to implement this strategic plan. We expect to revise this strategic plan each year 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.

During the latter half of FY 1996, audit work will include about 20 individual grant audits in the
Appalachian states and additional followup on grants with completed budget periods, grant
extensions, project results, and 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
continues 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.

Vv. 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.

During the reporting period, complaints were received with respect to the J-1 visa waiver program
and several grants. The ARC OIG initiated reviews in response to these complaints, and the results
of these reviews will be noted in future reports.

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 Tespect
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. Also, the ARC OIG continues to support extension of
the Program Civil Fraud Penalties Act to include designated entities, improved protection of


activities. The Inspector General appreciates the support, cooperation, and assistance provided by
ARC management during the period of ECIE Vice Chair responsibilities. The Inspector General
currently serves on the PCIE Audit Committee.

During the reporting period, the Inspector General submitted various comments and
recommendations to PCIE with respect to overall OIG operations. The issues included:

— assessment of the results of financial statement audit work, including costs, results, and test
methodologies;

— restructuring of OIG audit processes to better reflect audit needs and reduction of reliance
on processes and standards developed primarily for the private sector;

- _ increased cost effectiveness of training related activities through increased use of in-house
resources and reduced reliance on higher cost external conferences and seminars;

- communitywide efforts to reduce training related costs involving funding of social and
entertainment type activities included in registration fees;

- consideration of alternatives in contracting for audit services, including use of lower cost
peer professionals for less complex work.

The Inspector General continues to advocate use of Interservice Agreements by IG offices in order
to substantially reduce the costs of independently contracting for external auditors. This process,
which was initiated by the ARC OIG in 1989, is now used by approximately 10 designated IG
offices and several PCIE entities and results in a substantial reduction in costs with respect to
advertising and bid evaluation, without any reduction in competition or quality of work. In this
regard, the ARC IG has strongly supported PCIE initiatives to encourage and increase the
Governmentwide use of a master contractor concept for audit services contracts to achieve
substantial economies of scale by eliminating duplicative contracting activities; and the expansion
of this process, to include additional agencies, has been approved by the OIG audit community.

iii


APPENDIX C
SCHEDULE OF AUDIT REPORTS WITH
RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

No. of Dollar Value
Reports ($ in thousands)

For which no management decision was made by the 1 $28
commencement of the reporting period

Which were issued during the reporting period = -

Subtotals (A + B) 1 $28
For which a management decision was made during the 1 $28
reporting period
(i) dollar value of recommendations that were agreed 1 $28
to by management
-—based on proposed management action 1 $28
(544)1/

--based on proposed legislative action - -

(ii) dollar value of recommendations that were not - -
agreed to by management

For which no management decision has been made by the ~
end of the reporting period

Reports for which no management decision was made = me
within 6 months of issuance

Continuing action on prior audit reports that identified grants for followup action resulted
in 47 closings and deobligations of $544,000.


8 percent, for all other activities (training, equipment, space, supplies, etc.). The OIG funding level
represents about .0025 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 are participating with
other OIG offices to facilitate sharing of investigative resources in order to strengthen this aspect
of OIG operations. The OIG will continue to monitor this situation as well as the efficiency and
effectiveness of the use of contracted services.

I. OIG ACTIVITY
A. AUDITS

During the reporting period, 18 reports were issued, including 9 individual reviews, 4 program
surveys, and S J-1 Visa Waiver Program followup reviews. At the end of the reporting period,
9 grant reviews and 3 program surveys were in process. 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, completion of 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, J-1 visa waiver program, revolving loan funds, and internal control systems, have
been addressed and recommendations made with respect to improved program operations or
activities.

OIG followup tests and reviews of statistical information have reflected positive ARC actions to
address these issues and resulting improvements in program operations. For example, as noted in
prior reports, timely use of funds and project closings have been emphasized; and the number of
funded projects with large unobligated balances has been substantially reduced. ARC conferences,
training, and seminars continue to emphasize accountability, financial management systems, and
allowable costs. Additionally, ongoing ARC actions, including revisions of accounting systems
and service agreements, and strategic planning, including assessment of appropriate internal and
external performance measures, are in line with OIG recommendations and executive and
legislative initiatives to improve Government operations.

The ARC OIG will continue to address these issues, including periodic followup on the extent of
actions initiated and results obtained, and, as noted below, will report on issues needing continued
attention.


Section S(a)(12) Significant management decisions with which the Inspector *
General disagrees

* None.

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


PURPOSE AND REQUIREMENTS OF THE

OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

The Inspector General Act of 1978 requires the Inspector General 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 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.

R ie Regul
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 Page 3

deficiencies

Section 5(a)(3) Prior significant recommendations not yet implemented *
Section 5(a)(4) Matters referred to prosecutive authorities *
Section 5(a)(5) Summary of instances where information was refused *

and 6(b)(2)

Section 5(a)(6) Listing of audit reports showing number of reports and App B

dollar value of questioned costs

**

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

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

Section 5(a)(9) Statistical table showing number of reports and dollar value App C
of recommendations that funds be put to better use

Section S(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 *

iv


APPENDIX D

DEFINITIONS OF TERMS USED

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

Questioned Cost

Unsupported Cost

Disallowed Cost

Funds Be Put To Better Use

Management Decision

Final Action

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.

A cost which the OIG questioned because the cost was not
supported by adequate documentation at the time of the
audit.

A questioned cost that management, in a management
decision, has sustained or agreed should not be charged to
the Commission.

A recommendation made by the OIG that funds could be
used more efficiently if management took actions to
implement and complete the recommendation.

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.

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.


-  Inorder 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 Office of Inspector General 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 Inspector
General 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 Inspector General 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 Inspector General 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 Offi

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 Inspector General.

Funding and Staffing

The OIG funding level for FY 1996 is $420,000. For FY 1996, approximately 30 percent will be
expended for contract audit services; 55 percent, for salaries and benefits; 7 percent, for travel; and


APPALACHIAN REGIONAL COMMISSION

INSPECTOR GENERAL'S

SEMIANNUAL REPORT

TO CONGRESS

OCTOBER 1, 1995 - MARCH 31, 1996


achieved or exceeded project goals for job retention or creation. The survey did not include
a review of the individual infrastructure developments, such as water and sewer lines, since
other Federal agencies were generally the cognizant audit agency (multi-agency funded
projects) but emphasized project reporting about overall results. The survey indicated that
19 grantees exceeded employment objectives, 8 grantees met objectives, 6 grantees had
achieved 50 to 80 percent of objectives, 3 grantees had some success, and 3 grantees had
been generally unsuccessful in attracting commercial development due to economic
downturns in the geographic area. In two cases, the grantee did not obtain or utilize the
ARC grant. We made observation visits to 13 of the sites in connection with other
scheduled work in order to visually identify and/or verify the extent of development. We
recommended that ARC coordinate, to the extent practicable, with applicable grantees to
assist with overcoming obstacles to full success.

A review of six single audit reports submitted to ARC identified some deficiencies with
Tespect to report preparation, including clarification or support for conclusions noted.
These deficiencies, which were not considered material, formed the basis for clarification
of entity handling of single audit reports and other grantee audit reports required or
received by ARC. OIG, in conjunction with increased capability to identify the audit
universe resulting from an improved information management system, will assume
additional responsibilities with respect to ensuring receipt of required audit reports and
reviews of reports for ARC related issues.

Continuing reviews of compliance with J-1 Visa Waiver Program requirements identified
two employers where approved J—1 physicians were not meeting program requirements to
provide service at the applicable Health Professional Shortage Area (HPSA), including one
instance where the physician was also practicing a subspecialty to a substantial degree.
Recommendations dealing with ensuring compliance with ARC requirements were
provided to ARC, and followup actions were initiated to address the conditions noted. On
an overall basis, since the implementation of additional controls by ARC and state
agencies, the OIG continues to receive few complaints with respect to operation of the J-1
Visa Waiver Program.

A survey of ARC travel vouchers disclosed that claims were generally in accord with
Federal Travel Regulations used by ARC staff. The primary recommendation pertained
to use, or development if necessary, of a travel voucher form that can be effectively used
to identify and calculate travel reimbursement claims. In conjunction with the subject of
travel, grant reports have indicated a need for ARC to clarify the ARC implementing
guidance with respect to the travel regulations considered applicable to grantees. The
current reference in grantee guidance is outdated and unavailable resulting in grantee
confusion about applicable guidance and some audit exceptions. ARC management is
considering revised travel policies and procedures in line with recent recommendations in
a Joint Financial Management Improvement Project (JFMIP) report, and an ongoing project
dealing with ARC policies and procedures will update applicable guidance.

Audit work in process included 9 grant reviews and 3 program surveys, including Expired
Grant Update, Basic Agency Activities, and Cash Management. Issues surfacing in these
reviews include the need for revision and/or enforcement of ARC prohibitions on indirect

5


During recent reporting periods, 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 these
grantees often did not have adequate financial systems or accounting controls and, thus,
were unable to fully support claims for reimbursement and/or submitted ineligible costs for
reimbursement. Of particular significance was limited understandings 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). Also, in several other cases, we worked with the grantee to
identify eligible costs prior to the issuance of our final report and, thus, reduced or
eliminated questioned costs necessitating additional audit resolution. Emphasis was placed
on recommendations to improve financial and accounting systems and controls.

During the reporting period, ARC management continued to emphasize actions on grants
with substantial periods of inactivity and/or expired performance periods. For example, we
noted that closing actions were initiated for 47 of 94 grants identified for followup in our
prior report, 95-23(H), May 4, 1995, with deobligations totaling $544,713. However, as
of March 31, 1996, followup action had not been initiated on 37 older grants with balances
of $950,224 that had been included in the prior audit report. Also, 6 grants with balances
of $178,411 had been approved extensions of performance periods; but those extensions
had expired without additional actions. Also, additional deobligations exceeding $1 million
are possible with respect to grants expiring as of September 30, 1995. A followup report
on this subject will be finalized during the second half of FY 1996. ARC actions and
emphasis to improve the grant administration process, including close out procedures,
included deobligations of about $3.5 million between October 1995 and May 1996 and
close out of over 300 projects.

An example of the benefits of timely followup to determine the status of grants was an OIG
contact with a grantee to schedule a field review. OIG was informed that the project would
not be performed and the $135,000 advance funding was returned to ARC. In other cases,
our contacts, including field visits, have identified unused funds for which a need cannot
be identified by the grantee. OIG recommendations continue to emphasize timely followup
actions to determine the status of grants for which little or no funds have been expended
during the performance period. Recent improvements in ARC information management
systems and an internal reorganization should permit improved followup and action that
result in more timely identification of funds for other uses.

As a corollary to our emphasis on expired grant followup, we tested ARC claims
processing and determined that the claims were processed timely after approval by the
applicable project coordinator. However, we noted significant delays in final approval of
some claims by some project coordinators and limited file documentation identifying the
reasons for delays. Although satisfactory explanations were provided in most cases, our
tecommendation emphasized timely followup and file documentation for cases where
claims submissions lack necessary elements.

A survey of 41 grants, totaling about $11 million, for industrial site infrastructure
development between 1987 and 1992 disclosed that, in most cases, the development had

4


I. INTRODUCTION

The Inspector General Act Amendments of 1988 (P.L. 100-504) provided for the establishment
of an Office of Inspector General at 32 designated Federal entities, including the ARC. The
Appalachian Regional Commission (ARC) Office of Inspector General became operational on
October 1, 1989, with the appointment of an Inspector General and provision of budgetary
authority for contracted audit and/or investigation activities.

I. 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' Co-Chairman.

- 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 is 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 11, and the
Commission, with a staff of 50, 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 1996 is $170 million, which is divided
approximately $109 million for highway projects, $57.4 million for non—highway projects,
and $3.6 million for administrative expenses. ARC is authorized through its current
appropriation.

- 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.


EXECUTIVE SUMMARY

During this reporting period, 18 reports were issued, including 9 individual grant reviews,
4 program surveys, and 5 J-1 visa waiver program reviews. Primary recommendations were
directed at improved accounting and financial systems and controls and improved grant
administration, including fund deobligations. At the end of the reporting period, 12 reviews were
in process, including 9 grant reviews and 3 program surveys. Emphasis continued to be placed on
deobligation of funds for grants with lengthy periods of inactivity. Management continued to
emphasize timely followup and review of expired grants including assigning staff to implement
improvements and improved management information systems to facilitate grant tracking. These
actions resulted in deobligations approximating $544,000, with the potential for additional
deobligations exceeding $1 million. Additionally, ARC actions on other projects, including basic
agency administered grants, resulted in over 300 project close outs and deobligations of about
$3.5 million.

Of particular significance was a survey of 41 industrial development sites, for which ARC provided
funding approximating $11 million between 1987 and 1992, in order to obtain information about
the extent of development and job creation/retention. The survey concluded that in 33 cases
grantees reported meeting or exceeding employment goals, 2 grantees chose not to utilize grant
funds, 3 grantees have met less than 50 percent of goals to date, and 3 grantees achieved little
development primarily due to economic downturns. Actions are continuing by grantees to further
increase development.

Our previous semiannual reports highlighted reviews of the J—-1 visa waiver program and ARC
actions to address the failure of participating providers and physicians to ensure that primary care
was provided in health professional shortage areas. During this reporting period, complaints about
the J-1 visa waiver program continued to be limited; and we believe increased program
compliance has resulted from ARC and State agency actions. During this reporting period, we
identified several instances of noncompliance; and ARC initiated actions to ensure full compliance
with program provisions.

In line with reinvention and customer service principles, 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.

An external quality control review (peer review) of OIG audit operations was conducted during the
reporting period. The review concluded that OIG audits are carried out in conformance with
Government Auditing Standards.

The Inspector General's term as the Vice Chair of the Executive Council on Integrity and
Efficiency (ECIE), which was established by Executive Order in May 1992 to provide for
coordination and cooperation between the 32 designated Offices of Inspector General (OIGs),
ended in October 1995 after a 3-1/2 year period. This responsibility included participating as a
member of the President's Council on Integrity and Efficiency (PCIE) and required extensive
coordination and liaison between OIGs, OMB, and Congressional sources with respect to OIG

ii


designated IG budgets, and criteria consistent with current qualification requirements for
Presidentially appointed IGs.

Vl. OTHER

The Inspector General continues to advocate use of Interservice Agreements by smaller designated
IG offices in order to substantially reduce the costs of independently contracting for external
auditors. This process, which was initiated by the ARC OIG in 1989, is now used by
approximately 10 designated IG offices and results in a substantial reduction in costs with respect
to advertising and bid evaluation, without any reduction in competition or quality of work. In this
regard, the ARC IG strongly supports ongoing initiatives to encourage and increase the
Governmentwide use of a master contractor concept for audit services contracts to achieve
substantial economies of scale by eliminating duplicative contracting activities.

During the reporting period, the Inspector General completed his 3-1/2 year term as the Vice Chair
of the ECIE. The Inspector General appreciates the cooperation and assistance provided by ARC
management and PCIE and ECIE members, including OMB officials, that contributed to this
meaningful experience primarily involving issues related to the 32-member designated IG
community.

The Inspector General currently serves as the ECIE representative on the PCIE Audit Committee.
In this capacity, and as a 32-year member of the OIG community, the Inspector General submitted
various comments and recommendations on issues impacting the OIG community. These included:

— assessment of the results of financial statement audit work, including costs, results, and test
methodologies;

— restructuring of OIG audit processes to better reflect audit needs and reduction of reliance
on processes and standards developed primarily for the private sector;

— _ increased cost effectiveness of training related activities through increased use of in-house
resources and reduced reliance on higher cost external conferences and seminars;

-  communitywide efforts to reduce training related costs involving funding of social and
entertainment type activities included in registration fees;

- consideration of alternatives in contracting for audit services, including use of lower cost
peer professionals for less complex work.


SCHEDULE OF AUDIT REPORTS WITH

QUESTIONED OR UNSUPPORTED COSTS

For which no management decision
was made by the commencement of
the reporting period

Which were issued during the
reporting period

Subtotals (A + B)

For which a management decision
was made during the reporting
period

(i) dollar value of disallowed
costs

(ii) dollar value of costs not
disallowed

For which no management decision
has been made by the end of the
reporting period

Reports for which no management
decision was made within 6 months
of issuance

($ in thousands)
No. of

Reports
4

10

Questioned

—Costs—

$12

$47

$12

$1

$8

$35

APPENDIX B

Unsupported
—Costs _

$1

$1
$1

Action continuing to reach final resolution on $3,000 of questioned costs in one case.


Page

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Appendices A. Schedule of Audit Reports Issued
October 1, 1995, through March 31, 1996

B. Schedule of Audit Reports with Questioned or Unsupported Costs

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

D. Definition of Terms Used
E. Survey Questionnaire and Summary Results

F. Vision Statement Summary


APPALACHIAN 4 Proud Pant, Office of the Inspector General
REGIONAL ( New Vision
COMMISSION 7

May 17, 1996
MEMORANDUM FOR THE FEDERAL CO-CHAIRMAN
SUBJECT: Semiannual Report to Congress

In accordance with the requirements of the Inspector General Act Amendments of 1988, Public Law 100-
504, I am pleased to submit the semiannual report of the Office of Inspector General (OIG) for the period
October 1, 1995, through March 31, 1996.

During this period, operational activities included issuance of 18 reports, including 9 individual reviews,
4 program surveys, and 5 J-1 waiver reviews. Primary recommendations were directed at improved
accounting, financial systems, internal controls, and compliance with J-1 waiver program requirements.
Emphasis continued to be placed on deobligations of funds and audit followup and resolution. ARC initiated
various actions to address issues noted in OIG reports and memorandums. For example, action was initiated
on 47 of 94 grants identified for followup action in a prior audit report with deobligations of $544,713.
However, continuing action is necessary for 43 reported older grants with balances of $1.2 million. Also,
ARC initiated action to close out an additional 300 projects, including projects administered by basic
agencies, with resulting deobligations exceeding $3.5 million.

An external quality control review (peer review) of OIG audit operations was conducted during the reporting
period. The review concluded that OIG audits are carried out in conformance with Government Auditing

Standards.

The Inspector General concluded his 3-1/2 year term as the Vice Chair of the Executive Council on Integrity
and Efficiency (ECIE), which was established by Executive Order in May 1992 to provide for coordination
and cooperation between the 32 designated Offices of Inspectors General (OIGs). This responsibility
included participating as a member of the President's Council on Integrity and Efficiency (PCIE) and required
extensive coordination and liaison between OIGs, OMB, and Congressional sources with respect to OIG
activities. The support, cooperation, and assistance provided by ARC management facilitated performance
of ECIE Vice Chair responsibilities. The Inspector General is currently a member of the PCIE Audit
Committee and has made various recommendations directed at improving OIG operations.

The continued support of the OIG by ARC management and utilization of OIG reports and recommendations
have contributed to improved controls and operations. The Inspector General Act of 1978, as amended by
the Inspector General Act Amendments of 1988, provides that this report be forwarded to appropriate
Congressional committees within 30 days and that you provide whatever additional comments you consider
appropriate.

Inspector General
Enclosure

1666 CONNECTICUT AVENUE, NW WASHINGTON, DC 20235 (202) 884-7675 Fax (202) 884-7691

Alabama Kentucky Mississippi North Carolina Pennsyleania Tennessee Mest Virginia
Ceorgia Maryland New York Ohio South Carolina Virginia


cost eligibility by state agencies based on claims for such costs by several entities,
emphasis on provisions for repayment of interest earnings, and emphasis on requests for
technical assistance grants in closer relation to need in order to reduce or avoid delayed or
nonuse of approved funds.

- The Office of Inspector General, Tennessee Valley Authority (TVA), provided assistance
with respect to auditing an ARC grant that is being administered by TVA program staff.
The review denoted an underrun of about $11,000, which should be returned to ARC.

- Anexternal quality control review (peer review) of OIG audit operations was conducted
during the reporting period. The review concluded that OIG audits are carried out in
conformance with Government Auditing Standards and appropriate internal controls have
been established. Recommendations with respect to audit followup and report preparation
are being implemented.

B. INVESTIGATIONS

The Inspector General Act of 1978, as amended, provides that the Inspector General may receive
and investigate complaints or information concerning the possible existence of an activity
constituting a violation of law, rules, or regulations or mismanagement, gross waste of funds, or
abuse of authority. The OIG does not employ special investigators. Should the need arise, the
matter would be referred to the Federal Bureau of Investigation or assistance would be contracted
with another Federal Office of Inspector General. Also, the results of investigations may be
referred to the appropriate Federal, state, or local prosecutive authorities for action.

During the reporting period, assistance was requested of the TVA Office of Inspector General to
review an ARC grant that was identified by state auditors as potentially being impacted by actions
of a local official. The review is in process.

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 fulfill 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
are considered an important element of FY 1996 planning, and discussions with ARC management
have identified several areas for review. Also, planning will include continued emphasis on
incorporating elements noted in the Inspectors General Vision Statement.

The OIG's strategies and objectives for the next 5 years are defined in a strategic plan. The
FY 1996 Annual Plan provides the operational details for OIG activities planned during FY 1996

6


APPENDIX A

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