APPALACHIAN REGIONAL COMMISSION

INSPECTOR GENERAL'S

SEMIANNUAL REPORT

TO CONGRESS

APRIL 1 - SEPTEMBER 30, 1999

i

TABLE OF CONTENTS

Page

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

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

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

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

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

Office of Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 

 III. OIG Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 

Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 

Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 

 IV. Audit Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 

 V. OIG Hotline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 

 VI. Legislative & Regulatory Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 

 VII. Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

Appendices A. Schedule of Audit Reports Issued

April 1 through September 30, 1999

B. Schedule of Audit Reports with Questioned or Unsupported Costs

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

Better Use

D. Definition of Terms Used
ii

EXECUTIVE SUMMARY

During this reporting period, 19 reports were issued, including 15 individual grant reviews, a 

programmatic review, and 3 J-1 Visa Waiver compliance reviews. Recommendations in grant 

reviews were directed at improved accounting and financial systems and controls, including eligibility 

of expenditures and identification and support for matching contributions. During the reporting 

period, ARC management continued to emphasize timely followup and review of expired grants. This 

action resulted in management actions to close out 302 projects and recover about $1.8 million during 

the reporting period with recoveries being noted for 67 projects, including several identified in prior 

OIG reports. A $300,000 deobligation pertained to a revolving loan fund that had been previously 

identified as having an excessive balance by OIG and ARC.

Three J-1 Visa Waiver program compliance surveys in two states disclosed that physicians were 

generally complying with program provisions. However, several instances of noncompliance due to 

the physician’s practicing at locations not previously approved and/or in ineligible areas were noted 

and actions are in process to ensure physician compliance with ARC requirements. Also, 

coordination between ARC and OIG is ongoing with the Immigration and Naturalization Service 

(INS) to ensure the sponsoring agencies, such as ARC, are notified and consulted about INS waiver 

approvals that could result in participating physicians not completing their required practice in the

Appalachian region. This action was based on a case that resulted in a J-1 Visa Waiver program 

physician seeking an additional waiver from INS, e.g., for extenuating circumstances, and relocating 

outside the Appalachian region without any notification to ARC or coordination by INS with the 

sponsoring agency.

We continued to work with first-time and smaller grantees with respect to the implementation of 

practical accounting and financial systems and controls sufficient to ensure compliance with grant 

agreements, identification of eligible costs, maintenance of records, and preparation of reports. 

Primary areas in need of improvement with respect to grantee financial operations included 

identification and support of matching contributions and program expenditures. For example, initially 

questioned costs of about $500,000 resulting from lack of support for matching contributions were 

substantially reduced based on discussions with grantees and receipt of additional information. Grant 

reviews also identified about $75,000 in unspent funds on three completed projects, and recovery 

actions were in process.

The IG continued to participate actively in discussions related to interpretations of the independence 

of Designated Inspectors General promulgated by the American Institute of Certified Public 

Accountants and being considered by the Advisory Council on Government Auditing Standards. The 

IG strongly believes the IG Act and Amendments mandate that all Inspectors General conduct their 

operations in a fully independent manner despite the appointment process and actions or proposals 

that hinder this requirement are ill-advised and conflict with the law and clear intent of Congress. 

Additionally, such action would significantly and negatively impact on the ability of IGs to accomplish 

OIG responsibilities. The ARC OIG appreciates the support and cooperation of ARC management in 

recognizing the responsibilities of the OIG and ensuring that ARC OIG activities are conducted in 

accordance with statutory requirements.
iii

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

The Co-Chairman 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 7

Section 5(a)(1) Problems, abuses, and deficiencies Page 3

Section 5(a)(2) Recommendations with respect to problems, abuses, and deficiencies Page 3

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

Section 5(a)(4) Matters referred to prosecutive authorities *

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

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 *

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

disagrees

*

 

* None.

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

I. INTRODUCTION

The Inspector General Act Amendments of 1988 (P.L. 100-504) provided 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 ARC was established by the Appalachian Regional Development Act of 1965 (P.L. 89-4). 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-Chairman with the Governors electing one of their number to serve as the States' CoChairman.

 - 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) by the vote of a 

majority of the State members and the affirmative vote of the Federal Co-Chairman. Emphasis 

has been placed on highways, infrastructure development, business enterprise, and human 

resources programs.

 - Administratively, the Office of the Federal Co-Chairman, with a staff of 10, and the 

Commission, with a staff of 51, are responsible for ARC operations. The States maintain an 

Office of States' Representative (3 persons) that has primarily liaison responsibilities. All 

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

including salaries, are funded jointly by Federal and State funds; the States' Representative 

staff is funded entirely by the States; and the Federal Office staff is funded entirely from 

Federal funds.

 - The Commission's appropriation for FY 1999 was $66.4 million, which was divided 

approximately $62.4 million for non-highway projects and $4 million for administrative 

expenses. ARC was fully reauthorized by Congress for the first time since 1982. Also, the 

Department of Transportation and Related Agencies Appropriation Act for Fiscal Year 1998 

(P.L. 105-66) appropriated $300 million in FY 1999 for carrying out the provisions of section 

1069(y) of P.L. 102-240 relating to the construction of, and improvements to, corridors of 

the Appalachian Development Highway System (ADHS). The funding was distributed among 

the states with unfinished ADHS segments as determined by ARC. For FY 2000, nonhighway funding of $66.4 million was appropriated for ARC, with highway funding expected 

to be between $350 million and $400 million.
v

 - Program funds are distributed to State and local entities in line with an allocation formula 

intended to provide fair and reasonable distribution of available resources. ARC staff have 

responsibilities for program development, policy analysis and review, grant development, 

technical assistance to States, and management and oversight.

 - In order to avail itself of Federal agency expertise and administrative capability in certain 

areas, the 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. Under this arrangement, the Commission retains 

responsibility for priorities, highway locations, and fund allocations.

B. OFFICE OF INSPECTOR GENERAL

The ARC OIG is an independent audit and investigation unit. The OIG is headed by an Inspector 

General who reports directly to the Federal Co-Chairman.

Role and Authority

The Inspector General Act of 1978 (P.L. 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-Chairman 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 the Federal Co-Chairman, acting together as the Commission, establish policies for 

ARC's programs and its administration. These policies are codified in 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-Chairman, 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 operations of the OIG neither replace 

established lines of operating authority nor eliminate 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.
vi

Funding and Staffing

The OIG funding level for FY 1999 was $438,000. For FY 1999, approximately 27 percent was 

expended for contract audit services; 57 percent, for salaries and benefits; 8 percent, for travel; and 8 

percent, for all other activities (training, equipment, space, supplies, etc.). The OIG funding level 

represents about .65 percent of the total funds available to the Commission.

Initial OIG operations included authorization for an Inspector General and a Confidential Assistant. 

A senior auditor was employed in the latter half of FY 1991; no additional staff have been employed. 

Grant review activities will 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. This approach has been deemed the most appropriate to date in view of the nature of ARC 

operations and limited resources. However, we would welcome initiatives that would facilitate 

sharing of investigative resources in order to strengthen this aspect of OIG operations.

III. OIG ACTIVITY

A. AUDITS

During the reporting period, 19 reports were issued, including 15 individual reviews, a programmatic 

review, and 3 J-1 Visa Waiver compliance reviews. The division of OIG resources results in audit 

work being performed by a combination of permanent and contractor staff. Emphasis continues to be 

placed on surveys of ARC operations and programs, grant audits, audit planning, and audit resolution 

and followup.

During the term of the OIG operations at ARC, various recommendations, based on audit testing, 

have been made to ARC management with respect to improving operations in such areas as 

accountability, financial management, fund obligations and deobligations based on project activity, 

implementation of cost principles, and audit followup. Programmatic issues, with respect to grant 

administration, project results, and internal control systems, have been addressed.

ARC and OIG continue to emphasize grant management practices including the timely identification 

of completed projects and recovery of unused funds. During the reporting period, ARC actions 

included closing out 302 projects, including 67 projects with deobligations of over $1.8 million. For 

FY 1999, agency actions, including followup on projects identified in prior OIG reports, resulted in 

closeouts of 602 projects with recovery of approximately $6.5 million that could be reallocated for 

other priority projects.

One example resulting from an OIG recommendation was a $300,000 deobligation from a revolving 

loan fund that had exhibited limited activity during the past years. The funds were reallocated to area 

development programs, and the revolving loan fund is being monitored to determine the potential for 

additional transfers. Followup was also initiated to encourage grantees to improve time frames 

between project expenditures and drawdown actions in order to permit more timely identification of 

the status of funds and appropriate followup action.
vii

- During this period, we performed 3 compliance surveys in connection with the J-1 Visa 

Waiver program in two states. ARC participates as a Federal entity sponsor to assist 

Appalachian region communities in providing health care services to medically underserved 

areas. The program provides a waiver of the requirement for a foreign physician to return to 

his/her home country after completion of medical training in the United States. Based on a 

state request, ARC acts as the interested Government agency within the Appalachian region, 

with waivers being approved by the INS based on an ARC recommendation.

Our tests disclosed that participating physicians were generally complying with program 

requirements to provide 40 hours of primary care per week in a medical professional shortage 

area. However, we noted several instances of noncompliance and a need for action to ensure 

that physicians cannot avoid fulfillment of ARC program requirements by obtaining other INS 

waivers without the concurrence of ARC. Our on-site visits disclosed several instances where 

physicians were not performing the required service at the approved location, one instance 

where a physician was practicing in an ineligible area and instances where notices identifying 

the availability of service to all individuals were not posted as required. Based on these 

reviews, a survey was initiated to obtain employment verification reports from all participating 

physicians for whom such reports were not available at ARC. Also, the applicable state 

agencies initiated actions to ensure that the noted physicians’ work schedules were revised to 

ensure that service was provided as required at the approved location.

During the reporting period, we were apprised of 2 J-1 Visa Waiver physicians leaving their 

employ within the Appalachian region and seeking employment outside the region. Followup 

determined that the physicians had left the region, with one case being attributed to the 

closing of the facility and the other apparently resulting from an employer/employee dispute. 

In one case, the physician is seeking employment at another location in the Appalachian 

region; but in the other case, the physician is seeking a hardship waiver from INS and believes 

this waiver relieves him of his responsibility to fulfill his agreement with ARC to provide 3 

years of service within the Appalachian region. It is generally agreed that additional waivers, 

if granted, should be based on coordination with the sponsoring agency and that the approval 

of additional waivers by INS based on extenuating circumstances does not relieve physicians 

from fulfilling agreements made with other agencies. For example, in the subject case, the 

physician’s need to relocate due to the facility closing could have been remedied by 

employment at another location in the Appalachian region. ARC and OIG are coordinating 

with INS staff to identify a process whereby all interested parties are informed prior to 

approval of additional waivers.

- Continued emphasis was placed on testing first-time program participants in order to 

determine and evaluate the extent of knowledge and understanding of program procedures 

and requirements. Our tests disclosed that, although funds were spent and projects completed 

in accordance with grant agreements, some grantees did not have adequate financial system or 

accounting controls and, thus, were unable to fully support claims for reimbursement. Also, 

there was limited understanding with respect to information necessary to support required 

matching contributions and allocation of costs between different funding sources and 

allowable costs as noted in the applicable OMB Circulars (A-87 and A-122). We worked 

with the grantees to identify practical financial and accounting systems. For example, in 

several cases, documentation was initially unavailable to support matching contributions 

totaling about $500,000. The conditions resulted from factors such as using grant funds for 
viii

matching purposes, lack of supporting documentation from third party contributors, 

contributions outside the grant period, and incorrect valuation of equipment used as match. 

As a result of discussions with grantees and review of additional information, the questioned 

costs were substantially reduced, and followup is in process to address the open issues.

- Other issues identified in our reviews and recommendations pertained to recovery of $78,000 

in funds not utilized on 3 completed projects and a need to resolve recommendations related 

to adjustments of indirect cost claims, activities performed prior to the start of the grant 

period, and receipt of required reports.

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. Should the need arise, the matter would be referred to the 

Federal Bureau of Investigation or assistance would be contracted with another Federal OIG. Also, 

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

authorities for action. During the reporting period, the Inspector General conducted followup 

administrative inquiries with respect to several hotline concerns and coordinated with the Department 

of Justice and the Immigration and Naturalization Service on cases impacting the J-1 Visa Waiver 

program.

IV. AUDIT PLANNING

The OIG will be alert for new or revised areas of ARC operations based on the priorities and 

emphasis of ARC management, including results of strategic planning initiatives. Audit planning will 

include consideration of such initiatives with the overall goal being to ensure coverage of high 

priority, including high dollar, areas in order to assist management to fulfill their responsibilities for 

effective and efficient program operations.

Of particular importance is maintaining the flexibility of the audit plan to address changing needs and 

priorities. Coordination with ongoing ARC efforts to implement an entity-wide strategic plan is 

considered an important element of planning, and discussions with ARC management have identified 

several areas for review.

The OIG's strategies and objectives for the next 5 years are defined in a strategic plan. The FY 2000 

Annual Plan provides the operational details for OIG activities planned during FY 2000 to implement 

this strategic plan. We expect to revise this strategic plan periodically until our experiences validate 

our planning assumptions and we have achieved a comfort level with how we have programmed 

activities over this extended time period.

Additional emphasis will be placed on coordinating OIG reviews with ARC implementation of the 

Government Performance and Results Act (GPRA) and revised operational procedures resulting from 

reauthorization legislation requirements. In order to provide some coverage of ARC funds that are 

administered by other agencies, e.g., construction and technical projects, we are coordinating with the 
ix

OIGs at the applicable agencies and reaching concurrence for ARC OIG review of some of these 

projects.

FY 2000 audit work includes about 30 individual grant audits in the Appalachian States; additional 

followup on grants with completed budget periods, grant extensions, and project results; and tests of 

the J-1 Visa Waiver program. Continued emphasis will be placed on audit followup and corrective 

action plans, including working with agency management to address open issues and achieve audit 

resolution and closure.

In order to maximize use of available resources directed at reviewing ARC activities, emphasis will 

continue to be placed on nonstandard reporting formats including memorandum, letter, and survey 

reports. Although such reporting formats reduce the time and resources necessary for review 

completion, the results and information included in such reports is based on evidence and supporting 

documentation consistent with generally accepted auditing standards.

V. OIG HOTLINE

A regionwide 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. 

Efforts continue to publicize the hotline by notifications to contractors and grantees, and field visits 

evaluate the extent to which employees were made aware of this system. However, 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 with respect to 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.

VI. LEGISLATIVE AND REGULATORY REVIEW

Primary efforts in this area continued to be related to potential legislative initiatives with respect to 

OIG operations. The ARC OIG continues to support legislation that would provide improved 

protections for IGs, including designated and career IGs, by consideration of alternatives such as 

removal for cause criteria and term limits. During the reporting period, additional legislation 

impacting IGs was submitted; and the IG commented on the various initiatives noted in the proposed 

legislation. Specifically, the IG concurred with proposals dealing with term limits, reporting to 

Congress and additional oversight of OIG offices. With respect to the consolidation of some 

designated OIGs, the IG recommended that such action be deferred pending additional study,

including contact and discussion with the applicable OIGs and parent agencies.
x

VII. OTHER

The Inspector General continues to serve as the representative of the Executive Council on Integrity 

and Efficiency on the Audit Committee of the President’s Council on Integrity and Efficiency.

The IG is participating on a project intended to assess the extent of oversight being provided to 

ensure the quality of Single Audit reports that are required in connection with programs financed all 

or in part with Federal funds This project is in line with goals to ensure that grant-related information 

contained in the financial statements of the Federal government is accurate and reliable. In connection 

with this project, a presentation was made to an Intergovernmental Audit Forum on the status of 

Single Audit Act implementation.

During the reporting period, the OIG conducted a peer review of another OIG. 

Financial management initiatives by ARC during the reporting period included revision of the 

Revolving Loan Fund (RLF) guidelines to incorporate or clarify provisions for shortening the lead 

time for advance payments, redefining excess cash, interest on grant advance payments, use of 

program income, and audit responsibilities. These actions are consistent with OIG emphasis on 

reasonable fund balances and effective cash management.

During the reporting period, the Development District Association of Appalachia continued its efforts 

to improve grant management and encourage non-governmental participation by sponsoring satellite 

broadcasts dealing with grant applications and techniques by which rural communities could extend or 

increase economic development activities by raising capital through non-traditional and nongovernmental approaches. These teleconferences, which reach a sizable audience throughout the 

Appalachian region, followed a successful financial management broadcast in late 1998.

The IG continued to be an active participant in discussions related to the independence of designated 

IGs. This issue initially arose because of interpretations by the American Institute of Certified Public 

Accountants (AICPA) that Presidentially appointed and legislatively confirmed IGs meet the AICPA 

definition of independence but that designated IGs that are appointed by the head of the designated 

Federal entity do not meet this definition. The IG strongly disagreed with the AICPA interpretation 

based on the unique and clear language of the Inspector General Act of 1978 and Amendments of 

1988 that provide designated IGs, by statute, with the same authorities for independent performance 

of their duties as provided Presidentially selected IGs.

Presently, consideration is being given by the Advisory Council on Government Auditing Standards 

(Council) to recommending that the AICPA bifurcation of the Federal IG community be reflected in 

the Government Auditing Standards issued by the Comptroller General. This would be accomplished 

by identifying designated IGs as non-organizationally independent and, therefore, would require 

designated IGs to qualify their audit work with some language that is certain to call into question the 

independence of the organization performing the review. Such an action would require designated 

IGs to either violate the IG Act, which mandates independence by all IGs as clearly expressed in 

Section 2 (which starts “to establish independent and objective units. . . .”) in order to comply with 

the proposed qualifying language, or violate Government Auditing Standards in order to comply with 

the IG Act. The IG does not believe that designated IGs should be placed in such a position and 

strongly recommends intervention by the Executive and Legislative Branches to preclude standards 
xi

and positions that are contrary to law being considered for, or included in, the Government Auditing 

Standards.

Designated IGs were not successful in dissuading the AICPA from reaching its conclusion. Based on 

the Council’s apparent intention to pursue this issue, we have also been unsuccessful, to date, in 

convincing the Council that designated IG independence is mandated by law and that provisions of 

the IG Act related to IG authorities to independently initiate audits or investigations, full access to all 

records, subpoena authorities, public disclosure, and reporting to Congress provide a far greater 

assurance of independence than achievable by a public accounting firm paid directly by the client and 

having none of the authorities noted above.

Although the Government Auditing Standards apply to audits of Government funds, requiring 

disclosures that call into question whether designated IGs are fully independent creates the clear 

perception that none of the IG functions, including investigations, is being performed by an 

independent unit. This can have a chilling effect on the public perception of Offices of Inspectors 

General and substantially reduce public confidence in these offices and willingness to cooperate in the 

identification and prevention of fraud, waste, abuse, inefficiency, or ineffectiveness.

The ARC IG believes the Congress intended Presidentially appointed and agency head appointed IGs 

to act in a fully independent manner, notwithstanding the appointment process. Congress is urged to 

ensure another organization reporting to Congress does not issue standards that conflict with specific 

statutory language and the overall intent of Congress. It is hoped that the Council will rethink its 

initial position on this important issue and support the concept that designated IGs are fully 

independent and should not qualify audit reports by including inappropriate disclosures.
APPENDIX A

SCHEDULE OF REPORTS ISSUED APRIL 1 TO SEPTEMBER 30, 1999

Report 

No.

Entity and Title Program Dollars or 

Contract/Grant 

Amount

Questioned/

Unsupported 

Costs*

Funds to Better 

Use**

99-16(H) J-1 Visa Waiver Program--Alabama

99-17(H) Lake Cumberland Justice/Victims Advocacy Program $ 100,000 $ 2,277

99-18(H) Training Tomorrow’s Work Force, Prestonsburg Community College 289,975

99-19(H) Rural Health and Wellness Program, Prestonsburg Community College 355,420 $ 76,917

99-20(H) ADECA—Technical Assistance 156,000

90-21(H) ADECA—Strategic Plan for Telecommunications 359,016

99-22(H) DeKalb County Tourism/Business Development Center 250,000

99-23(H) Jefferson County Distance Learning Project 200,000

99-24(H) Technology 2020, Entrepreneurial Initiative 310,000 30,940

99-25(H) West Virginia Technical Assistance 692,500

99-26(H) Logan County, SW Regional Jail/Industrial Park Water Project 1,600,000 67,425

99-27(H) Tennessee Quality Award 174,376

99-28(H) North Georgia Technical Institute 110,000

99-29(H) Rockcastle County Economic Development Initiative 400,000

99-31(H) Facilities Master Planning—The Wilds 250,000

99-32(H) Ohio University, Technology Outreach Center 300,000 189,000 8,992

99-33(H) Claims Processing

99-38(H) J-1 Visa Waiver Program—New York

99-39(H) J-1 Visa Waiver Program--Alabama

TOTALS $ 5,547,287 $ 296,857 $ 78,694

 * A cost the Office of Inspector General has questioned because of an alleged violation of law, regulation, contract, or other agreements 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. Includes required matching contributions.

 ** Funds the Office of Inspector General has identified in an audit recommendation that could be used more efficiently by reducing outlays, deobligating program or operational funds, 

avoiding unnecessary expenditures, or taking other efficiency measures, such as timely use of funds.
APPENDIX B

SCHEDULE OF AUDIT REPORTS WITH

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

 3 $ 21 $306 

B. Which were issued during the 

reporting period

 3 $ 77 $219

Subtotals (A + B)

 6 $ 98 $535

C. For which a management decision 

was made during the reporting period

 3 $ 21 $306

(i) dollar value of disallowed 

costs

 - - - 

(ii) dollar value of costs not 

disallowed

 3 $ 21 $306 1/

D. For which no management decision 

has been made by the end of the 

reporting period

 3 $ 77 $219

E. Reports for which no management 

decision was made within 6 months 

of issuance

- - - 

Notes:

1/ Information submitted by grantees was sufficient to justify report closing without additional action. Improved 

financial management systems were implemented to preclude recurrence.
APPENDIX C

SCHEDULE OF AUDIT REPORTS WITH

RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

No. of

Reports

Dollar Value

($ in thousands)

A. For which no management decision was made by the 

commencement of the reporting period

3 $ 2,356 

B. Which were issued during the reporting period 3 $ 78 

Subtotals (A + B) 6 $ 2,434 

C. For which a management decision was made during the 

reporting period

3 $ 1,745

(i) dollar value of recommendations that were agreed 

to by management

2 $ 592 1/ 

--based on proposed management action 2 $ 592 

--based on proposed legislative action - - 

(ii) dollar value of recommendations that were not 

agreed to by management

2 $ 1,153 2/ 

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

of the reporting period

3 $ 689 3/ 

E. Reports for which no management decision was made within 

6 months of issuance

- - 

Notes:

1/ Includes deobligations applicable to grants noted in prior reports, including $300,000 pertaining to a 

revolving loan fund balance. Also, additional actions, including closings and deobligations, based on ARC 

management initiatives are summarized in the report body. 

2/ Includes final payments justified based on review of grants identified in prior reports.

3/ Includes grants for which ongoing followup action is in process for grants identified in prior and new reports. 

A management decision was made to followup on cases reported but final action not completed.
APPENDIX D

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 UseA 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) 884-7678 in the Washington metropolitan area

or write to:

Office of Inspector General

Appalachian Regional Commission

1666 Connecticut Avenue, NW, Rm 215

Washington, DC 20235

Information can be provided anonymously.

Federal Government employees are protected from reprisal,

and anyone may have his or her identity held in confidence.