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 resubmitted; 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.

Vil. OTHER

The Inspector General continued to serve as the Executive Council on Integrity and Efficiency
representative on the Audit Committee of the President’s Council on Integrity and Efficiency and
was involved with issues related to OIG oversight of work performed under the Single Audit Act.
During the reporting period, the IG conducted a survey for the PCIE Audit Committee dealing with
the extent of Single Audit Quality Control Reviews conducted by the IG community. The
information was provided to the Grants Management Committee of the Chief Financial Officers
Council for use in deliberations about grant management.

In line with a Memorandum of Agreement with the Denali Commission whereby the ARC OIG
provides OIG services to the Denali Commission pending implementation of an OIG, the ARC OIG
reviewed Denali Commission operations to date and provided a survey report identifying
recommendations to address various issues. During the review, field visits were made to two rural
villages to observe projects funded by the Denali Commission and to obtain local feedback about
program impact.


EXECUTIVE SUMMARY

During this reporting period, 24 reports were issued, including 18 individual grant reviews, 1 grant
followup report, 1 program review, 3 J-1 Visa Waiver compliance reviews, and | J-1 program
review. At the end of the reporting period, 7 grant reviews and 1 program review were in process.
Recommendations in grant reviews were directed at improved reporting and eligibility of
expenditures. 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 226
projects and deobligate about $675,000 from 97 projects during the reporting period. This included
deobligation of $168,267 applicable to 10 projects noted in prior audit reports.

Grant reviews disclosed that projects were being implemented in accordance with program
requirements and that grantees generally had satisfactory accounting systems and internal controls.
Exceptions noted included insufficient documentation of costs and delayed use of grant-related
purchases. Questioned or unsupported costs of about $48,000 and potential deobligations of about
$1 million were identified for followup.

A review of ARC implementation of the Government Performance and Results Act (GPRA)
disclosed that the program was being aggressively and effectively implemented. Recommendations
were directed at coordination between GPRA and program staff and utilization of available data.

Followup contacts with two basic agencies about the status of open grants resulted in information
being provided to ARC on the status of over 100 old grants, and actions are in process to close these
grants and recover unused funds where applicable. Closeout actions have identified deobligations of
$98,720 from one agency.

Surveys of the J-1 Visa Waiver program in 3 States disclosed that tested physicians were practicing
in accordance with program requirements as respects practice location and type of medical services
provided. A J-1 review addressed employer/employee concerns that were impacting the program.

During the reporting period, the IG continued to serve as the Executive Council on Integrity and
Efficiency representative on the Audit Committee of the President’s Council on Integrity and
Efficiency, and remained active on various issues impacting the OIG community, including an OIG-
wide survey on extent of single audit quality reviews. Also a survey review of the Denali
Commission was completed in accordance with a Memorandum of Agreement between the ARC
OIG and the Denali Commission Federal Co-Chair.

4a


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 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.


expiration of the grant period, revisions of budgets without obtaining required approval, travel
claims, support for expenditures, and purchases not included in budget. Questioned costs
approximated $38,000; and potential deobligations for use on other projects approximated several
million dollars.

In the area of project closeouts, ARC continued aggressive efforts to ensure timely followup and
project closings; and during the reporting period, actions included 226 project closings with about
$675,000 in deobligations that can be utilized for additional projects. These actions included
deobligations of $168,267 for 10 grants noted in our report issued during the prior reporting period.

This OIG followup report, issued during this reporting period, identified 75 open grants with
expiration dates prior to June 30, 2001, that contained balances approximating $4 million. This
included 20 grants with balances of $1.9 million for which no drawdowns had been initiated as of
September 30, 2001, and 12 grants with balances of $1.2 million for which drawdowns of less than
50 percent had occurred. Recommendations were directed at followup on these cases.

We also commented on 82 additional open grants for which the performance period expired between
June 30 and September 30, 2001. We recognize that closing actions, including receipt and review of
final reports, often preclude grant closings prior to the end of the grant period but included these
grants for followup action, especially the 14 grants with no drawdowns as of the end of the grant
period.

Overall, continuing ARC actions have resulted in substantial reductions of the period between
project performance expiration and grant closings and/or project extensions. For example, we noted
only 12 open grants with zero or less than 50-percent drawdowns for which project expiration dates °
were prior to April 1, 2001.

With respect to the 94 unduplicated open grants noted in our prior review, closing actions were
initiated in 61 cases, with deobligations of $947,818 in 37 cases. This included 10 closings during
this reporting period, with deobligations of $168,267. Additionally, the performance periods were
extended in 25 other cases; and progress payments were noted in several other cases. Consequently,
timely action was initiated on most of the cases noted in our report; and outstanding obligations were
substantially reduced. Such action reflects continued management attention to this area, including
the timely availability of funds for use in other projects. We noted that, in 17 of 25 cases with
extended performance periods, the revised performance period had expired and the grants remained
open.

Continued emphasis should be placed on followup on grants for which little activity is noted prior to
the end of the performance period in order to ascertain the reasons for the condition and identify the
potential for corrective and/or timely action. Such emphasis is particularly applicable to grants for
which no or limited drawdowns have been made during the grant period. Also, followup on grants
for which extended performance periods have expired should be emphasized.

A review of ARC implementation of the Government Performance and Results Act (GPRA)
concluded that ARC, in coordination with its 13 State partners, was effectively and aggressively
pursuing implementation of the Act requirements and intents. Since the passage of the Act, ARC
actions have included prioritization of GPRA by establishment of a unit devoted to GPRA activities,
development of mission statement, strategic plan, annual plans, and annual performance reports.

4


IL 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.

Il. 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 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 11, and the
Commission, with a staff of 48, 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 2001 was $77.4 million. ARC was fully
reauthorized by Congress in FY 1999 for the first time since 1982. Also, about $641 million
was appropriated in FY 2001 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, which was distributed among the
States with unfinished ADHS segments, included about $390 million for which ARC had
allocation authority. The FY 2002 appropriation was not finalized at the time of this report.


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 8
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 S(a)(4) Matters referred to prosecutive authorities *
Section 5(a)(5) and Summary of instances where information was refused *
6(b)(2)

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

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 of App B
questioned costs

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

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.

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

aii


Funding and Staffing

The OIG funding level for FY 2001 was $468,000. For FY 2001, approximately 29 percent was
expended for contract audit services; 57 percent, for salaries and benefits; 7 percent, for travel; and
7 percent, for all other activities (training, equipment, space, supplies, etc.). The requested FY 2002
funding level was $488,000.

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 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.

I. OG ACTIVITY

A. AUDITS

During the reporting period, 24 reports were issued, including 18 individual reviews, 1 grant
followup review, 3 J-1 Visa Waiver compliance reviews, and 1 programmatic survey. At the end of
the reporting period, 1 program review and 7 grant reviews 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, project results, and internal control systems, have been addressed.

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, timely use of
funds and project closings continue to be 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, such as revisions of accounting systems and service agreements;
strategic planning, including assessment of appropriate internal and external performance measures;
and issuance of revised policies and procedures and guidance to grantees, are in line with OIG
recommendations and executive and legislative initiatives to improve Government operations.

Grant reviews disclosed that projects were being implemented in accordance with program
requirements and grant agreements. Emphasis was placed on testing the eligibility of expenditures,
availability of matching contributions, and achievement of grant objectives. Exceptions were noted
in isolated instances with respect to untimely use of grant purchases, expenditure of funds after the

3


Appalachian Regional Commission

Inspector General’s
Semiannual Report
To Congress

April 1 - September 30, 2001



emphasizing that grants for high technology projects include controls to coordinate equipment
purchases with resolution of issues necessary to ensure timely utilization of equipment.

Our review of a $600,000 grant to a development corporation to provide assistance with renovation
ofa local industrial site disclosed that, although the funds were expended for the purposes intended,
the primary site occupant ceased operations; and grant objectives to retain and create employment
opportunities were not achieved. The ARC funds were part of $3.2 million in Federal contributions,
and our recommendation was directed at actions to ensure utilization of the renovated property.

The OIG continued to support ARC’s initiative to close ARC grants administered by other Federal
agencies. Followup actions were initiated with two agencies where available information indicated
project completion in over 100 cases. Information was received, and ARC is processing closings and
identifying fund availability. Closeout actions to date have identified deobligations of $98,720 from
one basic agency.

During this period, we performed 3 compliance surveys in connection with the J-1 Visa Waiver
program in 3 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. ARC acts as the interested Government agency
within the Appalachian region, with waivers being approved by the US Department of State and the
Immigration and Naturalization Service based on ARC recommendations.

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.

At the conclusion of the audit period, 7 grant reviews and 1 program review, dealing with the
agency’s use of travel and purchase cards, were in process. With respect to one grant, we provided
technical assistance to a grantee in order to resolve a budget and accounting problem that resulted in
expenditures in excess of grant amounts. As a result, the State agency absorbed the additional
amounts and internal controls and reporting improvements between the State agency and grantee
were implemented.

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. The OIG has initiated followup with respect to the J-1 Visa Waiver program,
with emphasis on ensuring participating physicians are practicing at assigned locations.


Specific strategies, initiatives, and performance measures have been developed for the five goals
identified in its strategic plan; implementation guidance has been issued; and monitoring and
evaluation activities include on-site project visits to verify results, studies of similar-type projects to
identify results and best practices, and tracking of expectations and results through the management
information system (MIS). These efforts were considered noteworthy and highlighted management’s
GPRA priority considering the limited resources available to ARC and the need for cooperation and
coordination among the 13 State partners whose specific priorities are often not similar.

As aresult, we also noted States have developed strategic plans that are generally consistent with the
overall ARC plans. Also, grant applications generally contain measurable and quantitative
information regarding project results.

Recommendations were made in several areas, including the expansion of performance measures
beyond the standard OMB listing in order to accommodate and capture the variety of outputs and
outcomes identified in project files. This would also allow for a larger variation between expected
and reported outputs and outcomes. With respect to GPRA oversight and coordination,
recommendations dealt with revisions to the MIS to enhance its use as a tool to assess expected and
actual results, provision for project feedback as to results several years subsequent to project
completion, and increased qualitative evaluations of results during on-site verification visits.
Although GPRA and program staff periodically meet to discuss the program and results of oversight
and studies, we recommended increased coordination, including lessons-learned sessions,
identification of a project manager for each goal area, and increased use of research reports as a
management tool by ARC, State, and local partners. The research reports reviewed contained
valuable information with respect to the planning, managing, coordinating, monitoring, and
reviewing of projects and identified methods and models to measure project impacts.

As aresult of one grant review, we recommended that additional funds not be provided to the grantee
pending receipt of information requested as a result of our review. The extent of questioned costs, if
any, related to a $100,000 grant for a tourism project could not be identified during our review; and
requests for additional information with respect to expenditures and organizational alignments were
not answered. Since the project was essentially completed as required, we emphasized, at this time,
actions with respect to future requests while awaiting a response to these requests.

In another instance, we questioned $28,000 of a $100,000 grant because training was provided to
ineligible applicants and emphasis was placed on training courses that were not recommended by
ARC. Also, we noted that two primary grant objectives were not achieved and recommended
increased communications between the grantee, State, and ARC officials during the grant period to
ensure actions are consistent with grant intents.

In one instance involving a $200,000 grant to a Board of Education to install an interactive
telecommunications network in five high schools, our review disclosed that the equipment was
delivered in August 1998; but, as of April 2001, the majority of equipment was not being utilized
pending cable installation and agreement on usage fees. Such delays restrict achievement of project
objectives and adversely impact other project aspects, such as obviating equipment warranties and
possibly restricting utilization of the latest technologies. The grantee hoped to achieve resolution of
usage fees with the phone company, obtain bids from cable installation contractors, and find an
alternative organization to implement the grant. We have included this review primarily because a
similar-type condition was reported in our prior semiannual report. Our recommendations included

5


- 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.

-  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 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.


TABLE OF CONTENTS

Page

ExecutiveSummary sneer 35 sincwrmes os 8 srarareraly oo 2 4 + wrecarerevererery ii
Purpose and Requirements of the OIG Semiannual Report = ss ss eee eee iii

I. Introduction cece cece eee e ener ee eee eran sees eens eeeees 1
Vl. Background renee atten ete ete eee e ene e entree teen eee eeee 1
Appalachian Regional Commission eee e cece teen etree teen eee e ees 1
Office of Inspector General se eee tence eee e ete e eee e eee ee eens 2

WI. OIG Activity cece cette eee ee een eee eee e eee e eee tees 3
AUdits © bb be wintayereinie ce ee ee nieieininin sas einimiminuace ae wee ee seinieiein 3
Investigations tanec teeter ene e ete eee tenet e eee ee eens 6

TV. AuditPlanning (setae teen teen eee ence eee e eee ene eens 7
V. OIG Hotline «latte ete eee ence cette eee e eee eens eeeneeees 7
VI. Legislative & Regulatory Review see e cece eect eee eee e eee ee eee eee 8
VIL Other cece cece teen eee n nee e eee n eee ennseeeeetees 8

Appendices A. Schedule of Audit Reports Issued
April 1 through September 30, 2001

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


APPENDIX A

SCHEDULE OF REPORTS ISSUED APRIL 1 TO SEPTEMBER 30, 2001

Report ae Entity and Title ede Program Dollars Questioned/ Funds to Better
No. eee ee or ContractGrant Unsupported Uses
: : * ee Amount © Costs

o1-10(H) _|_ Hatfield-McCoy Tourism $100,000 $20,000

o1-16(H) | Southern Rural Health Care Consortium

01-18(H) _|_ Regional Education Service Agency 400,000

01-27(H)__|_ARC GPRA Program

01-31(H) | Tri-County Community College 154,381

01-3204) __|_ Caldwell Community College 200,000

01-3304) _|_ Southeast Local Development Corporation 600,000

01-36(H) _|_J-1_ Visa Waiver Program--Alabama 650,000

01-37(H)__|_Jefferson County Board of Education 200,000 $200,000
01-38(H) _|_North Alabama Science Center 400,000

01-39(H)__|_Jefferson State Community College 200,000

01-40(H) __|_ Birmingham Regional Planning Commission 180,000

01-42(H) __|_ Fay-Penn Economic Development Council 100,000 28,649

01-43(H) | South Carolina Manufacturing Partnership 146,900

or-4acH) | _J-1 Visa Waiver Program--Pennsylvania

01-45(H) | South Carolina Export Consortium 107,533

01-46(H) | Tennessee Valley Institute Education Project 190,923

01-47(H)__|_ Jackson County Distance Learning 399,000

01-48(H) _|_ Georgia Newborn Hearing Sereening Project 96,700

01-49(H) | North Georgia State University Education Project 263,270

01-50) _|_Appalachian Community Enterprises 198,901

O1-s1(H) | Rust College—Certified Systems Program 126,360 48,263
o1-ss(H) __|_J-1 Visa Waiver Program--Mississippi

01-564) _|_Expired Grant Followup 7,000,000 618,000
TOTALS $11,639,968 S 48,649 S$ 366,263
. ‘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 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 g $ 2,600 1/

commencement of the reporting period

Which were issued during the reporting period 3 $ 866

Subtotals (A + B) 5 $ 3,466

For which a management decision was made during the 2 $ . 1,300

reporting period

@ dollar value of recommendations that were agreed 1 $ 168 2/
to by management
--based on proposed management action 1 $ 168 2/
--based on proposed legislative action s is

(ii) dollar value of recommendations that were not 2 $ 1,132 3/
agreed to by management

For which no management decision has been made by the 2 $ 248

end of the reporting period

Reports for which no final management decision was made 1 $ 1,918 4/

within 6 months of issuance

Notes:

V Includes fund balances in grants for which on-going followup action is in process to identify potential for
closing and deobligation.

2/ Includes deobligations applicable to grants in prior reports. Also, additional actions, including closings and
deobligations, based on ARC initiatives are noted in report body.

3/ Includes grants that were included in management review and for which closing actions resulted in final
payments based on grantee performance.

4/ Includes open grants included in OIG reports for which a management decision was made to review grants

and initiate deobligations as appropriate. Final actions in process.


During the reporting period, the IG continued 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 and remained active on various issues
impacting the OIG community, including an OIG-wide survey of the extent of single
audit quality reviews. Also, a survey review was performed at the Denali Commission
in line with a Memorandum of Agreement between the Appalachian Regional
Commission Inspector General and the Denali Commission Federal Co-Chair.

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


APPALACHIAN A Proud Past, Office of the Inspector General
REGIOMAL A New Vision
COMMISSION

3
October 31, 2001

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 April 1 through September 30, 2001.

During this reporting period, 24 reports were issued, including 18 individual grant
reviews, 1 grant followup report, 1 program review, 3 J-1 Visa Waiver compliance
reviews, and 1 J-1 program review. At the end of the reporting period, 7 grant reviews
and 1 program review were in process. Recommendations in grant reviews were
directed at improved reporting and eligibility of expenditures. 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 226 projects
and deobligate about $675,000 during the reporting period. This included deobligation
of $168,267 applicable to 10 projects noted in prior audit reports.

Grant reviews disclosed that projects were generally being implemented in accordance
with program requirements and that grantees generally had satisfactory accounting
systems and internal controls. Exceptions noted included insufficient documentation
of costs, unsatisfactory grantee response to audit requests, and delayed use of grant-
related purchases. Questioned or unsupported costs of about $48,000 and potential
deobligations of about $1 million were identified for followup.

A review of ARC implementation of the Government Performance and Results Act
(GPRA) disclosed that the program was being aggressively and effectively implemented.
Recommendations were directed at coordination between GPRA and program staff and
utilization of available data.

Followup contacts with two basic agencies about the status of open grants resulted in
information being provided to ARC on the status of over 100 old grants, and actions
are in process to close these grants and recover unused funds where applicable. To
date, closeout actions have identified deobligations of $98,720 from one basic agency.

Surveys of the J-1 Visa Waiver program in three states disclosed that tested
physicians were practicing in accordance with program requirements as respects
practice location and type of medical services provided. A program review at one
location assisted in resolution of issues between the employer and physicians that
were impacting the program.

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Alabama Kentucky Mississippi North Carolina Pennsylvania Tennessee West Virginia
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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 ina strategic plan. The FY 2001
Annual Plan provides the operational details for OIG activities planned during FY 2001 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.

Planned FY 2002 audit work includes about 40 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.

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.
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, followup action was initiated on calls identifying concerns with actions
by several grantees.

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.


SCHEDULE OF AUDIT REPORTS WITH
QUESTIONED OR UNSUPPORTED COSTS

APPENDIX B

($ in thousands)
No. of Questioned Unsupported
Reports Costs Costs
For which no management decision 3 $ 264 $ -
was made by the commencement of
the reporting period
Which were issued during the 2 $ 28 $ 20
reporting period
Subtotals (A + B) 5 $292 $ 20
For which a management decision 3 $ 264 $ -
was made during the reporting
period
@ dollar value of disallowed : $< ¢- 3
costs
(ii) dollar value of costs not 3 $ 264 $-)/
disallowed
For which no management decision 2 $ 28 $ 20
has been made by the end of the
reporting period
Reports for which no management = = -
decision was made within 6 months
of issuance
Notes:
y Information obtained to support questioned costs, and unused project equipment transferred to another

grantee.