INSPECTOR GENERAL’S SEMIANNUAL REPORT TO CONGRESS

Appalachian Regional Commission

October 1, 2010–March 31, 2011
April 2011 

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’s Semiannual Report to Congress.

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

ending March 31, 2011. During this fiscal period, we issued three reports. Two other reports are in 

process, one was issued as a discussion draft and the other one should be issued as a discussion draft 

soon. During this period, the OIG passed a peer review required by the Council of the Inspectors 

General on Integrity and Efficiency (CIGIE). Also during this period, the Inspector General and staff 

continued to serve as representatives 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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

Appendices A. Schedule of Reports Issued, October 1, 2010 thru March 31, 2011 

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. Peer Review Results 

F. 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, one on ARC’s grant system and the other on ARC’s grant operations. To date, 

most of the recommendations related to the grant system remain unimplemented. However, just before 

the end of this reporting period, management issued a new grant policy memorandum that addressed 

approximately two-thirds of our grant operations recommendations; some additional recommendations 

may be closed pending further evaluation. For this reporting period our activities included: the issuance 

of three audits, and providing oversight for an audit and an inspection. The inspection was a resumption 

of work that was previously suspended in order to be brought current. It concerns ARC performance 

reporting. The audit being conducted is of a grant investment in a fund established under SBA’s Rural 

Business Investment Program (RBIP), the only operating RBIP fund in the country. 

The most recent financial statement audit report was issued without disclaimer or qualification; this 

makes the second consecutive report issued with a clean audit opinion since adopting federal financial 

reporting rules in 2007. Previous reports were issued over six months late but this report was issued 

more timely, yet was four months late. Financial reporting accuracy and timeliness appear to be 

improving, and some of the report’s tardiness is probably attributable to new auditors becoming familiar 

with ARC’s reporting operations. 

The two performance audits we issued concern grants made to foster business growth in rural 

Appalachia. The purpose of the grants were to provide training and/or intensive technical assistance to 

businesses and to investigate, through trial, the establishment of a facility to house small business in 

need of continued technical support. The results of the audits found that generally the purposes of the 

grants were being met but did present recommendations concerning improper implementation of grant 

requirements, a recommendation requiring return of funds, and noted a conflict of terms in ARC 

requirements related to prior approvals. 

As discussed in previous semiannuals, ARC continues to forego strict, if any, enforcement of the grant 

requirements, i.e., the return of funds. For a grant audited this time, ARC chose to issue a clarification to 

the grant documentation that generation of program revenue was expected and that it was not to be used 

to reduce the grant funds. We continue to urge management to enforce grant requirements as it is one of 

the best tools ARC has to ensure grant goals are met in a fair manner. 

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 10 

 

Section 5(a)(1) Problems, abuses, and deficiencies Pages 7-8

Section 5(a)(2) Recommendations with respect to problems, abuses, and deficiencies Pages 7-8

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 & 

 App. E 

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
1 

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 8 and the Commission, with 

a staff of 45, 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 was $76 million. The office is currently operating 

under the government-wide continuing resolution. ARC was reauthorized in October 2008 

through FY 2012 . 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 

(SAFETEA-LU) received short-term funding through the end of Fiscal Year 2011. 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. 
2 

 - 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 
W. VIRGINIA

P ENNSYLVANIA P ENNSYLVANIA

WEST VIRGINIA

HART

G EORGIA

A LABAMA

T ENNESSEE

D

E L

A

WARE

K ENTUCKY

O HIO

W ISCONSIN

NEW

JERSEY

V IRGINIA

N ORTH C AROLINA

S OUTH C AROLINA

I LLINOIS I NDIANA

M ICHIGAN

N E W Y ORK

M A R YLAND

MISSISSIPPI

WEST VIRGINIA

P ENNSYLVANIA

Appalachia, as defined in the legislation from which the Appalachian Regional Commission derives its

authority, is a 205,000-square-mile region that follows the spine of the Appalachian Mountains from southern

New York to northern Mississippi. It includes all of West Virginia and parts of 12 other states: Alabama, 

Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina,

Tennessee, and Virginia.

3

APPALACHIAN REGION

October 8, 2008
HART

D H

N

O

O M M

P

U-1 U

T

T

B

F

S

F

I

I

B

B R

G B

D

L

E

X

V

J

A

A

W

V

K

J

J

K

B

B

C

D

M

Q

V

Q

O-1

C-1

B-1

A-1

C

X-1

BINGHAMTON ELMIRA JAMESTOWN

ERIE

WILLIAMSPORT

SCRANTON

HARRISBURG

CUMBERLAND

HAGERSTOWN

ELKINS

MORGANTOWN

WHEELING

PARKERSBURG

COLUMBUS

STATE COLLEGE

ALTOONA

CINCINNATI

HUNTINGTON

BECKLEY PIKEVILLE

LONDON

BRISTOL

ASHEVILLE

SPARTANBURG

KNOXVILLE

GREENVILLE

CHATTANOOGA

COOKEVILLE

HUNTSVILLE

TUPELO

BIRMINGHAM

ATLANTA

NASHVILLE

BALTIMORE

WASHINGTON, DC

RICHMOND

RALEIGH

COLUMBIA

ANNAPOLIS

MONTGOMERY

MEMPHIS

FRANKFORT

DAYTON

CHARLOTTE

TOLEDO CLEVELAND

GREENSBORO

ROANOKE

INDIANAPOLIS

AKRON

PITTSBURGH

LEXINGTON

ALBANY

CHARLESTON

CLARKSBURG

JOHNSTOWN

LOUISVILLE

CHICAGO

G EORGIA

A LABAMA

T ENNESSEE

D

ELAW ARE

K ENTUCKY

O HIO

W ISCONSIN

NEW

JERSEY

V IRGINIA

N ORTH C AROLINA

S OUTH C AROLINA

I LLINOIS I NDIANA

M ICHIGAN

N EW Y ORK

M ARYLAND

P ENNSYLVANIA

MISSISSIPPI

WEST VIRGINIA

APPALACHIAN DEVELOPMENT 

HIGHWAY SYSTEM

September 30, 2010

ADHS Miles Open to Traffic--

September 30, 2010

ADHS Miles Not Open to Traffic

Interstate Highway System

4
5 

B. OFFICE OF INSPECTOR GENERAL 

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

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

RoleandAuthority

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. 

FundingandStaffing

The OIG funding level for FY 2011 is governed by the continuing budget resolutions. Our FY 2010 

funding was $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 2011 that includes reimbursement of other IGs for counsel, audit and 

investigative services via Memorandums of Understanding. Currently, we use the Department of 
6 

Commerce OIG legal counsel and their audit staff to supplement our activities. We also use other OIG 

offices to provide investigative services. 

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. With the recent legislation enacted to form more regional 

commissions, we recommend 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. §§ 2009aa-2009aa-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.
7 

III. OIG ACTIVITY

 A. AUDITS, INSPECTIONS, EVALUATIONS & REVIEWS 

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

we issued two reports, one on ARC’s grant system and the other on ARC’s grant operations. To date, 

most of the recommendations related to the grant system remain unimplemented and we provide a brief 

synopsis of that report below. However, just before the end of this reporting period, management issued 

a new grant policy memorandum that addressed approximately two-thirds of our grant operations 

recommendations; some additional recommendations may be closed pending further evaluation. During 

the current reporting cycle, we issued three other reports, two reports concern grants made to foster 

small businesses, and primarily have findings related to the grant requirements. The other report issued 

was a financial statement audit report. An inspection of ARC’s performance measures and their 

reporting and an audit of an ARC’s grant contribution to SBA’s Rural Business Investment Program 

through a grantee are ongoing. A new auditor solicitation was in process but has been suspended 

pending the OIGs possible conversion to non-federal status.

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. 

Audits of ARC's Grantees 

The two performance audits we issued concern grants made to foster business growth in rural 

Appalachia. The purpose of the grants were to provide training and/or intensive technical assistance to 

businesses and to investigate, through trial, the establishment of a facility to house small businesses in 

need of continued technical support. The results of the audit found that generally the purposes of the 

grants were being met but did present recommendations concerning improper implementation of grant 

requirements, a recommendation requiring return of funds, and noted a conflict of terms in ARC 

requirements related to prior approvals. 

As discussed in previous semiannuals, ARC continues to provide only lax enforcement of the grant 

requirements, i.e., the return of funds. For a grant audited this time, ARC issued a clarification to the 

grant documentation that generation of program revenue was expected and that it was not to be used to 

reduce the grant amount awarded. We continue to urge management to enforce grant requirements as it 

is one of the best tools ARC has to ensure grant goals are met in a fair and unbiased manner. 
8 

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

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

as we noted in the last semiannual report, management has the appearance of enforcing grant 

requirements by writing/ informing grantees of requirements, but this is not the same as ensuring 

individual grantees live up to their grant obligations and taking action to require return of funds for 

violations. As stated in the previous semiannual, we will continue to monitor management’s decisions 

concerning grant requirements. 

ARC Financial Statement Audit 

The most recent financial statement audit report was issued without disclaimer or qualification; this 

makes the second consecutive report issued with a clean audit opinion since adopting federal financial 

reporting rules in 2007. Previous reports were issued over six months late but this report was issued 

more timely, yet was four months late. Financial reporting accuracy and timeliness appear to be 

improving, and some of the report’s tardiness is probably attributable to new auditors becoming familiar 

with ARC’s reporting operations. 

In-process Audits and Inspections 

Currently, we are overseeing an inspection of ARC performance reporting. A discussion draft is expected 

shortly. We are also monitoring an audit being conducted by a contracted CPA. The audit concerns a 

grant investment in a fund established under SBA’s Rural Business Investment Program. 

Peer Review 

Offices of the 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. In 2009, CIGIE issued new guidance for peer reviews and we have implemented 

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. Our peer review was completed in March 2011 and we received a pass rating with a scope 

limitation as there were no products germane to the review guidance. See Appendix E. 

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.

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. 
9 

 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 has reached an 

understanding with the DOT OIG regarding audit cognizance and has signed an MOU with the DOT 

OIG. 

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. 

Continual updating of the manual will be required to improve the manual and keep it current. 

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. 
10 

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. 

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 Full 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 yet implemented these changes through 

the required notice and publication of the List of Designated Federal Entities and Federal Entities, which 
11 

they are required to publish annually under the IG Act, this amendment raises serious concerns. This 

amendment would place the Inspector General under the direct supervision of the 13 Appalachian state 

Governors, impinge upon OIG independence, and could pose significant administrative difficulties in 

implementing the new reporting structure. Based on our review of the legislation and discussions with

certain congressional staff, 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 a result of this unintended consequence, we have sought clarification from 

legislators and have suggested possible amendments to the Inspector General Act. 

We believe that ARC and the other economic development commissions are alone in having nonpresidentially appointed commission members. The other commissions affected by the Dodd-Frank act 

have presidentially-appointed commissioners. 

In their attempt to comply with Dodd-Frank, ARC management responded with an effort to move the 

ARC OIG to become part of the Commission by way of a commission resolution. This would have the 

effect of making the IG and the employees of the OIG non-federal employees. At the most recent 

Commission meeting, a compromise resolution was passed requiring the Executive Director to 

investigate the options available to the Commission. The investigation is to be completed no later than 

the end of May 2011.

We reiterate our belief that having a non-federal OIG under the direction of the Commission will have a 

significant and negative impact on the OIG’s abilities to perform its duties unobstructed and with 

independence, a central tenet of audit and investigational work.

In addition, we urge appropriate action be taken to amend the Inspector General Act, to prohibit nonpresidentially appointed Commissions or Boards from being placed in charge of federal audit activities, 

which help to ensure proper expenditure of federal funds. We further urge the consolidation of all 

economic development commission OIG’s under a cabinet level OIG (See discussion on page 6). 
APPENDIX A

 

 

SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS

ISSUED OCTOBER 1, 2010 TO MARCH 31, 2011 

Report No. Report Title/Description Program Dollars or 

Contract/Grant 

Amount*

Questioned/

Unsupported 

Costs**

Funds to Better 

Use*** 

11-01 Compliance Audit of Kentucky Highlands 

Energy Business Boot Camp 

$75,000

11-02

Compliance Audit of Kentucky Highlands 

Investment Corporation, Energy, Technology 

and Businesses Accelerator 

199,000 $16,501

11-03

Appalachian Regional Commission Financial 

Statement Audit for Fiscal Year 2010

TOTALS

(3 Reports)

$174,000 $16,501 $0 
APPENDIX B

SCHEDULE OF AUDIT, INSPECTION, EVALUATION & REVIEW REPORTS

OF QUESTIONED OR UNSUPPORTED COSTS 

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 

1 $ 16,501 $ 0

Subtotals (A + B) 1 $ 16,501 $ 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 

 1 $ 16,501 $ 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

Peer Review Results

The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, amended the 

Inspector General Act to require reporting of OIG peer review results during the period of review, along 

with a listing of related and open recommendations, the status of open recommendations and why the 

recommendations had not been fully implemented, if applicable. 

The ARC OIG peer review report was issued on March 18, 2011 by the National Archives (NARA) OIG 

who found that the ARC OIG’s system of quality control for the audit organization through September 

30, 2010 was suitably designed to provide reasonable assurance of performing and reporting in 

conformity with applicable professional standards in all material respects. They assigned a pass rating 

with a scope limitation.

No recommendations were made by NARA. 

NARA’s peer review report is attached.




APPENDIX F

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.
Cover photos courtesy of the U.S. National Park Service 

Appalachian Regional Commission 

 Office of Inspector General 

 1666 Connecticut Avenue, NW, Suite 700 

 Washington, DC 20009-1068