INSPECTOR GENERAL’S SEMIANNUAL REPORT TO CONGRESS

Appalachian Regional Commission

April 1, 2010–September 30, 2010

REGIONAL

COMMISSIONS
October 2010 

MEMORANDUM FOR THE FEDERAL CO-CHAIR 

SUBJECT: Semiannual Report to Congress 

In accordance with the requirements of the Inspector General Act Amendments of 1988, Public Law 

100-504, the Inspector General Reform Act of 2008, Public Law 110-409, and the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, Public Law 111-203. I am pleased to submit the Office of 

Inspector General Semiannual Report to Congress. 

This Semiannual Report to Congress summarizes the activities of our office for the 6-month period 

ending September 30, 2010. During this fiscal year, we issued six reports. Four other reports are soon 

to be issued in draft. During this period, the Inspector General and staff continued to serve as 

representative on the Council of the Inspectors General on Integrity & Efficiency (CIGIE), the Federal 

Audit Executive Committee (FAEC), and the various Intergovernmental Audit Forums covering our 

jurisdictional region. 

The Inspector General Act of 1978, as amended by the Inspector General Act Amendments of 1988, 

provides that this report be forward to appropriate Congressional committees within 30 days and that 

you provide whatever additional comments you consider appropriate. 

I appreciate the Commission’s and your cooperation with the Office of Inspector General in the conduct 

of our operations. 

Clifford H. Jennings 

Inspector General 

Enclosure 
TABLE OF CONTENTS

Page

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii 

Purpose and Requirements of the OIG Semiannual Report . . . . . . . . . . . iii 

 I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

 II. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

Appalachian Regional Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

Office of Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 

 III. OIG Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

Audits, Inspections, Evaluations & Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 

 IV. Reporting Fraud, Waste, and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

 V. Legislative & Regulatory Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

 

Appendices A. Schedule of Reports Issued, April 1, 2010 thru September 30, 2010 

B. Schedule of Reports with Questioned or Unsupported Costs 

C. Schedule of Reports with Recommendations that Funds be put to Better Use 

and Summary of Management Decisions 

D. Schedule of Reports with Recommendations that Funds be put to Better Use 

and Summary of Management Actions 

E. Definition of Terms Used 

 
EXECUTIVE SUMMARY

ARC grant operations represent the most significant part of ARC’s programs. In prior reporting periods, 

we issued two reports on grant operations. Most of the recommendations are still open and being 

implemented. For this reporting period, in addition to the normal review activities, the Office of 

Inspector General (OIG) was involved in ARC’s financial statement auditor selection process, providing 

information for the development of the audit proposal request and impaneled to serve on the auditor 

selection committee. Our normal activities this period include: the issuance of an inspection report, 

providing oversight for four performance audits, and monitoring the activity of two financial statement 

audits. One performance audit was issued in draft but suspended pending further work. 

The last financial statement audit report was issued without disclaimer or qualification; it was the first 

time ARC received a clean audit opinion since adopting federal financial reporting rules in 2007. 

However, the report was still over 6 months late and additional efforts are still needed to meet OMB’s 

reporting deadline. The major issues in completing the audit timely stem from difficulties getting timely 

and accurate financial information from child agencies, preparing the Statement of Financing footnote 

disclosure, and ensuring the accuracy of accounting records, especially the accuracy of the budgetary 

accounts. 

The inspection report we issued focused mainly on construction grants and their compliance with ARC’s 

own requirements. The concerns were that ARC remain in compliance with its own Code, and that it 

properly discloses the appropriate oversight agency when more than one agency is involved. 

Subsequently, the Code was revised to address the compliance issue and we plan to review the new 

procedures for naming of an oversight agency. 

Our contract audits of a West Virginia grantee were discussed in the previous semiannual. Management 

has since taken final action, which included notification of ARC’s grantee population concerning the use 

of budgetary versus actual information when preparing reports. This notification addressed one of the 

major record-keeping issues identified in the audit reports that contributed to the 15 recommendations, 

including many for return of funds. However, management elected to forego enforcement (our 

recommendation) of the grant requirements, i.e., the return of funds, and stated, in general, that the 

overall goals of the grant had been met. However, we believe had funds been expended as approved, the 

impact of the project could have been greater, and we plan to continue monitoring management 

decisions concerning enforcement of grant requirements. Because management has taken final action, 

we have closed these recommendations. 

Also, during the last semiannual reporting period, the OIG instituted a recommendation tracking system 

for our use and for the use of management. The system provides: 

• View access for all previously issued recommendations, both open and closed. 

• An implementation status field for management updates (used by OIG to facilitate review 

activities and the closing of recommendations). 

• An OIG response field/final management action field, which is used to communicate OIG views 

of management’s implementation activities or to record management’s final action. 

During the reporting period, the IG served on the Council of the Inspectors General on Integrity & 

Efficiency (CIGIE). The OIG reviewed legislation that affects the OIG as well as the entire IG 

community. 

 ii 
PURPOSE AND REQUIREMENTS OF THE 

OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

The Inspector General Act of 1978 requires the IG to keep the Federal Co-Chair and Congress fully and 

currently informed about problems and deficiencies in the Commission's operations and the necessity for 

corrective action. In addition, the Act specifies that semiannual reports will be provided to the Federal 

Co-Chair by April 30 and October 31 and to Congress 30 days later. 

The Federal Co-Chair may transmit comments to Congress along with the report but may not change 

any part of the report. The specific requirements prescribed in the Act, as amended (Public Law 100-

504), are listed below. 

 Reporting Requirements

Section 4(a)(2) Review of legislation and regulations Page 11 

 

Section 5(a)(1) Problems, abuses, and deficiencies Pages 6-9

Section 5(a)(2) Recommendations with respect to problems, abuses, and deficiencies Pages 6-8

Section 5(a)(3) Prior significant recommendations not yet implemented ** 

Section 5(a)(4) Matters referred to prosecutive authorities Pages 8-9

 

Section 5(a)(5) 

and 6(b)(2) 

 Summary of instances where information was refused * 

 

Section 5(a)(6) Listing of audit reports showing number of reports and dollar value of

questioned costs 

 App A 

 

Section 5(a)(7) Summary of each particularly significant report ** 

Section 5(a)(8) Statistical table showing number of reports and dollar value of questioned

costs 

 App B 

 

Section 5(a)(9) Statistical table showing number of reports and dollar value of

recommendations that funds be put to better use and summary of

management decisions 

 App C 

 

Section 5(a)(10) Summary of each audit issued before this reporting period for which no

management decision was made by end of the reporting period 

 * 

 

Section 5(a)(11) Significant revised management decisions * 

 

 iii
Section 5(a)(12) Significant management decisions with which the Inspector General

disagrees 

Pages 7-8

Section 5(a)(14) Results of recent peer review Page 8 

Section 5(a)(15) Outstanding recommendations from any peer review * 

Section 5(a)(16) List of peer reviews conducted and any outstanding recommendations Page 8 

 

Section 5(b)(3) Statistical table showing number of reports and dollar value of 

 recommendations that funds be put to better use and summary App D

 of management actions 

* None. 

** See references to Sections 5(a)(1) and 5(a)(2) for discussion of significant reports (including recommendations). 

 

 iv 
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I. INTRODUCTION

The Inspector General Act Amendments of 1988 (Pub. L. No. 100-504) provides for the establishment 

of an Office of Inspector General (OIG) at 30 designated Federal entities, including the ARC. The ARC 

OIG became operational on October 1, 1989, with the appointment of an IG and provision of budgetary 

authority for contracted audit and/or investigation activities. 

II. BACKGROUND

A. APPALACHIAN REGIONAL COMMISSION 

The Appalachian Regional Development Act of 1965 (Pub.L. No. 89-4) established the Appalachian 

Regional Commission. The Act authorizes a Federal/State partnership designed to promote long-term 

economic development on a coordinated regional basis in the 13 Appalachian States. The Commission 

represents a unique experiment in partnership among the Federal, State, and local levels of Government 

and between the public and private sectors. It is composed of the Governors of the 13 Appalachian 

States and a Federal representative who is appointed by the President. The Federal representative serves 

as the Federal Co-Chair with the Governors electing one of their numbers to serve as the States' CoChair. 

 - Through joint planning and development of regional priorities, ARC funds are used to assist and 

encourage other public and private resources to address Appalachia's unique needs. Program 

direction and policy are established by the Commission (ARC Code) with the vote of a majority 

of the State members and the affirmative vote of the Federal Co-Chair. Emphasis has been 

placed on highways, infrastructure development, business enterprise, energy, and human 

resources programs. 

 - Administratively, the Office of the Federal Co-Chair, with a staff of 7, and the Commission, with 

a staff of 46, is responsible for ARC operations. The Office of Inspector General has a staff of 3. 

All personnel are located in Washington, DC. The Commission staff's administrative expenses, 

including salaries, are funded jointly by Federal and State funds. The Federal Office staff is 

funded entirely from Federal funds. 

 - The Commission's appropriation for FY 2010 is $76 million. ARC was reauthorized in October 

2008. In addition, in March 2010 the Highway Trust Fund, under Section 1101 of the Safe, 

Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for Users (SAFETEALU) received short-term funding through the end of Fiscal Year 2010. The funding provides for 

construction of the Appalachian Development Highway System which is under ARC’s 

programmatic jurisdiction; provided for under Section 201 of the 1965 Appalachian Regional 

Development Act. 

 - ARC’s non-ADHS funds are distributed to state and local entities in accordance with an 

 allocation formula intended to provide fair and reasonable distribution of available resources. 

 ARC staff has responsibilities for program development, policy analysis and review, grant 

 development, technical assistance to States, and management and oversight. 

 
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 - In order to avail itself of federal agency expertise and administrative capability in certain areas, 

ARC often relies on other departments and agencies for program administration, especially with 

respect to highways and infrastructure projects. For example, the Appalachian Regional 

Development Act authorizes the Secretary of Transportation to administer the Commission's 

highway programs, with the Commission retaining responsibility for priorities, highway 

locations, and fund allocations. 

ARC ORGANIZATION CHART 
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B. OFFICE OF INSPECTOR GENERAL 

 

The ARC OIG is an independent audit and investigative unit. An independent Inspector General who 

reports directly to the Federal Co-Chair heads the OIG. 

Role and Authority

The Inspector General Act of 1978 (Pub.L. No. 95-452), as amended in 1988, states that the IG is 

responsible for (1) audits and investigations; (2) review of legislation; and (3) recommendation of 

policies for the purpose of promoting economy and efficiency in the administration of, or preventing and 

detecting fraud and abuse in, the program and operations of the establishment. In this regard, the IG is 

responsible for keeping the Federal Co-Chair and Congress fully informed about the problems and 

deficiencies in ARC programs and operations and the need for corrective action. The IG has authority to 

inquire into all ARC programs and activities that are federally funded. The inquiries may be in the form 

of audits, surveys, investigations, personnel security checks, or other appropriate methods. The two 

primary purposes of these inquiries are (1) to assist all levels of ARC management by identifying and 

reporting problem areas, weaknesses, or deficiencies in procedures, policies, program implementation, 

and employee conduct and (2) to recommend appropriate corrective actions. 

Relationship to Other Principal ARC Offices

The States’ and Federal Co-Chairs, acting together as the Commission, establish policies for ARC's 

programs and its administration. These policies are provided under the ARC Code and implemented by 

the Commission staff, which is responsible for monitoring project performance and providing technical 

assistance as needed. The Federal Co-Chair, as the Federal fiscal officer, is responsible for the proper 

use and protection of Federal funds, for ensuring compliance with applicable Federal laws and 

regulations, and for taking appropriate action on conditions needing improvement, including those 

reported by the OIG. The operation of the OIG neither replaces established lines of operating authority 

nor eliminates the need for the Commission offices to take reasonable measures to protect and enhance 

the integrity and effectiveness of their operations. All Commission offices are responsible for 

monitoring and evaluating the programs entrusted to them and reporting information or incidences 

needing further audit and/or investigation to the IG. 

Funding and Staffing

The OIG funding level for FY 2010 is $612,000. Staffing consists of the Inspector General, an Assistant 

Inspector General for Audit, and a confidential assistant. Grant review activities continue to emphasize 

use of contracted services (e.g., independent public accounting firms or other OIG offices) supplemented 

by programmatic and performance reviews directed by OIG staff. Investigative assistance is provided 

by other OIG offices on an as-needed basis through memoranda of understanding. This approach is 

deemed the most appropriate to date in view of the nature of ARC operations and limited resources. 

In order to comply with Pub.L. No. 110-409, the Inspector General Reform Act of 2008, the OIG 

included funding for FY 2010 that includes reimbursement of other IGs for counsel and investigative 

services via Memorandums of Understanding. Future year funding requests will be predicated on actual 

experience using this method. 
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Because of the small size of our OIG office, we have had to rely on the resources of other OIGs to 

complete some program activities, and with the recent legislation enacted to form more regional 

commissions, we believe it incumbent upon legislators to consider consolidating regional commission 

OIG offices into one organization or moving regional commission OIG offices to larger agencies that 

already have similar agency programs. A full discussion immediately follows. 

Support for Consolidation of OIG functions across Regional Commissions 

In the 2008 Farm Bill, Congress created three new regional commissions, the Southeast Crescent, the 

Southwest Border, and the Northern Border Regional Commissions.1 Part of the bill states: 

Appointment of Inspector General.—There shall be an Inspector General for the Commissions 

appointed in accordance with section 3(a) of the Inspector General Act of 1978 (5 U.S.C. App.). All of 

the Commissions shall be subject to a single Inspector General.2 

As can be seen on the map on the cover to this report, there are 7 regional commissions.3

 As an office 

with only 3 FTE, there are times when more is needed. While the rest of the IG community has been 

more than forthcoming with assistance, there should not be a need for this. For example, in the past, we 

have received investigative assistance from the Department of Education OIG and from the Department 

of Homeland Security OIG, IT audit, technical, and investigative help. We currently have a 

Memorandum of Understanding with the Department of Commerce OIG to provide support. To date, the 

majority of this support has been in the form of legal advice and research. 

Not having staff on board to cover the entire spectrum of skills needed to provide complete oversight 

tends to skew the work that is scheduled. While it is true that most skills can be contracted out (IT, 

audit, inspection), investigative work is an inherently governmental function. Additionally, there are 

occasions where technical assistance is needed, but the amount needed does not warrant contracting. 

As can be seen on the map on the cover, there is certainly enough national coverage to warrant a full 

oversight capability. Our suggested approach is to put this responsibility under an agency that already 

has staff on board that deals with the major functions of these commissions. This would also further our 

independence as the reliance on the agency for support services could be transferred to the new 

organization. 

In the Denali Commission’s Semiannual report to the Congress for the first half of Fiscal Year 2010, the 

Inspector General recommended that the Denali Commission Office of Inspector General be included in 

the consolidation called for in the 2008 Farm Act. We would also support this consolidation of all 

regional commission OIGs into a separately functioning office or placement under another larger OIG 

with the appropriate and separate funding to properly oversight these regional commissions. 

 1

 Pub. L. No. 110-246, 122 Stat. 2231 (2008), 40 U.S.C. § 15301. The specific coverage of 

each commission is described at 40 U.S.C. §§ 15731-15733. 

2

 Pub. L. No. 110-246, 122 Stat. 2242 (2008), 40 U.S.C. § 15704. 

3

 In addition to ARC and the three regional commissions created by the 2008 legislation, 

there are three other regional commissions: the Delta Regional Authority, 7 U.S.C. §§ 2009aa2009aa-13; the Northern Great Plains Regional Authority, 7 U.S.C. §§ 2009bb-2009bb-13; and 

the Denali Commission, Pub. L. No. 105-277, 42 U.S.C. § 3121 note. 
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III. OIG ACTIVITY

 A. AUDITS, INSPECTIONS, EVALUATIONS & REVIEWS 

ARC grant operations represent the most significant part of ARC’s programs. We previously issued two 

reports related to grant operations with most of the recommendations still being implemented. Below we 

provide a brief synopsis of the reports’ findings and recommendations. During the current reporting 

cycle, we issued two other reports, one an inspection report of construction grants, mostly concerning 

management’s compliance with the ARC Code, and the other, the financial statement audit report. Five 

other audits reports during the period were in process and four should be finalized during the next 

reporting cycle; one is for ARC’s financial statement, three are of grantees. The audit of ARC 

performance metrics was suspended and will be re-started at a later time. 

All issued reports can be found on the OIG website http://www.arc.gov/oig

Audits of ARC's Grant Operations 

We completed a comprehensive review of ARC’s grant management system in April 2008. The audit 

revealed the system had data conversion, entry and internal processing errors. Additionally, inadequate 

resources had been allocated to ensure timely completion of the project/system and to provide for 

system documentation. System access and security features were not controlled appropriately and there 

was only a single person knowledgeable of the system internals. Ten recommendations to address these 

findings resulted from the audit. The implementation and completion of the recommendations has not 

been as prompt as envisioned and the project continues to languish. In addition, many of the 

recommendations are not being implemented in the sequence suggested by the report, which in all 

likelihood will result in increased costs and time to complete. 

 

A complement to the grant management system audit was an inspection which focused on ARC’s grant 

administration and monitoring. The inspection report discussed ARC’s control policies and grant 

monitoring processes. ARC grants made to foster economic growth and to address other concerns in the 

Appalachian region are primary to ARC and we placed great emphasis on providing recommendations 

that would improve the process. The inspection report was issued in August 2009 and made 17 

recommendations. The recommendations were wide ranging but addressed: development and 

enforcement of policies, development of grant monitoring plans, improving supervisory oversight, 

training, metric reporting, documentation, file organization, tracking grantee characteristics, and controls 

to safeguard grant files. Many of these recommendations are to be addressed in a grant manual, which 

we were told has been completed in draft and would be made a priority in fiscal 2011. 

For the inspection report issued this period, the focus was on construction grants and their compliance 

with the ARC Code and also the naming of administrative (oversight) agencies. Specifically, the Code 

forbid ARC from directly administering grants involving significant construction and provided only for 

oversight by other federal agencies. As a result of the inspection, the Code was revised by the 

Commission to address our compliance concern. The other issue in the report dealt with the naming of 

the administrative oversight agency when more than one other agency was involved with the grant. We 

plan on reviewing the new procedures adopted for the naming of the administrative agency. 

Audits of ARC's Grantees 

Our contract audits of a West Virginia grantee were discussed in the previous semiannual but 

management has since taken final action. In summary, four audit reports were issued to a West Virginia 

grantee concerning four different grants. These reports made 15 recommendations related to the findings 
Page 8    

which concern inadequate payroll documentation, the use of estimated salary and related costs instead of 

actual costs, improper locations of facilities, and missing and/or late reports of activity. As a result of 

these findings, the auditor made recommendations to recover $194,243 in grant funds. Management 

rejected the recommendations, citing, in general, the objectives of the grant had been met. We believe 

had the funds been expended as approved, the impact of the project could have been greater. In 

addition, as we observed from previous audits, more underlies theses issues than simple grantee 

compliance, but they concern management’s attitudes towards enforcement of grant requirements. In the 

end, management wrote ARC grantees to advise them that budget estimates were not permitted for final 

salary and wage reporting and that only actual cost reporting was acceptable. We approve of 

management’s communication, but this is not the same as ensuring individual grantees live up to their 

grant obligations and we will continue to monitor management’s decisions concerning grant 

requirements. Because management has taken final action, we have closed these recommendations. 

In-process Audits and Inspections 

We are overseeing three grantee audits and one financial statement audit. The grantee audits should be 

completed in the next few months. As of this writing, we are unaware of any serious issues that would 

impact the timely completion of the financial statement audit. 

ARC Auditor Selection 

The OIG assisted ARC selection of its financial statement auditor. We provided information to help 

prepare the solicitation for auditors’ proposals and we were also were empanelled to serve on the auditor 

selection committee. 

Peer Review 

Offices of Inspectors General (OIGs) performing audits are required to perform (and undergo) reviews 

of other OIG offices every three years to ensure policies and/or procedural systems are in place that 

provide reasonable assurance of compliance with government auditing standards (GAS). ARC 

completed a peer review of the Federal Election Commission OIG and issued a report on its system of 

quality controls on March 28, 2008; there were no recommendations made to the Federal Elections 

Commission OIG. Recently, CIGIE issued new guidance for peer reviews and we have been 

implementing changes to help ensure conformity with them. However, we note that the Peer Review 

concerns itself almost exclusively with OIG internally generated audits conducted under GAS. The ARC 

OIG relies on contract auditors for its GAS audits; and for its internal review work relies on CIGIE’s 

Inspection guidelines. As a result, ARC received a deferment of its Peer Review but has been informed 

that a peer review will still be required. Just recently, our office was informed that a different peer 

review agency may need to be assigned because of the newness of the previously assigned OIG office. 

Our most recent peer review was completed in February 2007 by the Federal Maritime Commission 

OIG. Our office received an unmodified opinion on its system of audit quality control. We are currently 

scheduled to perform a peer review of the Election Assistance Commission in 2012. 

B. INVESTIGATIONS 

 

The Inspector General Act of 1978, as amended, provides that the IG may receive and investigate 

complaints or information concerning the possible existence of an activity constituting a violation of 

law, rules, or regulations; mismanagement; gross waste of funds; or abuse of authority. The OIG does 

not employ criminal investigators. When the need has arisen, the matter has been referred to the 

Federal Bureau of Investigation or assistance was contracted with another Federal OIG. Also, the 

results of investigations may be referred to the appropriate Federal, State, or local prospective authorities 

for action. 
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We previously reported on our referral of a grant fraud investigation to the Tennessee Valley Authority 

OIG. The matter has been referred for prosecution. We will support any prosecution or further 

investigative activity and report the results when the matter is resolved. 

In previous reports, we reported that an investigation was opened and certain personnel actions were 

taken as a result of a computer security review conducted by the DHS OIG. The Federal Bureau of 

Investigation, after a referral from our office, recently closed its investigation into the matter. Although 

the investigation confirmed the initial findings, the U.S. Attorney’s Office declined to pursue 

prosecution. ARC itself previously had taken all necessary actions resulting from the audit and 

subsequent investigation. 

 C. OTHER 

Requests for Information 

Each year we receive and comply with requests for information from various governmental entities 

compiling statistics on OIG offices or their auditee agencies. CIGIE requests information for its annual 

OIG profile update and compilation of OIG statistics. The yearly compilation summarizes the results of 

audit and inspection activities for of all federal OIG offices. Information provided concerns the dollar 

value of management decisions related to questioned costs and funds put to better use and OIG 

recommendations related to questioned costs. The House Committee on Oversight and Government 

Reform, also with some regularity, requests information concerning the number and type or status of our 

recommendations. Lastly, we comply with information requests from other government regulatory 

bodies. For example, previously GAO requested us to provide survey information on governance and 

the role of the inspector general. Their requests involved our office’s allocation of resources and the 

number of open recommendations. 

Appalachian Development Highway System (ADHS) Audits 

Since Fiscal Year 1999, ADHS has been funded by the Highway Trust Fund, which is administered in 

part by the U.S. Department of Transportation (DOT). ARC retains certain programmatic 

responsibilities, but the funding source is the Highway Trust Fund. Our office is seeking to reach an 

understanding with the DOT OIG regarding audit cognizance. 

Electronic Audit Workpapers 

The OIG is aware of the benefits of electronic work papers for improving audit efficiency. In particular, 

we believe that an improved indexing, and numbering system, together with an improved supervisory 

review structure could be beneficial. We have recently reviewed the most common electronic 

workpapers in use by federal agencies. We will most likely adopt electronic work papers during 

FY2011. 

OIG Policy Manual 

The OIG policy manual has been rewritten and re-issued to reflect the many changes within the OIG and 

audit standards community. Further, other changes were made to reflect the new peer review guidance. 

Many of the manual’s guidelines have already been implemented and are applicable to many types of 

engagements, but the guidelines were specifically written to help ensure compliance with generally 

accepted government auditing standards. 
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Implementation of OIG Reform Act 

The OIG has implemented all of the requirements of Pub.L. No. 110-409, The Inspector General Reform 

Act of 2008. We also completed an upgrade of our website and now have the ability to receive 

anonymous reports of fraud, waste, and abuse. 

Recommendation Tracking Database 

ARC-OIG has implemented a recommendation tracking database. The design of the database and some 

of the customization for ARC-OIG’s use was provided by another OIG for which we are appreciative. 

The database is also available to selected ARC personnel, who can access the database at any time. The 

system provides: 

• View access for all previously issued recommendations, both open and closed. 

• An implementation status field for management updates (used by OIG to facilitate review 

activities and the closing of recommendations). 

• An OIG response field/final management action field, which is used to communicate OIG views 

of management’s implementation activities or to record management’s final action. 

Going Green 

ARC management has implemented green measures within the organization's internal operations. For 

example, a document scanning system has been linked to ARC’s e-mail system. Management, in a 

written response to our draft report on ARC's grant management system stated, “We have had 

preliminary discussion with our state partners about the need to move to a paperless application process, 

and will pursue this more vigorously within this fiscal year.” Reduction in paper utilization can reduce 

cost, improve the timeliness of management decisions through better document storage and retrieval, 

and helps to reduce demands on our earth's ecological systems. 

Our office, in alignment with management's initiative, is committed to “going green” and we continue to 

work toward that end. To date, our office has made substantial strides in working with contracted 

auditors and issuing reports electronically. 

IV. REPORTING FRAUD, WASTE, AND ABUSE

A region wide toll-free hotline was previously established to enable direct and confidential contact with 

the ARC OIG, in line with governmental and longstanding OIG initiatives as identified in the IG Act of 

1978; to afford opportunities for identification of areas subject to fraud, waste, or abuse. Also, in 

accordance with the Inspector General Reform Act of 2008, the ARC OIG implemented another 

communication channel allowing anonymous reporting of fraud, waste or abuse via a link on our website’s 

home page. The web link is, http://ig.arc.gov/. However, with respect to the telephone hotline calls, 

contacts with the ARC OIG relative to public complaints or concerns continue to be primarily received 

through ARC staff, on regular OIG phone lines, or from other OIG offices. 

Also, numerous hotline calls were received about matters for which other agencies have jurisdiction. 

This resulted primarily from the ARC OIG hotline apparently being the first such OIG listing in some 

telephone directories, resulting in ARC OIG being contacted by citizens who did not know the 

appropriate agency for handling their concerns. The ARC OIG facilitated the complaint process by 

identifying the applicable agency based on complainant information and providing the correct OIG 

hotline number. 
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V. LEGISLATIVE AND REGULATORY REVIEW

The OIG continues to review and provide comment on legislation germane to the OIG and the OIG 

community. Our comments are provided to the CIGIE for incorporation with comments from all other 

OIGs. 

Reporting to Commission

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No.111-203) amended the 

Inspector General Act changing the entity head of ARC from the Federal Co-Chair to the Commission. 

Although the Office of Management & Budget (OMB) has not implemented these changes by 

publishing the 2010 Designated Federal Entities & Federal Entities List, this amendment raises serious 

concerns. This amendment places the Inspector General under the direct supervision of the 13 

Appalachian state Governors, impinges upon OIG independence, and poses significant administrative 

difficulties in implementing the new reporting structure. Based on our review of the legislation, we do 

not believe that legislators intended to have this amendment apply to agencies, such as ARC, where the 

Commission is composed primarily of non-federal, non-Presidentially appointed members. As such, we 

intend to seek clarification from legislators and if necessary, additional amendments to the Inspector 

General Act. 
APPENDIX A 

 SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS

 ISSUED APRIL 1, 2010 TO SEPTEMBER 30, 2010 

Report No. Report Title/Description Program Dollars or 

Contract/Grant 

Amount* 

Questioned/ 

Unsupported 

Costs** 

Funds to Better 

Use*** 

10-05 

Appalachian Regional Commission Financial Statements 

September 30, 2009 and 2008, With Independent 

Auditors’ Report 

10-06 Inspection Report on Grant Management Compliance 

TOTALS 0 0 0 
APPENDIX B 

SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS 

 QUESTIONED OR UNSUPPORTED COSTS ($ in thousands) 

 No. of 

 Reports

 Questioned 

 Costs 

 Unsupported 

 Costs 

 

A. For which no management

decision was made by the

commencement of the

reporting period 

 0 $ 0 $ 0 

 

B. Which were issued during the

reporting period 

 0 $ 0 $ 0 

 

Subtotals (A + B) 0 $ 0 $ 0 

 

C. For which a management

decision was made during the

reporting period 

 

 

(i) dollar value of

disallowed costs 

 0 $ 0 $ 0 

 

(ii) dollar value of costs

not disallowed 

 0 $ 0 $ 0 

 

D. For which no management

decision has been made by the

end of the reporting period 

 0 $ 0 $ 0 

 

E. Reports for which no

management decision was

made within 6 months of

issuance 

 0 $ 0 $ 0 
APPENDIX C 

SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS WITH 

RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE AND SUMMARY OF 

 MANAGEMENT DECISIONS

 No. of 

 Reports

 Dollar Value 

 ($ in thousands)

 

A. For which no management decision was made by the

commencement of the reporting period 

 0 $ 0 

 

B. Which were issued during the reporting period 0 $ 0 

Subtotals (A + B) 0 $ 0 

C. For which a management decision was made during the

reporting period 

 

(i) dollar value of recommendations that were agreed to

by management 

 

--based on proposed management action 0 $ 0 

--based on proposed legislative action 0 $ 0 

 

(ii) dollar value of recommendations that were not

agreed to by management 

 0 $ 0 

 

D. For which no management decision has been made by the end

of the reporting period 

 0 $ 0 

 

E. Reports for which no final management decision was made

within 6 months of issuance 

 0 $ 0 
 APPENDIX D 

SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS WITH 

 RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE AND SUMMARY OF 

 MANAGEMENT ACTIONS ($ in thousands) 

OIG Audit 

Reports

 

 

 

 Number of 

 Reports 

 

 Amounts 

 Recommended 

 by OIG 

 Amounts 

 Agreed to by

 Management

 (Disallowed)

 

A. For which final action by

management had not been taken

by the commencement of the

reporting period 

 0 $ 0 $ 0 

 

B. On which management decisions

were made during the reporting

period 

 0 $ 0 $ 0 

 

C. For which final action was taken

by management during the

reporting period 

 

 

(I) Dollar value of 

recommendations that 

were actually completed 

 0 $ 0 $ 0 

 

(ii) the dollar value of 

recommendations that 

management has 

subsequently concluded 

should not or could not be 

implemented or 

completed 

 

 0 $ 0 $ 0 

 D. For which no final action had 

 been taken by the end of the 

 reporting period

 0 $ 0 $ 0 
 APPENDIX E

DEFINITIONS OF TERMS USED

The following definitions apply to terms used in reporting audit statistics: 

Questioned Cost A cost which the Office of Inspector General (OIG) questioned 

because of an alleged violation of a provision of a law, regulation, 

contract, or other agreement or document governing the 

expenditure of funds; such cost is not supported by adequate 

documentation; or the expenditure of funds for the intended 

purpose is unnecessary or unreasonable. 

Unsupported Cost A cost which the OIG questioned because the cost was not 

supported by adequate documentation at the time of the audit. 

Disallowed Cost A questioned cost that management, in a management decision, 

has sustained or agreed should not be charged to the Commission. 

Funds Be Put To Better Use A recommendation made by the OIG that funds could be used 

more efficiently if management took actions to implement and 

complete the recommendation. 

Management Decision Management's evaluation of the findings and recommendations 

included in the audit report and the issuance of a final decision by 

management concerning its response to such findings and 

recommendations, including actions concluded to be necessary. 

Interim decisions and actions are not considered final management 

decisions for the purpose of the tables in this report. 

Final Action The completion of all management actions that are described in a 

management decision with respect to audit findings and 

recommendations. If management concluded that no actions were 

necessary, final action occurs when a management decision is 

issued. 
 THE OFFICE OF INSPECTOR GENERAL 

 APPALACHIAN REGIONAL COMMISSION 

 serves American taxpayers 

 by investigating reports of waste, fraud, or abuse 

 involving Federal funds. 

 If you believe an activity is 

 wasteful, fraudulent, or abusive of Federal funds, 

 please call 

 toll free 1-800-532-4611 

 or (202) 884-7667 in the Washington metropolitan area 

 or write to: 

 Office of Inspector General 

 Appalachian Regional Commission 

 1666 Connecticut Avenue, NW, Rm. 700 

 Washington, DC 20009-1068 

 Information can be provided anonymously. 

 Federal Government employees are protected from reprisal, 

 and anyone may have his or her identity held in confidence. 
On the Cover: 

The map on the cover was produced by the Appalachian Regional Commission with assistance 

from the National Association of Development Organizations. 

Appalachian Regional Commission 

 Office of Inspector General 

 1666 Connecticut Avenue, NW, Suite 700 

 Washington, DC 20009-1068