59

aware, IG’s are not specifically required to develop their own stra-
tegic plans, but have generally taken the initiative to develop such
plans consistent with the provisions of the Government Perform-
ance and Results Act. We have completed our survey. We have pro-
vided the IG’s with a draft of our report for their comment, and we
plan to issue our final report in the near future.

Senator Collins this morning offered a number of suggestions or
thoughts, one of which involved what she would call a systematic
review of the IG’s by GAO or another organization, and in an at-
tempt maybe to preempt some of the guestioning on that, I would
like to make a couple of comments. First of all, IG’s do undergo
some form of systematic review. Fundamentally, IG’s are all re-
quired to follow Government auditing standards, and they are re-
quired to follow investigative standards that are issued by the
PCIE. Those auditing standards require that IG’s undergo a peer
review once every 3 years to look at their systems, procedures in
place, and how well their work is complying with professional
standards.

Strategic plans, to the extent that they are done and done thor-
oughly, also offer a systematic process of communication and expec-
tation-setting on the part of Congress, agency heads, and others in
terms of defining what they want IG’s to do, and for IG’s to say
what would be the outcome of their work.

GAO, as you know, is required under law, and if requested by
the Chair of a standing committee, to undertake any review, and
we have, in fact, done that. Senator Collins mentioned that in the
case of the Treasury IG, it was not a pervasive problem. In fact,
GAO was asked by Senator Collins’ committee to look at the work
of the Treasury IG, particularly in the contracting area, and we did
that. And we are in a position, whenever Congress feels that it has
a specific issue to look at, to do that. This is all by way of saying,
Mr. Chairman, that we would not endorse or support the idea that
GAO be made the regular programmatic review of the IG’s work.

That concludes my summary.

Mr. Horn. Well, thank you very much for that helpful statement.

[The prepared statement of Mr. Clark follows:]


128

21

to unreasonable penalties, that argument is inconsistent
with the clear language of the Act. What is undisputed
is the fact that the Act has been a significant player in
government efforts against fraud and abuse: in the last
five years (FY 1993-1997) $844,714,737 was collected as a
result of DoD investigations of False Claims Act

violations.

Resources - Now may be the appropriate time to explore
innovative ways to insure needed resources for Inspectors
General, including such things as asset forfeiture,
retention of a portion of recovered penalties, and
variations of the concepts embodied in the Health Fraud
and Abuse Control Program, created in the Health Care
Insurance Accountability and Portability Act (P.L. 104-
191). As I have reported to the DoD and Congress on
several occasions, including my last three IG semiannual
reports to the Congress, I am very concerned that ongoing
budget cuts at the DoD IG will adversely impact the
adequacy of audit and investigative coverage of high risk
areas. To be frank, my biggest concern has not been with
the current provisions of the IG Act, which for the most
part, have served us well. Rather, the biggest problem

for my organization has been the continuing difficulties


25

event occurred in 1962, when a notorious Texas swindler named
Billie Sol Estes was subject to an investigation by the subcommit-
tee. We found that Billie Sol Estes had probably been insolvent for
more than 10 years during which his activities had been the sub-
ject of an almost unbelievable number of inquiries and investiga-
tions by agencies of the Federal Government, totally uncoordinated.

We also found that the Department of Agriculture had numerous
audit and investigative units reporting directly to the program
managers and was conducting several separate investigations of
Estes with no coordination whatever. That led then Secretary
Orville Freeman to establish a nonstatutory inspector general re-
porting directly to the Secretary.

The second significant event occurred in 1974 when then Sec-
retary of Agricultural Earl Butz dismantled the nonstatutory in-
spector general, clearly demonstrating that a statutory basis was
needed to assure the continued existence of the offices.

Thereafter we found, on looking into activities of the Department
of Health, Education, and Welfare, that HEW had 129,000 employ-
ees and was responsible for about 300 separate programs. We got
several different numbers as to the exact number of programs that
they were administering. Nobody seemed to know even though he
was spending about $118 billion annually, which at that time was
one-third of the entire Federal budget. Moreover, HEW’s central in-
vestigative unit had 10 investigators with a 10-year backlog of
uninvestigated cases and could not open a single investigation
without specific approval of the Secretary or the Under Secretary.

In view of the Yeplorable situation at HEW, the subcommittee
developed and secured the enactment of the 1976 legislation creat-
ing che statutory IG at HEW, and that became the model for the

act.

In 1977, we had a series of hearings looking into the activities
of additional departments and agencies and found serious problems
and deficiencies everywhere we looked.

Lack of independence. The personnel of audit and investigative
units reported to the program managers.

Lack of effective organization. There were no central offices to co-
ordinate the activities of auditors and investigators.

Lack of resources. Some audit cycles were as long as 20 years,
while other activities had never been audited. One department had
only six trained criminal investigators to look at irregularities in
the expenditure of $25 million annually.

Lack of information was a very serious problem, because the
basic information needed by both the agency heads and Congress
to promote economy and efficiency to combat fraud, waste, and
abuse was simply not available.

Mishandling of criminal cases. In some agencies, investigators
were not permitted to provide evidence of criminal conduct to the
Department of Justice without clearance from the agency’s Office
of General Counsel. As a result, some potential criminal cases were
being held up for months or even years before information was fur-
nished to the Justice Department. In other cases, information was
never provided.

Lack of coordination. Instances were found in which multiple
Federal investigations of the same subject matter had been or were


154

Mr. Horn. Ms. Gaffney.

Ms. GAFFNEY. We are in the same building as the HUD Sec-
retary. And I actually like that, because it is a way to pick up intel-
ligence.

Mr. Horn. Absolutely.

Ms. GAFFNEY. You eat in the cafeteria. You go up and down the
same elevators, so I think it is a good idea.

Mr. Funk. There is another aspect of it, if 1 may, Mr. Chairman,
that is for the smaller IG’s, the so-called designated entities. If you
are head of an office of maybe 20 people and you are right smack—
right around the corner from the office of the head of the agency,
it becomes a slightly different thing. In theory there should be no
difference, but in point of practicality, if you are in an office of 20
people and you have an agency head right around the corner from
you, it makes it a bit dicey, and it requires a particularly tough in-
dividual to be able to meet on a daily and frequent basis with the
head of the agency and still not be a little bit intimidated.

Mr. Horn. That’s a good point, too.

Let me move to the law enforcement authority issue. A number
of you brought that up. What’s been the discussion within the in-
spectors general community on your desire to get the same privi-
leges that, say, the FBI has, the Secret Service; we face the same
problem with Immigration and Customs.

Do you think there is a pretty strong plea you can make on that
situation and have you in the past?

Ms. BRowN. If I could answer that, when I was vice chair, we
worked very hard with the Department of Justice to have them
sponsor our legislation, should it be that, to get full law enforce-
ment authority; and at that time, they agreed to give blanket au-
thority to almost all of the IG’s. And we, of course, followed the
same prescribed training and regular recertification that the FBI
or any other law enforcement organization would do.

We accepted that blanket authority, and there was to be an un-
derstanding that if there were no problems within 2 years, that De-
partment of Justice would assist us in getting a legislative change
to grant law enforcement authority to all of the IG’s with 1,811
criminal investigators. Unfortunately, the Deputy left the Depart-
ment of Justice, and so we are—our 2 years have passed. There
certainly have been no incidents during that time, or any previous
time, in any IG office where they didn’t exercise this in the most—
to the highest standards. But we are still struggling to get law en-
forcement authority for the people on our staff.

Mr. Horn. Would that be just certain people on your staff?

Ms. BROWN. Yes.

Mr. Horn. And if so, how would you define the split?

Ms. Brown. It would be 1,811 criminal investigators who have
done their quarterly certification and meet all the requirements.
Should they temporarily be disabled or something, where they
couldn’t meet those requirements, they wouldn’t have that author-
ity during that time. So it would be very strictly monitored, which
we do anyway.

The problem with the deputization is, it is a very paper-intensive
exercise. I had, before we got the blanket, two people working full-
time just keeping track of all the deputizations; and any one inves-


149

lawyers, a mix of criminal and contract law backgrounds, and they
did very well.

And the other advantage is, when I review the work that my Of-
fice of Investigations—I have lawyers who are trained prosecutors
doing that review, as well, so every report that came out of that
office, was, you know, vetted by people who themselves had been
prosecutors either in the Federal Government or the State govern-
ment. I know HHS had a different situation.

Mr. Horn. Let me just go down the line.

On Energy, Mr. Layton, what was your experience?

Mr. LayTON. I was an IG for almost 14 years in two different
agencies. For about 18 months, I was the IG at the Treasury De-
partment before it was statutory, and I did not have a counsel in
my own office. And when I went to Energy that was one of the
things I insisted on, walking through the door, and used my honey:
moon period to acquire the Secretary's ement that we would
have our own counsel. And, frankly, I think it is a factor of person-
alities, but I personally would not want to be an IG without an at-
torney who reported to me rather than to the Secretary, and it
worked very well for me.

Not to say that the Treasury relationship wasn’t effective, but I
always had the concern that the attorney was reporting what went
on in our counsel—in our meetings to the general counsel. And, in
fact, he did, and I didn’t think that was a way to do business.

Mr. Horn. So this was an attorney on loan from the general
counsel?

Mr. LayToNn. In the Treasury instance it was. In Energy, where
I was for 12 years, the counsel reported to me, and I think it was
a very good situation.

Mr. Horn. Ms. Hill, what’s the situation in Defense?

Ms. HILL. Well, at Defense—when I came to Defense, to be frank
with the committee, one of my concerns was that the long standing
arrangement at Defense, was based on a memorandum of under-
standing between the Department’s general counsel and the IG—
under which the general counsel provides the IG a team of lawyers.

We currently have a deputy general counsel for the IG and about
six attorneys under that position. They are provided by the general
counsel’s office, so they still are rated by the general counsel’s of-
fice; but under the MOU, there are very specific requirements for
independent advice, that their advice can differ from the general
counsel’s and, that they are not allowed to give all of their informa-
tion to the general counsel if the IG doesn’t want them to. They
report to the IG on a daily basis. They are housed in our building
as Part of our offices and, for all practical purposes, they work for
the IG.

I was concerned about that, I must say, when I first got there,
probably as a result of two factors. First, the deputy general coun-
sel that we had, she has since left a couple of months ago, and we
are filling that position now had been with the IG for about 12
years. And she was excellent and had a very ood reputation and

ew the role of independence. And I personally had no problem
with her opinions and the opinions of my lawyers.

I will caveat this, though, by saying that I recognize I probably
have an advantage in that kind of situation, because I am a law-


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

J. DENNIS HASTERT, Illinois

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

CHRISTOPHER COX, California

ILEANA ROS-LEHTINEN, Florida

JOHN M. McHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, inia

DAVID M. McINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

JOHN B. SHADEGG, Arizona

STEVEN C. LATOURETTE, Ohio

MARSHALL “MARK” SANFORD, South
Carolina

JOHN E. SUNUNU, New Hampshire

PETE SESSIONS, Texas

MICHAEL PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas

BOB BARR, Georgia

DAN MILLER, Florida

Hen, A. WAXMAN, California

M LANTOS, California
ROBERT E. WISE, JR., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
ELEANOR HOLMES NORTON, Washington,

CHAKA FATTAH, Pennsylvania
ELIJAH E. CUMMINGS, Maryland
DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois
DANNY K. DAVIS, Minois

HAROLD E. FORD, ar, Tennessee

BERNARD SANDERS, Vermont
(Independent)

KEvIn BinceR, Staff Director
Dante R. MOLL, Deputy Staff Director
WILLIAM MOSCHELLA, Deputy Counsel and Parliamentarian
dupitt McCoy, Chief Clerk
PHIL ScHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY
STEPHEN HORN, California, Chairman

PETE SESSIONS, Texas

THOMAS M. DAVIS, Virginia

JOE SCARBOROUGH, Florida

MARSHALL “MARK” SANFORD, South
Carolina

JOHN E. SUNUNU, New Hampshire

DAN BURTON, Indiana

DENNIS J. KUCINICH, Ohio

PAUL E. KANJORSKI, Pennsylvania
MAJOR R. OWENS, New York
CAROLYN B. MALONEY, New York
JIM TURNER, Texas

EX Orricio

HENRY A. WAXMAN, California

J. Russet. Georce, Staff Director and Chief Counsel
JOuN Hynes, Professional Staff Member
MATTHEW EBERT, Clerk
MARK STEPHENSON, Minority Professional Staff Member

ap


119
17

Federal Law Enforcement Training Center, IG special
agents then receive follow-on training specifically

designed by the IG community.

¢ Audit Training - In 1991, the IG community also created
the IG Auditor Training Institute (IGATI). IGATI stands
alone as the only organization whose purpose is to

address the unique training needs of Federal auditors.

* Audit Standards - The PCIE is working with the General
Accounting Office to create one manual for the government
for financial statement audits to address the many new

issues emerging in government financial management.

The PCIE fully recognizes the importance of
maintaining the integrity of the office and has, over the
years, attempted to address concerns about accountability
of Inspectors General, an issue also before this
subcommittee. The PCIE supported and was instrumental in
the drafting of Executive Order 12993, issued March 21,
1996. That order established the PCIE Integrity Committee,
chaired by the FBI, as a formal mechanism empowered to
review and, if appropriate, investigate allegations against

IGs and certain senior staff members of IGs. If their


Attachment II

INSPECTORS GENERAL APPOINTED BY ENTITY HEADS

Amtrak

Appalachian Regional Commission
Commodity Futures Trading Commission
Consumer Product Safety Commission
Corporation for Public Broadcasting
Equal Employment Opportunity Commission
Farm Credit Administration

Federal Communications Commission
Federal Election Commission

Federal Labor Relations Authority
Federal Housing Finance Board
Federal Maritime Commission

Federal Reserve Board

Federal Trade Commission

Government Printing Office

Legal Services Corporation

National Archives and Records Administration
National Credit Union Administration
National Endowment for the Arts
National Endowment for the Humanities
National Labor Relations Board
National Science Foundation

Panama Canal Commission

Peace Corps

Pension Benefit Guaranty Corporation
Securities and Exchange Commission
Smithsonian Institution

Tennessee Valley Authority

U.S. International Trade Commission
U.S. Postal Service

(911849)

9


152

Ms. GAFFNEY. We do.

Mr. Horn. Yeah. Let me move off this.

I know we are going to spend a lot of time on some of these
things, but the bonus situation is made by the agency personnel;
is that not correct?

Ms. GAFFNEY. Yes.

Mr. Horn. So if you have some of your people receive a bonus,
in a sense, is that a conflict of interest for the agency to soften up
the IG’s office? How do you feel?

Ms. GAFFNEY. We, the IG’s, give bonuses to IG people. But the
only person who can give a bonus to an IG is the Secretary. And
I think all of us have withdrawn ourselves from consideration for
that; isn’t that right?

Mr. Layton. That was correct in my case.

Ms. GaFFNEY. All of us here.

Mr. Horn. OK. So you think that’s not a problem for the IG’s
and you have the authority to give bonuses to your own personnel?

Ms. GaFFNEY. It is a problem if an IG is taking a bonus from the
Secretary, absolutely.

Mr. Horn. Yes, I agree with that. But I guess I would ask you,
should we be gving bonuses at all?

Mr. Funk. To an IG?

Mr. Horn. No, to any of your staff.

Mr. LayTON. Why not? I would say it seems perfectly logical.

Mr. Horn. Here’s my attitude on bonuses, as my own staff knows
it: If you are good, you should get a salary increase. Why a one-
shot bonus?

Mr. LayTON. The law provides that Federal employees are gen-
erally eligible to receive bonuses, especially in the Senior Executive
Service, and for us to deny those people that opportunity, would
chase them to some other vineyard to do their toiling rather than
in ours. In fact, that’s one of the reasons that inspectors general
earn less than their staffs. Their staffs are getting bonuses, the
1G’s are not.

Some IG’s would never be eligible for bonuses, because they were
not previously Senior Executive Service employees. Those IG’s who
have entered the IG position from outside or from below the SES
level would under no circumstances currently qualify or be eligible
to receive bonus consideration by anybody. But there is a small

up of which—I guess three of us at the table represented those
folks from time to time. We were SES before we became IG’s, and
we were not eligible—we withdrew from consideration for bonuses.

My case, I think it was like in 1991 or 1992, I wrote a letter to
the Secretary and said, I don’t want to be considered anymore.
There is a concern in the community that my receiving a bonus is
an independence issue, and I want to avoid that appearance.

Mr. Horn. Let me move to another question, and that’s the prox-
imity of the IG’s offices to the basic agency headquarters. Were
most of you during your various assignments housed in the same
building as the headquarters of the agency you are in—where you
are an IG?

Mr. FuNK. When I moved to State they offered me very sump-
tuous quarters in Rosslyn, and I mean sumptuous. And I was
tempted for all of about 30 seconds, but I realized it would be folly,


79

place the man and start making a killing themselves. It was an in-
teresting arrangement. But the inspection became an important
part of the Department of State. I inherited that. It is an invalu-
able function. There it is not quite as loose as it was in Commerce.

You asked how you define it. In my paper I say, and I will repeat
it here, sir, to me an inspection is a review which is a mile wide
and an inch deep. An audit, on the other hand, is a review which
is an inch wide and a mile deep. There is a totally different concept
and they have two totally different payoffs, but they are both very
valuable. Nothing can replace the quality of a good | audit, but nor
can anything replace the speed, efficiency, and the general jack-up
qualities that permeates to the people who are inspected. I urge
that this be recognized in the IG Act, not as a requirement sir, but
there may be an assistant inspector general for inspections.

A word about the GPRA and financial statements. I was very
much alarmed when the CFO Act was passed. Although I was
strongly in favor of it, 1 knew what was going to happen inevitably.
Because the IG’s have so much talent in the auditing area, they
pretty much have a lock on the accountants in the department. I
was very much afraid that the IG would be sidetracked by having
to perform a lot of financial statement audits. These themselves are
enormously valuable. But when you have a limited number of peo-
ple and you have a limited budget, limited resources, and you are,
given an infinite amount of work to do, some decisions have to be
made about what to do.

I was afraid when the Roth bill came downstream that there
would be a requirement ginned up to audit the legitimacy of the
goals that were being established as very important to the success
of that bill. I saw myself in a position where we were doing all
kinds of planning work for others and not have enough resources
to do our own work. That frankly worried me. It hasn’t material-
ized as badly as I had feared, but there has been, to my knowledge,
I have been told by many of the IG’s, there have been times when
they have put so many resources on the auditing of financial state-
ments, they haven’t been able to do all they wanted to themselves.

On strategic planning, you can’t knock strategic planning, Mr.
Chairman. It is almost un-American to do that. But I must say
whenever I hear that term, I am reminded of a procurement officer,
a very senior procurement officer I met at a party once. I asked
him how he was doing. He said, “Mr. Funk, I must tell you some-
thing. I am doing so much procurement planning and my shop is
doing so much procurement planning, we ain’t got time to read any
contracts.” That’s a fear that I have about an excess of planning,
and I will not go beyond that.

Finally, let me just say that Mr. Hamilton’s letter to the IG of
State, this of course was not my personal involvement, and I don’t
want to get into any details on the thing, but Mr. Hamilton pro-
posed one element in his letter and also subsequently that I think
will be pernicious if carried out. He says that the State Department
should have a separate rule, a separate regulation for its investiga-
tions, distinct from the investigations of all other agencies. I think
that’s simply not going to wash. Investigators have a different
mind-set. Thank God they have a different mind-set. Otherwise,
they would not be doing their job right. But sometimes in the ful-


15

lao

Statement for the Record by Senator Glenn
April 21, 1997

I appreciate the opportunity to offer my thoughts about the
IG Act in the year of its 20th anniversary. The Senate
Governmental Affairs Committee, on which I served as Chairman and
now Ranking Minority Member, has a long and bipartisan history
with the IG community. In fact, I am very proud that I was an
original sponsor of the IG Act and the 1988 amendments, both of
which have played a major role in making our government function
more efficiently, effectively, and with greater trust and
confidence on the part of the American people.

The job of an Inspector General is not easy. He/she is
sometimes the last person in the world the agency head wants to
see walk in the door; and he/she is not always warmly welcomed at
many senior staff meetings. I’m sure George Washington himself
wasn’t overjoyed back in 1777, when our nation’s first Inspector
General was appointed by the Continental Congress to audit the
accounts of General Washington's army.

IGs are asked to do many things and to serve many masters:
the agency, the President, Congress, and most of all, the
American taxpayers. It’s tough walking such a tightrope trying

to keep all of these customers “satisfied”.


128

ers by authorizing virtually all of our criminal investigators to be
deputized as deputy U.S. marshals.

a result, statutory law enforcement authority would not en-
large our current authorities, which is exercised under deputation
now, but would ease the administrative burden and uncertainty of
those deputizations. We believe that it is time, even past time, to
confer HHS criminal investigators with this statutory law enforce-
ment authority that they have already been responsibly and effec-
tively exercising.

Accordingly, we are pursuing this legislative proposal, within the
executive branch under the pertinent administrative policy state-
ment and hope to present it to Congress in the near future.

Thank you again for the invitation to testify today. While my re-
marks have identified potential amendments to the IG Act, I do not
believe that a wide restructuring of the IG Act is necessary or wise.
This concept, created 20 years ago, of an internal yet independent
unit within each Federal agency charged with preventing and de-
tecting fraud and abuse in that agency has, in my belief, proved
a success.

Thank you.

Mr. Horn. Well, thank you for that very thorough statement.
You have raised a number of questions I want to get to in the ques-
tion period.

[The prepared statement of Ms. Brown follows:]


134

Recruitment and Retention of IGs_

In our conversations, Subcommittee staff reported that concerns have been expressed that the
poo! of qualified, willing candidates for positions as Inspectors General may be shrinking.
Tf this is so, it may be attributable to certain disincentives to IG service, among them, the
‘uncertainty of continued employment, particularly during changes in administration.

. ‘Term of Office: In creating statutory IGs, Congress intended to insulate these
officials from political influences. For example, the IGs must be selected without
regard to political affiliation and solely on the basis of merit. If we are to be
appointed without regard to political affiliation, we should be permitted to serve that
way, too. However, history has shown that changes in administration may cause
lengthy periods of uncertainty in the IG community. Many months can go by while
IGs await news of whether their services will be continued under a new
administration — the resulting “limbo” can inhibit OIG operations and staff. A fixed
term of office would eliminate this uncertainty, and foster “business as usual,” even
during a transition period. This would contribute to job security for those
considering service as an IG. Of course, any term of office must be drafted so as not
to impede the President's ability to remove an Inspector General when warranted.

IG Reporting

‘The Subcommittee has asked whether I have suggestions on how to improve the quality or
procedures for OIG reporting. I do.

Proliferation of Mandatory Reports: First and foremost, I urge this Committee to
assist the IG community in attempting to avert a troubling trend toward legislation
that compels IG’s to perform specific audits and investigations, usually without a
commensurate increase in resources to accomplish these reviews. I, for one, am
very concerned that the mounting number of compulsory reviews diverts OIG
resources from pressing and time-sensitive discretionary inquiries. Instead, each 1G
should be allowed the fullest measure of discretion possible in assigning resources to
priorities within his or ber respective agency. Alternatively, legislation that assigns
extensive new auditing responsibilities to agency IGs should also include the
Tesources necessary to accomplish them.

© — Anmual Reports: Highlights Section - It has been suggested that the Semianmual
Reports currently required by the IG Act should be changed to annual reports. We
would endorse such a modification. Although our HHS report, already quite long,
would be even lengthier, we would continue to include an introductory section that
highlights and directs the reader to significant reviews during the reporting period.

Oversight
‘Subcommitize on Goverment Management, Information, and Technology
Hearing: Oversight of Inspector General Act, April 21, 1998 Page 6


178

CRS-9

—institutional arrangements and procedures,

—changes in authority of the IGs;

—effectiveness and orientation of the IGs, as well as the PCIE and ECIE;

—reporting to the agency head and Congress; and

—personnel practices and incentive awards.

Each of these issues is connected to the need for additional information and
study or to options for change. These have arisen because of perceived problems or
weaknesses in the existing offices’ resources, capabilities, operations, or authority, a
possible need for statutory OIGs in government organizations or entities which do not
have them currently; initiatives from the inspectors general directly to enhance their

Powers, or recent studies of their operations and recommendations for change coming
from Members and committees of Congress or from outside sources.

Underlying some of the issues and options for change are: differences among
the IGs, based in part upon the different needs and characteristics of the
establishments where they serve as well as the characteristics, experience, and
orientation of the IG; possible tension between the audit and investigation functions
of the offices; differences in the IGs’ focus between prevention and detection,
concems about IG independence (from the establishment officers) versus IG impact
(by working closely with the same officials), and disputes between certain IGs and the
Department of Justice over their authority and jurisdiction.

The following provides suggestions for each of the five broad issues, based on
the public record since the IGs were established. The Congressional Research Service
takes no position in support of or in opposition to these suggestions.

Institutional and Procedural Arrangements

© Changing the removal provision for IGs by requiring that any such
action by the President or agency head be “for cause,” such as neglect of
duty, malfeasance, or serious disability.

© Setting a term of office (e.g., 6, 8, or 10 years) for the IGs, to encourage
longer service and greater stability in a single post than is now common,
particularly in the designated federal entities.

Establishing an inspector general in the Executive Office of the President
(with jurisdiction, for instance, over statutorily created entities therein).

Establishing by statute offices of inspectors general in congressional
branch support agencies, particularly the General Accounting Office and
the Library of Congress, modeled perhaps after the OIG in the
Government Printing Office or in designated federal entities, where the
IG is appointed by the agency head.


74

go with that. I would think on the points you have just made that

the IG is absolutely essential to the Department in being part of

that, performance indicator development group. Do you agree with
at?

Mr. LIGHT. I absolutely agree with that. I think that this is a sig-
nal issue for the IG’s, that they have historically, not all of them,
but historically argued that participation in such an activity is a
violation of their yellow book independence. I disagree strongly. I
think the authors of the IG Act wanted the IG’s to be aggressive
about being upstream, as we would say, in the development or the
prevention of fraud, waste, and abuse. I think the IG’s should be
involved at a minimum in vetting and examining the performance
indicators picked by agency programs as part of their strategic
plans. I think the IG’s at a maximum should be involved in the
conversations about what a valid indicator might be to measure the
success of a given program in a given department. They should be
members of that conversation in validating the choice of measures
used.

Mr. Horn. Mr. Harper, you had a comment, I noted.

Mr. Harper. If I may lay a question on the table? Rather than
adding numbers of staff, one question I might have is whether or
not we have too many inspectors general. I have been a strong sup-
porter and advocate of the program from the beginning. But I won-
der if some of the small agencies’ ins; rs general programs are
really equivalent to those at HHS, Defense, or any of the other
major departments, and if we might not get more leverage perhaps
by an IG in one of the larger departments providing that function
to some of the smaller agencies and activities of government.

In part I say that because as I reflect back on the early days of
the PCIE, I think one of the things that made it very effective was
the excitement, the high visibility of it, and the interaction. Right
now you would have to have a room approximately this size to get
all of the IG’s together, whereas when the PCIE started we could
meet in a relatively smal] conference room in the new Executive
Office Building and still have room for the Director of the FBI, the
Comptroller General, the Assistant Director of the FBI for Inves-
tigations, all to meet with us. There was real substantive exchange
of views amongst the inspectors general about how to make their
programs more effective. Now it ost seems like now if you have
a meeting, you are having a convention rather than a real ex-
change of ideas among active professionals providing leadership to
a very important function of Government.

Mr. Horn. It is a plebiscite more than a committee.

Mr. Harper. Right.

Mr. Horn. You were Deputy Director of the Budget under Presi-
dent Reagan.

Mr. HarPER. Yes, sir.

Mr. Horn. And you were very active with the IG’s.

Mr. Harper. Right.

Mr. Horn. Have you watched what has happened by other Dep-
uty Directors and could you give this committee a feel for either
the participation of the Director, the Deputy Director, or the Dep-
uty Director for Management in working with IG’s? What is your
impression of what has happened over the years?


32

4.

? Basic information needed by both agency
heads and Congress to promote economy and efficiency and combat
fraud, waste and was simply not available. Most agencies had
no affirmative programs to identify possible fraud or abuse or to
encourage employees to report evidence of irregularities

Mishandling of Criminal Cases: In some agencies, investigators
were not permitted to provide evidence of criminal conduct to the
Department of Justice without clearance from the agency's Office of
General Counsel. As a result, some potential criminal cases were
being held up for months or even years before information was
furnished to the Justice Department; in other cases, information
was never provided.

Lack of Coordination: Instances were found in which multiple
Federal investigations of the same subject matter had been or were
being conducted with an almost total absence of coordination or
communication between the investigators involved. Moreover, there
was usually no single individual who had both the information and
the authority necessary to insure effective coordination

Provisions of 1978 Act

The stated purpose of the 1978 IG Act was to create independent and
objective units--

(1) to conduct and supervise audits and investigations relating to
the programs and operations of their agencies;

(2) to provide leadership and coordination and recommend policies
for activities designed (A) to promote economy, efficiency, and
effectiven in the administration of, and (B) to prevent and
detect fraud and abuse in, such programs and operations; and

(3) provide a means for keeping the agency head and the

fully, and completely informed about’ problems and
deficiencies and the necessity for and progress of corrective
action.

The Act contains a number of provisions specifically designed to
correct major problema and deficiencies disclosed by the
subcommittee's investigations.

To remedy organizational problems, the Act transferred existing
audit and investigative units to the newly created Offices of
Inspector General (OIGs).

To assure independence, the Act provided that IGs would be
appointed and could be removed only by the President. It
authorized each IG to select and employ their own staff and to make
such investigations and reports as the IG decided vere necessary or
desirable; moreover, it specifically prohibited interference with
audits or investigations by agency personnel.


103

Mr. Chairman and Members of the Subcommittee:

As the Inspector General (IG) for the Department of
Defense (DoD) and as the Vice Chairperson of the
President's Council on Integrity and Efficiency (PCIE), I
appreciate the opportunity to appear before you today to

discuss the role of Inspectors General.

Ten years ago, one of my predecessors appeared before
the Government Operations Committee, as this Committee was
known then, and testified that the concept of the Inspector
General was valid and had proven to be a success. During
the last 10 years, the Federal Inspector General community
has become firmly established as an integral and highly
valued component of efforts to ensure effectiveness and
efficiency throughout government. Some of the recent
accomplishments of both the PCIE and the Executive Council
on Integrity and Efficiency are contained in the joint

publication titled A Progress Report to the President,

Fiscal Year 1996. The numbers in that report are
impressive. The PCIE, which consists of the statutory
Presidentially appointed Inspectors General, reported over
$15 billion in funds put to better use as a result of IG

recommendations. During that same year, IGs working


39

Exhibit A
November 1995
Vulnerability of Housing Tax Credits to Fraud and Abuse

Low income housing tax credits (LHTCs) cost taxpayers around $3
billion annually in lost revenues.

LIHTCs are particularly vulnerable to fraud and abuse; reasons for
this include the following:

- since the tax credits are usually sold to investors, a large
percentage of their value is diverted to pay sales commissions;

- although the Federal government bears the cost of low-income
housing tax credits, the credits are allocated by state and local
housing finance agencies;

> both the Department of Housing and Urban Development (HUD) and
the Department of Agriculture provide low-income housing subsidies
under a number of different programs, but do not allocate tax
credits awarded in connection with subsidized low-income housing

-_ developers have been able to obtain housing subsidies fully
adequate to provide affordable housing from Federal agenc. and
then obtain LIHTCs from state agencies; and

- the ultimate responsibility for monitoring tax credits rests
with the Internal Revenue Service, which does not have
administrative responsibility for or familiarity with Federal
housing programs.

Since the amount of tax credits allocated is based on a percentage
of project costs, developers have a strong incentive to incur
unnecessary costs and to inflate actual costs through transactions
with “paper" corporations and/or collusive arrangements with
subcontractors.

The widespread practice of selling tax credits through syndicators
makes it possible for syndicators to collect huge fees while
developers can walk away from projects shortly after completion
with enormous windfall profits.

1989 investigations of the "HUD Scandals" produced concrete
evidence that unscrupulous developers had made huge windfall
profits through sale of tax credits.

An analysis by the General Accounting Office of eight projects
disclosed that sale of tax credits enabled the developers to
realize between $250,000 (for a 36-unit project) and $2.1 million
(for a 352-unit project) above the stated cost of acquiring and
rehabilitating the projects.


164

think that has worked very well, frankly. So we feel that we have
at least the operative parts of our offices covered in those ways.

Mr. Horn. Mr. Layton?

Mr. LayToN. I think the peer review process looks at the
tradecraft issues and does a reasonably good job at identifying fail-
ure to comply with appropriate tradecraft. I think when you start
looking for other groups to conduct reviews that are not tradecraft
oriented, as the investigators reviews are, you begin to create an
expectation of what the IG should be focused on, where should the
resources be spent. And that’s why the IG was confirmed by the
Senate to make those judgment calls.

And I don’t think that outside groups should be making those
calls. If the Congress isn’t happy with our performance, or the
President, they can take a corrective action.

Mr. Horn. Ms. Gaffney? Get that mic close.

Ms. GaFFNEY. There are different levels of problems here. The
PCIE set up a mechanism to deal with allegations of wrongdoing.
But what remains unanswered is, What about an allegation that
Susan Gaffney is a racist? That is not wrongdoing in the sense that
the PCIE community is going to look at that. So who is going to
look at that?

And there are a lot of these charges. So—I mean—I mean, I don’t
think you can hold a hearing every time one of these comes up. So
there is a need for some kind of other mechanism.

Mr. Horn. It depends on your previous life experiences how you
react, Ms. Gaffney.

Ms. GAFFNEY. I guess so.

Mr. Horn. I was a university president. There is nothing any-
body can do to me that hasn’t already been done to me. I have had
some of these things said about me, and I just ignore it. And I don’t
waste time and I consider the source. And as my Irish mother said,
this too shall pass. So don’t worry about this stuff.

Ms. GAFFNEY. OK.

Mr. Horn. I think, you know, the public knows what’s right and
what’s wrong. :

One final question, open-ended question, is, is there anything you
would like to suggest that we haven’t discussed? We are going to
follow-up, I might say, with staff on both sides sending you some
more detailed letters we haven’t had time to cover, and questions.
But is there anything that we haven’t covered in our general dis-
cussion here that would make the IG’s role more effective?

Mr. Layron. I would like to have an opportunity to speak on the
subject of law enforcement authority. I did not do so earlier.

I don’t think it is generally understood by the Congress or many
people in the administration the role of a criminal investigator. In-
vestigating a fraud in our agencies involves interviewing people, re-
viewing records, executing search warrants, making arrests, and
presenting cases before juries. The process of executing search war-
rants and making arrests requires full law enforcement authority.
You have to have the authority to carry a weapon and make ar-
rests to execute search warrants.

Without law enforcement authority in the IG community, which
we currently get through the MOU or they currently get through
the MOU, you are only half of an investigator, and that is a fun-


64

The larger IG organizations across government have been engaged in
conducting or overseeing financial statement audits for the past
several years. These efforts have provided audit coverage and
identified many control weaknesses and financial management
systems breakdowns that greatly contributed to IGs' statutory
mission. For example, the HHS OIG's audits of the Health Care
Financing Administration's financial statements have identified
billions of dollars in improper Medicare payments due to factors
such as persistent fraudulent and wasteful claims and abusive
billings.

This work is also key to the CFO Act's requirement that we
annually audit the federal government's consolidated financial
statements. We recently issued our first report to fulfill this
requirement and testified on the results before the Subcommittee.”
We reported, through close cooperation with the IGs, that
significant financial systems weaknesses, problems with
fundamental recordkeeping, incomplete documentation, and weak
internal controls prevented the government from accurately
reporting a large portion of its assets, liabilities, and costs.

Separate legislation, the Federal Financial Management Improvement
Act (FFMIA) of 1996, requires auditors performing financial
statement audits under the expanded CFO Act to report whether
agencies’ financial management systems comply with federal
accounting standards, federal financial management systems
requirements, and the U.S. government's standard general ledger.
In carrying out this responsibility in conjunction with financial
statement audits, IGs have found the continuing poor shape in
which agencies find their financial systems. Thus, the act has
opened a new avenue for the IGs to identify deficiencies in
financial systems and recommend ways to strengthen controls.

The FFMIA also requires agency heads to establish remediation
plans if an agency's financial management systems do not comply
with federal accounting standards and financial systems
requirements. The IGs are to monitor agency actions to implement
these remediation plans and report to the Congress instances and
reasons when agencies have not met established target dates.

Further, the Single Audit Act expanded the focus of federal
oversight from a grant~by-grant examination to an overall
financial audit of the state or local government or agency
receiving federal funds with a specific focus on federal programs.
A single audit is expected to address the states’ or state

United States Government (GAO/AIMD-98-127, March 31
Year 1997 Audit (GAO/T-AIMD-98-128, April 1, 1998).
5



148

Ms. GAFFNEY. Thank you, Mr. Chairman.

Mr. Horn [continuing]. Be secure on that one. That will really
ignite this place.

So let me get now to some of the issues all of you have raised.
And I must say each of you has had a most helpful series of things
that you have talked about. And on this panel, we have Mr. Funk
as the Paul Light of this panel, the contrarian. And you have
raised some excellent questions, I think.

So let me start with a few of them. One is the idea of how much
help you get from the general counsel and to whom should inspec-
tors general turn for legal advice. Do you turn to the departmental
counsel? What have those experiences been like? Do you turn to
the Department of Justice, which is to represent all of the Govern-
ment? Let’s face it, they do represent the administration in power
also. But the career staff over there doesn’t necessarily, regardless
of administration, and who do you want to go to to seek the proper
legal advice?

Why don’t you just describe it, Mr. Funk—going right down the
line—as to what you think your problem might have been on deal-
ing with a general counsel, or did you have a supportive one? And
that is usually a political appointee.

Mr. Funk. It goes back to the basic issue I cited earlier. The gen-
eral counsel of the department is the lawyer for the Secretary of
that department, which means that there may be a difference of
opinion, both perhaps justified, but difference of opinion between
the IG and the IG counsel and the general counsel. I opted to al-
ways have my own counsel.

When I went into Commerce, the then-existing general. counsel
made a pitch to the Secretary, Malcolm Baldrige, that he should
take over my counsel, who would give me three, four, five lawyers,
or as s the case may be. I disagreed very strongly. I had a very
powerful—

Mr. Horn. Why don’t you bring that mic a little closer?

Mr. Funk. I disagreed quite strongly with that. And I fortunately
had a very tough attorney as my counsel and we carried the day.
But for the next—for the rest of my tenure, 7 years at Commerce,
I had a very difficult situation with the Office of General Counsel,
including things as basic as, Does the IG have the right to have
somebody take various bugging with a consensual monitoring? And
they said I don’t have that power to do; that’s up to the Depart-
ment of Justice. I said, nonsense, it is given to me in the law; and
I was upheld in that.

When I went to State, a totally different situation, the lawyer,
the chief lawyer there told me immediately my first day, he said,
“Look, Sherman, I am George Shultz’s counsel, you know, and I
can’t be your guy and also George Shultz’s.” So there is—there
must be a degree of separation. So he never—I never had a prob-
lem with that; it worked out well.

Some——

Mr. Horn. What did you do, did you have your own counsel on
your staff?

Mr. Funk. I had my own attorneys, a staff, very gung ho people;
one went on to become IG in another agency. Tough people, good


35

a

highly qualified individuals as Inspectors General had done much to
alleviate concern about "politicization".

The committee commended then Deputy OMB Director Edwin Harper for
his role in the selection process, stating that "his efforts
undoubtedly contributed substantially to the generally high quality
of the nominees". Joseph Wright, Harper's successor as Deputy OMB
Director, continued to provide strong support for the Inspectors
General.

The President's Council on Integrity and Efficiency was established
early in the Reagan administration. During most of the Reagan
administration, an informal committee of Inspectors General was
used to screen the qualifications and experience of applicants
interest in IG positions.

Shortly before President Bush took office, Reagan appointees -
including IGs - were told‘to submit their resignations so that
President Bush would have a free hand in deciding which ones to
reappoint and which ones to replace. The incumbent IGs, so far as
I am aware, declined to submit resignations. They were not
removed, but obviously had no reason to believe they would receive
strong support from the President in carrying out their duties.

It is my impression that the Clinton transition team had relatively
little understanding of or interest in the Inspectors General. If
my recollection is correct, the Clinton administration was slow to
fill vacant positions and paid little or no overt attention to the
IGs until the issuance of the Gore Report on Reinventing Government
in September 1993. Among other things, that report:

~_ expressed dismay about the amount of money being spent on staffs
of the GAO and the Inspectors General, although graciously
conceding that "Not all this money is wasted"; (emphasis added)

- complained that IG staffs often develop adversarial relations
with agency managers who break rules;

- suggested that, although the government cannot entirely do
without auditors, it had twice as many as it should.

The Reinvention Report also promised that its proposed management
reforms would result in the net elimination of approximately
252,000 positions, and would be concentrated in the "structures of
over-control and micromanagement" including auditors.

Despite the report's prediction, I am not aware of any serious
effort being made to eliminate half - or even a substantial
percentage - of the Federal government's auditors. In fact, some -
though not all, Clinton appointees understand the importance of the
IG's work and have strongly supported them.


Attachment I

INSPECTORS GENERAL APPOINTED BY THE PRESIDENT

Agriculture
Commerce
Defense
Education
Energy
Health and Human Services
Housing and Urban Development
Interior
Justice
bor
State
Transportation
Treasury
Veterans Affairs

Agency for International Development
Central Intelligence Agency
Corporation for National Service
Environmental Protection Agency
Federal Deposit Insurance Corporation
Federal Emergency Management Agency
General Services Administration
National Aeronautics and Space Administration
Nuclear Regulatory Commission

Office of Personnel Management
Railroad Retirement Board

Small Business Administration

Social Security Administration


104

independently, or with other Federal and non-Federal
investigative agencies, obtained 3,372 successful
Prosecutions of criminal activities. FY 1996 also
witnessed a total of 4,609 debarments, exclusions, and
suspensions imposed upon individuals and entities doing
business with the Federal government as a result of IG

investigations.

HISTORICAL PERSPECTIVE

While the American concept of the Inspector General
goes back to the Continental Congress and the army of
General George Washington, it was not until the late 1970s
that the original concept was expanded to include a much
broader mission and mandated in certain Federal civilian
departments. The Congress created the first statutory
Inspector General at the then Department of Health,
Education, and Welfare (HEW) in 1976. The following year,
an Office of Inspector General was included in the
legislation that created the Department of Energy. In
1978, due in large part to the successes of the IG at HEW,
the concept was expanded to 12 agencies when the Congress
passed the Inspector General Act (P.L. 95-452). At the

time, it was hailed by Congressman Lawrence Fountain as


167

98-141 GOV

CRS Report for Congress

Statutory Offices of Inspector General:
A 20" Anniversary Review

April 27, 1998

Frederick M. Kaiser
Specialist in American National Govemment
Government Division

Diane T. Duffy
Legislative Attorney
American Law Division

CRS



126

Mr. Horn. Thank you very much for that very full statement. I
don’t know if the Pentagon is the 800-pound gorilla or HHS is the
800-pound gorilla in this town, but we now have June Gibbs Brown
who has a distinguished career in this area, inspector general, De-
partment of Health and Human Services. Welcome.

Ms. Brown. Thank you, Mr. Chairman, particularly for the op-
portunity to testify on this 20th anniversary of the Inspector Gen-
eral Act. It is fitting that a hearing will take stock of the IG’s and
it should be presided over by this committee, I believe, which has
been so instrumental in our creation, promotion, and development.

I have had the unique advantage of being a participant in much
of the evolution of Federal IG’s, having served as IG in five dif-
ferent agencies since 1979, and I might mention the only survivor
of the mass firing that was mentioned earlier. It seems that only
yesterday I testified here at the oversight hearing on the occasion
of the 10th anniversary of the IG Act. With your permission, Mr.
Chairman, I would like to hereby reserve a seat for 2008, when we
have the 30th anniversary of the IG Act.

Mr. Horn. With or without term limits, I think.

Ms. Brown. Yes. I believe the last two decades have dem-
onstrated the overall structure of the IG Act is sound and does not
require fundamental change. Certainly, there are occasional road-
blocks to OIG effectiveness, and I will discuss some of these later
in my statement. First, let me address what I believe to be some
of the most important challenges facing the IG as we enter the
third decade.

Rightly or wrongly, many view the IG as focusing exclusively on
enforcement with an eye only toward prosecution or recovery of
misspent funds. Of course, enforcement is and always has been a
critical function of the IG, but we at HHS are keenly aware that
the IG Act also directs IG’s to prevent fraud and abuse.

We are proud that we have stepped up our activities designed
not just to uncover existing fraud and abuse, but to avoid it. These
include issuing advisory opinions and special fraud alerts, develop-
ing model compliance plans in conjunction with industry, which we
asked them to pledge to follow using corporate integrity agree-
ments, and those are in cases where somebody has already commit-
ted an offense and they are negotiating a settlement in beneficiary
outreach.

The Government alone certainly cannot solve the problem of
fraud. Instead, through preventive efforts such as these, we must
inform and educate the public and enlist their help in avoiding im-
proprieties. Those who have worked with me will confirm that I am
adamant that there be coordination within the OIG, the depart-
ment—and with other departments, our partners in enforcement
and oversight throughout Government. Gone are the days when in-
vestigators worked only with investigators and auditors only with
auditors.

Now an OIG investigative team might be comprised of one or
more investigators, statisticians, auditors, attorneys, all working
together to unravel complex fraud schemes. The Government is un-
dergoing a marked shift in how it addresses Federal programs. In-
deed, with the Government Performance and Results Act, new em-


45

Expectations for the Inspectors General
Remarks by
Edwin L. Harper, Ph.O.
Chief Financial Otficer. American Security Group

before
House Committee on Government Reform and Oversight
April 21, 1998

Mr. Chairman, members of the Committee, | am pleased to have the opportunity
to appear here today to present my personal views with respect to the
Inspectors General program.

Over the years | have had the opportunity to serve as a senior officer in several
private sector corporations. In these positions | have had a fiduciary
responsibility to the company's shareholders. in fact when | have served as
Chiet Financial Otlicer | have worked regularly with internal and outside
auditors and sometimes investigators to protect the shareholder's interests. In a
number of instances | have led teams investigating frauds against companies in
addition to my more normal corporate ettorts to eliminate waste and
inefficiencies in operations.

Because of my experience with the Ctfice of Management and Budget and its
predecessor agency | was asked to serve on president-elect Ronald Reagan's
transition team in November 1980. The President-elect was determined to
balance the budget and felt that the elimination of fraud waste and abuse would
make an important contribution to that end. He felt that the Inspectors General
program In the civilian agencies begun in a prior Administration had been a
failure .. . it had not produced results.

its failure he fett came from three sources: 1) some of the appointees were weak
professionally, 2) they were not given enough support from the top, and 3) their
mission was confused and misunderstood. | feel we successfully addressed
these problems earty in President Reagan's first term, and we did get results.

The Inspectors General developed tracking systems that enabled them to report
on the billions of dollars which were saved as a result of their actions directly

through program changes they recommended.

The problems President Reagan addressed, however, are not problems which
can be fixed once and then be forgotten, because the problems require
continuous maintenance.

Let me outline what President Reagan did to address the problems and then
elaborate on why continuous maintenance is required.


87

intercession of the chairman or other senior member. The greater the mass of paper,
the more difficult it may be to isolate the truly important.

One suggestion: the PCIE |Gs continue to submit semiannuals although their contents
could probably be reduced in volume, with greater use of bullets and sidebars. The
designated entity IGs, however, would convert from semiannual to annual reporting.
An ancillary suggestion: each semiannual or annual report would contain a list up
front of the most important or egregious problems in that agency, together with the
1G‘s plan to address the problem. My recommendation is to limit the number of
problems in this section as a way of forcing very restricted thinking about their
selection. Another procedure might be to limit the entire list and discussion of serious
problems to no more than one or two pages.

g. White House involvement with the IGs. It is apparent that White House
interest in the IGs has declined precipitously since the early 1980's. President
Reagan, whose initial campaign promised to bring on board a bunch of “mean
junkyard dogs.” He followed this with semiannual meetings with all of the IGs
and occasional meetings with individual IGs on certain subjects. President Bush,
in his very first week in office, met with all the IGs in a candid exchange of
comments on the nature of IG activity. That was his first and last meeting with the
IGs. President Clinton has never met with the {Gs or, for that matter, publicly
‘expressed any interest in or support of the IGs.

Inasmuch as agency heads and senior program managers take their lead from the
White House, this decreasing level of White House attention to the IGs sends a clear
signal to these agency officials. Clearly, this is an executive, not a congressional
matter. Nevertheless, in view of the importance and usually unstated impact of this
lack of attention, it warrants mention here.

I have experienced a combination of hope and frustration while working with foreign
governments to help them combat corruption. They are also interested in identifying
their national programs which do not work, or work badly and the reasons for this.
However, they are quite candid in emphasizing that their primary goal is to diminish
corruption. In all cases, they are foscinated by the IG concept and want to know how
it works, how effective it is, and at what cost. | always emphasize that our IG system
is not easily portable; it reflects American standards, hopes, and yes, the fiscal and
human resources we have in such comparative abundance. But over drinks after the
working sessions are concluded, the local attorneys, auditors, and investigators let
their hair down. They dream of a time when they too can set up an institution which
attacks, all at the same time, corruption, management incompetence, and
bureaucratic sloth. Their envy of our situation, of our Offices of Inspector General, is
palpable. Your predecessor committee, Government Operations, built better than it
knew.

\ would be pleased to answer any questions you may have. Thank you.


8

Mr. Horn. And now I have great pleasure to have with us the
distinguished chairwoman of the Senate Subcommittee on_Inves-
tigations of the full Governmental Affairs Committee, the Senator
from Maine, Susan Collins. As I have told her, I am one of her fans
and will be glad to head her fan club.

I think she did an outstanding job on the Thompson hearings,
and while it didn’t cure my insomnia, it did permit me to see you
in action, and I am very impressed.

Thank you for coming over here.

STATEMENT OF HON. SUSAN M. COLLINS, A U.S. SENATOR,
FROM THE STATE OF MAINE

Senator COLLINS. Thank you very much, Mr. Chairman. And
thank you for your nice comments.

Mr. Chairman, Congressmen, it is a pleasure to be here this
morning. The Senate has begun a vote, so I am going to summarize
my testimony in the hope that you will include it in its entirety in
your hearing record.

Mr. Horn. Without objection.

Senator CoLLins. I commend you for holding these oversight
hearings as we mark the 20th anniversary of the Inspector General
Act. It is important that we take a close look at the operation of
the inspectors general and how their role should evolve to meet
changing needs.

As the chairman knows, I chair the Senate Permanent Sub-
committee on Investigations, which works very closely with the
IG’s. In many ways, the IG’s are the eyes and ears of my sub-
committee, as they are of yours, as we work to detect and protect
waste, fraud and abuse, and mismanagement in Federal programs.

the guardians of the public purse, the IG’s are the watchdogs
for the taxpayers, fighting wasteful spending and enforcing Federal
criminal laws across the country. For the most part, the creation
and expansion of inspector general offices throughout the Govern-
ment has been a real success story.

You have mentioned, Mr. Chairman, the amount that the IG
community has saved through its thousands of recommendations.
It is literally billions of dollars every year. They have also resulted
in the recovery of billions of dollars from companies and individuals
who have defrauded the Federal Government. It is an impressive
record of accomplishment. Simply put, the IG community as a
whole has served the public very well

The record of the IG’s is not, however, totally without blemish.
When one considers the enormous power granted to the IG’s, en-
hanced by their independence and their law enforcement authority,
Congress must also examine abuses, however isolated, committed
by a few IG’s themselves.

For example, the overall successful record of the IG community
was recently tarnished by the activities of the Treasury Depart-
ment’s Office of Inspector General. The Permanent Subcommittee
on Investigations held extensive hearings into the operations of the
Treasury IG’s office and found that she violated Federal laws in the
award of two sole-source consulting contracts.

My subcommittee also found that there was an inappropriate in-
vestigation of career Secret Service agents and that the inspector


THE INSPECTOR GENERAL ACT OF 1978:
TWENTY YEARS AFTER PASSAGE, ARE THE
INSPECTORS GENERAL FULFILLING THEIR
MISSION?

TUESDAY, APRIL 21, 1998

House OF REPRESENTATIVES,
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Stephen Horn (chair-
man of the subcommittee) presiding.

Present: Representatives Horn and Kucinich.

Staff present: J. Russell George, staff director and chief counsel;
Rand: Ra lan, counsel; John es, professional staff member;
Matthew Ebert, clerk; and Mark Stephenson, minority professional
staff member.

Mr. Horn. The Subcommittee on Government Management, In-
formation, and Technology will come to order.

We adjourned from last week to this particular hearing. IG’s
were established 20 years ago by the Inspector General Act of
1978. The 57 inspectors general are charged with conducting audits
and investigations of Federal agency programs and operations. In
essence, they are the watchdogs of the executive branch.

In the current fiscal year, inspectors general in the executive
branch of the Federal Government have a combined budget of $1.1
billion and combined staff of approximately 10,000 full-time em-

loyees. Agency management changed their spending plans by over
Bist billion for fiscal year 1996 by following the recommendations
of the various inspectors general. In addition, inspector general in-
vestigations resulted in 12,508 successful criminal prosecutions.

Despite these accomplishments, the war on waste in the Federal
Government is far from over. IG’s cannot rest on these statistical
accomplishments as the only measure of their performance. The re-
cent audits which were released as the consolidated balance sheet
of the executive branch of the Federal Government revealed that
billions of taxpayer dollars are being lost to waste, fraud, and mis-
management each year.

In an effort to reduce waste, Congress has passed legislation
such as the Government Performance and Results Act and the
Chief Financial Officers Act. These initiatives are designed to im-
prove management and accountability in the executive branch

e))


150

yer, and I also was a Federal prosecutor. So I am not above ques-
tioning my own lawyers sometimes on what the legal basis for their
opinions is. So I would probably be more concerned—if I didn’t
have that background, that I was getting good advice.

I think I am getting good advice now, and I know I am because
of my own background. But I do think it is extremely important
that there has to be a sound agreement, if you do it by MOU, that
they are independent and they report to the IG.

T would also add that in our situation, I do have a very good
Working relationship with the general counsel of the Department.
She and I talk on many occasions. We don’t always agree. We have
had our differences, but we maintain a good working relationship,
and I think she understands our independence.

So the bottom line is, whatever way it is done, the IG has to be
able to get their own independent legal advice.

Mr. Horn. That’s very helpful.

. Ms. Brown, what’s the situation over at Health and Human Serv-
ices?

Ms. Brown. Well, when I arrived at Health and Human Services
about 4 years ago, 4%, the legal counsel function was Performed
by the counsel of the Department. And I found that difficult to
work with, not for technical reasons—for the most part, I felt like
I got good advice and so on—but for one thing, as you mentioned,
at Defense I did not get to rate the people, or at least my rating
wasn’t always considered, even thoug!
their time in my office.

And I felt that was difficult for the people, they would look for
other opportunities where they could prove themselves to their
leader. Another one was the ceiling, because of the tight resources
that the general counsel was experiencing, they diminished the re-
sources devoted to the OIG to less than half of what they had had.
We have, still, monetary penalty authority, which requires a lot of
legal work, and there just wasn’t sufficient staff to do the work,
and there was no way I could control that at all.

So I requested and got my own general counsel. We transferred
most of the people into my office that were serving in that position
before, and then we hired more so that I was able to have the staff
that was appropriate for the level of work I expected of them. And
that has worked quite well.

I worked both ways in the agencies that I have supervised. And
I believe that it is much more appropriate for the counsel to report
to the IG but there have been problems in each case. When I
served as vice chair, various things occurred where people got dif-
ferent legal opinions and didn’t know how to move forward. The
MOU’s didn’t always function as they were supposed to, so it is an
area of problems; and fortunately, the IG Act pives us the authority
to have our own general counsel, and I would always exercise that
authority at this point.

Mr. Horn. On the cutbacks, were those freezes the result of
Presidential or congressional action or both?

Ms. Brown. The cutbacks were actually to the appropriation and
the distribution within the agency, but HHS was hit with some
very serious cutbacks. We, in turn, were getting more resources
through HIPAA and I wasn’t able——

they worked 100 percent of


42

Mr. Horn. Well, we need to pursue some of these in the discus-
sion period. But before moving to Mr. Harper, I was interested—
I was here at the time, but I didn’t realize it. You note that Mr.
Gore’s report on reinventing government in September 1993, you
say, “Among other things, that report expressed dismay about the
amount of money being spent on staffs of the GAO and the Inspec-
tors General, although graciously conceding, “not all of this money
is wasted.” Then you say, “They complain that the IG staffs often
develop adversarial relations with agency managers who break
rules.”

And I guess my attitude is: So what else is new? But I really ap-
preciate that very thorough background on history. And it is fas-
cinating that you had all of this opposition in Congress, all of this
opposition in the administration. It didn’t matter which party it

was.

And Mr. Harper, who I have known for 30 years, I want you to
know, Ed, that he treated you as if you were a white swan on a
muddy lake. And he had great praise for you being a little light sit-
ting out there for truth and justice in the Reagan administration.

Mr. NAUGHTON. Mr. Chairman, if I could comment. I don’t be-
lieve we ever had any really significant overt opposition in the Con-
gress to the 1978 act. There were six people, of course, who voted
against it, but basically we were careful to see that the legislation
did not get to the authorizing committees where people had their
et programs that they didn’t want looked at.

ie Government Operations Committee is free, to some extent,
of that conflict of interest, and HEW was an agency where they
have so many diverse programs that the Parliamentarian couldn’t
send it anywhere else but the Government Operations Committee.
And that is one of the reasons it was first.

Mr. Horn. Yes. Well, thank you.

Ed, if you don’t mind standing, raising your right hand.

[Witness sworn.]

Mr. Horn. The clerk will note Mr. Harper agreed.

Ed, go ahead.

Mr. Harper. Thank you, Mr. Chairman, distinguished members
of the panel. It is nice to see Jim Naughton again after all of these
years. I am pleased to have the opportunity to appear here today
to present my personal views with respect to the program. If I may,
I will submit my written testimony and summarize it in the allot-
ted 5 minutes.

Mr. Horn. Yes. Automatically they are all put in the record the
minute we introduce you.

Mr. Harper. OK. As a senior corporate officer who’s worked with
auditors and sometimes investigators to protect the shareholders’
interest, I was pleased to have the opportunity to lead the inspec-
tors general program early in President Reagan’s first term. The
President-elect was determined to balance the budget and felt that
the elimination of fraud, waste, and abuse would make an impor-
tant contribution to that end. He felt that the inspectors general
program in the civilian agencies begun in the prior administration

ad been a failure. It had not produced results. Its failure, he felt,
came from three sources: One, some of the appointees were weak


161

Mr. Horn. So they are going to reorganize the way they ap-
proach the review of the bills on the decentralized basis I take it?
Ms. BROWN. That’s in process, yes, but it is such a huge program.

Mr. Horn. I know it is unbelievable.

Ms. BROWN. We are talking about 800 million claims that were
sampled in order to get that result. So considering the cost of this
type of review, we are looking at other alternatives. But they are
working closely with us, and we meet on a regular basis to consider
all different corrective action programs, and I think some of them
are going to be quite effective.

Mr. Horn. Now, are some of these going to be a regional pilot
or can they do everything at once?

Ms. BROWN. I think some will probably be a regional pilot.

And another thing, they are implementing some of these things
gradually. For instance, the—having people have a bond in order
to become a durable medical equipment supplier or something, they
are starting out with a very small proposal of bond and one that
I don’t think would deter a large organization from—or ensure that
the Government got their money back should there be some action
that was inappropriate.

Mr. Horn. Do they need legislation on that?

Ms. Brown. They will be seeking regulatory action on that. I
think they already have the legislation.

Mr. Horn. They have the legislation so they just got to issue the
regulations and go through the normal process.

Ms. BRown. Um-hmn, that’s right.

Mr. Horn. The last couple of questions here. I am interested in
the training for your employees. Have you had sufficient funds so
you can keep them up to speed? And what kind of sharing is there
among all the different inspectors general in terms of some agree-
ment as to the basic type of curriculum that’s needed; or are these
all unique types of training related to a particular agency’s finan-
cial access?

Ms. HILL. Mr. Chairman, I mention in the statement mean that
the IG community has set up the IG Academy at FLETC for the
criminal investigators and the IG auditor training institute for our
auditors. So they have come together really to set up a unified
basic training for investigators and auditors.

In addition, there are a lot of professional development seminars
in the IG community, you know, that we continue to do, through
the PCIE, and also take advantage of other training that is avail-
able outside what the IG community offers.

Ms. BROWN. We, of course, participate in that. We also have a
great deal of training in—specifically in health care. The Depart-
ment of Justice, the FBI, and my office participates in that. We in-
vite other IG offices that have health care responsibilities, also
State and local government people, because of the Medicaid issues;
and experienced people from Justice and the FBI and my office
would train new people, including their new prosecutors and oth-
ers, in the best way to work these cases. So that’s been one specifi-
cally geared toward the mission of the agency. But it is broadly
used by all people who have any issues that would relate to that.


73

audit, this is professional staff, not administrative, I would put 50
in inspections and evaluations and I would set up a separate man-
agement analysis unit. I don’t think there is much management
analysis going on in agencies right now. I get a lot of grief on this
issue from evaluators who are non-IG’s and management analysts
at the National Academy of Public Administration. This is heresy
of a sort. I think the inspector general concept, the OIG’s are the
last safe harbor in Government for independent analysis and judg-
ment. I think you use that carefully. They have the quasi-inde-
pendence and it is a precious resource. To the extent that they
could provide the cover for evaluation and management analysis
that is not under way right now, I think that’s to the good. But
whether they have the staff capabilities and the training to do so
is a question that I would urge the General Accounting Office to
ask and the IG’s to ask themselves.

Mr. Horn. Another thing you have noted is adding an assistant
inspector general for inspection to each Office of Inspector General.
Could you elaborate a little on that? And what is the benefit of that
officer to the agency of which they are a part?

Mr. Licur. If I am designing a strategic plan that focuses on re-
duction or vulnerability, I need to have an evaluation capacity
that’s not the long-term capacity that you find in the Assistant Sec-
retary for Planning and Evaluation at HHS, for example, but an
evaluative capacity that can Produce analysis of vulnerabilities on
a faster turnaround. The IG’s have struggled with the inspection
function over the years. It is probably due to the fact that in my
book, I argue that we should Rave more inspections, that we have

tten less inspections. In the last 5 years, we have actually re-
duced the inspection activity in most departments and agencies, in
part because the IG’s felt that they didn’t have the staff to do the
job that they already were tasked with, audit and investigation,
and in part use they didn’t feel that inspections were yielding
the kind of quick hitting results that they feel obliged to deliver,
rightly so. So we have seen a folding down of the inspections func-
tion in several departments.

Mr. Horn. When you say inspections, give me an example of
what you think inspections should be and in what areas.

Mr. Licut. For example, in the HHS OIG, the inspections func-
tion could involve everything from doing a study of children’s ac-
cess to cigarette vending machines at the Secretary’s request, a
quick hitting, very useful analysis but neither audit nor investiga-
tion, to surveys of customer satisfaction with Social Security and
Medicare. Again, useful information, independent, of value to the
Secretary, quick hitting, not a long evaluation but certainly not an
audit and investigation.

This capacity to provide quick, detailed analysis that is not avail-
able anywhere else in Government right now I think is essential.
It has increased, I believe, the HHS OIG’s relationship with the
Secretary to be able to do a quick turnaround study, inspection,
evaluation, whatever you want to call it, that the retary can
then use to develop policy on a problem that she or he deems im-
portant.

Mr. Horn. One of the things we have been obviously thinking of
as we reviewed strategic plans are the performance indicators that


82

(1) Multiple disciplines, together with generally adequate resources, reporting to
and under the supervision of the inspector general exist in each OIG. Ata
minimum, these include auditors and investigators. Increasingly, a third discipline
has been added: inspectors. Together, these enable the IGs to bring to bear a
balanced arsenal of weapons to identify waste, mismanagement, fraud, and
abuse, and to find methods of dealing with each. Before 1978, there was no
such concerted, singly headed effort. As a result, little attention was directed at
programs that didn’t work and which often spent considerable sums on efforts
that were fruitless. To be sure, such efforts still go on, but - thanks to the IGs and
to the media who covers them — they no longer go unrecognized.

(2) Independence of the IGs, more real than anyone had actually hoped or feared.
This has been buttressed by the nonpartisan nature of IGs, making them difficult
targets of partisan attacks.

(3) The demonstrated professionalism required by the Act in the backgrounds of
proposed IGs.

(4) Aggressive audit follow-up. The GAO has issued many outstanding reports,
offen accurately depicting incompetence or worse in the management of
government programs. Usually, however, these reports are issued as one-shot
blasts. Although the agencies are asked to keep the GAO advised of corrective
action, this more often than not is honored in the breach. Even if the agency fails
to comment on or correct identified inadequacies, little is done by GAO later to
flag these problems. In the case of the OlGs, however, there are auditors who.
deal on a continuing basis with the agencies they review and who never go away.
If agency comments are absent or misleading, the auditors counter with follow-up
audits — the results of which are reported semiannually to the Congress, with
copies going to the Appropriations as well as the oversight committees.

(5) Relationship of the IG with the Hill. This is a tricky matter, inasmuch as those
on the Hill tend to regard !Gs as patsies who sell out regularly to agency
management, whereas agency managers tend to regard IGs as finks who leak to
Congress on a daily basis. In1992, | chaired the first inter-IG workshop, the
subject of which was the IG’s relations with the Congress. Seeking a “sexy” fitle, |
called the workshop “Straddling the Barbed Wire Fence.” The name stuck (no
pun intended) because it was, and remains, such an apt picture of IG-
congressional relations. By any name, this relationship is critical. Program
mangers in the agencies never know what IGs are telling the various
subcommittees about their operations, and they always fear the worst. It remains
@ potent weapon. For some reason | have never understood, few IGs fully exploit
it; most spend little time on the Hill and some are perfectly happy if they never
testify except for appropriations. To be sure, it is not a pleasant situation when an
assistant secretary at an oversight hearing describes his program as working
wonderfully. Immediately after, the IG sitting alongside then demolishes it as a
terrible mess, citing facts and figures. It is indeed a “barbed wire fence.” Which
is why, | guess, assistant secretaries and IGs are both paid at the Executive Level
4,



THE INSPECTOR GENERAL ACT OF 1978: TWENTY
YEARS AFTER PASSAGE, ARE THE INSPECTORS
GENERAL FULFILLING THEIR MISSION?

HEARING

BEFORE THE
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS
SECOND SESSION

APRIL 21, 1998

Serial No. 105-176

Printed for the use of the Committee on Government Reform and Oversight

ae

U.S, GOVERNMENT PRINTING OFFICE,
51-716 WASHINGTON : 1999

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-058186-9



108

Additionally, the IG is responsible for conducting
administrative investigations of ethical violations and
other misconduct by senior DoD military and civilian
officials. We also conduct statutorily mandated
whistleblower investigations and operate the DoD Hotline

which last year received over 16,000 contacts.

While our work does include self-initiated risk
assessments, a growing portion of it is prompted by DoD
management requests and statutory mandates. In addition,
we receive numerous requests from committees and individual
Members of Congress to conduct audits and investigations.
Last year, we received over 365 inquiries from Members,
most on behalf of their constituents concerning personnel

or contracting issues.

ACCOMPLISHMENTS

Looking back over the first 20 years since passage of
the IG Act, there have been many significant
accomplishments that attest to the wisdom and the value of
this legislation. Monetary savings identified by audits
and investigations alone are significant and have far

outweighed the operational costs of conducting them. I


182

CRS-13

statistical reporting provisions required by the 1988 Amendments to the IG
Act, these studies might examine whether the proposed corrective actions have
actually taken place, to what extent, and with what results. A related inquiry
might question the budgetary impact of corrective recommendations that have
been implemented, asking, for instance, whether the cost-savings resulted in
a reduction of an agency’s budget requests.

Using different measurements or bases to assess performance effectiveness
and success. Different kinds of measurements than presently used might
reveal different levels or rates of success and effectiveness of IGs.

Assessing the role of OIGs in implementation of the Government
Performance and Results Act, both for themselves and for the agencies in
which they are located.

Examining the role of OIGs in helping to determine, commenting upon,
and recommending corrective action for the high risk or high
vulnerability areas in federal programs that have been identified by
GAO,

Requiring that the summary reports on IG activities produced by the
President’s Council on Integrity and Efficiency and the Executive
Council on Integrity and Efficiency be issued semiannually. The PCIE
Teports had been issued twice a year until the FY 1988 report. These accounts,
along with the ECIE reports, now appear only once a year, and their release
is often delayed by more than six months after the end of the fiscal year. This
results not only in fewer summary accounts of IG activities but also in less
timely information and data than would be available if they were issued
semi: I.

Examining the role and responsibilities of the President’s Council on
Integrity and Efficiency (PCIE), covering presidentially-appointed IGs,
and the Executive Council on Integrity and Efficiency (ECIE), covering
entity-head appointments. This effort could examine how the PCIE and
ECIE have contributed to the effectiveness of the IGs, presumably through
improved coordination; any OMB followup to such efforts; what other
techniques or operations might be adopted along the same lines; and whether
individual IG activities, operations, or independence might have been
jeopardized or reduced because of PCIE or ECIE demands.

Looking into the controls (via the PCIE/ECIE Integrity Committee) over
alleged abuses of authority or other improprieties by IGs or their top
assistants.

Examining what has happened to IG findings of suspected criminal
wrongdoing reported to the Attorney General. This might include
comparing among the IGs the number and type of such reported suspicions, as
well as the Justice Department’s own followup investigations and
Prosecutions. This examination could lead to determining the reasons why the
Justice Department followed up (or did not do so) with its own investigations


131

industry on the legality of business arrangements, thus offering one-on-one
“assurances that proposed transactions are permissible under HHS rules. We also
issue Special Fraud Alerts to warn the industry and public at large of vulnerabilities
in the bealth care industry that make it susceptible to abuse.

© — Comporate Integrity Agreements: The OIG is committed to including corporate
integrity provisions in major settlement agreements reached as a result of OIG
investigations or audits. These agreements require the provider to carefully monitor
its own activities to ensure that the company complies with applicable rules. Failure
to do so may result in the automatic exclusion of the provider from participation in
Federally funded health benefit programs.

Another key aspect of our prevention initiatives has been to step up our efforts to exclude
offending providers from future participation in Federal health programs. Such exclusions
‘serve the dual purpose of preventing continued payments to providers deemed
untrustworthy, and protecting our beneficiaries from substandard care. We are proud that
during FY 1997, the first year of the Health Care Fraud and Abuse Control Program
established by the HIPAA, the number of such exclusions nearly doubled from 1,408 to
2,719. Most were based on convictions for program-related crimes. Let me add that during
the first year of HIPAA, nearly $1 billion was restored or transferred to the Medicare Trust
Funds.

I must note that our recent expansion in prevention efforts has been made possible in part by
the increased resources earmarked for health care anti-fraud activities under HIPAA. I
believe that these or similar prevention efforts — funding permitting — would prove equally
beneficial at other OIGs within the community.

Increased Coordination

A very noticeable evolution in the Office of Inspector General at HHS has been the marked
increase in coordination among our components. Gone are the days when investigators
worked exclusively with investigators; auditors with auditors, and so on. Now, an OIG
investigative team might be comprised of one or more investigators, statisticians, auditors
and attorneys, all working together to unravel complex fraud schemes. As you are likely
aware, there has even been a new “profession” born of this collaboration — the “audigators”
— who are auditors trained at the Federal Law Enforcement Training Center to provide
critical financial analysis and support to complex false claims cases.

‘Those who have worked with me will attest to the fact that I am adamant that there be true
collaboration and teamwork within the OIG. I firmly believe that beneficiaries and
taxpayers alike are ill-served by rivalries within OIG components, and among law

‘Connnnitiee on Government Reform and Oversight

‘Subcommittee on Government Management, Information, and Technology

Hearing: Oversight of nopecor Generel Ac Ape 21, 1998 Page 3



159

We did talk to others in the industries. We have a statistician—
well, several of them with doctorates in this area on our staff, and
we worked with the University of Texas with their statisticians to
give us extra assurance that the kind of sampling we are doing was
well accepted within the profession, because it is never been done
before or anything on that scale.

Mr. Horn. OMB, well, let me——

Mr. FuNK. A bit on the budget if I may, Mr. Chairman, very
briefly.

Mr. Horn. Yes, please.

Mr. Funk. The independence issue comes very much to the fore
here. I had an inspection done of the Office of Administration in
the Commerce Department. It was a scathing report. And the As-
sistant Secretary for Administration prepared the budgets for the
Department; at that time, still, the IG’s budget was included. My
budget request was cut severely that year before it went to the
OMB. Much of it was restored at OMB, but it was still cut heavily.

Your committee, the Government Operations Committee, the full
committee, asked the GAO to look into that, and GAO issued a re-
port on this incident. And as a result of the report, the language—
there was a direction made that OIG budgets must go to the dep-
uty secretary level directly rather than through the administrative
channel. So these things can be very, very, very difficult some-
times.

Mr. Horn. I was going to ask some questions on that, has OMB
cut agency recommendations to increase resources for the IG? How
supportive has OMB been?

Ms. GaFFNEY. Can I tell you what our experience has been over
the last years? It is the same pattern: whatever we request from
the agency head, he submits it to OMB, because he doesn’t want
to be seen as downsizing the OIG. OMB then cuts it. Then it goes
to the Congress and they put the money back.

Mr. Horn. Now, is that true of other inspectors general, that the
OMB has cut your agency request?

Ms. HILL. Mr. Chairman, I should say at Defense, our experience
has not been with the—the problem has been in the Department,
and I should say it is not necessarily discriminatory. Before I got
there, this goes back 3¥2 years, there was no IG at DOD for some
time. There was a very strong deputy who had been there a long
time, and the history of the IG had been to get budget increases.

About 6 months before I got there, he basically agreed with the
Department to put the IG shop on a downsizing, program, of about
31 percent from that year, which would have been 1995, to 2001.
Since then, we have been hit with an additional 6 percent cut as
part of the QDR cuts for defense agencies which did not single us
out. Nevertheless, on top of the initial 31 percent, we are right now
downsizing by 37 percent, which has caused us to reorganize twice
to eliminate our inspections unit and some other things. And all I
can say is, it is getting very, very difficult for us to perform our
function adequately under those kinds of downsizing requirements.

Mr. Horn. Yes. Any other experiences?

Ms. Brown. I don’t recall an instance where OMB actually cut
us further than the Department had.




109

have already cited the most recent figures for savings
produced by the PCIE Members of the Inspector General
community. At the Department of Defense, since Fiscal Year
1989, IG audit reports have identified almost $16 billion
in agreed upon savings. During that same period, monetary
recoveries through investigations by the Defense Criminal
Investigative Service (DCIS), the criminal investigative
arm of my office, have totaled over $4.5 billion.
Historically, our criminal investigators alone have
returned at least $15 in recoveries and fines for every

dollar spent on their operations.

Perhaps a more important but less quantifiable
indicator of accomplishment may be the degree to which the
Inspectors General have been increasingly entrusted to
bring needed independent and credible oversight to a wide
variety of critical issues throughout government. To
insure both professionalism and independence, Congress
equipped the Inspector General Act with two rare, if not
unique features. First, the Act required that IGs be
appointed on the basis of integrity and demonstrated
ability in at least one of certain designated fields of
expertise. Secondly, the Act established a dual reporting

requirement for IGs--both to the head of their respective


2.

The 1976 Act

The belief by Congressman Fountain and members of his subcommittee
that IG legislation was necessary was motivated to a considerable
extent by three significant events.

The first event, which began in 1962, was an extensive
investigation by the Fountain subcommittee of the operations of
Texas swindler Billie Sol Estes. The subcommittee found that Estes
had probably been insolvent for more than ten years, during which
his activities had been the subject of an “almost unbelievable
number" of inquiries and investigations by agencies of the Federal
government.

However, Estes was able to continue his fraudulent operations
because the investigations were conducted "with an almost total
absence of effective coordination or communication between or
within the departments, agencies and subunits involved".

The subcommittee investigation disclosed that audit and
investigative activities of the Department of Agriculture were
being conducted by a number of separate and uncoordinated units
which reported to officials directly responsible for the programs
being reviewed. Disclosure of these organizational and procedural
deficiencies clearly demonstrated the need for drastic changes and
led then Secretary of Agriculture Orville Freeman to consolidate
USDA auditing and investigative responsibilities under a non-
statutory Inspector General reporting directly to the Secretary.

The second event was the 1974 decision by then Secretary of
Agriculture Earl Butz to dismantle the Department's non-statutory
Office of Inspector General, which clearly demonstrated that a
statutory basis was needed to assure the continued existence of 1¢
offices.

Shortly after the untimely demise of the Agriculture Department
OIG, a Subcommittee investigation disclosed that an Inspector
General for the Department of Health, Education and Welfare (HEW)
was badly needed. HEW then had more than 129,000 employees and was
responsible for about 300 separate programs involving expenditures
of more than $118 billion annually -- a third of the entire Federal
budget at that time. However, HEW's central investigative unit had
only ten investigators with a ten-year backlog of uninvestigated
cases; moreover, the unit could not initiate any investigation
without specific approval of the Secretary or Under Secretary.

Other units responsible for promoting economy and efficiency and
combating fraud and abuse in HEW programs were scattered throughout
that Department in a haphazard and fragmented manner, with no
single unit having the overall responsibility and authority
ary to provide effective leadership and coordination. For



89

I also believe there is a need for greater attention paid to the
high-risk areas. The question needs to be asked, why do these
areas remain vulnerable to fraud, waste, and poor management?
The root cause of programmatic deficiencies need to be identified
and solutions, including legislation, need to be implemented. With-
out this kind of action, inspector general resources will continue to
be invested in establishing program shortcomings without enhanc-
ing effective delivery of services.

e subject of term limits, I think that if you have term limits
you create a lack of independence for an inspector general. Regard-
less of the length of time, at the end of that term, the IG will have
a tendency to want to run for reappointment, go soft on the agency
management. They need to make the administration happy, or oth-
erwise they won’t be reappointed. I think that is one downside. An-
other one, it creates lame ducks. Everybody knows when that term
is up, and they can give up on that IG at any point prior to that
departure. A long term would create a political position. This would
be a nice job to give to somebody that needs a job. There is no ex-
pectation that they may be gone at any time.

Term limits has another negative effect. That is, why take action
against a poor performing IG if you know that their term will be
up in x number of years? Just wait them out. There is no liability.
A poor performing IG doesn’t really cause anybody very much grief
except the people that work for them. So I think there are a lot of
reasons why you don’t want to have term limits. The President can
remove an IG who is performing poorly at any time. They have to
notify the Congress and give a reason.

In the area of performance measures, I mentioned those, but I
think we need to spend more time with the Congress, with the
agency administration, the agency heads, and the administration
on what it is you want from inspectors general. If you don’t tell in-
spectors general what the expectation is, it is very difficult, in my
opinion, to criticize them for failure to meet your needs if you
haven’t conveyed them.

That concludes my prepared remarks.

[The prepared statement of Mr. Layton follows:]


(9) OMB and the OlGs have bandied about for years data on dollars actually
saved, dollars reprogrammed to prevent wasteful expenditures, fines received by
the federal government as a result of convictions, and persons sentenced to hard
time as a result of OIG efforts. The mind reels from their number and amount.
Except for a brief time in the 1980's, when it appeared that OMB was trying to
use the big numbers in the annual report of the President’s Council on Integrity
and Efficiency (PCIE) for political purposes, the documented results of OIG work
have never been exploited on a partisan basis. These numbers have indeed been
significant. By themselves, they serve as a realistic mirror of OIG activity.
Unfortunately, large numbers, however well documented, turn people off; the
numbers seem inherently difficult to believe, and eyes glaze over when the
numbers are reported. Nevertheless, they are a striking vindication of the work
by Government Operations 20 years ago.

All of the above, it seems to me, mark the success of the IG Act and of the IGs who
have functioned within its strictures.

But, as | noted at the outset, there are parts of the IG Act that work poorly, if at all.
What about them? Should they be eliminated entirely from the Act? Should they be
changed? If so, how?

| suggest that attention be focused on the following, in no special order of priority:

a. Inspections. The inspection function should be added to Section 3 of the Act.
Admittedly, most IGs have already incorporated an inspection program despite
the absence of specific legislative sanction. Such explicit sanction is obviously not
an absolute requirement. Nevertheless, inspections have been such an active and
valuable part of OIG operations that they should be recognized in the enabling
legislation.

I concede that | am biased. At Commerce, | inaugurated an inspection program
frankly patterned after my observation of military IGs. Except overseas, our
inspections in Commerce were always unannounced, which gave them an immediacy
and intensity rare in government. They also were short and to the point - rarely
lasting no more than one week on site. Shortly after the team returned and briefed
me and my staff, they would brief the assistant secretary concerned ~ giving him or
her fresh information on one of their important field components. Unlike audits in
which the information may well be many months or a year old by the time it is finally
given to the program manager concerned, inspection results are very recent and thus
more timely and readily useful. The trade-off is in degree of depth. | flippantly (but, |
think, not inaccurately) describe an inspection as an inch deep and a mile wide,
compared to an audit, which is an inch wide and a mile deep. The freshness and
utility of a well-run inspection, and the opportunity it gives an IG to cover more of his
agency's activities with fewer people and less time, more than merits its inclusion in
the OIG. Properly used, they are an immensely valuable component of an OIG, and
should be recognized as such in the Act.

b. The “designated entities.” In an honest but misguided effort to make “one size
fit oll,” OMB and the Congress chose, in the IG Act Amendments of 1988, to give
more than 30 additional agencies their own IGs. Some of these so-called


12

-2-

- The record of the Inspectors General is not, however, without blemish.
Considering the enormous power granted to Inspectors General, enhanced by their
independence and their aw enforcement authority, Congress must also examine abuses,

isolated, d by a few Inspectors General themselves. For example, this
woneafa secont wus rss tansbed Ey the sotvitcs ofthe Tressuy Deperecenr
Office of Inspector General. After an extensive investigation, the Senate Permanent
Subcommittee on Investigations found that the Treasury Department Inspector General
violated federal laws in the sole-source award of two consulting contracts that totaled
almost half a million dollars, engaged in a pattern of careless management, paid for
work unauthorized, and made payments for some services without requiring receipts.

My Subcommittee also found that career U.S. Secret Service agents, who
appeared before a House Committee about the FBI Filegate matter, were subjected to
an unwarranted investigation and negative publicity. The Subcommittee also found that
the Treasury Inspector General misled Congress about the nature of this investigation
and that official documents were destroyed. The Subcommittee concluded that the
Treasury Inspector General failed to meet the high ethical and performance standards
expected of an Inspector General. The Inspector General resigned shortly before our
final report was issued.

Let me sres that, in my view, problems like the ones in the Treasury Inspector

programs.
do their job effectively, Inspectors General must be above reproach, must set an
example for other government managers to follow, and must not create situations where
there is even the appearance of impropriety. Credibility and effectiveness are lost when
the office charged with combating waste and abuse engages in the kind of activity that
the Inspector General is responsible for deterring.

ing the past 20 years, the General community has grown from 12
in 1978 00 5 lage Feet eater These 57 Inspector Generel eceve ar lea
$1.1 billion in annual funding from the Congress and employ over 10,000 auditors
criminal investigators, and support personnel. The must ensure that these
fesources are properly manaeed andl directed. The of Inspector General is
charged with tremendous responsibilities which must be exercised by competent
managers and well-trained law enforcement professionals.


54

appointments, as in June Gibbs Brown's choice to head the Health and Human Services OIG, and
some remarkably bad choices, as in the Treasury Department debacle, Lacking a clear signal on just
what might make for a good IG and facing unrelenting pressure to find good people for an ever-
growing inventory of plumb jobs, the presidential personnel process has simply not given the IG post
sufficient attention.

I believe the answer to the problem is to create a new appointments process that separates the IGs
from the traditional presidential review process. Under my proposal, Congress and the president
would jointly appoint a standing review panel that would maintain a standing list of potential
nominees for all presidential and agency-appointed IG vacancies. Presidents would obviously retain
their constitutional authority to nominate anyone they wish for an IG post. But if constructed
carefully, such a standing list would eventually become a compelling force in the appointments
process. One could also imagine similar lists for other key management posts, including chief
financial officers and chief information officers. The list could be easily maintained by an Office
of Federal Management should Congress and the president eventually create such @ unit.

Awards and Bonuses

Let me continue with the participation of some IGs in the presidential bonus system. As this
‘Subcommittee knows, presidential awards and bonuses are determined by department secretaries and
agency heads. Although many IGs voluntary exclude themselves from such an obvious source of
implied conflict of interest, I am told that some do not. Congress should make clear that such
participation, whether for IGs or their subordinates, constitutes a breach of independence. It should
be prohibited in statute. Should Congress do so, it must provide an alternative mechanism for
rewarding performance. Such a new IG award and bonus system could be administered by OMB
or the new Office of Federal Management, but needs to be clearly distanced from departmental and
agency leadership. It is one thing for a secretary or agency head to congratulate an IG for a job well
done, quite another to dangle a $10,000 or $20,000 award before a quasi-independent officer of
government.

Such an award and bonus system could be linked to a new governing process for investigating and
resolving allegations of IG wrongdoing. No one can be satisfied with how the IG community
handled the allegations regarding the Treasury Department IG. The IG review process was not only
late, it was irrelevant to the final resolution of the case.

Admittedly, the issue should never have been placed on the IG docket. The IG should have been
removed by the Treasury Secretary at the first confirmation of wrongdoing by the General
Accounting Office. Failing that, OMB should have used every available lever to force the issue to
immediate closure. Neither institution discharged their responsibilities properly. That the Treasury
IG was allowed to serve even a day after the GAO report was shocking. Nevertheless, once these
failures to decide were made, the IGs should have moved quickly to their own position. That they
were unable to do so speaks volumes about the weakening of the IG community as a collective force
for the highest standards of conduct.



m7

CRS-2

Under two major enactments—the Inspector General Act of 1978 (P.L. 95-452;
‘92 Stat. 1101-1109) and the Inspector General Act Amendments of 1988 (P.L. 100-
504; 102 Stat. 2515-2530), codified at 5 U.S.C. Appendix—inspectors general (IGs)
have been granted a substantial amount of independence and authority to carry out
their basic mandate. Each office is headed by an inspector general who is appointed
and removable in one of two ways: (1) presidential appointment, subject to the advice
and consent of the Senate, and presidential removal in specified federal
establishments, including all cabinet departments and larger federal agencies, and (2)
agency head appointment and removal in designated federal entities, the usually
smaller boards, foundations, commissions, and corporations.

The dual focus of OIG activities since their inception has been auditing and
investigation. Indeed, the 1978 act requires each IG in a federal establishment to
appoint two assistant inspectors general, one for auditing and one for investigations.
More recently, the offices have added inspection, a short-hand phrase for a usually
short-term evaluation of agency programs and operations and their impact.

Purposes, Powers, and Protections
The statutory offices of inspector general have been given a broad mandate,
along with an impressive array of powers and protections to carry it out independently
and impartially
Purposes of Offices of Inspector General

Section 2 of the codified law specifies three broad purposes or missions of the
OlGs:

© to conduct and supervise audits and investigations relating to the programs and
operations of the establishment,

to provide leadership and coordination and recommend policies for activities
designed to: (a) promote economy, efficiency, and effectiveness in the
administration of such programs and operations, and (b) prevent and detect
fraud and abuse in such programs and operations; and

to provide a means for keeping the head of the establishment and Congress
fully and currently informed about problems and deficiencies relating to the
administration of such programs and operations as well as the necessity for and
progress of corrective action.

Appointment, Removal, and General Supervision of IGs

IGs in Federal Establishments. Section 3 of the codified law covers the
appointment, removal, and general supervision of inspectors general in federal
establishments. The President appoints the IGs in the federal establishments (i.e.,
cabinet departments and larger federal agencies) by and with the advice and consent
of the Senate. The statute also provides that the selection be done without regard to


96

tion of the Chief Financial Officer's Council on issues and concerns
that need to be addressed as the Government moves to the in-
creased use of credit cards for travel, purchase, and fleet card serv-
ices.

Quality standards for investigations. The PCIE has recently re-
viewed earlier investigative standards for the IG community and
updated them to reflect, among other things, the increased use of
technology in investigations.

The prescreening of Federal grants and loans by offices of IG’s
and their agencies and loan offices. This was another report in
which the PCIE examined procedures used by the IG’s and their
agencies to review Federal assistance projects.

Working relationships of the IG inspection and evaluation units.
This was a survey again done on the issue of inspections which you
have heard a lot of talk about this morning. Also, and I know this
is of interest to the chairman, you referenced it earlier, we have
completed, you will be pleased to know, a generic pamphlet entitled
the JG Investigations and You,” and I will submit a copy for the
record.

Mr. Horn. Without objection, it will be included for the record
at this point.

[The information referred to follows:]


170

Statutory Offices of Inspector General:
A 20" Anniversary Review

Overview of Statutory OIGs

Statutory offices of inspector general (OIGs) consolidate responsibility for
auditing and investigations within a federal department, agency, or other organization
Established by law as permanent, independent, nonpartisan, and objective units, the
OlGs are designed to combat waste, fraud, and abuse. The initial establishments
occurred in the wake of major financial and management scandals, first in the

of Health, Education, and Welfare (now Health and Human Services) in
1976 and next in the General Services Administration (GSA) in 1978. The latter
episode provided a catalyst for an OIG in GSA and in each of 11 other departments
and agencies. Reinforcing this, an even earlier scandal involving the Agriculture
Department demonstrated the weaknesses in independence, authority, and resources
of administratively created offices of inspector general. Statutory offices now exist
in nearly 60 federal establishments and entities, including all cabinet departments and
the largest federal agencies as well as many smaller boards, commissions,
corporations, and foundations."

' Separate from the offices directly under the Inspector General Act of 1978, as
amended, are two others, which, for the most part, have been modeled after the provisions of
the basic IG act, as amended: in the Central Intelligence Agency, whose IG is a presidential
appointee subject to Senate confirmation (103 Stat. 1711-1715): and in the Government
Printing Office, the only legislative branch entity with a statutory IG; in this case, the
inspector general is appointed by the head of the agency, the Public Printer (102 Stat. 2530).

For information on the history of OIGs and proposals for change, see: Michael
Hendricks, ef al., Inspectors General: A New Force in Evaluation (San Francisco: Jossey-
Bass, 1990); Paul C. Light, “Make the Inspectors General Partners in Reform,” Government
Executive, v. 25, Dec. 1993, and Monitoring Government: Inspectors General and the
Search for Accountability (Washington: Brookings Institution, 1993); Frederick M. Kaiser,
“The Watchers’ Watchdog: The CIA Inspector General,” International Journal of
Intelligence and Counterintelligence, v. 3, 1989, Kathryn E. Newcomer, “The Changing
Nature of Accountability: The Role of the Inspectors General in Federal Agencies,” Public
Administration Review, v. 88, March/April 1998; U.S. Congress, House Committee on
Government Operations, The Inspector General Act of 1978: A 10-Year Review, H Rept.
100-1027, 100" Cong., 2% sess. (Washington: GPO, 1988); U.S. Congress, House
‘Subcommittee on Goverament Management, Information, and Technology, The Inspector
General Act of 1978: Twenty Years After Passage. Are the Inspectors General Fulfilling
Their Mission?, Hearings, 105" Cong., 2TM sess., April 21, 1998 (not vet printed); and U.S.
Library of Congress, Congressional Research Service, Statutory Offices of Inspector
General: Establishment and Evolution, by Frederick M. Kaiser, CRS Report 98-379 GOV
(Washington: April 17, 1998).


15

Mr. HarPeER. My impression is that it is something that requires
constant attention and maintenance. Because frankly my observa-
tion is some of the Deputy Directors of OMB have taken less inter-
est in it than I did. Others have taken as much interest as I think
in this a critically important function. It is one naturally allied
with the responsibilities of the Office of Management and Budget
and deserves the attention of the Deputy Director or the Director.
When I was there, basically I was given the management portfolio
of government and therefore this was one of my most important
priorities. President Reagan was vitally interested in the inspectors
general program. It never hurts to have the President of the
United States interested in your program.

Mr. Horn. On the issue of bonuses, should IG personnel be re-
warded for extraordinary effort with bonuses? I think Dr. Light has
commented on this.

Mr. LiGHT. It depends on who’s giving the bonus, doesn’t it? And
when the bonus is being proffered. I thought the IG’s were out of
the business of accepting rank awards. I thought that that had
been disposed of. I made a comment at an IG retreat a few months
ago, and one of the IG’s came to me afterward and said I think you
should audit that statement. I am told now that IG’s, some IG’s do
participate. It is a tough situation because the deputy IG’s and ev-
erybody else in the OIG shops are eligible for bonuses and ay in-
creases. You end up in a situation where many IG’s are making
less than their deputies because the ones with good judgment are
voluntarily exempting themselves from eligibility for awards and
then they see their deputies rightly getting those awards. It has be-
come a situation where we have some very talented deputy IG’s
across the Federal Government who are loath to consider taking an
1G-ship for fear of the pay cut.

Now, that is just an untenable situation. I think it is created by
the way the current bonus system works and we ought to legislate
on it or begin a conversation with OMB to chi the way the sys-
tem works. You could easily make the IG’s eligible for bonuses
through a review process that would originate at OMB rather than
with the departments. It is a tough issue. But whether a bonus is
appropriate is very dependent on who's giving it and when it is
being given. Unfortunately, the appearance issues are rife here, I

it

Mr. Horn. Well, that is one, I think, the committee wants to re-
view. We would appreciate any comments any of you have to give
us. Does anybody else want to comment now on that?

Mr. Harper, getting again to your days as Deputy Director of
OMB when you had that huge office and that fireplace that I vis-
ited, remember? When I came back from China, I said, “The best
investment this Government has is the United States Information
Agency. Don’t mess around with it.” Thank you. The President’s
Council on Integrity and Efficiency, when you were Deputy Direc-
tor, was that council effective in dealing with allegations of wrong-
doing by inspectors general and their staffs?

Mr. Harper. I believe it was. We did have one or two occasions
where it became necessary to investigate the activities of one of the
1G’s because of allegations that were made and we essentially es-
tablished a committee of other inspectors general and their staffs


8.
Performance of Inspectors General

It isn't easy to devise a uniform set of standards to measure the
performance of Inspectors General.

As individuals, some Inspectors General have done - and are
continuing to do - outstanding work. Most are doing a good job;
the performance of a relatively small number has been less than
satisfactory.

While it may be hard for an outsider to assess performance, those
who serve together in the IG community and have an opportunity to
observe each other's work on a continuing basis often have similar
opinions concerning which of their colleagu ‘e most and least
effective.

I recall from my years on the Hill that some members of Congress
were exceptionally effective, others wi exceptionally
ineffective, and there was a general consensus as to which members
belonged in’each category.

As a group, I think the Inspectors General have done a good job.
In May 1988, Joseph Wright, then OMB Deputy Director, stated that
IG activities during fiscal years 1981 through 1988 had resulted in
savings and cost avoidance of $110 billion and nearly 23,000
successful civil and criminal prosecutions.

Not all the monetary benefits claimed by some IGs have been fully
supported, but even when discounted the total is impressive.

Statistics presented in 1988 by Derek Vander Schaaf, then Deputy
Inspector General at the Department of Defense (DOD) are in some
Yespects even more impressive. Vander Schaaf testified that 20 of
the 100 largest defense contractors were convicted of procurement
fraud during the seven years following establishment of the DOD
Office of Inspector General. By contrast, according to Vander
Schaaf, not one major defense contractor was convicted of such
fraud during the preceding four decades.

Although it often cannot be accurately measured, IGs do invaluable
work in promoting economy and efficiency and preventing fraud and
abuse.

Has the Role of Inspectors General Changed since 1978?

In my opinion, the fundamental role of the Inspectors General in
1998 is no different than it was in 1978.

The basic mission of Inspectors General was - and still is - to

Promote economy, efficiency and effectiveness and to prevent and
Setect fraud, w and abuse in Federal programs and activities.
The primary means of accomplishing this mission was - and still



181

CRS-12

Marshals Service or other law enforcement entities, and what impact such a
change would produce in the OIGs themselves, in their relationship with the
Justice Department, and in crime control efforts at the federal level.

Enhancing IG testimonial subpoena authority for all statutory inspectors
general under the 1978 IG Act. This change could aid IGs especially in
gathering information about alleged abuses of authority and evidence about
suspected criminal wrong-doing.

Examining and possibly clarifying the rights of employees who are
interviewed by IG staff, such as the right to counsel or to union
representation at such meetings.

© Clarifying or expanding IG access to certain private records of public
officials. These might include such items as income tax records and other
financial records.

Protecting the confidentiality of “whistleblowers” and other employees
who bring allegations of wrong-doing to the IGs’ attention. This might
result in examining instances where such confidentiality has not been
adequately protected, where the individual employee protested the disclosure,
and where (alleged) reprisals resulted.

Granting IGs authority to halt specific projects or operations which are
found to have “particularly serious or flagrant problems” and which are
reported to the agency head and within seven days to Congress. (Only the
now-defunct Inspector General for Foreign Assistance has held authority to
halt a project.) These new powers could help to improve agency
responsiveness to IG findings of these serious problems and subsequent
tecommendations for corrective action.

© Providing prosecutorial authority for IGs in specified areas, possibly on
a trial basis. This power could increase the impact of IG findings of criminal
conduct. Currently, prosecutions based on such discoveries are conducted by
U.S. Attomeys and the Department of Justice. These Justice Department
Prosecutors may be overwhelmed with other cases that have a higher priority,
such as those involving illegal narcotics, thus, reducing the likelihood of
prosecutions based on IG findings of wrongdoing (for instance, for Medicare
or Medicaid fraud).

Effectiveness and Orientation of IGs, PCIE, and ECIE

© Measuring effectiveness and orientation of the offices and comparing
them over time. This could include attempts to determine changes within and
between the audit and investigation functions since the establishment of an
OIG, between an 1G’s prevention and detection focuses, or between his or her
possible roles as an “outsider” (e.g., an independent critic) or “insider” (e.g.,
an ally of management). Other studies could focus on corrective action taken
by an agency on IG recommendations, based in part on the semiannual


48

thus it 1s an easy leap to the assumption that the Inspectors General being
auditors and investigators are an extension of Congressional activity. The
President has a Constitutional responsibility as Chief Executive Officer to
manage the Executive Branch and its employees: thus, it is not much of a leap
to assume that Inspectors General are there to help the President run the
Executive Branch. Meanwhile, the professionals of the Inspectors General
world come by their profession to hay ‘strong sense of independence, and
when they are being pulled one way by the Congress and another by the
President they can find their mission contusing. In this mix it is not surprising
that some Cabinet Secretaries are confused as to whether the Inspectors
General are friend or foe.

Let me conclude by suggesting what | think the mission of the Inspectors
General should be and reasonable expectations which members of the
Congress, the President and Cabinet Secretaries should have tor the
Inspectors General.

The inspectors General should expect that they
will be treated by the agency head as @ vital part of the agency head's
management team, but independent of the agency's executives;
will report directly to the agency head
will be free aggressively and professionally to audit and investigate ~
agency operations and government funded programs with the objective
to root out fraud, waste, and abuse wherever it may be found
will be called upon to report to the Congress without prior clearance of
testimony, but that they are not agents of the Congress.

The Agency head should expect that the Inspectors General

will act as a part of the management team, but will not be under the
direction of any operating official short of the agency head.

will be an important force in improving the management of the agency.
‘will pull no punches in their investigations and audits.

will act in an appropriately confidential manner, recognizing that their
final reports are public documents

will investigate criminal activity and work with the Department of Justice
in prosecutions.


gy
15

establish agreement on issues of common concern, such as
quality standards and training, and encourage them to share
and learn from an exchange of "best practices” and “lessons

learned."

I became the Vice Chair of the PCIE in January 1998
and, in that capacity, want to share with you some of the
positive contributions we believe the PCIE has made to the
IG community and, in turn, to the goal of good government.
Along those lines, recent and ongoing PCIE efforts have

included:

« Review of the Next Generation of Card-Based Payment
Systems (March 1997) - The PCIE issued a report prepared
with the participation of the Chief Financial Officer's
Council, on issues and concerns that need to be addressed
as the government moves to increased use of credit cards

for travel, purchase, and fleet card services.

© Quality Standards for Investigations (September 1997) -
The PCIE reviewed earlier investigative standards for the
IG community and updated them to reflect, among other
things, the increased use of technology in

investigations.


53

Nevertheless, my current view is that the IGs are not changing fast enough. If Ihad to make a single
statement about their current condition five years after Monitoring Government, it would be that the
IGs are mostly standing still as the federal government is undergoing the most significant change in
modem times. At the risk of over-generalization, the IGs seem to be hunkered down against the
winds of change, hoping that someone will take the lead in telling them just how to react to the
‘onslaught of pressure for higher performance. Simply put, they have been slow to react to the signal
issues of the day.

Iam particularly troubled that the IGs have yet to declare themselves on the Government
Performance and Results Act, They hardly need to wait for OMB to decide, if, in fact, OMB can
make a decision given the constant turnover. The IGs only need to read their own statute. It is
actually a remarkably slender, easily understandable document, a model of legislative clarity. It
clearly invites them to be proactive in attacking fraud, waste, and abuse at its source: pending rules
and legislation.

I believe that the original sponsors of the concept would be delighted to see the IGs take a strong
position on shaping the federal government's response to GPRA. This does not mean that IGs should
merely present their own performance plans to their agency heads. Nor does it mean that they should
only be involved in evaluating the integrity of the data presented in support of agency plans. I
believe that the core statute clearly instructs the IGs to participate in the actual design of the program
indicators. ‘They should weigh in on the construction of the measures, validate the data, and
credential the final reports to Congress. If they do not see that invitation in the statute, and I would
be happy to point out the specific language, I strongly encourage this Subcommittee to remind them
in the clearest possible statutory language.

Beyond urging a more proactive stance on GPRA, let me offer a random walk through controversies
that beset the IG concept at twenty years. My main concems are with the presidential appointments
process, the continued participation of some IGs in the presidential award and bonus system, the
declining fortunes of the inspection/evaluation function, and what appears to be a troubling decline
in congressional interest in IG testimony.

Recruitment

Let me start with the recruitment process. Notwithstanding the many talented individuals who
current serve as IGs across government, I believe the presidential recruitment process has devalued
the importance of the Inspector General position as a significant appointment. The devaluation
began in 1989 under a Republican president and continued in 1993 under a Democrat, but was driven
in both administrations by what I believe is a failure to understand the importance of the post. For
both administrations, an IG post was just another post to fill.

Although the problem has been exacerbated in the current administration by turnover at the Office
of Presidential Personnel, which has seen five directors in five years, the general trend has been to
fill IG posts more at random than with care. The result has been some stunningly good


138

Mr. Horn. The next and last inspector general in this panel is
the honorable Susan M. Gaffney, the inspector general of the Dep-
uty of Housing and Urban Development. Welcome.

Ms. GAFFNEY. Thank you, Mr. Chairman.

Having had the opportunity to listen to what everyone else has
to say, I think I hear one area of consensus, and that is that there
is a need to look at the smaller OIG’s and that organizational
setup. Other than that, from my perspective, I think term limits
are a bad idea. I would like to keep the semiannual reports. We
desperately need law enforcement authority, but that’s not really
what I want to talk to you about.

I want to talk to you about something a little different than any-
one else has talked. about. Let me first say, though, I agree with
June, the most important thing is the IG Act has worked extremely
well. We are not stuck. We've been making changes. We are very
dynamic, and the act has accommodated those changes. So I com-
mend all of the people who worked on the act; it has done us well
for 20 years.

But the real thing I want to talk to you about is, it is very easy
to sit on the panel and say, it is vitally important that the IG be
part of the agency team. And I think we would all agree that that
would be very nice. But I think we should recognize that that
doesn’t always happen. And there are some reasons for that.

First of all, I would never have agency program officials, Sher-
man, to my house for dinner. I don’t socialize with them. That is
not within my construct, and I fear it, so I stay away from it.

But one of the factors you need to understand is when political
appointees come into office, from my perspective this is—they gen-
erally come in for a very limited tenure, 18 months, 2 years—sec-
ond, they have a great need to make a splash. That means that
their concerns are often quite different from the IG concerns. We
are very much geared to institutional kinds of things, long term,
making the agency viable; that’s quite different from how one goes
about making a splash.

When you want to make a splash, you need to do very visible
things that will get a lot of press coverage, not the kinds of boring,
mundane kinds of things we are always working on.

A second consideration is that when people come into the Federal
Government from outside, IG’s are often seen as alien creatures. 1
don’t know where in the private sector they really have anything
like us. We certainly are not internal auditors in the sense that the
private sector has internal auditors, and typically what I have seen
is a political appointee sees us just like the rest of their principal
staff.

So this is not good. We need to be collaborating, we need to be
working together now, today even more than ever before. Because
I agree with what everyone has said here today, and that is, in
fact, our Government is more vulnerable to waste, fraud, and abuse
than it has ever been because of the contracting out, the
downsizing. The IG’s are tremendously important in terms of inter-
nal controls.

So how then can we go about fostering this collaboration between
management and the IG’s? And I think one of the answers that no
one here has discussed is, you know, what typically happens is the


49

The President should expect that the Inspectors General will
aggressively audit and investigate ail of the operations within their

jurisdictions, with their objective being to rid their agency and programs
of fraud, waste, and abuse.

report the results of their efforts to their agency head in a confidential
manner which leads to a constructive course of action.

when their work indicates criminal misconduct, work with the Department
ot Justice to secure convictions.

The Congress should expect that the Inspectors General

are not agents of the Congress

will vigorously do their job.
Finally, the Congress should do as it is doing at this hearing: investigate the
effectiveness and mission of the Inspectors General program to make sure that

it Is effectively doing its job to eliminate fraud, waste, and abuse in government
operations.


78

department, in which case they come, theoretically at least, under
total control of the IG. But there has been some backing and filling,
there have been a number of very ferocious arguments from var-
ious departments.

I myself when I went into Commerce in 1981, I had a monu-
mental battle with the general counsel, also named Sherman. He
said that it is my job not to embarrass the Secretary. I said, “With
all due respect to the Secretary, it’s not my job. My job is to do
what is said in the law. And your job is to protect the Secretary,
I understand that, but that should not be my job, that’s yours.”

Not having your own counsel puts you at risk. It doesn’t mean
that your counsel, your attorneys will be experts in all the law of
that department that pertain to that department. Of course not.
But your attorneys should be fully conversant with the powers of
the IG Act and the difficulties that stem from that and the friction
that may arise. So I think that I would strongly opt for an office
of counsel in the act.

The second thing, which has already been mentioned by two peo-
ple, I would strongly endorse an assistant IG for inspections, also
in section 3 of the act. You asked what an inspection means. When
I was at Commerce, Mr. Chairman, my first week there I was told
by my audit staff that we had a 36-year audit cycle. I said, “What

ie heck does that mean?” They said because we have so many
auditable entities in this big Department of Commerce all around
the world, it would take 36 years to audit all of them. I said,
“That’s ridiculous. We can’t live like that.” So having spent 12
years in Defense, working very closely with the military IG’s, the
military IG of the Air Force in particular, I developed a concept of
inspection Program at Commerce which was a kind of a bast ized
mixture of civil and military arrangements, but it worked quite
well. We would perform unannounced inspections on field offices,
regional offices, laboratories, ships, the hurricane aircraft squadron
in Miami, weather stations, and so forth. There was never any ad-
vance warning. A team would materialize outside that facility at 9
o’clock on a Monday morning and stay there until Friday evening,
1 week onsite, 2 weeks of preparation, 1 week onsite, and then
come back and within 2 or 3 weeks they would have a draft report
out. It became so popular, all my auditors wanted to join that be-
cause auditors don’t normally see reports so fast. They hunger to
gee a written word in quick order and they were able to do that

ere.

Then I moved to State. I found out to my great delight that
Teddy Roosevelt back in 1906 had written a kind of scathing letter
to Hay, the then Secretary of State, and he said, “Why don’t you
get some people out around the world inspecting our consuls so we
can find out if they are doing a good job,” which they did. They set
up an office of inspection back in 1906. It was a very good thing
for the inspectors, because at that time our consuls were paid $1
for every visa they granted. So if they granted a lot of visas, they
got quite a few dollars, which in those days was substantial. The
inspectors went out and if they found something wrong there, they
were given the power to immediately dismiss the consular officers,
up to the consul general. So we had inspectors from the Depart-
ment of State who would go out, find wrongdoing, immediately re-


88

Mr. Horn. That was an immensely helpful statement in addition
to your very well-organized and point-by-point statement, which we
will get back to.

Mr. Layton. Mr. Layton is the former inspector general of the De-
partment of Energy. We are glad to have you here.

Mr. Layton. Thank you, sir. I appreciate the opportunity to tes-
tify. I think I am about to prove the statement wrong that when
you have seen one IG, you have seen all IG’s. I respectfully dis-
agree with many of Sherman Funk’s points of view. The subject of
term limitations is one that I vehemently object to, and I will give
you my reasons here shortly.

I have selected some of the things that you suggested you might
be interested in hearing about, and I would just like to briefly com-
ment on a couple of those. The quality of IG candidates is one area
that you have expressed interest in. I think that the current legis-
lation provides for inspector general candidates with diverse back-
grounds. The act does not ensure quality. The quality of inspectors
general is directly related to the level of interest shown by those
Involved in the selection and approval process. The administration
and the Congress must fully scrutinize inspector general can-
didates for their leadership abilities as well as their technical back-
grounds. If little or no attention is paid in the selection process,
marginal candidates may become inspectors general.

In the area of Rerformance measures for inspectors general, in-
spectors general have remarkable statistical accomplishments if

tt is a measure of success. Thousands of convictions we heard
about this morning, billions of dollars identified that could be put
to better use or recovered, significant disciplinary actions are n
annually by the thousands. But the Congress has amended the act
to specify many of these units of measures that are to be reported
annually. If these statistics are to be used as performance meas-
ures, they are likely to focus efforts on repetitive functions rather
than on systems improvements. I do not believe the focus on statis-
tical accomplishments is wise.

The GPRA passage has further emphasized governmentwide col-
lection of statistics. We collectively need to arrive at better meas-
ures of performance than currently exist. There are many IG’s who
are diligently reporting on the vulnerabilities facing their agencies
and the accomplishments in those areas are not easily enumerated.
It is difficult to measure positive change in a program or how the
outcome is agreed upon and place credit where it may be due.

I think focusing on positive change in Government p! ms is
the real agenda of inspectors general. But it is very difficult to
measure accomplishments in that area.

Concerning accountability of IG’s, IG’s in my opinion are account-
able to the President, the head of the agency, and the Congress. I
don’t believe there needs to be additional legislation in this area,
but there does need to be greater attention from those to whom in-
spectors general are accountable. Congressional oversight commit-
tees have frequent hearings and almost daily contact with some
1G’s and their staffs. There are some committees who actually re-
view inspector general work plans and their semiannual reports.
Further, some committee staffs read audit reports and ask ques-
tions. But it is my impression that this is not the norm.


43

professionally; two, they were not given enough support from the
top; and three, their mission was confused and misunderstood.

The problems President Reagan addressed, however, are not
roblems that can be fixed once and then forgotten. Let me talk
first about the constitutional issue. The President felt it was essen-

tial to terminate all of the incumbent IG’s to make the program ef-
fective and to settle the constitutional separation of powers issue
as to whether or not the inspectors general were members of the
executive or legislative branch of Government.

I knew that firing the inspectors general en masse would gen-
erate a firestorm of criticism, and they would be accused—we
would be accused of politicizing a program that was supposed to be
above politics. In anticipation of this reaction, I had the President’s
commitment that we would only appoint ple whose integrity
was beyond reproach and who were outstanding professionals.

President Reagan fired the inspectors general, and the firestorm
came. The constitutional issue of separation of powers from a prac-
tical point of view was resolved. The inspectors general were, are,
a part of the executive branch, subject to Presidential dismissal
and not agents of the Congress.

While we are dealing in practicalities, every time an IG’s post be-
comes vacant in every administration, 1 am sure that the senior
White House political adviser says, “I want to appoint someone to
this high-level post who is active in the campaign.” This kind of
problem requires continuous attention. It is easy and wrong to com-
promise on the qualities of the persons appointed to the IG’s post.

e chances of getting the kind of people we need as IG’s is en-
hanced if a single person is given a clear responsibility to achieve
high-quality ople in those Posts, such as the Deputy Director of
the Office of Management an Budget.

President Reagan did not compromise on quality. June Gibbs
Brown being here, and her subsequent appointments after being
terminated as inspector general of Interior, being appointed to
NASA, being appointed to IG of Defense, and President Clinton’s
appointing her to the HHS position are clear evidence that quality
was maintained and, I think, enhanced.

Top-level support. A second concern the President addressed was
the institutionalization of top-level support for the inspector gen-
eral program by creating the President’s Council on Integrity and
Efficiency in the Government. The Council has provided a forum by
which the inspectors general could coordinate efforts on govern-
mentwide functions and to deal with the delicate issue of accusa-
tions of misconduct by an IG.

The third, just briefly, as we were chopping away at the budget
in the Reagan administration, one of the things we did was to in-
crease the inspectors general budget.

And, finally, clarity of mission. When a staff of auditors and in-
vestigators is put together, there is an implicit assumption that
their mission is understood by all. Implicit assumptions are prone
to confusion and misunderstanding. Many at both ends of Pennsyl-
vania Avenue are confused as to whether the inspectors general
were friend or foe.

Let me conclude by suggesting what I think are some reasonable
expectations that may get the IG’s off to the right foot with agency


129

‘Statement of
June Gibbs Brown, Inspector General
Department of Health and Human Services

‘Introduction

Mr. Chairman, thank you for the opportunity to appear and testify in today’s oversight
hearing marking the twentieth anniversary of the Inspector General (IG) Act of 1978.

It is fitting that a retrospective look at Federal Inspectors General (IGs) should be presided
over by this Committee, which has been so instrumental in our creation, promotion and
development.

Tam also personally gratified to be asked to testify concerning the evotution of statutory IGs
in the Executive Branch. I have had the unique advantage of being a participant in much of
this evolution, having served as the Inspector General in five different Federal agencies
since 1979.' I was also privileged to serve as Vice-Chair of the President's Council on
Integrity and Efficiency (PCIE) from 1994 to 1997, during which time I had the opportunity
to work with the entire IG community on issues of common interest.

I nmst note that I testified before this Committee as the sitting Inspector General of the
Defense Department, at the oversight hearing on the occasion of the semth anniversary of the
1G Act in 1988. With your permission, Mr. Chairman, I would hereby like to reserve a
seat to testify at the hearing marking the 30* anniversary of the IG Act in the year 2008.

‘The Office of Inspector General (OIG) at HHS is actually celebrating its 22nd birthday. We
‘were established as the first statutory OIG in 1976, and just two years later, our legislation
served as a model for statutory IGs throughout government. Our 22-year history has been
am eventful and productive one; it would be difficult to mention even the highlights within
‘the limits of a hearing. So at the request of the Committee, I would like to focus my
remarks on my observations of some issues facing the IG community today, and changes
that might help the IGs better realize the promise of the original legislation.

Ina mutshell, I believe that the last two decades have demonstrated that the overall structure
of the IG Act is sound and does not need to be fundamentally altered. Certainly there are
occasional roadblocks to OIG effectiveness that could be legislatively removed; I will
discuss some of these later in my statement. But first, I would like to address what I believe

" The Departmeat of the Interior, the National Aeronautics and Space Administration, the Department
of Defense, the Social Security Administration and currently, the Department of Health and Human Services.
11 also served as the Inspector General of the Pacific Fleet; a position not covered by the 1G Act of 1978.

‘Commmitice on Goverment Reform and Oversight
‘Subcommiter on Government Management, laformation, and Technology
‘Hearing: Oversight of ingpector General Act, April 21, 1998 Page 1


113

11

existing weapons systems. We have recommended the
consolidation, automation, and integration of the
Department's many, many financial and accounting systems,
hoping to vastly improve the accuracy and reliability of

the financial data in those systems.

On another front, while advances in information
technology promise improved access to information, it also
presents new and substantial additional challenges for
government and for the Inspectors General. At Defense,
there is a huge potential for abuse in its vast information
infrastructure--that infrastructure now spans over 2
million computers, 10,000 local networks, and 100 long-
distance networks. The Department spends more than $10
billion a year on information technology. Nevertheless,
it's been reported that as many as 250,000 attacks were
carried out against Defense Department systems in 1995 and
I am told that number has continued to grow in the last two
years. This is accomplished using tools and techniques now
available to millions of computer users. While it is
estimated that at least 65 percent of those attacks are
successful, only one percent are actually detected and

reported.


122

20

the government's ability to obtain the proof required for

criminal prosecutions.

Outsourcing: As efforts to streamline government
continue, agencies are being encouraged to outsource
functions that have been performed in-house. As IGs are
increasingly relied upon to perform independent
validation of outsourcing studies as required by OMB
Circular A-76, this will create additional resource
burdens for the community. Moreover, as outsourcing
continues, there are legitimate questions about the
extent to which government can maintain adequate
oversight of the taxpayer dollars being directed to the

private sector.

Potential amendments to the False Claims Act: Members of
industry have recently suggested changes to the False
Claims Act, Section 3729-3733 of Title 31 United States
Code. The Act has been an invaluable tool to the IGs and
others in efforts to combat fraud against the government.
Some recent proposals would limit the impact of the Act
by raising the required standard of proof and decreasing
the amount of applicable penalties. While some have

suggested that the Act subjects simple innocent mistakes


127

phasis has been placed on an agency's ability to measure its own
performance against clearly stated goals.

So the question remains, how best to evaluate OIG performance?
The most obvious measurement, of course, is quantitative. How
many investigations or audits were undertaken? How many convic-
tions resulted, and how much money was returned to the Federal
coffers? But measuring our prevention effort is more elusive. Some-
times we can rely on external calculations, like the Congressional
Budget Office’s estimate of savings resulting from legislative
changes that we recommended.

More often, no such objective estimates exist. In the coming
years, the IG’s must work to develop meaningful performance
measures other than the monetary ones and will access the full
breadth of OIG’s efforts.

Let me now turn briefly to some more specific barriers to OIG
operations. Concerns have been expressed that the pool of experi-
enced, qualified, willing candidates for positions as IG’s may be
shrinking. One possible disincentive to accepting an IG appoint-
ment is lack of a term of office. Changes in administration some-
times cause lengthy periods of uncertainty in the community and
that can inhibit OIG operations. A fixed term of office, in my view,
would contribute to job security for those considering service as an
IG and would ensure the continuation of important OIG investiga-
tions and audits even during a period of transition.

I next offer the following suggestions to improve OIG reporting
processes. There is a proliferation of mandatory reports, and I have
perceived a recent rise in bills that would compel IG’s to perform
specific reviews. A rise in the number of compulsory reviews di-
verts OIG resources from pressing discretionary inquiries and
should be avoided. We would welcome this committee’s assistance
in this regard.

Regarding annual reports, we have a highlight section. We have
no objection to the proposal to change the semiannual reports re-
quired by the IG Act to annual reports. Our HHS report would be
lengthier, but we would continue to include an introductory section
that highlights and directs readers to the most significant items.

Another possible amendment might be to limit the number of au-
dits listed in the semiannual report, as required, to those where
findings exceed a certain dollar threshold, such as $25,000. We
would have decreased our reports last year by about 75 where the
summaries were required. And I mentioned that in my written
statement.

Seven-day letters, I believe, should continue to be used only as
a last resort when other avenues for corrective action have failed.
Moreover, I would like to say that the 7-day letter authority,
though rarely invoked, is very useful. The mere availability of such
a crisis report serves as an incentive to resolve problems before a
7-day letter is issued.

Ten years ago my predecessor as HHS IG testified here on the
need for law enforcement authority, yet this matter remains unre-
solved a decade later. Law enforcement tools are critical to effective
fraud investigation and to the safety of OIG personnel. The Justice
Department has technically acknowledged our need for such pow-


151

Mr. Horn. “HIPAA,” translate that for me.

A Ms. Brown. The Health Insurance Portability and Accountability
ct.

Mr. Horn. OK. So you got resources out of that legislation?

Ms. Brown. Yes, we got resources where money comes out of the
trust fund and the recoveries that we are able to obtain which go
back into the trust fund. So we put about $1 billion of Medicare
money back into the trust fund that has been paid in 1997. So I
think it is only appropriate that some of the money from the trust
fund is able to finance obtaining this kind of payback. But without
legal assistance, I wasn’t able to work in a reasonable manner.

I was able to staff up from 14 to 60 people in that function,
and I think that’s a necessity to continue the work that we are
loing.

Mr. Horn. OK. Inspector General Gaffney, what about HUD’s
situation with the general counsel?

Ms. GAFFNEY. Pretty much the same story as June’s. When I
went to the HUD IG there was a group of attorneys in the general
counsel’s office who were providing legal services to the OIG. I
didn’t think that was a good idea for the same kind of reasons.
They were situated in the general counsel’s office, and they were
either telling the Office of General Counsel everything we were
doing, which they weren’t supposed to do; or they weren’t telling
the Office of General Counsel what they were doing, in which case,
how could the Office of General Counsel rate them?

So, it seemed to me not to be a viable situation. The right way
to do it in any sizable IG is, you should have your own office of
counsel; I think it is necessary for independence. So that’s what we
did, and the role of counsel in the OIG when we had—have our
own has since become much expanded, much more vigorous, much
more an integral part of our operations. I think it should be re-
quired, to tell you the truth.

Mr. Horn. OK. So as I understand it, the general feeling of the
inspectors general is that you should have your own counsel, right?
And you should be able to pass judgment on them. You would rath-
er appoint them, I would think, than borrow them from the general
counsel's office.

Is there a problem about how much you know about the basic
law related to that agency that is important, maybe in State it
might be more important, than just getting a lawyer off the street?

Ms. GAFFNEY. Probably.

Mr. Layton. Could I speak to that?

Mr. Horn. Yes, please.

Mr. Layton, I don’t think most of us expect the attorney adviser
to the IG to interpret the agency program laws; we turn to the

ency general counsel and ask them how their program operates,
what the laws are that affect it. We are using our counsels, for the
most part, to guide us in the execution of subpoenas, the relation-
ships with Congress, conducting ourselves in a manner that is
above reproach and that implements the laws as we are supposed
to, interpreting the IG Act for us.

I don’t think—there may be some exceptions where the attorneys
have a programmatic function. But fonerally we are not asking our
attorneys to interpret the agency rules and regulations.


155

tigator might have 20 investigations. He may be carrying 8 or 15
different deputizations, not knowing which job he would be working
on on any given day.

And right now we have the deputization for all health care cases
and for parents who are delinquent in child support. But we may
work on a different program for the day, and that law enforcement
agent can exercise his authority during that period of time. So it
still causes a great deal of confusion and administrative burden to
operate the way we are operating.

Ms. HILL. Mr. Chairman, I should add, it is a very important au-
thority and last year we did receive statutory law enforcement at
DCIS for our criminal investigators in the IG’s office at Defense.
There was a slightly different situation than the other IG’s in that
DCIS had had a deputization agreement with Justice for somethin
like 8 or 9 years. So there was a long track record; the propos:
went over as part of the department’s proposal, OMB endorsed it,
the Justice Department and the FBI endorsed it, and we did get
that authority last year.

Mr. Horn. Now, was that authority within the executive branch
or was that congressionally put in statute?

Ms. HILL. It was enacted in statute. It was in the defense author-
ization bill last year, and it is now in statute. So DCIS does have
that authority statutorily as of last year.

Mr. Horn. So you got it from your authorization committee?

Ms. HILL. Right.

Mr. FuNK. Mr. Chairman, if it wasn’t so physically dangerous at
times, it is almost an Alice in Wonderland situation. We have IG
investigators who are pursuing a case, and at the last minute, they
are leading up to an arrest, and suddenly, since we don’t have ar-
rest powers, we have to bring in another law enforcement officer
with arrest powers to join our people. Sometimes, difficulties come
up and they get called to another urgent matter, and we are trying
to get a local cop or something, or overseas find somebody with ar-
rest power. It is very, very difficult and a serious situation.

Mr. Horn. Sure.

Do you have anything you want to add, Ms. Gaffney?

Ms. GaFFNey. Yes, I would like to say that the FBI and the De-
partment of Justice have actually been very helpful to us in coming
up with this blanket MOU. It has overcome an enormous number
of problems that we had when we worked on a case-specific basis.

The second point is, it has never been clear to me whether there
is a consensus among the IG’s on the need for a law enforcement
authority, because our missions, in fact, differ quite a lot.

One of the things we are doing in the HUD OIG is, we are par-
ticipating in violent crime law enforcement task forces in public
and assisted housing. That’s where the drugs are, that’s where the
gangs are, that’s where the guns are. So this is as dangerous work
as is possible.

The Congress has funded us for that work, and yet it is based
on an authority that is administrative and can be pulled away from
us at any time.

Mr. Horn. Explain that to me. I don’t quite understand it.

Ms. GaFFNEY. This blanket MOU that we have with the Depart-
ment of Justice, they could end it tomorrow.


CONTENTS

Hearing held on April 21, 1998 ..
Statement of:
Collins, Hon. Susan M., a U.S. Senator from the State of Maine ..
Funk, Sherman M., former ins} tor eneral, Department of State and

Department of Commerce; John yton, former inspector gen
Department of Energy; icanor fill inspector general, De] artment
fence, and vice'chairman, the President’ Council on Integrity

and, Efficiency; June, Gibbs Brown, inspector general, Department of
and Human Services; and Susan M. Gafiney in inspector general,

lth and of Housing and Urban Development .
ughton, James R., former professional staff member and counsel, Com-
Nawfiice on Government Operations; Edwin L. Harper, Chief Financial
Officer, American Security Group, and former Deputy Director, Office
of Management and Budget; Paul C. it, director, Policy Pro-
1m, the Pew Charitable Trusts; and id L. Clark, Director, 2 Audit
ersight and Liaison Group, Accounting and Information Manage-
ment Division, General Accounting Office ...
Letters, statements, etc., submitted for record by:
Clark, David L., Director, Audit Oversight and Liaison Group, Accounting
and Information Management Division, General Accounting Office, pre-
ared statement of
Collins, Hon. Susan M., a U.S. Senator from the State of Maine, prepared
statement of .
Funk, Sherman M., former inspector general, Department of State and
Department of Commerce, prepared statement of
Gaffney, Susan M., inspector general, Department of Housing and Urban
Development, prepared statement of ..
Gibbs Brown, June, inspector general, Department of Health and Human
Services, prepared statement of
Glenn, Hon. John, a resentative in ongress:
prepared statement
Harper, Edwin L., Chief Finan: rity
and former Deputy y Director, Office of “Management and Budget, pre-
pared statement of
|, Eleanor, ins
‘man, the President's Ceunedl on Integrity and Effici
Information concerning OIG investigations
red statement oe
Horn, Hon. Stephen, a
California, prepared statement o!
Kucinich, Hon. Dennis J., a Rey
tt Os pre 0; pre pared statement of
John C., former inspector
statement of ..
Li et, Paul C., director, Public Policy Program, the Pew Charitable
ists, prepared statement of
Naughton, James R., former professional staff member and counsel, Com-
mittee on Government Operations, prepared statement of ..

am

o

76


145

inability to figure out from disjointed OIG reporting what is
really important. I certainly am in favor of streamlining
reporting requirements, but I think the more important issue is the
need for OIGs to convey information in a fashion that is useful to
the Congress. In this regard, I think an expression of
expectations from the IG oversight committees would produce highly
beneficial results.

At the same time, I would like to maintain the semiannual
reporting requirement. The semiannual reports are an extremely
useful mechanism for the HUD OIG to summarize our recent findings
for both the Congress and the Agency. The semiannual report alerts
the Congress to significant issues, and it also motivates
corrective action by the Department. I fear that an annual report
would contain so much old information that it would become a
reference document, rather than an action-motivating document.

I have two concerns about the proposal that IGs have specified
(e.g., 5 year) terms of office. First, I don't believe that any IG
should be protected from being fired if he or she isn't doing a
good job. As discussed above, the problem is that we haven't yet
devised sufficient oversight mechanisms to know which IGs aren't
doing a good job. Further, getting rid of IGs who aren't doing
their jobs is going to require the same two elements needed to
ensure hiring the best IGs: better mechanisms at the Executive
Office of the President and greater Congressional involvement.

My second concern about the term of office proposal is the
effect of the lame duck syndrome. If agency management has a
reasonable expectation that the IG will not be around in another
year or two, it seems to me inevitable that the IG will lose some
of his/her clout with the agency.

Mr. Chairman, that concludes my testimony except to say that,
no matter what I told that reporter, being an IG is not easy. I
very much appreciate the Subcommittee's support and your providing
me this opportunity to testify.


106

created every year and today there are 28 Presidentially
appointed and Senate confirmed Inspectors General and 31

IGs appointed by the heads of designated Federal entities.

OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF DEFENSE

I would like to take a few minutes to share with you
some facts and comments relative to the Office of Inspector

General, Department of Defense.

Combating fraud, waste and abuse in an entity as huge
as the DoD is a substantial challenge: in Fiscal Year 1997,
the DoD encompassed $1 trillion in assets; 1.4 million
active duty military forces; 1.4 million in the Ready and
Standby Reserve; and about 800,000 civilian employees. The
amount of taxpayer dollars at issue is just as huge: the
Fiscal Year 1998 budget for the Department of Defense is

$250 billion.

In short, we in the IG's office have plenty to do. To
accomplish our mission, we have today over 1,200 personnel,
including auditors, criminal and administrative
investigators, and program evaluators. I might add that

there are many other investigators and auditors throughout


66

In the midst of implementing long-term information technology
improvements and strengthening computer controls, agencies are
faced with resolving an immediate situation--the Year 2000
problem.‘ These activities present potentially new roles and
challenges for the IGs.

Mr. Chairman, this concludes my statement. I would be happy to
respond to any questions that you or other members of the
Subcommittee may have at this time.

“For the past several decades, information systems have typically
used two digits to represent the year, such as "98" for 1998, in
order to conserve electronic data storage and reduce operating
costs. In this format, however, 2000 is indistinguishable from
1900 because both are represented as "00." As a result, if not
modified, computer systems or applications that use dates or
perform date- or time-sensitive calculations may generate
incorrect results beyond 1999.

7


52

Iam delighted to appear before the Subcommittee today to provide an update on my research on the
federal Inspectors General (IGs). I am only now culling through new data on how the IGs have fared
over the past five years, but will shortly tum to a full-scale revision of my book, Monitoring
Government: Federal Inspectors General and the Search for Accountability. Because am still
sorting through the data, 1 can only provide a general overview of my findings and offer the
following testimony in the spirit of helping this Subcommittee and its fine chairman set the agenda
for future conversation.

Given the sales figures reported by the Brookings Institution, I must assume that most members of
the Subcommittee have not seen the book. Briefly summarized, the book tells the story of the origins
of the IG concept and its progress, dare one say institutionalization, over the years following passage
of the 1978 Inspector General Act. The book was based on detailed interviews with the IGs, the
authors of the original statute, its opponents, and a host of other sources. It was also based on fairly
extensive analysis of secondary materials, including semi-annual reports, Office of Inspector General
(OIG) organization charts, IG workload data, congressional hearings, and Office of Management and
Budget tracking surveys. After pulling it all together, I reached the following conclusion in 1993:

After all the statistical accomplishments are totaled and all the staff and budget
increases reviewed, government appears no more accountable today than before the
IG Act. The IG savings and conviction totals continue to rise year by year with no
decline in sight. The IGs have not done their job poorly, but they may be doing the
wrong job--putting too much emphasis on compliance and not enough on
performance and capacity building.

Five years later, I would leave the paragraph mostly unchanged. But for 1996, when the government
shutdowns drove statistical accomplishments down for a moment, the IGs continue to report yearly
records in the hunt for fraud, waste, and abuse, suggesting that the war on waste is far from over.
Although the IGs continue to demonstrate remarkable toughness in ferreting out fraud, waste, and
abuse after the fact, they have yet to embrace a methodology, let alone an ethic of prevention. Far
too many of the IGs believe that creating the “visible odium of deterrence” is the sole weapon in
improving performance.

Not all is negative, however. I would add that many of the IGs have worked hard to strike a more
appropriate balance between before-the-fact prevention and after-the-fact monitoring, and that almost
all accept the basic premise that performance is the ultimate bottom-line. The IGs have also been
extraordinary willing to challenge themselves with new ideas. They have created their own Internet
website and a new Journal of Public Integrity as mechanisms for sharing information and
innovation. And they are even willing tq invite a curmudgeon like myself into occasional
conversations about the future. :


178

CRS-4

removal, the agency head may remove or transfer the IG, but must promptly
communicate in writing the reasons for such action to both Houses of Congress.

‘As with the presidentially appointed inspectors general, however, the IGs in the
designated federal entities are required to report to and be under the “general
supervision” of the agency head. Furthermore, neither the head nor any other officer
can interfere with an IG audit or investigation or issuance of a subpoena,

Duties of IGs

The broad mandates, highlighted in section 2, are spelled out in greater detail in
section 4 of the codified law. Each inspector general is required to perform specific
duties to achieve the goals of promoting economy and efficiency and of detecting and
preventing waste, fraud, and abuse. These duties illustrate the IG’s unique role within
the agency and the broad grant of authority delegated by Congress. The IGs are
specifically directed to:

© provide policy direction for, conduct, supervise, and coordinate audits and
investigations relating to the establishment’s programs and operations;

© review existing and proposed legislation and regulations relating to programs
and operations and make recommendations in the semiannual reports
concerning the impact of the laws or regulations on the economy and efficiency
in the establishment's programs and operations and on the prevention and
detection of fraud and abuse;

© recommend policies for, conduct, supervise, or coordinate other relevant
activities of the establishment;

‘© recommend policies for, conduct, supervise, or coordinate relationships with
other federal agencies, with state and local governmental agencies, and with
nongovernmental entities with respect to promoting economy and efficiency
and preventing and detecting fraud and abuse in establishment programs and
with respect to identifying and prosecuting participants in fraud or abuse; and

© report expeditiously to the Attorney General whenever the inspector general
has reasonable grounds to believe that there has been a violation of federal
criminal law.

IG Reporting to and Informing the Agency Head and Congress

Under section 5, inspectors general have two basic types of reporting
requirements to the agency head and to Congress: i.e., semiannual reports and seven-
day letter reports dealing with particularly egregious problems. These complement
the section 4 requirement to keep the agency head and Congress “fully and currently
informed.”

Semiannual Reports. IGs are directed to make semiannual reports that
summarize the OIG’s activities for the previous six months, itemizing waste, fraud,


101

Ms. HILL. This pamphlet was prompted by our discussion at the
subcommittee’s earlier hearing on investigative practice. It really is
a general informational phlet for the IG community which can
be customized for each IG to distribute to the employees within
their own department.

Investigative training. We think a great accomplishment of the
PCIE has been its efforts to establish an IG investigative academy
in Glynco, GA, in 1993 for IG’s. Also the establishment of the Ii
Auditor ‘Training Institute, which is the only organization whose
purpose is to address the unique training needs of Federal audi-
toi

Ts.
Finally, I do want to say that the PCIE does fully recognize the
importance of maintaining the integrity of the office and over
the years attempted many times to address concerns about ac-
countability of IG’s. As such, the PCIE supported and was instru-
mental in the drafting of the recent Executive order which estab-
lished in 1996 the PCIE Integrity Committee, chaired by the FBI,
as a formal mechanism empowered to review and, if appropriate,
investigate allegations against IG’s and certain senior mem-
bers. If the investigation by the committee justifies further action,
the committee’s report is forwarded to the chair of the PCIE, who
in turn forwards it to the head of the agency involved for appro-
priate action.

Mr. Chairman, the PCIE fully understands that integrity is per-
haps above all else key to the credibility of individual IG’s as well
as to the entire IG community. We intend to continually work with
the Integrity Committee to help ensure professional and timely in-
vestigations in this most critical area.

Finally, in closing, I do want to just point out a few areas of
growing concern that I believe exist for the IG community. One has
to do with cyber fraud, which I mentioned earlier. The potential for
criminal activity in the cyber environment continues to grow as
Government agencies increase reliance on electronic commerce and
processes. This creates not only a need for increased IG focus, but
also for specialized skills training and expertise, throughout the IG
community. This is a growing area of difficulties for IG’s, not only
in competitively attracting individuals with this very sought after
expertise, but also in training and maintaining these skills in-
house. It is very difficult to compete, particularly with the private
sector, in this area.

Second, record retention and digital signatures. Again as Govern-
ment moves to a Paperless environment, there is a need to deter-
mine what records should be maintained in a nonelectronic format
and to develop digital signatures that would authenticate original
documents. Obviously these are areas of concern for prosecutorial
and law enforcement agencies, including IG’s, since they could sub-
stantially impact the ernment’s ability to obtain the proof re-
quired for criminal prosecutions.

Outsourcing. Increasingly agencies are being encouraged to
outsource functions that have been traditionally performed in-
house. As the IG’s are increasingly relied upon to perform inde-

endent validation of outsourcing studies, as required by OMB’s
ircular A~76, this will create additional resource burdens for the
community. Moreover, there are legitimate questions about the ex-


26

being conducted with an almost total lack of coordination or com-
munication.

The stated purpose of the 1978 act, quite simply was to create
independent and objective units with 1 basic responsibilities:
one, to conduct and supervise audits and investigations relating to
programs and operations; second, to provide leadership and coordi-
nation and recommend policies for activities designed, A, to pro-
mote economy, efficiency, and effectiveness, and, B, to prevent and
detect fraud and abuse in programs and operations, and, C, and
perhaps even most important, to provide a means for keeping the
agency head and the Congress fully and completely informed about
problems and deficiencies and the necessity for and progress of cor-
rective action. That is the basic function of IG’s.

The remaining provisions of the act were put in so IG’s would
have the authority necessary to carry out these pu! . The 1978
act was opposed by the Office of Management and Budget, all 12
of the departments and agencies affected. The Department of Jus-
tice’s Office of Legal Counsel said it was unconstitutional in part.
Nevertheless, it sed the House by a vote of 388 to 6 and was
approved by the Senate without opposition. It became law on Octo-
ber 12, 1978.

Five Presidents have had dealings with the IG’s since that Octo-
ber 1978. I would have to say that only one of them gets a com-

letely favorable report. President Gerald Ford signed the HEW IG

ill in October 1976 and left town shortly thereafter without, as far
as I know, doing anything to mar his perfect batting average. The
succeeding four administrations have had mixed records.

President Carter did not actually oppose the enactment of the
1978 act, although everyone else in his administration did. There-
after, he issued some supportive statements, and provided some
support.

ident Reagan took two steps—well, he emphasized his con-
cern about the magnitude of fraud and waste in Federal programs
and the urgent need for corrective action; however, on Inauguration
Day, he took two steps which could hardly qualify as “corrective ac-
tion.” The first step was to impose a freeze on hiring by inspectors
general, which was even stricter than the one previously im
under the Carter administration. The second was to summarily re-
move all incumbent inspectors general. The removal operation was,
to phrase it delicately, not well-planned.

The IG’s were removed on January 20, 1981. However, they were
not told what had happened to them until the next day, when most
of them received form letters on which the name of the signer was
misspelled. One former IG was notified of his “removal,” 3 weeks
after he had retired. No apparent thought was given to the length
of time it would take to fill the vacancies, and for at least 6
months, there was not an IG to be found in the Federal Govern-
ment.

However, after the removals, President Reagan took some steps
to rectify what he had done. He announced that he had no inten-
tion of politicizing the IG offices, and also, thanks to Ed Harper,
who isn’t here, the Reagan administration—I should say Ed Harp-
er, because the White House Personnel Office really had nothing to
do with it—but Ed Harper stopped them from doing what comes


22

in place a fair, effective, and useful--if partial--solution to
some very serious management problems in government. To me, this
represents a singularly important success for the Congress and
the American people, and one upon which I am hopeful we will
continue to build into the 21st century and beyond.


105

"one of the most monumental pieces of legislation .
considered, because of the billions of dollars it may well
save through increased economy and efficiency and a
reduction in fraud and program abuse." Congressman Ben
Gilman called it a "first step in the process of government
accountability.” Despite some initial opposition, the
Congress and Administration crafted a compromise bill that

passed with overwhelming bipartisan support.

In 1982, a provision in the National Defense
Authorization for FY 1983 (P.L. 97-252), created an Office
of Inspector General for the Department of Defense. There
had been much resistance within the Department to the idea
of a statutorily mandated Inspector General. The Congress
answered some of the Department's concerns about national
security by granting the Secretary special authority to
prohibit IG audits, investigations or subpoenas where
“necessary” to preserve national security interests. The
fact that that authority has never to date been exercised
underscores the fact that the IG concept has indeed worked

well at DoD over the years.

Since 1978, with the exception of 1984, 1985, 1990,

1991, and 1992, a new Office of Inspector General has been


162

Mr. Horn. Since you have mentioned Medicaid, your $23 billion
figure that we got out of the consolidated financial statement as
waste, fraud, and abuse, was that figure strictly tied to Medicare?

Ms. Brown. That’s right.

Mr Horn. Did you have a separate statistical analysis on Medic-
aid?

Ms. BRowN. Not on exactly the same thing. And we are working
with the States on Medicaid, so we have included them in our
audit, but it is done differently. And, of course, each State runs a
different program. What we have done is formed partnerships with
audit organizations within the State. One thing that I said and
pledged to the State people from the start is, we are not going to
worry about who gets credit here. We will help you with any of
these audits. We will provide audit programs and that work suc-
cessfully in Medicare. We will give you either supervisory people or
entry-level people, whatever you need to supplement your staff and
to assist you in doing these audits. And, of course, both the State
and the Federal Government make recoveries.

I think we have over 30 such pro; is going on right now. And
there have been a great number—the States have been very, very
happy with that because they made dollar recoveries, and [ think
that it has been beneficial to both the State and Federal Govern-
ments.

Mr. Horn. Yes. I completely agree with you. Have any States
turned you down on this offer?

Ms. Brown. Some haven’t gotten to it yet, but we have now gone
over the halfway mark; and it has been discussed at some of the
audit conferences where the State auditors assemble. And so there
is more and more. Once they do an audit, too, they look for other
areas that they can partner with us, so some of them are doing it
in four to five different areas now.

Mr. Horn. The last substantive question is on the peer review
process. How do you feel about that? Is there another way to look
at it? Should GAO participate in those peer reviews as an outside
force? Should there be people from private sector involved?

Mr. FUNK. My staff hasn’t forgiven me yet because I volunteered
my shop as the guinea pig for the GAO peer review. It is called
quality assessment review, but essentially it is the peer review. It
was done back in 1983, I believe. It was enormously helpful to us.
It took over a year. It was the first one, and they were going very
carefully. It took about a year, and subsequent GAO reviews ran
about 6 to 8 months. It is a long, long process to do a comprehen-
sive review.

The peer reviews that are done now, unless they've changed
since I left, the peer review now is strictly on the audit side—no
inspections, no investigations, no administration; all you get is a
review of the audit function. That’s helpful, but it is nowhere near
as helpful as the GAO reviews which covered the entire shop. They
were prodigiously expensive and resource intensive, so GAO
drop them, and to my knowledge, they will need somebody giv-
ing them a swift kick from the Hill before they get started again,
because it is extremely labor intensive.

Mr. Layton. I think I would disagree with Mr. Funk.


165

damental deficiency if left uncorrected. I think the MOU has re-
solved it on a temporary basis, but it is, a constantly held-over-
one’s-head opportunity. It is an opportunity while it exists, but it
could go away at any time.

Mr. Horn. That’s very helpful.

Any feneral thing that we have not covered? Any thoughts?

Mr. FUNK. Very briefly.

Mr. Horn. Yes.

Mr. FUNK. Very briefly, all day long you have been talking about
deficiencies, or possible deficiencies in the act, things to be done to
correct that. During the past few years, I have been working with
a number of foreign governments, trying to assist them in
anticorruption efforts. And let me tell you something, they would
give their right arm and left arm to have even a fraction of what
we have in the IG Act, let alone—not even counting the resources
involved. They simply do not have legislation like this, except in a
few places beginning to come.

So I think that it was mentioned by all of us; I think we have
a deep feeling of thanks and gratitude for the IG Act.

Mr. Horn. I am thinking of that play called “The Inspector Gen-
eral.” And I am wondering if Russia, with its current difficulties,
has any inspector generals. Are you a consultant over there?

Mr. FuNK. They have an inspection system that was set up,
headquartered in the Office of the President in Moscow. When I
was there, at the end of the first discussion, somebody raised his
hand, asking a question through an interpreter, and he asked,
“What do you do about reprisal, Mr. Funk?” I thought he was talk-
ing about personnel reprisal. So I explained the weak arrangement
that we have here, and it is not very good but it is something to
protect, People against reprisal. And whereupon the hand went up
again, and he said, “No, no, no I am not talking about that, I am
talking about being killed.” And sure enough, 3, 4 months ago, an
inspector was killed after issuing a draft report which angers peo-
ple. So you see they have a long way to go.

Mr. Horn. Right, a tragic situation. Well, I want to thank all of
you for your really excellent presentations and writing, as well as
the dialog we’ve had here. And since I said, the staff on both sides
will coordinate, through Staff Director George, the questions to
you, and we will put those in the record at this point.

We will also put in—at Senator Glenn’s request, he’d like to ask
he be allowed to submit testimony for the hearing record, and that
will go right after Ms.—Senator Collins’ remarks this morning.

And now I would like to thank the staff that prepared this hear-
ing: J. Russell George, staff director and chief counsel—there he is,
over by the door with my chief of staff, Mr. Bartel; John Hynes,
professional staff member, Randy Kaplan, gentleman to the right—
to my left, your right did an outstanding job with this hearing as
counsel; Matthew Ebert, the clerk; Mason Alinger, staff assistant;
Carolyn Hicks, professional staff member for the full committee
majority. Do you want to put your hand up so we can all see you?

And then on the other side, we have Mark Stephenson, profes-
sional staff member for the minority. We have Jean Gosa, down
there by the telephones as a clerk for the minority; and the court
reporters are Cindy Sebo and Bill Odom.


169

Contents

Overview of Statutory OIGs . .

Purposes, Powers, and Protections
Purposes of Offices of Inspector General
Appointment, Removal, and General Supervision of IGs_.

IGs in Federal Establishments . . . . .

IGs in Designated Federal Entities

Duties of IGs ..... o

IG Reporting to and Informing the Agency Head and Congress i
‘Semiannual Reports

Seven-Day Letter Reports

‘Other Channels of ‘Communication .

Authority of IGs .......

Specific Powers

MIAAUVUERRAWNNONN

Law Enforcement POWES 22.0.2... .ececcccceee

Coordination Among and Investigations of IGs
Coordination ...........
Administrative Investigations .

2 0

Current Issues Affecting Inspectors General .....
Institutional and Procedural Arrangements
Authority of Inspectors General ......
Effectiveness and Orientation of IGs, PCIE, and ECIE
Reporting to the Agency Head and Congress .
Personnel Practices and Incentive Awards .....



34

6.
The succeeding four administrations have had mixed records.

President Carter himself, to the best of my knowledge, never
publicly expressed opposition to the proposed 1978 Act. However,

as noted earlier, OMB and every department and agency affected by
the proposed legislation opposed its enactment.

President carter signed the 1978 Act into law in October 1978. In
December 1978, he described the statutory Inspectors General as
“perhaps the most important new tools in the fight against
fraud...", and in 1979 he established an Executive Group composed
of IGs and other Federal officials to serve as a coordinating
mechanism for the new Offices of Inspector General.

In 1980, an OMB official suggested that the IGs would be allowed a
badly needed increase in staffing; however, a hiring freeze imposed
by the Carter Administration insured that the number of positions
actually available would be far less.

Before his election, President Reagan had emphasized his concern
about the magnitude of fraud and waste in Federal programs and the
urgent need for corrective action. However, on Inauguration Day in
1981, he took two steps which could hardly qualify as “corrective
action".

The first step was to impose a freeze on hiring by Inspectors
General which was even stricter than the one previously imposed
under the Carter Administration. The second was to summarily
remove all incumbent Inspectors General.

The removal operation was, to phrase it delicately, not well-
planned. The IGs were removed on January 20, 1981. However, they
were not told what had happened to them until the next day when
most of them received form letters on which the name of the signer
was misspelled. One former IG was notified of his "removal" three
weeks after he had retired.

The removals were ordered with no meaningful review of the
qualifications and performance of the incumbent IGs and without
notice to or consultation with Members of Congress of either party
or any of the individuals newly designated to head the affected
agencies.

No apparent thought was given to the length of time it would tal
to fill vacancies created by the mass removals. As a result, the!
were no statutory IGs at most agencies for at least six months.

Shortly after the removals, President Reagan assured concerned
members of Congress of both parties that he had no intention of
"politicizing" the IG offices. In July 1981, in a unanimous
report, the House Committee on Government Operations stated that
the President's assurances and the appointment or reappointment of


175

CRS-6
Authority of IGs

To carry out the purposes of the act, Congress has granted the inspectors general
broad authority

Specific Powers. Section 6 of the codified legislation authorizes the IGs, among
other things:

to conduct audits and investigations and make reports relating to the
administration of programs and operations,

to have access to all records, reports, audits, reviews, documents, papers,
recommendations, or other material which relate to programs and operations
with respect to which the JG has responsibilities under the act;

© to request assistance from other federal, state, and local government agencies,

to issue subpoenas for the production of all information, documents, reports,
answers, records, accounts, papers, and other data and documentary evidence
necessary to perform the IG’s functions;?

to administer to or take from any person an oath, affirmation, or affidavit,

to have direct and prompt access to the agency head;

.

to select, appoint, and employ officers and employees to carry out the
functions, powers, and duties of the office of the inspector general:

© to obtain the services of experts and consultants on a temporary or intermittent
basis, as authorized by 5 U.S.C. 3109; and

to enter into contracts and other arrangements for audits, studies, and other
services with public agencies as well as private persons and to make such
payments as may be necessary to carry out the act.

The scope of an IG’s investigative authority is seen further in the range of
matters the inspector general may investigate stemming from an employee complaint
or disclosure of information. Under section 7 of the act, the inspector general is
authorized to receive and investigate complaints or information from an employee
concerning the possible existence of an activity constituting: a violation of law, rules,
or regulations; mismanagement, gross waste of funds, and abuse of authority, or a
substantial and specific danger to the public health and’safety. In such instances, the
1G shall not disclose the identity of the employee without the employee’s consent,
unless the IG determines that such disclosure is unavoidable during the course of the

? This section does not permit the IG to use the subpoena power to obtain documents and
information from other federal agencies. 5 U.S.C. App. 3, §6.


115

13

many Inspectors General have in recent years moved to work
more constructively with management, while still
maintaining their independence. Our goal should be to
become part of the solution process, rather than simply
identifying the problems. Over the past 5 years, the DoD
IG, has participated in over 100 management process action
teams, integrated process teams and working groups that
have been the Department's principal means of generating
new ideas for reforms and process improvement across the
spectrum of DoD business activities. At present we are
involved in 57 such groups. The growing level of IG
participation on those teams illustrates the good
professional working relationships between the IG and the
rest of the Department, as well as general acceptance of
the need for our advice to be considered during the
reengineering of processes, not just after new processes

are already put into place.

PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY (PCIE)

By Executive Order 12301, the President's Council on
Integrity and Efficiency (PCIE) was created in 1981 to
“coordinate and enhance government efforts to promote

integrity and efficiency" in Federal programs. In addition


136

Our need for law enforcement powers is amply illustrated by the fact over 95 percent of our
229 criminal investigators are currently deputized as Special Deputy U.S. Marshals under a
variety of “blanket deputations,” covering health care cases, ‘deadbeat parent” cases and
others. These deputations constitute a clear recognition by the Department of Justice that
law enforcement tools are necessary to the effective and safe accomplishment of HHS
investigations. A statutory grant of law enforcement authority would not enlarge the
authorities that we are already exercising under deputations, at HHS; but legislative
authority would remove the administrative burden and uncertainty of temporary, limited
deputations.

We believe that it is time, even past time, to eliminate the piecemeal approach of our several
blanket deputations, and confer upon HHS criminal investigators the statutory law
enforcement authorities they have already been long and properly exercising. Relying ona
patchwork of deputations for our law enforcement authority also raises more liability issues,
not only for the OIG generally, but also for individual special agents.

We are pursuing this legislative proposal within the Executive Branch, in accordance with
the Administration Policy Statement concerning statutory law enforcement, and hope to
present it to this Committee and the Congress in the near future.

‘G's Role in the Department

Asa final matter, there has long been a debate over whether an Inspector General should
properly be housed within the agency that he or she monitors. The fear is that if the IG has
a close working relationship with the Secretary and is an integral part of agency
management, the IG will be co-opted, and, as the cliche goes, turn from a watchdog to a
house pet. I couldn't disagree more strongly.

At HHS, I am fortunate to enjoy an excellent and close working relationship with Secretary
Shalala. Her very visible support of OIG efforts has served to mobilize management
throughout the Department to greater awareness of fraud and abuse in the administration of
agency programs, and to foster cooperation with IG inquiries. In addition, my participation
as a full member of the Department's senior staff ensures that issues of waste, fraud and
abuse will be considered as management decisions are made at the highest levels of HHS. I
believe that isolating the IG from agency management would do serious damage to our
ability to prevent and detect fraud and abuse.

Ironically, while some in Congress may be uneasy that Inspectors General will lose a
measure of independence by working in partnership with agency managers, those agency
‘Managers similarly wonder whether the IGs are aligned too closely with Congress (indeed, I
do have an effective working relationship with many Committees of the House and the

‘Committee on Government Reform aed Oversight
‘Subcommitie on Government Management, Information, and Technology
‘Hearing: Oversight of Inspector General Act, April 21, 1998 Page 8


mq

CRS-8
Coordination

Two councils—the President's Council on Integrity and Efficiency (PCIE), for
the presidentially-appointed IGs, and the Executive Council on Integrity and
Efficiency (ECIE), for agency-head appointees—provide a coordinating mechanism
for the inspectors general, along with representatives from other appropriate
organizations. The other members include: the Deputy Director for Management of
the Office of Management and Budget, who chairs both councils; the Associate
Deputy Director for Investigations of the Federal Bureau of Investigation (FBI); the
Controller of the Office of Federal Financial Management, the Director of the Office
of Government Ethics; the Special Counsel of the Office of Special Counsel, and the
Deputy Director of the Office of Personne! Management. Besides these individuals,
the Vice Chairperson of the PCIE sits on the ECIE and the Vice Chairperson of the
ECIE, on the PCIE.

The President’s Council on Integrity and Efficiency, the older of the two
councils, was established in 1981 by President Reagan through Executive Order
12301. Both councils are now governed by Executive Order 12805, issued by
President Bush in 1992. Among their functions, the councils “shall continually
identify, review, and discuss areas of weakness and vulnerability in Federal programs
and operations to fraud, waste, and abuse, and shall develop plans for coordinated,
Governmentwide activities that address these problems and promote economy and
efficiency in Federal programs and operations.”

Administrative Investigations

Allegations of wrongdoing by inspectors general or other high-ranking officers
in an IG office may be investigated by a special Integrity Committee, following a
process authorized by Executive Order 12993, issued by President Clinton in 1996.
Such a committee, established by the Chairperson of the PCIE and ECIE (i.e., the
Deputy Director for Management from OMB), is to consist of at least the following
PCIE and ECIE members: the FBI representative, who chairs the committee, the
Special Counsel of the Office of Special Counsel; the Director of the Office of
Government Ethics; and three or more IGs, representing both the PCIE and the ECIE.
In addition, the Chief of the Public Integrity Section of the Criminal Division of the
Department of Justice serves as an advisor to the Integrity Committee with respect
to its responsibilities and functions.

‘Once it receives allegations of wrongdoing, the Integrity Comittee reviews them
and, where appropriate, refers them to one of two investigative entities: either to an
agency with jurisdiction over the matter or to an investigative team composed of
selected investigators supervised and controlled by the Integrity Committee's
chairperson,

Current Issues Affecting Inspectors General

The issues affecting the statutory IGs can be grouped under five broad
categories:


58

Mr. Horn. Now we go to the—one of the favorite witnesses of
this subcommittee, which is the U.S. General Accounting Office,
part of the legislative branch. And we will hear from David L.
Clark, the Director of Audit Oversight and Liaison Group, Account-
ing and Information Management Division of the General Account-
ing Office.

ir. Clark.

Mr. Ciark. Thank you, Mr. Chairman. I am pleased to be here
today to discuss the history and evolution of the IG concept. I have
some summary remarks I would like to make from my prepared
text. And I would also like to touch on one of the points that Sen-
ator Collins made earlier.

Ten years ago, GAO testified on the results of the IGs’ first 10
years in operation. At that time we said that the IG’s had had a
significant amount of success in accomplishing the purpose for
which they were established; that is, Preventing and detecting
fraud, waste, and mismanagement, and improving Federal pro-
grams and operations. The IG’s have also been successful during
their second 10 years of operation in accomplishing that same pur-

se.

In fiscal year 1996, for example, IG’s reported investigative re-
coveries totaling about $1 billion, and successful prosecutions of
over 12,000 criminal cases when you add in the Postal Service IG.
Investigative recoveries alone were nearly equal to the IGs’ total
annual budget of about $1.1 billion. Recently, the larger IG’s across
Government have also been engaged in broad-scale efforts, such as
conducting or overseeing agency financial statement audits and de-
termining whether agencies’ financial management systems comply
with Federal accounting standards, Federal financial systems re-
quirements, and the U.S. Government’s standard general ledger.

These broad-scale efforts have identified many control weak-
nesses and financial management systems breakdowns and have
directly contributed to GAO’s ability to audit the consolidated fi-
nancial statements of the Federal Government. Broad-scale efforts
such as these are largely the result of explicit IG requirements in
the Chief Financial Officer’s Act of 1990 as expanded by the Gov-
ernment Management Reform Act of 1994 and in the Federal Fi-
nancial Management Improvement Act of 1996.

Other recent legislative initiatives to improve Government oper-
ations, while not containing explicit roles for the IG’s, nevertheless
offer excellent opportunities for IG’s to substantially influence the
way agencies operate. These legislative initiatives include, in par-
ticular, the Government Performance and Results Act of 1993, the
Paperwork Reduction Act of 1995, and the Clinger-Cohen Act of
1996.

Our sense, Mr. Chairman, is that the continued success of the IG
concept may ultimately hinge in large part, on how others, includ-
ing the Congress, see the IG’s role under such legislative initiatives
and how well the IG’s are willing and in a position to carry out
that role.

Recently, Mr. Chairman, we began a comprehensive review of
the IG concept at your request and at the request of the chairman
of the full committee. Our first project in that review was a survey
of the IG’s efforts to develop their own strategic plans. As you are


112

10

opportunities for improving efficiencies and

effectiveness."

While our mission is basically the same, the
environment in which we operate is changing dramatically.
The Department of Defense, as the rest of the government,
is undergoing immense change. We are all facing
significant new challenges in an era of shrinking
government. As the government downsizes, difficult, and
often painful, decisions must be made on where losses will

be taken and what core processes need to be preserved.

As a result, there has been an intensified effort to
combat waste and to streamline and reengineer processes.
The Inspector General community, including our office, has

been an integral part of that process on numerous fronts.

At DoD, acquisition reform, financial management,
infrastructure reduction, and information technology have
all had a major impact on the focus of our audit and
investigative efforts. We have worked hard for instance to
promote acquisition reform while reporting deficiencies in
weapons systems planning and supporting efforts to insert

new lower cost and commercial dual use technologies into


76

to launch an independent investigation of those allegations. I think
that system worked quite well in our circumstance.
Mr. Horn. Are there any comments you would like to make on
Senator Collins’ testimony? She laid out some specific recommenda-
tions somewhat along your line, Mr. Harper, on consolidating
smaller IG operations, such as the National Endowment for the
Arts and the National Endowment for the Humanities, where there
are two separate IG’s. If you do, this is the chance to voice it, be-
cause that was the last question.
Mr. Harper. IJ think a rule of common sense should apply. In the
rivate sector, if you have a small subsidiary, you don’t create a
full-fledged internal audit and investigations staff to service a
small subsidiary. Instead the parent company supplies the auditors
or you hire the auditors from an outside public accounting firm.
There are many things to which common sense applies. I realize in
Government somehow it is easy to divorce common sense from
practice. Any way that we can possibly nurture those resources
which the taxpayers do give Government and which I think the IG
program has done over the years is marvelous. The role the IG’s

ave played in protecting those resources as a part of the manage-
ment team of the executive branch is vitally important. I just urge
people think about common sense in terms of putting together this

program as well.

ir. HoRN. I thank you. On that optimistic note, we will sub-
stitute panel 2 with panel 3, the inspectors general. Thank you
very much. Would you stand and raise your right hands.

[Witnesses sworn.]

Mr. Horn. The clerk will note that all five witnesses have
affirmed. We will begin with the Honorable Sherman M. Funk, the
former inspector general of both the Department of State and the
Department of Commerce. Thank you for coming.

STATEMENTS OF SHERMAN M. FUNK, FORMER INSPECTOR
GENERAL, DEPARTMENT OF STATE AND DEPARTMENT OF
COMMERCE; JOHN C. LAYTON, FORMER INSPECTOR GEN-
ERAL, DEPARTMENT OF ENERGY; ELEANOR HILL, INSPEC-
TOR GENERAL, DEPARTMENT OF DEFENSE, AND VICE
CHAIRMAN, THE PRESIDENT’S COUNCIL ON INTEGRITY AND
EFFICIENCY; JUNE GIBBS BROWN, INSPECTOR GENERAL,
DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND
SUSAN M. GAFFNEY, INSPECTOR GENERAL, DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT

Mr. Funk. Mr. Chairman, I have already given my statement for
the record. I would like now to discuss a few of the items that have
come up this morning, some of which I have already covered in my
formal statement so I won’t go into them in detail here. I was be-
mused by many of the comments, because they seemed to be re-
playing roles that go back a long way. Mr. Harper did a fantastic
job when he had the deputy job at OMB. You asked the question

iow effective PCIE was. It was very effective then, sir, extremely
effective.

I must say that there are a few things that have to be addressed.
Some that can be left as is, but there also are some which must
be addressed. One of them is the role of the small IG’s vis-a-vis the


28

On the other hand, an outstanding example of lack of cooperation
or lack of effectiveness particularly involves the HUD scandals of
some years back in which numerous, well-connected people ripped
off the Federal Government for very significant amounts of money.
Thanks to congressional hearings, an independent counsel was ap-

jinted, who is still working there after 8 years and—excuse me,
330 million since 1990. They have secured some criminal convic-
tions, but they have not—the mockery has been the p:
program most mentioned in connection with the HUD scandals, al-
though there have been criminal convictions, neither the Depart-
ment of Justice nor the Independent Counsel Office, to the best of
my knowledge, has recovered anything in civil damages because of
the HUD scandals.

As a matter of fact, subsidies which were illegally obtained are
still being paid and will be paid for another 5 years or so. Tax cred-
its which were also illegally obtained, I guess they will run out
next year. But to give you an—the Department of Justice con-
tended when the question was raised about the lack of criminal ac-
tion, said in effect that it was not needed because, where appro-
priate, recoveries were made through the imposition of criminal
ines.

Well, that is simply not true. To give you an example, a gen-
tleman who spent a year or so working for former Secret ‘ierce
left to become a consultant to help people get MOD re! funds,
while at the Department of HUD, he was instrumental in obtaining
$37 million in Government subsidies for a developer in Puerto Rico
for which he received $60,000 in bribes.

According to the indictment, the same gentleman continued to
engage in a conspiracy to defraud the United States for about 11
i’ . He eventually pleaded guilty to accepting the $60,000 in

ribes and received a sentence of hours of community service.
He was fined $20,000; one-third the amount of the bribes. The de-
veloper who gave the bribes was never—so far as I know, no action
whatever was ever taken either criminally or civilly. There are
roblems in getting consistent action by the Department of Justice.
do not think it is a well-managed department.
[The prepared statement of Mr. Naughton follows:)


94

Mr. Horn. That is a very interesting contrast. I am sure we are
going to have an interesting dialog on this. We now move to seem-
ingly a regular witness before this committee, the honorable Elea-
nor Hill, inspector general of Department of Defense and vice
chairwoman of the President’s Council on Integrity and Efficiency.

is. Hill.

Ms. HILL. Thank you, Mr. Chairman. I am pleased to be back
here again after last week’s appearance on another subject. I have
a lengthy statement, and I just want to briefly mention a few
things in the statement, really on three points.

The first is the issue of change. Paul Light, I think, said some-
thing to the effect that the IG’s were stuck or that he was con-
cerned they were stuck. I am not necessarily sure I would agree
with that. at I would say is that certainly while our core statu-
tory mission has not changed considerably in the last 20 years, it
has not changed at all, the core mission, we are certainly, all 1G’s,
operating in an environment, to say the least, which is rapidly
changing and changing very dramatically, I should say. It would be
very hard for us, I think for any of us, to be “stuck,” given the
types of changes that we have to confront every day and the re-
focusing we have to do and the adaptation we have to do. We are
all facing significant new challenges in an era of shrinking Govern-
ment.

As a result, there has been an intensified effort throughout Gov-
ernment to combat waste and to streamline and to reengineer proc-
esses. The inspector general community, certainly including my of-
fice and the offices of my colleagues, has in fact been an integral
part of that process on numerous fronts.

At DOD, for instance, acquisition reform, financial management
as we heard about last week, infrastructure reduction, and infor-
mation technology have all had a major impact on the focus of in-
spector general audit and investigative efforts. As both the benefits
and the challenges posed by the information technology revolution
continue throughout Government, the inspector general communit;
must and has expanded their focus and their capabilities accord-
ingly. At DOD, we are attempting appropriate oversight of the
many key and very difficult issues in this changing area. In some
of these, this committee is very familiar, such as the year 2000
computer program, the computer security problems at the Depart-
ment, decades of disjointed information systems management and
the change from that to fully integrated systems.

I could go on and on about the very new and constantly changing
challenges we face in information technology. That is an area
where the departments, at least in my experience of Defense, turn
more and more to the IG’s. To address those new issues, but really
necessarily to do so and to do so capably, we have to change our
abilities and our focus. For instance, as the problem of computer
intrusion grows, we have seen the emergence of cyber fraud which
presents totally new and uncharted lenges for law enforcement,
including the inspectors general. At DOD, DCIS, which is the
criminal investigative arm of my office, is in fact in the midst of
trying to answer those challenges at our agency. They are setting
up a new computer intrusion team and a computer crimes inves-
tigations unit as well as maintaining close cooperation and coordi-


9

general misled Congress about the nature of this investigation. In
summary, the subcommittee concluded that the Treasury Inspector
General failed to meet the high ethical and performance standards
expected of an IG. After our hearings, but Before our final report
was issued, the Treasury IG did resign.

Let me stress that in my view, problems like those in the Treas-
ury IG’s Office are not pervasive in the IG community. But IG’s are
not like any other Government manager. They are the very officials
in Government whom we look to to combat waste, fraud, and
abuse, and as such they should be held to a higher standard and
be above reproach.

I would like now to turn very briefly to some specific issues that
I think we should all be examining as we look at reauthorizing the
1G law. Our two goals that we should keep in mind are to increase
efficiencies and ensure accountability. Specifically, to increase and
promote freater efficiency, we should consider combining some of
the smaller IG offices into one presidentially appointed, Senate-
confirmed IG. This would increase the stature, reduce overhead,
and improve accountability to Congress.

For an example, it is difficult to justify why the National Endow-
ment for the Arts and the National Endowment for the Humanities
have separate IG offices. They are very small. I think one has three
pmployees, one has five. There is an area for consolidation, in my
ju ent.

In addition, we should consider whether reporting requirements
should be revised. Right now the IG submits semiannual reports to
Congress, and they contain often information that is of limited use
to us. Revising the contents of the reports and requiring that they
be submitted annually, rather than semiannually, would again
save money, streamline the reporting process and provide more
useful information.

Another issue I think we should consider is whether there should
be term limits for ins; rs general, such as 5, 7 or 9 years with
the option for renewable service based on renomination and recon-
firmation. This, I believe, might encourage IG’s to stay in their po-
sitions longer, as well as provide Congress a statutory framework
to review the performance of an IG.

To improve accountability we need to consider whether there
should be an independent inspector general for the Internal Reve-
nue Service. I believe that the answer to that question is almost
fertainly ges but the real issue is whether Congress should estab-
lish an IG within the IRS or whether the Treasury Department IG
should take on direct responsibility for overseeing the operations
and activities of that critical agency.

To further increase accountability of IG’s, should the GAO or
some other neutral agency be responsible for systematically review-
ing OIG operations? At the conclusion of the Permanent Sub-
committee on Investigations’ recent review of the Treasury Depart-
ment’s IG, many Senators, many Members of Congress, many exec-
utive department employees and taxpayers were asking the ques-
tion: Who is watching the watchdogs?

Those are just some of the issues under consideration as we work
in the Senate to review the operation and the implementation of
the Inspector General Act.


17

large IG’s. One year after I was appointed at State, not quite a
year, the Congress in its wisdom created an inspector general for
the Arms Control and Disarmament Agency. They laid that job on
the IG of State with no additional money. It would simply be a
cross; servicing arrangement with State. I worked it out with ACDA
and it worl out extremely well. I had a number of my auditors
and a number of my investigators and inspectors who became very
proficient in the arms control area. So I had people—expertise. It
didn’t cost the taxpayers an additional penny because the budget
of ACDA was simply subordinated to State for that purpose.

I recommended in my statement that a similar procedure be
adopted across the board. It is really quite absurd to expect an of-
fice of 10 or 15 or even 20 ple, and many of the smaller IG’s
don’t have anywhere near that number, to carry on all the func-
tions in the Inspector General Act. It is simply not possible. Some-
thing has to give. So I really urge the committee to go forward with
recommendations and then legislation toward that end.

There are many ways of hacking it. My own personal preference
would be to do what we did at ACDA that worked so well. Now,
we can simply assign one of the smaller IG’s to a larger IG. The
smaller OIG is simply absorbed in this case by the larger one, and
there would be no—there is no OIG infrastructure required at the
agency, the smaller agency, there is no expense required other than
the reimbursement. It will be an enormous saving across the board.

The second point I would like to discuss is the term limits area.
It seems to me for a long time, in fact I was sitting in this very
room in this very chair many, many years ago when the chairman,
whose picture is above you to the right, asked me what I thought
about term limits. I said, “I think it’s a damn idea, Mr. Chair-
man.” The IG sitting next to me kicked me under the chair.

Mr. Layton. As I would.

Mr. Funk. But I did think then, I think now, it is something that
is largely overdue. The reason basically is this: if you spend too
long in one agency, inevitably you become very close to the senior
career staff and to the political people. This raises a very severe
question in terms of how independent you can really be if you be-
come that friendly with people over a period of years. It is very,
very difficult to maintain an independence.

ere is another aspect of it, which is ancillary. My wife is sit-
ting back there. She recalls the time, I am sure, when I invited
four Assistant Secretaries to my house for dinner one night and
their spouses. During the course of the next 6 months I had to in-
vestigate all four of them. This is a very difficult thing, as all m
colleagues here know. All the more reason why term limits I thi:
are something which should be seriously considered.

TI personally prefer 7 years because it gives a long enough time

t the feel of an agency and of course there should be an option
if the inspector general is doing a good job to be posted to another

agency.

Let me kick around the office of counsel, which is something I
did not put in my remarks and I meant to. There is no mention
of an office of counsel in the Inspector General Act, although all the
IG’s to some extent have their own counsel, either totall under
their control or posted from the Office of General Counsel in the


(6) The relationship between the IGs and the media is important to the former
and helpful to the latter. But it has been usually uneven and often frustrating.
Uneven because !Gs — oriented toward a complex world of accounting and law
enforcement ~ are ill at ease dealing with people who, almost by necessity, must
settle for 20 second sound bites or punchy, simplistic news stories. And
frustrating because once a scandal erupts in an agency, more often than not, the
resulting media account has the agency head, with overt grim resolution (and a
covert sigh of relief), referring the matter to the agency IG for review. That, given
the inordinate time required to complete the simplest audit or investigation,
effectively buries the matter for a long, long time. Although OlGs are often
accused of leaking, once a review is launched, very rarely is information obtained
for public release from those conducting the review. In fact, leaks almost always.
arise from those being audited or inspected because they agree with the OIG’s
criticism and think that such leaks are the best way of getting this message out.
Unfortunately, except in heavily classified areas, it is almost impossible to stem
such leaks. In any case, aside from the frequent news stories about a potential
scandal being referred to an IG, eventually that IG will issue a report on the
matter, and that report will either be given to the public or leaked. Then the
media makes up in grand style for the story being buried for so long in the bowels
of an OIG.

(7) We must not overlook the quality of the people who comprise an OIG -- the
unsung lawyers, planners, and administrators, as well as auditors, inspectors,
policy analysts and criminal investigators. Are they consistently outstanding? Of
course not; any more than the people they review. But in my experience, they
average out at a higher level of competence than is usual in government, and
tend to be much more mission-directed. This reflects in part the fact that many
OIG staffers must undergo a leng and difficult training period. In larger part, it
reflects an almost paramilitary environment, with the OIG circling its wagons in
the face of what is too often a drumfire of criticism from their own agency. They
are, after all, the Messengers, and we all know their fate.

(8) And finally, the dirty little secret of the IGs -- the federal labor force,
overwhelmingly, is honest. This is not the perception of the public, fed frequent
and generally accurate madia accounts of extravagantly wasteful programs and,
less often, stories of public servants on the take. Tragically, there are such
programs, far too many of them and the resulting waste of money is formidable.
However, no federal program which wastes huge sums is led by the mid-level and
low-level bureaucrats who make up the vast majority of public servants. The
waste almost always is created by the legislation which authorizes and funds
these programs and/or by the incompetence of the political or civil service senior
managers who run them. The great majority of civil servants who are convicted of
wrongdoing have stolen relatively small amounts. And probably the greatest
number of, and most useful, tips which reach the |Gs about waste or fraud come
from government workers who are deeply angered by what they see, and
urgently want the bad guys to be nailed. Certainly, the lack of large-scale fraud
by government employees decreases the number of convictions obtained by
OlGs. On the other hand, the smaller the pool, the more effectively the IGs can
focus on those who really warrant the attention.


5

Mr. Horn. I now am delighted to yield for an opening statement
to my distinguished colleague, the ranking Democrat on the sub-
committee, Mr. Kucinich of Ohio.

Mr. KucInicu. Good morning, Mr. Chairman.

Mr. Horn. Good morning.

Mr. KucINIcH. My voice is a little deeper, not because I am going
through puberty, that is because of a slight cold. It is actually a
problem with the air not circulating in the plane when you are sit-
ting on the tarmac, one of those things.

Good morning. And I want to thank the chairman for calling this
important hearing today. Our committee has a history of Working
in a bipartisan manner with the IG’s to eliminate waste, fraud, an
abuse in Federal programs. As we look forward to possible im-
provement in the Inspector General Act, I am hopeful that the bi-
partisanship will continue.

The close relationship between the IG’s and the Government Re-
form and Oversight Committee is entirely appropriate. The inspec-
tor general community, as well as Congress, is one of the principal
watchdogs in the executive branch. There is much we can learn
from each other as we work to ensure Government operates in the
most effective and efficient manner ible.

1G’s have a very difficult job, in part because they are asked to
serve so many masters. You are appointed by the President, but re-
port to Congress as well as the head of the agencies. As independ-
ent investigators within the Federal agencies, IG’s are often the
last person a manager wants to hear from. And Members of Con-
gress can get very upset when the need or cost of pet projects
might be questioned.

e Chief Financial Officers Act, the Government Management
Reform Act, and the Government Performance and Results Act
have given the inspectors general some new responsibilities, par-
ticularly to ensure that Congress has complete and reliable finan-
cial information. As we learned just last week, your work in this
areas Bene th f the original IG Act, and

it has been 20 years since the passage of origi , aN

10 since the amendments authored by Senator John Glenn of Ohio,
so it is a good time to take a comprehensive look at the act to re-
view how well it is working and where there may be room for im-

ovement. We also need to continue to ensure that we have the

ighest quality IG appointments, and that the concerns of that
community and the individual members of the community are prop-
erly addressed.

want to welcome Senator Collins and all the other witnesses
today. And I look forward to your testimony. And thank you very
much, Mr. Chairman.

Mr. Horn. We thank you very much.

{The prepared statement of Hon. Dennis J. Kucinich follows:]


lll

PCIE in conducting a thorough and independent review of the
IRS Inspection Service, a matter of some concern to the
Congress. Several IGs have detailed a total of 10 people
to work on this review, which is now ongoing. In short,
while clearly the IGs are not perfect, our customers -
principally the Congress and the Department in which we
work - increasingly rely on us for objective and

professional assessments of critically important issues.

CHANGES AFFECTING INSPECTORS GENERAL

In the 20 years since the passage of the IG Act, the
core mission of the IGs, including the DoD IG, has not
changed. As the Inspector General, my role is to use our
resources to help the Department both identify its most
critical problems and also find solutions to those
problems. As stated in our strategic plan, the mission of

the DoD IG, is:

“to promote national security and integrity and
credibility in government by conducting objective and
independent audits, investigations, and evaluations
and other activities to prevent, detect and help

correct problems in DoD programs and to identify


81

Testimony of
Sherman M. Funk

before the

Subcommittee on Government, Management, and Technology
Committee on Government Reform and Oversight

April 21, 1998

Thank you, Mr.Chairman, and members of this Subcommittee for the opportunity to
testify today.

| shall focus my comments on the Inspector General Act of 1978. Given 20 years of
‘experience with the Act, the Congress now is in a good position to take a hard look at
the Act, determine what parts of it work well, what parts work poorly or not at all,
what parts need changing, and what these changes should be. | shall address each
of these points.

My comments reflect not only my 14 years as an inspector general, half of them in
the Department of Commerce and half in the State Department, but also my other 25
years of government service in several agencies, including Defense, Commerce and
Energy. And finally, my comments also reflect my experience since 1994 as a private
citizen, working with a number of foreign governments in their fight against
corruption and ineffective or wasteful programs.

‘Twenty years ago, a whole generation ago, the Inspector General Act passed the
House with only six opposing votes. It passed the Senate unanimously. Very few bills
of any consequence have been treated so kindly on the Hi is was despite the
arguments from virtually every agency which testified during its run-up that the
concept of a civilian inspector general who reported directly to an agency head but
was barred from taking orders from that agency head was simply too impractical.

The bureaucracy, it was claimed, could not work that way, especially inasmuch as the
inspector general also reported to the Congress. Further, nobody in the Executive
branch -- not the agency head, not OMB, not even the White House -- could change
a word in these reports to the Hill.

But of course, these 20 years have shown that the inspector general concept can work
and, indeed, has done so remarkably well over the years. Yes, there have been
problems, some of them severe. But | can think of no other government program,
even the least controversial, which has been free of problems. The genius of the
{then-called) Government Operations Committee in the House, which drafted the Act,
was in putting together a number of critical elements, some of them quite new, ina
single, sweeping piece of legislation.

These elements, acting in concert, are the reason why the IG Act has become such a
force in government:


107

the Department to which, for lack of resources, we often

delegate work, reserving the right to oversee what they do.

Our criminal investigators focus primarily on contract
and procurement fraud, health care fraud, antitrust
violations, bribery, corruption and large-scale thefts of
government property while our auditors perform the primary
internal audit function within the Office of the Secretary
of Defense, the Joint Chiefs of Staff, the Unified and
Specified Commands and the Defense agencies. This work
entails coverage of such areas as mismanagement, matters
involving economy and efficiency in DoD operations,

contracts and programs, and financial audits.

Recently, in response to concerns from the Congress
regarding the need to improve oversight of the DoD
intelligence community, we established a separate IG office
of Intelligence Review. This office has functional
oversight of the various Defense intelligence agencies,
such as the National Security Agency, the Defense
Intelligence Agency, and the National Reconnaissance

Office.


92

4. Have the tospoctnns General been effective and what the mensurensnt of faspector
General

Inspectors General have remarkable statistical accomplishments if that is the measure of
success. Thousands of criminal convictions annually, billions of dollars identified that could be
put to better use and significant numbers of disciplinary actions are taken annually. The
‘Congress has amended the Inspector General Act to specify the units of measure to be reported
annually, for the miost part. I do not believe the focus on statistical accomplishments is wise.
With the passage of the Government Performance and Results Act, there is added emphasis
governmentwide on the accumulation of statistics. We need to arrive at better measures than
currently exist. The public consistently rails at the concept of law enforcement officers being
evaluated on the basis of the number of traffic tickets issued. The public wants the number of
accidents to be reduced. Measuring traffic tickets is a measure of process, not outcomes.
Measuring a reduction in the number of traffic accidents is a measure of outcomes, but subject to
interpretation as to how the number of accidents was reduced. The supervisors of the police
officers can better manage their operation counting traffic tickets. The same is true of Inspectors
General. We can count statistical accomplishments which could be used to evaluate
performance. It is much more difficult to measure positive change in program management, or
‘outcomes and agree on how and why positive change occurred. Focusing on positive change in
programs would be # more effective measure of change, but difficult to quantify.

believe there is an opportunity to improve the impact of Inspector General work, if the
focus is taken off statistical accomplishments and put on improving the functions of government
programs, The focus should be on causing positive change in government program

5. Are the Inspectors General accountable and to whom? Do the Inspectors General need
to be held more accountable?

Inspectors General are accountable to the President, the head of the agency and the
Congress. J do not believe there is a need for additional legislation in this area. There is a need
for greater attention from those to whom the Inspectors General are accountable. Some
Congressional oversight committees have frequent hearings and almost daily contact with
Inspectors General and their staffs. There are some Committees that actually review the
Inspector General annual work plans and their semiannual reports. Further, some Committee
staffs read audit reports and ask questions. It is my impression that this is not the norm. I also
believe there needs to be greater attention paid to the high risk areas. The question needs to be
asked why do these areas remain vulnerable to fraud, waste and poor management. The root
causes of programmatic deficiencies need to be identified and solutions, including legislation,
need to be implemented. Without such action, Inspector General resources will continue to be
invested in establishing the program shortcomings without successfully enhancing effective

4


180

CRS-11

relative independence from the Justice Department office of inspector general
‘by comparison to other bureaus and organizations within the Department

© Examining and clarifying in statute the role and responsibilities of the
Justice Department IG with regard to the Office of Professional
Responsibility (OPR), an administratively created office, along with other
internal investigative or audit units in the department. Currently, for
instance, there is a dispute within the Justice Department about the scope of
the IG’s jurisdiction vis-a-vis OPR’s, regarding investigation of officers or
employees in attorney positions.

Clarifying or changing the relationship of the IGs in the individual
Armed Services with the Department of Defense (DOD) IG. This might
include placing the military IGs directly and explicitly under the control of the
civilian DOD inspector general.

Expanding or clarifying the jurisdiction and authority of the IG in the
Intelligence Agency with respect to other intelligence agencies,
for instance, those in the Departments of Defense and Justice. One option
would be to extend the CIA IG’s jurisdiction to mirror the jurisdiction of the
Director of Central of Intelligence, resulting in an inspector general for the
entire intelligence community.

© Examining the relationship of the IG with the Chief Financial Officer
(CFO) in each establishment where both posts exist.

Creating the post of assistant inspector general for inspections, to
supplement the existing ones for auditing and investigations,

Authority of Inspectors General

© Reviewing and further clarifying, if necessary, the scope and tools of the
1Gs’ regulatory investigation authority. Certain limits on this authority and
jurisdiction were prescribed in a 1989 Justice Department Office of Legal
Counsel memorandum, commonly known as the “Kmiec memo” for its author.
The following year, the Acting Attorney General, based on discussions
between the Department of Justice and the PCIE, issued a followup
memorandum, establishing a set of principles that attempt to clarify the earlier
opinion.

Examining and possibly expanding and standardizing law enforcement
authority for criminal investigators in the offices of inspector general.
This area of inquiry could look at: whether the current arrangements,
especially the long-term special deputation by the Marshals Service, have
proven effective and at what costs and impact on the offices of inspector
general; whether there should be across-the-board law enforcement powers in
public law or whether law enforcement powers, if expanded by statute, should
be granted selectively to specific agencies; and, most fundamentally, whether
there is a need for independent law enforcement authority for OIG criminal
investigators, by comparison to other mechanisms which rely upon the


183

CRS-14

and prosecutions and, thus, help to improve IG preliminary investigations and
gathering of evidence, if that appears necessary.

Reporting to the Agency Head and Congress

¢ Enhancing and standardizing the data and information on investigations
in the semiannual reports. This might follow the lines for audit statistics and
data required by the 1988 IG Act Amendments.

© Improving communication surrounding the major findings, conclusions,
and recommendations in the semiannual reports. This could occur
through, for instance, regular hearings with relevant congressional
subcommittees when the report is issued and in-person briefings by 1G
personnel for congressional staff on relevant panels,

© Consolidating or coordinating the semiannual reports from IGs with the
periodic reports submitted under other relevant statutes, such as the
Chief Financial Officers Act and the Federal Managers’ Financial
Integrity Act.

© Requiring that the IGs issue their summary activity reports only annually
rather than semiannually, as is the case now.

e Increasing the use of the seven-day letter reports about “particularly
serious or flagrant problems.” This might be accomplished by clarifying the
meaning of the phrase in law, in a congressional report, or in a PCIE advisory
opinion to the IGs. The effort might also lead to setting specific criteria and
standards for submitting such reports. It might, for instance, require that any
finding which is repeated in three successive semiannual reports be considered
“particularly serious or flagrant” and automatically submitted to the agency
head and then sent to Congress within seven days. This possible product could
be based on an examination of the infrequent use of the seven-day letter
reports—about once a year for all IGs—and a comparison of this use with
episodes that appear to meet a common understanding of “particularly serious
or flagrant problems” but were not reported under this provision.

Examining systematically the agency heads’ and Congress’s response to
seven-day letter reports about particularly serious or flagrant problems
discovered by the IGs.

© Requiring the IG to issue a confidential report directly to the appropriate
congressional committees whenever the head of the establishment is the
subject of an IG investigation. Presently, only the CIA Inspector General
has this authority (for the Director of Central Intelligence).

Personnel Practices and Incentive Awards

Comparing personnel practices of IGs. This might include examining
whether the IG hires his or her own staff or relies upon personne! rotating into


60

Mr. Chairman and Members of the Subcommittee:

We are pleased to discuss the evolution of the work of the
inspectors general (IG). This oversight hearing by the
Subcommittee provides an excellent opportunity to review the IG
concept established by the Congress through the Inspector General
Act of 1978 and to focus on the IG community's important efforts.

Two decades ago, the Congress created IGs throughout government as
a result of growing reports of serious and widespread internal
control breakdowns. They were principally charged with detecting
fraud, waste, and mismanagement in agencies’ programs and
operations; Conducting audits and investigations; and recommending
policies to promote economy, efficiency, and effectiveness.

In the intervening years, IGs have reported success in carrying
out this mission through billions of dollars in savings and cost
recoveries and thousands of prosecutions of criminal cases
resulting from their work. For example, in fiscal year 1996, IGs
reported investigative recoveries totalling about $1 billion and
successful prosecution of over 12,500 criminal cases.

Since passage of the IG Act, the Congress has called for more
efficient and effective management of government programs through
a range of legislative initiatives that effect the way agencies
operate. For example, financial management reform is called for
by the Chief Financial Officers (CFO) Act, as expanded by the
Government Management Reform Act.

The enactment of statutes such as these has not only established a
framework for broad management reforms by agencies, they have also
affected the IGs' role. In some cases, the IGs were provided key
new responsibilities, and in other instances, they were given the
opportunity to substantially influence the way agencies operate
programs.

Because of the changing roles brought about by these legislative
mandates, you and the Committee Chairman have asked us to review
aspects Of IG operations. We began this effort with a survey of
the IGs‘ participation in strategic planning, which I will discuss
today. Also, we have worked with the Committee staff to identify
other areas that may be studied. This testimony will discuss the
IGs' role as it has evolved and some of the forces that have
helped to shape the current environment in which IGs function.

THE IGs' EVOLUTION AND ENVIRONMENT
The importance of legislative underpinnings for auditing in the
federal government dates back almost half a century--to the

Accounting and Auditing Act of 1950, which held federal agency
heads responsible for internal controls, including appropriate

1


56

tenure in the One-Hundredth Congress, I believe I broke the IG code on what constitutes a significant
‘warning. 1 also came to admire the tremendous work that goes into producing one of those reports.
Nevertheless, the IG reports are virtually unreadable, The answer perhaps is to drop back to a single
annual report that would anchor agency-by-agency accountability assessments, with regularly
scheduled summary updates on audit and investigation activity that can be found in the appendices
of the semi-annual reporss.

Legislative Interest

An IG’s success depends on two key relationships. One is with the department or agency head.
Since most of what IGs report is relatively routine, an IG must have the confidence of the secretary
to assure appropriate attention. The other is with Congress. Congress is both the guarantor of an
IG's independence and a key consumer of IG materials. Unfortunately, my sense is that most
members of Congress do not have a clue as to why the IGs exist and what they do. My own count
shows that the IGs hit their peak in congressional attention in 1993-1994 with 176 hearing
appearances, most of which occurred here in the House at the subcommittee level. Their activity
declined somewhat in 1995-1996 to 133 appearances, and dropped suddenly last year to just 25
appearances. At the current pace, the IGs will appear fewer times in the One-Hundred-and-Fifth
Congress than at any time since passage of the 1978 Act.

‘There are several possible explanations for the incredible disappearing Inspectors General. A first
explanation is that many members of Congress are new. A significant majority of the House has
been in office four terms or less. I know of no legislative orientation program, whether here in
‘Washington or in Boston, that introduces members to the IGs. This Subcommittee could do the IGs
a significant favor by arranging the needed introduction, whether through a dear colleague letter or
more formalized conversations between committee and subcommittee chairs and individual IGs.

A second explanation is that the current administration has been less than effective in filling
vacancies in IG posts. At my last count, there are seven vacancies in the presidentially appointed
posts, a troubling total given the importance of these jobs. Authorizing committees can hardly be
faulted for not inviting IGs to testify when there are no IGs to invite, This is not the place to revisit
the problems with the presidential appointments process. As you know, I believe there are just too
many presidential appointees. The Office of Presidential Personnel cannot keep up. I believe that
the new appointments process outlined above would address the problem, raising the bar for
appointment and accelerating the process.

A third explanation is that the behavior of several recent IGs, including the immediately past
‘occupants of the Treasury and Transportation posts, tamished their colleagues’ reputations by
association. Ido not question an IG's authority to “go public” with particularly serious allegations
of the kind raised by the Transportation IG regarding the airworthiness of start-up carriers. There
are times when nothing else will work. What I do question is the decision to go public before all
available statutory authorities are exhausted. That means using the seven-day letter for its intended
purpose: to alert Congress and the president to egregious vulnerabilities. If the Transportation IG's


18

14,122 successful prosecutions;

2,405 personnel actions; and

4,234 suspensions and debarments of persons or firme doing

business with the Government.

These facts suggest that IGs are doing the job we intended
them to do, in spite of the fact that they are operating in a
very difficult and more complex environment. The data also
support the fact that the IG’s first responsibility continues to
be program and fiscal integrity; they are not “tools” of
management. Even though, in this day and age, IGs need to make
themselves “relevant” to both Congress and the agency, they first
must help to make good programs work better, target those most
vulnerable to waste and fraud, and help achieve savings whereve:
they can find them. The record proves this is clearly what the
IG‘’s have been about.

But none of this would be possible without an emphasis on
the IG investigative role as a deterrent to abuse. The audit and
inspection function, wherein I believe we can better evaluate
program operations and efficiencies, and bring to bear more
effective, systemic improvements to prevent fraud before it
happens, is a critical element of a successful 1G program. It
stands as the last barrier to management abuse and may be
considered the soul of the Act. Nothing we do in the way of

reform should fundamentally alter this vital role.


47

In fact, a number of the incumbent Inspectors General proved to be outstanding
choices whom President Reagan nominated. These included June Gibbs
Brown who remains an Inspector General. She was appointed by President
Carter as Inspector General for the Department of Interior, President Reagan
appointed her Inspector General of NASA and later at DOD, and President
Clinton appointed her Inspector General at HHS. Some of the other outstanding
re-appointments included Frank Sato and Chuck Dempsey.

It is a continuing struggle to make sure that high caliber individuals will be
appointed to the Inspector General slots. It is easy and wrong to compromise
‘on the qualities of the persons appointed Inspector General. If it is clear that
there is one individual with ongoing responsibility for the Inspectors Genera!
program who is responsible for getting the highest caliber possible individuals,
the chances of getting the kind of people this program requires is enhanced.

The second concern President addressed was the institutionalization of top
level support for the Inspectors General program by creating the President's
Council on Integrity and Efficiency in Government (PCIE). As Deputy Director
of OMB | chaired the Council which included all of the Inspectors General plus
the Assistant Director of the FBI for investigations. The Controller General was
invited to serve as a member, even though he runs the GAO which is clearly
accountable to the Congress. We did this to make it clear that we had nothing
to hide trom the Congress and that we were anxious to involve every resource
of government to rout out fraud, waste, and abuse. The PCIE provided a forum
by which the Inspectors General could coordinate efforts on government-wide
functions, such as the use of government data bases in a manner consistent
with respect for the rights of individuals to privacy, but in a manner that
Promoted the government's ability to protect itself from fraud and deadbeats. It
also gave the Inspectors General the ability to support each other with
resources as appropriate.

(One tacticat indication of top level support which we gave to the Inspectors
General program was to increase the Inspectors General budgets while we cut
virtually every other controllable budget in the executive branch.)

The PCIE also helped deal with the difficult problem of an Inspector General's
office being accused of misconduct. It gave us a forum to investigate
accusations using Inspectors General and the resources outside of the
accused agency. | was pleased to see that recently President Clinton codified
in an Executive Order procedures similar to those we put in place in the early
1980's.

When a staff of auditors and investigators is put together there is an implicit
assumption that their mission is understood by all. Implicit assumptions are
Prone to confusion and misunderstanding. The Congress has as one of its
basic Constitutional responsibilities the investigation of government operations;


51

sensitive subsequent to the experiences surrounding the Treasury
IG and the tarnishing of their reputations up here surrounding
some signal events, including the activities of the Transportation
IG on the way out of office and issues surrounding ValuJet.

I believe we have four problems that are worth looking at. Most
importantly is the recruitment. While I believe that there have
been strong appointments over the last 10 years, I think they are
more accidental than intentional. We get very good people ap-
pointed, then we get some very bad people appointed. ‘And | think
it is part of a randomness in the White House appointments.

The process began in the late 1980's after Fred Harper and
Wright left OMB and continued into the current administration,
where we have had a virtual revolving door in the Office of Presi-
dential Personnel, five directors for sure, possibly seven.

T believe strongly we ought to manage a new appointments proc-
ess for inspectors general, and_I would actually urge the sub-
committee to consider throwing CIO’s and CFO’s into that appoint-
ments process. These are too important positions to risk on the mo-
mentary whims of the White House personnel process that is poor-
ly staffed, poorly directed, and led by a revolving core of directors.

I will talk a little bit here about the independence. I am a strong
supporter for an inspector general, Lord help me, it is sickening,
for inspections. The IG’s want to do this sometimes, but they are
reluctant to dedicate staff to inspections, and, in some cases, right-
ly so. They have tough choices, but I would like to urge them statu-
torily to do so.

And finally I will talk a little bit about advisability. I do believe,
as I say here, that I have broken the IG code after reading
semiannuals off and on over the years. I think I know what they
are saying, something direct and of significant warning to Con-
gress, but I am not sure of your comments now. As I note here, and
in our examination of IG testimony on Capitol Hill, the IG’s are
fading on Capitol Hill. They are not as frequent a witness. We need
to figure out some way to introduce your colleagues to the inspec-
tors general and some way for the IG’s to communicate more di-
rectly with your colleagues.

I will be delighted to answer any questions, and I am sure my
lovely spouse in Philadelphia will enjoy the confirmation by the dis-
tinguished chairman of my contrariness.

ir. HORN. Thank you. We will have her as a witness under oath
some day.

{The prepared statement of Mr. Light follows:]


80

fillment of their job, they get carried away. When they do, they
should be severely disciplined.

We have always told our investigators that they have a big stick.
The IG Act is a very big and powerful stick. There is no need to
be arrogant; there is no need to be vicious; and there is certainly
no need” to violate any regulation in order to get information, un-
necessary. You have the power to compel testimony from anybody
in the department. We don’t have the power of testimonial subpoe-
nas but we require cooperation from the employees of the govern-
ment, we can require anything. If we had investigators who abro-

ited that, they were disciplined. That’s the way I think it should

. But to establish some kind of exterior discipline comin, m
outside the IG, I think that would be in the long run ill-advised.
It would create enormous morale problems among an office which
is a very tough office to begin with, dealing, at least in my depart-
ment, around the world in some hell holes that required some very
dicey situations. Also, to be placed in a situation which is different
from everybody else I think is wrong.

1 That is all I have to say now. I will be happy to answer questions
later, sir.

[The prepared statement of Mr. Funk follows:]


142

pay insurance claims; and projects deteriorate physically, in the
process often becoming victimized by the criminal element. In
addition to pursuing criminal equity skimming cases, we are now
using civil enforcement opportunities and streamlining referrals of
civil cases to the U.S. Attorneys for prosecution. Equity skimming
civil referrals are now made directly by our auditors--another
illustration of how we have had to change to face the new
challenges confronting OIGs. What I think is important in both
examples above is that the IG Act as written provides the authority
and flexibility to try new approaches.

In our quest to bring about positive change in HUD programs
and operations, the HUD OIG has also significantly changed its
approach to the financial statement auditing required under the CFO
Act and to regulatory and legislative activities. We have found the
financial statement audit to be an extremely beneficial exercise,
much to the surprise of some of our own staff. When the CFOs Act
first passed, many in the OIG dreaded the commitment of resources,
both dollars and staff, that were going to be required to meet the
statutory time frames. Rather than contract out the entire process
to public accounting firms, the HUD OIG made a conscious decision
in the early 1990s that it would perform the consolidated audit of
HUD and contract only for the audits of FHA and GNMA. ‘The rationale
for doing so was twofold. First, we wanted to demonstrate to the
Department the OIG's commitment to financial management and its
willingness to help them get their financial house in order.
Second, conducting the consolidated financial audit would provide
HUD OIG auditors with an overview of HUD programs and the
associated management controls, thus helping us to better focus our
audit resources. :

The financial statement audit has also proven to be a valuable
tool to HUD. In the seven years we have been doing the audit under
the CFOs Act, HUD has improved its financial and management
controls to move from our disclaiming an opinion to having a
qualified opinion.

Rather than just auditing programs/activities/operations after
they have been implemented, over the past couple of years the HUD
OIG has placed increasing emphasis on preventing problems through
careful review of and comment on proposed regulations and
legislation. Because of our institutional memory, which crosses all
programs and operations, we are in a somewhat unique position to
provide significant recommendations and suggestions to improve
controls and minimize risks before programs are implemented.
Additionally, for the past two years our office has, based on its
audit and investigative work, developed specific . legislative
proposals for the Congress to consider. I view this as an important
role for an IG, since it is sometimes not feasible for a Secretary
or agency head to introduce legislation that may be needed, but
would not be popular with important constituency groups.


135

Part of what contributes to the sheer volume of the HHS Semiannual Reports is the
requirement that they include a listing of all audit reports, regardless of dollar
amount, for which no management decision has been made. It would ease the
administrative burden and shorten the Report, to permit IGs to limit this listing only
to those audits where findings exceed a dollar threshold (perhaps $25,000). Those
‘audits would continue to be resolved as usual; but they would not be individually
listed in the Semiannual Reports.

° ‘LDay Letters - Under section 5(d) of the IG Act, an IG is to “immediately” alert his
or her respective agency bead in writing of any “particularly serious or flagrant
problems, abuses, or deficiencies." The agency head must, within 7 days, transmit
this report to the Congress. Though the agency head may separately comment on
the report, he or she may not alter it.

On occasion, IGs are questioned about our sparing use of these “7-Day letters." I
believe that these reports should be used only in the most serious circumstances, as a
last resort when other avenues for corrective action have failed and immediate
‘Congressional attention or intervention is warranted. This does not, however, mean
that we fail to keep the Secretary or the Congress informed of imminent problems
and deficiencies. On the contrary, through our Semiannual Reports, through
personal meetings with the Secretary and Committee staffs, through our frequent
testimony before the Congress, and otherwise, we communicate regularly with the
Secretary and with Congressional oversight officials on matters of importance.
Moreover, I believe that the 7-Day Letter provision of the IG Act, though rarely
invoked, is a success. The mere availability of such a direct “crisis report” to the
Congress serves as an incentive to resolve serious deficiencies before a 7-Day Letter
is issued.

‘Law Enforcement Authority

1 would be remiss if I did not address the issue of statutory law enforcement authority — that
is, authority to execute search and arrest warrants, make arrests without warrants in certain
circumstances, and carry firearms — for qualified investigators of the HHS Office of
Inspector General. Ten years ago, my predecessor as Inspector General of HHS testified
bere on the urgent need for such tools, yet the matter remains unresolved a decade later.

‘Law enforcement authorities are central to the effective investigation of fraud against HHS
programs and operations. More importantly, they are critical to the safety of OIG
personne].

‘Coanmittee on Government Reform and Oversight
‘Subcommitice on Government Mansgement, Information, and Technology
‘Hearing: Oversight of Inspector General Act, April 21, 1998 Page?


13

-3-

As the Congress examines the role of Inspectors General and exercises its
oversight sibility, I suggest that we focus our efforts with two goals in mind:
to increase ficiency and to ensure accountability. Specifically:

© To promote greater efficiency, should some of the smaller Inspector
General offices be consolidated under one Presidentially appointed,
Senate confirmed Inspector General? This would increase stature,
reduce overhead, and improve accountability to the Congress. As an
example, it is difficult to justify why the National Endowment for the
Arts and the National Endowment for the Humanities have separate
Offices of Inspector General with three and five employees,

respectively.

e To further promote the efficiency of Inspector General operations,
should reporting requirements be revised? Some semiannual reports
to the Congress total 150 and contain information that is of
limited use to Members of Congress or their staffs. Revising the
contents of reports and requiring they be submitted annually rather
than semiannually would save money, streamline the reporting process,
and provide more useful information.

© To increase both efficiency and accountability in the Inspector General
community, should there be a term limit for Inspectors General, such
as 5,7, or 9 years with the option for renewable service based on re-
ould encourage inapector Gener to say longer in thir positon
would en to stay rin tions
eee ee ee Cocca caaony tonttrank to wee the
performance of an Inspector General.

© To improve accountability, should there be an independent Inspector
General for the Internal Revenue Service (IRS)? The answer to that
in henament ent poor Ae But the real ion is whether
Congress should establish an Inspector within the IRS or

should the Treasury Department Inspector General take on direct

© To further increase accountability of Inspectors General, should the
General Accounting Office or some other neutral agency be
responsible for systematically reviewing OIG operations? At the


137

Senate). J am actually comforted by this continuing tension. I believe it signals that the
balance between the IG’s “two masters” is fostering the independence envisioned by the
Congress in creating OIGs.

Conclusion

‘Thank you again for the invitation to testify today. While my remarks have suggested
certain provisions of the IG Act that may warrant closer examination, I do not believe that a
wide restructuring of the IG Act is necessary or wise. The concept, created by the Congress
20 years ago, of an internal yet independent unit within each Federal agency charged with
preventing and detecting fraud and abuse in that agency, has, in my belief, proved a success.
I welcome your questions.

‘Tommitice 00 Government Reform and Oversight
‘Subcommitse on Government Management, Information, snd Technology
Hearing: Overnight of Inspector General Act, April 21, 1998 Page


55

‘The IGs need to be reminded from time to time that the weakening of any single OIG, no matter how
small or insignificant, no matter whether led by a presidential appointee or an agency appointee, is
a weakening of all OIGs. They either hang together, to quote Benjamin Franklin's famous maxim,
or they shall hang separately. I do not know quite how to rebuild the IG community as a force to
reckoned with, whether in demanding high quality appointments or disciplining wayward colleagues.
What Ido know is that the IGs are isolated from each other at a time when collaboration is essential.
‘And what I also know is that OMB is no longer exercising the kind of leadership needed to focus the
individual [Gs on the broader needs of government. As a result, the IG community is less than the
sum of its parts.

Inspections and Evaluation

Thave long believed that inspection and evaluation should be a central function in every OIG, Most
IGs do not share my enthusiasm, Many see inspection and evaluation as a waste of precious staff
resources that could be used for investigations and audit. Much as Ican appreciate the challenges
of spreading limited staff over an already wide agenda, I believe that inspection and evaluation is
essential to the prevention of fraud, waste, and abuse. By their training, auditors and investigators
tend to focus on catching wrongdoing after the fact. If the federal government is to bring the war
on waste to an eventual end, the IGs must learn how to analyze program weaknesses in search of
vulnerabilities.

They must also be willing to alert Congress and the president in clear and certain terms when a
proposed bill or regulation is likely to create added vulnerability. Such warning does not
compromise OIG independence, as some IGs argue, To the contrary, it enhances the OJG impact in
actually winning the war on waste. [ believe that Reps. Brooks and Fountain would be shocked to
hear about IGs who hid behind their independence in refusing to forewam their departments and
agencies or Congress about impending errors. To its credit, the audit profession has struggled with
service and accomplishment reporting as a tool for just such performance accounting. But auditors
cannot do the job alone. Although the IGs and I disagree sharply on this point, I have come to the
reluctant conclusion that we need to thicken the OIGs by creating a separate Assistant Inspector
General for Inspection to undertake the kind of long-term analysis that would aid the prevention of
fraud, waste, and abuse before it occurs.

To the extent this Subcommittee could figure out a legislative method for cloning the Health and
Human Services OIG, encourage you to do so. That OIG knows how to strike the balance between
prevention and compliance, between service to the department secretary and to the American
taxpayer. It is one of the most professional units I have ever encountered in government, federal,
state, or local, and has an ethic of high performance that could be modeled in any unit, be it staff or
line.

As long as I am on the subject of clarity, let me also note that the IGs have made little progress
‘making their semi-annual reports accessible to Congress or the public. Having been the Senate
Governmental Affairs Committee staffer charged with reading every semi-annual report during my


2

through goals-settings of strategic planning and the development of
performance indicators based on solid financial management. In-
spectors general have gained new responsibilities under these man-
agement laws. Inspectors general need to take a keen interest in
the value of program inspection and evaluation and make it one of
their primary missions.

Inspectors general are required by law to report their findings
both to the President and his designated executives, such as the
agency heads, and to Congress. This dual reporting responsibility
is designed to ensure greater independence for the inspectors gen-
eral and prompt attention to agency problems.

Increasingly, however, some questions have been raised about
the effectiveness of the reports issued to agency officials and to
Congress. Some believe that IG’s are either not reporting problems
in their agencies to Congress or burying their recommendations
deep within their annual and semiannual reports.

To be effective, IG’s must on the one hand balance their working
relationships with agency management to prevent fraud and waste,
and, on the other, their obligation to report agency problems to
Congress if this legislative branch is to continue to have trust in
them. We must ensure that the congressional Presidential watch-
dogs do not become agency lap dogs.

‘oday offices of IG’s exist in 27 of the la executive depart-
ments and agencies as well as in 30 smaller designated Federal en-
tities. IG’s are a substantial resource and an invaluable weapon in
the fight against waste in the Federal Government. Management
of executive branch agencies is changing dramatically. It is crucial
that IG’s perform effectively in this changing environment. Twenty
years after their creation, we need to reevaluate the appropriate
role of the Office of Inspector General, and that is the purpose of
this hearing.

[The prepared statement of Hon. Stephen Horn follows:]


174

CRS-5

and abuse problems, and identifying proposals for corrective action. The 1988
amendments refined and enhanced several of the semiannual reports’ ingredients. For
example, the reports must contain certain entries, some of which include:

© a description of significant problems, abuses, and deficiencies relating to
programs and operations;

© a description of recommendations for corrective action,

© an identification of each significant recommendation contained in the previous
reports on which corrective action has not been completed; and,

© statistical information relating to costs, management of funds, and related
matters.

These IG reports go directly to the agency head, who must transmit them
unaltered to appropriate congressional committees within 30 days. After another 60
days, such reports are to be made available to the public. The agency head is
authorized to append comments and specific data and information to the IG reports;
this additional information includes statistical tables showing audit reports and dollar
value of recommendations of disallowed costs and projected savings of
recommendations for funds which could be put to a better use.

Seven-Day Letter Reports. The Inspector General Act, as amended, also
requires the IG to report immediately to the agency head whenever the IG becomes
aware of “particularly serious or flagrant problems, abuses, or deficiencies relating to
the administration of programs and operations.” Such communications must be
transmitted—unaltered but allowing for comments the head deems appropriate—to
the appropriate congressional committees within seven days.

Other Channels of Communication. The enactment provides for additional
channels for IGs to communicate with the agency head and Congress. Section 4
requires the IG:

to keep the head of such establishment and Congress fully and currently
informed, by means of the reports required by section 5 and otherwise,
concerning fraud and other serious problems, abuses, and deficiencies
relating to the administration of programs and operations administered or
financed by such establishment, to recommend corrective action concerning
such problems, abuses, and deficiencies, and to report on the progress made
in implementing such corrective action.

The concept of keeping the head and Congress informed “otherwise” (separate
from the required reports) allows for a variety of mechanisms for the inspector general
or the office to communicate with Congress. These means extend to: testifying at
congressional hearings, meeting with lawmakers and staff, and providing information
and reports directly to Members of Congress, its committees and subcommittees, and
other offices.


163

Ms. GaFFNEY. Can I first agree with Mr. Funk? I think these
peer reviews have become nothing. They are looking pretty strictly
at compliance with audit standards. There is a real conflict of in-
terest; it is an ungentlemanly thing to do, to criticize another IG
office. And I think if you looked at those reports, you would find
they are mostly very good news. I think this community is really
at risk if we don’t come up with some decent answer about who
Watches the IG, because there is like a momentum growing, you

ow.

Mr, Horn. When everybody is watching, nobody is watching,
right?

Ms. GAFFNEY. Right.

Ms. Brown. Could I add, the peer reviews that are done now are
part of the requirements of the GAO standards which adopted
those from the AICPA standards. And we, in fact, found some sub-
standard work that CPA’s were doing for the Government some
years back and worked with the AICPA to see they did peer re-
views.

There were some—it turned out there was nothing they could get
people on if they didn’t have work papers or some other real viola-
tion of the standards that CPA’s should be adopting. So they start-
ed peer reviews and they put it into their requirements. Then, of
course, GAO adopted them, and they go for all audit organizations.

I think they serve a purpose. I served as a military IG for 4

ears, aS well as these other IG positions, and it was very much
Hike that, that the real effort was put in by knowing that there was
going to be one of these reviews making sure all of your standards,
your, you know, standards of operation, everything was up to date
and in top condition. You really didn’t expect to find a problem
after the people got there, but there were usually suggestions and
other recommendations.

It isn’t for the whole office, but I think it is worthwhile. I don’t
want to have anybody think that’s anything like the kind of com-
prehensive review. It would be considered inadequate if you
thought that. But it is a good way of maintaining the standards
and being sure that the audit requirements are being met in any
agency on a regular basis. They are required every 3 years.

Mr. Horn. OK.

Ms. Hixu. I would just add to that. We participate in the audit
peer review process, and I do think, as June says, that it does help
focus people on the audit standards. It also ensures or helps ensure
that you have your own quality assurance controls in place in the
audit part of your organization.

Our office, in addition to the audit side, we have in our criminal
investigations unit, which is a substantially, rather large organiza-
tion, we have established our own internal inspection unit which
follows very much the types of things both the FBI and DEA have.
They have their own internal inspections unit, because obviously,
in criminal investigations, there is an issue with bringing outsiders
in to do that kind of work because you have got very sensitive on-
going criminal investigative files.

So we have set up a team, a unit, that does nothing but regular
inspections of our field offices of our criminal investigators. And I


72
gling to find a better way to decrease the vulnerability of the sys-

oir. Horn. You were probably in the room when I mentioned to
Senator Collins Lee Hamilton’s thoughts on the need for due proc-
ess with various witnesses in terms of inspector general queries of
these witnesses. Do you have any feelings on the degree to which
that is absent or which that should be legislated or put together
by the IG’s through their various counsels and sent to us to reas-
sure us that there are some fundamental rights in this operation?
Does anybody have a comment on that or given any thought to it?
No thought, huh? OK.

Mr. HARPER. The only thought about it, and this obviously goes
back a long time since I have been involved, the active involvement
of the Justice Department in their prosecutorial efforts through the
FBI and others were often brought in very quickly where there was
evidence of criminal wrongdoing, so that they could help guide and
make sure that we were working within the standards that had
been established to protect individual’s rights as we were vigor-
ously going after the investi igation and prosecutions.

Mr. Ligut. I would say that the most significant change in my
examination of the IG’s over the last 5 years is the weakening of
the IG community itself as a source of pressure, peer pressure on
IG’s to honor the hi lighest standards of conduct. I think that reflects
a weakening generally in the concept of any sort of central manage-
ment control in Government. It’s out of fashion to argue that OMB
should be a strong presence in the agencies. It’s really a one-size-
fits-no-one kind of era.

I think one of the things that I added in my statement was Ben-

in Franklin’s famous phrase that we either hang separately or
far together. The IG’s, for whatever reason, it could Be the sig-
nificant number of vacancies or the turmoil surrounding a couple
of high visibility cases, they are not hanging held together right
now. The PCIE is active but my sense of it is that it’s not a pres-
ence and that within the community which relies on self-policing
to a very high degree. There has been a weakening of the collective
judgment and the collective commitment. If you have seen one IG-
ship, you have seen one IG-ship. This sort of notion that there is
no binder I think originates in the Office of Management and
Budget. This isn’t the nates to talk about the office of Federal
management, but it is a good point to argue that there is no real
commitment at the highest levels of the center of Government to
coherence across agencies right now. That is clearly out of fashion.
It will come back. “But right now it is out of fashion.
Mr. Horn. Dr. Light, according to GAO estimates, inspectors
general's staff generally are half auditors, quarter investigators, re-
maining quarter administrative staff. Is that the appropriate allo-
cation of inspector general personnel or should it be skewed an-
other way?

Mr. LicHT. I have been asked by the Honorable Dave Williams
who’s the editor of a wonderful journal that is a cohering binder,
the Journal of Public Integrity, to write an article on how I would
distribute 300 FTE. I have titled the article “If I Were King of the
Forest,” which is about as close as I will ever get to making that
tough "decision. I would distribute 100 to investigations, 100 to


27

naturally to White House personnel offices, appointing le
whose qualifications are political and not suited for the jol it
they are undertaking.

But assurances were given, and Ed Harper came through on
that. They set up a committee of IG’s to screen potential applicants
for IG positions in order to assure that they hac appropriate quali-
fications, and it worked quite well. Some very well qualified inspec-
tors general were reappointed, and others were newly appointed.
After Ed Harper left, Joe Wright continued to be very supportive
of the IG’s.

President Reagan also established the President’s Council on In-
tegrity and Efficiency, which I think is an o1 ‘ization that has
served a very useful purpose. Its effectiveness depends a lot on the
kind of backing it gets.

I am afraid I cannot give President Bush very high marks. If my
memory is correct, shortly before President Bush ‘took office, all po-
litical appointees were asked to submit their resignations so he
would have a free hand in choosing his own. Whoever sent out the
notices was ppparently not aware that the IG’s were not political
appointees. I don’t think any of the IG’s ever actually submitted

eir resignations, but they were more or less on probation in their
own minds during the Bush administration.

During the Bush administration, although I wouldn’t fault Presi-
dent Bush himself for that, the infamous KOMEAC memorandum
was issued by our old friends, the Office of Legal Counsel of the
Department of Justice. OLC contended that IG’s were su to
be internal investigators, “police of the police,” as they called it. It
was all right for them to investigate fraud and abuse if it was
being trated by Federal employees, but if it was not bein;
done by Federal employees or was not clearly being financed wit
Federal money, it was verboten for them to look into it.

For example, the State Department inspector general would have
a free hand in investigating passport fraud if employees were sell-
ing passports; however, in the event some entrepreneur sublet
space in the Federal Reserve building across the street and opened
an office for the sale of phoney passports, that would not be appro-
priate for the IG to investigate.

I wrote a long memorandum some years on the fallacies of
the KOMEAC memorandum. I think the folks responsible for
issuing that read some provisions of the IG Act, but had never
bothered to get through the rest of it. The contention that the IG’s
were supposed to only monitor the work of other investigators was

juite interesting, because when we set up the IG Act, we trans-
ferred practically all of the investigators into the IG offices. So,
therefore, the problem with having the IG’s be the “police of the po-
lice” is there weren’t any police for them to investigate.

The KOMEAC memorandum, I think, has faded into well-de-
served oblivion. I don’t think it is a problem at the present time.
There are other problems with the Department of Justice. I think
at times the relationship of the Department of Justice with individ-
ual IG’s has been very good. June Brown can probably tell you
about the excellent cooperation that HHS, so far as I know, gets
from the Department of Justice, including a joint task force. I think
your subcommittee has gone into that.


70

least of which was the NPR recommendations. But I want to read
something in the vision statement from the IG’s:

In order to comply with the intent of the IG Act and assist in achieving our vision,
we will continue to develop strategic plans for our offices that focus on the critical
issues within our agencies, and that meet the expectations of our agency heads and
the Congress.

You have 57 IG’s. You could possibly have 57 legitimate but dif-
ferent sets of expectations. The strategic planning process, if done
well, can help to sort through all that and to have a public airing
of what all the stake holders want from the IG’s work. I agree with
Paul Light here that you then need to follow that up, you just can’t
put it out there, and there needs to be some oversight of that. Per-

ips the peer review process is a systematic way of ensuring that.

Mr. Horn. Who sets up the peer review process?

Mr. CuarK. Each IG is responsible for arranging for their own
peer review. I do not know to what extent the PCIE provides over-
sight of that process. I know there are guidelines that are issued
through the PCIE for conducting the peer review. That may be a
potential weakness in the peer review process, particularly if you
compare it with the peer review process that is performed by public
accounting firms where the SEC has an oversight role and the
American Institute of CPA’s has an oversight role in how the peer
review process is actually conducted.

Mr. Horn. Has the General Accounting Office ever been asked
to participate in these reviews?

Mr. CLarRK. Not formally. Prior to 1988, there was no require-
ment that IG’s participate in a peer review. The requirement for
a peer review was put in the GAO auditing standards in 1988. In
the 1980’s, particularly when Chuck Bowsher arrived as the Comp-
troller General in 1981, he instituted a program in GAO. We called
it quality assessment reviews but they really were r reviews.
We went out and performed peer reviews, I think, of about seven
1G’s which largely found that IG’s were doing a good job. There
were some suggestions there. But I think we demonstrated that
that type of process can work, that it has value and it led to the
general acceptance of the idea to begin requiring peer reviews in
1988. Since 1988 we have not been asked nor have we taken the
initiative to evaluate exactly how well the process is working.

Mr. Horn. What is the appropriate measurement of performance
for an inspector general, either by the President or by Congress?
Should there be a measurement, a basic measurement? And if so,
what is it? Dr. Light, you are always filled with ideas. Some think
there ought to be. Some don’t. I don’t.

Mr. LiGHT. I think the measurement is the degree to which IG’s
reduce vulnerability in their departments. That is not the current
measure. The current measure of IG performance is the extent to
which the IG’s ferret out fraud, waste, and abuse and measure it.
Each year we have a new record except for fiscal year 1996, which
is explained by the Government shutdowns, I think. Each year we
have a new record in statistical accomplishment, but we have no
measure of the reduction in vulnerability. That is a more difficult
measure to create.

Are we any better at preventing fraud, waste, and abuse today
than we were 20 years ago? I think the answer right now is we just


146

OIG MISSION STATEMENT

AND VALUES

The 01G’s mission is independent and objective reporting to the Secretary and the
Congress for the purpose of bringing about positive change in the integrity,
efficiency, and effectiveness of HUD operations.

OIG values are as follows:

*

Relationships among OIG components and staff are characterized. by teamwork
and respect.

Diversity is valued and promoted in the workforce.

Excellence in the workforce is fostered through continuing concern for
professionalism and career development.

As a general rule, emphasis is placed on “doing” rather than reviewing, by
delegating operational authority, responsibility, and accountability to the
lowest appropriate level.

Identifying and meeting client needs in a timely fashion are a primary
concer. Clients are defined as the Secretary, the Congress, HUD managers
and employees, and the public.

iG operations are focused on substance rather than process and rely on
innovative as well as traditional methods to address issues of significance
having potential payback in terms of improved integrity, effectiveness, and
efficiency.


63

to implement their strategies, and (4) provide performance
measures to evaluate their progress.

Most recently, at your request, we surveyed the 48 IGs at agencies
covered by the Results Act to determine whether the IGs prepared
strategic plans. The survey results showed that the IGs have
completed strategic plans or are developing them. Also, the IGs'
responses to our survey indicate that their strategic plans
contain many of the elements outlined in the Results Act, such as
mission statements and goals and approaches. We have advised your
staff on the preliminary results of this work, and we will be
reporting to you soon.

In addition, the Vice President's 1993 National Performance Review
recommended changing the focus of IGs from compliance auditing to
evaluating management control systems and recasting their method
of operations to be more collaborative and less adversarial.

In January 1994, the IGs adopted an “Inspectors General Vision
Statement" that says “We are agents of positive change striving
for continuous improvement in our agencies’ management and program
operations and in our own offices.”

This was an important step in defining the IGs' broader role while
reaffirming their statutory mission. The vision statement
addresses ways for the IGs to work with agency heads and managers
to improve program management, maximize the positive impact of the
IGs' reviews, and provide recommendations to prevent problems
before they occur.

MANAGEMENT REFORMS PROVIDE
OPPORTUNITIES FOR IG EMPHASIS

We have long supported the IG concept and the legislation that
brought the concept into reality. While not diminishing the
significance of the IGs' traditional role in fighting fraud,
waste, and mismanagement, we also recognize the potential for
broadening the IGs' role in concert with legislative initiatives
that establish a foundation requiring agencies to implement broad
management reforms. Because these legislative initiatives have
shaped the environment in which IGs operate, they have created new
means for the IGs to achieve audit objectives and provided
opportunities for the future direction and emphasis of IG efforts.

In this regard, the Chief Financial Officers (CFO) Act of 1990, as
expanded by the Government Management Reform Act of 1994, gives
the IGs at the 24 major departments and agencies responsibility
for annually auditing their agencies' financial statements. The
expanded CFO Act's objective is to identify and correct financial
management weaknesses, reliably report the results of financial
operations, and provide reliable information for oversight and
decision-making.

4


20

-+ What efforts in the past has the agency undertaken to
address the problems? Why haven't they worked?

-- What it will take to forcefully rectify the problems?

How should we measure the agency’s performance in this
regard?

This type of report will be far more relevant to the
Congressional debate, and also will allow Congress to better
understand and appreciate the work of the 1Gs. To the extent
these emphases may be included in the semi-annual reports, we
will have made significant progress in improving our picture of
how effective the 1Gs really are.

Devolution, Flexibility, & Accountability

A number of programs have been consolidated on the federal
level, and many of those have been turned directly over to the
States to administer. In thie process of ‘devolution", I do have
some concerns over our ability to “follow the money". Will there
be a proper audit trail? Do IGs have the necessary resources? How
are the States equipped themselves to prevent waste and audit
these programs? Finally, how well can we rely on the States to
fairly measure and report on how well they and the localities
have used federal funds?

Besides moving towards more “block grants", we are also
proposing increased flexibility on the State & local levele with
program requirements, and to consolidate programs to improve
their effectiveness. On the federal level, we are moving,

through the *PBO" approach (Performance-Based Organizations), to


37

o.

is - by providing necessary information and appropriate
commendations to Executive agencies and Congres:

While the fundamental role of the Inspectors General has remained
constant, they have obviously been deeply affected by technological
and other changes which have occurred in both government and
private sectors. Moreover, enactment of additional financial
management legislation has influenced IG priorities and contributed
considerably to their workload.

Possible Changes in the IG Act

I know you are interested in changes that might be made to
strengthen the Inspector General concept.

It is my impression that Presidentially appointed IGs are not
having any major problems because of the language of the IG Act.
There is - of course - always room for improvement. For example,
it might be useful to review the detailed reporting requirements
ed by the 1988 amendments to insure that the usefulness of
information required is commensurate with the workload involved in
providing it. Another area which might be examined is whether IGs
should be allowed to exercise testimonial subpena authority under
appropriate circumstances and whether law enforcement authority,
when necessary, should be made available in a more timely and less
complicated manner than is presently the case for some IGs.

Inspectors General at designated agencies have problems not faced
by Presidential appoin They have independence, since
they are usually hired and can be removed by the agency head; this
presents a particularly difficult problem if the IG is called upon
to investigate allegations against the agency head. In very small
offices, administrative overhead can consume a substantial
percentage of available resources.

There is always the danger, of course, that beneficial amendments
may be accompanied by unanticipated negative changes. Before
initiating changes in the law, I think it is important to ascertain
whether or not the problems needing correction are due to
weaknesses in implementation of the law by individual IGs, or

to oth non-statutory reasons, such as lack of resourct
programs which are inherently almost impossible to. monitor
adequately.

Problems and Opportunities
I believe the Inspectors General have done a good job over the past

twenty years. I also believe they can and should do a better job in
the future. Among the problems which need to be addressed are:

Ignorance of the law. People who should know better - including
agency heads and program managers — do not fully understand the


157

Let’s take the situation, did you meet with the authorizing com-
mittee at all when your agency met with them on the strategic
plan?

Mr. LayTON. No, sir.

Mr. Horn. So you weren’t included in the staff meeting?

Mr. Layton. No, sir. I met with the oversight committee. I had
an extremely close relationship with the oversight committees, but
not with the authorizing committees.

Mr. Horn. How about the appropriations subcommittee?

Mr. LayTon. We met with the appropriations subcommittee.

Mr. Horn. Oh, you did.

Mr. Layton. Spent considerable time with them.

Mr. Funk. Mr. Chairman, way back in time in the early 1980's,
I chaired what was called the Performance Evaluation Committee
of the PCIE, and we tried desperately to come up with some kind
of measures of Performance that would hold up and that would be
fair and valid. We ran into the problem that Jo! ited.

For example, if we were to define a quality of service, something
done by the IG personally, and it might turn out that one of the
program assistant secretaries said, Well, heck, my people did as
much as you guys in that. If I were to take unilateral credit for
that, we would end up causing more trouble than it was worth.
And we threw in the towel- r about a year’s work, we threw
in the towel.

We found that it was impossible to come up with other than the
usual things, which are all process. Process is very easy to meas-
ure, but to get it to the quality of the subjective an lgments of
whether this was something which was initiated by this individual
or that individual, became a matter of splitting how many angels
on the head of a pin.

Mr. Horn. Yes. Any comments on this?

Ms. Gaffney.

Ms. GaFFNEY. It always seems to me in areas like ours, or re-
search or whatever, that you almost inevitably have to go to client
surveys. The problem is, of course, we don’t necessarily trust our
clients to be honest.

Mr. Horn. You might have to send some to Federal prison, you
mean, to answer the survey.

Ms. GAFFNEY. That’s what I mean.

Mr. Horn. I can understand the problem.

Let’s talk about the budget recommendations. When you are try-
ing to submit your budget through either the departmental proc-
ess—I assume it becomes part of the Secretary’s budget—have the
IG’s been cut in their requests for resources, and is that cut more
by the agency secretaries and are they cutting some of their own
Programmatic departments? What’s your experience?

ir. Layton. I can probably speak to that, especially being a
former IG. The—IG grew at times in certain—with certain sec-
retaries; at other times, I took reductions. I continued to play in
the departmental process of building a budget, and I watched to
see if I was generally treated the same as the rest of the depart-
ment. If I was, I didn’t Squawk too loud.

I played the usual budgetary games and tried to get my budget
increased by going to whomever would listen. But I generally got


57

sense of impending doom at ValueJet did not call for a seven-day letter, I do not know what would.
It could give the families of the victims cold comfort to read of the IG's worries about Valuedet in
an opinion piece on the Monday after the accident when the IG never used her most effective and
visible tool beforehand. The IGs have long described the seven-day letter as a holstered weapon that
is best shown, but not used. My sense is that the seven-day letter has been in the holster so long that
it has rusted into place. It should be pulled out, reloaded, and fired from time to time, and not just
to alert Congress that an OIG's budget is in jeopardy.

Before turning to the Subcommittee's questions, let me conclude on a simple note, Being Inspector
General is still one of the toughest jobs in government. There is no way to legislate courage or
integrity, nor is there any curriculum that would teach an IG how to serve so many masters
effectively. I believe IG performance starts and almost ends with the recruitment of talented
individuals for office.

The thing I admire most about the Reagan IG selection process is that it conveyed a sense of prestige
and import to the choice. People who were selected to stand for nomination knew they were taking
a significant turn in their career. That is no longer the case. Being nominated for IG is more an
accident than a deliberate choice. Again, much as the process has brought us some very talented
individuals, it has devalued the coin of the realm. I believe the problem is serious enough to warrant
an entirely new appointments process and can make the case that presidential neglect warrants
similar procedures for other key administrative jobs.


23

Mr. Horn. Let me—if you have time before they vote, I remem-
bered in my Senate staff experience they can say, “How am I re-
corded, Mr. President?” and that can go on for a half hour.

dust a couple of things. I don’t know if you are familiar with the
case that one of our ablest Members brought to us, Lee Hamilton
of Indiana, the ranking Democrat on what was the Foreign Affairs
Committee, about the inspector general and the Department of
State, where he felt there was some violation of due process. We
had a hearing on that. I asked the IG’s to bring me in a process
of how we can deal with the witnesses and what is fairness in
terms of a witness knowing what their rights are. And I haven't
really seen much out of that yet. And I just wondered if you had
been familiar with that due process problem.

Senator COLLINS. We haven’t looked very specifically at that
issue, except with regard to the Secret Service agents who were in-
vestigated by the IG. I do believe that their rights were fully pro-
tected, and they were subjected to a great deal of unfair publicit;
and negative criticism, when, in fact, in my judgment, the I
should not have opened an investigation at all. go although I can’t
generalize, and I am not familiar with the State Department case
that you mentioned, certainly the overview that we did of the
Treasury IG’s suggests that is an area that we should look at.

Mr. Horn. Well, my last question is simply a comment. I think
you are absolutely right on the smaller agencies, and in the 1965
Act for the Arts and Humanities, 1 mean they never said, “You
don’t have to speak to each other.” And there is no reason why one
inspector general couldn’t meet the needs of both.

I do have a problem, or think it might be a problem if we have
sort of one big inspector general for a lot of small agencies. I think
there is some value to be in proximity and get the tips in the hall
or at the water cooler that you might get if you were part and with-
in the housing of that particular organization. That is simply one
thought on the subject you might want to think about.

Senator COLLINS. That is a good point, Mr. Chairman. There are
some areas also where you have independent regulatory agencies,
like the SEC, where I think maintaining a separate IG is abso-
lutely critical. But there are some of these small agencies with very
related missions that I think we could have some consolidation
without doing damage to the process. But you are right, it needs
to be a case-by-case decision.

Mr. Horn. Well, thank you again for coming over here. We really
appreciate the wisdom you have brought to this discussion.

nator COLLINS. Thank you very much, Mr. Chairman. I look
forward to working with you.

Mr. Horn. Thank you very much.

We will now have panel two come forward, and that is James
Naughton, the former professional staff, counsel, to the once-known
Committee on Government Operations; the Honorable Edward L.
Harper, chief financial officer, American Security Group, former
Deputy Director, Office of Management and Budget; Dr. Paul C.
Light, the director of the public policy program, the Pew Charitable
Trusts; and Mr. David Clark, Director, Audit Oversight and Liaison
Group, Accounting and Information Management Division, General
Accounting Office.


144

debates with the HUD OIG. ‘They have asserted that the "general
supervision" language in the IG Act means that the Secretary should
issue OIG audit reports; the HUD Office of General Counsel, rather
than the PCIE Integrity Committee, should investigate allegations
of wrongdoing by the HUD IG; IG public relations should be
controlled by the HUD Office of Public Affairs; and the Secretary
should control work to home use of government vehicles by OIG
criminal investigators. They have also asserted that the OIG does
not have direct access to all agency records and personnel; and the
Secretary is not required to sign the letter transmitting the OIG's
semiannual Report to the Congress. ‘They developed plans for an
Enforcement Center apart from the OIG that would conduct criminal
investigations; and they are allegedly now developing a legislative
proposal to give the Enforcement Center subpoena authority. Some
of these issues have been resolved; some have not been resolved.
But, in my opinion, they all reflect a fundamental lack of
understanding or acceptance of the IG concept and the IG Act.

The IG concept is alien to appointees from outside the Federal
Government. And, when such appointees grasp the concept, it often
makes them uncomfortable. Getting over these hurdles shouldn't be
the job solely of the IGs. The Executive Office of the President
and the Congress need to make sure that top political appointees,
at the outset of their tenure, understand the IG Act and understand
that they are expected to support it.

Similarly, to ensure the best qualified IGs, I don't think we
need changes to the IG Act. I do think we need a better process in
the Executive Office of the President and more active involvement
by the Congress.

A fourth issue that needs to be addressed: because of our
Operation Safe Home violent crime work, it is clear to me that the
HUD OIG needs statutory law enforcement authority. (We currently
have law enforcement authority under a blanket deputation from the
U.S. Marshals Service, which deputation is renewable every two
years.) I am currently discussing this matter with Administration
officials. It would also make sense for the HUD OIG to have asset
forfeiture authority, so that we could ensure that proceeds from
law enforcement operations in public and assisted housing are put
back into public and assisted housing. I have submitted a
legislative proposal to this end to the HUD authorizing committees.

That concludes my list of 1G-related issues that I believe
need to be addressed. You will note that my list does not include
some changes that have been proposed, notably changes with respect
to OIG reports to the Congress and terms of office for IGs.

Various parties have proposed that the semiannual reporting
requirement in the IG Act be changed to an annual reporting
requirement; and that the required reporting elements in the IG Act
be streamlined. To my understanding, these proposals reflect
Congressional frustration with information overload and an

5


90

Mr. Chairman and Members of the Subcommittee, [ am here at your request to testify
conceming the Inspector General Act of 1978, as amended. It is my understanding that the
focus of the hearing is on the role of the Inspector General; current issues facing Inspectors
General, and opportunities to strengthen the concept.

I retired as the Inspector General of the Department of Energy in January 1998. During
my 29 year career in the Federal Government, I have also served as an Inspector General
appointed by the head of a Department, a Deputy Inspector General, as well as an office
Director and a Special Agent. Prior to being employed in the Inspector General community, I
was a Special Agent with the Federal Bureau of Investigation. I also have a degree in
accounting and performed a variety of audit functions before joining the Federal Service. With
this background, I feel well qualified to express opinions on the nature of Inspector General work
and the current status of IG Act implementation.

‘The position of Inspector General is intended to provide leadership in the area of
efficient and effective operation of government programs. As with other leadership positions,
vacancies are not in the best interest of the taxpayers. As of April 15, 1998, there were seven
Inspector General vacancies in major departments and agencies. The use of acting Inspectors
General for long periods of time is not in the best interest of the taxpayer, the Department, the
Office of Inspector General nor the acting Inspector General. These offices need the presence of
a full time Inspector General who has the support of the Congress, as well as the respect of
‘management. Continued uncertainty of who will eventually lead an office does not promote the
economic ot efficient operation of an office.

In the area of performance measures for Offices of Inspector General, the last Presidentils
Council on Integrity and Efficiency annual report compiled results of individual Offices of
Inspector General. This report contains numerous statistical accomplishments. However, I
believe itis counterproductive to try to use these statistics for comparative purposes. If they are
used as performance measures they are likely to focus efforts on repetitive functions, rather than
on systems improvements. There are many OIG‘ reporting on the vulnerabilities facing their
agencies for which accomplishments are difficult to enumerate.

‘You have asked me to share my thoughts on several issues, which follow:
1. What was the purpose behind the Inspector General Act?

1 believe the intent of the Inspector General Act was to provide an independent view of
the operations of government programs. The Inspectors General were to identify opportunities
to improve the delivery of services to the taxpayer and identify those people within the system

who do not behave in an ethical fashion or are diverting government funds to their own use.

The Inspector General Act specifically provides that Inspectors General are to conduct
and supervise audits and investigations relating to programs and operations of their departments
2


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political affiliation and solely on the basis of integrity and demonstrated ability i
accounting, auditing, financial analysis, law, management analysis, public
administration, or investigations.

The IG Act, as amended, provides that an inspector general may be removed
from office only by the President, who then must communicate the reasons for
removal to both Houses of Congress. There are no explicit restrictions on the
President's authority; removal may be with or without cause.

Each inspector general “must report to and be under the general supervision of”
the establishment head or, to the extent this authority is delegated, to the officer next
in rank below the head, and shall not report to or be subject to supervision by any
other officer. The restriction on supervision is reinforced by another provision:
“Neither the head of the establishment nor any other officer shall prevent or prohibit
the Inspector General from initiating, carrying out, or completing any audit or
investigation, or from issuing any subpoena.”

Exceptions to this prohibition are few, they are spelled out for only certain
departments and for only specified reasons. Sections 8, 8D, and 8E of the IG Act, as
amended, authorize the heads of the Departments of Defense, Treasury, and Justice,
respectively, to prohibit an IG audit, investigation, or issuance of a subpoena which
requires access to information concerning ongoing criminal investigations, sensitive
operational plans, intelligence matters, counterintelligence matters, and other matters
the disclosure of which would constitute a serious threat to national security. (Under
separate statutory authority, the Director of Central Intelligence (DCI) has similar
power over the Inspector General in the Central Intelligence Agency (CIA).) Should
the agency head use this power to limit the IG’s exercise of authority, the reasons
must be communicated to the IG and then by the inspector general to specified
committees of Congress.

Section 3 also provides for two assistant inspectors general within each IG office
in the specified federal establishments: i.e., an Assistant Inspector General for Audits
and an Assistant Inspector General for Investigations.

1Gs in Designated Federal Entities. Section 8G covers the same matters for
offices of inspectors general in “Designated Federal Entities,” a category of
organization added by the 1988 Amendments. These entities include the Consumer
Product Safety Commission, Federal Communications Commission, Federal Labor
Relations Authority, and Securities and Exchange Commission, along with numerous
other usually small boards, commissions, government corporations, and foundations.

In addition to these entities, the inspector general in the Government Printing
Office (GPO)—the only legislative branch entity with a statutory office of inspector
general—operates under similar guidelines. Because GPO is a legislative branch
organization, however, its OIG was established under separate public law (44 U.S.C.
3901-3903).

The appointment and removal provisions for IGs in designated federal entities
(and in GPO) differ from those which govern presidentially-appointed IGs. The
inspectors general in designated entities are appointed by the agency head. Regarding


44

heads, Members of the Congress, and the President. The inspectors
general should expect: One, they will be treated by the agency head
as a vital part of the agency’s head management team, but inde-
pendent of the agency’s executives, and they will report directly to
the agency head. Two, that they will be free to aggressively and
professionally audit and investigate agency operations and Govern-
ment-funded 1 programs with the objective to root out fraud, waste,
and abuse. Three, they will be called upon to report to the Con-
gress without Brior clearance of their testimony, but they are not
agents of the Congress. And, four, they will get support from the
Office of Management and Budget.

The agency head should expect that the inspectors general, one,
will act as a part of the management team, but will not be under
the direction of any operating official short of the agency head, and
I mean that both formally and informally. In reality, they have got
to report to the agency head. Two, they are going to be an impor-
tant force in improving the management of the agency. Three, they
will pull no punches in their investigations and audits. Four, they
will act in an appropriately confidential manner, recognizing their
final reports are public documents. Five, they will investigate
criminal activity and work with the Department of Justice to
achieve prosecutions.

And, the President should expect that the inspectors general,
one, will do well if he has the discipline to appoint only the very
best. Two, they will aggressively audit and investigate all oper-
ations within their jurisdictions. Three, they will work in an appro-
priately confidential manner, again recognizing that reports are
public. It is not a e of “I gotcha.” And four, they will work with
the Department of Justice to secure prosecutions and, I think to
Mr. Naughton’s point, to set payment back to the Government.

And, the Co ss should expect that the inspectors general, one,
aren’t agents of the Congress and two, will vigorously do their job.

Finally, the Congress should do as it is doing at this hearing, in-
vestigate the effectiveness and the mission of the inspector gen-
erals program to make sure it is effectively doing its job to elimi-
nate fraud, waste, and abuse in Government operations.

Thank you, Mr. Chairman.

Mr. Horn. Well, I thank you. That was an immensely helpful
statement, and it gives us not only some of the history, but some
of the real problems with which we need to deal.

[The prepared statement of Mr. Harper follows:]


85

designated entities now have OlGs with just a handful of people on staff.
Nevertheless, the Amendments do not differentiate the “new” IGs in any
substantive way from the “old” IGs, even though some of the former have less
than 10 employees while some of the latter have more than 500. The result is
that a number of tiny OIGs and many OlGs with less than 50 employees are
required to equally and fully comply with the complex requirements of the IG Act,
complete very detailed and comprehensive semiannual reports, analyses of
proposed legislation, and perform a range of audit and investigative activity
entirely beyond their de facto capabilities. The aim of the Amendments is noble,
as are the operations and achievements of the designated entity OlGs, but the
difficulties are unnecessary. It simply makes no sense to charge a small office
with roles and responsibilities beyond its resources.

More important is that the independence of the IG which is central to the success of
the concept is extremely difficult to maintain in a situation where the IG is appointed
by the very official whose work the IG is to oversee. Often, the office of the agency
head and that of the IG are very near each other, creating a physical proximity in
which independence becomes difficult to sustain in daily practice. My admiration for
these designated entity IGs is boundless; they are operating in an environment never
‘envisioned by the draftées of the IG Act, displaying great courage and moral
strength. But they face an impossible job.

| suggest that there be a flat division of the IGs between the 23 larger agencies (the
“original” 21 plus SSA and USPS) and the 32 designated entities. The latter should
be tasked to produce an annual report to the Congress rather than a semiannual
report, and the contents of this report should be significantly simplified. In addition,
other requirements of the IG Act can be simplified as well, such as legislative
analyses. It also would be helpful if a committee from the PCIE, representing
presidentially appointed IGs and non-IGs, together with representation from the
designated entity IGs, were charged with reviewing candidates for IG slots among the
designate entities. This committee's conclusions and recommendations would not be
binding upon the agency's head choice of IGs, but they should be extremely helpful.

Finally, consideration should be given fo assigning each designated entity IG to on
appropriate presidentially appointed IG so that the former can draw on the latter for
criminal investigations. This would close the most severe gap among designated
entity IGs; to be feasible, it would require some annual cross funding. This seems to
be a do-able procedure requiring little red tape.

c. “Gun and badge” authority for the IGs. This is a hotly contested issue, with
feelings running strong and deep on both sides. | concede my bias: repeatedly
my agents encountered intense and dicey situations. Although fully armed
themselves, they had to delay urgent action until help appeared in the form of
agents from other agencies who possessed what my people lacked: authority to
arrest on the spot. Often, deals went sour because the assisting agents arrived
late or there ware miscommunications among those involved. It was incredibly
frustrating. Today, for some unfathomable reason, DO! always seems reluctant
to extend “gun and badge” authority to those IGs who do not yet have it, even
though the number of officers US-wide with this authority is expanding
exponentially. As with testimonial subpoenas, however, | would not want this


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investigation. The act, supplementing other “whistleblower” statutes,? also prohibits
reprisals against employees who properly make complaints or disclose information to
the IG.

Prohibition on Program Operating Responsibilities. Notwithstanding the
broad powers granted by the IG Act, as amended, inspectors general are prohibited
from taking corrective action or instituting changes themselves. Indeed, section 9 of
the act expressly forbids the transfer “of program operating responsibilities” to an IG.
This prohibition is designed to ensure the integrity of an IG’s audit or investigation;
if'an IG were to carry out programs or institute changes, he or she would not be able
to audit or investigate them objectively or impartially in the future.

Law Enforcement Powers. Despite the broad range of investigative authority
under the IG Act, as amended, law enforcement powers have nof been granted actoss-
the-board in public law. Instead, the OlGs that have such authority—to carry
firearms, make arrests without warrants, and obtain and execute search
warrants—have acquired them in one of four basic ways: through transfers of pre-
existing offices which held relevant powers when the OIG was created, specific
statutory grants to a particular office (e.g., in the Agriculture and Defense
Departments), delegation of relevant authority and jurisdiction by the agency head,
and special deputation by the Department of Justice.

In the past, IGs have received ad hoc, temporary special deputation from the
Justice Department when law enforcement powers were needed independently (that
is, without relying upon other agencies to make arrests, carry firearms, or execute
search warrants). Criticism arose from the IG community, however, over the costs
associated with such deputation, delays in processing OIG applications for it, and its
limited duration and extent. As a result, an alternative policy has since been devised
to provide extended, blanket deputation to most offices of inspector general in federal
establishments (in 23 of the 27 OIGs headed by presidentially appointed IGs).
Memoranda of Understanding between the Justice Department and the qualified OIGs
implement this program, which is limited to one year and thus must be renewed
annually.

Coordination Among and Investigations of IGs

Inspectors general, along with other relevant agencies, are members of one of
two coordinating mechanisms, which have been established by executive order and
operate under the auspices of the Office of Management and Budget (OMB). In
addition, allegations of wrongdoing against IGs themselves or other high ranking
officers can be investigated by a special integrity committee consisting of members of
these two councils.

> See, most importantly, the Whistleblower Protection Act of 1989 (103 Stat. 16 et seq.)
and its companion legislation setting forth the Merit System Principles (5 U.S.C. 2301-2305).


62

statutory investigative authority, and their subpoena power, to
inquire into allegations of wrongdoing--both criminal and
administrative. The President's Council on Integrity and
Efficiency’ has developed guidelines for IGs' investigative
efforts.

The types of investigations conducted by the various IGs vary
widely and often depend on the mission, programs, and operations
of the agency they service. For example, the DOD IG uses the bulk
of a cadre of criminal investigators to focus on frauds
perpetrated against the Department by contractors and health care
providers. Similarly, the Department of Health and Human Services
(HHS) IG's investigations focus largely on frauds against
Medicare. These and other IGs use their investigators to uncover
external criminal activity impacting their departments’ programs.
Simultaneously, they must conduct criminal investigations of
allegations of job-related crimes perpetrated by agency employees.

Most IGs also conduct, or at least supervise, agency
administrative investigations--those cases where allegations of
noncriminal misconduct (such as abuse of position and noncriminal
conflicts of interest) by agency employees have been made. IGs
use either criminal or noncriminal investigators to carry out this
mission.

All IGs have the same basic investigative powers. Some IGs also
have been granted limited law enforcement powers as well. These
powers generally include the authority to make arrests and serve
and execute federal search or arrest warrants. IGs using these
additional tools have either gained these authorities through
statute or through case by case deputation authority from the U.S.
Marshals Service as approved by the Department of Justice.
Several IGs are part of an ongoing pilot program wherein their
criminal investigators are under blanket (as opposed to case-by-
case) deputation authority.

Reviewing IG Operations

Over the years, in response to specific requests from the
Congress, we have reviewed various aspects of the IGs‘ work. For
example, in November 1993, we reported on actions needed to
strengthen the OIGs at designated federal entities (GAO/AIMD-94-
39). We recommended, for example, that those IGs develop
strategic plans which (1) assess their respective entities’ risks
and problems, (2) describe the strategies for resolving the risks
and problems, (3) discuss the OIG resources required and available

‘The President's Council on Integrity and Efficiency was
established in 1981 to address common IG issues and is comprised
primarily of the presidentially appointed IGs.

3


authority given across the board to all the designated entity IGs. Nor should it be
forced on an OIG whose IG prefers not to have it.

d. Testimonial subpoenas. OlGs can use these now only through a grand jury
convened by an Assistant US Attorney, who is working a case with OIG special
agents. Many IGs seek testimonial subpoenas as an immensely valuable
additional tool of their own, like the documentary subpoena already authorized to
the IGs by the Act. Unless the Act is modified as | suggest above, to distinguish
between the authority and responsibilities of the presidentially appointed IGs from
those of the agency head-appointed IGs, | strongly oppose inclusion of testimonial
subpoenas in the Act. It is, to be sure, a convenient and highly desirable too! —
but it is also a tool which can be badly abused. The smaller IGs simply do not
have the resources to handle this function adequately. Thus, unless the two kinds
of OIGs are given separate roles and responsibilities , the status quo regarding
testimonial subpoenas should be continued.

e. The seven-day letters. These are intended by the Act as a shot across the bow
of agency heads when an IG encounters an egregious situation or, in the
language of the Act, a “particularly serious or flagrant problem, abuse, or
deficiency” in operations of an agency. The IG can send a special letter to the
Congress flagging the matter and the agency head has only seven days to pass it
on to Congress with or without comment. All credit to the drafters of the Act: this
is a wonderful and seemingly critical tool of the IGs. It is designed to be used very
rarely, but when it is, WATCH OUT! The anger of a stern Congress will be vented
‘on the poor agency head or program manager responsible for triggering release
of the seven-day letter. Unhappily, such reactions occur rarely, if at all. Far more
common is the loud yawning silence on the Hill which greets the letter. The clever
1G never lets on to anyone his or her real feeling about seven day letters, which
is:"what if they gave a war and nobody came? What if | write a seven day letter
and, after betting all my chips on someone from the Hill giving hell to the agency,
nothing happens? What do | do then? Is it worth taking the chance?” If indeed
the Congress is serious about supporting the IGs, this problem can be easily
eliminated or minimized. For example, the seven-day letter can be addressed to
the committee or subcommittee with oversight authority for the problem. Such
actions cannot always be spelled out in law, but it certainly is feasil amend
the Act so that the recipient must acknowledge a seven-day letter within a week
and identify a contact with whom OIG staff can meet to discuss the problem.

{. Semiannval reports. Generally these are too long and unwieldy. Even a small
OIG issues comprehensive reports, in an attempt to meet the many requirements
spelled out in the Act. Some semiannual describe every audit, inspection, and
completed investigation conducted during the previous six months, regardless of
their significance, impact, and degree of public interest. Inasmuch as there are
more than 50 IGs and each submits a semiannual opus, it is obvious that the
congressional staff, can absorb only a few in-depth. The result is extreme
overload - overload on the recipients as well as those who prepare the reports.

Ironically, despite all the printed material (indeed, perhaps because of all the printed
material), Congressional staff often feel that they still lack information about which
problems the IGs think are most important, and which problems may warrant the


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19

areas of growing concern for the Inspector General
community. There are several emerging issues that cut

across the community. These include:

° Cyber Fraud: The potential for criminal activity in the
cyber environment continues to grow as government
agencies increase reliance on electronic commerce and
Processes. This creates not only a need for increased IG
focus but also for specialized skills training and
expertise throughout the IG community. This is a growing
area of difficulty for IGs, not only in competitively
attracting individuals with this expertise, but also in

training and maintaining these skills in-house.

* Record Retention and Digital Signatures: As government
and industry move to a paperless environment, there is a
need to determine what records should be maintained in a
non-electronic format. The move to electronic commerce
and electronic filing systems has also raised the need to
develop digital signatures that would authenticate
original documents. Obviously, these are areas of
concern for prosecutorial and law enforcement agencies,

including the IGs, since they could substantially impact


124
22

we face in coping with programmed downsizing. We have
undergone staff reductions of 21 percent since 1995 and
are currently scheduled to undergo further cuts of an
additional 16 percent in the next three years. Despite
our significant efforts at reengineering, we are quickly
reaching the point where we can no longer overcome
increasing workload demands with productivity increases
while continuing to downsize. This is occurring during
an era of turbulence and considerable risk for all of
government as it struggles with the introduction of new
processes, reorganizations, downsizing, increased stress
on the workforce, outsourcing, and increased reliance on
automated systems. Inadequate investment in a sound and
effective Inspector General effort compounds the problems
and the risks already facing government. There is no
question that professionalism, independence and
accountability are essential to effectiveness in IG

efforts but, so too, are adequate resources.

In closing, let me assure you that I, and my
colleagues in the PCIE, stand ready to work with you to
improve and strengthen the entire Inspector General

community.


31

3.

example, HEW had two separate units investigating fraud and abuse
by medical providers; one unit was assigned responsibility for the
medicare program and the other for medicaid. Some providers were
undoubtedly defrauding both programs. However, instead of
requiring coordination and cooperation between the two units, HEW
regulations prohibited either unit from telling the other which
Providers they were investigating or what problems they were
finding.

In view of the deplorable situation at HEW, the subcommittee
developed and secured the enactment of the 1976 legislation
establishing a statutory Office of Inspector General at HEW. With
minor exceptions, powers and duties of the newly created HEW
Inspector General were the same as those subsequently provided for
Offices of Inspector General established under the 1978 Act.

The 1978 Act

In 1977, the subcommittee held a series of hearings to determine
ther statutory Offices of Inspector General should be
established at additional departments and agencies. Almost
everywhere we looked we found serious problems and deficiencies in
the organization, procedures and resources of auditing and
investigative units in Federal departments and agencies. Major
problem areas included:

Lack of Independence: Personnel of audit and investigative units
reported to and were hired or fired by officials directly
responsible for the programs being examined. In some agencies,
investigators were not permitted to investigate allegations of
criminal conduct without specific clearance from program officials.

Lack of Effective Organization: Agencies had no central office
with overall responsibility for audits and/or investigations;
instead, multiple units reporting to different officials were
scattered throughout departments and agencies in agency in
haphazard fashion. One department reported having 116 separate
audit and investigative units.

Lack of Resources: Some audit cycles were as long as 20 years,
while other activities had never been audited. one department had
only six trained criminal investigators to look into irregularities
in the expenditure of $25 billion annually. The lack of resources
was particularly indefensible in light of estimates that additional
investigators would repay as much as 20 times their costs through
savings and recoveries.

Lack of Effective Leadership: Officials to whom auditors and
investigators reported either had program responsibilities or were
otherwise unable or unlikely to devote adequate attention to audit
or investigative responsibiliti



156

Mr. Horn. In other words, they deputize your people now; is that
it? ‘

Ms. GAFFNEY. Right, it’s renewed every 2 years. But if they
didn’t like me or my performance, they could end it tomorrow. It’s
an administrative act as opposed to a congressional act giving you
the authority.

Mr. Horn. Have you sought that authority from the Banking and
Urban Development Committee?

Ms. GAFFNEY. I have followed Eleanor’s advice, and I have been
discussing this with the FBI and the Department of Justice. Be-
cause the history is, if you don’t have their support going into this,
you won't get a bill coming out. So that’s where I am.

Mr. Horn. OK. Well, that’s a good question for us to discuss and
talk to the relevant committees about.

OK, let me ask just a few other things here on what would you,
as professionals in this area, regard as the appropriate measure-
ment of performance for inspectors general? Is it the money deliv-
ered or what? What’s the standard for measuring IG performance?

Ms. GAFFNEY. John Layton is right, the measure should be posi
tive change. My problem is, I don’t know how to measure positive

Mr Horn. In other words, prevention, if you can prove that you
made a preventive difference?

Mr. Layton. I would like to offer a couple suggestions.

Mr. Horn. Sure.

Mr. LayToN. One, we spent a considerable amount of time in the
President’s Council on Integrity and Efficiency arriving at some
model performance measures, they include both process measures,
which I view as the number of arrests made, the number of convic-
tions, the number of dollars recovered, and the number of funds
recommended for better use. They are process kinds of measures.

We also recommended two or three or four outcome type meas-
ures, and in each category we had some examples of outcomes. And
that is how you cause positive change in programs.

I don’t like to use the word “prevention” because I think that has
some kind of a therapeutic sound to it. I think we are trying to ac-
complish better delivery of services and goods to citizens. In order
to do that, we make observations and recommendations that the
agency administrators are responsible for implementing, or the
Congress for enacting legislation if they chose to. And it is in those
areas that we have difficulty in coming up with measures. What
part did we contribute to the final corrective action and what part
did the agency contribute? And often the IG is reluctantly viewed
as making a positive contribution.

I think that a dialog with the Congress—I am a strong believer
in the strategic plan concept. I think a dialog with the Con;
over what it is that the IG’s are trying to accomplish—what
they done, what is their strategy for causing positive change and
identifying deliverables that you as the IG intend to deliver, and

ou deliver those and what did they accomplish? I think that
wo id focus more attention on the positive side of things that IG’s

Oe Horn. I think you are absolutely correct.


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CRS-10

Bringing the OIG in the Government Printing Office into closer
conformity with the IG Act provisions affecting OIGs in designated
federal entities.

Adding IG positions in other entities which might now meet the criteria
used in the 1988 amendments for the designated federal entities but did
not then,

Setting up a panel of PCLE members to make recommendations to the
entity heads or screen possible candidates for the IGs in the smaller
designated federal entities.

Placing certain OIGs in designated federal entities under a statutory
inspector general in a related major establishment. This might be
considered because of the OIGs small size, limited resources, or problems with
independence, capabilities, and effectiveness, Presently, there is only one dual
inspector general assignment: i.., the IG for the State Department also serves
as the IG for the Arms Control and Disarmament Agency.

Having one person be the inspector general for all or a number of smaller
designated federal entities. For instance, one individual could be the
inspector general in perhaps 10 or 11 small entities; thus, the so-called mini-
IGs would have a combined total of three IGs, contrasted with the more than
30 presently. Because of this combination, the newly created posts could
become presidential nominations subject to Senate confirmation, rather than
Temaining as agency head appointments. This might also be a way of
overcoming the limitations of small size, few resources, and limited
capabilities, by comparison to other statutory IGs.

Examining the offices with presidentially appointed IGs established by
the 1988 IG Act Amendments and since then. This review would look at
the newest of the presidentially appointed IG positions with a view to assessing
their performance and reviewing any concerns about their independence and
their offices’ capabilities.

Revi the statutory limitations on the Treasury Department IG’s
jurisdiction and authority over the law enforcement organizations in the
Department: ie., Bureau of Alcohol, Tobacco and Firearms; Customs
Service; Internal Revenue Service (IRS); and Secret Service. This could
examine whether there is a need to modify the current relationship with the
existing Treasury Department IG or possibly to create a separate IG for one
or all of these organizations, particularly the IRS, because of concerns about
its performance and conduct.

Establishing a separate office of inspector general for the Federal Bureau
of Investigation (FBI) and Drug Enforcement Administration (DEA) in
the Department of Justice or, alternatively, augmenting the authority and
jurisdiction of the Justice Department inspector general over them. These
options might be considered because of the size and importance of DEA and
FBI, sensitivity of their operations, criticisms of past performance, and their


The Chief Financial Officers Act. she Government Management
Reform Act. and the Government Performance ana Results Act have given
the IGs some new responsibilities. particularly to ensure that Congress has
complete and reliable financial information. As we !earned just last week.
your work in this area is invaiuable.

it has been 20 years since the passage of the original IG Act, and 10
since the ‘88 amendments authored by Senator Glenn. It is a good time to
talk a comprehensive look at the Act. to review how well it is working and
where there may be room for improvement. We aiso need to continue to
ensure that we have the highest quality |G appointments and that the
concerns of the |G community, and individual |Gs are properly addressed.

| want to welcome today's witnesses. | look forward to your testimony.
Thank you Mr. Chairman.


139

political appointees go into an agency, no one has spoken to them
about the IG’s. No one has really explained to them what an IG
is in the Federal Government, nor said to them, “We expect you to
work with and support and not fight your IG. This is supposed to
be a team.”

Well, if that isn’t said to them by the executive branch, the Exec-
utive Office of the President, nor is it said to them by the Congress,
then it falls to me, the IG, to convince them of this. That is a very
tough job. And my message to you is being an IG is not easy. It
is a lonely job, and we need some help.

We need some help in letting agency heads know what’s expected
of them in terms of the IG’s. We need better mechanisms in the
Executive Office of the President in hiring IG’s. We need more in-
volvement by the Congress in the hiring of IG’s. As John Layton
said, we need better mechanisms for firing IG’s who aren’t doing
good jobs, and we need the Congress involved in that, too. An
that’s what I would like to see coming from this hearing. It’s very
important to me.

Thank you, sir.

[The prepared statement of Ms. Gaffney follows:]


147

Mr. Horn. Well, I think you are absolutely correct on what you
have to say. And I am going to start with that issue, which—you
are in the middle of a controversy, I understand. When I returned
to Washington late last night, I looked at this Baltimore Sun arti-
cle of April 17, 1998, and the headline reads: Mayor Schmoke
Takes Case to Clinton, Mayor Asks President to Denounce Order
for HUD Probe of City, a Matter of Equity, Leaders in Other Cities
Also Say Inquiry Has Racial Overtones.

In other words, as I read this story, you are doing your job as
inspector general, saving the taxpayers money, investigating,
whether you have it on tips or just doing it on a random survey,
investigating misuse of millions of dollars in housing authorities. It
seems to me that if the administration doesn’t back you up, there
is going to be a lot of subpoenas issued by Congress to make sure
that the inspectors general are protected in any single situation
like this. And what we have here is the usual game. We hear it
on the House floor, we hear in a case like this, the playing of the
race card. Then the question is, How fair was your analysis in
where you should have gone to look at particular housing situa-
tions? Do you have any comment you want to make on that?

Ms. GaFFNEY. Yes. I haven’t made any public comments on this
issue, because our plans aren't settled. The cities haven’t been fi-
nally selected. But, you know—and I will make the statement even-
tually—I am dismayed and outraged that someone would call me
a racist for looking for fraud. I have a statutory responsibility to
find fraud. More than that, more important than that, HUD is
about helping People who need help. Every dollar of fraud in HUD

rograms is a dollar taken away from poor people who need help.
Whe could possibly be against stopping such fraud?

Mr. Horn. I couldn’t agree with you more. We should be mad at
the people who want to stop that kind of an investigation.

Ms. GAFFNEY. Because the people who are committing the fraud
are not the poor people. The people who are committing the fraud
are typically very ‘well off.

The other thing I would say to you: most of the HUD activity and
funding in cities does not have anything to do with mayors. It goes
either directly to the private sector or it goes to a housing authority
over which the mayor has very loose control, and, in two of these
cities, no control. And so the mayors reacting this way is extraor-
dinary to me.

Mr. Horn. I sit on the District of Columbia Subcommittee of this
full committee. I understand what you are going through. So be of
good cheer-——

Ms. GAFFNEY. Thank you.

Mr. Horn. You will be protected by the Congress without ques-
tion on something like that.

That gets to the very basis of the reason Congress, on a biparti-
san basis, put the inspectors  Beneral in these departments. And no-
body, not the President of the United States or anybody else, is
going to mistreat those inspectors general, because I don’t think
the Congress will stand for it. And if they do, it'll be strictly par-
tisan nonsense; and the American people are smart enough to
know when partisan nonsense floats around as opposed to the in-
tegrity of the governmental processes.


153

so my staff eventually moved almost entirely over to Virginia, and
we gtayed in Foggy Bottom.

Mr. Horn. How many people were with you personally?

Mr. Funk. About 20, no more than that. We rigged up a system;
it was all right. But it was a conscious decision on the part of the
State people to get me out of there, and I thought that was not to
be—.

Mr. Horn. Mr. Layton, what’s your experience on proximity to
agency offices?

Mr. Layton. I always had an office that was within close proxim-
ity to the Secretary’s office. I rubbed elbows daily with assistant
secretaries, but I never had them to my house for dinner, nor was
I to their houses for dinner.

Mr. Horn. Maybe you are not as good a cook as Mr. Funk. He
might be the gourmet cook of the IG’s here.

Ms. Hill, what’s been your situation?

Ms. HiLL. At Defense, Mr. Chairman, we are housed in an of-
fice—well, actually, we have most of our people in one office build-
ing; and we have some overflow, from audit, in another office build-
ing right down the street. But the main building literally overlooks
the Pentagon. We are on Army-Navy Drive. So if you look out my
window, you see the Pentagon.

I am over at the Pentagon on and off throughout the week for
meetings, et cetera. Although we are not actually housed in it, we
are very close. And I, for one, prefer being across the street in a
fairly modern building as opposed to the renovation of the Penta-
gon that’s going on.

Mr. Horn. So you don’t feel it has harmed your operation to not
be within the Pentagon?

Ms. HILL. No, because we have a large operation and it keeps our
people together, we have them organized.

In addition, I should say we have field offices around the country
for DCIS, so obviously they are not in this area. But I think we
are certainly close enough to the Pentagon where we are over there
in a few minutes’ time. We are back and forth with meetings. Pen-
tagon people come to our offices for meetings. Other than phys-
ically being in the building, I think it works out much the same.

Mr. Horn. Ms. Brown, what’s your experience?

Ms. BROWN. Well, in two of my IG jobs, NASA and Department
of—DOI—Interior, I was in the same building. And at Defense,
again I was across the street. Now I did have a small office in the
Pentagon, so that if I were over there for meetings, I would have
a private place for phone calls and so on. And I was given the
choice, since the office had just been moved there, as to whether
I wanted my office in one or the other, my main office.

I chose to be with my people because I thought that daily contact
was much more important. And now at HHS, I am in the building
across the street, and there is a tunnel between the two buildings.
So it really is immaterial to me.

Mr. Horn. Which one, is that the Humphrey?

Ms. BRowN. The Cohen. So we go back and forth numerous times
during the day for various meetings, and I wouldn’t want the dis-
ruption of moving. I think it works quite well and that there is no
problem with being in a separate building.


46

Frankly. | had never focused on the Inspectors General program when | joined
Prasident Reagan's transition team in November of 1980. When the President-
elect asked me to take on the responsibilities as Deputy Director of the Office of
Management and Budget. ! was informed by Ed Meese, the President's
Counsel, that the President had decided to fire all the incumbent Inspectors
General as one of his first acts as President, as he felt this was essential to
make the program effective and to settle the constitutional / separation of
powers issue of whether the inspectors General were members of the executive
or legislative branch of govemment.

| knew that firing the Inspectors General en mass would generate a firestorm of
criticism and that we could be accused of politicizing a program that was
‘supposed to be above politics.

In anticipation of this reaction when ! agreed to become Deputy Director of OMB.
and take on the Inspectors General program | got Meese's and the President's
commitment that we must only appoint people whose integrity was beyond
reproach and who were outstanding professionals, and that some of the
incumbent Inspectors General would be considered for re-nomination.

President Reagan fired the Inspectors General and the firestorm came, but one
issue looming over the immediate dismissal of the Inspectors General was the
Constitutional issue of separation of powers. Some had argued that the
Inspectors General were agents of the Congress and could not be dismissed by
the President. While there was anger, there was no concerted move to
challenge the President's right to dismiss the Inspectors General. Thus, trom a
Practical point of view it was determined that the Inspectors General were a part
of the executive branch, subject to Presidential dismissal, and they were not
agents of the Congress, protected from Presidential control.

And while we are dealing in practicalities, the White House Political Advisor's
view was “prove to me that yu could not find people of highest integrity and
professional ability who were active members of the Reagan election
campaign.” | did ask White House personnel to find me the best and the
brightest, but | also went to outstanding career civil servants, and asked them
not only about the performance of the incumbent Inspectors General but asked
them for additional candidates.

Meanwhile, HHS Secretary Designate, Richard Schweiker, felt that fraud was a
Particularty big problem in his department went out on his own and found an
outstanding FBI agent with an excellent track record of fraud investigations. My
initial qualms about the Secretary's initiative were put to rest when | got to know
former Special Agent Dick Kusserow and his record. Kusserow proved to be
‘one of the most aggressive and successful inspectors General in recent times.



Opening Statement -- Rep. Dennis J. Kucinich
Hearing on The Inspector General Act of 1978

April 21. 1998

! want to thank the Chairman for calling this important hearing today.
Our Committee has a history of working in a bipartisan manner with the
Inspectors General to eliminate waste, fraud and abuse in federal
programs. As we look forward to possible improvements in the Inspector
General Act. | a sure hopeful that bipartisanship will continue. The close
relationship between the Inspectors General and the Government Reform
and Oversight Committee is entirely appropriate. The Inspector General
community is one of Congress’ principle watchdogs in the executive
branch. There is much we can learn from each other as we work to ensure
that our government operates in the most effective and efficient manner
possible.

IGs have a very difficult job, in part because they are asked to serve
so many masters. You are appointed by the President, but report to
Congress as well as the head of your agency. As independent
investigators within the federal agencies, you are often the last person a
manager wants to hear from. And Members of Congress can get very
upset when the need or cost of pet projects are questioned.


The HUD Reform Act of 1989, which applies to the Rural Rental
Housing program as well as to HUD programs, includes provisions
specifically designed to halt windfall profits from sale of tax

edits by limiting total government assistance to the amount
ry to provide affordable housing.

An IRS Assistant Commissioner assured a Senate committee in 1990
that appropriate enforcement action was being taken to enforce the
1989 Reform Act. However:

= @ 1992 Congressional hearing, together with OIG and GAO reports,
@isclosed that FaHA had ignored the HUD Reform Act requirements and
allowed developers to make profits of as much as 970% on their
investments through sale of tax credit: nd

- although tax credits are specifically defined as government
tance in the HUD Reform Act, FaHA's National Office issued
written directive stating that proceeds from sale of tax oredi
should be considered sonal income" belonging to developers
rather than government assistance.

- an August 1995 OIG audit indicated that developers were still
realising windfall profits of as much as 650% on their investments

ough sale of tax credits, and that RHCDS had still not taken
effective action to comply with the law and stop windfall profits
from sale of tax credits.

IBS_Inaction
According to a published report, an IRS internal audit estimates

losses from improperly claimed tax credits at as much as $600
nillion annually.

Although state and local agencies required to report evidence of
non-compliance, IRS - despite assurances to Congress - apparently
ignored such reports until recently.


120
18

investigation justifies further action, the Committee's
report is forwarded to the Chair of the PCIE who, in turn,
forwards it to the head of the agency involved for
appropriate action. This Executive Order formalizes what
had been an Allegations Review Subcommittee under the
Integrity in Law Enforcement Committee, which the PCIE
created in 1990. Prior to 1990, the PCIE had an informal
working group which was a clearinghouse for allegations

against IGs and their staffs.

The PCIE fully understands that integrity is, above
all else, key to the credibility of individual IGs as well
as the entire Inspector General community. With a formal
process now in place as a result of the Executive Order, we
intend to continually work with the Integrity Committee to
help insure professional and timely investigations in this

most critical area.

CONCERNS FOR_THE FUTURE

I understand that the Subcommittee is interested not
only in the major issues facing IGs today but also in ways
in which the IGs can be strengthened for the future. I

would like to conclude by focusing on what I see as some


19

Meaningful IG Reports and Visibility

With new statutory responsibilities, some concern has been
raised about overly burdensome paperwork or reporting
requirements on IGs. The Congress now requires of IGs at least 13
different reporting requirements by my count. Things like
unsupported costs, disallowed costs, potential monetary benefits,
prosecutorial statistics, among others, are part of this new
obligation. Though these figures are important, they only
represent a snapshot of an IG Office at a given time. They do
not present us with a broader picture, nor do they represent the
actual impact audits have on key decision-makers. The HuD
problems in the 80's are a good example.

We have had a number of similar experiences-- where the
questionable program or project is repeatedly cited, but one mst
go back and review years worth of semi-annual reports to get a
comprehensive picture.

In light of thie it is difficult for Congress to gauge if
the agency’s management is getting better--or worse. Are we
really getting better at detecting and preventing fraud in the
first place, or have new ways been found to “game” the system?

It would be more productive & useful for us to know:

++ Which are those “high risk” agency programs that have

recurring problems in the areas of waste, fraud, abuse,
and mismanagement?

-- How long have they been so susceptible?

-- How much money is at risk?

s


14

-4-

conclusion of the Permanent Subcommittee on Investigations’ recent
review of the Treasury Department’s Inspector General, many

Senators, executive
“who is watching the watchdogs’

‘These are just some of the issues under consideration as we work in the Senate
to review the operation and implementation of the Inspector General Act.

I applaud you, Mr. Chairman, for holding this hearing, and 1 look forward to
working with you and the Subcommittee on this and other important issues.

Thank you for the invitation to be here this morning.
wee


SSSS" — Congress of the Bnited States = SE
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“The Inspector General Act of 1978: Twenty Years
After Passage, are Inspectors General Fulfilling Their
Mission?”

April 21, 1998

OPENING STATEMENT
REPRESENTATIVE STEPHEN HORN (R-CA)

‘A quorum being present, the Subconumitice on Government Management, information,
snd Technology will come to order.

Inspectors General were established twenty years ago by the Inspector General Act of
1978. The 57 Inspectors General ae charged with conducting audits and investigations of
Federal agency programs and operations. In essence, they are the watchdogs of the Executive

In the current fiscal year, Inspectors General in the executive branch of the Federal
Government have a combined budget of $1.1 billion and combined staff of approximately 10,000
fall-time employees. Agency management changed their spending plans by over $15.1 billion
for fiscal year 1996 by following the recommendations of the various Inspectors General.


132

enforcement agencies. I am proud that our recent history amply demonstrates the benefits of
‘such enhanced coordination.

In addition to internal coordination, the effectiveness of the OIG depends heavily on
cooperation with other agencies. Last year, the Government completed a two-year
demonstration project, Operation Restore Trust (ORT), which tested whether closer
collaboration among law enforcement agencies and the affected program agencies at Federal
‘and State levels would result in greater effectiveness and efficiency in preventing and
detecting fraud and abuse in certain targeted health services. ORT confirmed that the
combined energies of these enforcement and oversight officials reduce duplication of effort,
‘streamline referrals, and maximize the effectiveness of health care anti-fraud efforts.

In 1996, Congress affirmed the coordinated approach to addressing health care fraud by
enacting HIPAA, which requires the Attorney General and the HHS Secretary, acting
through the IG, to institute a Health Care Fraud and Abuse Control Program that
coordinates “Federal, State and local law enforcement programs to control [health care]
fraud and abuse." This approach, to link enforcement efforts from the Federal to the local
levels of government, is even more vital as complex fraud schemes continue to proliferate
throughout the country.

‘How to Measure Performance of the Inspectors General?

The Government is undergoing a marked shift in how it assesses the success of Federal
Programs and operations. As evidenced by the Government Performance and Results Act,
new emphasis has been placed on an agency's ability to measure its own performance
‘against clearly stated goals. Some of us in the IG community are still struggling with how
best to evaluate the performance of our enforcement and oversight functions.

‘The most obvious measurement is strictly quantitative — how many investigations or audits
were undertaken? how many convictions resulted? how much money was returned to
Federal coffers? This numerical assessment is encouraged by our statutory reporting
obligations under the IG Act, HIPAA and elsewhere, which require that such figures be
reported. But these reports leave the impression that IGs may be too “dollar driven,"
seeking to justify their existence only through tangible financial recoveries. This is
misleading, and devalues our efforts to prevent fraud and abuse.

‘Measurement of our prevention work is much more elusive. In some cases, we may rely on
external calculations, such as the Congressional Budget Office’s estimates of savings
resulting from implemented legislative recommendations arising from OIG reports. More
often, no such objective estimates exist. We are left uncertain how to calculate the benefits
Gerived from prevention efforts such as provider and beneficiary education and outreach,

‘Commitee 00 Government Reform and
‘Subcommitice on Government Management, Information, and Technology
‘Hearing: Oversight of Inspector General Act, April 21, 1998 Page 4


110

departments and to the Congress. The effectiveness of IGs
is dependent on establishing a good working relationship

with both. The dual reporting requirement in and of itself
creates a clear incentive for objectivity, independence and

professionalism in both audits and investigations.

Increasingly over the years, both the Congress and
Executive Branch management have turned to the IGs for
objective reviews of sensitive issues of all types. At
Defense, we have been asked in the last few years to review
such controversial and highly visible issues as costs and
savings associated with the Base Realignment and Closure
Commission; the adequacy of over 50 investigations
involving deaths of service personnel; the assignment of
military personnel to Congress; the disappearance of
chemical logs created during the Gulf War; the shootdown of
the Brothers to the Rescue plane by Cuban MiGs; training
issues associated with the School of the Americas; and
allegations involving the deaths of U.S. citizens in
Guatemala. These reviews were done at the request of
Congress or the Department, and in some cases both. This
type of reliance on the IG is not unique to the Department
of Defense. Just recently, the Commissioner of the

Internal Revenue Service sought out assistance from the


69

Mr. Horn. Let me pursue a few things that have been brought
out by various witnesses and other people over the last several
years. I am curious. We brought it up today here on the strategic
plan. Should the IG’s develop their own strategic plans that are
filed with the agency and sent to Congress? Any feelings on that,
Mr. Naughton?

Mr. NAUGHTON. Well——

Mr. Horn. Get it close to you, both of these mics.

Mr. NAUGHTON. Yes. Perhaps there is no formal requirement. I
think a lot of that is done now. It is not formally filed, but I think
many, if not most, of the IG’s do have a strategic plan in place.

Mr. Horn. OK. Mr. Harper.

Mr. Harper. I think it is a good idea. It is a good business prac-
tice. Whether or not it needs to be codified, I don’t think so. I think
it is standard practice in business for the auditing department to
say, here is our plan in terms of how we are going to use our audit
hours, and then confer with the CEO or the agency head asking,
what are your particular concerns about vulnerabilities. So it is an
iterative process. But the IG’s ought to begin with a plan as to how
they are going to use their resources in the coming years.

Mr. Horn. Dr. Light.

Mr. Licur. I think it is a disappointing device, and I think all
units of government are required to produce it. It is good for the
IG’s to produce a GPRA strategic plan for their own use and also
to experience the joys of producing such a plan in other units. I
think it is a narrow interpretation of GPRA to assume that is
where it ends for the IG.

My understanding is that the Office of Management and Budget
believes that that is all the IG’s are required to do under GP)
and I think that is the most narrow and not a useful interpretation
of the potential value added by engaging the IG’s on a broader in-
volvement in GPRA.

Mr. Horn. Mr. Clark, you mentioned the peer review. How do
you feel on this strategic plan question, and what relationship
would that peer review every 3 years have to do with this?

Mr. CLARK. Right now I don’t believe the peer review process
takes into account the IG strategic planning, but there is no reason
why it couldn’t. I think the peer review could look at whatever
goals are set out in the strategic plan, whatever those strategies
are, whatever the resource plans are, and whatever the perform-
ance indicators are that are included in the strategic plan.

Mr. Horn. You think it is a good idea for them to have the stra-
tegic plan?

Mr. CuarK. Sure. In our view, it is critically important.

I will go back to something Mr. Harper touched on. When IG’s
were first created, it was clear, he said, that the President’s expec-
tation for IG’s was to reduce the budget, and I think that the ex-
pectations for all the IG’s was fairly consistent. I don’t think that
is the case now.

I would imagine that when the IG’s are up they are going to talk
about it, but this is a gopy of the IG’s vision statement that was
issued in January 1994. I think there were a number of reasons
why the IG’s decided to put this vision statement together, not the


24

Now, we are missing Mr. Harper it looks like. And have we got
everybody assigned in the right place. There we are. Well, we have
a seat for Mr. Harper.

Gentlemen, you know the routine on all witnesses, but Members,
we raise our right hands.

[Witnesses sworn.]
fi Mr. Horn. The clerk will note that all three witnesses have af-

firmed.

And we will just go down the line as we have them here. And
it is good, because we have an expert that really knows what hap-
pened in the Inspectors Generals Act. Mr. Naughton was working
very closely over the years with the Members of both parties after
they brought forward this bipartisan proposal. And I was fas-
cinated by the history that you described. And it is a pleasure to
have you here.

STATEMENTS OF JAMES R. NAUGHTON, FORMER PROFES-
SIONAL STAFF MEMBER AND COUNSEL, COMMITTEE ON
GOVERNMENT OPERATIONS; EDWIN L. HARPER, CHIEF FI-
NANCIAL OFFICER, AMERICAN SECURITY GROUP, AND
FORMER DEPUTY DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET; PAUL C. LIGHT, DIRECTOR, PUBLIC POLICY PRO-
GRAM, THE PEW CHARITABLE TRUSTS; AND DAVID L.
CLARK, DIRECTOR, AUDIT OVERSIGHT AND LIAISON GROUP,
ACCOUNTING AND INFORMATION MANAGEMENT DIVISION,
GENERAL ACCOUNTING OFFICE

Mr. NAUGHTON. Thank you, Mr. Chairman. It is a pleasure to be
here. I’ve watched some of your hearings on C-SPAN, and I appre-
ciate the thorough and nonpartisan way in which your subcommit-
tee has gone into subjects that it is examining.

I am a member of the bar in the State of Towa, the District of
Columbia, and I have a CPA certificate in Virginia. From 1955 to
1983, I was counsel for the House Government Operations Sub-
committee chaired by former Representative L.H. Fountain, the
chief sponsor of the 1976 and 1978 inspector general acts. In that
capacity, I was involved in the investigations and inquiries which
demonstrated the need for the 1976 and 1978 acts and participated
in drafting the language which ultimately became law.

I might note that the IG legislation ad strong bipartisan sup-
port from the very beginning. hen Government Operations Com-
mittee Chairman Jack Brooks and Ranking Minority Member
Frank Horton worked very hard to secure passage of the acts.
Other House Members who actively supported the legislation in-
cluded the late Ben Rosenthal and former Representatives Elliott
Levitas, Clarence Brown, and Neal Smith.

I also noted in getting ready for this hearing that Representative
Benjamin Gilman, the ranking majority member on the full com-
mittee is, I believe, the only Member currently in Congress who ac-
tually testified in support of the legislation.

On the Senate side, former Senators Sam Nunn and Thomas
Eagleton, as well as Senators Roth and Glenn were among those
who played a leading part in the enactment of the legislation.

There were three significant events which led Congressman
Fountain to introduce the legislation which became law. The first


148

Your invitation letter asks for my thoughts on current issues
facing IGs and changes that can be made to strengthen the IG
concept. There are several issues that I believe need to be
addressed.

One issue that needs to be addressed: over the past 20 years,
the question “who watches the IG" has been asked repeatedly.
Unfortunately, we still don't have an adequate answer.

° In the mid to late 1980s, the General Accounting Office
provided oversight of OIG operations. However, these reviews
are no longer routinely performed by the GAO.

e The IG Act Amendments of 1988 required peer reviews for all
Federal audit organizations. While these peer reviews have
been performed on a 3 year cycle and have been generally
beneficial, they are narrowly focused on compliance with audit
standards.

* For years, the President's Council on Integrity and Efficiency
(PCIE) struggled to find an appropriate mechanism for dealing
with allegations of wrongdoing by IGs or their principal
staff. To the credit of the PCIE and the Executive Office of
the President, this issue was finally resolved by a 1996
Executive Order, which laid out specific procedures for
handling such allegations, under the leadership of the Federal
Bureau of Investigation.

® The Congress has sporadically held hearings such as this one
today to provide general oversight, and there have been
specific hearings to deal with particular IG offices.

In my opinion, two things are missing from this picture: a
regular, routine means of OIG oversight; and a mechanism for
dealing with specific allegations against IGs and OIGs that do not
involve wrongdoing. Such allegations could involve failure to
comply with professional standards, inefficiency, ineffectiveness,
or bad judgments.

A second issue that needs to be addressed: our office
confronts a problem in recruiting and hiring recent college
graduates. While it is difficult to compete with private industry
salaries and benefits to obtain the best and brightest graduating
seniors, it becomes even more difficult because there is no
flexibility in OPM rules. As the Federal government continues to
downsize and OIGs more and more become the primary monitor of
agency programs recruiting and hiring a high caliber work force are
essential. Again, I don't have a simple answer but your help in
looking at the issue would be greatly appreciated.

A third issue that needs to be addressed: over the past year,
the HUD Secretary and his key aides have engaged in a number of

4


10

Again, Mr. Chairman, I applaud you for your efforts, and I really
look forward to working very cooperatively with you as we mar!
the 20th anniversary of this important law.

Mr. Horn. Well, I thank you for that very thorough statement.
And I want to work with you on this.

[The prepared statements of Hon. Susan M. Collins and Hon.
John Glenn follow:]


41

effectiveness, and efficiency." This core value has been the
driving force behind some dramatic changes to the way we carry out
our statutory mission. For example, a little over 4 years ago we
began an initiative called Operation Safe Home.

Briefly, Operation Safe Home focuses on major types of
wrongdoing that undermine HUD programs and ultimately affect the
residents of public and assisted housing. The two principal areas
of focus are violent crime in public and assisted housing and
equity skimming in multifamily insured housing. Operation Safe Home
differs from traditional OIG work in that it is highly targeted and
proactive; it employs non-traditional techniques; and it represents
a long term, sustained commitment to reducing the targeted
vulnerabilities. Through the creative and aggressive efforts of our
auditors and agents, criminals have been jailed, significant funds
have been recovered, and changes have been made to programs that
will hopefully eliminate the potential for future wrongdoing.

Of equal importance is the fact that we have seen evidence
that these efforts are having a deterrent effect. For example,
the equity skimming aspect of Operation Safe Home has become an
agenda topic at trade meetings attended by owners of HUD insured
multifamily projects. At projects where we have been ‘successful in
eliminating the criminal element and initiating post-enforcement
measures, residents comment about the improved quality of life.

Despite the huge investment of federal dollars, many public
and assisted housing developments have become major breeding
grounds for violent crime, with law-abiding residents, many of them
elderly, locked in their homes, terrorized by gangs and drug
activities. During the last 4 years, Operation Safe Home has
pursued its goal of focusing the attention of Federal, state, and
local law enforcement on violent crime in public and assisted
housing. To successfully accomplish this, our special agents had to
become players on law enforcement task forces targeted to public
and assisted housing, in addition to carrying out their white
collar investigative responsibilities. This entailed a significant
commitment to training with respect to firearms, undercover work,
special tactics, etc. And, just this past month, I signed a
Memorandum of Understanding with the Director of the Drug
Enforcement Administration that provides conditions under which HUD
OIG agents may be authorized to investigate drug related activities
under Title 21--certainly a very non-traditional role for an OIG.

To compensate for the commitment of 50% of our investigative
resources to the violent crime arena, we have retooled the
strategies and techniques for aggressive pursuit of equity skimming
violations. In the context of Operation Safe Home, equity skimming
is the illegal diversion of money out of HUD-insured multifamily
projects by private sector owners and/or management agents. The
consequences of equity skimming are often extreme: owners cease
making mortgage payments, which means that HUD eventually has to

2


184

CRS-15

and out of the office from other parts of the establishment. It could also
involve a comparison of the recruitment practices and selection criteria for new
hirings, promotional opportunities and practices, and complaints or grievances
from IG personnel in this field.

Comparing changes over time between the audit and investigative side of
each OIG. This effort could help to determine whether any growth in one side
has been accomplished at the expense of the other, and if so, why.

Contracting out for activities and operations. This could involve a review
of: such contracting among IGs currently or for each IG over time, what types
of activities are contracted for, actual costs and cost-benefits, and the possible
loss of in-house capabilities through a reliance on such outsourcing of activities
and operations, which might result in “hollow government” (that is, the
inability of a government office to perform its basic functions or activities
itself).

Using “whistleblower” cash incentive awards. This effort could look at the
extent of their use by the inspectors general to reward federal personnel for
cost-saving disclosures, differences among the IGs, and changes in usage over
time.

Allowing IGs to be eligible for incentive awards or not. An examination of
this matter might first of all review the differences in accepting incentive
awards among IGs and then examine the differences of opinion over whether
IGs should be eligible for such awards, particularly those granted by the
establishment head or based on his or her recommendation. If these types of
awards are found acceptable, attention might then be given to alternative
for nominating IGs—possibly through a panel of PCIE or ECIE
members or through a panel of experts set up under the Federal Advisory
Committee Act—to avoid the appearance of a conflict of interest.

Oo


29

STATEMENT OF
JAMES R. NAUGHTON
BEFORE THE

SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, oANORMATION, AND TECHNOLOGY
F THE

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
APRIL 21, 1998

I ama member of the bar in Iowa and the District of Columbia, and
hold a CPA certificate in Virginia. From 1955 to 1983, I was
counsel for the House Government Operations subcommittee chaired by
former Representative L. H. Fountain, the f sponsor of the 1976
and 1978 Inspector General Acts. In that capacity, I was involved
in the investigations and inquiries which demonstrated the need for
the 1976 and 1978 Acts and participated in drafting the language
which ultimately became law.

I am pleased to have this opportunity to discuss the statutory
Offices of Inspector General.

Although they have a similar name, the Offices of Inspector General
created by the 1976 and 1978 Acts were not inspired by or patterned
after military inspector general units - which have been in
existence since the 18th century - or a statutory office of
Inspector General for Foreign Aid which was established around 1960
and abolished in the 19708.

The IG legislation had strong bipartisan support from the very
beginning. Then Government Operations Committee Chairman Jack
Brooks and Ranking Minority Member Frank Horton worked very hard to
secure passage of the IG Acts. Other House members who actively
supported the legislation included the late Ben Rosenthal and
former Representatives Elliott Levitas, Clarence Brown, and Neal
Smith. I believe Rep. Benjamin Gilman, the Ranking Majority Member
of the Government Reform and Oversight Committee is the only member
still in Congress who testified in support of the legislation.

On the Senate side, former Senators Sam Nunn and Thomas
Eagleton and Senators Roth and Glenn were among those who played an
active role in passage of the legislation.


166

And we thank you all. And with that, we are in recess. There
will be a further subcommittee meeting with two subcommittees of
the House Committee on Commerce this Friday on the review of
the Health Care Financing Administration, as a matter of fact. We
are adjourned.

[Whereupon, at 1:15 p.m., the subcommittee was adjourned, to
reconvene on Friday, April 24, 1998.]

[Additional information submitted for the hearing record follows:]


98

‘They also routinely assist prosecutors in preparing criminal and civil cases. In addition, OIG
investigators can appear as witnesses before grand juries, in trials, and in administrative
proceedings. They may seek investigative assistance from other Federal, state, and local law
enforcement agencies and conduct joint investigations.

Interviews will be conducted in a professional manner, with respect for your dignity, whether you
are a subject, witness, or complainant.

If you are the subject of an OIG investigation, the investigator will inform you at the appropriate
time of your rights under law and/or agency policy, as well as the meaning of waiving those
rights. You are entitled to have a copy of any signed waiver of your rights and any written
‘statement that you provide.

What are your responsibilities to report wrongdoing?

‘As a Federal employee, you hold a position of public trust. Therefore, you have an obligation not
only to maintain your own personal integrity but also to ensure that the government is not being
defrauded by individuals who violate rules or act in improper/illegal ways, Most Federal
employees and program participants perform their duties with honesty and integrity.
Unfortunately, some do not. You are expected to report information that you believe indicates
instances of fraud, waste, abuse, and/or corruption.

w ion, +4

Federal employees are required to cooperate in investigations, including those conducted by an
OIG, of risk administrative sanction for failing to cooperate. This requirement is mandated by the
regulations of many agencies and by case law, based on the recognition that your cooperation is
essential to the success and fairness of internal agency investigations. Employees should respond
to questions truthfully under oath when required, whether orally or in writing, and must provide
documents and other materials concering matters of offical interest, ‘However, an employee is
not required to respond to such official inquiries if answers or testimony could subject the
employee to criminal prosecution. Other examples of cooperation include:

© Promptly reporting information concerning possible violations of laws, regulations, or
incidents of waste or mismanagement.

© Providing complete, truthful, and accurate information to OIG investigators.
© Timely supplying documents and materials within your control.

© Fumishing signed statements under oath when requested, absent a lawfully invoked
privilege, such as the privilege against self-incrimination.

April 17, 1998


140

STATEMENT OF
SUSAN GAFFNEY, INSPECTOR GENERAL
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

BEFORE THE SUBCOMMITTEE ON GOVERNMENT
MANAGEMENT, INFORMATION AND TECHNOLOGY

CONCERNING THE INSPECTOR GENERAL ACT OF 1978 AS AMENDED
April 21, 1998

Chairman Horn and members of the Subcommittee, I appreciate
the opportunity to appear before you today to discuss the Inspector
General (IG) Act of 1978 and current issues in the IG community. It
gives me special pleasure to participate in this hearing since my
entire Federal career, starting in 1979, has revolved around Office
of Inspector General (OIG) operations or issues; and, for the past
5 years, I have had the privilege of serving as the IG at HUD.

I believe the IG Act with its 1988 amendments has been an
extremely important and successful piece of legislation. It has
provided a road map that can be easily followed: promote economy,
efficiency, and effectiveness; and prevent and detect fraud and
abuse. Not too long ago, when some issues of disagreement between
the Department and my office were being depicted in the press, I
was asked by a reporter if I found it difficult to do my job. My
response was that an IG's job is really pretty easy--just do the
right thing and objectively report what you find. What could be any
simpler?

While an IG's primary role has not changed over the past 20
years, the challenges that an Office of Inspector General faces
today are quite a bit different from the ones faced in 1978. At
HUD, budgets have grown, programs and activities have expanded, and
technology has dramatically changed the way business is carried
out. At the same time there has been a general downsizing of the
workforce, an increased reliance on contractor support, and an
expectation that HUD will be run more efficiently. It is especially
vital during periods such as these that OIGs provide necessary
oversight of programs and operations and assure the efficient
expenditure of tax dollars. And, while our resources have increased
somewhat, the potential workload is immense. So, what have we done
as an organization to meet these new challenges and carry out the
daunting responsibilities the Congress has entrusted to us?

I have taken the liberty of attaching our Mission Statement
and Values. One of the HUD OIG values is that “operations are
focused on substance rather than process and rely on innovative as
well as traditional methods to address issues of significance
having potential payback in terms of improved integrity,


91

and agencies. Further, they are to provide leadership and coordinate and recommend policies
designed to promote economy, efficiency, and effectiveness in the operations of government
departments and agencies; and to prevent and detect fraud and abuse. [Gils are also supposed to
keep the head of the agency and the Congress fully and currently informed about problems and
deficiencies in their agencies.

2. Has the role of the Inspector General changed over the last 20 years and how can the
Inspectors General best serve their agencies, Congress and the public?

‘The Inspector General role has not changed. The law remains essentially the same. The
problems remain the same. The environment in which Inspectors General work in has changed.
Each agency is confronted with a variety of forces that affect the nature of Inspector General
work and the success of the Inspector General. Those forces include the orientation of the
agency management. Does management want to, and are they capable of, significantly
improving the internal control structure of the agency? Does management take aggressive action
consistently when aberrant behavior is brought to its attention? How do the Congressional
committees and their staffs become involved with the Inspector Generallls products? Does the
Inspector General have access to the leadership of the substantive Congressional committees? Is
there an opportunity for the Inspector General to discuss his or her work plan with the members
‘of Congress who represent the taxpayers? Can the internal control deficiencies in particular
programs be improved or do political realities outweigh enhanced intemal controls?

‘The manner in which Inspectors General can best serve is dependent on the
vulnerabilities of the agency, the Inspector Generaills ability to influence agency management,
and most importantly the interest shown by Congress. Without the interest of Congress, there is
little dynamic tension in the system. Inspector General recommendations become interesting,
but not imperative. Looking back at the history of crises in government programs since the
formation of Inspectors General, you see that Inspectors General have issued reports, in many,
if not all, the problem areas, but change did not occur. The missing piece is effective
communication. In order to have communications, you need someone to listen.

3. What should the role and mission of the Inspector General be in todaylls government?

believe the mission, as intended by Congress, has not changed. There needs to be
significant improvement in individual Inspector General interaction with the Congress. The
Inspector General annual work plans need to be reviewed by the substantive committee of
jurisdiction, There needs to be discussions about the high risk issues and vulnerabilities of
agencies. These discussions need to include identification of the intemal control weaknesses that
permit large scale fraud, waste and abuse, Without substantive change to many departments{]
control environments, statistical accomplishments will remain high, but the administration of the
programs will not improve. Unless there are fundamental intemal control improvements, arrest
and conviction statistics, indicators of program vulnerabilities, will continue to grow.

3



11

Statement
ol
SENATOR SUSAN M. COLLINS

Before
the Subcommittee on
Government Management, Information, and Technology
US. House of Representatives

2154 Rayburn House Office Building
‘April 21, 1998

kk

Mr. Chairman, ch oa fig ee mk og he cope yr

For the most part, the creation and expansion of Inspector General offices
throughout the government has been a success story. During the past two decades, the
IG community has made thousands of recommendations, saving taxpayers literally
billions of dollars. ‘As an example, inthe fre decade of the Inspectors General Act, the

General identified dollar savings or funds that could be put to better use of
more than $100 billion.

Investigations by Inspectors General have also resulted in the recovery of billions
of dollars from companies and individuals who defrauded the federal government.
‘These investigations resulted in thousands of successful criminal prosecutions,
debarments, exclusions and suspensions. This is an impressive record of
accomplishments - simply put, the Inspector General community, as a whole, has
served the public very well.


97

OIG INVESTIGATIONS
AND YOU

INTRODUCTION

This pamphlet outlines your legal rights and obligations as a Federal employee during an Office of
Inspector General (OIG) investigation and explains the OIG’s authority to conduct
investigations. In the course of an investigation, many factors affect your rights and you are
encouraged to ask questions at any time. The information presented here is merely advisory and
does not create any rights, privileges or benefits, either substantive or procedural, enforceable in
any administrative, civil or criminal matter, nor does it limit any rights, privileges, or benefits that
the Federal government may assert in such matters.

Under the authority of the Inspector General Act of 1978 (IG Act), as amended, OIGs conduct
audits and investigations related to agency programs and operations. A primary purpose of these
activities is to detect and deter fraud, waste, abuse, or mismanagement in the government.

Investigations by the O1G may be conducted by special agents (avesigators) who are duly

Jaw enforcement officers or by other administrative investigators who
ate in cata nanan OIG investigators are authorized by the Act to have full access
to any records, reports, or other materials necessary to investigate allegations of fraud or abuse
‘concerning their respective agency’s programs and operations. They also are authorized to take
statements under oath,

‘What types of investigations does the OIG conduct?
Investigators conduct three types of OIG investigations: criminal, civil, and administrative. In
‘many instances, an allegation may involve multiple types of investigations (je. criminal/civil or

criminal/administrative). In such instances, the OIG may investigate such allegations separately or
‘as part of one case.

What are OIG responsibilities to vou 28 an employee?

In carrying out the OIG's investigative mission, our responsibility to you and to the agency is to
conduct all investigations in a fair, thorough, and objective manner. With the authority to detect,
and investigate wrongdoing and to seck prosecution or administrative remedies, also comes the
duty to respect the rights of those under investigation.

OIG investigators conduct interviews with subjects, witnesses, and complainants in criminal, civil,
and administrative investigations. In performing these duties, OIG investigators may do any or all
of the following: obtain statements under oath, gather evidence, serve subpoenas, review agency
documents relevant to a matter under investigation, and, under special authorities, make arrests.

April 17, 1998


102

tent to which Government can maintain adequate oversight of the
taxpayer dollars being directed to the private sector.

ie False Claims Act. Members of industry had recently sug-
gested changes to the False Claims Act. This act has been an in-
valuable tool to the IG’s and others in efforts to combat fraud
against the Government. Some recent proposals would limit the im-
pact of the act by raising the required standard of proof and by de-
creasing the amount of applicable penalties. I would say that those
provisions, at least in my view, are inconsistent with the clear lan-
guage of the act. The suggestion that it has in the past-——

ir. HoRN. On that point, do you know of any legislative chal-
lenges to that act right now?

[s. HILL. Legislative bills?

Mr. Horn. Are there any bills that would like to weaken that?

Ms. HILL. I had heard, Mr. Chairman, that there was going to
be a bill proposed in the House. But I can’t honestly tell you if it
actually has been introduced. I have seen in the defense industry
and I also believe in the health care industry has been circulating
proposals to change the False Claims Act being circulated among
the departments. We have seen them in draft proposal form.

Mr. Horn. Please let us know when you see something hitting
the ground. Sometimes we don’t catch everything. If we can all
focus on that. I need to be informed.

Ms. HILL. We will do that.

Mr. Horn. Thank you.

Ms. HILL. Finally, let me just say a few words about resources.
Now may be the appropriate time to explore innovative ways to en-
sure needed resources for IG’s, including such things as asset for-
feiture, retention of a portion of recovered penalties, and variations
on the concepts embodied in the Health, Fraud and Abuse Control
Program created in the Health Care Insurance Accountability and
Portability Act. To be frank, my biggest concern in the 3 years that
I have been at Defense has not been with the current provisions
of the IG Act, which in fact for the most part has served us well.
Rather, the biggest problem for my organization has been the con-
tinuing difficulties we face in coping with program downsizing. In-
adequate investment in a sound and effective Inspector general ef-
fort compounds the problems and the risks already facing Govern-
ment. There is no question that professionalism, independence, and
accountability are essential to effectiveness in IG efforts but so too
are adequate resources.

Mr. Chairman, thank you. I will be glad to answer any questions.

(The prepared statement of Ms. Hill follows:]


118

16

© Prescreening of Federal Grants and Loans by Offices of
Inspector General and Their Agencies and Loan Offices -
(January 1998) - The PCIE examined procedures used by the
IGs and their respective agencies to review Federal
assistance projects. This review has permitted the
sharing of information among IGs about ways to prevent as
well as detect waste, fraud and abuse by Federal grant

and loan recipients.

*® Working Relationships of IG Inspection and Evaluation
Units (January 1998) - This survey of Inspection and
Evaluation offices within the IGs identified and shared

successful practices used in those offices.

© IG Investigations and You (April 1998) - Based on
concerns raised by this subcommittee, the PCIE has
formulated a general informational pamphlet for the IG
community which can be customized for each Inspector

General to distribute within their own department.

*° Investigative Training - The IG community established an
IG Criminal Investigative Academy (IGCIA) in Glynco,

Georgia in 1993, After completion of course work at the


65

agencies’ overall financial statements and compliance with major
federal assistance program requirements. While single audit is an
efficient and less burdensome way to use auditing resources in
satisfying federal accountability interests, IGs continue to have
a role in ensuring that single audits adequately meet the
objective of promoting financial accountability over federal
financial assistance.

Also, the results of single audits can contribute toward
achievement of the CFO Act's financial statement audit objectives.
Since many federal funds often flow to their ultimate
beneficiaries through multiple state and local entities, and
because many of these amounts are subject to single audit, the
results of these audits can provide information necessary for the
successful completion of the required federal agency and the
federal government consolidated financial statements.

Also, the Government Performance and Results Act of 1993 provides
a potential new role for the IGs. While the Results Act does not
give IGs explicit responsibilities, it emphasizes managing for
results and pinpointing opportunities for improved performance and
increased accountability. Thus, the Results Act affords IGs new
opportunities to have a significant effect on improving the
economy and efficiency of government programs at their agencies.

For example, IGs could provide valuable advice to agencies as they
Prepare and update Results Act strategic plans and performance
plans and establish factors to be used for measuring performance.
Our recent survey on IGs' participation in strategic planning,
done at your request, showed that greater IG involvement in
developing agencies’ Results Act strategic plans is possible.
Also, IGs are considering how best to evaluate performance
measures that will be used.

The Clinger-Cohen Act of 1996 and the Paperwork Reduction Act of
1995 (1) explicitly focus on the application of information
resources in supporting agency missions and improving agency
performance and (2) set forth requirements for improving the
efficiency and effectiveness of operations and the delivery of
services to the public through the effective use of information
technology. Agencies are struggling to deal with information
technology issues, and we have identified the information systems
modernization efforts at several agencies as high-risk areas.>
Further, widespread computer control weaknesses are placing
enormous amounts of federal assets at risk of fraud and misuse.

"High-Risk Series: An Overview (GAO/HR-97-1, February 1997) and
High-Risk Series: Information Management and Technology (GAO/HR-
97-9, February 1997).


7

don’t know. We can’t tell. It’s a body count war that we are waging
and each year we can all congratulate ourselves on producing a
new record. level in the war. But overall I am not. sure that any of
us in this room would agree that we are winning. How you develop
a crisp measure that can be audited of that, I just don’t know.

Mr. Horn. I think when the inspector general of HHS told me
a few years ago that she had collected $6 billion through her proc-
ess, I think that is a pretty good measure, don’t you?

Mr. LiGut. It’s a good measure of what we have been able to un-
cover. It’s not necessarily a measure of what we have been able to
prevent, This is a long-standing issue about how we measure IG ef-
fectiveness. By putting the focus on the measurable fraud, waste,
and abuse, we tend to incent the IG’s to look for the ways after the
fact. We need to figure out a way, and I think HHS has done so,
of building in effort to accept the possibility that next year we
might produce lower statistical accomplishment.

Would Congress and the media and OMB accept that as a rea-
sonable indicator of an IG success? What if June Gibbs Brown were
to come before you and say that this yor we have produced less
fraud, waste, and abuse recoveries and we opened fewer cases be-
cause there is less fraud, waste, and abuse in this De ‘ment, be-
cause we are preventing it at the source, we are ing to Con-
gress in advance of legislative activity, we have got the rulemakin,
process and we are going to be going down toward a theoretical
zero. Human behavior being as it is, we are never going to get to
that zero because there is always going to be fraud, waste, and
abuse. However, what is the measure we use to look at reduction
at this point? Do you feel that Government is less vulnerable today
than it was 5 years ago? I would say in some cases, yes. I think
in HHS, yes. I think it varies agency to agency as to whether we
all feel more comfortable that we are preventing.

Mr. Horn. I would think that would be part of each agency’s
strategic plan, don’t you, as to how the office is managed and what
are the goals and have we got some significant payoffs where there
is less fraud and abuse.

Mr. LicuT. I think that if the strategic plan were to include,
along with the targeting activities, a statement of where the IG is
going to work to prevent and what are the significant programs
that need to change at the source, I think that would be useful for
everybody involved.

Mr. Horn. Mr. Hi r.

Mr. Harper. Mr. Chairman, I think you raise a fascinating ques-
tion and one that should not be allowed to go off the radar screen,
but I don’t think it is one that’s easily answered.

Part of the problem is we are dealing with a situation that is not
static. I recall in corporate life, in a corporation, 1 year it seemed
like we had a wave of frauds against the company. We had audi-
tors and investigators out and we cracked several significant cases.
Then we went for about 2 years with no significant fraud, at least
that we knew of. Then in the third year the bad guys were always
out there. They can be relatively intelligent beings oftentimes and
they are always figuring out how to defeat the systems you have
just pu in place to e your system invulnerable, so it doesn’t
stand still. It may be we just measure what we can and keep strug-


16

No federal manager wants to hear that his or her new program
initiative is going to cost more than it saves. No military
retiree wants to hear that the VA is going to take longer
processing checks to reduce fraud. And no Member of Congress
wants to hear that an IG has raised questions over the necessity
and viability of a particular project which happens to be in the
Member’s home State or district. That situation has sometimes
been the motivation for efforts to reduce some IG’s budget or to
curtail some IG’s authority. I have fought some of those battles
myself.

If anything, the IG’s role has only become more difficult in
a new political culture dedicated to improving managment.

With the passage of the CFO Act, the Government Management Reform
Act (GMRA), and the Government Performance and Results Act
(GPRA), IGs have inherited some new authority and some new
duties. They now have some responsibility to ensure that we have
accurate, reliable, and complete financial information on which
to base our policy decisions and, down the road, measure how well
each program achieves its goal and at what actual cost. In that
context, IGs have a unique role in helping to solve management
problems throughout the federal government. The test of their
success in this new mission is much like the one applied to their

old one and the measure of their success is already evident.


160

Mr. LayTon. The Office of Management and Budget has helped
me on more than one occasion with my budget.

Mr. Horn. Let me get back to the HCFA situation now. How can
that information improve oversight by the agency head in the case
of the Health Care Financing Administration? Has the data been
made available at this point and what conclusions has the agency
drawn from that situation?

Ms. Brown. This is in our financial statement reviews?

Mr. Horn. This is about your statistical reviews.

Ms. Brown. Which is part of the financial statement review, sir.

Mr. Horn. OK.

Ms. Brown. Actually, I was one of those CPA’s who really won-
dered whether financial statements in Government were going to
be that helpful, because I could see a lot of differences between
that and industry where they may not be useful at least in the
same way.

I was very pleasantly surprised by the fact that we now had very
broad, accurate information that the Department took very seri-
ously and met on a regular basis as we were able to get close to
the conclusions and developed corrective action programs that they
put into place. I don’t think we will see a lot of immediate results

ause, of course, the next statement is almost three-fourths of
the time is passed by the time the statement for the previous year
comes out. And they can benefit from that. So they only have one
quarter where any corrective action will really be reflected in the
following statement.

But certainly a lot of actions have been taken. The Department
has taken it very seriously and is putting additional resources on
various reconciliation efforts that have been put aside, because
they didn’t have the resources. A lot of these system upgrades are
taking place as a result of the financial statement review, addi-
tional audits that are done by the HCFA, and also screenings, to
see the people who aren’t legitimate businesses don’t get into the
program in the first place, because this was discovered as part of
the problem as well.

lany, many actions are under way. So I think that there is
going to be a very, very positive effect because of the financial
statement review. And there is a lot of anticipation on the next one
with everybody wanting the results and seeing as carly as possible
what’s effective and what isn’t, so that they can modify their ac-
tions accordingly.

Mr. Horn. Have you seen any move at this point to modify their
review of these claims so there would be less fraud and waste?

Ms. Brown. I have seen quite a bit of action on People that
aren’t legitimate businesses getting into the program. The Depart-
ment has taken a lot of actions and is putting regulations into ef-
fect to change that.

Some of the other things: They've rearranged funding where they
are Pledging more people to do these audits that are done by medi-
cal people of the medical records of folks. As I say, that’s very labor
intensive. And it isn’t a huge effort, but they are devoting some re-
sources to it. And so we will have to wait and see if that is enough
to deter people from submitting billings when they haven't actually
performed a service or needed service, or ineligible service.


© Not making false allegations.

Although not a statutory or regulatory requirement, you are encouraged not to discuss
investigative information with others. In some circumstances, discussing information with others
could compromise or hinder an investigation or, when coordinated with others, may constitute an
obstruction of justice.

Ifyou bave information that you believe indicates instances of fraud, waste, abuse,
mismanagement, and/or corruption, you may:

© Call or write the OIG Hotline at . You are not required to identify
yourself.

© Report direetly in person, call, write, or send an electronic mail message to the
Assistant Inspector General for Investigations or any local OIG field office.

As a Federal employee, you are entitled to confidentiality. If you bring complaints or information
concerning vclons ofr or repuationg condensin willbe granted unless
disclosure is unavoidable.

Federal law prohibits retaliation against you for providing information to the OIG. If you believe
that you have experienced retaliation as a result of cooperating with an investigator, you should
report your allegations to the OIG or to the Office of Special Counsel at (202) 653-7122.

‘What are your rights if interviewed during an investigation?

Consistent with Federal law and regulation, when interviewed you should be advised whether you
are the subject of an investigation if it is known at the outset of the interview. ‘In many cases, you
will be interviewed simply as a witness based on your knowledge, expertise, or experience with a
particular program or set of facts. If you are a manager of a program, you have a duty to provide
information on that program and may be disciplined for not providing it. In other cases, your
participation may be more discretionary, such as when the OIG is asking about a matter outside
the scope of your job responsibilities. Even here, as a Federal employee, you have a duty to
cooperate and assist in the investigation to the best of your ability. Your obligation to cooperate
is superseded only by your rights under the Fifth Amendment of the U.S. Constitution that
prohibits requiring a person to incriminate himself or herself.

April 17, 1998


21

waive certain government-wide personnel & procurement

requirement.

While I am in favor of such experimentation, if properly
controlled, we need to be careful. As someone, probably an IG,
once remarked: “Qne man’s discretion is another man’s abuse!" How
we proceed in these sorts of reforms could make all the
difference in the functional effectiveness of the IGs.

Numerous other issues may be raised in this 20th anniversary
year. Can we improve the appointments process? Should there be
term limits for IGs and if so, how long? Should career IGs be
eligible for bonuses from the agency head? Should we expand IG’s
subpoena power? Should we offer blanket law enforcement authority
("Deputization”) to all the IGs? And finally should IGs have
authorization to retain a portion of the assets they’ve seized.

Is thie good policy? Are there “bounty hunter” consequences? I

don’t know the answers to these questions. I believe resolving
them will take serious Congressional hearings and careful

examination. I do know that whatever we decide, Congress needs to

speak with one voice for all IGs across government. We cannot
“palkanize” or vary IG powers & duties between or among agencies.
As I approach my last months as a United States Senator and
strong supporter of the IG Act, I look back with great pride on
the accomplishments we have made so far among the more than 60

atatutory IG

IT am the first one to admit that not everything
about how the IGs function is perfect. In fact, any program can

always stand improvement. But I strongly believe that we now have

7


50

Mr. Horn. We now have one of our regular witnesses. I don’t
know—I was trying to think of the contrarians in the stock market.
Dr. Light of the Pew foundation is sort of a contrarian in terms of
public administration. He looks where other people think is the ob-
vious and finds that it isn’t obvious, and he finds the things that
we should be coping with and maybe in our optimism have not
coped with.

But last week, Paul, I want you to know that one witness volun-
tarily said somebody should read “Thickening Government” around
here. And I think that is one of his classics. He does public admin-
istration with a sense of humor, and welcome this morning.

Mr. Licut. Somebody should read “Thickening Government.” I
used this song before: You know you are in trouble as an author
when you find your books on remainder tables of books for a buck
marked “make us an offer.”

I am here not, of course, as a representative of the Pew Chari-
table Trust, but as a private citizen and scholar. It is a delight to
be before you. This is a particularly important moment for these
hearings for three reasons: No. 1, I think the downsizing of Govern-
ment is stretching agencies to the limits. There is a lot of activity
under way beneath the surface of the downsizing that I believe is
exposing agencies to enhanced vulnerabilities in their increasingly
complex and confusing relationships with contractors and grantees
at the price of bundling of megacontracts being one example.

No. 2, the Government Performance and Results Act is actually
getting some traction within agencies. I believe that the recent par-
tisan argument here on Capitol Hill about GPRA is actually a sign
that GPRA is taking hold. You wouldn’t fight about it if it wasn’t
making a difference.

No. 3, as you know from the Pew center, for the people in the
press, surveys of trust in Government, trust in Government is
slowly moving upward, no doubt due to the activities of this com-
mittee in trying to solve the Y2K problem.

lam fond of saying—I love this statement—that if this is as good
as it gets, when it is as good as it is, we have got a problem for
the future, because it won’t always be as good as it is economically
in this country. If we can only push trust in Government up a few
points during this rosy period, we are all going to need to buckle
down when and if things turn sour.

Let me give you a broad overview of my statement. As I said,
some of my conclusions are tentative. I am back in the field talking
to the inspectors general. They are wonderful and forgiving of my
accountability questions.

My main point in the statement is that I believe that the IG’s
are actually stuck at this moment in time. They are unsure about
where they stand. And the big issue of GPRA is they have not
taken a strong position as to what they believe they should be
doing. They are only allowing them to tell them what they should
be telling them, and “only me” doesn’t have much of an opinion
about what the IG should be doing beyond doing their own per-
formance plans.

I believe that part of the reason the IG’s are stuck is because we
have a leadership problem. There is not a strong hand. There are
eight agencies right now in the IG offices. I think the IG’s are real



95

nation with the FBI and the new National Infrastructure Protec-
tion Center. I might add that the IG at NASA and many of the
other IG’s we work with are also experimenting with similar inno-
Yations in that area because it is a new area for us, a new chal-
lenge.

Finally, as part of the increased emphasis on a more effective,
more efficient, and better managed Government, many inspectors
general have in recent years moved to work more constructively
with management while still maintaining their independence.
Some of this gets into the area of prevention that Paul Light re-
ferred to and I think June Brown’s statement refers to. Over the
past 5 years, for example, at DOD our office has participated in
over 100 management process action teams, integrated process
teams, and working groups that have been the Department’s prin-
cipal means of generating new ideas for reform and for process im-
provement across the board of all DOD business activities. So what
we are doing on_ those teams goes beyond simply coming in after
the fact and enforcing compliance. We are working with the De-
partment actively to try to generate new processes, put in place
new reforms to, among other things, prevent the kind of
vulnerabilities we have seen in the past. The growing level of IG
participation on those teams illustrates, I believe, the general ac-
ceptance, at least in our Department, of the need for IG advice to
be considered during the reengineering of processes and not just
after new processes are already put into place.

I also want to say a few words about the PCIE. We have three
former PCIE vice chairs at this table. June Brown served for 2
years, I believe, as PCIE vice chair, John Layton was my prede-
cessor up untill last December, and I took over the post in January.

Mr. Funk. I had it for a year and a half.

Ms. HILL. I am sorry, Sherman. I wasn’t aware of that. So you
have an abundance of expertise on the subject at this table this
morning.

As you know, Mr. Chairman, the President’s Council on Integrity
and Efficiency was created in 1981 by Executive order to coordinate
and enhance Government efforts to promote integrity and efficiency
in Federal programs. As you know, the inspector general commu-
nity is a |: and a very diverse one. While all the IG’s who sit
on the PCIE do share a common, broad mission, we have many,
many differences, ranging from the size and makeup of our oper-
ations to the specific focus and mission of the department in which

we operate.

The great strength of the PCIE has been as a forum to bring to-
gether the IG’s, to establish ement on issues of common con-
cern, such as quality stand: and training, and to encourage

them to share and learn from an exchange of best practices and
lessons learned. I do want to say that we believe that the PCIE has
made Positive contribution to the IG community, and in turn to the
goal of good government.

I just want to point out several of the projects that have taken
place in recent months which underscore the point that the council
can in fact make progress in areas of common interest to the IG’s.
One, a report issued on the review of the next generation of card-
based payment systems. This report was issued with the participa-


33

5.

To promote objectivity, the Act required that IGs be appointed
without regard to political affiliation and were not to engage in
partisan political activities. The act also prohibited the
transfer of program operating responsibilities to Ics.

‘The Act specifically charged IGs with responsibility for providing
leadership and coordination in matters involving the promotion of
economy and efficiency and the prevention and detection of fraud
and abuse in agency programs and operations.

To remedy deficiencies in the availability of information, the Act
directed the IGs to keep agency heads and the Congress fully and
completely informed about serious problems through periodic reports
and otherwise. Moreover, the Act provided IGs with strong
independent authority to obtain information through subpoenas and
other means.

The Act also requires IGs to report expeditiously to the Attorney
General when the IG has reasonable grounds to believe there has
been a violation of Federal criminal law, thereby eliminating the
ability of agency officials to prevent or delay furnishing of such
information. (It should be noted that the Act does not require an
1G to suspend his or her own investigation.)

For anyone interested in a more detailed description of the IG Act,
I would recommend an excellent 6 page summary of the 1978 Act, as
amended through April 1997, which was prepared by Fred Kaiser,
Specialist in American National Government at the Congressional
Research Service, Library of Congr:

Opposition to 1978 Act

The 1978 IG Act was initially opposed by the Office of Management
and Budget (OMB), all twelve of the departments and agencies
affected, and the Justice Department's Office of Legal Counsel
(OLC), which contended that some of the Act's provisions were
unconstitutional. Nevertheless, the proposed legislation passed
the House by a vote of 388 to 6, was approved by the Senate without
opposition, and became law on October 12, 1978.

Five Presidents and the Inspectors General

The HEW Inspector General Act became law in October 1976,
during the administration of President Gerald Ford. Since that
time, four more Presidents have dealt with matters involving
statutory Inspectors General.

Only one of them gets a totally favorable rating. President
Ford signed the HEW IG bill and left town shortly thereafter
without - so far as I know - doing anything to mar his perfect
batting average.


168

Statutory Offices of Inspector General:
A 20" Anniversary Review

Summary

1998 marks the 20th anniversary of the Inspector General Act of 1978, the basic
authority governing statutory offices of inspector general (OIGs), and the 10th
anniversary of the Inspector General Act Amendments of 1988, which added to their
reporting requirements and extended such offices to an additional set of government
organizations. Statutory OIGs now exist in nearly 60 federal establishments and
entities, including all cabinet departments and the largest federal agencies as well as
many smaller boards, commissions, corporations, and foundations. (These are
covered in a companion CRS Report 98-379 GOV, updated as events require.)

The President's Council on Integrity and Efficiency (PCIE) and the Executive
Council on Integrity and Efficiency (ECIE), operating under the auspices of the Office
of Management and Budget, provide coordinating mechanisms, respectively, for the
inspectors general (IGs) in the larger establishments, who are appointed by the
President and confirmed by the Senate, and for 1Gs in the smaller designated federal
entities, who are appointed by the agency head. In addition, a special integrity
committee, under the control of the PCIE and ECIE, may be established to investigate
allegations of wrongdoing by IGs or their senior staff.

Offices of inspector general consolidate responsibility for auditing and
investigations within a federal department, agency, or other organization. Established
by law as permanent, independent, nonpartisan, and objective units, OIGs are
designed to combat waste, fraud, and abuse. To accomplish this broad mandate, IGs
have been granted a substantial amount of independence and authority. Inspectors
general are authorized to: conduct audits and investigations of agency programs;
have direct access to agency records and materials; issue subpoenas for all necessary
information, data, reports, and other documentary evidence; hire their own staff; and
request assistance from other federal, state, and local government agencies directly.
Except under rare circumstances, spelled out in the law, an agency head provides only
“general supervision" over the IG and may not interfere with any of his or her audits,
investigations, or issuances of subpoenas.

Inspectors general, moreover, report semiannually to the agency head and
Congress regarding their findings, conclusions, and recommendations for corrective
action and may issue immediate reports on particularly serious or flagrant problems
they discover. Indeed, 1Gs are required to keep the agency head and Congress fully
and currently informed about problems and deficiencies relating to the administration
of programs in their agency through these reports and other mechanisms, including
in-person meetings and testimony at hearings.

Despite their 20-year evolution and substantial statutory revisions in 1988,
offices of inspector general still face a number of concerns and possibilities for
change, some of which are being pursued through oversight and legislative hearings
in the 105" Congress. These issues tie into the IGs’ institutional arrangements,
authority and powers, perceived effectiveness and orientation, reporting requirements,
personnel practices, and incentive awards.


133

deterrence arising from well-publicized prosecutions of or settlements with offending health
care providers; or exclusion of health care providers from continued participation in
Programs such as Medicare and the resulting protection of the Trust Funds and the quality of
‘are provided to our beneficiaries.

In years to come, we in the IG community must work within our agencies and the
Administration, and with the Congress to develop meaningful performance measures, other
than monetary ones, that will more accurately depict the breadth of OIG efforts.

‘Internal versus External Focus

‘There continues to be a perception that the proper role for IGs is an internal one; that we
should devote our resources to investigating the conduct of agency employees, and auditing
the Department's operation of its programs. Certainly these internal reviews are among the
most vital and sensitive performed by OIGs. A good example is the annual audit of the
financial statements performed under the Chief Financial Officers Act. But we need to
correct any misperception that internal reviews are, or should be, our sole focus. On the
contrary, our mission to detect fraud in the Department’s programs also includes the critical
role of investigating and auditing external entities — those who receive funds from HHS by
way of grant, contract, cooperative agreement, compact or other funding mechanism — to
ensure that the funds are properly received and lawfully spent.

If the OlGs of large agencies, such as ours, ever did focus exclusively on internal reviews, it
‘seems to me that those days are gone. Indeed, at HHS, the recent HIPAA legislation that I
have often referenced during this testimony, carries this evolution a step further. In that
Jaw, the Congress authorized the OIG of HHS to coordinate or conduct investigations, audits
‘and inspections “relating to the delivery of and payment for health care in the United States,”
whether the services were paid by Medicare, or by wholly private insurance. With this, the
OIG is authorized to expand even beyond the boundaries of the parent agency to oversight of
health care generally. The HIPAA model is an unusual one; but it does illustrate that a dual
Tole of both internal reviews, and external investigations and audits, best ensures the
continued integrity and solvency of our agency programs.

Let me now turn to some more specific issues facing the IG community that relate to the
powers, authorities and requirements of the IG Act.

‘Committee on Government Reform and Oversight
‘Subcommitice on Government Management, Information, and Technology
‘Hearing: Oversight of Inspector General Act, April 21, 1998 Page 5


Ww

Agenta of “Positive Change” in a Brave New World.

In the 20 years since the original IG Act, and almost 10
years since the ‘88 amendments, I believe the record shows that
the IGs have done an outstanding job in performing their mission.
In this new world of accountability, both managerial and fiscal,
1Gs serve as both watchdog and junkyard dog--they sound the alarm

as much

they tackle those problems they have already
identified. Along these lines, IGs have accomplished much for the
American people. In fact, according to the latest PCIE report
(1996) on 1G progress:

Inspector General (IG) investigations led to $1.5 billion in
“recoveries” last year (1995). (This is money which has been
recovered by the Government from people who have attempted to
defraud it). In addition, based on IG recommendations, agency
managers agreed to cancel, or seek reimbursements of, $2.3
billion from contractors or grantees in 1995. Also based on IG
recommendations, managers changed how they planned to spend $10.4
billion to maximize return on the Federal dollar. Overall,

between 198:

-1994, IG’s reported $340 billion in recoveries &
funds put to better use from their efforts.

In addition to IG work on program improvements, and the
figures cited above, the report compiles other important IG
accomplishments:

$26.8 billion in recommendations that funds be put to better

use;

$7.2 billion in questioned costs;


61

internal audit. The need to strengthen this requirement became
evident when, in 1976, we began to issue a series of reports on
reviews at 157 fiscal offices in 11 major federal organizations.
These reports indicated widespread and serious internal control
weaknesses that resulted in the waste of government money through
fraud and mismanagement .

We reported that federal agencies did not use their internal
auditors to examine their financial operations and when they did,
no action was taken on the auditors‘ recommendations. We also
found that internal audit groups were not independent, they were
underfunded and understaffed, audit efforts were fragmented among
several offices, and problems found by the audits were not
communicated to the agency heads. With rare exceptions, the
executive agencies had not adequately monitored or assessed or
reviewed their own operations and programs.

As a result, the Congress passed the IG Act of 1978. The IG Act,
as amended, and similar laws centralized the leadership of most
major federal agencies’ audit and investigative functions under an
inspector general responsible only to the agency head or deputy
and having the independence needed to detect, investigate,
evaluate, and report on government fraud, waste, and
mismanagement. Under the act, the IGs were given authority to
detect fraud and mismanagement in programs and operations of their
agencies; conduct audits and investigations; and recommend
policies to promote economy, efficiency, and effectiveness. The
IGs are to perform audits in accordance with generally accepted
government auditing standards as promulgated by the Comptroller
General.

IGs at 27 departments and agencies, which are listed in
attachment I, are statutorily required to be appointed by the
President and with the advice and consent of the Senate. IGs at
30 other entities, which are listed in attachment II, are
appointed by their entity heads and have essentially the same
powers and duties as the presidentially-appointed IGs.

Currently, the 57 offices of inspector general (OIG) have nearly
10,000 audit and investigative staff and spend about $1.1 billion
annually. Of the total IG staff, about one-half are auditors,
one-quarter are investigators, and the remaining one-quarter are
administrative and other staff. OIGs widely differ in size from
the Department of Defense (DOD) OIG with almost 1,300 staff to the
Appalachian Regional Commission OIG with 3 staff.

Conducting Law Enforcement Activities
Each presidentially-appointed IG must appoint an assistant

inspector general for investigations, who has the responsibility
to supervise the investigations conducted. IGs use their

2


130

to be some of the most important challenges to be met by IGs as we enter our third decade.
‘They are: fulfilling our dual role to both detect and prevent fraud, waste and abuse;
fostering collaboration both within and outside the various OIGs; and learning to
meaningfully measure our performance.

‘Prevention as well as Enforcement

Rightly or wrongly, many currently view the Inspectors General as focusing almost
exclusively on enforcement, with an eye toward prosecution or recovery of misspent funds.
‘Such enforcement has been and remains a key role of the Inspectors General. After all,
‘wrongdoers must be identified and removed from continued abuse of Federal programs, and
their ill-gotten gains returned. Thus, individual audits, investigations and evaluations serve
critical functions — to protect the fiscal integrity of programs such as Medicare, to safeguard
their beneficiaries, and to deter other would-be abusers.

We at HHS are also keenly aware that the IG Act directs IGs both to detect and prevent
fraud and abuse in agency programs. Preventive efforts can amplify the effectiveness of
OIG activities by instituting legislative, regulatory and operational change in a given
program or operation. We are proud that we have recently redoubled our commitment to
activities designed not just to uncover existing fraud and abuse, but to avoid it. Most of
these efforts, described briefly below, are based on the realization that the Government,
alone, cannot solve the problem of fraud. Instead, we must inform and educate the public,
including the provider and beneficiary communities, and enlist their help in avoiding
impropriety. For example:

. ‘Beneficiary Outreach - The OIG is engaged in an ongoing project with HHS
components and various advocacy groups to implement an outreach campaign to
educate beneficiaries and others who work directly with the elderly to recognize
Medicare and Medicaid fraud and abuse when they encounter it, and to know how
and where to refer it.

© — Madel Compliance Guidelines: As part of our effort to promote voluntary
compliance with applicable statutes, regulations and program requirements, the OIG
is working with the industry to develop and issue a series of compliance guidelines
tailored to individual health care services. For example, we have already issued
model guidance pertaining to hospitals and clinical laboratories. Other guidelines are
in the works. We believe that these models will assist health providers in averting
fraud and abuse or detecting it at an early stage when it is more easily corrected.

© Industry Guidance: Under the Health Insurance Portability and Accountability Act
(HIPAA), passed in 1996, the OIG now issues formal advisory opinions to the

‘Comunitce on Government Reform snd
‘Subcommittee on Government Management, Information, and Technology
‘Hearing: Oversight of Inspector General Act, April 21, 1998 Page?


114

12

As both the benefits and the challenges posed by the
information technology revolution continue, the Inspectors
General must expand their focus and their capabilities
accordingly. At DoD, we are attempting appropriate
oversight of the many key issues in this very complex and
changing area. Those include addressing the serious
challenges posed by the Year 2000 conversion program;
improving the Department's perilous computer security
posture; moving away from decades of disjointed information
systems management to fully integrated systems; and
effectively implementing the disciplined investment

decision making process mandated by the Clinger/Cohen Act.

As the problem of computer intrusion grows, we have
seen the emergence of "cyber fraud" which presents totally
new and uncharted challenges for law enforcement, including
the Inspectors General. At DoD, the DCIS is attempting to
answer these challenges through a new computer intrusion
and computer crimes investigations unit as well as close
coordination with the FBI and the recently created National

Infrastructure Protection Center.

Finally, as part of the increased emphasis on a more

effective, more efficient, and better managed government,


116
14

to the 28 Presidentially appointed and Senate confirmed
IGs, its membership includes the Deputy Director of
Management of the Office of Management and Budget, who
serves as Chair; the Controller of the Office of Federal
Financial Management; the Associate Deputy Director for
Investigations of the Federal Bureau of Investigation; the
Director, Office of Government Ethics; the Special Counsel
of the Office of Special Counsel; and the Deputy Director
of the Office of Personnel Management. (Executive Order
12805, signed May 11, 1992, made changes to the original
Executive Order to reflect the changes made in 1988 to the
IG Act.) The PCIE has 6 committees in which issues are
examined in detail. They are the Audit Committee, the
Inspections and Evaluations Committee, the Investigations
Committee, the Legislation Committee, the Professional

Development Committee, and the Integrity Committee.

As you know, the Inspector General community is a
large and diverse one. While all the IGs who sit on the
PCIE share a broad common mission, they have many
differences ranging from the size and makeup of their
operation to the specific focus and mission of the
Department in which they operate. The great strength of

the PCIE has been as a forum to bring together the IGs,


In addition, Inspector General investigations resulted in 12,508 successful criminal
prosecutions. Despite these sccomplishments, the war on waste in the Federal Government is far
from over. Inspectors General cannot rest on these statitical accomplishments as the only
‘measure of their performance.

‘The recent audits which were released as the consolidated balance sheet of the executive
‘branch of the Federal Government revealed that billions of taxpayer doliars are being lost to
‘waste, fraud, and mismanagement each year.

In an effort to reduce waste, Congress has passed legislation such as the Government
Performance and Results Act and the Chief Finacial Officers Act. These initiatives are

ial management,
‘management laws. Inspectors General need to take a keen interest in the value of program
inspection and evalustion and make it one of their primary missions.

Inspectors General are required by law to report their findings both to the President and

their recommendations deep within their anmual and semi-sanual reports.

To be effective, Inspectors General must on the one hand balance their working
relationship with agency management—to prevent fraud and waste—and on the other their
haan w ep sgey pve Congres lacs mats sre he
We must ensure that the Congressional -Presidential watchdogs do not become agency lepdogs.

Today, Offices of Inspectors General exist in the twenty-seven largest executive
departments and agencics as well as in thirty smaller designated Federal entities. Inapeciors
‘Geoeral are a substantial resource and an invaluable weapon in the fight against waste in the
Federal Government. Management of executive branch agencies is changing dramatically. It is
‘crucial that Inspectors General perform effectively inthis changing environment. Twenty years
after their creation, we need to reevaluate the appropriate role ofthe Office of Inspector General.


delivery of services.

‘With added emphasis on improved delivery of program services there will be an
enhanced level of accountability.

6. How ean the quality of Inspector General candidates be assured?

Current legislation provides for Inspector General candidates with: diverse backgrounds.
The Act does not ensure quality. The quality of Inspectors General is directly related to the
level of interest shown by those involved in the selection and approval process. The
leadership abilities, as well as technical background. [f little or no attention is paid to the
selection process, marginal candidates will become Inspectors General.

7. What are the major problems and issues facing the Inspectors General today and how
can the Inspectors General effectiveness be strengthened for the future?

I believe the Congress needs to demonstrate greater interest in the Inspector General
community. There are notable exceptions, but, in general, there is an absence of interest in the
selection of Inspectors General, the operations of their offices, including the planning process,
and the products issued. OIG semiannual reports appear to be mostly unread,

‘The discussion of Inspector General tools and staffing should be predicated on @
thorough understanding of what is expected of each Inspector General. Further, discussion of
tools without an understanding of how they will improve the administration of agency programs
is counterproductive.

As I have said, the Inspectors General interaction with the Congress has to improve. It is
a two-way street and the Congress needs to take a greater interest in the functions of Inspectors
General. There needs to be an improved agreement on the focus of Inspector General offices.
Are Inspectors General meeting the needs of their customers? If the customers are silent, it is
difficult for inspectors General to fulfill their needs.

‘Mr. Chairman and Members of the Subcommittee, this concludes my prepared testimony.
I will be happy to answer any questions you may have at this time.


38

10.
responsibilities and independent status of the Inspectors General.

- Underuse of IG Reports. Reports by Inspectors General, even
when well written, are too often not used effectively by agency
heads, Congress or media. In the absence of Congressional or media
interest, there is less assurance that IG recommendations will be
seriously considered by agency heads.

- Lack of adequate resources. Gs consistently have difficulty in
obtaining additional resources, even though added employees would
be likely to save or recover many times the cost of hiring them.

- Nearly Impossible programs. Some programs are so complicated
and/or susceptible to fraud and abuse that they are almost
impossible to administer and monitor effectively. This is
particularly true when the tax code is used to provide benefits for
unrelated programs. Attached as Exhibit A is material I prepared
sine time ago concerning the vulnerability of housing tax credits
to fraud and abuse.

Problems with Agency Heads, While remaining independent, a good
IG can and should be an agency head's most valuable source of
assistance in avoiding pitfalls and promoting the effective
operation of the agency. The working relationship between agency
heads and 1Gs at some agencies is excellent. At others, there have
been problens.

For example, a Deputy HUD Secretary, who had obviously never read
the IG Act, actually ordered the Inspector General not to respond
to inquiries from the media without permission of the HUD Office of
Public Affairs. When the IG quite properly cited her independent
status and declined to be subject to supervision of the Public
Affairs office, a HUD official asked the PCIE to investigate the Ic
for violation of the Inspector General Act. I recently wrote an
article for the PCIE Journal of Inquiry discussing this situation
in detail, which I would be glad to provide for the subcommittee's
hearing record.

In the HuD matter, the IG's actions were both proper and
commendable. ‘This does not mean, of course, that all IGs are
always right. Agency heads must respect the independent status of
Inspectors General. Gs in turn should make every effort to work
cooperatively with agency heads. They should not be afraid to give
advice on potential problems before bad things happen rather than
remaining aloof and playing "gotcha" later.



158

what the rest of the department got as far as reductions and
growth. And I never felt that we were discriminated against be-
cause we were the IG’s office. Maybe we weren't helped because we
were the IG’s office, but we were never treated adversely, in my
opinion.

Mr. Horn. Any other experiences?

Ms. Brown. Well, our Secretary has been very supportive of the
IG Office, and—particularly with the alternative source of funding,
which would be the trust fund, when she could see the amounts
being returned were so great; she personally visited various con-
pressional people and OMB to get the concept accepted that was

ter adopted in the Health Care Portability Act.

That is about—well, this year, $85 million of our budget. We also
compete with resources for those things outside of the Health Care
Financing Administration for the rest of our budget. That has di-
minished; it was about $32 million this last year, and it has dimin-
ished, but in proportion with other parts of the Department, we
have been cut. And so there are some hardships there, because
there are many other programs in the Department that need to
have oversight.

Mr. Horn. Well, since you brought it up, let me ask you a spe-
cific question about the health care situation. You are beginning to
measure the Health Care Financing Administration, as I under-
stand it, their overpayments based on statistical samples; is that
correct?

Ms. Brown. Yes.

Mr. Horn. This appears to address to some degree Dr. Light’s
point about the need to measure performance in terms of reducing
the fraud and waste. How difficult is this information to collect?

Ms. BROWN. Well, it is a tremendous work load. You have to go
and sample people in all different parts of the country. We have
many contractors who are actually making the Medicare payments,
and we sample various contractors and then various quarters of
their work to come up with a fee for service, a statistical sample
that would be valid to know how many payments should not have
been made, and we found the midpoint last year—not the report
that we are working on now, but in the previous year, was about
14 percent or $3.2 billion. So it was very useful information be-
cause I don’t think anybody ever had a handle on what kind of
overpayments were made. Now, those weren't all fraud. Those were
other things mixed in there.

Mr. Horn. Did your statistical program—I know some insurance
companies do this, and maybe you chatted with them in developing
it, I would hope so—take into account that if you are in for a cer-
tain type of operation, these are the likely things that should be
billed in relation to that. Did that type of test, was that applied by
your office?

Ms. BROWN. We actually had medical people that went back to
the medical records that were supposed to support the service and
where there was a medical record and where a service was an eligi-
ble service, whether it should have been performed based on the
patient’s condition. Those were the kinds of things that they re-
searched. So it was a very labor-intensive review, just getting all
of that information.


125

Mr. Chairman, that concludes my prepared remarks.

would be happy to take any questions.

I

23


100

Ifyou are interviewed as the subject of an investigation, the investigators have the duty to inform
you of the nature of the inquiry being conducted. You should also be told, if known, whether the
investigation could lead to criminal, civil, or administrative action. You should also be advised of
applicable Federal constitutional or other rights. Federal case law requires that you be advised of
your right to counsel when you have been arrested or involuntarily detained. In all circumstances,
you have the right to furnish a voluntary statement free from any promises, threats, pressure, or
coercion of any kind or, if you feel your statement would incriminate you, to make no statement
at all. Fiowover if the Justice Depertment has decline! prosecution of you have been granted
immunity from prosecution, thus removing the danger of seff-incrimination, you may be subject to
administrative action, including losing your job, if you refuse to cooperate.

‘What bappens after an investigation is completed?

At the conclusion of an OIG investigation, an investigator may prepare a report which states the
allegations and facts collected. Reports which pertain to criminal and civil allegations are often
referred to Federal, state, and/or local prosecutors if supported by evidence. Reports which
pertain to administrative matters may be referred to agency management.

In most cases, investigators are not obligated to notify management of an ongoing investigation.
However, in some instances, they may advise supervisors or higher level managers of the general
nature of the allegation and the name of the individual under review. This is especially true when
the investigation may disrupt normal office operations or when a manager will be consulted as
part of the investigation. In cases where management is contacted, once the investigation is
completed, the OIG may, if appropriate, inform these officials of the results,

April 17, 1998


41

JAMES R. MAUGHTON

6655 Tennyson Drive

MoLean, Va. 22101
(703) 336-1467

Mr. Naughton is an Attorney and Certified Public Accountant with

extensive experience relating to Federal legislation, programs
and operations, including work as @ consultant for numerous

Federal departments and agencies.

= Naughton was Counsel, Intergovernmental
jources Subcommittee, U. 8. House of Repr
te 19e3. In this capacity, he personally drafted much of the
legislation establishing statutory Offices of Inspector General
(OIas) in Federal departments and agencies.

In addition to his role in the establishment of IG offices, mr.
Naughton directed numerous investigations and reviews of

Bis work covered a
, Ancluding su

subject areas a:

- Oversight reviews of O16 operations;
- Auditing, investigative and fraud prevention activities;
+ Pederally-financed health, education, welfare and housing

programs;

- Agricultural price support and export activities;

= Suspected violations of anti-trust and conflict of interest
lave; and

- Improper payments to government contractors.

Mr. Maughton has lectured at numerous seminars and training
programs sponsored by organisations suc George Washington
University, the President's Council on Integrity and Efficiency
(PCIE), the Federal Executive Institute, the National

Academy of Public Administration, the Association of Federal
Investigators and the Association of Government Accountants.

Mr. Maughton is a member of the bar in Iowa and the District of
Columbia and holds a CPA certificate in Virginia. He serves on
the Government Accounting and Auditing ittee of the Greater
Washington Society of CPAs.

He was avarded the Combat Infan'
vurph

and
ieard, brake University and the Public Service Avard, Association
of Federal Investigators.

While attending college and law school, mr. Naughton operated a
230 acre farm near Sioux City, Iowa.