United States General Accounting Office

GAO Testimony

Before the Subcommittee on Government Management,

Information and Technology, Committee on Government

Reform and Oversight, House of Representatives

For Release on Delivery

Expected at

10 a.m.

Tuesday,

April 21, 1998

FEDERAL INSPECTORS

GENERAL

An Historical Perspective

Statement of David L. Clark

Director, Audit Oversight and Liaison

Accounting and Information Management Division

GAO/T-AIMD-98-146

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 totaling

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 affect 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.

Page 1 GAO/T-AIMD-98-146
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 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

Page 2 GAO/T-AIMD-98-146
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 statutory investigative authority,

and their subpoena power, to inquire into allegations of wrongdoing—both

criminal and administrative. The President’s Council on Integrity and

Efficiency1

 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 affecting 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.

1

The President’s Council on Integrity and Efficiency was established in 1981 to address common IG

issues and consists primarily of the presidentially appointed IGs.

Page 3 GAO/T-AIMD-98-146
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 that (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 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

Page 4 GAO/T-AIMD-98-146
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 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.

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.2

 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

2

Financial Audit: 1997 Consolidated Financial Statements of the United States Government

(GAO/AIMD-98-127, March 31, 1998) and U.S. Government Financial Statements: Results of GAO’s

Fiscal Year 1997 Audit (GAO/T-AIMD-98-128, April 1, 1998).

Page 5 GAO/T-AIMD-98-146
new avenue for the IGs to identify deficiencies in financial systems and

recommend ways to strengthen controls.

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 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

Page 6 GAO/T-AIMD-98-146
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.3

Further, widespread computer control weaknesses are placing enormous

amounts of federal assets at risk of fraud and misuse. 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.4

 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.

3

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).

4

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.

Page 7 GAO/T-AIMD-98-146
Attachment I 

Inspectors General Appointed by the

President

Departments Agriculture

Commerce

Defense

Education

Energy

Health and Human Services

Housing and Urban Development

Interior

Justice

Labor

State

Transportation

Treasury

Veterans Affairs

Agencies 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

Page 8 GAO/T-AIMD-98-146
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) Page 9 GAO/T-AIMD-98-146
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