APPENDIX D

DEFINITIONS OF TERMS USED

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

Questioned Cost

Unsupported Cost

Disallowed Cost

Funds Be Put To Better Use

Management Decision

Final Action

A cost which the Office of Inspector General (OIG) questioned
because of an alleged violation of a provision of a law, regulation,
contract, or other agreement or document governing the expenditure
of funds; such cost is not supported by adequate documentation; or
the expenditure of funds for the intended purpose is unnecessary or
unreasonable.

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

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

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

Management's evaluation of the findings and recommendations
included in the audit report and the issuance of a final decision by
management concerning its response to such findings and
recommendations, including actions concluded to be necessary.
Interim decisions and actions are not considered final management
decisions for the purpose of the tables in this report.

The completion of all management actions that are described in a
management decision with respect to audit findings and
recommendations. If management concluded that no actions were
necessary, final action occurs when a management decision is
issued.


with another Federal Office of Inspector General. Also, the results of investigations may be
referred to the appropriate Federal, state, or local prosecutive authorities for action.

Iv. AUDIT PLANNING

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

Of particular importance is maintaining the flexibility of the audit plan to address changing needs
and priorities. Coordination with ongoing ARC efforts to implement an entity-wide strategic plan
are considered an important element of FY 1997 planning, and discussions with ARC management
have identified several areas for review. Also, planning will include continued emphasis on
incorporating elements noted in the Inspectors General Vision Statement.

The OIG's strategies and objectives for the next 5 years are defined in a strategic plan. The
FY 1997 Annual Plan provides the operational details for OIG activities planned during FY 1997
to implement this strategic plan. We expect to revise this strategic plan each year until our
experiences validate our planning assumptions and we have achieved a comfort level with how we
have programmed activities over this extended time period.

FY 1997 audit work will include about 20 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 and to
minimize the impact of OIG FY 1997 budget reductions, emphasis will be placed on nonstandard
reporting formats including memorandum, letter, and survey reports. Although such reporting
formats reduce the time and resources necessary for review completion, the results and information
included in such reports is based on evidence and supporting documentation consistent with
generally accepted auditing standards.

Vv. OIG HOTLINE

A regionwide toll-free Hotline was previously established to enable direct and confidential contact
with the ARC OIG in line with governmental and longstanding OIG initiatives as identified in the
IG Act of 1978 to afford opportunities for identification of areas subject to fraud, waste, or abuse.
Efforts continue to publicize the hotline by notifications to contractors and grantees, and field visits
evaluate the extent to which employees were made aware of this system. However, contacts with
the ARC OIG relative to public complaints or concerns continue to be primarily received through
ARC staff, on regular OIG phone lines, or from other OIG offices.

6


EXECUTIVE SUMMARY

During this reporting period, 32 reports were issued, including 24 individual grant reviews,
4 program surveys, and 4 J-1 visa waiver program reviews. Primary recommendations were
directed at improved accounting and financial systems and controls and improved grant
administration, including fund deobligations. At the end of the reporting period, 17 reviews were
in process, including 14 grant reviews and 3 program surveys. Emphasis continued to be placed
on deobligation of funds for grants with lengthy periods of inactivity. Management continued to
emphasize timely followup and review of expired grants including assigning staff to implement
improvements and improved management information systems to facilitate grant tracking. These
actions resulted in deobligations exceeding $800,000, with the potential for additional substantial
deobligations. ARC actions on other projects, including basic agency administered grants, resulted
in over 130 additional project close outs and recoveries of $2.1 million.

A review of service contracts also identified the potential for contract closing and deobligations
in a majority of cases reviewed. Potential deobligations of $115,500 were identified for 59
contracts; and as of September 30, 1996, $61,337 had been deobligated in 41 cases. Grantee
reviews identified areas for improvement with respect to accounting systems, internal controls,
reporting, cost claims, and matching contributions. In 2 cases, recommendations for grant closings
resulted in deobligations of $477,000, with the funds becoming available for other economic
development projects in Appalachia.

Previous semiannual reports have highlighted reviews of the J-1 visa waiver program and ARC
actions to address the failure of participating providers and physicians to ensure that primary care
was provided in health professional shortage areas. During this reporting period, complaints about
the J-1 visa waiver program continued to be limited; and we believe increased program
compliance has resulted from ARC and State agency actions. Our surveys during this reporting
period confirmed the overall effectiveness of ARC policies and actions to implement an effective
program.

In line with reinvention and customer service principles, we continued to work with first-time and
smaller grantees with respect to the implementation of practical accounting and financial systems
and controls sufficient to ensure compliance with grant agreements, identification of eligible costs,
maintenance of records and preparation of reports.

During the reporting period, the OIG provided recommendations concerning personnel and
investigative matters in connection with a major ARC revision of its primary operating guidelines.
The recommendations were incorporated in the revised ARC Code.

Of particular significance during this period was a District Development Association and ARC-
sponsored financial management telelearning seminar that was attended by over 1,000 grant
managers and independent accountants at 48 remote sites. The IG strongly supported the use of
this distant learning methodology as a cost-effective alternative for providing important training
and believes the ARC initiative could serve as a model for Government, including auditor, training.
The IG, based on the ARC initiative, submitted recommendations for increased assessment and

ii


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 Questioned
Reports Costs
6 $35
i $125
21 $160
oy $42
7 $20
5 $22
10 $118

APPENDIX B

Unsupported
—Costs __


-  Inorder to avail itself of Federal agency expertise and administrative capability in certain
areas, the ARC often relies on other departments and agencies for program administration,
especially with respect to highways and infrastructure projects. For example, the
Appalachian Regional Development Act authorizes the Secretary of Transportation to
administer the Commission's highway programs. Under this arrangement, the Commission
retains responsibility for priorities, highway locations, and fund allocations.

B. OFFICE OF INSPECTOR GENERAL

The ARC Office of Inspector General is an independent audit and investigation unit. The OIG is
headed by an Inspector General who reports directly to the Federal Co-Chairman.

Role and Authority

The Inspector General Act of 1978 (P.L. 95-452), as amended in 1988, states that the Inspector
General is responsible for (1) audits and investigations; (2) review of legislation; and
(3) recommendation of policies for the purpose of promoting economy and efficiency in the
administration of, or preventing and detecting fraud and abuse in, the program and operations of
the establishment. In this regard, the Inspector General is responsible for keeping the Federal Co—
Chairman and Congress fully informed about the problems and deficiencies in ARC programs and
operations and the need for corrective action. The Inspector General has authority to inquire into
all ARC programs and activities that are Federally funded. The inquiries may be in the form of
audits, surveys, investigations, personnel security checks, or other appropriate methods. The two
primary purposes of these inquiries are (1) to assist all levels of ARC management by identifying
and reporting problem areas, weaknesses, or deficiencies in procedures, policies, program
implementation, and employee conduct and (2) to recommend appropriate corrective actions.

cipal
The States and the Federal Co-Chairman, acting together as the Commission, establish policies
for ARC's programs and its administration. These policies are codified in the ARC Code and
implemented by the Commission staff, which is responsible for monitoring project performance
and providing technical assistance as needed. The Federal Co-Chairman, as the Federal fiscal -
officer, is responsible for the proper use and protection of Federal funds, for ensuring compliance
with applicable Federal laws and regulations, and for taking appropriate action on conditions
needing improvement, including those reported by the OIG. The operations of the OIG neither
replace established lines of operating authority nor eliminate the need for the commission offices
to take reasonable measures to protect and enhance the integrity and effectiveness of their
operations. All Commission offices are responsible for monitoring and evaluating the programs
entrusted to them and reporting information or incidences needing further audit and/or investigation
to the Inspector General.

Funding and Staffing

The OIG funding level for FY 1997 is $366,000, which is a $54,000 reduction from FY 1996. For
FY 1997, approximately 17 percent will be expended for contract audit services; 65 percent, for
salaries and benefits; 9 percent, for travel; and 9 percent, for all other activities (training,

2


PURPOSE AND REQUIREMENTS OF THE

OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

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

The Co-Chairman may transmit comments to Congress along with the report but may not change
any part of the report. The specific requirements prescribed in the Act, as amended (Public Law
100-504), are listed below.

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 Page 3
deficiencies
Section 5(a)(3) Prior significant recommendations not yet implemented *
Section 5(a)(4) Matters referred to prosecutive authorities *
Section 5(a)(5) Summary of instances where information was refused s
and 6(b)(2)
Section 5(a)(6) Listing of audit reports showing number of reports and App B
dollar value of questioned costs
Section 5(a)(7) Summary of each particularly significant report bial
Section 5(a)(8) Statistical table showing number of reports and dollar value App A
of questioned costs
Section 5(a)(9) Statistical table showing number of reports and dollar value App C
of recommendations that funds be put to better use
Section 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 *

iv


utilization of telelearning/teleconferencing training to the President's Council on Integrity and
Efficiency.

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

iii


APPENDIX C

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

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 recommendations that were agreed
to by management

—-based on proposed management action

-~based on proposed legislative action

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

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

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

No. of Dollar Value
Reports ($ in thousands)

4 $2,611
4 $2,611
4 $2,611
4 $2,611 1/
4 $2,611

Closing actions initiated as of end of reporting period on grants or service contracts noted in reports
include deobligations of $927,565. Action continuing on other grants and service contracts noted
in reports. Management action includes review of all identified grants with resulting final actions

including payments and/or deobligations.


I. INTRODUCTION

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

Tl. BACKGROUND
A. APPALACHIAN REGIONAL COMMISSION

The ARC was established by the Appalachian Regional Development Act of 1965 (P.L. 89-4).
The Act authorizes a Federal/State partnership designed to promote long-term economic
development on a coordinated regional basis in the 13 Appalachian States. The Commission
represents a unique experiment in partnership among the Federal, State, and local levels of
Government and between the public and private sectors. It is composed of the Governors of the
13 Appalachian States and a Federal representative who is appointed by the President. The Federal
representative serves as the Federal Co-Chairman with the Governors electing one of their number
to serve as the States' Co-Chairman.

— Through joint planning and development of regional priorities, ARC funds are used to assist
and encourage other public and private resources to address Appalachia's unique needs.
Program direction and policy is established by the Commission (ARC Code) by the vote
of a majority of the State members and the affirmative vote of the Federal Co-Chairman.
Emphasis has been placed on highways, infrastructure development, business enterprise,
and human resources programs.

-  Administratively, the Office of the Federal Co-Chairman, with a staff of 11, and the
Commission, with a staff of 50, are responsible for ARC operations. The States maintain
an Office of States' Representative (3 persons) that has primarily liaison responsibilities.
All personnel are located in Washington, DC. The Commission staff's administrative
expenses, including salaries, are funded jointly by Federal and State funds; the States’
Representative staff is funded entirely by the States; and the Federal Office staff is funded
entirely from Federal funds.

- The Commission's appropriation for FY 1997 is $160 million, which is divided
approximately $99.7 million for highway projects, $57 million for non-highway projects,
and $3.3 million for administrative expenses. The ARC legislated reduction of $314,000
in administrative expenses will have a significant impact on OIG operations. ARC is
authorized through its current appropriation.

— Program funds are distributed to State and local entities in line with an allocation formula
intended to provide fair and reasonable distribution of available resources. ARC staff have
responsibilities for program development, policy analysis and review, grant development,
technical assistance to States, and management and oversight.

1


APPALACHIAN REGIONAL COMMISSION

INSPECTOR GENERAL'S

SEMIANNUAL REPORT

TO CONGRESS

APRIL 1 - SEPTEMBER 30, 1996


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

- Of particular significance was ARC's continued emphasis on identifying and closing old
and inactive grants, including substantial deobligations to ensure that available funds are
made available for other economic development activities in the Appalachian Region. Our
followup review reflected continuing action to address open cases cited in prior reports,
including additional deobligations, and actions to address remaining conditions cited in
Report 96-5(H), August 1, 1996. This report noted the need for action on 34 grants with
balances approximating $800,000 that were cited in prior reports and the potential for
action in 51 cases open as of March 31, 1996, with balances approximating $1.7 million.
ARC action was evidenced by the closing of 31 grants and deobligations or refunds of
$728,207 between April 1 and June 30, 1996 based on recommendations in our draft report.

- Report 96-25(H) identified the potential for closings and deobligations with respect to
internal service contracts and purchase orders. For example, our review of 69 service
contracts indicated the potential for action in 59 cases and deobligations of about $115,500.
Based on our draft report, ARC initiated actions and, as of September 30, 1996, closing
actions had been initiated in 41 cases with deobligations of $61,337. We attributed this
condition primarily to oversight and the absence of a followup system for identifying
service contracts for which the applicable services, e.g., printing, articles, technical
assistance, etc., had been received. ARC has initiated action to include these contracts as
part of its grant followup system.

- A-cash management survey emphasizing advances and timely use of these funds by
grantees disclosed that ARC procedures were adequate to minimize the numbers of
advances and that grantees generally used the advanced funds in a timely manner.

- Our review of Memorandums of Understanding (MOUs) with other agencies for the
administration of ARC projects disclosed a need for some improvements with respect to
basic agency reporting to ARC, evaluation of the extent of administrative funds provided
to one basic agency, and updating revision of older MOUs. ARC has an internal project
directed toward improving ARC/basic agency activities.

- Our grant reviews identified a pattern of underuse of funds by two State agencies receiving
annual technical assistance grants and delayed actions to deobligate balances for
redistribution to other projects. Three grants related to technical assistance in one state
reflected the potential for improved grant administration resulting from improved followup
with grantees. The grantee was approved $175,000 under each of the noted grants. As of
March 31, 1996, the remaining balances were $77,748; $68,969; and $73,491, respectively,
with grant expiration dates being May 30, 1994; June 30, 1994; and June 30, 1995,
respectively. Our on-site review included recommendations for the grantee to advise ARC
that $220,208 should be deobligated and for requesting future funding more in line with
actual needs. Deobligation actions had been completed as of the end of the reporting
period.


equipment, space, supplies, etc.). The OIG funding level represents about .0023 percent of the
total funds available to the Commission.

The fair share OIG budget reduction for FY 1997 will have a substantial impact on OIG's review
capacity at a time when alternative audit requirements for many grantees have been reduced or
eliminated in line with revisions to the Single Audit Act. The OIG, in order to reduce the negative
impact, will vigorously pursue alternative review strategies such as surveys, targeted reviews, letter
reports, highlight memorandums, and possibly joint OlG/program staff reviews.

Initial OIG operations included authorization for an Inspector General and a Confidential Assistant.
A senior auditor was employed in the latter half of FY 1991; no additional staff have been
employed. Grant review activities will continue to emphasize use of contracted services (e.g.,
independent public accounting firms or other OIG offices) supplemented by programmatic and
performance reviews directed by OIG staff. Investigative assistance is provided by other OIG
offices on an as-needed basis. This approach has been deemed the most appropriate to date in
view of the nature of ARC operations and limited resources. However, we would welcome
initiatives that would facilitate sharing of investigative resources in order to strengthen this aspect
of OIG operations.

Wi. OG ACTIVITY
A. AUDITS

During the reporting period, 32 reports were issued, including 24 individual reviews, 4 program
surveys, and 4 J-1 Visa Waiver Program followup reviews. At the end of the reporting period,
14 grant reviews and 3 surveys were in process. The division of OIG resources results in audit
work being performed by a combination of permanent and contractor staff. Emphasis continues
to be placed on surveys of ARC operations and programs, completion of grant audits, audit
planning, and audit resolution and followup.

During the term of the OIG operations at ARC, various recommendations, based on audit testing,
have been made to ARC management with respect to improving operations in such areas as
accountability, financial management, fund obligations and deobligations based on project activity,
implementation of cost principles, and audit followup. Programmatic issues, with respect to grant
administration, 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, including revisions of accounting systems and service
agreements, and strategic planning, including assessment of appropriate internal and external
performance measures, are in line with OIG recommendations and executive and legislative
initiatives to improve Government operations.


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

* None.

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


Page

Executive Summary heen ecnececcnenaecccneecenesseseeeenees ii
Purpose and Requirements of the OIG Semiannual Report —_............ iv

Ti, WintrOdtictionn, | e wiesernite a w iuitetbds uo o inlalansG dilelennle « fasoyorl'e svorsis & « fasenn: oe 1
TI Background «=—«—__lveeeeccccccrccccccccseseeeececccsseseseneees 1
Appalachian Regional Commission ws ee eee eee eee eee reece eee 1
Office of Inspector General = we eee eee eter eect terete ee eeeeee 2

TET, OIG Activity 8 as esenerers: 6 0 osereiove 0 0 isezare: 6 © ererene’ 0 4 ters o « everete 9 suede! es 3
Audits =§-_— see cece eee eeeeeevevceeeereereesesseeesssenene 3
Investigations «se tinct cceiner ee swiniein 2 epinieit s viniaie o wtieie e wisieiee 5

IV. AuditPlanning «=«-_-|— is evciteccenenicccewenessnienes sein ne wees eines s 6
V; O1G Hotline ~— 8 cssewaess seme s segue os wie ss srw es oem 8 Pee 6
VI. Legislative & Regulatory Review «= ws eee eee ccc eee eee e eee e cece eee Hd
VIR, Other estas & sre rene os senses 4 « wens 3 a See <5 te 5 oS ¢ SEIS 7

Appendices A. Schedule of Audit Reports Issued
April 1 through September 30, 1996

B. Schedule of Audit Reports with Questioned or Unsupported Costs

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

D. Definition of Terms Used


During the reporting period, complaints were received with respect to the J-1 visa waiver program.
The ARC OIG initiated reviews in response to these complaints.

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. Also, the ARC OIG continues to support extension of
the Program Civil Fraud Penalties Act to include designated entities, improved protection of
designated IG budgets, and criteria consistent with current qualification requirements for
Presidentially appointed IGs.

vol. OTHER

The Inspector General continues to advocate use of Interservice Agreements by smaller designated
IG offices in order to substantially reduce the costs of independently contracting for external
auditors. This process, which was initiated by the ARC OIG in 1989, is now used by
approximately 10 designated IG offices and results in a substantial reduction in costs with respect
to advertising and bid evaluation, without any reduction in competition or quality of work. In this
regard, the ARC IG strongly supports ongoing initiatives to encourage and increase the
Governmentwide use of a master contractor concept for audit services contracts to achieve
substantial economies of scale by eliminating duplicative contracting activities. During this
reporting period, the Audit Committee of the President's Council on Integrity and Efficiency
(PCIE) reached agreement with the Department of Labor OIG wherein the DOL OIG will
administer an OIG—wide master contract for Government audit services. Such action should, if
utilized by eligible agencies, substantially reduce the costs of initiating and administering these
contracts.

The Inspector General serves as the Executive Council on Integrity and Efficiency representative
on the PCIE Audit Committee. Various recommendations have been made with respect to issues
impacting the OIG audit community, including recent recommendations for increased assessment
and use of telelearning/teleconferencing as an effective means to reduce Government and OIG
training costs. These recommendations were based on an ARC supported training initiative noted
below.

Of particular significance during this reporting period was ARC and grantee actions to address
financial management issues. For example, the District Directors Association of Appalachia and

7


APPENDIX A

SCHEDULE OF REPORTS ISSUED APRIL 1 TO SEPTEMBER 30, 1996

Report ‘Tithe Program Dollars ‘Questioned ‘Funds to Better
No. or ContraclGraat ‘Unsupported ‘User?
Amount Costs
96-3(H) _|_Memorandums of Agreement
96-5(H)__|_ Expired Grant Update $3,600,000 $2,136,792
96-12(H) | _ West Virginia Region VI PDC 110,000 $1447
96-19(H)_|_ Mississippi Technical Assistance 525,000 10,303 220,208
96-24(H)_|_Cash Management Survey
96-25(H)_| Purchase Orders and Contracts 573,000 115,500
96-26(H) J=1 Visa Waiver Program--South Carolina Med Central
96-27(H)_|_Immunization Outreach, South Carolina 75,000 4,568
96-30(H)_|_ Pennsylvania Technical Assistance 700,000 37,900 138,021
96-31(H)_|_Northern Tier RP&DC 346,000 5,593
96-32(H)_|_ Binghamton University, Manufacturing Competitiveness 200,000
96-33(H)_| Alliance for the Arts, West Virginia 150,000
96-34(H)_|_ Kanawha County Schools, Training 200,000 70
96-36()_|_National Institute of Flexible Manufacturing, Training 200,000 12,304
96-37(H)_|_ Southwest Pennsylvania RDC 400,000
96-41(H)_|_ Southern Tier East RP&DB 365,000
96-43(1)_|_ West Virginia Development Council 58,000
96-44(H)_|_Smart Start Program, North Carolina 1,050,00 24,704
96-46(H)_|_J-1 Visa Waiver Program--North Hills Clinic, South Carolina
96-49(H)_| Dropout Prevention, Towns County, Georgia 63,520 19,752
96-S0(H)_|_ Apprenticeship Training, Murray County, Georgia 52,000 825
96-51(H)_|_Apprenticeship Training, Whitfield County, Georgia 94,800 300
96-55(H)_| Southern Technology Council, North Carolina, Technical Assistance 200,000 848
96-56(H)_| Southern Growth Policies Board, North Carolina, Training and Technology 50,000
96-59(H)_| Bicentennial Volunteers, Tennessee 75,000
96-60(H)_| Virginia Water Project 50,000 6,326
96-61(H)_|_New River Valley PDC, Virginia 170,600
96-62(H) _|_Cumberland Plateau PDC, Virginia 120,500 250
96-63(H)_|_Jesse Owens Park, Lawrence County, Alabama 75,200
96-67(H)_|_J-1 Visa Waiver Program--Georgia
96-68(4)_| Southern Technologies Council, North Carolina, SRA 50,000 248
3-1 Visa Waiver Program-—Tennessee __
$ 9,553,620 $ 125,438

’ 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


OIG. We also recognize that, due to the small size of ARC staff and limited entity administrative funding,
OIG is subject to fair share resource reductions.

The continued support of the OIG by ARC management and utilization of OIG reports and recommendations
have contributred 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.

ubert N. Spa
Inspector General

Enclosure


Office of the Inspector General

APPALACHIAN 4 Proud Past,
REGIONAL A New Vision
COMMISSION

November 29, 1996

MEMORANDUM FOR THE FEDERAL CO-CHAIRMAN
SUBJECT: Semiannual Report to Congress

In accordance with the requirements of the Inspector General Act Amendments of 1988, Public Law 100-
504, I am pleased to submit the semiannual report of the Office of Inspector General (OIG) for the period
April 1 through September 30, 1996.

During this period, operational activities included issuance of 32 reports, including 24 grant reviews,
4 program surveys, and 4 J-1 waiver reviews. Primary recommendations were directed at improved
accounting, financial systems, internal controls, and deobligating of funds for completed or inactive grants.
ARC initiated various actions to address issues noted in OIG reports and memorandums. For example, action
was initiated on 68 of 94 grants identified for followup action in a prior audit report with deobligations of
$914,857. Also, actions initiated on a report issued during this period resulted in additional deobligations
exceeding $700,000. However, continuing action is necessary for older grants with balances of $1.2 million.
Also, ARC continued action to close out additional projects, including projects administered by basic
agencies. Actions included 131 project close outs with recoveries of $1,346,000 and additional recoveries
of $767,000 in access road funds

A survey of ARC tourism grants, with emphasis on performance and results was initiated during this
reporting period. Our surveys of the J-1 Visa Waiver program confirmed overall compliance with program
provisions and reflected ARC's past and continuing actions to ensure an effective and efficient program for
providing medical service to rural and low income communities. A review of service contracts identified
potential deobligations of $115,500 and $61,337 had been deobligated by September 30, 1996.

Grant reviews emphasized adequate accounting systems and internal controls as a means of ensuring eligible
expenditures. During our reviews, we also provided technical guidance to about ten first-time grantees. For
two grantees, our reviews contributed to the closing of grants and deobligation of approximately $477,000
of funding that could be utilized elsewhere to assist economic development in Appalachia.

In our opinion, a cost-effective, high quality, financial management telelearning seminar sponsored by the
Development District Association of Appalachia and ARC was especially noteworthy. This seminar, which
highlighted revised OMB Circulars and new legislation, was attended by over 1,000 grant managers and
independent accountants at 48 remote sites throughout Appalachia. The average cost per attendee
approximated $20, which is substantially below other training methodologies. This activity reflected the
potential for increased use of distant learning methodologies as a means of achieving desired and required
training at significantly reduced costs and should be a model for Government, including auditor training
programs.

The Office of Inspector General budget for FY 1997 was reduced $54,000 from FY 1996 level based on a
proportionate sharing of a legislated reduction of ARC operating funds. This reduction willl have a
substantial negative impact on OIG productivity at a time when alternative grantee audit and oversight
requirements have been significantly reduced in line with revisions to the Single Audit Act. The negative
impact of such a reduction is particularly significant when applied to very small offices, such as the ARC

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A similar type situation applied to four $350,000 annual grants for another state technical
assistance program. These grants had initial and/or revised expiration dates of March 31,
1994; November 30, 1993; September 30, 1994; and September 30, 1995, respectively, and
were identified in prior expired grant survey reports and individual grant reviews as being
open substantially after noted expiration dates. These grants were closed on February 29,
1996; December 7, 1995; January 31, 1996; and June 5, 1996, respectively, including
deobligations of $131,780; $85,888; $171,638; and $138,021, respectively. Controls to
ensure timely followup and procedures allowing action in such cases could result in more
timely deobligation and redistribution of funds. Also, information about underuse of funds
should be used when evaluating grant requests.

- Continued emphasis was placed on testing first-time program participants in order to
determine and evaluate the extent of knowledge and understanding of program procedures
and requirements. Our tests disclosed that these grantees often did not have adequate
financial systems or accounting controls and, thus, were unable to fully support claims for
reimbursement and/or submitted ineligible costs for reimbursement. Of particular
significance was limited understandings with respect to information necessary to support
required matching contributions and allocation of costs between different funding sources
and allowable costs as noted in the applicable OMB Circulars (A-87 and A-122). Also,
in several other cases, we worked with the grantee to identify eligible costs prior to the
issuance of our final report and, thus, reduced or eliminated questioned costs necessitating
additional audit resolution. Emphasis was placed on recommendations to improve financial
and accounting systems and controls.

- _ The Office of Inspector General, Tennessee Valley Authority (TVA), provided assistance
with respect to auditing an ARC grant that was being administered by TVA program staff.
The report identified questioned or unsupported costs approximating $23,000.

Program issues and recommendations included a need for increased efforts to identify grants for
which performance periods are about to expire, contacts with grantees about the project status,
justified extensions of performance periods, and action to address the core grants remaining open
for extensive periods after the grant expiration period.

A recent ARC reorganization impacting on grant administration activities should permit more
effective and efficient grant administration. Resources have been assigned to address the noted
condition, and the OIG is working with program staff to facilitate improved audit followup. Also,
aggressive ARC action continues with respect to closing of basic agency administered grants; and
substantial deobligations and use of recovered funds on other projects have resulted from this
effort.

B. INVESTIGATIONS

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

5


ARC sponsored a telelearning financial management seminar to educate grantees and independent
accountants/auditors about revised OMB Circulars and the new Single Audit Act. This seminar,
which was transmitted to 48 remote sites and attended by more than 1,000 persons, afforded a very
cost-effective training methodology. At a cost of about $20 per attendee, this training
methodology resulted in substantial overall savings to the grantees, other attendees, and the
Government by elimination of costs normally associated with having to travel to a distant location
for such training and substantial registration fees. The OIG strongly supported this initiative and
believes it should be used as an example and model of potential cost-effective alternatives.

Another recent significant agency action impacting positively on program operations was the
finalization of the ARC strategic plan, which includes provision for a new performance—based
evaluation strategy to help ensure maximum return on ARC's investments. This expanded
management program evaluation is being addressed by an ARC task group; and implementing
guidance, including revised project planning guidelines, is being finalized.