APPENDIX C

SCHEDULE OF AUDIT REPORTS WITH

No. of Dollar Value
Reports (S in thousands)
For which no management decision was made by the 3 $ 162
commencement of the reporting period
Which were issued during the reporting period 1 $6
Subtotals (A + B) 4 $ 168
For which a management decision was made during the 3 $ 162”
reporting period
(i) dollar value of recommendations that were 2 $ 158

agreed to by management

—-based on proposed management action 2 $ 158
—-based on proposed legislative action - -

(ii) dollar value of recommendations that were not 1 $4
agreed to by management

For which no management decision has been made by the 1 $ 6
end of the reporting period

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

Does not include ARC followup actions to deobligate about $785,000 in ARC-administered grants in connection
with a prior report dealing with grants having expired reporting periods. Action is continuing on expired grants
with fund balances approximating $1 million that were noted in the prior report.


OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

PURPOSE AND REQUIREMENTS OF THE

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.

Section 4(a)(2)
Section 5(a)(1)

Section 5(a)(2)

Section 5(a)(3)
Section 5(a)(4)

Section 5(a)(5)
and 6(b)(2)
Section 5(a)(6)

Section 5(a)(7)

Section 5(a)(8)

Section 5(a)(9)

Section 5(a)(10)

Section 5(a)(11)

R iio Reatii
Review of legislation and regulations
Problems, abuses, and deficiencies

Recommendations with respect to problems, abuses, and
deficiencies

Prior significant recommendations not yet implemented
Matters referred to prosecutive authorities

Summary of instances where information was refused
Listing of audit reports showing number of reports and
dollar value of questioned costs

Summary of each particularly significant report

Statistical table showing number of reports and dollar
value of questioned costs

Statistical table showing number of reports and dollar
value of recommendations that funds be put to better use

Summary of each audit issued before this reporting period
for which no management decision was made by end of
the reporting period

Significant revised management decisions

iv

Page 10
Page 3

Page 3

App A

**

App B

App C


computer network. This work will be the starting point for redesigning and
improving record control.

First-time P Partici

to) Continued emphasis continued to be 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).
ARC is developing additional guidance for grantees with respect to necessary
records, reports, and minimum accounting controls and systems.

B. INVESTIGATIONS

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

During the reporting period, a Memorandum of Understanding was signed with the Office of
Inspector General, Tennessee Valley Authority, in order to obtain investigative assistance with
respect to the J-1 visa waiver program. The results of these inquiries are noted in the audit
section. Additionally, a state agency debarred one employer for 2 years; and several cases were
referred to INS for review.

Iv. AUDIT PLANNING

During the remainder of FY 1995, audit work will include individual grant audits in about seven
states; followup testing in areas such as staff monitoring; and additional followup on grants with
completed budget periods, grant extensions, revolving loan funds, and J-1 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, increased
emphasis continues to be placed on nonstandard reporting formats including memorandum, letter,
and survey reports. Although such reporting formats reduce the time and resources necessary for
review completion, the results and information included in such reports is based on evidence and
supporting documentation consistent with generally accepted auditing standards.

9


and 8 percent, for all other activities (training, equipment, space, supplies, etc.). The OIG
funding level represents about .0014 percent of the total funds available to the Commission.

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

WW. OG ACTIVITY
A. AUDITS

During the reporting period, 24 reports were issued, including 23 individual reviews and
1 program survey report. At the end of the reporting period, 10 grant reviews, and 2 program
surveys were in process. Emphasis was placed during this period on completing reviews of the
J-1 visa waiver program. 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 reporting period, the Inspector General continued as Vice Chair of the
Executive Council on Integrity and Efficiency (ECIE), which is comprised of 32 statutorily
designated Inspectors General and nonstatutory Inspectors General. The Inspector General was
heavily involved with efforts to ensure implementation of ECIE responsibilities for effective and
efficient OIG operations.

J=1 Visa Waiver Program

During this period, 8 reviews dealing with the J—-1 visa waiver program were completed and
reports issued. These reviéws were conducted by ARC OIG staff with assistance of investigative
staff from TVA OIG under a Memorandum of Agreement. Review work emphasized medical
providers located in or near urban areas in West Virginia and Maryland that employed multiple
J-1 physicians. As noted below, our reviews disclosed that J-1 physicians were not always
being used in accordance with agreements to provide 40 hours per week of primary care in a
Health Professional Shortage Area (HPSA) and that an excessive number of J-1 approvals had
been recommended for some locations.

ARC acts as a Federal sponsor for the J-1 visa waiver program, which permits foreign physicians
to remain in the US for a 2-year period upon completion of training, provided they provide
primary care medical services in an Appalachian HPSA. Substantial OIG resources have been
committed to assessing compliance with program requirements and addressing concerns raised
by employers and physicians. These concerns deal primarily with reassignment of physicians by


L INTRODUCTION

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

I. BACKGROUND
A. APPALACHIAN REGIONAL COMMISSION

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

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

programs.

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

° The Commission's appropriation for FY 1995 is $282 million, which is divided
approximately $193.6 million for highway projects, $84.8 million for non-
highway projects, and $3.6 million for administrative expenses. ARC is
authorized through its current appropriation.

to) 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.


Although OIG will conduct followup reviews to evaluate program compliance, we noted that the
number of inquiries and complaints relative to alleged program violations have declined
substantially since the conduct of our field reviews and ARC and state agency actions.

G iministrati

A survey report on grant administration, including controls, performance criteria, and evaluation
emphasized the effectiveness of program and management controls with respect to timely use or
approval and payment of funds and the availability and effectiveness of performance measures
in grant agreements. This review coincided with a major ARC strategic planning effort initiated
by the Federal Co-Chairman. Based on the testing of samples of older and newer grants for a
variety of attributes, including availability of required reports, evidence of project monitoring,
actions on grant extension requests, availability of quantifiable performance criteria in grant
agreements, and evidence of performance evaluations, we made recommendations related to:

fe) Timely followup and file documentation to identify grant status and establishment
of reasonable time frames for project completion, receipt of required reports and/or
deobligation of funds.

oO Ensuring timely receipt of necessary reports.

° Emphasizing performance goals and measures, as practical, in grant agreements
and assessments of project results.

oO Providing of grant implementation guidance to smaller and/or first time grantees
simultaneous with grant agreement approval.

ARC responded positively to the recommendations and noted as follows:

The function of the grants management staff now being recruited will be to perform
continuous monitoring of grant status and to follow through with ARC staff and staff at
other Federal agencies so that appropriate actions are taken and documented. In addition,
although the design for data systems on the planned computer network is not yet
complete, management anticipates that project status information on the network will
include not only implementation status and expiration dates, but also the time frames for
grantee actions as recommended in the report.

Management agrees that report and waiver reviews should be prompt and that waivers
should be documented. Commission managers were called to a meeting with the
Inspector General to discuss the report, and the problem should not recur.

With regard to performance measures, the Commission is now undertaking a substantial
strategic planning initiative that will include, among many other things, the identification
of performance goals and measures associated with the agency's mission. Management
sees this analysis as essential to establishing a process of reasonable performance
expectations for individual projects that should be designed to carry out the agency
mission. In addition, management is considering methods for reorganizing staff program
work, including monitoring of projects in the field.

7


APPALACHIAN REGIONAL COMMISSION

INSPECTOR GENERAL'S

SEMIANNUAL REPORT

TO CONGRESS

OCTOBER 1, 1994 - MARCH 31, 1995


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viol. OTHER

The Inspector General continued as the Vice Chair of the Executive Council on Integrity and
Efficiency, which was established by Executive Order in May 1992. The ECIE, which is chaired
by OMB, is comprised of the 32 statutorily designated IGs and other administratively established
IGs and is intended to promote the efficiency and effectiveness of the IG community. As such,
the Vice Chair serves as a coordinator and liaison for ECIE members in dealings with OMB,
Congress, and the PCIE.

Specific activities, which required considerable resource use during the reporting period, included
coordinating monthly ECIE meetings; conducting committee meetings; transmitting IG related
information to all members; correlating and summarizing ECIE positions on various issues;
representing ECIE members’ interests; briefing OMB and Congressional staff; coordinating
project activity, annual reports, and training conferences; and representing ECIE at PCIE
meetings.

The ECIE Vice Chair responsibilities and workload, although considered of the highest
importance by the ARC OIG, required a substantial expenditure of time and resources in order
to address member issues and ensure ECIE actions in line with the Executive Order. The normal
workload attributable to coordinating and addressing interests and concerns of member entities
was increased by the inherent activity and concems resulting from a change in Administration.
Consequently, ARC OIG time was diffused between ECIE and ARC activities during this
reporting period; and the OIG appreciates the support of ARC management with respect to the
IG's involvement as the ECIE Vice Chair.

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.

11


Excess J-1 Placements: Several reports have noted excess J-1 placements in
Appalachian HPSAs. We fully concur that the existence of excessive placements

represents a distinct danger to the continued effective operation of this program,
which is based on attempts to alleviate actual shortages of medical professionals
in rural Appalachia. Consequently, since June or July of 1994, we have been
screening each application for an ARC J-1 waiver on the basis of actual need in
the community sponsoring the placement. Our method of scrutiny has been to
calculate actual ratios of physicians to populace in those communities by
combining Public Health Service (PHS) data with our own database of ARC J-1
placements. The resulting ratio takes into account the J-1 doctors practicing in
the area, which are not considered in the ratios that PHS calculates to justify
HPSA designations. At this point, we have not developed a strict cut off point
below which we will not recommend applications for approval; but as the ratios
decrease in size, we scrutinize the requests closer and closer and require the state
health personnel with whom we work to provide correspondingly more
justification for the placement. We are continuing to monitor this approach
carefully to determine whether a mandatory cut off should be imposed and
whether program integrity can continue to be ensured through the current case—
by-case method.

Placement innon-HPSAs: The current Federal Co-Chairman has insisted that all
doctors for whom he requests J-1 waivers actually practice in an Appalachian
HPSA. Although, technically, the ARC policy, as currently written, would permit
a placement outside a HPSA if that placement will "best serve" the HPSA
population, ARC has required an extremely narrow interpretation of this provision
of the policy and is unwilling to extend it to allow a non—-HPSA placement in any
but the most compelling circumstances. We believe this issue is at the heart of
the J-1 visa program and will continue to scrutinize each application to ensure
that service is actually being provided in the HPSA.

: At present, based on the recommendations contained in
OIG reports, the Federal Co-Chairman will not approve a J-1 waiver request,
except upon the demonstration of unusual and compelling circumstances, if the
contact between the sponsor health facility and the J-1 applicant contains a
noncompete clause. This issue, however, is the subject of our continuing review.
We understand from discussions with state health care officials and others that
smaller not-for-profit facilities serving Appalachian HPSAs may be placed in
financial jeopardy by the rigorous application of this rule.

Employer Certification: In response to recommendations that we increase

employer/sponsor accountability under the J-1 program, we will begin to require
that the representative of each sponsor health facility include a statement to the
following effect in the waiver request letter: "I hereby certify that I have read and
fully understand and will comply with the ARC J-1 Visa Waiver Policy, and that
all of the information contained in this letter is true to the best of my knowledge
and belief."


EXECUTIVE SUMMARY

During this reporting period, 24 reports were issued, including 23 individual reviews and
1 program survey. Primary recommendations were directed at improved accounting, financial
systems, internal controls, deobligations of funds, and employer compliance with provisions of
the J-1 visa waiver program. At the end of the reporting period, 12 reviews were in process,
ie., 10 grant reviews and 2 headquarters surveys dealing with grants management and business
development revolving loan funds. Of particular significance were management actions to
address conditions affecting the J-1 visa waiver program and grant administration.

We continued to emphasize improved grantee financial management systems, accomplishment
of grant objectives, eligibility of claimed costs, and timely actions to identify potential fund
deobligations. Recommendations were made for improvements in these areas. Six significant
reports with respect to the J-1 waiver program, which provides for extension of resident
provisions for physicians who agree to work in the Appalachian Region, were issued. These
reports highlighted physician and employer failure to comply with ARC program provisions that
foreign physicians, approved for a 2-year (J-1) waiver of requirements to return to their home
country, must practice primary care 40 hours per week in an Appalachian health professional
shortage area (HPSA). The conditions noted occurred where employers were approved multiple
J-1 physicians at HPSA sites in close proximity to more urban non-HPSAs and were primarily
attributable to employers who used the J-1 physicians to perform subspecialty practices and/or
practice in non-HPSAs.

ARC initiatives with respect to this program included increased employer accountability,
notification to physicians and providers about violations and needed improvements, actions to
reduce impediments for the achievement of a program goal to ensure increased and permanent
medical service in Appalachia, and emphasis on identification of physician need.

Audit resolution actions also included significant progress toward settlement of open issues and
questionable costs. We noted that, in connection with a prior report dealing with expired grants,
actions were initiated to improve control over such grants and about $675,000 was deobligated
during the reporting period for other ARC-administered grants. Also, management emphasis on
timely followup and review of expired grants included assigning staff to implement improvements
and improved management information system to facilitate grant tracking. Additionally, about
$1 million was recovered with respect to older grants administered by other agencies.

A report dealing with grant administration and controls identified several issues for ARC action,
including emphasis on performance goals and measures, assessment of project results, timely
receipt of necessary reports, and guidance to smaller and/or first time grantees. ARC responded
positively to the recommendations and noted increased emphasis and staff responsibilities for
grant monitoring and followup, improved grant information system, and identification of
performance goals and measures.

In line with reinvention and customer service principles during our field reviews, we continued
to work with first time and smaller grantees with respect to eligible costs and necessary records
and reports. Management agreed with our recommendation to provide increased guidance to
grantees.

ii


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.


Page

Executive Summary wee eee eee eee tere rete eee ete rere ii
Purpose and Requirements of the OIG Semiannual Report ....-----+: iv

I. Introduction «eee eee eee eect eee eee e ere e rte teers eee cees 1
Il. Background weer eee eee cece errr eee tee seers ee eseees 1
Appalachian Regional Commission =. «+--+ +++ ser rrrrrerrertrtcees i.
Office of Inspector General = «5. ee eee eee eee eet e eter ener eees 2

TI]. OIG Activity wee e eee e eee eee reer ee eeeenes 3
Audits «cece ccc e cece e cree reer erence eee re reser ececes 3
Investigations we eee eee eee eee rere rere et ee resets r er eeees 9

IV. Audit Planning ws eee ee ee eee eee tenet e teeter eeeeces 9
V. OIG Hotline «we eee ce ee ee eee rere renee e ere e reese eeees 10
VI. Legislative & Regulatory Review ...-.-++eeeereererreerereeererere 10
VIL. Other ce ee ccc eee cee eee e renee terete ee ee rere eeeee 11

Appendices A. Schedule of Audit Reports Issued
October 1, 1994, through March 31, 1995

B. Schedule of Audit Reports with Questioned or Unsupported Costs

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

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

FE. Vision Statement Summary


Office of the Inspector General

APPALACHIAN 4 Proud Past,
REGIONAL A New Vision
COMMISSION

May 18, 1995

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

In accordance with the requirements of the Inspector General Act Amendments of 1988, Public
Law 100-504, I am pleased to submit the semiannual report of the Office of Inspector General
(OIG) for the period October 1, 1994, through March 31, 1995.

During this period, operational activities included issuance of 24 reports, including 23 individual
reviews and 1 program survey. Primary recommendations were directed at improved accounting,
financial systems, internal controls, and deobligations of funds. During this period, our reports
highlighted factors affecting physician and provider compliance with provisions of the J-1 waiver
program, especially employer failure to utilize J-1 physicians to provide primary care in health
professional shortage areas. Emphasis continued to be placed on audit followup and resolution.
ARC initiated various actions to address issues noted in OIG reports and memorandums.

The Inspector General had continuing responsibilities as the Vice Chair of the Executive Council
on Integrity and Efficiency (ECIE), which was established by Executive Order in May 1992 to
provide for coordination and cooperation between the 32 designated Offices of Inspectors General
(OIGs). This responsibility included participating as a member of the President's Council on
Integrity and Efficiency and required extensive coordination and liaison between OIGs, OMB,
and Congressional sources with respect to OIG activities. The Inspector General appreciates the
support, cooperation, and assistance provided by ARC management to facilitate performance of
ECIE Vice Chair responsibilities.

The continued support of the OIG by ARC management and utilization of OIG reports and
recommendations have contributed to improved controls and operations. Of particular
significance during this reporting period was management's actions to address reported issues
with respect to J-1 visa waiver program and grant administration. The Inspector General Act
of 1978, as amended by the Inspector General Act Amendments of 1988, provides that this report
be forwarded to appropriate Congressional committees within 30 days and that you provide
whatever additional comments you consider appropriate.

Inspector General

Enclosure

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

Mabama Kentucky Mississippi North Carolina Pennsylvania Tennessee Most Virginia

Georgia Mardand New: York Ohio South Carolina Virginia


APPENDIX B

SCHEDULE OF AUDIT REPORTS WITH

($ in thousands)

No. of Questioned Unsupported
Reports —Costs _ —Costs _
For which no management decision 7 $172 -
was made by the commencement of
the reporting period
Which were issued during the 4 $10 =
reporting period
Subtotals (A + B) 1 $ 182 =
For which a management decision 11 $ 182 -
was made during the reporting
period
@ dollar value of disallowed 2 $ 6 -
costs
(ii) dollar value of costs not - $ 176" -
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 most instances, questioned costs were agreed with but resolved when grantee provided additional information
to justify expenditures or obtained approval of actions for which the funds were utilized.