Designated IGs were not successful in dissuading the AICPA from reaching its conclusion. Based
on the Council’s apparent intention to pursue this issue, we have also been unsuccessful, to date, in
convincing the Council that designated IG independence is mandated by law and that provisions of
the IG Act related to IG authorities to independently initiate audits or investigations, full access to
all records, subpoena authorities, public disclosure, and reporting to Congress provide a far greater
assurance of independence than achievable by a public accounting firm paid directly by the client
and having none of the authorities noted above.

Although the Government Auditing Standards apply to audits of Government funds, requiring
disclosures that call into question whether designated IGs are fully independent creates the clear
perception that none of the IG functions, including investigations, is being performed by an
independent unit. This can have a chilling effect on the public perception of OIGs and substantially
reduce public confidence in these offices and willingness to cooperate in the identification and
prevention of fraud, waste, abuse, inefficiency, or ineffectiveness.

The ARC IG believes the Congress intended Presidentially appointed and agency head appointed IGs
to act in a fully independent manner, notwithstanding the appointment process. Congress is urged
to ensure another organization reporting to Congress does not issue standards that conflict with
specific statutory language and the overall intent of Congress. It is hoped that the Council will
rethink its initial position on this important issue and support the concept that designated IGs are
fully independent and should not qualify audit reports by including inappropriate disclosures.

As of the end of the reporting period, it appeared that the Advisory Council and the GAO had
become knowledgeable about and sensitized to the adverse impacts of the proposed report
qualifications on designated OIGs. Although final recommendations for changes in the Government
Auditing Standards have not been issued, it appears that revised language may recognize the
independence and unique operational authorities of designated OIGs. Also, the Comptroller General
publicly stated that a designated IG would be appointed to the Advisory Council on Auditing
Standards. These actions, when implemented, will better ensure the continued operation of all OIGs
in line with legislative mandates and intents.


EXECUTIVE SUMMARY

During this reporting period, 34 reports were issued, including 26 individual grant reviews, 2
program reviews, 4 J-1 Visa Waiver compliance reviews, and 2 advisory reports. At the end of the
reporting period, 5 grant reviews 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 284 projects and deobligate about $1 million from 64
projects during the reporting period. This included deobligation of $373,000 pertaining to projects
noted in prior audit reports.

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.

Grant reviews identified approximately $137,000 in questioned costs and about $167,000 in potential
deobligations for use on other projects. Generally, projects were implemented in accordance with
program requirements and grant agreements, with exceptions noted relating primarily to insufficient
support for expenditures, expenditures after the end of the grant period, and lack of progress reports.

In coordination with an ARC initiative to close old ARC grants administered by other Federal
agencies, we followed up with TVA regarding 66 open grants. As of the end of the reporting period,
ARC had received information to facilitate the closing of about 40 of these grants with potential
deobligations of about $54,000. Followup action is continuing on the remaining open grants for
which unused funds approximate $2 million.

A review of the procurement of goods and services confirmed that ARC was generally following
applicable regulations and guidelines; and action was initiated to address recommendations directed
toward increased supporting documentation for some procurement actions, including justification
for sole source purchases and receipt of goods.

Two advisory reports identifying the status of several projects were issued to assist ARC with
decisions impacting project implementation, resolution of open issues, and future projects. These
reports identified conditions related to ineligible costs, project delays, objectives not being met, and
noncompliance with employment requirements of another funding agency.

Compliance visits in four states disclosed general compliance with J-1 Visa Waiver program
requirements. However, in one state, we noted that, due to an apparent excess number of J-1
physicians, which contributed to low patient workloads, J-1 physicians were assigned part time to
unapproved locations and/or were devoting substantial time to alternative services such as nursing
home visits or hospital rounds.

During this period, the Inspector General continued to represent the Executive Council on Integrity
and Efficiency on the Audit Committee of the President’s Council on Integrity and Efficiency and
made a presentation about designated OIG independence to the Mid-America Intergovernmental
Audit Forum.

da,


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.


expenditures, and purchases not included in budget. Questioned costs approximated $137,000; and
potential deobligations for use on other projects approximated $167,000.

With respect to progress reports, the lack of these reports was noted in six instances; and the lack
of ARC followup to obtain these reports indicates a need for ARC to reevaluate the purpose, timing,
and extent of these reports and/or implement controls to ensure timely followup to obtain and review
progress reports. We recognize that, in some cases, delayed project starts contribute to delayed
reporting; but in such instances, timely followup could identify implementation problems and
facilitate corrective action or assistance.

The OIG supported ARC’s initiative to close ARC grants that were administered by other Federal
agencies by initiating followup actions with agencies identified as reporting a substantial number of
old open ARC grants to determine the cause of the condition and facilitate closing. The initial
review resulted in administering agency action to review 66 identified grants with potential for
closing and fund deobligations. As of the end of the reporting period, information necessary to
support the closing of about 40 grants had been received by ARC. Approximately $54,000 in
deobligations were identified with the potential for additional deobligations with respect to the
approximately $2 million in unexpended funds available in the remaining old open grants.

In the area of project closeouts, ARC continued aggressive efforts to ensure timely followup and
project closings; and during the reporting period, actions included 284 project closings with about
$1 million dollars in deobligations that can be utilized for additional projects. OIG followup
indicated that actions included deobligations of about $373,000 from 8 projects included in prior
reports.

A programmatic review of ARC’s purchases of goods and services disclosed that ARC was generally
complying with applicable regulations and good business practice. Recommendations were made
with respect to improved documentation of actions, including justification of sole source purchases
and receipt of goods, identification of potential small and minority owned business services, and
written procedures for goods and services. Management agreed to initiate actions consistent with
the limited extent of ARC procurement activity and to re-emphasize internal controls applicable to
procurement.

Two advisory reports identifying the status of projects were issued to assist ARC with decisions
relative to project implementation, impact on future grants, and project completion. In one instance,
the closing of a large infrastructure improvement project budgeted at about $4 million, including
$1 million from CDBG and $500,000 from ARC, was delayed pending resolution of issues with
respect to grantee and subrecipient compliance with regulations and requirements. The grants were
made to the Town of Bridgeport, Alabama, for use in infrastructure development to ensure a large
industrial business located and built a plant in Bridgeport. As of our involvement, the work had been
completed; but ARC funds had not been released pending resolution of issues primarily relating to
the business not meeting HUD low- or moderate-income employment objectives, substantial costs
identified as ineligible due to the absence of competitive bidding and the impact of this condition
on overall eligible costs and matching contributions, and completion of an independent audit of the
grantee organization. As of the end of the reporting period, there had not been resolution of the
noted issues.


I. INTRODUCTION

The Inspector General Act Amendments of 1988 (P.L. 100-504) provided for the establishment of
an Office of Inspector General (OIG) at 30 designated Federal entities, including the ARC. The
ARC OIG became operational on October 1, 1989, with the appointment of an IG and provision of
budgetary authority for contracted audit and/or investigation activities.

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 1 1, 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 is $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 will be distributed among the
states with unfinished ADHS segments includes about $390 million for which ARC has
allocation authority.


PURPOSE AND REQUIREMENTS OF THE
OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

The Inspector General Act of 1978 requires the IG to keep the Federal Co-Chairman and Congress
fully and currently informed about problems and deficiencies in the Commission's operations and
the necessity for corrective action. In addition, the Act specifies that semiannual reports will be
provided to the Co-Chairman by April 30 and October 31 and to Congress 30 days later.

The Co-Chairman may transmit comments to Congress along with the report but may not change any

part of the report. The specific requirements prescribed in the Act, as amended (Public Law 100-
504), are listed below.

Reporting Requirements

Section 4(a)(2) Review of legislation and regulations Page 7
Section 5(a)(1) Problems, abuses, and deficiencies Page 3
Section 5(a)(2) Recommendations with respect to problems, abuses, and deficiencies Page 3
Section 5(a)(3) Prior significant recommendations not yet implemented *
Section 5(a)(4) Matters referred to prosecutive authorities 6
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 AppA
of questioned costs
Section 5(a)(7) Summary of each particularly significant report ae
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 s
no management decision was made by end of the reporting period

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

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

* None.

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

iii


Funding and Staffing

The OIG funding level for FY 2001 is $468,000. For FY 2000, approximately 29 percent will be
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.).

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.

WW. OG ACTIVITY
A. AUDITS

During the reporting period, 34 reports were issued, including 26 individual reviews, 2 program
reviews, 4 J-1 Visa Waiver compliance reviews, and 2 advisory reports. At the end of the reporting
period, 5 grant reviews and 2 special J-1 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 the continued expenditure of funds after the expiration of the
grant period, revisions of budgets without obtaining required approval, travel claims, support for

3


APPALACHIAN REGIONAL COMMISSION

INSPECTOR GENERAL'S

SEMIANNUAL REPORT

TO CONGRESS

APRIL 1 - SEPTEMBER 30, 2000


IV. AUDIT PLANNING

The OIG will be alert for new or revised areas of ARC operations based on the priorities and
emphasis of ARC management, including results of strategic planning initiatives. Audit planning
will include consideration of such initiatives with the overall goal being to ensure coverage of high
priority, including high dollar, areas in order to assist management to fulfill their responsibilities for
effective and efficient program operations.

Of particular importance is maintaining the flexibility of the audit plan to address changing needs
and priorities. Coordination with ongoing ARC efforts to implement an entity-wide strategic plan
is considered an important element of planning, and discussions with ARC management have
identified several areas for review.

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

Additional emphasis will be placed on coordinating OIG reviews with ARC implementation of the
Government Performance and Results Act (GPRA) and revised operational procedures resulting
from reauthorization legislation requirements. In order to provide some coverage of ARC funds that
are administered by other agencies, e.g., construction and technical projects, we are coordinating
with the OIGs at the applicable agencies and reaching concurrence for ARC OIG review of some of
these projects.

FY 2001 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.

V. OIG HOTLINE

A regionwide toll-free hotline was previously established to enable direct and confidential contact
with the ARC OIG in line with governmental and longstanding OIG initiatives as identified in the
IG Act of 1978 to afford opportunities for identification of areas subject to fraud, waste, or abuse.
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.


The second advisory report was initiated based on citizen concerns about the status of projects
funded substantially with government grants and administered by a development authority in
southwest Virginia. Our on-site visit and discussions identified a communications gap between
project administrators and local populace that created tensions and resulted in public expressions of
concern about project implementation. Also, in three of four cases, the projects had not achieved
objectives with respect to creation and retention of jobs; and in one of the cases, there was also a
substantial delay in project implementation due to the continuing unavailability of land to implement
project plans for a high technology industrial park. Consequently, financial burdens on the
administering development authority were increasing and the confidence of other local authorities
could be negatively impacted. Recommendations were made with respect to closing of one project
and followup on the other projects to assess the outcomes and viability of the grantee for future
assistance.

During this period, we performed compliance surveys in connection with the J-1 Visa Waiver
program in four 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.

Our tests disclosed that participating physicians were generally complying with program
requirements to provide 40 hours of primary care per week in a medical professional shortage area.
However, in one state, we noted that J-1 physicians were working, at least part time, at locations not
identified on sponsor applications and/or were performing substantial alternate-type service such as
visits to nursing homes or making rounds at local hospitals rather than full-time service at the
approved site. Also, in two cases, J-1 physicians were no longer employed due to a serious dispute
with their former employer. We attributed this situation to the number of J-1 approvals, which
resulted in limited patient caseloads at the approved practice locations. Interim recommendations
were made with respect to identification of physician need, periodic followup to monitor compliance
with program requirements, notification to employers and J-1 physicians to report changed
conditions, and identification of eligible services.

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.

B. INVESTIGATIONS

The Inspector General Act of 1978, as amended, provides that the IG may receive and investigate
complaints or information concerning the possible existence of an activity constituting a violation
of law, rules, or regulations; mismanagement; gross waste of funds; or abuse of authority. The OIG
does not employ criminal investigators. Should the need arise, the matter would be referred to the
Federal Bureau of Investigation or assistance would be contracted with another Federal OIG. Also,
the results of investigations may be referred to the appropriate Federal, State, or local prosecutive
authorities for action. During the reporting period, the Inspector General conducted followup
administrative inquiries with respect to several hotline concerns; and several additional inquiries are
in process.


- 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

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Appendices A. Schedule of Audit Reports Issued
April 1 through September 30, 2000

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, 2000

Report Entity and Title Program Dollars Questioned! Funds to Better
No. or Contract/Grant Unsupported User*
Amount Costs*
00-6(H) North Carolina Technical Assistance $_ 1,220,797 $4271 S 108,324
00-7(H) ARC Procurement 1,000,000
00-9(H) Tri-Coumy Council 253,808 60,253
00-11(H)__|_ Three Rivers Land and Court Imaging 517,880
00-25(H) _| Virginia Department of Housing and Community Development 122,044
00-27(H)__|_ Casey County 9111 Project 206,000
00-30(H) _| University of South Alabama—Leaming Logic Program 160,000 27.434
00-32(H) _|_Auburn University Youth Leadership Incubator 200,000 4,125
00-34(H)__| Georgia Technical Assistance 431,466
00-35(H)__|_ Off-Campus Leaming Centers 210,596
00-36(H)__| School to Work Partnership Program 441,256
00-37(H)__| Challenger Learning Center 700,000
00-38(H)__| _ Enhanced Planning Project 240,000
00-3) _|_ West Virginia Department of Education—Workforce Training 250,000
00-40(H) _|_ Wood Technology Center 237,500 28,405 3,720
00-41(H)__]_ Mountaineer Food Bank 186,008 12,183,
00-42(H) _|_J-1 Visa Waiver Program—Kentucky
00-43(H)__| University of Tennessee—Telecommunications Initiative 770,337
00-44(H)__|_ Welfare Parent Empowerment 180,200 534
00-46(H)__|_ Handmade in America Leadership Initiative 153,400
00-47(H)_|_ Greenville Community Health Center Program 200,000
00-48(H)__| South Carolina Upstate Information/Telecommunications 420,000
00-49(H) _| East Kentucky Women In Leadership 155,000
00-50(H)__|_J-1_ Visa Waiver Program—Tennessee
00-51(H)__|_J-1_ Visa Waiver Program—Pennsylvania (Interim)
00-52(H)__|_ TVA-Administered Grants 1,846,344 54.716
00-54(H) _|_J-1 Visa Waiver Program—New York
00-55(H) _| State University of New York Meat Processing Program 149,998
00-56(H) _| South Central New York R&CDP—Technical Assistance 148,500
00-57(H)__|_Thompkins County Communications Project 95,000
00-59(H)__|_ Unicoi County High School Communication and Technology System 106,116
00-60(H) _|_ Economic Ventures—Training Program 100,000
TOTALS $ 10,691,850 $137,205 S$ 166,760

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 pu
contributions

Funds the Office of Inspector General has identified in an audit recommendation that could be used more

upose is unnecessary of unreasonable. Includes required matching

efficiently by reducing outlays, deobligating program or operational

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


SCHEDULE OF AUDIT REPORTS WITH

APPENDIX C

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 $ 1,124
commencement of the reporting period
Which were issued during the reporting period 3. $167
Subtotals (A + B) 4 $1,291
For which a management decision was made during the 1 $ 993 I/
reporting period
(i) dollar value of recommendations that were agreed 1 $ 373 L/
to by management
--based on proposed management action 1 $ 373 1/
--based on proposed legislative action 2 2
(ii) dollar value of recommendations that were not 1 $ 620 2/
agreed to by management
For which no management decision has been made by the 3 $ 298 3/
end of the reporting period
Reports for which no management decision was made - -
within 6 months of issuance
Notes:
VV Includes deobligations applicable to grants noted in prior reports. Also, additional actions, including
closings and deobligations, based on ARC management initiatives are summarized in the report body.
2/ Includes final payments justified based on review of grants identified in prior reports.
3/ Includes grants for which ongoing followup action is in process for grants identified in prior and new

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


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 4 Proud Past. Office of the Inspector General
REGIONAL 4 New Vision
commission

December 6, 2000

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, 2000.

During this reporting period, 34 reports were issued, including 26 individual grant reviews, 2 advisory
reports, 2 program reviews, and 4 J-1 Visa Waiver compliance reviews. At the end of the reporting
period, 5 grant reviews and 2 special J-1 reports were in process. Recommendations in grant reviews
were directed at improved progress and final reporting and continued emphasis on closing actions.
During the reporting period, ARC management continued to emphasize timely followup and review of
expired grants. This action resulted in management actions to close 284 projects and deobligate about
$1 million for 64 projects, which included $373,000 applicable to grants 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 performance of work after the end of the grant period.
Questioned costs of about $137,000 and potential deobligations of about $167,000 were identified for
followup.

Two advisory reports updated the status of several projects with unresolved issues impacting project
closing, implementation, or accomplishment of project objectives. The issues pertained to ineligible
costs, employment of low- or moderate-income persons, availability of land, and creation/retention of
jobs.

Programmatic reviews disclosed that ARC was complying with applicable regulations covering the
procurement of goods and services, and officials agreed to improve the documentation with respect to
justification of sole source purchases and receipt of goods. In conjunction with ARC staff, followup with
Federal agencies administering ARC grants resulted in receipt of information necessary to close about 40
grants with deobligations approximating $54,000.

Surveys of the J-1 Visa Waiver program in three states disclosed that tested physicians were generally
practicing in accordance with program requirements as respects practice location and type of medical
services provided. In one state, there appeared to be an excess number of J-1 physicians resulting in
insufficient patient workload that necessitated physicians working at other than approved locations,
and/or concentrating on services such as nursing home visits or hospital rounds.

During the reporting period, the IG continued as the designated IGs’ representative on the Audit
Committee of the President’s Council on Integrity and Efficiency, addressed an audit forum, and
remained active in an ongoing dialogue with GAO about auditor independence.

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Also, numerous hotline calls were received with respect to matters for which other agencies have
jurisdiction. This resulted primarily from the ARC OIG hotline apparently being the first such OIG
listing in some telephone directories, resulting in ARC OIG being contacted by citizens who did not
know the appropriate agency for handling their concerns. The ARC OIG facilitated the complaint
process by identifying the applicable agency based on complainant information and providing the
correct OIG hotline number.

VI. LEGISLATIVE AND REGULATORY REVIEW

Primary efforts in this area continued to be related to potential legislative initiatives with respect to
OIG operations. The ARC OIG continues to support legislation that would provide improved
protections for IGs, including designated and career IGs, by consideration of alternatives such as
removal for cause criteria and term limits. During the reporting period, additional legislation
impacting IGs was 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.

VI. OTHER

The Inspector General continues to serve as the representative of the Executive Council on Integrity
and Efficiency on the Audit Committee of the President’s Council on Integrity and Efficiency.

The IG continued to be an active participant in discussions related to the independence of designated
IGs. This issue initially arose because of interpretations by the American Institute of Certified Public
Accountants (AICPA) that Presidentially appointed and legislatively confirmed IGs meet the AICPA
definition of independence but that designated IGs that are appointed by the head of the designated
Federal entity do not meet this definition. The IG strongly disagreed with the AICPA interpretation
based on the unique and clear language of the Inspector General Act of 1978 and Amendments of
1988 that provide designated IGs, by statute, with the same authorities for independent performance
of their duties as provided Presidentially selected IGs.

During the reporting period, consideration continued to be given by the Advisory Council on
Government Auditing Standards (Council) to recommending that the AICPA bifurcation of the
Federal IG community be reflected in the Government Auditing Standards issued by the Comptroller
General. This would be accomplished by identifying designated IGs as non-organizationally
independent and, therefore, would require designated IGs to qualify their audit work with some
language that is certain to call into question the independence of the organization performing the
review. Such an action would require designated IGs to either violate the IG Act, which mandates
independence by all IGs as clearly expressed in Section 2 (which starts “to establish independent and
objective units. . . .”) in order to comply with the proposed qualifying language, or violate
Government Auditing Standards in order to comply with the IG Act. The IG does not believe that
designated IGs should be placed in such a position and strongly recommends intervention by the
Executive and Legislative Branches to preclude standards and positions that are contrary to law being
considered for, or included in, the Government Auditing Standards.


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

3

la

APPENDIX B

Questioned Unsupported
Costs Costs
15 3
$137 $ 2
$152 $ 5
19 3
$ 133 $ 2