April 30, 2019

MEMORANDUM FOR THE FEDERAL CO-CHAIR 

 

Subject: Semiannual Report to Congress

In accordance with the requirements of the Inspector General Act Amendments of 1988, Public 

Law 100-504, the Inspector General Reform Act of 2008, Public Law 110-409, and the DoddFrank Wall Street Reform and Consumer Protection Act, Public Law 111-203. I am pleased to 

submit the Appalachian Regional Commission (ARC) Office of Inspector General’s Semiannual 

Report to Congress. 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.

Every 6 months we provide Congress with a report detailing our independent oversight of ARC 

during the reporting period. The OIG looks forward to continuing efforts to provide independent 

and effective oversight of ARC and working with the Council of Inspectors General on Integrity 

and Efficiency (CIGIE) on important issues that cut across our government.

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

period ending March 31, 2019. During this fiscal period, we issued 24 reports including 18 grant 

audits, 5 management reports, and The Annual Financial Statement audit. Overall, grant audits 

conclude that ARC grants are being implemented effectively. Recommendations in grant audit 

reports pertained to policies and procedures, improved performance reporting, indirect costs, and 

documentation of supporting cost. Actions were initiated by grantees and ARC to address the 

recommendations.

The management evaluations emphasized inactive grants, and expired performance periods. 

Recommendations emphasized follow-up on grants with no ARC payments at least two years 

after approval or obligation to determine potential to use funds on other priority projects and 

addressing expired performance periods that could result in significant ineligible payments.

Actions on grants in prior reports included 19 deobligations/cancellations totaling $1,206,544. 

Basic Agency Monitoring Reports (BAMR) also recommended action on 7 additional inactive 

grants with balances totaling $1.2 million.

During this period, the Inspector General continued to serve as an active member of the Council 

of the Inspectors General on Integrity & Efficiency (CIGIE), its Audit and Inspections and 

Evaluations Committees and a group addressing small OIG issues. The report also contains 

continuing significant issues impacting the OIG audit community that are not directly connected 

to ARC operations.
I take this opportunity to again express my appreciation to agency officials and the Congress for 

their recognition and support for the Offices of Inspectors General (OIG) and OIG staff during 

my 49 years in the OIG community and 20 years as IG at the Appalachian Regional 

Commission.

Sincerely,

Hubert Sparks 

Inspector General

Enclosure
TABLE OF CONTENTS

 Page

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

 I. Introduction ...................................................1

 II Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Office of Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..5

 III. OIG Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Audits, Inspections, Evaluations & Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..6

Investigations . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . ....7

Other . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .7

 IV. Reporting Fraud, Waste, and Abuse . . .. . . . . . . . . . . . . . . . . . . . . .... . . . . ...8

 V. Legislative & Regulatory Review . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...8

 

 VI. Dodd-Frank Legislation ...............................................8

 VII. OIG Audit Community Wide Issues ................................................

 

 

Appendices 

A. Schedule of Reports Issued October 1, 2018 thru March 31, 2019

B. Schedule of Audits, Inspections, Evaluation and Review Reports of Questioned or 

Unsupported Cost

C. Schedule of Audit, Inspection, Evaluation and Review Reports with 

Recommendations that Funds be put to Better Use and Summary of Management 

Decisions

D. Definition of Terms Used
i

EXECUTIVE SUMMARY

ARC grant operations, including grant management and grant projects, represent the most 

significant aspect of ARC programs and OIG reviews. For this reporting period OIG activity 

included issuance of twenty-four reports, including eighteen grant audits, five management 

evaluation reports and the Annual Financial Statement audit. 

Overall there is a high degree of implementation of ARC policies and procedures. 

Recommendations in grant audit reports pertained to policies and procedures, improved 

performance reporting, indirect costs and documentation supporting costs. Actions were 

initiated by grantees to address the recommendations. 

Management evaluations pertained to inactive grants, grants with expired end dates, remaining 

ARC balances and advances. Recommendations emphasized follow-up on grants with no ARC 

payments at least two years after approval or obligation to determine potential use of funds on 

other priority projects and addressing expired grant periods that could result in significant 

ineligible payments. For inactive grants, Basic Agency Monitoring Reports identified 7 grants 

with $1.2 million approved ARC funds that are not being implemented timely and could be 

cancelled and funds reallocated to other projects.

Actions on 19 grants in prior reports included deobligations/cancellations totaling $1,206,544. 

In December 2013 OMB issued an updated Designated Federal Entity (DFE) list that included 

ARC. The IG Act identifies the DFE agency head as the applicable board or commission such as 

the Federal Co-Chair and the Governors of the 13 Appalachian States.

Legislation provides that the DFE Agency Head can terminate the Inspector General with a two 

thirds vote. No problems have resulted from the implementation of this provision.

Within the OIG community and the Council of Inspectors General on Integrity and Efficiency 

(CIGIE) the IG continues to emphasize issues impacting efficiency, effectiveness and credibility 

of OIG-wide audit operations and actions to address these issues. These issues include 

identification and support of revised performance auditor qualifications to address performance 

auditing skills gaps, addressing open and unimplemented recommendations, independent peer 

reviews of the efficiency and effectiveness of audit operations and reporting of actual monetary 

rather than potential monetary benefits. 
ii

PURPOSE AND REQUIREMENTS OF THE

OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT

The Inspector General Act of 1978 requires the IG to keep the Federal Co-Chair and Congress 

fully and currently informed about problems and deficiencies in the Commission's operations and 

the necessity for corrective action. In addition, the Act specifies that semiannual reports will be 

provided to the Federal Co-Chair by April 30 and October 31 and to Congress 30 days later.

The Federal Co-Chair may transmit comments to Congress along with the report but may not 

change any part of the report. The specific requirements prescribed in the Act, as amended (Public 

Law 100-504), are listed below.

Reporting Requirements

Section 4(a)(2) Review of legislation and regulations Page 8

Section 5(a)(1) Problems, abuses, and deficiencies Page 8

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

Section 5(a)(3) Prior significant recommendations not yet implemented *

Section 5(a)(4) Matters referred to prosecutive authorities *

Section 5(a)(5) 

and 6(b)(2)

Summary of instances where information was refused *

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

value of questioned costs

App A

Section 5(a)(8) Statistical table showing number of reports and dollar value 

of questioned costs

App B

Section 5(a)(8) Statistical table showing number of reports and dollar value 

of recommendations that funds be put to better use

App C

* None.
iii
1

I. INTRODUCTION - OIG

The Inspector General Act Amendments of 1988, (Pub. L. No. 100-504) provides for the 

establishment of an Office of Inspector General (OIG) at Designated Federal Entities (DFEs), 

including the ARC. The ARC OIG became operational on October 1, 1989, with the 

appointment of an IG and provision of budgetary authority for OIG operations including

contracted audit and/or investigation activities.

II. BACKGROUND - ARC

The Appalachian Regional Development Act of 1965, (Pub.L. No. 89-4) established the 

Appalachian Regional Commission. The Act authorizes a Federal/State partnership designed to 

promote long-term economic development on a coordinated regional basis in the 13 Appalachian 

States. The Commission represents a unique experiment in partnership among the Federal, State, 

and local levels of Government and between the public and private sectors. It is composed of the 

Governors of the 13 Appalachian States and a Federal representative who is appointed by the 

President. The Federal representative serves as the Federal Co-Chair and the Governors annually 

elect one of their numbers to serve as the States' Co-Chair.

 - Through joint planning and development of regional priorities, ARC funds are used to 

assist and encourage other public and private resources to address Appalachia's unique needs. 

Program direction and policy are established by the Commission (ARC Code) with the vote of a 

majority of the State members and the affirmative vote of the Federal Co-Chair. Emphasis has 

been placed on infrastructure development, business enterprise, energy, human resources, and 

health and education programs, and highways. Specific priority initiatives to stimulate economic 

growth and opportunity in the region includes the Partnership for Opportunity and Workforce 

and Economic Revitalization (POWER), Southern/South Central Appalachia Workforce 

Training and Central Appalachia Broadband.

 - To ensure that funds are used effectively and efficiently, and to strengthen local 

participation, ARC works with the Appalachian states to support a network of multicounty 

planning and development organizations, or local development districts (LDDs), throughout the 

Region. The 73 LDDs cover all 420 counties in Appalachia. The LDDs’ role includes

identification of priority needs of local communities and assisting with participation in ARC 

programs.

 - Administratively, the Commission has a staff of 54 non Federal employees and five 

Federal employees responsible for program operations. The Commissions’ administrative 

expenses, including salaries, are jointly funded by Federal and State funds. 

 - The Commission's appropriation for FY 2019 is $165 million.

The ARC approves about 400 grants annually with funds allocated to the thirteen Appalachian 

States for area economic development, including special projects such as broad band expansion, 

significant funding for distressed counties, local development districts administrative funds, 
2

research projects identifying Appalachian issues, and technical assistance funds for State 

economic and development agencies.

An additional 213 grants totaling about one hundred fifty million dollars were approved since FY

2015 for the POWER program directed at growing the economy in coal impacted communities.

Although Congress changed the funding method for the Appalachian Development Highway 

System (ADHS) in July 2012, ARC continues to support and participate in completion of the 

ADHS including fulfilling planning and approval responsibilities. 

ARC’s non-ADHS funds are distributed to state and local entities in accordance with an

allocation formula intended to provide fair and reasonable distribution of available resources. 

ARC staff has responsibilities for program development, policy analysis and review, grant 

development, technical assistance to States, and management and monitoring.

In order to avail itself of federal agency expertise and administrative capability in certain areas, 

ARC often relies on other departments and agencies for program administration, especially with 

respect to highways and infrastructure projects. For example, the Appalachian Regional 

Development Act authorizes the Secretary of Transportation to administer the Commission's 

highway programs. Working with State Departments of Transportation, ARC continues to 

actively monitor the status of construction in each State and disposition of any remaining ADHS. 

ARC relies on Child Agencies (Basic Agencies), including the Departments of Agriculture

(USDA), Housing and Urban Development (HUD), and the Economic Development 

Administration (EDA) to administer construction related grants to oversee non-highway 

infrastructure grants. Also, use of State agencies to administer construction related grants is 

being emphasized.
3

ARC ORGANIZATION CHART
4
5

B. OFFICE OF INSPECTOR GENERAL

The ARC OIG is an independent audit and investigative unit that reports directly to the Agency 

Head.

Role and Authority

The Inspector General Act of 1978, (Pub.L. No. 95-452), as amended in 1988, states that the IG 

is responsible for (1) audits and investigations; (2) review of legislation; and (3) recommendation 

of policies for the purpose of promoting economy and efficiency in the administration of, or 

preventing and detecting fraud and abuse in the program and operations of the establishment. In 

this regard, the IG is responsible for keeping the Agency Head 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, inspections, 

evaluations, personnel security checks, or other appropriate methods. The two primary purposes 

of these inquiries are (1) to assist all levels of ARC management by identifying and reporting 

problem areas, weaknesses, or deficiencies in procedures, policies, program implementation, and 

employee conduct and (2) to recommend appropriate corrective actions.

Relationship to Other Principal ARC Offices

The States’ and Federal Co-Chairs, acting together as the Commission, establish policies for 

ARC's programs and its administration. These policies are provided under the ARC Code and 

implemented by the Commission staff, which is responsible for monitoring project performance 

and providing technical assistance as needed. The Federal Co-Chair is responsible for the proper 

use and protection of Federal funds, for ensuring compliance with applicable Federal laws and 

regulations, and for taking appropriate action on conditions needing improvement, including 

those reported by the OIG. The operation of the OIG neither replaces established lines of 

operating authority nor eliminates the need for the Commission offices to take reasonable 

measures to protect and enhance the integrity and effectiveness of their operations. All 

Commission offices are responsible for monitoring and evaluating the programs entrusted to 

them and reporting information or incidences needing further audit and/or investigation to the 

OIG.

Funding and Staffing

The OIG funding level for FY 2019 is $710,000. Staffing consists of the Inspector General, an 

Assistant Inspector General for Audit, and a Confidential Assistant. Grant review activities 

continue to emphasize use of contracted services (e.g., independent public accounting firms or 

other OIG offices) supplemented by programmatic and performance reviews conducted by OIG 

staff.

In order to comply with Pub.L. No. 110-409, the Inspector General Reform Act of 2008, the OIG 

contracts with other IGs for counsel and investigative services to the degree needed. 
6

III. OIG ACTIVITY

A. Audits, Inspections, Evaluations and Reviews

Grant reviews focused on grant implementation and administration in line with ARC and OMB 

policies and procedures. Management reviews focused on headquarters program and grant 

management activities. During the reporting period eighteen grants audits and five management 

reports and The Annual Financial Statement audit were issued. 

Audits of the eighteen grants, with total ARC funding of $17,867,236 million, reported overall 

implementation of grants in accordance with policies, procedures and regulations. 

Recommendations in grant audit reports pertained to policies and procedures, performance 

reporting, indirect costs, and supporting information. Actions were generally initiated by 

grantees to address the recommendations.

Management reports addressed issues with respect to inactive grants not started within two years 

of ARC approval or obligations and expired end dates with large ARC balances and grants with 

small balances and no recent payments.

No payments were noted for 53 grants with no payments within two years of grant approval and

obligations totaling $39,965,421. This included 26 basic agency administered grants totaling 

$31,126,388 of which $26 million was applicable to two broadband grants. This also included 7 

grants totaling $1,219,989 for which Basic Agency monitoring reports recommended action to 

deobligate the grants. 

A contributing factor with respect to grant closeouts and deobligations is the difficulty in 

obtaining necessary information from grant administering agencies. 

Also, 41 grants identified in prior reports had no reported payments and 19 of these grants had 

performance periods extended but no additional financial action. This included 29 Basic Agency 

grants for which no payments were reported and included 10 grants with extended end dates. In 

31 cases the identified performance end dates for grants with over $30,000 in ARC balances 

totaling $4,277,140 had expired subjecting these grants to possible ineligible expenditures in 

accordance with policies restricting payments after end dates.

In 15 cases grants with expired end dates and large balances included in prior reports had no 

changes.

A review of grant advances identified 8 grants for which advances of $530,114 were not used on 

a timely basis.

Recommendations emphasized timely follow-up on grants with no reported payments at least 

two years after approval or obligation to determine the potential to use funds on other priority 

projects, and addressing expired performance periods that could result in significant ineligible 

payments and timely use of advances.
7

Follow-up on prior reports identified $1,206,544 for which funds became available for use on 

other projects. 

ARC generally agreed with the recommendations noted above.

Peer Review

Offices of the Inspectors General (OIGs) are required to perform (and undergo) reviews of other 

OIG offices every three years to ensure audit policies and/or procedural systems are in place that 

provide reasonable assurance of compliance with government auditing standards (GAS). The 

OIG peer review conducted in FY 2017 by the Commodity Futures Trading Commission OIG 

disclosed no findings and the next peer review of ARC is scheduled for FY 2019.

Also, peer reviews of Inspections and Evaluations have been initiated by CIGIE and the first 

review of ARC OIG is scheduled for 2020.

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 ARC OIG does not employ criminal investigators and utilizes other 

OIGs to perform needed investigations. Also, the results of investigations may be referred to the 

appropriate Federal, State, or local prosecutor authorities for action. 

C. OTHER

OIG Working Groups

Smaller OIG offices have some significantly different operational concerns than larger OIG 

offices in trying to maintain effective and efficient oversight of agency programs. One challenge 

involves the significant human and capital resources being allocated to mandated reviews. The 

IG is an active member of the group that meets periodically to discuss such issues and 

recommends actions/best practices to facilitate smaller OIG operations.

Requests for Information

Each year we receive and comply with requests for information from various governmental 

entities compiling statistics on OIG offices or their audited agencies. CIGIE requests information 

for its annual OIG profile update and compilation of OIG statistics. The yearly compilation 

summarizes the results of audit and inspection activities for all federal OIG offices.

Implementation of OIG Reform Act

The OIG has implemented the requirements of Pub.L. No. 110-409 the Inspector General 

Reform Act of 2008.
8

IV. REPORTING FRAUD, WASTE, AND ABUSE

A region wide toll-free hotline is maintained to enable direct and confidential contact with the 

ARC OIG, in line with governmental and longstanding OIG initiatives as identified in the IG Act 

of 1978; to afford opportunities for identification of areas subject to fraud, waste, or abuse. Also, 

in accordance with the Inspector General Reform Act of 2008, the ARC OIG implemented 

another communication channel allowing anonymous reporting of fraud, waste or abuse via a 

link on our website’s home page. The web link is, http://ig.arc.gov/.

V. LEGISLATIVE AND REGULATORY REVIEW

The OIG reviews legislation germane to ARC, OIG and the OIG community. Our comments are 

provided, as appropriate to agency officials, and/or to the CIGIE for incorporation with 

comments from all other OIGs.

VI. DODD-FRANK LEGLISATION – Reporting to Full Commission

OMB issued an updated list of Designated Federal Entity (DFE) Agency Head in December 

2013 that confirmed legislation identifying the 13 Appalachian Governors as part of the 

Appalachian Regional Commission (ARC) Agency Head (Commissioners) designations. No 

problems have been experienced with respect to implementation of the legislation.

VII. OIGs Audit Community Wide Issues

OIG audit units have provided very valuable services to the taxpayers including significant 

monetary benefits and major program improvements. However, as with any organization, 

improvements are possible and within the OIG community there are areas where OIG-wide audit 

performance and credibility can be significantly improved by addressing the following issues.

The noted issues do not involve Appalachian Regional Commission operations.

Performance Audit Skills Gaps

There is a continued significant need to address the audit critical skills gap with respect to OIG 

performance auditing that constitute the large majority of OIG audit work conducted by OIG 

audit organizations. In 2012 the Office of Personnel Management (OPM) and OIGs identified an 

audit skills gap pertaining to performance auditing and OPM and OIG’s noted that the OPM 

0511 auditor series that requires 24 credit hours of accounting or an equivalent level of 

accounting experience was outdated and did not attract individuals with the core competencies to 

conduct performance audits. An ongoing OPM study, including focus groups involving OIG 

staff, has overwhelmingly identified primary performance audit skills as oral and written 

communications, problems solving, data analytics, interpersonal communications and critical 

thinking. 

The current 0343 management analyst series is not used to a significant degree in relation to the 

audit workload and does not include educational requirements.
9

A 2016 internal OIG survey highlighted the need to address this issue. 54 OIG respondents 

reported that 88.8 percent or 3825 of the 4307 performance or financial auditors were considered 

performance auditors. Also, the survey noted that 90.1 percent of the 609 vacant or anticipated 

vacant performance and financial audit positions were considered performance auditor positions.

Other government audit organizations including the Government Accounting Office (GAO) have 

recognized and addressed this issue.

Recommendations and actions to increase auditor qualification flexibility with emphasis on the 

primary performance audit competencies are not intended and would not interfere with continued 

use of the 0511 auditor series for financial related audit work. However, action to correct the 

identified audit skills gaps would facilitate employment of staff best suited for the large majority 

of OIG audit work at most OIG’s and, over a period of time, significantly increase audit 

effectiveness and reduce wasted use of OIG resources.

Implementation of Recommendations

Report OIG disagreement with management decisions not to implement very significant 

programmatic recommendation. A prior Congressional report noted 15,222 open 

recommendations with potential monetary savings of $87 billion dollars. The IG Act provision 

5(a)(12) that provides for including in the semi-annual report information concerning any 

significant management decision with which the IG is in disagreement is seldom, if ever, used to 

highlight disagreement with management decisions on significant programmatic or potential

large monetary benefit recommendations.

Audit Peer Reviews

- Develop and implement peer review guides to independently assess OIG audit 

efficiency and effectiveness that highlights key operational elements, such as planning, field 

work, report timeliness, staff utilization and training, supervision, audit follow-up and actual 

results. The required peer review of compliance with audit standards does not address these key 

operational elements that determine OIG efficiency and effectiveness. Such reviews should 

contribute to increased OIG audit efficiency and effectiveness such as addressing timely 

reporting that often surfaces as a criticism.

Some OIGs conduct internal assessments of key operational elements. These reviews are 

considered independent since they are conducted by staff from other units within the OIG. This 

reasoning conflicts with a major reason for establishment of OIGs being that agency internal 

audit units were not considered sufficiently independent even though audits were conducted by 

units not connected with the audited unit.

Actual Versus Potential Monetary Results

- Identify outcome based performance measures that, over a multi-year period, provide 

for reporting of actual savings in relation to the multi billions of potential audit related savings 
10

reported annually based primarily on questioned and undocumented costs. OIG 

recommendations result in savings in excess of OIG operational costs. However, actual savings 

are not included in the OIG Annual Report to the President or in most OIG Semi-annual reports.

A primary argument presented against including some actual rather than only potential monetary 

benefits over a multi-year period in OIG Semi-annual reports (SAR) and the CIGIE Annual 

Report to the President is the difficulty in obtaining this information. However, the IG Act and 

OMB Circular A-50, Audit Follow-up specifically require the agency head to identify actual 

monetary related benefits resulting from OIG reports when transmitting the OIG SAR to 

Congress. Section 5(b)(2)(c)(i) & (ii) of the IG Act specifies that the agency head will include 

the disallowed costs that were recovered by management through collection, offset, property in 

lieu of cash or otherwise and the dollars of disallowed costs that were written off by management 

as part of the agency head transmittal of the OIG SAR to Congress. OMB circular A-50 states 

that the Agency follow-up official is to Semi-annually provide the head of the agency the amount 

of collections, offsets, write-offs, demands for payment and other monetary benefits resulting 

from audits.

Based on this available information and OIG Semi-annual reports that identify agreed with 

disallowances tracking of some actual savings over a multi-year period appears reasonable and 

would better support OIG credibility. 

Such reporting would also be in conformance with the intent of the Government Performance 

and Results Act (GPRA) that emphasizes reporting projected and actual results.