IG is authorized to select, appoint, and employ
such officers and employees as may be necessary for carrying out the functions,


OIG Office of Systems Evaluation

Because of the importance of information systems to the Department's many critical missions and
its poor track record in this area, we have made systems evaluation and oversight one of the
highest priorities of our office. My 20 years in the private sector and my 20 years in government,
both managing and overseeing systems, have made it clear to me that providing effective
oversight of complex systems programs is an extraordinarily important, but also extraordinarily
difficult job.

To do this job, we formed the Office of Systems Evaluation. This office reports directly to me
and is managed by an assistant inspector general for systems evaluation, a senior executive
position created to focus specifically and exclusively on information systems and technology
issues. We conduct our reviews as early as possible in order to obtain timely improvements and
avoid costly mistakes. Our office brings a set of capabilities to evaluation and oversight that I
believe is unique in government—combining highly experienced computer scientists who have
extensive hands-on experience in developing large, complex systems in industry and government
with experts in systems acquisition management, government contracting, program evaluation,
consulting, and computer system operations. Our multi-disciplinary approach and in-depth
technical expertise allow us to attain a comprehensive, integrated understanding of the complex

management, technical, contractual, and operational issues.


62

Mrs. MALONEY. And also how the cuts hurt your ability to con-
tinue doing that type of job.

Mr. Chairman, I am missing right now a briefing by the Treas-
ury Department on the BIF safe bill that is before the committee
tomorrow for another important hearing. I am going to leave for
one-half hour for the end of that briefing, and I will be back, if you
will excuse me.

Mr. Horn. Thank you for coming. I’m glad you could participate
in this panel.

Let me ask you, Inspector General Brown, of the cases you’ve
had—and you've had phenomenal success in HHS, with the Medic-
aid and Medicare fraud and abuse—how does that process work?
When the Inspectors General find particular violations, do you go
to the local U.S. attorney?

Is that the route for criminal prosecution? And how much of that
$8 billion was really through the criminal process or the civil proc-
gssi wonder if you could describe which is which and are they ef-
fective.

Ms. Brown. I'll get you the exact detail, but it was about a half
a billion through the criminal prosecution process. And the rest
was all other types of recoveries. But we do have a very strict agen-
da. And those aren’t proposals, Those are things that actually were
implemented and changed.

en we get allegations, various s of allegations, we get
them to the regional office that would have the responsibility. And
they have a close working relationship with the local U.S. attorneys
and bring cases to them at an early stage, and we work together
with the U.S. attorneys to obtain prosecution.

Mr. Horn. Have you ever had any difficulty in getting the U.S.
attorney to prosecute cases that you or your staff thought ought to
be prosecuted?

Ms. BRowN. Well, many times in my past, I have had. But I
must say that in this job and since the Attorney General, Janet
Reno, has made this the second highest priority after violent crime
for the Justice Department, why, they have been very anxious and
proactive in looking for cases to prosecute. So we haven’t had a
problem there.

We also have a regular meeting where the FBI, high-level people

at Justice, as well as the criminal and civil division, and my office
meet in order to keep everything moving and make sure that we’re
expediting all the work in that area. And that has worked very suc-
ces: .
Mr. HORN. In your past roles as an Inspector General, do you feel
the lack of prosecution by some U.S. attorneys was a matter of
whimsy, were they truly short of resources or they just didn’t give
this particular endeavor a high priority?

Ms. Brown. It was two things, I must say. One was lack of re-
sources on their part. They were all usually very overbooked. The
other was, many of the cases are very complex. And so you—some
U.S. attorneys didn’t feel that the time that would have to be de-
voted and the ability to convince a jury when they had to use ac-
counting data and so on was sometimes very difficult.

And we worked with those issues and sometimes found that we
could present things by charts, superimposing one over the other


What We Look At and Why
We perform our systems evaluations as part of our inspections program. This program allows us
10 do our work quickly so that we can provide our analysis and recommendations at times when
they can be most influential and helpful. We evaluate large, complex systems requiring’extensive
custom software development, as well as commercial-off-the-shelf systems. At a high level, the
key issues are generally common—ineffective planning, inadequate management, and vague
specifications and contracts, but the scale and complexity of major systems make the problems

very complicated, expensive, and difficult to solve.

‘We concern ourselves with all project phases and aspects, including planning, business process
reengineering, system definition, system development, test and acceptance, deployment,
operations and maintenance, training, logistics. support, and major enhancements. We evaluate
the need for the system, validity of the requirements, alternatives considered, acquisition
strategies, technical specifications, solicitations, and source selection plans. We invest
considerable time and resources to ensure that we understand an agency’s mission, culture, and
business processes; the system’s operational environment; and the project’s technical objectives.
We evaluate the capabilities of the program office and its placement, status, and visibility within
an agency. As projects progress, we evaluate government and contractor performance and

results.


121

and help focus them on the Inspector General Act as to mission and direction by a
continuing series of oversight hearings covering the IG activities. The Congress
may have to assist those IG’s who may be timid or not be eager to talk in detail
and depth of the state of their departments and agencies. Only through properly
planned hearings will we be able to gauge or see how the IG's are faring and

doing.

Question 2: Does the institutional independence of OIG’s undermine their

usefulness?

I say, absolutely not. The success of the 1G Act depends on this independence. It
also depends on the way the IGs understand this independence and whether or not
the IG’s have educated their departments and agencies on the IG Act, its authority
and the reasons for independence. Independence is essential. I’ve had to brief
Five Cabinet Secretaries or Agency Administrators on the IG Act and when you

tell them:

(1) Public Law 95-452 Under Purpose - Sec. 2. “Create Independent and
Objective Units”

(2) Sec. 2 - (2) to prevent and detect fraud and abuse.


124

Question 5: How can they be strengthened?

Today the Congress is the only one who can strengthen the Inspector Generals. In
past years OMB and the PCIE did this, but, the NPR statement on changing the
focus and directions of IG’s speaks for itself and may result in a “muzzle” on the
IG’s. OMB could help but they do not appear interested in strengthening the 1G’s.

Some believe they look upon IG’s as internal cops.

This is a time of doing more with less. However, I hear more and more IG offices
are being cut as to resources, both Positions - Training and Travel money. Travel
money is the blood of an IG organization. Only through careful oversight and
insistence by the Congress, will the IG's get the resources they need to operate.
The Office of Management and Budget will react accordingly when they know the

desires of the Congress. Slowly perhaps but they will pay attention.

Question 6: How should the IG’s report on their activities?

The IG Act requirement as to semi-annual reports is adequate and I don’t believe

new reports or changes are necessary. The requirement of semi annual report in

the IG Act has been a tough requirement for Department or agency heads and top


31

THE INSPECTORS GENERAL "VISION STATEMENTTM
AND THE APPROPRIATE MISSION FOR INSPECTORS GENERAL

First, let me note that the designated Inspectors General (IGs) unanimously support the principles
and strategies noted in the Vision Statement and believe it identifies and/or reemphasizes
appropriate missions for IGs and strategies for efficiently and effectively accomplishing our
mission and responsibilities. The statement is essentially a return to basics and reinforces actions
that many of us have viewed as a longstanding and necessary basis for successful operation. 1
have a simple view of what is needed--a return to the basic concept and practice that was drilled
repeatedly into every employee who worked for the Department of Agriculture IG's Office (OIG)
in the 1960s and 1970s; namely, that OIG stands for Objectivity, Integrity, and Goodwill. While
this phrasing is heard occasionally, there does not currently seem to be the same level of
‘emphasis and repeated discussion of these terms. We need to continuously strive to reduce the
tendency of management and program staff to equate OIG with terms like Obey, Inquisition,
and Gotcha.

‘As the OIG community works toward increasing audit acceptance and relevance, which are basic
requisites for increasing impact, I also recall a piece of initial advice given me by my first OIG
boss. He essentially said, "Young man, when you say somebody did something wrong, you had
better be right.” This simple phrase, in my opinion, effectively and succinctly sums up the key
elements of effective OIG operations and staff requirements; namely, the need to be skeptical,
inquisitive, firm, fair and accurate.

While the Vision Statement is an excellent document and, for the most part, has been well
received by management, it js, in my opinion, the first step toward addressing concerns expressed
in the National Performance Review (NPR). The NPR concerns and much of the detail in the
Vision Statement primarily dealt with audit effectiveness and relevance, a critically important
area since audit comprises the largest component of OIG operations. However, management and
program staff concerns about audit work have evolved over a period of years as a result of
‘changed audit practices and methodologies, some of which have resulted from mandated work.

Regardless of whether we believe the criticisms resulting from the NPR study are entirely
balanced and/or fully constructive, it is necessary for the OIG community to reduce
management/OIG tension wherever appropriate so as to increase OIG effectiveness and service.
The OIG audit community, as noted in its reports and resulting management actions, performs
valuable services and contributes substantially to improved Government operations. However,
I strongly believe that we must continue these efforts, including aggressive training and on-the-
job performance, to ensure we focus on development of staff with the evaluative, analytical,
interpersonal, logic, and common sense attributes necessary to complement technical knowledge.
Emphasis should be placed on increased knowledge and understanding by all OIG staff of agency
programs and management concepts; avoidance of a cookbook audit approach; and preparation
of reports that are timely, relevant, and easily understood by recipients. Such actions should, in
my opinion, facilitate and accelerate full achievement of the principles and strategies noted in the
Vision Statement.


156

The IG has a mandate which is profound and aggressive, to both
be an agent of investigation at the highest levels of fraud, waste,
and abuse, but simultaneously to be of help to the department.
Hence, the blend of the IG as both junk yard dog and man’s best
friend. And that is what we have today. And we have a sense of
that in this panel itself.

As I argue in my testimony, I have come to an accommodation
with the IGs. They're here. They have been created. They’re going
to stay with us. at do we do with them? That’s really the ques-
tion.

Mr. Horn. The question is, have they come into accommodation
with you?

Mr. Licut. That’s right. You know, I feel like Monica Seles here
with my back to the audience.

Mr. INK. What do you think I feel like?

Mr. Licut. That’s right. Only the fact that Dwight is here makes
me feel comfortable.

I think the IGs have made some important efforts over the last
few years to respond to the legitimate pressure to do more work on
prevention.

But, as I argue in my testimony, we're still left with three basic
questions. No. 1, do we know that what they’re doing is helpful?

d the answer is, not very well. They don’t have good measures
of the value added to government. They do not have an effective
approach underway yet that really tries to estimate not whether
they have captured more crooks last year but whether they have
actually improved what government does. They don’t measure their
performance as well as they should.

Second, what might they do differently in the future? My testi-
mon; argues as the book “Monitoring Government” does that they
need to focus much more aggressively on prevention. They hide be-
hind the yellow book too frequently when it comes time to giving
meaningful advice to their departments and agencies on how they
might prevent mistakes before they happen.

‘oo many of the OIG staffs lay in waiting, seeing mistakes on
the path and not alerting their departments as to how to prevent
them.

Finally, I ask the question as to whether the IGs are well-
equipped to take on a more significant role in improving govern-
ment. And I think the jury is out on that. There are some serious
questions about the staffing capacity of the OIGs today, the
strength of their auditing and investigating teams. And I think
those are worth taking a look at as this subcommittee proceeds.

That’s a brief summary of my testimony for the committee.

[The prepared statement of Mr. Light follows:]


Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

Legislation precludes us from performing "program operating functions.” We analyze programs
and advise our customers, both management and the Congress, of ways in which programs can
be improved. Although we perform an oversight role, we are not adversaries of program
managers. IGs and program managers share a common goal of improving Government
Programs.

I must also make the point that a focus on program improvement and customer service does not
preclude the need to conduct compliance auditing. For instance, compliance auditing is a means
by which we ensure the safety of our national blood supply and the integrity and accuracy of
procedures such as mammograms -- both of which are imperative to the health of our nation.
Also a GS-14 at the Bureau of Engraving and Printing stole $2.9 million in test currency.
Auditing the Bureau’s compliance with security regulations can prevent this type of incident
from reoccurring. The job of the IGs is to accomplish their mission through a series of program
audits, compliance audits, inspections/evaluations, and investigations. Each of these contributes
significantly to overall IG effectiveness.

Audit Initiatives

The formulation of high level strategic plans and comprehensive work plans is a key to our
success. These plans enable us to adequately focus our scarce resources to high vulnerability and
systemic problem areas. In addition, they help us ensure that our plans are consistent with
agency and congressional program goals and priorities. These plans cannot, however, be
developed in a vacuum. In fact, one of our guiding principles states the fact -

“we will consult with our customers so that we may provide the types of OIG
analyses and services that best enable them to promote economy, effectiveness
and efficiency in government programs”

IGs have traditionally solicited input from senior agency managers during the work planning
process. In addition, IGs, in consultation with their program organizations, are developing
strategic plans which reflect agency goals and priorities. Finally, many 1G offices have surveyed
their agency customers to obtain feedback on how IGs' can improve their review processes and
become more effective in assisting program managers. In no way do we allow these
collaborative efforts to impinge upon the statutory independence of the IGs. Rather, we find
these efforts enable us to be more effective in carrying out our overall mission.

The following examples, extracted from the FY 1994 Joint PCIE/ECIE Progress Report,
illustrate the collaborative means by which work planning and strategic planning are conducted.

Tiause Goveroment Reform and Oversight Committee
‘Subcommittee on Government Management, Information, and Technology



189

The fifth question is: How can the |Gs be strengthened?

The IG Act omitted any reference to OIG Counsel (because, I've been told, the
Committee thought it was so obvious it did not require inclusion). One result is that a
number of \Gs who thought it imperative that they have their own attorneys,
independent of the agency's general counsel, experienced extraordinary difficulties in
‘obtaining such authority. This should be corrected. It need not require legislation.

Nowhere does the IG Act, as amended, specifically authorize the use of inspections as
an !Gtool. For many valid reasons, inspections have become an increasingly useful
vehicle for IGs, and most OlGs now rely on them heavily. Their use should be
legitimized.

| do not favor expanding IG subpoena power.

Authority for OIG special agents to carry firearms has long been a contentious issue
within the |G community. If the current "class" deputizations by DOJ prove to be
workable, and this remains to be seen, | have no problem with this approach. In any
case, provision must be made to ensure that agents who go in harm's way are
adequately protected. Experience has amply shown that they cannot rely upon calling
in other law enforcement officers; that is simply not the way to deal with sudden, life-
threatening emergencies. To be sure, the great preponderance of OIG investigative
work is aimed at white collar crime or misconduct, which rarely involves violent
behavior. But agents of mine have also been involved in such activity as undercover
work relating to the illegal sale of passports and visas. Not infrequently, it turns out that
the bad guys here are part of drug gangs, armed to the teeth. The blunt truth is that we
live in a dangerous world, where criminals have ready access to arms. When OIG
agents move in that world, they must be armed themselves and have arrest authority.

The 1988 amendments to the IG Act created IGs in more than 30 new agencies. Some
of the latter (e.g., USPS, TVA) are more than large enough to warrant OlGs. Many of
them, however, are quite small, and their OlGs may number only a handful of
employees. Nevertheless, all of them -- except for the fact that their |Gs are appointed
by the agency heads rather than by the President -- have the same exact
responsibilities and authorities as the PAS IGs. This is simply unrealistic and
unworkable.

In 1986, | chaired a PCIE effort to created a mechanism that would provide audit and
investigative resources to such relatively small agencies. We recommended, after
extensive study, that each major OIG be “allied” with one or more smaller agencies,
and be tasked to furnish the requisite coverage.

This was rejected by the Senate government Affairs Committee which, instead,
developed the small agency procedures spelled out in the 1988 amendments. A major


147

First, a strict construction reading of the law would propel the IG into a managerial
role in which the office would have a conflict of interest if IGs provided active "leadership
and coordination and recommend policies for activities", and then later reviewed these same
activities or policies as auditor and investigator.

Most, but not all, JGs have interpreted this language with restraint. Some argue that
Section 4 of the Act, and the legislative history indicate a somewhat more modest IG role, and
agree. But, regardless of how well an IG may have handled this issue, their statutory charter
has at times led department heads and the OMB to rely too heavily on IGs for good management
at the expense of a strong assistant secretary or under secretary for management which is the
appropriate place in which to lodge this lead responsibility.

Looking to an IG, rather than an assistant secretary or manager in a leadership role as
the principal advisor for whether to automate an activity, for example, places the IG in a highly
questionable position to later evaluate the wisdom of that decision. Under such circumstances,
who is to be held accountable for success or failure?

Second, as a practical matter, even if there were no conflict of interest, this broad
IG statutory charter places a greater burden on the IG offices than they could possibly
carry out effectively.

The sheer workload would be daunting. The staffing requirements would be far beyond
any reasonable expectations. I am not aware of any instance in which an JG has felt compelled
0 go to the extreme of attempting to cover every avenue that a literal reading of Section 2 might
suggest, but there certainly have been cases in which IGs have moved into non-investigative
activities for which they were not equipped, often because of Congressional pressure. These
excursions into uncertain territory waste time, and the resulting unwarranted criticism weakens
the ability of good managers to manage. In addition, IG program and project evaluation
comments of questionable validity, when interspersed with valid investigative findings regarding
abuse, tend (0 dilute the effectiveness of the investigation, weaken the credibility of the
investigation, and draw the IG into unnecessary controversy.


153

10

Third. the low priority given by the NPR to departmental management, combined with
the emasculation of the Office of Personnel Management, and the unfortunate
reorganization of OMB. is steadily increasing the vulnerability of our government to
mismanagement and corruption, in my view.

In summary, I believe that, despite some very positive features, the NPR is
increasing the vulnerability of many agencies to mismanagement and scandal. The IGs are
not equipped to handle this increased workload coming down the pike, and even if their
staffs were beefed up to better meet this new challenge, it would likely have little or no
effect on stemming the continued weakening of departmental management for which no
amount of IG activity can substitute.

Recommendations:
Finally, T suggest:

© 1G Accountability. Congress should clarify through report language that it is the intent
of the Inspector General Act that the Inspectors General are a part of the Executive
Branch as the law seems to sav.

© Realistic IG Charter. Congress should provide a narrower focus for the work of the
IGs, either through legislation or report language, so that they are not drawn into areas
for which they can rarely, if ever, develop the capability to perform at a high level of
competence. This action should strengthen the ability of IGs to conduct investigations
in the core areas of their competence.

° IG Role. OMB and departmental leadership should come to a better understanding that
an effective IG, no matter how essential, is not a substitute for effective management
leadership within a department.

© Early Warning and Rapid Action. OMB should provide leadership in better ensuring
that departmental leadership has the capacity to (a) quickly detect emerging problems of
mismanagement or corruption and (b) take immediate corrective action, without having


46

officer or employee subordinate to the entity head. It is expected that entity heads
will apply agency budget reductions, redistributions, sequestrations, or pay raise
absorptions to the Office of the IG with due consideration of the effect that such
application would have on the Office’s ability to carry out its statutory
responsibilities.

With respect to designated Federal entities subject to Executive Branch budget
review:

° The entity head is wholly responsible for the entity budget request
that is submitted to OMB. The request for the Office of the IG is an
integral part of the entity submission.

© OMB Circular A-11, Preparation and Submission of Budget Estimates,
requires that each designated Federal entity include the following
information in its budget submission: budget authority and FTE levels
for PY through BY for the Office of Inspector General, as well as a
concise narrative justifying the funding levels for the Office of
Inspector General. These data provide the basis for the statutorily-
required statement on the IG in the Prasident’s Budget.

° While the entity head is responsible for budget formulation and
execution decisions affecting the IG, the IG should, as a matter of
standard practice, have an on-going dialogue with the OMB budget
examiner about Office of Inspector General operational plans,
activities, and accomplishments.

IV. 1G OPERATIONS

A. AUDITS AND INVESTIGATIONS

Legal Authoritv/Requirement: The Inspector General shall provide policy direction
for and conduct, supervise, and coordinate audits and investigations relating to the
Programs and operations of the entity. (5 U.S.C. App. 3, s. 4(a))

The Inspector General shall make such investigations and reports relating to the
administration of the programs and operations of the entity as are, in the judgment
of the IG, necessary or desirable. (5 U.S.C. App. 3, s. 6(a)(2))


Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

provided the Secretary 34 major change options, which were major components of
the Secretary's blueprint for change.

* The Environmental Protection Agency (EPA) OIG worked on cooperative
projects with Agency managers to improve the integrity of scientific and financial
information and Superfund accounting. The OIG also conducted a broad, top
level review of the EPA Information Resources Management (IRM) program,
Working cooperatively with Agency personnel, the OIG catalogued all significant
causes of EPA IRM problems. The OIG also reviewed the EPA financial
management program to identify problems and recommend solutions. Further,
the OIG worked extensively with the Agency to reengineer its Federal Managers’
Financial Integrity Act process.

+ The OIG at the Agency for International Development (USAID) is a member of
the Quality Council. The Quality Council is a part of the USAID reinvention
effort. The USAID has been identified as a reinvention laboratory under the
National Performance Review (NPR). The OIG also has a representative on the
reengineering referencing group, another activity of the NPR reinvention effort.
The group is reviewing the Agency's operating systems that are believed to be
overly cumbersome and extremely inefficient.

+ The OIG at the Small Business Administration (SBA) has become an active
participant in numerous Agency Task forces formed by SBA to support the
Agency's Performance Agreement between the Administrator and President
Clinton. During fiscal year 1994, the OIG participated in over 30 task forces
throughout the Agency. The task forces addressed the general areas of business
loans, minority enterprise development, disaster loans, Government contracting,
economic development and SBA administration.

Role and Relationship of IGs

In fulfilling our mandated mission, we, as IGs have two distinct roles. The first is to promote
efficient and effective program management and deter future problems and the second is to find
and report on current problems. Thus our job is not only to recommend positive changes but also
to, from time to time, be the “bearer of bad news.” Additionally, we are among the very few
officials whose direct “customers” include both agency heads and the Congress. Our customer
service obligations also extend to those program administration officials who act on IG
recommendations, as well as agency employees and the taxpayers who benefit from the IGs"
review of Government programs and operations

rouse Goverament Reform and Oversight Comminter Ropar 1995
Subcommittee on Goverament Management, Information, and Technology Pages


40

APPENDIX C
BEST PRACTICE PAPER

INSPECTORS GENERAL IN DESIGNATED FEDERAL ENTITIES:
KEY STATUTORY PROVISIONS AND IMPLEMENTING GUIDANCE

INTRODUCTION

The Inspector General concept was broadly introduced to the civilian side of the
Federal Government by the Inspector General Act of 1978 (IG Act). In 1988, the
IG Act was amended to establish IGs in 33 designated Federal entities (DFEs).
Separate legislation established an equivalent IG at the Government Printing Office.
These IGs have the same authorities and responsibilities as the “establishment”
1Gs, but they are appointed by the entity heads (rather than by the President,
subject to Senate confirmation).

Within the Federal structure, statutory IGs are unic they are part of their
agencies/entities, but they are operationally independent; and, while subject to the
general supervision of the agency/entity heads, they have a unique reporting
relationship with the Congress. Understanding and implementing the IG role in a
manner that benefits the agency/entity can be a difficult process.

This document explores key provisions of the IG Act, and provides guidance for all
designated Federal entity heads and IGs in implementing those provisions. The
paper addresses the following areas: selection, appointment, removal, or transfer
of DFE Gs; relationship between the entity head and the IG; administration of
Offices of Inspector General; IG operations; and IG access to records.

4, SELECTION/APPOINTMENT/REMOVAL/TRANSFER OF DFE IGS
A. SELECTION AND APPOINTMENT

Legal Authority/Reauirement: The agency head shall select the IG in accordance
with applicable laws and regulations governing appointments within the designated
Federal entity. (5 U.S.C. App. 3, s. 8E(cl)


120

Finally, { have worked with and for several Jegal firms advising them on Inspector
General Audits and Investigations. Thus I have seen the Office of Inspector
General and the Inspector General Concept from several different perspectives.

My comments today reflect these experiences.

Our panel today was asked to address specific areas for comment and/or
consideration and I will address these, however, because I have been closely
associated with the Inspector General community and the Audit-Investigation and
Management activities for over 30 years, there are some other areas I'd like to

address as well.

Question 1: How are the OIG’s currently performing?

Mr. Chairman - Considering the lack of support, the seemingly lack of respect for
the Inspector General Concept, and the efforts of this NPR to change the direction
and focus of the Inspector Generals - I believe the 60 some odd Inspector Generals
are doing about as well as can be expected. Some are outstanding, some are doing
fairly well, and there are some I suspect who need some help. I believe the tone of
the National Performance Review and the downsizing activities of the
Administration and the Congress have not made the Inspector Generals’ jobs

easier. Quite the contrary. However, | believe the Congress can assist the IG’s


19

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14

‘Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

PCIE Initiatives

The PCIE is the means by which the IG community support each other through joint projects and
initiatives to review government wide programs and improve the overall effectiveness and
efficiency of the community at large. We use a committee structure to carry out PCIE initiatives.
Recently, we reorganized and streamlined the Council committee structure to promote maximum
impact and participation. For example, we eliminated “project-specific” committees and
elevated those subcommittees we deemed important to full committee level. There are 6
committees (Audit, Evaluation & Inspections, Investigations, Integrity, Legislation, and
Professional Development). Most government wide reviews fall within the three functional areas
of audit, inspections and investigations. For those undertakings that do not “cleanly” fal} within
an established committee, we create a task force to manage the project to completion. Examples
of current PCIE initiatives include:

* Review of procurement contracting across Government under OMB Circular A~
16;

+ Review of Electronic Benefit Transfer programs focusing on program security,
integrity and validity measures;

* Development of a draft Executive Order to establish the procedures for
investigating “administrative” / non-criminal allegations against IGs;

* Monthly forums sponsored by the Professional Development Committee on
various topics of interest to IGs and their executive staffs; and

* A task force on IGnet, the IG internet resource for public access to IG audit, inspection
and semi-annual reports.

These activities are important in that they allow IGs to share knowledge, expertise, resources and
lessons leamed. In addition, they provide consolidated recommendations and actions from which
the Congress and Administration can make informed policy decisions.

Conclusion

These are particularly challenging times for OIGs that are engaged in investigating, auditing, and
evaluating Federal programs in the midst of dramatic change and reinvention. Nevertheless, itis
during these times of program consolidations, agency restructuring, work-force streamlining, and
process reengineering that we have a unique opportunity to apply our skill and objectivity to help

Tioue Government Reform and Oversight Committee “ages, 1955
Subcommittee on Government Management, Information, and Technology Page tt



3

of where we have been and where we need to go. And I believe the
IGs are in a unique position to help program managers and the
Congress find ways to achieve a more effective and efficient govern-
ment.

We all know that with diminished resources, fundamental im-
provements are needed. On my second chart, we present a view of
the key issues of the IGs. Program managers and IGs share a com-
mon goal of promoting better program performance. And as such,
we're collaborating more closely with decisionmakers to ensure that
our work products provide good, timely, and factual information to
enable them to make appropriate and informed policy decisions.
And we are working with management to identify those areas most
in need of our help.

I must caution to add, though, that sometimes, relations can be
strained, as we are often the rers of bad news. Reductions in
agency resources and changes in service delivery have led to the
implementation of larger and more complex information systems.
The IGs are working to ensure the integrity of these systems. Good
systems lead to good information, which is needed for sound deci-
sionmaking.

Sophisticated systems and enormous growth in the Federal ex-

nditures have led to more sophisticated crime, crime that is

arder to detect. We must find new ways to uncover the wrong-
doing, as well as devise systems improvements to protect against
future losses. While there are other government law enforcement
agencies, the IGs specialize in fighting fraud against agency pro-
grams. For example, my office is the primary Medicare and Medic-
aid health care investigations unit in government.

Another issue facing the IGs is the implementation of the Chief
Financial Officers Act. Inspector General Lau will discuss this
issue during the next panel. Let me say, however, that the IGs rec-

ize how important it is to have an audited financial statement
of the Federal Government. Our challenge is to help our agencies
in developing the kind of fair and accurate accounting of taxpayers’
dollars that the American people deserve.

Finally, the IGs acknowledge the need to protect the integrity of
and the public’s confidence in their own offices. Integrity is the
foundation that our work rests upon. Accordingly, the PCIE estab-
lished an Integrity Committee to investigate criminal and non-
criminal allegations against IGs. Mr. Esposito will discuss this
issue in further detail this afternoon.

I hope that during the course of this hearing, we will have the
opportunity to further discuss these issues, and I'm available for
any questions.

e prepared statement of Ms. Brown follows:]


132

“An IG wears a hat with four sides: one side auditor, one side investigator, one
side ombudsman, and one side management tool for the prevention of fraud, waste,
and mismanagement. His or her success depends on how well and how
professionally he or she wears this hat; and which side you use to approach a given
problem. The IG should take the JG Act very seriously; yet, they should never

take themselves seriously.”

This concludes my statement and I’l] be happy to answer any questions --


110

so forth.” “Well, are you achieving the goals of the agency?” So the
results of that, we’re trying to move toward what are the goals of
the agency, what are the outputs, can we measure them in any ef-
fective way?

And to what degree is the fact that we haven’t converted to such
a system a hindrance in Inspector’s General judging a particular
agency and its efficiency and effectiveness? Is that a problem?

Ms. Lau. Well, Chairman Horn, I believe you're referring to the
Government Performance and Results Act in particular?

Mr. Horn. That's correct.

Ms. Lau. We did some survey work of the IGs and found that
various IGs are approaching their responsibilities under the GPRA
in different ways. As you mentioned, a traditional function of IGs
has been to look at economy, efficiency, and effectiveness even be-
fore the GPRA Act was passed.

Since GPRA was passed and the requirement for strategic plans,
for performance measures, and, as you mentioned, definitions of
what will be our measure of success, we have a variety of depart-
ments doing work in that area. At Labor, the IG there has been
auditing performance measures in the early stages of that depart-
ment’s implementation and has been advising the programs on
their measures.

At HHS, Mrs. Brown intends to work on the development of per-
formance measures when invited to do so by the programs. At
Treasury, we're trying to take it up front and work with members
from the Assistant Secretary of Management's staff.

We're working at the front end of the process, and we're design-
ing with them some self-assessments which the bureaus can use to
measure where do they need to be at this stage of the process, how
are they doing, this is what is expected of them, this is what the
IG in assessing their progress in implementing GPRA will be look-
ing at.

d so we're trying at Treasury to take an up-front approach in
working with managers so that they can both accomplish the objec-
tives of GPRA for themselves and that we will have something to
measure when we get there.

Mr. Horn. Would you like to add anything to that, Mr.
DeGeorge?

Mr. DEGEORGE. We have a particular emphasis on financial
statements with performance measures as necessary ingredients.
That is pretty much an overwhelming task for us. We feel that if
we can get the agencies to identify and to measure performance as
a standard of output at this point in time, it will be enough to keep
us Pine, for the next year or so.

ir. HorN. You mentioned Labor. Is the Inspector General of
Labor in the room at all?

{No response.]

Mr. Horn. I just wanted to congratulate him, because I got my
shoes shined yesterday in the Rayburn barber shop. And instead
of merely old magazines, they had the Inspector General’s report
of the Department of Labor. [Laughter.]

And I found that intriguing. I thought either this was a great
outreach program that the IG and Labor has—and since I had to
wait through somebody else shining their shoes, I did read a num-


69

Ms. Lau. This afternoon, I would like to focus in particular on
IG responsibilities and concerns under the CFO Act. As time per-
mits, I will also comment on the other issues detailed in my writ-
ten statement.

The CFO Act, together with the Government Management Re-
form Act, imposes substantial new audit requirements on the IG
community. The CFO Act requires that certain activities of govern-
ment agencies have annual audits of their financial statements.

These audits range in size and complexity from small trust funds
with less than $500,000 in assets to huge service organizations like
the IRS, which collects over $1.2 trillion in revenues per year, the
Social Security Administration, which disburses over $300 billion
in benefits annually, and manufacturing entities, such as the U.S.
Mint, with assets in excess of $10 billion.

These audits in themselves will be difficult. Compounding that
difficulty is the fact that many of these organizations have never
undergone financial statement audits. Experience shows that early
financial audits present unique challenges to the agency and audi-
tor alike, As you know, the requirements of the CFO Act have been
expanded.

‘ach executive agency must have audited department-wide fi-
nancial statements for fiscal year 1996. And the first audit govern-
mentwide consolidated financial statement is required for fiscal
year 1997, just 2 years from now.

The Federal audit community must work together if these audits
are to be accomplished. GAO, as principal auditor for the govern-
mentwide statements, will need to rely on the audit work that the
IGs perform on their respective department-wide statements.

Mr. Chairman, I am particularly concerned that the audit plans
for performing this work and building toward it are not being
linked with the budget decisions of the Congressional Appropria-
tion Committees. Most IGs and the GAO will face budget cuts
through and beyond fiscal year 1996. To successfully complete the
first governmentwide audit, we must bring together in a unified
plan the budget decisions for the IG offices and GAO over the next
several fiscal years.

The audit of the governmentwide financial statement will be the
largest financial statement audit ever performed. We cannot make
budget decisions for individual agencies in a vacuum and expect
somehow to be successful in our goal. These multiple decisions are
interrelated. They need to be planned now over several years, and
these commitments must be kept, or the mandates of the act can-
not be achieved.

For example, 18 months ago, my own audit office was almost to-
tally devoted to compliance and performance audit work. In con-
trast, today, half of our audit resources have been diverted to fi-
nancial statement audits, Primaril those of the U.S. Customs
Service and the Bureau of Alcohol, Tobacco, and Firearms. To-
gether, these two bureaus generate over $36 billion in revenues,
more than double the annual sales of Disney and ABC combined.

In closing, Mr. Chairman, legislation such as the IG Act and the
CFO Act recognize that Congress and Federal managers must have
reliable information to help them make the hard fiscal decisions
facing the Nation today and in the years ahead.


24

external review process for investigations in line with the review
process that is currently mandated for audits.

Designated IGs support the vision statement, as appropriate, to
reinforce practices, especially on the audit side, that appeared nec-
essary to address the criticism with respect to the acceptance, rel-
evance, or usefulness of audit work.

The PCIE/ECIE annual report for fiscal year 1994 identifies
some designated IG initiatives intended to improve the quality of
our work, ensure effective operations consistent with scarce re-
sources, and improve communications with persons responsible for
initiating actions without compromising the mandated and essen-
tial concept of independence.

On a personal note, I believe the vision statement is but a first
step. It needs to be aggressively supplemented with actions to re-
duce or eliminate the underlying causes of concerns about audit
work; namely, management’s perceptions about audit quality and
relevance.

Also, as currently issued, the vision statement is a unilateral
declaration by IGs, The issuance of a management statement sup-
porting the principles noted by IGs would, in my opinion, better en-
sure mutual acceptance and implementation by both IGs and man-
agement.

‘With respect to IG audit and investigative priorities, the des-
ignated IGs’ actions and programs are consistent with the missions
and responsibilities noted in the IG Act. Risk assessments and
strategic planning are important elements for identifying where
scarce resources should be used to accomplish IG Act responsibil-
ities and have meaningful impacts on improving government oper-
ations and service delivery.

We believe the role and relationship of IGs with the rest of their
organizations is very unique and IGs will always be in the position
of straddling a barbed wire fence. Extensive balancing actions will
always be required to fulfill IG Act requirements and positively
contribute to improved government operations. Thus, effective
working relationships based on respect and acceptance are nec-
essary, and simply achieving warm and fuzzy relationships is in
neither party’s best interests.

Designated IGs have frequent contacts with entity heads and
senior managers and often are confronted with a wide degree of re-
quests for input, from entity policy to direct IG issues. Thus, our
relationships are subject to some interesting and challenging situa-
tions; and the establishment of positive relations within the context
of our mandated responsibilities is necessary.

With respect to independence and resources, we continue to expe-
rience some constraints. As a practical matter, entity heads who di-
rectly select designated IGs tend to view the general supervision
provision of the IG Act as more controlling, especially with respect
to budget execution.

Although few designated IGs have been removed, the absence of
removal for cause provisions permits the instantaneous removal or
transfer of designated IGs regardless of civil service protections;
and such potential action can have a negative impact on IG deci-
sions.


143

In part, this weakness is caused by congressional offices which
keep drawing upon limited IG resources for investigations affecting
an individual constituent, sharply reducing the attention IGs have
available to devote to broader issues.

On paper, IG offices are a part of their agencies and report to
the agency head. As a practical matter, many IGs regard the Con-
gress as their true boss, and others believe they report to both the
agency head and the Congress. But managers think they report to
no one, and we often hear the complaint that no one oversees the
overseers.

The two boss problem creates confusion over IG priorities and
sometimes weakens the capacity of agency heads to call upon the
IG for quick investigation of problems before they grow more seri-
ous and become public scandals. Such delays also postpone the
ability of managers to take corrective actions.

I regard as unaceeptable any situation in which a program man-
ager is held accountable for that program and yet may be restricted
in his or her ability to utilize existing resources needed to ensure
the integrity of the program.

Still another reason I urge a narrower focus for the IGs is that
there will be, I think, an enormous impact on their workload from
the NPR and GPRA, plus the financial statement work that has al-
ready been mentioned. First, any governmentwide series of restruc-
turing involves a period of confusion, mistakes, and potential
abuse, adding to important oversight workload.

Second, most of the desirable aspects of the NPR—and there are
many—such as more delegations and flexibility nonetheless in-
crease the vulnerability to mismanagement when Jacking the
guidelines and program oversight required for successful decen-
tralization.

Third, I wish to stress that the low priority given by NPR to de-

artmental management, combined with the emasculation of the

ffice of Personnel Management and the unfortunate reorganiza-
tion of OMB, is, in my view, steadily increasing the vulnerability
of our government to mismanagement and corruption.

I would urge that the Congress clarify the role of the IGs and
provide a narrower focus, and step up its oversight role in review-
ing the failure of the NPR to address the need for competent pro-
fessional management.

{The prepared statement of Mr. Ink follows:]


10

Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

private lenders. Loan volume under the program will grow exponentially. To
assist the Department in the development of the Direct Loan program, the O1G
chartered an interdisciplinary advisory team of accountants, technology
specialists, auditors and program analysts, who will provide planning,
implementation and follow-through assistance to help ensure that appropriate
controls are designed into the system. The OIG also provided assistance through
advisory team participation in negotiated rulemaking sessions for the development
of implementing regulations.

‘+ The Department of Housing and Urban Development (HUD) OIG devoted
priority resources to the development of a new anti-crime initiative, “Operation
Safe Home,” the goal of which is to stop major abuses in HUD programs that
result in unacceptable living conditions for the millions of needy people who look
to the HUD for help. Facilitated by the OIG, “Operation Safe Home” brings the
coordinated resources and expertise of the HUD, the Departments of Justice and
Treasury, and the National Drug Control Policy Office, as well as state and local
law enforcement agencies and public housing agencies, to bear on violent and
white collar crime in public and assisted housing.

‘+ The OIG Office of Investigations, at the Department of Veteran's Affairs (VA),
detects and investigates means by which employees defraud the program and
operations of the VA. In each instance, management was advised of the weakness
or complete breakdown in the system that allowed the illegal activities to take
place. The O1G then worked with management to enact changes to preclude
recurrence, For example, after arrests and convictions for large-scale drug
diversion at one medical center, a Management Implications Report was prepared.
The Director of the VA Pharmacy Service then convened a 3-day meeting of
various chief’ of pharmacy from different medical centers to discuss ways to
preclude that type of diversion at other VA medical centers.

* In an effort to curb runaway Medicaid costs we, in the HHS OIG, have formed
partnerships with state auditors and evaluators, as well as staff at the Health Care
Financing Administration, to undertake joint projects for improvement of the
program. The projects are intended to produce mutually beneficial results and
savings at the Federal and state levels. The OIG is sharing the methods and
results of earlier Medicare and Medicaid projects to provide state auditors with
leads for cost savers. In turn, the OJG will use the results of the state audits to
estimate the national impact of successful recommendations implemented at the
state level. Partnerships between OIG and state auditors/controllers in North
Carolina, Louisiana, New York and Massachusetts are already completed and

Tiouse Goverament Reform and Oversight Commaliree Rogan T1955,

‘Subcommittee on Goverament Management, (aformation, and Technology

Page7


141

7

More important, however, is simplification of what goes into the IG semiannuais. They
have become, all too often, monstrosities of arcane information which few people
require and fewer people read. This has resulted in part from an unhealthy competition
among IGs to produce reports ever more glossy and attention-getting, in part from an
equally unhealthy competition within the OIG to see which office gets more coverage,
and in part by the 1988 amendments which, in trying to correct the 1978 Act's
deficiencies in data requirements, levied mind-boggling additional requirements.

Even before the 1988 amendments complicated the picture, I know only a couple of
hardy staffers on the Hill who dutifully plowed through all of the IG semiannuals. Now,
with expanded reporting and some sixty different |G semiannual reports turning up
every half year, | very much doubt whether anybody reads them all in their entirety.
‘That truly would be cruel and inhuman punishment.

My suggestions:

-- First, require each IG to prepare each report -- annual or semiannual -- with a
list of those problem areas in his or her agency which, in the IG's opinion, warrant the
attention of the Congress. Each of these should be described very briefly. There may
be none, and there should be an absolute maximum of ten.

-- Second, individual narrative coverage should be provided only to those reports
which the IGs have reasonable grounds for believing will be of interest to the Congress
and/or their own agencies. Such coverage should be no longer than needed to impart
the gist of major findings or other important data. If anyone wishes to request a copy of
any particular report, that is easily enough arranged; there is no excuse for lengthy
narratives in the report. There will, of course; as required now, be a complete list of all
issued reports in the appendix.

~- Third, maximum use throughout should be made or computer graphics.

-- Fourth, data requirements should be thoroughly scrubbed by a joint
congressional staff/PCIE task group.

-- Fifth, glossy covers and elaborate pictorials (illustrating narratives) should be
flatly banned.

This concludes my presentation. | of course will be happy to answer any questions you
may have.


29

THE ACTIVITIES AND INITIATIVES OF
THE PCIE AND ECIE

The Executive Council on Integrity and Efficiency (ECIE) is charged with promoting integrity
and effectiveness in Federal programs. in accomplishing this goal, the ECIE focuses on two
primary objectives: First, promoting integrity and efficiency and detecting and preventing fraud,
waste, and abuse in Federal programs; and second, increasing the professionalism and
effectiveness of Office of Inspector General (OLG) personnel.

Chaired by the Deputy Director for Management of the Office of Management and Budget
(OMB), ECIE is composed of the Inspectors General (IGs) at the 31 designated Federal entities;
the IG at the Government Printing Office (hereinafter included as a designated IG); and

° the Vice Chairperson of the President's Council on Integrity and Efficiency
(PCIE),

° the Controller of the Office of Federal Financial Management at the OMB,

© the Assistant Director of the Criminal Investigative Division of the Federal Bureau
of Investigation,

° the Director of the Office of Government Ethics,
° the Special Counsel of the Office of Special Counsel, and
© the Deputy Director of the Office of Personnel Management.

‘The ECIE was established by a May 1992 Executive Order that expanded a 1981 Executive
Order establishing the PCIE. (The PCIE consists primarily of Presidentially appointed IGs, while
the ECIE IGs are appointed by the heads of the entities they serve.) Specifically, the May 1992
Executive Order elevated the status of what was formerly a Coordinating Conference of the
PCIE; and the membership of this group now basically comprises the ECIE. The ECIE and the
PCIE share the same overall mission and objectives.

The ECIE IGs provide leadership for audits, investigations, legislative and regulatory reviews,
and other activities in a variety of large and small Federal entities. The entities at which the
ECIE IGs serve have a combined budget of approximately $68 billion and functions ranging from
ensuring adequate postal service to regulating financial institutions and overseeing science and
research grants, arts endowments, antitrust enforcement, securities regulation, consumer product
safety, farm credit, and public broadcasting.

The PCIE Vice Chair has commented on the activities and initiatives of the PCIE. We support
and participate, where applicable, in PCIE activities, including membership on PCIE standing and
ad-hoc committees and participation on Goveramentwide projects. I believe there is an effective
and cooperative working relationship with PCIE that far exceeds my involvement as a PCIE
member. For example, within available resource constraints, PCIE members have provided

4


166

retary, it would go to the top of the agency for review. The Sec-
retary of State would actually review these things. I found that
was a very effective way of getting people’s attention.

Mr. Horn. That’s a very helpful idea. I had not known that,
about TR and Hay and the inspectors. It sounds like the Las Vegas
justices of the peace system, where they get several hundred thou-
sand a year on marriage licenses.

But let me ask you, Mr. Funk, you had noted you would like to
comment on some of the testimony earlier that has been given. And
I would appreciate hearing your reaction.

Mr. FuNK. I was horrified to hear from IG Lau that the Treasury
Department is spending 50 percent of its IG time now on CFO com-
pliance. Shortly before I left my job, I had a very grim session with
Members of the Hill—not this committee, another committee—and
with OMB. Because I told them flatly that I was on the verge of
saying, “I’m not going to comply with the CFO Act.”

One of the ‘ncredibl valuable things about the IG Act is that it
says, “The IG and only the IG will determine what he or she is
going to audit or investigate”—or inspect, by extension. But now,
the CFO has come along, and the CFO Act says, “The IGs have to
audit every financial statement every year.”

And we have an increasing share of IG resources now going into
reviewing financial statements, which means that there’s cor-
respondingly less to do on the Inspector’s General decision about
what is worth looking at in the department. I think that can be a
tragic mistake. I think that compliance with that is going to get
worse and worse as time goes on, because there are more and more
statements.

I’m a little alarmed, also, at the possibility under the new gov-
ernment reform measure relating to performance measures. There’s
a tendency now in the case of some departments to want their IG
to audit all performance measures, whether or not it’s related to a
specific audit, because they want to have some kind of holy water
thrown on performance measures.

And then that coming on top of the CFO Act fills me with consid-
erable horror at taking away good talent from performance audits
to get at the guts of how well agencies are doing their business to
something which may be of peripheral importance, no matter how
critical it may be in another aspect. That was one of the things I
wanted to say.

Mr. Horn. How about a second thing? Have you shot your 16-
inch cannon with that one?

Mr. FUNK. The question is disturbing about why IGs continually
uncover similar problems in similar agencies, in counterpart agen-
cies, and nothing’s ever done about the basic problem itself. I met
with one of the permanent UnderSecretaries in London when I was
there on business some years ago. and she was describing to me
a unique British institution called a “scrutiny.” It’s a wonderful
British term, too, a “scrutiny.”

What they do there, is pick a department, say the Home Min-
istry, the Foreign Affairs, Defense, whatever it may be, and they
get together a team that’s always headed by somebody in the pri-
vate sector. In the case of the one I was looking at, it was the presi-
dent of the Marks and Spencer Department Stores. That person


98

MEETINGS AND MINUTES ARE MADE OF THE PROCEEDINGS. THE
FBI PROVIDES ALL MEMBERS OF THE INTEGRITY COMMITTEE
FULL COPIES OF EACH ALLEGATION TO BE CONSIDERED IN
ADVANCE OF THE MEETING TO GIVE THEM TIME TO READ AND
CONSIDER THEM.

THE INTEGRITY COMMITTEE MEETS AT LEAST
QUARTERLY AND REVIEWS THE ALLEGATIONS. IN REVIEWING AN
ALLEGATION THE FIRST ISSUE THE COMMITTEE CONSIDERS IS iF
THE ALLEGATION FALLS WITHIN THE COMMITTEE’S PURVIEW. IF
THE COMMITTEE DECIDES THAT THE ALLEGATIONS SHOULD BE
REFERRED ELSEWHERE, IT VOTES TO REFER THE ALLEGATIONS
TO THAT AGENCY MOST COMPETENT TO DEAL WITH IT. FOR
INSTANCE, IF THE ALLEGATIONS ARE AGAINST INDIVIDUALS
BELOW THE IG LEVEL, THEY ARE REFERRED TO THE IG. IF THE
ALLEGATIONS INVOLVE PROTECTED PERSONNEL PRACTICES,
PRIMARILY VIOLATIONS OF THE PROVISIONS OF THE WHISTLE
BLOWER PROTECTION ACT, THEY ARE REFERRED TO THE OFFICE
OF SPECIAL COUNSEL. ALSO, THE INTEGRITY COMMITTEE CAN
REFER THE ALLEGATIONS TO ANY OTHER AGENCY OF ITS
CHOICE. UPON REFERRAL, THE MATTER IS CLOSED WITH A

4


140

argument presented against our recommendation was that the big IGs would neither
understand nor adequately address the problems in the small agencies.

In 1987, | moved to State where, shortly after, the Congress designated me also as IG
of the Arms Control and Disarmament Agency. | thus had to live with precisely the
same arrangement for ACDA as we had recommended the previous year for all of the
smaller agencies. It worked fine. There was no extra cost for creating a new IG front
office for ACDA. We simply billed ACDA for the actual hours expended for audits,
inspections, and investigations. And, in short order, we had a crew of auditors and
inspectors who were sufficiently knowledgeable about ACDA to provide that agency
with informed and savvy coverage.

| think that a similar set-up would work well across-the-board for most of the smaller
agencies which now have their own OlGs. It would significantly enhance the quality
and scope of independent oversight of these agencies and, by no means least, would
save a lot of money.

The sixth and last question is: How should the QIGs report on their activities?

If by reporting, this refers to the continuing body of intemal reports produced by each
OIG, | think little change is required. | do think, however, that the utility of audit reports
could be improved if they were turned out more quickly. Too often, by the time an audit
report is issued, its contents are so stale as to be of marginal interest, except possibly
to historians.

And | do not think, | know, that audit reports would be vastly more effective if they were
written plainly, with no recourse to jargon or;other gobbledygook. To this day, | am
convinced that several big scandals could have been averted if the auditors who
reported on their genesis would have written more clearly and bluntly, taking into
consideration the fact that most people who read them lacked an appreciation of
“auditese." For example, when an auditor writes that "internal controls are weak," this
is very meaningful to other auditors and perhaps financial managers, but it means little
to the average layman -- whose eyes glaze over at the very mention of internal
controls. | take particular, if immodest, pride in the readability of the audit reports we
turned out at State. They may not have been of Hemingway stature but by God most
were interesting and some even exciting,

If, by reporting, the question refers to the semiannual IG reports to the Congress, | think
that very substantial change is required.

For one thing, | believe that annual reports are sufficient, inasmuch as IGs have
Statutory sanction for submitting, at any time, “seven day letters" to address especially
egregious situations which warrant early attention by the Hill.


91

Our work in computer systems operations has led to cost reductions at the Department's
Springfield Computer Center, to better management of computers and data at various data
centers, to improvements in computer-assisted survey information collection at the Census
Bureau, and to better controls over microcomputer software. We have also helped the
Department achieve more efficient and effective organization and staffing of some of its systems

and telecommunications functions.

‘Our work has shown that IGs can make substantial contributions to improving the planning,
acquisition, and management of information technology. With the combination of our systems
technical and management experts; a proactive approach; and a willingness and ability to provide
advice, assistance, and consultation, we have been able to identify the high-leverage systems
design, acquisition, and management issues and to offer and help implement practical, timely, and
effective solutions to problems. On some programs we have correctly predicted problems and
identified solutions years before the issues were even recognized by program and agency
managers. On others, our work has helped to bring about improvements in systems acquisition
management and operations in various Commerce agencies, including NOAA, Census, and PTO.
‘However, our efforts at oversight are thwarted when agency and program managers lack the
experience and education needed to fully understand our analysis and effectively implement our
recommendations. While improving oversight is extremely important, improvements in
information technology planning, acquisition, and management cannot be obtained without

improvements in the skills of the workforce. No amount of oversight can compensate for the


ll

‘Statement of June Gibbs Brown
Inspector General, Department of Health and Human Services

programs in 27 other states are ongoing. The OIG is using that same approach
with other Federal/state programs.

Investigations

In addition to conducting audits and inspections, the IG Act requires IGs to provide policy
direction for and to conduct, supervise and coordinate investigations relating to their agencies’
programs and operations. Prior to the passage of the IG Act in 1978, audits and investigation
activities were not coordinated within agencies - if an investigation unit existed at all. During
the life cycle of an investigation, OIGs work cooperatively not only within their own office but
with other Federal, State and Local law enforcement officials as well. Because OIGs often work
cases with the FBI, the Assistant Director of the Criminal Investigative Division of the FBI is a
member of the PCIE.

The OIG investigations cover a full range of criminal and administrative issues as follows:

‘A. OIG investigations of contractors, program participants and Government
employees can lead to criminal and/or civil prosecutions. ‘These prosecutions
result in convictions that carry penalties such as prison terms, fines, settlements
and recoveries to the Government. During fiscal year 1994, PCIE OIGs working
independently, or with other Federal and non-Federal investigative agencies,
obtained 4,433 successful prosecutions, including pretrial diversions.

B. OIG investigations can result in the suspension, debarment or exclusion of
individuals or entities doing business with the Federal Government. During FY
1994, a total of 4,148 debarments, exclusions and suspensions were imposed on
individuals and entities doing business with the Federal Government.

C. Investigations conducted by OIGs often lead to recovery of money or
property. Investigative recoveries come from a variety of sources including:
recoveries made during investigations, legally ordered fines and penalties,
restitutions and recoveries, out-of-court settlements or penalties imposed through
administrative proceedings. Due to PCIE OIG investigations, in FY 1994, over
$1.8 billion recovery dollars were retumed to the United States Treasury,
program, trust or operating funds, or other Federal and non-Federal entities
victimized.

D. OIGs are also responsible for investigating Federal employees suspected of
wrongdoing. In FY 1994, OIG investigations led to 2,970 personnel actions.

FHouse Goverament Reform and Oversight Commltice Ragan 1 1995
on Gi . tion, and Techoology Paget



97

IF THE PUBLIC INTEGRITY SECTION DETERMINES THAT
THE ALLEGATIONS WOULD CONSTITUTE A PROSECUTABLE
VIOLATION OF FEDERAL CRIMINAL LAW, THE ALLEGATIONS ARE
REFERRED TO THE FEDERAL BUREAU OF INVESTIGATION FOR A
CRIMINAL INVESTIGATION. UPON THE COMPLETION OF THE
CRIMINAL INVESTIGATION, THE INTEGRITY COMMITTEE MAY
PURSUE ANY ADMINISTRATIVE ALLEGATIONS RELATED TO THE
CASE.

IF THE PUBLIC INTEGRITY SECTION DETERMINES THAT
THE ALLEGATIONS WOULD NOT CONSTITUTE A VIOLATION OF
FEDERAL CRIMINAL LAW, THE ALLEGATIONS ARE PRESENTED AT
THE NEXT QUARTERLY INTEGRITY COMMITTEE MEETING FOR AN
ADMINISTRATIVE REVIEW.

THE INTEGRITY COMMITTEE IS MADE UP OF THE
SPECIAL COUNSEL OF THE OFFICE OF SPECIAL COUNSEL, THE
DIRECTOR OF THE OFFICE OF GOVERNMENT ETHICS, AND THREE
IGS FROM THE IG COMMUNITY ON A ROTATING BASIS. A
REPRESENTATIVE FROM THE PUBLIC INTEGRITY SECTION
ATTENDS THE MEETINGS IN A CONSULTATIVE CAPACITY, BUT IS
NOT A SITTING MEMBER OF THE COMMITTEE. 1 CHAIR THE

3


102

ALLEGATIONS AGAINST THOSE IN THEIR HIGHEST RANK. WE
REMAIN COMMITTED, HOWEVER, TO THE BELIEF THAT IT IS THE
INSPECTOR GENERALS’ ULTIMATE RESPONSIBILITY TO "POLICE
HIS OR HER OWN SHOP" AND MAINTAIN THE OVERALL QUALITY
AND INTEGRITY OF INVESTIGATIVE AND AUDIT STANDARDS
WITHIN THEIR OWN OFFICES.

IT HAS BEEN A PRIVILEGE TO HAVE HAD THE
OPPORTUNITY TO ADDRESS THIS COMMITTEE TODAY AND
WOULD BE PLEASED TO ANSWER ANY QUESTIONS AT THIS TIME.

THANK YOU VERY MUCH.


118

My name is Charles L. Dempsey. I am pleased to appear this afternoon before the
subcommittee on Government Management addressing Inspector General
Oversight. I have had private and public sector careers and my views on Inspector
Generals and the Inspector General Concept has been influenced by these

experiences.

I am a consultant to government and business on management control, integrity
and ethics and fraud, waste and management issues. I was Inspector General at the
Department of Housing and Urban Developing (HUD) from 1977 to January 1985,
nominated and reaffirmed by both President Carter and President Reagan. In 1983
President Reagan appointed me Acting Inspector General of the Environmental
Protection Agency while that agency was the subject of considerable scrutiny by

Congress and the media.

Altogether I spent 28 years in HUD and its predecessor agency, HHFA in

investigation, audit and management. During this period I was also:

© Named the first vice chairman of the President’s Council on integrity
and efficiency (1983 and 1984)
« Member of the Board of Directors of the Federal Law Enforcement

Training Cemter (1977 to 1984)


65

that. We currently have 74 qui tam cases. And we have had others
gettled, $110 million and other amounts. So it has been a very use-
ing.

I know that senior citizens are very concerned, and rightfully so.
And I think we could set up an almost unmanageable system. And
10 percent is a pretty high amount.

But judging from those I’ve talked to, I think if they turned in
information and found a false billing or something like that, even
an amount like $25 would be something where they felt they were
doing their civic duty and they had something to show their friends
that would make everybody much more alert to those copies of bills
they get, make sure that they did get the service and that it was
a necessary service. Because we have—those Gray Panthers are
our greatest asset out there.

Mr. TaTE. Well, absolutely. You had suggested earlier that the
percent’ of what your staff is able to find—I don’t remember the
number, but that each staff pays for themselves several hundred
times. I can imagine what 39 million Americans as auditors on
Medicare would be able to bring into the Federal Government in
the amount of savings.

And so I would hope that, as we work through these in dealing
with the whole issue of Medicare and trying to preserve and protect
it, that we could work with your office, and come up with ways—
and I definitely will be calling you afterwards to give you my list.

Ms. Brown. I would be happy to have those. We will process

em.

Mr. TaTE. And they are very detailed. Thank you very much.

Ms. Brown. Thank you.

Mr. Horn. I’m sending out my newsletter to 250,000 homes next.
week, and I do have your 1-800 number in it. So I’m curious if any-
thing happens. Originally, I had put in my answers, “If you see an:
waste, fraud, or abuse, please send me the correspondence, and I'll
send it to the inspector general.”

Mr. TaTE. It would be nice to have them send it to them.

Mr. Horn. That’s right, at which point the staff went crazy and
said, “Can’t we cut out. you as the middleman and go directly to the
inspector general?” And that’s what we're trying to do. So have you
found that 800 number is generating quite a bit of interest and
claims?

Ms. Brown. Yes. And it is growing. But we have room for some
more. When HHS was combined with Social Security, we were get-
ting as many as 100,000 calls a year. And it is cut down somewhat,
with Social Security being separated. And, of course, some of these
are just billing errors or other kinds of concerns.

e’re getting fewer than that now, but we're finding that there
is about 25 percent of them that need follow-up because there actu-
ally is some—either a mistake or some kind of fraudulent activity
that is occurring. So we are getting a lot of good tips.

Mr. Horn. One of the questions that has come up when we were
talking about Chief Financial Officers—and I suspect it might be
true of the Inspectors General, as well—is the training that is
needed, one; with entry-level people in this area, and two; with the
people that are already in the area. How would you assess the


71

VALERIE LAU
INSPECTOR GENERAL
DEPARTMENT OF THE TREASURY
CHAIR, PCIE AUDIT COMMITTEE

OPENING STATEMENT

MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:

Thank you for the opportunity to discuss with you several issues
of importance to the inspector general (IG) community. I appear
here today as the Audit Committee Chair of the President's
Council on Integrity and Efficiency (PCIE). As you know, I am
also the Inspector General for the Department of the Treasury.
In both of these roles, I am committed to working with the
Federal audit and financial management community and ny
Department to further the progress made in strengthening
government management controls and fiscal accountability. To
this end, I am involved in many emerging issues in our community.
For example, I am a member of the Government-wide Audited
Financial Statement Task Force, the Treasury Financial statement
Advisory Committee, the American Institute of Certified Public
Accountants, the Association of Government Accountants, the
Intergovernmental Audit Forum, and the Institute of Internal
Auditors. Each of these organizations provide leadership in
developing and implementing government accounting, auditing and
financial management policy.

PCIE's AUDIT COMMITTEE

The PCIE's Audit Committee contributes to improvements in
government financial management. Our mission is to provide
leadership in improving audit quality in the IG community,
coordinate interagency audits and other projects assigned by the
PCIE, and enhance the professionalism of PCIE member
organizations by keeping the IG community current on auditing
standards and techniques, and emerging issues in Government
financial management. To accomplish this, our committee is
involved in several activities on a routine basis, such as:

(a) developing and representing the opinion of the PCIE
with regard to new or revised professional accounting
and auditing standards and other authoritative
pronouncements dealing with auditing and accounting
matters which impact on the IG community;


16

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160

if they resort to such blatant truth-telting. and most certainly will not last on Capitol Hill if they became
chronic naysayers,

There are. of course. ways to protect the IGs in this role. whether by giving them a formal term of office.
thereby insulating them somewhat from political pressure. or by defining a new appointment mechanism
modelled on the appointment of the Comptrolier General (a commission is composed to give the president
three names from which to choose). I believe such projections are warranted even without pressing the
IGs to emphasize prevention. but the projections would most cenainly create a better climate for speaking
truth (0 power, The projections would also go some distance toward assuring tumely appointment (a
problem in this and past administrations) and the highest quality of incumbents (a problem mostly under
a Series of political litmus tests established in the Bush administration).

A much more aggressive step toward prevention resides in giving the IGs an undeniable statutory mandate
toward that end. Just as statute currently requires all OIGs to have an assistant IG for audit and an
assistant {G for investigations. so. too. could the statute create an assistant IG for inspections and
management analysis. Such a unit could be explicitly tasked to review audit and investigation reports in
search of systemic causes of fraud. waste, and abuse. It could be given the authority to assess all pending
rules and bills for economy and efficiency. It could be asked to issue special bulletins or reports to
‘Congress on all major legislation -- indeed. Congress could even amend its rules to require that an IG
cemtification of workability be included in all legislative reports. just as we currenlly require a CBO cost
estimate. etc,

This imagined agenda leads inevitably, of course, to my third question: do the OIGs have the capacity to
conduct anything deeper than the standard audit and investigation? Unfortunately, | am not sanguine about
the answer. My cursory inspection in 1991-1992 suggests that government is not the employee of first
choice for many OIG employees. The private sector outpays and outrecruits auditors. and the lack of the
formal tools of authority (e.g... firearms, search and arrest) makes some of the OJGs less than attractive
homes for investigators. It was my understanding that the General Accounting Office had prepared a draft
Teport on this question several years ago. It was a report, | am told, that reached troubling conclusions
about OIG staff recruitment and training. 1 was unable to get a copy of the draft report in my research.
and can only urge the chairman to use his considerable persuasive powers to seek the workpapers that
surely exist somewhere in GAO.

Ultimately, 1 believe the IGs are currently being underutilized in the management improvement effort.
Weighing in at well over 10,000 employees across govemment, they constitute a substantial resource. But
too many of their reports remain unread, and too many of their audits and investigations are little more
than catching the small offender no one else in government will bother to catch. Lacking a durable
commitment to prevention, I am not sure the IGs can lay claim to scarce resources that might be better
utilized on the front-lines.


99

LETTER TO THE COMPLAINANT AND A COPY FOR THE PCIE
CHAIRMAN.

IF THE ALLEGATIONS FALL UNDER THE COMMITTEE'S
PURVIEW, THE COMMITTEE DETERMINES IF THE ALLEGATIONS
ARE CREDIBLE. IF NOT, THE ALLEGATIONS ARE REFERRED TO
THE AGENCY HEAD AND THE MATTER IS CLOSED WITH A LETTER
TO THE COMPLAINANT AND COPY FOR THE PCIE CHAIRMAN. IF
THEY ARE CREDIBLE, THE ALLEGATIONS ARE REFERRED TO THE
AGENCY HEAD, AND UPON COMPLETION OF THE INVESTIGATION,
THE AGENCY HEAD NOTIFIES THE INTEGRITY COMMITTEE OF THE
RESULTS OF THE INVESTIGATION. IF THE COMMITTEE CONCURS
WITH THE AGENCY HEAD’S FINDINGS, THE MATTER IS CLOSED
WITH A LETTER TO THE COMPLAINANT AND A COPY FOR THE PCIE
CHAIRMAN. IF THE INTEGRITY COMMITTEE DETERMINES THE
INVESTIGATION IS FLAWED OR INCOMPLETE THE MATTER IS
REFERRED BACK TO THE AGENCY HEAD FOR ADDITIONAL
INVESTIGATION. THE MATTER IS NOT CLOSED UNTIL THE
COMMITTEE CONCURS WITH THE INVESTIGATIVE FINDINGS OF
THE AGENCY HEAD. THEN, THE MATTER IS CLOSED WITH A
LETTER TO COMPLAINANT AND A COPY FOR THE PCIE CHAIRMAN.

5


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50

Mr. Horn. Thank you very much.

I would now ask the gentleman from New Hampshire, Mr. Bass,
to begin the questioning.

Mr. Bass. Thank you very much, Mr. Chairman. I appreciate
your hearing here today. I was sorry to be a little late. However,

have had a chance to review your statements and accompanying
memos from the subcommittee.

As both of you probably know, both Vice President Al Gore and
former Congressman Leon Panetta voted against the original 1978
IG Act. And they were two, I think, of six or eight Members of Con-
gress to do so. And I’m not aware of, obviously, the reason for that.

wasn’t around at the time. But it might be said that some of the
skepticism may have continued.

id if I can quote from the National Performance Review, that
Vice President Gore heads, it says, “At virtually every agency he
visited, the Vice President heard Federal employees complain that
the IG’s basic approach inhibits innovation and risk-taking. Heavy-
handed enforcement with the IG watchfulness compelling employ-
ees to follow every rule, document every decision, and fill out every
form has had a negative effect in some agencies.” In your opinion,
is this fair criticism?

Ms. Brown. In my opinion, that is not fair criticism, because
very little of our resources are really directed internally to people
filling out forms or doing that last i-dotting, that the emphasis of
most of the work done by the IGs is on those who are cheating in
government programs.

We do, of course, also look at accusations against government
employees. And we have had several people while I’ve been IG of
Social Security Administration where they were selling Social Secu-
rity cards, something along that line. But these are actual offenses
that I think anybody would want to see prosecuted and stopped.

Mr. Bass. Mr. Sparks.

Mr. Sparks. I probably have a little bit different viewpoint. I
agree that the criticism was overstated. 1 do not think we strike
fear, particularly to management folks. We have an awful lot of
unimplemented recommendations, which probably wouldn’t occur if
we struck fear into everybody.

But at the same time, I think it’s a legitimate criticism that
there was a perception that, based on fact or reality, that employ-
ees felt we had become somewhat structured, losing some of our
initiative as far as logic and common sense and emphasizing com-
pliance findings, which may or may not have been particularly rel-
evant to their operation.

I think that has evolved over a period of years. I don’t think the
NPR or anecdotal stories of a couple of employees at each agency
was a fair basis to reach that conclusion.

I think, though, the vision statement addresses what we need to
do, and that’s get back to objectivity, integrity, and good will so
that all the folks we audit, review, and investigate understand that
we're there to make positive change. So I think there was a seed
of perceived criticism that we have to overcome, or else the criti-
cism will continue.

Mr. Bass. A quick question. I note in our committee staff memo
here that last year’s IG findings led to over 14,000 successful crimi-


95

MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE, MY
NAME IS BILL ESPOSITO AND | AM CURRENTLY THE ACTING
DEPUTY DIRECTOR OF THE FBI. | APPEAR BEFORE YOU TODAY,
HOWEVER, IN MY CAPACITY AS CHAIRMAN OF THE INTEGRITY
COMMITTEE OF THE PRESIDENT’S COUNCIL ON INTEGRITY AND
EFFICIENCY (PCIE) AND THE EXECUTIVE COUNCIL ON INTEGRITY
AND EFFICIENCY (ECIE). MY TESTIMONY WILL COVER THE
FUNCTIONING AND ACTIVITIES OF THE INTEGRITY COMMITTEE
AND HOPEFULLY PROVIDE INSIGHT INTO THE PROCESS BY WHICH
ALLEGATIONS AGAINST INSPECTOR GENERALS (IGS) ARE
REFERRED, REVIEWED AND INVESTIGATED.

AT THE OUTSET | WISH TO EMPHASIZE THAT THE
MANDATE OF THE INTEGRITY COMMITTEE COVERS ONLY THE IGS
AND THEIR SENIOR STAFF IN INSTANCES WHERE THE IG HAS
MADE THE DETERMINATION THAT IT WOULD BE INAPPROPRIATE
OR MIGHT APPEAR TO BE LESS THAN OBJECTIVE IF THEY
CONDUCTED THE INVESTIGATION THEMSELVES. THE INTEGRITY
COMMITTEE DOES NOT DEAL WITH THE BROADER QUESTION OF
"WHO INSPECTS THE IGS." THE INTEGRITY COMMITTEE DOES NOT


33

Maximizing the Positive Impact and Ensuring the Independence and
Objectivity of Audits, Investigations, and Other Reviews--We have
emphasized strategic planning including involvement of management in the
planning process, increased attention to management concerns and critical needs
of the agency, and revised some approaches to ensure more efficient use of
resources.

Using Investigations and Other Reviews to Increase Government Integrity
and Recommending Improved Systems to Prevent Fraud, Waste, and Abuse
=-We have emphasized utilizing investigative results to identify systemic
problems and recommend corrective actions, presented fraud awareness and
integrity briefings to entity employees, and worked on joint committees with
management to identify needed legislation and fraud deterrents.

Being Innovative, Questioning Existing Procedures, and Suggesting
Improvements--Emphasis has been placed on front-end, rather than after-the-
fact, reviews and assistance to identify areas in need of improvement or actions
necessary prior to finalization of initiatives. This included reviews of contract
proposals, technology acquisition, information systems, etc. and use of non-
standard review and reporting techniques to permit timely surfacing of issues with
management.

Building Relationships with Program Managers Based on a Shared
Commitment to Improving Program Operations and Effectiveness——To further
enhance a spirit of cooperation and consultation, without impacting on our
required independence, we have increased liaison and communications with
management, including serving on entity task forces, providing proactive insights
about program risks, obtaining management input about needed reviews, using
customer surveys, and publicizing the concepts in the Vision Statement.

Striving to Continually Improve the Quality and Usefulness of Our Products—
“Actions include customer surveys and meetings with management to obtain
candid feedback about timeliness, quality, and usefulness of our work,
restructuring, consolidating and streamlining our processes for conducting reviews,
and emphasizing use of multidisciplinary staff to address the wide range of
programs and issues.

Working Together to Address Governmentwide Issues-—Emphasis has been
placed on PCIE/ECIE initiatives such as an examination of the Federal Employee's
Compensation Act program, joint investigations with other members of the OIG
community, and coordination with other OIGs on matters of particular impact on
designated IGs such as the Law Enforcement Availability Act and introduction of
a computer bulletin board as a means of sharing ideas and experiences.


168

And the effectiveness of that management staff, to a large extent,
is the extent to which it can help energize and provide leadershij
to departmental management, which is the key. There’s no suc
impetus given now by anyone anywhere in the government by ei-
ther the executive or legislative branches.

Mr. DEMPSEY. I—go ahead.

Mr. Horn. I’m going to get Mr. Dempsey into this. Don’t worry.
T’'ve got my eye on you, Mr. Dempsey.

Mr. FuNK. The thing about this is there’s a movement on by
many people, including a lot of groups that look to the Federal Gov-
ernment to create a separate Bureau of Management, as opposed
te a combination. And that’s kind of a will-o’-the-wisp. It’s a chi-
mera.

Because the power of OMB ultimately comes with the dollar. And
if the dollar is separated from the management side totally, if
there’s an iron bar between them, the management side will lose
much of its clout.

Mr. Horn. I’ve long had your feelings on that, Mr. Funk, but I’ve
had so many of the National Academy of Public Administration
management types work on me, I’m beginning to think I got the
Chinese water treatment beating me qo wn on that subject. I’m
about to concede to them.

Mr. Funk. That’s just what I wanted to say. I want the record
to show that this is the one thing I agree with Dwight Ink on. I
really do, on what he said. There should be an Office of Federal
Management. And you've got to raise it up to that highest level.

Right now, it could do so much across the board for so many
things, including how to downsize, including how to handle this
whole—so much is needed. But nobody’s paying attention to it. And
I would love to see the IG’s report there.

Mr. Horn. If we took the Presidential White House staff that has
been added since President Eisenhower and put them in an Office
of Management, we could do all that, and it would cost the Nation
no money. And it would improve the effectiveness of the White
House office.

Mr. LicHT. May I just add just _a quick forgiveness to congres-
sional staff and White House and OMB people who read IG reports
and don’t respond? And we have to give them a gentle nudging
from time to time to write the reports so they are readable.

I was assigned when I joined John Glenn’s Governmental Affairs
Committee staff, the honor of reading all IG reports. And you can
see what it did to me. (Laughter.]

Mr. Horn. You had glasses at age 19.

Mr. Licut. That’s right. Some are getting better at their writing,
but they have got a long way to go. So communicating clearly to
Congress and making clear the signal when there is something
wrong that needs fixing is an essential lesson for the IGs to learn.
They have made some improvements. But if you’ve looked at their
recent reports, you know that there’s still a long way to go.

Mr. INK. I never had any trouble understanding Mr. Dempsey’s
red flags, I must say.

Mr. DEMPSEY. There’s one thing that you have to remember
when bes do this. Auditors and investigators are different. You
train them—they talk all they want about dense and dull audit re-


133

Mr. Horn. Thank you, Mr. Dempsey.

Mr. Sherman Funk is former Inspector General of the Depart-
ment of State and the Department of Commerce. Welcome.

Mr. Funk. Thank you, sir. I, too, have my statement for the
record. And I am tempted simply to scrap everything and comment
on some of the discussions we have had earlier today. I hope that
will come up in the question period.

Mr. Horn. Well, I hope you do, That’s excellent.

Mr. Funk. I am a little disturbed by the fact that in all the dis-
cussions today going on in Washington about downsizing of govern-
ment, about Teinventing government, if you will, which is a hor-
rible term, and ostensibly reducing the size and the cost of govern-
ment, there appears to be very little reliance upon the work of the

S.

Tf the IGs were doing what we were all expected to do—and, of
course, I’m addressing the question asked by the committee, “How
are the IGs performing?” If, in fact, the IGs were producing the
kind of reports that would be suitable for these needs, I would
think there would be greater reference to them. As it turns out, in
some cases, yes; but unfortunately, more and more cases, no.

What you do have—and this is a mark of at least some recogni-
tion of the IGs—whenever a significant scandal breaks, almost im-
mediately, Rion see the agency head referring the matter to the IG,
usually with attendant uublicity.

The point here, though, the IG Act was not created 17 years ago
by this committee—the forerunner of this committee simply to
provide a convenient escape valve for officials under fire. If that’s
all that the IGs are doing, then we’re not performing correctly. I
keep saying “we.” I have to realize I am no longer an incumbent

But in any case, what comes after referral is far more important
than what comes before. And the fact is, when matters are referred
to IGs, we have a record of some very thorough, hard-hitting re-
ports that have been issued, clearing the air on that. The two most
recent ones, I think, that come to mind are those of the CIA IG.

Tm concerned more in the long run, and I think that we should
all be concerned, more with helping to make the government run
better, not simply with honesty. The fact is—and most IGs don’t
want to hear this—but the fact is that most people—the over-
whelming majority of people in government are honest. We're not
dealing with a fraudulent work group.

Is there fraud? Of course. But overwhelmingly, people are honest
in government. So, therefore, it seems to me one of the jobs of the
IGs that should be paramount is making the government work bet-
ter, not just more honestly. And here is something where—I’m
sorry Paul Light is not here today.

r. LiGHT. I am here. {Laughter.]

Mr. Horn. He likes dramatic entrances. So you provided the shil-
ling to do that. Welcome. Mr. Light, let’s swear you in now, if you
would stand up.

[Witness sworn.]

Mr. Horn. The witness has affirmed. Please be seated. Glad you
had a safe trip from Philadelphia. It’s always a risk.

Mr. Funk. Perfect timing, as usual, Paul.


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ALTMOHLLAV ONY NOISSIN


61

Ms. Brown. Yes, I do feel that the Presidential appointee gives
the kind of independence and the visibility that it takes to do the
work.

Now, regarding your question on term limits, I was fortunate
enough to be one of those that was fired by President Reagan when
he came in and have been appointed three times since to other
agencies.

So I think I can speak with authority there, that every time
there is a change, whether within the same party or a different
party, there is a certain uneasiness, and we don’t know whether
there would be a change in the IGs as there are in other political
appointees. And the fact that we do not come from a political back-
ground or play politics in any way in our position doesn’t change

t.

at.

So I personally feel that a term limit would be appropriate, so
that you know upon going in that unless it were for cause, that you
were going to be there for a certain length of time and that an elec-
tion wouldn’t change that. I think it has the possibility of influenc-
ing when someone would release a controversial report or some-
thing of that nature.

Mrs. MALONEY. In your opening statement, you mentioned that
you had brought $8 billion in uncollected fees into the agency. I
would like more information on that, exactly how it happened and
how you did it. And I would like to know, how does your agency
in the collections area or the audit area have the cuts—what have
they meant to your agency?

‘ill you be able to continue as aggressively going after people
who are misusing the Medicaid/Medicare—abusing the Medicaid
and Medicare system with the cutbacks? Do the cutbacks hurt you
in any way in your effectiveness?

Ms. Brown. Yes, there have been cutbacks that have. And the
House mark so far is cutting us another 7¥2 percent. We basically
were straight-lined. However, there have been increases in the
availability pay for investigators that will cost us over $1 million
in addition, plus rents and things have gone up.

So, in effect, that was a cut. And then, the House mark was an-
other 7% percent. So it would make a substantial difference. For
each person on our staff, we average a recovery of $6.4 million. And
it would take away-—

Mrs, MALONEY. Each person on your staff averages a $6.4——

Ms. BROWN. Million in implemented recommendations, actual
dollar recoveries, fines, penalties, and restitution.

Mrs, MALONEY. And if you had more people, do you think you
could bring more in?

Ms. Brown. Yes, I do. We may not maintain that average, be-
cause obviously, we're picking the biggest and the most productive
cases.

Mrs. MALONEY. The chairman and I are working on a collections
bill that would actually reward agencies that are effective at imple-
menting collections and letti em keep a portion of that which
they collect, so that they can me more effective. I'm interested
in how you brought in the $8 billion, if you could get that to me.

Ms. Brown. I would be glad to give you the detail on that.


180

Subcommittee of the Committee on Government Operations on a 10-year review

of the Inspector Generals, I said:

“First, | believe very much in IG briefings of all interested parties on the IG Act.
And it should be a continuing, on-going process every year, over and over and

over again.

“There have been over 50 inspectors general appointed by Presidents Carter and
Reagan. And to me, those most successful were the ones to took the act and its
contents and kept constantly educating the people they worked with. You educate
your department and you stress the independence issue and what the law requires
you do. You tell them you will be fair, objective, professional, and aggressive.
You brief your IG employees at every opportunity; the auditors and investigators;

and you stress professionalism and training.

“The IG Act requires - indeed, it demands - a more professional auditor and
investigator. The inspector general's staff must be professional, responsible, and
mature. We are the snoops. We review and we survey, we audit, we investigate,
we report, and at times we criticize. But this must be done with efficiency and
professionalism. There’s no room for hotshots, or hot-dogs, or wheeler dealers, or

tough guys.


114

Within the operational sense, PTO, Patent and Trademark Of-
fice, has a fairly extensive accounting system problem but they do
a good job of collection. And most of the information is readily
available. I think throughout government, my best guess would be
that most agencies within departments have the responsibility, and
it’s not normally at the Assistant Secretary or Secretary level.

Mr. Horn. So I am very clear in my own mind, in Commerce
during your 8 years as Inspector General, has there ever been a
study done of the debt collection efficiency and effectiveness within
the Department of Commerce?

Mr. DEGEoRGE. Not within the total Department. No, sir. We
have done it within EDA, which is the biggest grantmaking portion
of the operation. The Department is essentially an operating agen-
cy, sir,

Mr. Horn. Right.

Yes?

Ms. Lau. Hot off the press, Chairman Horn, I’m reminded that
there are two PCIE projects that would be of interest to both you
and Mrs. Maloney. The first is a March 1995 report entitled “Co-
ordinated Follow-up Review of Guaranteed Loans.”

And that report updates for guaranteed loans the status of agen-
cies’ implementation of debt collection and management tools pre-
scribed by OMB Circular A-129, which is entitled “Policies for Fed-
eral Credit Programs and Nontaxreceiveables” and the corrective
action taken in response to a 1988 PCIE report on the same topic.

There is a second report entitled “A Coordinated Review of Fed-
eral Credit Management and Nontax Debt Collection Issues,”
which was issued just last week, so it really is hot off the press.
And that report captures in one roll-up document the status of
credit management and debt collection activities throughout gov-
ernment in order to assist you in making your decisions regarding
debt collection. And we would be happy to provide that to you.

Mr. Horn. Thank you. Earlier in the hearing, we have heard the
discussion on the changing focus of the Inspectors General awa:
from compliance audits to a more collaborative relationship wii
agency management. Professor Paul Light, who will be on the next
panel, aptly calls this “trying to be both a junk yard dog and man’s
best friend.”

What is your assessment of these changes? Do you believe that
the Inspector General staffs have the expertise to fulfill this change
in direction? In other words, the collaborative management ap-
proach.

What do you think, Mr. DeGeorge?

Mr. DEGEORGE. I don’t think our role has changed a bit, even
with the vision statement. We have operated fairly aggressively in
dealing with management and their problems and issues. It has
never been from a “gotcha” viewpoint. It has always been in the
sense of, “This is the business problem or issue we think you ought
to address, and please tell us how you're going to address it.” And
I think that’s about the speed and the balance we should have.

Within our department, we did a survey to basically see how we
were perceived, and it disappointed me. One-third of the people we
talked to thought we were great; one-third thought we were lousy;


116

Mr. DeGEorGE. I have been there through several Secretaries,
and each Secretary does it its own way. Sometimes, I am invited
to the Management Council; sometimes, I’m not.

As long as I get a hearing, as long as I have someone who will
be responsive when I think there’s a problem, I don’t necessarily
have to be at the management meetings where they may have dis-
cussed how to deal with a number of issues that may be peripheral
to my requirements. I fee] completely at ease by telling you that
I have access, they listen, and they'll make changes that I insist

on.

Mr. Horn. Well, we thank this panel. There might be some fol-
low-up questions. If you would be good enough to answer them in
writing, we would appreciate it. Thank you very much for coming
and sharing your experience with us.

We are now on panel three. If panel three will come forward.
Gentlemen, if you would raise your right hand.

{Witnesses sworn.]

Mr. Horn. All three witnesses affirmed. Let me just warn you
in advance, we have a little problem here. We have an expected
vote at 4 o'clock. But we also have an important committee meeting
that I must attend at 4:30. So we’re going to have to squeeze the
testimony. And, as you know, we have got a 5-minute rule. We will
strictly enforce it on summarizing your testimony.

We're delighted to have all you experts with us. And obviously,
as you know from your many appearances, we file your remarks in
the record. We would like you to give us the flavor in the first 5
minutes. We'll start with Mr. Dempsey.

Mr. Charles Dempsey is the former Chair of the PCIE, the Presi-
dent’s Council on Integrity and Efficiency, and a former Inspector
General of the Department of Housing and Urban Development.

Mr. Dempsey.

STATEMENTS OF CHARLES DEMPSEY, FORMER VICE-CHAIR,
PCIE AND FORMER INSPECTOR GENERAL, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT; SHERMAN FUNK,
FORMER INSPECTOR GENERAL, DEPARTMENTS OF STATE
AND COMMERCE; DWIGHT INK, PRESIDENT EMERITUS, IN-
STITUTE OF PUBLIC ADMINISTRATION; AND PAUL C. LIGHT,
DIRECTOR, PUBLIC POLICY PROGRAM, THE PEW CHARI-
TABLE TRUSTS AND AUTHOR

Mr. Dempsey. Thank you, Mr. Chairman, for inviting me to ap-
pear today. I have submitted a statement for the record. And I ad-
dressed the specific items you asked me to comment on.

There are several other points I would like to make. In October,
it will be 17 years since the Inspector General Act was passed. I
personally believe it was the best piece of public administration
legislation in the last 20 years. It also is a controversial piece of
legislation. It took the audit and investigative activities of a depart-
ment and agency from the Assistant Secretary from Administration
and Management or certain others and transferred them to an
independent, Presidentially appointed, nonpolitical person.

It was needed, it was necessary, and time and performance have
proven this so. And the hearings in 1978 by the House Committee
on Government Operations, which produced an 856-page report on


STATEMENT OF
JUNE GIBBS BROWN, INSPECTOR GENERAL
DEPARTMENT OF HEALTH & HUMAN SERVICES

Introduction

Good afternoon, I am June Gibbs Brown, Inspector General, Department of Health and Human
Services (HHS) and interim Inspector General of the Social Security Administration, am also
Vice Chair of the President's Council on Integrity and Efficiency.

The President's Council on Integrity and Efficiency (PCIE) is an interagency committee charged
with promoting integrity and effectiveness in Federal programs. The PCIE is chaired by the
Deputy Director for Management of the Office of Management and Budget (OMB) and
comprised principally of the 29 Presidentially appointed/Senate confirmed (PAS) Inspectors
General (IGs). Asa group, the PCIE is focused on two primary objectives: mounting
collaborative efforts to address integrity, economy and effectiveness issues that transcend
individual Federal agencies; and increasing the professionalism and effectiveness of IG personnel
throughout the Government.

‘The PCIE was established by Executive Order in 1981. The Executive Order was revised and
reissued in 1992 to reflect changes that had been made in the Inspector General Act of 1978 (IG
Act), as amended. At that time the PCIE membership was expanded to include additional PAS
IGs and the President established the Executive Council on Integrity and Efficiency (ECIE). It
consists principally of the competitively appointed IGs at designated Federal entities. The PCIE
and ECIE share the same overall mission and objectives.

At the Subcommittee’s request, I will base my testimony on the IG Vision Statement, as
developed by the PCIE and ECIE. In doing so, I will focus on the role and relationship of the
Offices of Inspector General (OIGs) with the rest of their organizations, the methods and manner
by which the IGs formulate their audit and investigative initiatives, the activities and initiatives
of the PCIE, and the way in which the IGs report to their customers ~- Agency Heads and the
Congress.

Inspector General (IG) Act and IG Mission

The Inspector General Act of 1978, as amended, established independent audit and investigative
units called Offices of Inspector General at 61 Federal agencies. These offices were created due
to Congressional concern with the integrity and effectiveness of agency programs. The primary
mission of IGs is to prevent and detect fraud, waste and abuse in agency programs and operations
and to promote economy, effectiveness and efficiency within the agency. Our trademark is
independence and objectivity in analyzing agency programs, activities and initiatives.

House Government Reform and Oversight Commitice “Rogas 1. 1998
‘Subcormmittee on Goverament Management, Information, and Technology



93

Mr. Horn. Well, you’re doing rather well.

Mr. Esposito.

Mr. Esposito. Mr. Chairman, thank you for letting myself and
the FBI appear today at this worthwhile hearing.

I am the chairman of the Integrity Committee of the President’s
Commission on Integrity and Efficiency and have a prepared state-
ment which I would like to submit for the record.

In my brief remarks, let me just mention the process of the In-
tegrity Committee. The Integrity Committee has a certain mandate
which covers only the Inspectors General or certain senior staff.

We receive, review, and refer allegations of wrongdoing against
Inspectors General or certain senior staff. And those certain senior
staff would be in those instances where the objective, internal re-
view is not feasible based on a referral from either the Inspector
General or the agency head.

The Integrity Committee is made up of the FBI, which Chairs
the committee, the Office of Special Counsel, the director of the Of-
fice of Government Ethics, three Inspectors General who represent
the PCIE and also the ECIE, and we also have a representative
from the public integrity section of the Department of Justice who
acts as a consultant or advisor.

We meet at least quarterly, and sometimes more than that, to re-
view the allegations and to make those referrals. Basically, we take
referrals or receive referrals from just about any public source. We
receive them from private citizens, we receive them from Inspectors
General, we receive them from agency heads, we receive them from
people in the IG community or employees of the Federal Govern-
ment.

Once we receive these referrals, we then make a copy of the re-
ferral and send it to the public integrity section of the Department
of Justice, who reviews it to determine whether or not there is
criminality of Federal law or any other law. Once this determina-
tion is made, if there is, in fact, a perceived violation of law, espe-
cially Federal law, it is referred back to the FBI, and we conduct
a criminal investigation and we go forward with that.

Many of the referrals we receive have more than one allegation
in it. And if there is an allegation that is considered criminal and
another allegation that is considered administrative, we put the ad-
ministrative on hold until we finish the criminal investigation.

If the public integrity section comes back and says that there is
no criminal allegation, we then review the referral from the com-
plainant to determine whether or not it fits our criteria, our cri-
teria being that it is an allegation against specifically an Inspector
General. If it does not and it falls into another category, we make
a referral to another agency. For example, if it’s an EEO complaint,
then we will refer it to the Office of EEOC.

At all times, we send letters to the complainant advising them
where the status of this complaint is in the process. Once we find
out that it is in our purview, for example, it is an allegation regard-
ing an Inspector General, then we look at the complaint to find out
if it is credible or not.

If it is not credible, then we close it. We send a letter to the com-
plainant telling them that, and also, we send it to the head or the


38

APPENDIX A

‘Names and Acronyms of the

Amtrak
Appalachian Regional Commission (ARC)

Board for Intemational Broadcasting (BIB)
Commodity Futures Trading Commission (CFTC)
Consumer Product Safety Commission (CPSC)
Corporation for Public Broadcasting (CPB)

Equal Employment Opportunity Commission (EEOC)
Farm Credit Administration (FCA)

Federal Communications Commission (FCC)
Federal Election Commission (FEC)

Federal Housing Finance Board (FHFB)

Federal Labor Relations Authority (FLRA)
Federal Maritime Commission (FMC)

Federal Reserve Board (FRB)

Federal Trade Commission (FTC)

Government Printing Office (GPO)

Interstate Commerce Commission (ICC)

Legal Services Corporation (LSC)

National Archives and Records Administration (NARA)
National Credit Union Administration (NCUA)
National Endowment for the Arts (NEA)
National Endowment for the Humanities (NEH)
National Labor Relations Board (NLRB)
National Science Foundation (NSF)

Panama Canal Commission (PCC)

Peace Corps (PC)

Pension Benefit Guaranty Corporation (PBGC)
Securities and Exchange Commission (SEC)
Smithsonian Institution (SI)

Tennessee Valley Authority (TVA)

US International Trade Commission (USITC)

US Postal Service (USPS)



158

Jo an assistant secretary who wanted information on his department made all the sense in the world 10 a
deputy director of OMB in need of statistical accomplishments in v bare against red ink.

‘Two teanures made the Agriculture concept different trom the IGA at State: (1) the IG yerved entirely at
the pleasure of the secretary and (2) the IG reported only to the secretary. As Lester Condon. the first
Agriculture iG, explained. "we brought auditors and investigators together so they did indeed become
subordinates of the secretary of the department. They were responsible to the agency. rather than running
around the Hill and making alliances with politicians. and roo often not working for the department as a
whole. That authority we had was a powertul and effective one.” Yet. unlike the IGA. the Agriculture
IG had virwally no authonty but persuasion in doing his or her job. "He is a mere adviser.”
administrative faw scholar Walter Gethorn argued. “but his position adds weight to his advice.... Though
separate from others. he remains quite properly a member of the Secretary's team.” As such. the
Agriculture IG represents the purest form of what be called the "strong right arm" modet of the office.
‘The {G was to be simultaneously heipful to the department. but aggressive in investigating and auditing
fraud, waste. and abuse all the way to the top.

Like so questions in legislative drafting, Congress eventually resolved the tension between these two
models by anful combination. Today's IG is a blend of junk yard dog and man’s best friend. Some.
such as my colleague Dwight Ink, view the IGs as unacceptably independent of secretarial comurol. After
all, the IGs do report nearly simultaneously to Congress and are difficult, though not impossible to
remove. Others, such as my colleagues Charles Dempsey and Sherman Funk. view the IGs as a key
sources of advice and counsel on how to improve goverment. In a sense. they might say, the IGs work
first for the American public and must constanily straddle a "barbed wire fence” in their secondary
relationships with Congress and their departments and agencies. Personally, the debate over whether the
IGs should exist is moot. They do exist and will continue to exist. The far more important question is
‘what they should do -- that is. how can they be a help, not a hindrance. to efforts to unprove government.

Those of us who believe the IGs can be a help must address three basic questions about their future: (1)
how do we know whether what they are currently doing is helpful. (2) what might they do differently in
the future. and (3) how well are they equipped to take on a more significant role in improving
government? The IGs would be quite right. of course. to say they are doing quite well as 1s, thank you.
After all. they all follow the leer of the law in launching their audits and investigations. in writing their
detailed semi-annual reports. and in complying with the overall effort to reduce fraud. waste, and abuse.
‘They might also suggest that they have made some improvements in how they write their reports so that
presidents, members of Congress. and other interested parues can make sense of the auditese that once
dominated their language. And they might finally argue that they continue to roll up impressive gains in
the war on waste, saving the federal government far more than they cost. I cannot dispute any of these
conclusions, and. indeed. am pleased to suggest that the IGs have made significant headway in the
“reorientation” that the National Performance Review recommended in 1993.

At the sume time, there is much inore to be done. Many, though certainly not all of the Offices of
Inspector General retain the old “gotcha” culture. interpreting the Inspector General Act in the most narrow
terms possible. Many remain unwilling or unable to address the fundamental issues of prevention that
have so plagued reform efforts in the past. and are instead sausfied with piling up yearly statistical
accomplishments as a substitute for the kind of lasting improvements that will not show well in a semi-
annual report, Let me tum. therefore. to each of my three questions in brief order.


125

political and career staffs to swallow - but its the law and must be done. The IG’s
must educate ALL within their departments or agencies on this requirement, and
what will be reported. The semi annual reports should be well written, clearly
stated and carry out the IG Act requirements to the letter. The Congress should

annually hold hearings on the contents of the IG semi annual reports.
Special 7-day reports (PL 95-452 - Reports - Sect. 5 (d)).

These should be used when needed and when necessary. The head of the
department or agency should be informed of the 7-day report requirement
especially that portion that states the report must be transmitted by the head of the
agency to the Congress within 7 days. However, I served in an agency which
received little or no oversight or review by the Congress and the record of scandals
and problems of HUD speak for themselves. However, our semi annual reports
and my successor during the latest HUD scandal (1989), when studied by the
press and others, revealed the problems were reported but no one on the hill paid
attention nor read the reports. At a Congressional hearing on the IG Act after ten
years, August 4, 1988, one year before the congressional hearings on the HUD
scandal I said the following - page 108 of the Hearing Book, quote “I hope the
appropriation and oversight committees of both the Senate and the House take

time now to read and absorb the semi annual reports of the inspectors general.


100

THE EXISTING PROCESS DEALS EFFECTIVELY WITH THE
BULK OF THE INCOMING COMPLAINTS AGAINST IGS, HOWEVER,
QUESTIONS ARISE IN THE EXISTING SYSTEM WHEN A NON-
CRIMINAL ALLEGATION IS RECEIVED AGAINST AN IG WHERE THE
ALLEGATION IS DETERMINED TO BE BOTH CREDIBLE AND WITHIN
THE MANDATE OF THE INTEGRITY COMMITTEE. UNDER THE
CURRENT PROCESS THE COMPLAINT IS REFERRED TO THE
AGENCY HEAD FOR INVESTIGATION. TYPICALLY, THE AGENCY
HEAD DOES NOT HAVE ACCESS TO INVESTIGATIVE RESOURCES
TO CONDUCT AN INQUIRY. IN SOME INSTANCES THESE MATTERS
HAVE BEEN REFERRED TO AGENCY CHIEF COUNSEL, IN OTHER
INSTANCES IG INVESTIGATORS FROM ANOTHER AGENCY HAVE
BEEN USED TO CONDUCT THE INVESTIGATION. IN ANY EVENT
THE PROCESS IS BEST DESCRIBED AS AD HOC, THE RESULTS
VARY SIGNIFICANTLY, THE STATUTORY AUTHORITY TO CONDUCT
THE INVESTIGATION IS UNCLEAR, THE REIMBURSEMENT OF
COSTS ASSOCIATED WITH THE INVESTIGATION IS PROBLEMATIC,
AND THE ULTIMATE RESOLUTION IS PROTRACTED.

IN AN EFFORT TO RESOLVE THESE ISSUES |
ESTABLISHED A WORKING GROUP TO EXPLORE ALTERNATIVES

6


4)

The IG Act does not specify the grade level or occupational series of DFE IGs.

implementing Guidance: Given the very significant authorities and responsibilities
of IGs, it is essential that agency heads select eminently qualified persons for these
positions. As a starting point, this entails establishing (i) a comprehensive position
description, and (ii) @ corresponding set of minimum qualification requirements
based on the 1G authorities and responsibilities detailed in the 1G Act.

The selection process, whether it involves transferring existing personnel or
competition, must ensure the selection of persons who meet the minimum
qualification requirements, The House Conference Report on the 1988
‘amendments to the IG Act (Report No. 100-1020, page 26) indicates the following
Congressional intent: That the head of the designated Federal entity appoint the
Inspector Genera! without regard to political affiliation and solely on the basis of
integrity and demonstrated ability in accounting, auditing, financial analysis, law,
management analysis, public administration, or investigations.

Entity heads are encouraged to use full and open competition, both within and
‘outside the agency, as a means of abtaining the best possible poo! of candidates
for DFE IG positions. In addition, to the extent that agency personnel policies
allow, agency heads are encouraged to strengthen the selection process by
including personnel from other DFE IG offices in the panel that identifies the highly
qualified candidates. Agency head requests for such DFE !G representation should
be directed to the Vice-Chairperson of the Executive Council on Integrity and
Efficiency. (The Executive Council on Integrity and Efficiency, established by
Executive Order 12805, is comprised of the DFE IGs and representatives of the
Federal Bureau of Investigation, the Office of Government Ethics, the Office of
Special Counsel, the Office of Personne! Management, and the Office of
Management and Budget (OMB). OMB‘s Deputy Director for Management chairs.
the Council; one of the DFE !Gs serves as Vice-Chairperson.)

in determining the occupational series and grade level of the DFE IG position, entity
heads need to consider (i) the nature, scope, and complexity of the audit and
investigative workioad; (ii) the mission and operations of the agency’
independent operational stature; (iv) the fact that the 1G must report directly to the
agency head; and (v} comparable positions. The positions of General Counsel or
Executive Director might, for instance, be considered comparable to the IG
position.

B. REMOVAL OR TRANSFER

Legal Authority/Requirement: If an IG is removed from office or is transferred to
another position or location within a designated Federal entity, the head of the

2