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89–526 PDF 2014

S. Hrg. 113–409 

OVERSIGHT OF SMALL AGENCIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL AND 

CONTRACTING OVERSIGHT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 10, 2014 

Available via the World Wide Web: http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

GABRIELLE A. BATKIN, Staff Director 

JOHN P. KILVINGTON, Deputy Staff Director 

KEITH B. ASHDOWN, Minority Staff Director 

LAURA W. KILBRIDE, Chief Clerk 

LAUREN M. CORCORAN, Hearing Clerk 

SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT 

CLAIRE MCCASKILL, Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

RON JOHNSON, Wisconsin 

JOHN MCCAIN, Arizona 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

MARGARET DAUM, Majority Staff Director 

RACHEL WEAVER, Minority Staff Director 

KELSEY STROUD, Chief Clerk 
(III) 

C O N T E N T S 

Opening statement: Page 

Senator McCaskill ............................................................................................ 1 

Senator Johnson ............................................................................................... 3 

WITNESSES 

THURSDAY, APRIL 10, 2014 

Hon. Peggy E. Gustafson, Inspector General, U.S. Small Business Administration ........................................................................................................................ 4 

Hon. Osvaldo L. Gratacos, Inspector General, Export-Import Bank of the 

United States ........................................................................................................ 6 

Hubert Sparks, Inspector General, Appalachian Regional Commission ............. 7 

Michael G. Carroll, Acting Inspector General, U.S. Agency for International 

Development ......................................................................................................... 9 

Beryl H. Davis, Director, Financial Management and Assurance, U.S. Government Accountability Office .................................................................................. 11 

ALPHABETICAL LIST OF WITNESSES

Carroll, Michael G.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 45 

Davis, Beryl H.: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 50 

Gratacos, Hon. Osvaldo L.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 35 

Gustafson, Hon. Peggy E.: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 27 

Sparks, Hubert: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 40 

APPENDIX 

Additional statements submitted for the Record: 

Jon T. Rymer, Inspector General, Department of Defense ........................... 62 

Mary L. Kendall, Deputy Inspector General, Department of Interior ......... 66 

Christy L. Romero, Special Inspector General, for the Troubled Asset 

Relief Program .............................................................................................. 68 

Responses to post-hearing questions for the Record: 

Ms. Gustafson ................................................................................................... 78 

Mr. Gratacos ..................................................................................................... 83 

Mr. Sparks ........................................................................................................ 86 

Ms. Davis ........................................................................................................... 90 

(1) 

OVERSIGHT OF SMALL AGENCIES 

THURSDAY, APRIL 10, 2014 

U.S. SENATE, SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:53 a.m., in 

room 342, Dirksen Senate Office Building, Hon. Claire McCaskill, 

Chairman of the Subcommittee, presiding. 

Present: Senators McCaskill and Johnson. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Good morning. I want to thank all of our 

witnesses for being here. 

I apologize that a vote interfered with me getting here promptly 

at 10:30. I saw Senator Johnson going to vote just as I was leaving 

the chamber. So I am sure he will be here momentarily, and I will 

go ahead and begin with my opening statement. 

This hearing will now come to order. 

We are here today to discuss the oversight of small Federal agencies, commissions and other entities. 

There are at least 41 different entities that currently do not receive oversight by an Inspector General (IG). Each of these agencies has a budget that sounds small when you compare it to the 

Federal Government’s budget of $3.5 trillion. But, if you add it all 

up—and we are talking about well over a billion dollars in budget 

authority every year that has virtually no oversight—$1 billion is 

not small, even by Washington standards. 

When there is no oversight and accountability, money gets wasted and mismanagement goes unaddressed. At the National Mediation Board (NMB), for example, the Government Accountability 

Office (GAO) recently cited a number of management challenges, 

many of which are the types of challenges generally identified and 

tracked by an Inspector General. 

For example, NMB contracts have external auditors to review its 

annual financial statements, but the auditors are limited in scope 

only to the areas they are specifically hired to evaluate. 

When GAO asked the NMB what sort of process they had in 

place for addressing the auditors’ findings and recommendations, 

NMB officials said they had no formal process. Instead, they just 

assumed that any deficiencies cited by the auditors would get resolved sometime before the topic was reviewed again. 
2 

At the Federal Mediation and Conciliation Services (FMCS), 

which also has no statutory relationship with an IG, it took whistleblowers to uncover gross mismanagement. To their credit, the 

Federal Mediation and Conciliation Services did take these concerns to the Inspector General for the National Labor Relations 

Board (NLRB) and asked that office to investigate. 

The NLRB IG generally substantiated claims that FMCS was 

abusing its purchase card account to pay for employees’ home 

Internet service without proper controls and appeared to have paid 

holiday bonuses to its building’s custodial employees with checks 

from the purchase card account, among other problems. 

I think most of the folks at these agencies are hardworking people just trying to do their jobs. But, when there is no independent 

Inspector General asking any questions, problems can be missed or 

ignored. And, when there is no oversight, those problems have a 

tendency to fester and build and never get resolved. 

Some small agencies actually do have IGs to oversee them, but 

a small agency is going to have an even smaller IG. Some IG offices 

are as small as one person, and that presents its own set of issues 

and problems. 

For example, small IG offices may lack the resources necessary 

to conduct management and program oversight because of the 

number of required audits they have to conduct by law. IGs are required to conduct information security audits annually. 

This is obviously a serious concern, and I do not want to minimize it. But the result of these required audits is that a small IG 

office, through no fault of its own, simply may not have the resources to provide adequate oversight of the agency’s programs and 

expenditures. 

Based on these concerns, I have begun to work on legislation to 

address the need for more efficient and effective oversight for small 

agencies. The Subcommittee has been working on a draft which 

was circulated to you before this hearing. I look forward to hearing 

your thoughts on these ideas. 

I want to work through this process together. The goal here is 

strong oversight of every Federal dollar. And you are the experts, 

so I welcome your feedback. 

The small agencies under discussion today may be small potatoes 

in the vast Federal Government. I doubt that anyone who is not 

in the rail or airline industry knows what the National Mediation 

Board does or how it differs from the National Labor Relations 

Board. I am sure that unless you are president of a unionized company or a union leader you do not know what the Federal Mediation and Conciliation Service is. 

But I also believe that it is at these small agencies that effective 

oversight can make a huge difference. This is low-hanging fruit. 

I thank the witnesses for being here. I really appreciate having 

the opportunity to convene a panel of professionals who represent 

a wide swath of government oversight. The witnesses here today 

represent a diverse spectrum of IG offices. And we will also hear 

from the GAO, which sets the gold standard for oversight though 

its own work and by developing the government auditing standards, known by us that have a lot of affection for the audit world 

as the Yellow Book. 
3 

I look forward to the witnesses’ testimony and our discussion. 

Senator Johnson. 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Madam Chairman. I appreciate 

your holding this hearing. 

I, like you, have a great deal of respect for the type of information the Inspectors General provide to Congress, to give us the information to hopefully write good legislation, to make this government efficient. So I am just looking forward to the testimony from 

the witnesses. Thanks. 

Senator MCCASKILL. Thank you, Senator Johnson. 

Let me introduce the witnesses, and then we will proceed with 

testimony. 

Peggy Gustafson is the Inspector General for the Small Business 

Administration (SBA) and the Chair of the Legislation Committee 

of the Council of Inspectors General on Integrity and Efficiency 

(CIGIE). Prior to becoming Inspector General, Ms. Gustafson was 

my general counsel, where she wisely advised me on oversight 

issues and helped write legislation that has significantly strengthened the Offices of Inspectors General (OIG). From 1997 to 2007, 

Ms. Gustafson was my general counsel when I served as State 

Auditor of the State of Missouri. 

Osvaldo Gratacos. Close? 

Mr. GRATACOS. Close enough. 

Senator MCCASKILL. Close enough. Is the Inspector General for 

the Export-Import Bank (EX–IM) of the United States. Prior to 

that, Mr. Gratacos served as Acting Inspector General and Deputy 

Inspector General and Counsel. Previously, Mr. Gratacos worked as 

a commercial counsel for Motorola with worldwide responsibilities 

for Federal transactions and also covered the Latin American region for commercial transactions. 

Hubert Sparks is the Inspector General for the Appalachian Regional Commission (ARC). Mr. Sparks has 46 years of service in 

the Federal Government. He was the first Inspector General for the 

Appalachian Regional Commission and the Denali Commission and 

has also served at the Offices of Inspector General for the U.S. Department of Agriculture (USDA), the Veterans Administration (VA) 

and the Department of Homeland Security (DHS). Mr. Sparks previously served as Chair of the Small Inspectors General Group at 

the Council of Inspectors General for Integrity and Efficiency. 

Michael Carroll is the Acting Inspector General for the U.S. 

Agency for International Development (USAID), and has served in 

that capacity since 2011. Prior to that, Mr. Carroll was Deputy Inspector General. Mr. Carroll has over 28 years of public service, 

and prior to his time at USAID, Mr. Carroll served as the Director 

of Administration for the Bureau of Industry and Security in the 

Department of Commerce. 

Beryl Davis is the Director of Financial Management and Assurance team at the Government Accountability Office, where her responsibilities include audits related to improper payments, grants 

management, agencies’ internal controls and Federal Inspector 

General issues. Ms. Davis also serves as the GAO’s representative 
4 

1The prepared statement of Ms. Gustafson appears in the Appendix on page 27. 

in addressing standard-setting processes and activities of the International Organization of Supreme Audit Institutions (INTOSAI). 

That is an awesome name, isn’t it? Supreme Audit Institutions. 

Wow. 

Before joining the Federal Government, Ms. Davis served as Vice 

President, Standards and Guidance for the Institute of Internal 

Auditors. She also served as Director of Audit Services and Management Support for the city of Orlando. 

It is the custom of this Subcommittee to swear all witnesses. If 

you would not mind, I would ask you to stand. 

Do you swear the testimony you are about to give before this 

Subcommittee will be the truth, the whole truth and nothing but 

the truth; so help you, God? 

Ms. GUSTAFSON. I do. 

Mr. GRATACOS. I do. 

Mr. SPARKS. I do. 

Mr. CARROLL. I do. 

Ms. DAVIS. I do. 

Senator MCCASKILL. Thank you very much. 

We will begin with Ms. Gustafson. 

TESTIMONY OF THE HON. PEGGY E. GUSTAFSON,1 INSPECTOR 

GENERAL, U.S. SMALL BUSINESS ADMINISTRATION 

Ms. GUSTAFSON. Good morning, Chairman McCaskill, Ranking 

Member Johnson. On behalf of the Chair of the Council of Inspectors General on Integrity and Efficiency, I am honored to represent 

the Federal Inspector General community this morning in my capacity as Chair of CIGIE’s Legislation Committee. 

Let me begin by again thanking this Subcommittee for your continuing support of our mission and your interest in our work. 

As you know, CIGIE serves a leadership role and is the core of 

the IG community. Together, the work of the IG community results 

in significant improvements to the economy and efficiency of programs governmentwide, with potential savings totaling approximately $46.3 billion in one fiscal year (FY). With the IG community’s aggregate fiscal year 2012 budget of approximately $2.7 billion, these potential savings represented about a $17 return on 

every dollar invested in Offices of Inspector General. 

The IG Reform Act established CIGIE in 2008 to serve as its unified council of statutory Federal IGs to carry out 2 specific missions—to address the economy, integrity and effectiveness issues 

that transcend individual government agencies and to increase the 

professionalism and effectiveness of personnel by developing policies, standards and approaches to aid in the establishment of a 

well-trained and highly skilled workforce in Offices of Inspector 

General. 

Over the past several years, the IG community has identified and 

addressed a number of issues that transcend individual agencies. 

Among CIGIE’s reports, we have addressed topics such as 

cybersecurity, suspension and debarment, the use of new media, IG 

hotline operations, whistleblower protections and Inspector General 
5 

oversight of the American Recovery and Reinvestment Act of 2009. 

These reports and others are publicly available on CIGIE’s website. 

Our training and professional development mission is addressed 

through our training institute. The institute is still in the developmental phase, but in fiscal year 2012 the institute delivered specialized training courses to 1,677 students, which was a 17 percent 

increase in students from the previous year. 

CIGIE does recognize that not every agency experiences independent oversight by an Inspector General and Offices of Inspector 

General vary in their available resources and law enforcement powers necessary to conduct effective oversight. 

In the past, CIGIE has played a role in facilitating requests for 

assistance to ensure effective agency oversight by an Office of Inspector General. 

Where IGs lack law enforcement powers, CIGIE has served as a 

quick and efficient means to communicate requests for such support from other members of the community. 

CIGIE has also been called upon for ad hoc requests such as assistance by its members to ensure effective oversight of the agencies under the particular OIG’s jurisdiction. 

CIGIE will continue to provide this facilitation role and support 

requests to promote the efficiency and effective oversight. 

I want to just briefly mention that we are also grateful for the 

introduction of Senate Bill S. 1953, the Oversight Workforce Improvement Act, by Chairman Tester and Senator McCaskill and the 

support of that bill by its co-sponsor. This bill does recognize certain challenges faced by the IG community and addresses most concerns offered by CIGIE in its March 19, 2013 letter to the Office 

of Management and Budget (OMB), which outlines our current legislative initiatives. 

In addition to the legislative changes championed by S. 1953, 

CIGIE continues to feel strongly that IGs should be exempted from 

the Computer Matching and Privacy Protection Act relative to 

using electronic means to identify those who improperly receive 

Federal assistance. And, as always, I am here to answer any questions about that, but I definitely wanted to mention that while I 

was here. 

I am grateful that IGs across the government have a voice 

through CIGIE and have access to training and other resources 

that did not exist prior to the IG Reform Act. We also have an unprecedented degree of transparency in our annual budget request, 

which helps assure independence. 

This does conclude my verbal testimony. 

Again, I want to thank you for inviting me here this morning, 

and I will be pleased to answer any questions you may have. 

Senator MCCASKILL. Thank you. Mr. Gratacos. 
6 

1The prepared statement of Mr. Gratacos appears in the Appendix on page 35. 

TESTIMONY OF THE HON. OSVALDO L. GRATACOS,1 INSPECTOR GENERAL, EXPORT-IMPORT BANK OF THE UNITED 

STATES 

Mr. GRATACOS. Good morning, Madam Chairman, Ranking Member Johnson and other Members of this Subcommittee.1

Thank you for the invitation and opportunity to testify before you 

today about the oversight of small Federal agencies, specifically 

about my experience as the Inspector General of the Export-Import 

Bank. 

On Tuesday, I had an opportunity to read the draft bill circulated to us on Monday afternoon. The proposed draft bill could 

disrupt the operation of some of the established small IGs that 

have already found solutions to some of the challenges I discuss in 

my written testimony. 

There are a number of ways to strengthen small IGs, and that 

is the discussion my testimony is intended to accomplish. 

During my short testimony today, I would like to summarize ExIm Bank’s mission, present a short history of Ex-Im Bank’s OIG 

since we are one of the newest OIGs—Presidentially appointed 

OIGs—and discuss some of the challenges my office has faced since 

its inception. Before I continue, I would like to thank the Almighty 

for the opportunity, my family and the members of the OIG staff 

for their hard work. 

Ex-Im Bank—for some of you who do not know, Ex-Im Bank is 

the official export credit agency (ECA) of the United States. It supports the financing of U.S. goods and services in international markets, turning export opportunities into actual sales that help U.S. 

companies of all sizes create and maintain jobs in the United 

States. Ex-Im Bank has programs to address short, medium and 

long-term needs of exporters, assuming the credit and country risks 

the private sector is unable or unwilling to accept. 

In fiscal years, 2012 and 2013, Ex-Im Bank approved over $60 

billion in export transactions combined. Ex-Im Bank’s portfolio has 

increased by 94 percent since 2008, which is when the OIG was 

created. So the exposure increased from $58 billion to $113 billion 

as of the end of last year. In the current charter, Ex-Im Bank has 

authority to approve up to $140 billion in export transactions. 

Ex-Im Bank OIG was created in 2002, but the Inspector General 

did not officially take office until August 2007. The OIG has 

achieved noticeable success in performing its statutory duties. Specifically, since fiscal year 2009, we have issued over 40 audits, inspections and special reports containing 170 findings, recommendations and suggestions for improving Ex-Im Bank programs and operations. Our law enforcement has resulted in a number of actions, 

including over 70 indictments and information, 45 convictions, 40 

guilty pleas entered in court, over 400 management referrals for 

enhanced diligence actions and approximately $300 million in 

court-imposed restitution, forfeitures or repayments to the bank. 

All of this has been accomplished with a very modest budget, starting at approximately $1 million and gradually increasing, or rising, 

to about $5 million for this current fiscal year. 
7 

1The prepared statement of Mr. Sparks appears in the Appendix on page 40. 

But, as a small IG, my experience offers some highlights of some 

of the challenges that we face when we are establishing a new office or we are running a small office. Because of limited resources, 

I often rely on the agency to provide essential support functions, 

like information technology (IT), personnel management and financial management. 

As a small IG, I can name some of the challenges that we face— 

access to information, adequate office space, which is one of the 

challenges we had at Ex-Im Bank, and human resources support, 

for example. 

Despite these challenges, in my opinion, we have provided effective oversight of Ex-Im Bank, as our numbers show. 

Madam Chairman, Ranking Member Johnson and Members of 

this Committee, thank you once again for the opportunity to testify 

before you today. I will be pleased to respond to any questions you 

may have. Thank you. 

Senator MCCASKILL. Thank you. Mr. Sparks. 

TESTIMONY OF HUBERT SPARKS,1 INSPECTOR GENERAL, 

APPALACHIAN REGIONAL COMMISSION 

Mr. SPARKS. Good morning, Chair McCaskill and Ranking Member Johnson.1

I welcome the opportunity to discuss OIG oversight of small 

agencies. My comments are based on 44 of my 47 years being in 

the OIG community, including 29 years at major IGs and 15 years 

at IGs in small agencies. 

I guess I am representing the very smallest OIGs. 

I strongly believe that independent oversight of Federal spending 

and program operations is sound policy. Although OIGs generate 

very impressive statistics, including large potential benefits, one, if 

not the primary, benefit of an OIG presence is the preventive and 

deterrent value of such offices regardless of the size of the IG office. 

My written statement emphasized the optional structures providing an OIG presence in entities that currently do not have independent OIG oversight. These options included: 

Small agencies contracting with OIGs for services. I am not a fan 

of that because of some of the challenges that Chairman McCaskill 

mentioned about getting full authorities for these contracts. 

A permanent IG presence. I do not believe a permanent IG presence is necessary at some of the very small entities that were in 

the discussion draft for having an IG presence. There may be a few 

of those that deserve a full-time independent IG. 

The primary options that I would recommend are legislative 

oversight provided by another IG office, and this could be either 

from a large IG office or one of the smaller IG offices, depending 

on the size of the entity for which oversight is requested. 

Another option which I supported for my agency is establishing 

OIG responsibilities for oversight of several of the smaller entities 

for which independent oversight is proposed. 

I would be glad to discuss these options. 

I appreciate the efforts of the Committee on this important issue. 
8 

At the time of my written statement, I did not realize the proposal would include the elimination of nine Designated Federal Entities’ (DFE) smaller IGs. Thus, I would like to take a minute to 

comment on this aspect of the proposal. 

Although I will be completing my final retirement shortly and 

thus have no direct horse in this race, so to speak, I have concerns 

with the elimination of the noted DFE OIGs. 

Recognizing Chairman McCaskill’s comments about the challenges that smaller IGs face, I also believe that elimination would 

substantially reduce the level of oversight provided to their respective agencies, and this might be somewhat contrary to the overall 

objective of providing oversight to all Federal funds. 

Expertise gained over many years and the experience of running 

a smaller IG and dealing with the challenges and dealing independently with agency heads and senior officials on a regular basis 

would be reduced. 

I do not know the criteria for reaching elimination conclusions, 

but I do not believe such issues as just the size of our current staff 

should be primary factor. I think it should be how much we are 

benefiting and what value we provide to the agencies we now oversight. 

Also, the cost of service provided by another IG would probably 

at least equal current OIG costs if the level of oversight is to be 

maintained. However, the very important element of onsite presence would be significantly reduced. 

Other practical matters involve the staffing of oversight of smaller agencies by the acquiring OIG and the larger IG’s interest or enthusiasm with respect to providing such services, considering the 

high-risk programs that large IGs have to oversight. 

I also believe established smaller IGs can provide necessary oversight to smaller entities without such oversight and could concentrate more directly on this responsibility than large IGs who, 

admittedly, have far higher priorities. 

I was somewhat surprised the employee rights section of the discussion draft provides that newly assigned IGs will determine 

whether staff of the transferred IG will be employed. This basically 

results in smaller IGs, most of whom are long-term career employees who earned their positions through demonstrated performance, 

not only having their organizations abolished but also being subject 

to termination if the acquiring IG does not pick them up. 

I would suggest that the legislation, if it goes forward, clearly 

transfer the staff of the smaller IGs to the acquiring IG and those 

staff would be part of the normal evaluation process and assessed 

on how their performance is rather than kind of having to wait in 

limbo to see for a year if they are going to be picked up by the 

major IG. 

I would hope also that the legislation should consider eliminating 

for now the elimination of the small DFE OIGs. I think it is a good 

subject for discussion, but I think there should be more discussion 

with the smaller IGs and with GAO, who supported establishment 

in the first place. 

And, if the proposal goes forward, I would recommend that it not 

include at the present time elimination of the Designated Federal 
9 

1The prepared statement of Mr. Carroll appears in the Appendix on page 45. 

Entities until we could have more discussion of a very important 

subject. 

One of the things that I did agree with—and I appreciate that 

it is in the proposed draft—is I and the former IG at the Appalachian Regional Commission have regularly commented that consolidation of seven small economic development commissions, most 

of whom are supposed to have a legislated IG, be consolidated into 

one IG office. 

These commissions are very unique joint State/Federal partnerships paid for partially by State funds, partially by Federal funds. 

Currently, there is only one IG presence in all seven, and that is 

me at the Appalachian Regional Commission. 

And I do believe that kind of a consolidation would be very valuable. I do not mean this to be supportive of other consolidations for 

which my knowledge is limited. 

Thank you very much. I would be glad to answer any questions. 

Senator MCCASKILL. Thank you, Mr. Sparks. Mr. Carroll. 

TESTIMONY OF MICHAEL G. CARROLL,1 ACTING INSPECTOR 

GENERAL, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT 

Mr. CARROLL. Chairman McCaskill, Ranking Member Johnson, I 

appreciate the opportunity to appear before the Committee today 

to discuss and share my experiences and the experiences of the 

USAID OIG in providing oversight for five Federal agencies, ranging in size from $24 billion to $22 million. 

And I look forward to the opportunity to work with you and your 

staff. I have a vested interest in this legislation, and I really look 

forward to working with you to move this legislation forward. 

I think that, at least in my opinion, the consolidated model that 

you are considering here is clearly an effective model for providing 

oversight of small agencies. You get economies of scale. You get 

functional depth. And you get a critical mass of oversight that really allows for effective oversight of smaller agencies. 

Now the consolidated model works for us particularly because we 

have sort of organizational alignment, if you will, with the agencies 

in our portfolio. All of the five agencies that we are responsible for 

are foreign affairs/foreign assistance agencies that deliver their 

oversight in developing countries, and the organizational depth 

that we have to oversee that is substantial over the years. 

We are a Foreign Service organization, as you know, and we 

have the technical expertise and the structural infrastructure in 

place to support oversight, whether it is a billion dollar AID program in Afghanistan, whether it is a $500 million program for the 

Millennium Challenge Corporation (MCC) in Africa or whether it 

is a $10,000 the Inter-American Foundation (IAF) grant in Latin 

America. So, regardless of the agency, the modality or the scale, we 

have the technical expertise to oversee those programs. 

The other thing that consolidation brings—and I will refer to IG 

Gratacos’s written testimony—is economies of scale with administrative services. I think we would all agree that effective oversight 

is independent oversight. And it is difficult, I realize, for the small 
10 

IGs getting their administrative services from their agencies to be 

as independent as they would like to be. 

At the AID IG, we maintain and operate our own administrative 

services separate from the agency. There is a cost incurred there, 

but I think it is money well spent. And it allows us to very effectively and equitably distribute our administrative overhead across 

the five agencies that we are responsible for. 

I think the other benefit that consolidation gives you when you 

have alignment with the businesses of your organizations—and we 

have talked about this before in a special IG context—is strategic, 

or cross-cutting, oversight of whatever the line of business is. 

For us, it is foreign assistance. So we have oversight currently 

of the five primary foreign assistance agencies in the U.S. Government, and that gives us the ability and the sort of strategic look 

at that sector and provide oversight if, in fact, there was a need 

to do that. 

I would like to, if I could, just identify one challenge that we 

have had in overseeing five Federal agencies that I do not think 

right now, the way I have seen the draft legislation, is as good as 

it could be. Certainly, this is great legislation, but there is one particular issue I would like to bring up. 

Our construct is we were created in 1980 based on the IG Act. 

So it is very clear what our authorities are as it relates to the OIG 

as it relates to AID. 

The other four agencies—the Overseas Private Investment Corporation (OPIC), the Inter-American Foundation, U.S. African Development Foundation and MCC—our authorities there come from 

a wide array of legislation over time that is not, in my opinion, as 

effective as the IG Act. 

So, for example, 6 months into the fiscal year of 2014, we are 

still negotiating with OPIC on an oversight package. 

And, while this is not the case anymore under Daniel Yohannes, 

but prior to his leadership at MCC, we had historically a very difficult relationship with them because, as we were trying to apply 

the authorities that we had and the responsibilities that we had to 

oversee their programs, they did not see the nexus or the authority. 

In fact, I had a conversation at one point with the Deputy Chief 

Executive Officer (CEO) of MCC, when we were trying to implement a particular requirement that we had, and he said that is 

your problem, not mine. 

So I do not think that the Committee wants to see any of the IGs 

in a position where we are negotiating our authorities. 

So I think, ideally—and this may be difficult, but ideally, what 

I would love to see is when you implement this implementation, 

that the authorities for all of these entities, even the ones currently 

under my authority, are all captured in the IG Act. 

That would have the added benefit of creating a nexus to this 

Committee that might not exist right now for those other four 

agencies. It certainly does with AID, where we have oversight over 

the IG function. But by virtue of the fact that those four agencies 

are not captured in the IG Act, it creates uncertainty, if you will, 

not that you could not exert your authority if you wanted to. 

So that is the one real critical piece of feedback I would like to 

give the Committee. 
11 

1The prepared statement of Ms. Davis appears in the Appendix on page 50. 

And then, as several people at the table have stated, it is a challenge to stay focused on the small organizations when you have 

large organizations that you are overseeing. You have Senator 

McCaskill, with Senator Coburn, wanting to know what is going on 

in Afghanistan or Iraq, and you have still got to worry about that 

$10,000 grant that IAF is issuing in Latin America. 

So it is not impossible, and it is certainly doable, but it is just 

the IGs really have to stay focused on their entire portfolio. And 

I would submit that at five agencies I am about the edge of the 

span of control that you would want for an IG. 

And I appreciate the fact that in the legislation that the Ex-Im 

Bank IG could pick up OPIC, and I think that makes sense from 

a line of business point of view, that it much more aligns with his 

operation than it does with mine. 

So I appreciate the opportunity to appear here, and I am happy 

to answer any questions that the Committee might have. 

Senator MCCASKILL. Thank you. Ms. Davis. 

TESTIMONY OF BERYL H. DAVIS,1 DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. DAVIS. Chair McCaskill, Ranking Member Johnson, thank 

you for the opportunity to be here today to discuss oversight of the 

small Federal agencies. 

My testimony will focus on the creation of independent inspector 

general offices, IG oversight of small agencies, and IG independence and budgetary resources. 

The Inspector General Act of 1978 established IG offices with IGs 

appointed by the President and confirmed by the Senate in 12 

major departments and agencies of the government. Their responsibilities include conducting and supervising audits and investigations, recommending policies to promote economy, efficiency and effectiveness, and preventing and detecting fraud and abuse in programs and operations. 

Since then, additional IGs have been added through a series of 

amendments to the Act. The 1988 amendments established IGs in 

Designated Federal Entities, also known as DFEs, with responsibilities similar to those of IGs appointed by the President. 

However, there is a clear distinction. They are appointed and removed by their agency heads rather than by the President and are 

not confirmed by the Senate. 

GAO has long supported the creation of independent IG offices 

in appropriate Federal departments, agencies and entities. In 2001, 

when asked to review the need for an IG at the Export-Import 

Bank, we presented just one option, establishing a new IG office 

with an IG appointed by either the President or by the Export-Import Bank chairman. 

We have also recommended that certain small agencies could 

benefit by obtaining IG oversight from another agency’s IG office 

where the missions of the two agencies are somewhat similar. In 

2008, we reported on the responsiveness of the Chemical Safety 

Hazard Investigation Board (CSB) to past IG recommendations. 
12 

The Environmental Protection Agency (EPA) IG had been providing 

oversight to the CSB since 2004 through a temporary mandate. 

Our review disclosed that the CSB was not investigating all accidental chemical releases that involved a fatality, serious injury or 

substantial property damage. As a result, we proposed alternative 

oversight mechanisms to give the EPA IG permanent oversight authority. 

In a recent example, our review of the programs and management practices of the National Mediation Board concluded in a 

2013 report that this small agency with a vital role in facilitating 

labor relations in the Nation’s railroads and airlines lacked certain 

internal controls that could help achieve results and minimize 

operational problems. We recommended that an existing Federal 

agency’s IG office provide independent audit and investigative oversight. 

Independence is the cornerstone of professional auditing and one 

of the most important elements of an effective IG function. The IG 

Act provides protections to IG independence that are necessary in 

large part because of the unusual reporting relationships of the IGs 

who are subject to the general supervision of their agency heads 

while, at the same time, reporting externally to the Congress. 

The IG Act provides the IGs with independence by authorizing 

them to select and employee their own staffs and make such investigations and reports as they deem necessary. 

The IG Reform Act of 2008 further enhanced IG independence 

and accountability by specifying the levels of basic pay for IGs and 

requiring IGs to obtain legal advice independent of their agencies. 

It also provides a process for handling allegations of wrongdoing 

by IGs so that such reviews are not done by the management officials or subject to IG oversight. The Act requires both the President 

and the DFE heads to give Congress notice at least 30 days before 

removing an IG. 

In addition, the Reform Act helps ensure IG independence 

through adequate funding by requiring the IG budget requests be 

separately identified in the President’s budget submission to Congress. 

The Dodd-Frank Act of 2010 amended the IG Act with provisions 

to enhance the independence of IGs in DFEs, who may now report 

to the entire board or commission rather than an individual chairman. A two-thirds majority of the board or commission is required 

to remove the IG. 

With the growing complexity of the Federal Government and the 

fiscal constraints under which it operates, it is important that an 

independent, objective and reliable IG structure be in place where 

appropriate to ensure adequate audit and investigative coverage. 

IG offices play a key role in Federal agency oversight by enhancing 

government accountability and protecting the Nation’s resources. 

There are different alternatives for IG oversight. The determination of where and how to provide IG oversight in specific agencies 

is a policy decision best addressed by the Congress. 

This concludes my prepared statement, Chairman McCaskill and 

Ranking Member Johnson. I would be pleased to answer any questions you may have. 

Senator MCCASKILL. Thank you all. 
13 

We have an awful lot of expertise at this table, and I am going 

to try to let you all guide this discussion as much as possible so 

we can pick your brain on the right way to get this fixed. 

Is it inaccurate for me to say that right now for 41 different 

agencies or commissions the only time they get independent oversight is if they ask for it? Does anybody disagree with that statement? 

[Witnesses shaking heads negatively.] 

So that is a problem because I have not noticed in this business 

that your phone rings off the hook for people calling and saying, 

please come look at us; please come see us. 

And also, am I correct in saying if, in fact, for some reason they 

do call they get to pick and choose what you look at? Is that correct? 

Mr. CARROLL. That is correct. 

Senator MCCASKILL. So not only is it up to them to decide if they 

want someone to take a look; it is also up to them as to what you 

get to look at. 

And I would like you, Mr. Carroll, to speak a little bit about your 

experience with negotiating with OPIC. Are you negotiating over 

cost because there is not a budget line, or are you negotiating over 

scope? 

Mr. CARROLL. Scope. If you look back at the history of our relationship with OPIC—and I am not going to question the wisdom 

of Congress, but over time, in the Foreign Assistance Act, our authorities have eroded. That was a conscious decision that the Congress made to sort of weaken our authorities, if you will. 

Senator MCCASKILL. I wonder why. Do you know? 

Mr. CARROLL. I know the history. For example, at some points, 

OPIC was given responsibility for conducting their own financial 

statement audit, and I would not agree with that. I would never 

agree with that, and I do not think you would either. 

And one of the fixes that I have seen in the draft legislation is 

our authority is ‘‘may’’ and the new authority is ‘‘shall.’’ And I 

think that is very important. That might seem like a nuance, but 

it is clear in the material. 

And literally, at this point, we do not have the authority to do 

audits; that is clear. We have the authority to conduct investigations and reviews. 

So now we are in negotiation with them, 6 months into the fiscal 

year, trying to do a risk assessment, for example, and they will not 

sign the memorandum of understanding (MOU) with the risk assessment in it because they are stating that there will be an OPIC 

IG in 2015 based on the Power Africa Act. And they are waiting 

on that, and they think that this would be a waste of money and 

be duplicative. 

It is an untenable situation. 

Senator MCCASKILL. They are waiting for legislation from Congress? 

Mr. CARROLL. Yes. Right. There is legislation in the House, if I 

am not mistaken. It is called the Power Africa Act. 

Senator MCCASKILL. You need to please explain to them that 

they may be ‘‘Waiting for Godot.’’ 
14 

Mr. CARROLL. Right. So there needs to be communication here 

within the Congress. 

So it is untenable. 

Here we are, and you know, they have been successful. It has 

been a Fabian kind of defense, and they are not negotiating in good 

faith, but it has been a very difficult, contentious negotiation. 

Senator MCCASKILL. Let me also talk a little bit about IG independence. It has always seemed weird to me, as I began learning 

about IGs when I came to Washington, that we have some IGs that 

are Presidentially appointed and we have other IGs that the agency hires. 

Well, that is weird. I do not know how independent you can be 

if you are subject to the complete control of the head of the agency 

and if you owe your job to the head of the agency and you owe how 

you—I mean, I get that you cannot get removed as easily as maybe 

other employees. 

But, wouldn’t there be value—I would love each of you to speak 

briefly to this, and then I will turn it over to Senator Johnson for 

some questions. 

Wouldn’t it be better if—I know we have difficulty getting IGs 

confirmed. No matter what party is in charge and what party has 

majority, confirmations are always a difficult process, and we have 

too many people we have to confirm. 

But this is an area for independent oversight. It just never has 

made sense to me that you would have an IG that is actually hired 

by the person that they are supposed to be overseeing, and I would 

like each of you to speak to that if you are comfortable in doing 

so. 

Mr. SPARKS. As one of those Designated Federal Entity IGs, I 

think in my statement I did not push for Presidential for each of 

us and did not support such. I think it has merits in some sense. 

My experience is it has not really affected how talking to my fellow smaller IGs—we have operated. 

The IG Act has such powerful authorities. Very few bureaucrats 

have authorities to look at anything you want and have access to 

all your records and have subpoena authorities and to issue public 

reports. And, if they are interfered with by the agency head, we 

have the right to come to you folks and say we have been interfered with. So, on a practical basis, I think, the current process, 

has worked well. 

Prestige-wise, I think it probably adds a little power, and input— 

when you are dealing with the agency head. 

The negative part—and I brought this up at our smaller IG 

group meeting last week, and most did not see a real need. They 

would certainly accept it, and they certainly see it has some benefits, but they were somewhat concerned that when you went to a 

Presidential IG the chances of an experienced OIG employee that 

has come through the ranks to get to be the IG at a small agency 

might be reduced because there would be a different vacancy— 

number of candidates and what you mentioned, the time of getting 

confirmed. 

But I think basically we have dealt with that. I think it would 

probably be—if you talked to a lot of the smaller IGs, they might 

say yes, it would probably add a little bit to us. 
15 

I have been there for 15 years, at ARC, and the Denali Commission for its first 3 years. I did not see that they challenged us too 

much on our authority. 

I always make the statement that we all audit our supervisors. 

If you are the IG at the Defense Department (DOD), appointed by 

the President, on a day-to-day basis, you are auditing your supervisors because any program you audit goes through the Secretary 

of Defense. So you are auditing your supervisors just like I audit 

my supervisors. 

But we have lots of authority. I think only administrative law 

judges with lifetime appointments have more authorities than IGs, 

and we have to use those authorities judiciously. 

So I have not pushed for that. Let me just stop there. 

Senator MCCASKILL. I understand the arguments you made. I 

think they are cogent and make sense on both sides of the equation. 

I have not noticed IGs—in fact, I have been involved in trying 

to help find IGs for vacant agencies, and the pool has generally respected people in the Federal IG community. 

I have not noticed this President or, frankly, President Bush— 

I think the fear might be for people who are not close to this system, that all of a sudden this would become some kind of political 

appointment as opposed to a professional appointment. 

But I think that at least the two Presidents that I have worked 

with since I came to Washington; both of those Presidents, I think, 

have pretty much just tapped the pool of good IGs that are out in 

the community that either get moved from a smaller agency to a 

bigger agency or get moved from an assistant IG to the IG as opposed to outsiders coming in. 

Mr. SPARKS. Chairman, I totally agree with that, and that is the 

way it goes. 

And I mentioned to your counsel, Sarah, a couple of weeks ago, 

as an aside, that if you made the Appalachian Regional Commission IG a Presidential appointment and I could get it, I would extend my life for 6 months and stay there. 

Senator MCCASKILL. There you go. 

Ms. GUSTAFSON. If I can just comment just quickly, first off, I 

was not in that pool, and I am an IG, and I think I would do OK. 

So it is not always a thing from within the IG pool. 

But I do want to say, having been on the outside—— 

Senator MCCASKILL. Let me rush to say that your appointment, 

though, was based on merit for your many years of service in the 

audit community. 

Ms. GUSTAFSON. Well, there is no question. 

Senator MCCASKILL. I do not want anybody to think that you 

were not highly qualified for the position. 

Ms. GUSTAFSON. No, 8 years in an auditor’s office. 

And, actually, there have been a couple of IGs that I can think 

of off the top of my head. DHS has a new IG who, I believe, is from 

outside the community as is Michael Horowitz who is from the Department of Justice (DOJ), who is the DOJ IG, who came from outside the community. 
16 

So I certainly think that there are certainly strong professionals 

being nominated who are being named IGs as well that have not 

had that much experience with the IG community before then. 

But having been on the outside and not on the inside, I understand your thoughts on Presidential versus DFE. 

And now that I am an IG I have to say it really is—I have come 

to really appreciate the strength of the IG Act is. I mean, IGs are 

given a great deal of independence through that Act, whether you 

are a DFE or whether you are a Presidential appointee. 

I am asked this question often. I have been asked this question 

before, about whether there is a level of independence. And I think 

Mr. Sparks makes a lot of good points, but in the end, as I think 

you appreciate, it depends on who the IG is. 

I mean, I think you can be an IG who is a Presidential appointee 

and allow yourself to get pushed around. Or, you could be a DFE 

and completely stand up. So, in the end, it really is about the quality of the person; it is really the most crucial part. 

Even understanding, I think, Mr. Sparks makes some really good 

points, but, yes, I think it is a very strong community with—it is 

a very powerful tool. The IG Act is a very powerful tool that you 

can use to exert a lot of independence, and I think that we use 

that. 

Senator MCCASKILL. Great. OK, Senator Johnson. 

Senator JOHNSON. Thank you, Madam Chairman. 

Interesting hearing. As I go through my questions, first of all, 

whoever feels most qualified to answer just chime in because I am 

not quite sure who I should really be asking these things of. 

I am coming at this from the perspective of a private sector guy 

who has gone through a lot of financial statement audits as well 

as the International Organization for Standardization (ISO) quality 

systems surveillance audits. 

A lot of the issues we are discussing here are the same issues 

involved in the private sector in terms of an independent auditor 

that if he just comes into a business or an agency cold has a lot 

to learn and can also miss a lot because they are not knowledgeable versus somebody who has been with an agency or a company, 

an auditor long-term that really knows the business and can spot 

things more quickly but has the potential then, whether it is called 

auditor capture or inspector general capture, to really lose some 

independence. I think that is really the difficult issue we are talking about here. 

Let me start out by asking, within the agencies, what is automatic in terms of inspections or audits every year? 

Mr. CARROLL. Well, there are a number of audits that are required by law. The ones that come to mind are the financial statement audit, the Federal Information Security Management Act 

(FISMA) audit, and there are some other audits that we have to 

do—the Improper Payment Elimination and Recovery Acts (IPERA) 

for improper payments, those sorts of things. 

Senator JOHNSON. Which of those are contracted with an outside 

auditing firm—— 

Mr. CARROLL. OK. 

Senator JOHNSON [continuing]. Versus done by the Inspector 

General’s office? 
17 

Mr. CARROLL. Right. So I think—well, I will only answer for myself, and I think it has to do with scale, and there is a philosophy. 

For example, we do the financial statement audit of USAID inhouse. 

We contract it out for the other four organizations because they 

are smaller organizations and they sort of—well, the two corporations and the two foundations have more of a corporate structure 

that you are familiar with. So we use outside audit firms that we 

supervise. 

But with AID, since we are the indigenous IG, we do that work 

ourselves. Where we need technical expertise, for FISMA, for example, we will contract that out, to do penetration testing and that 

thing—and that sort of thing. But, again, we supervise that ourselves. 

But, generally, we prefer to do all of the audit work ourselves inhouse. 

Senator JOHNSON. So what is the tradeoff, and how do you guard 

against that tradeoff in terms of being familiar with the agency, familiar with what part you are auditing, versus really being independent? 

I know you have auditing standards and that type of thing. But, 

in terms of just the basic reality of the situation, that is a really 

difficult problem, isn’t it, and how do you deal with that? 

Mr. CARROLL. Well, maybe I am misunderstanding your question, 

Senator, but I think by virtue of the fact that the statutory IG or 

the federally Designated IG is the one doing the work there is no 

question of independence there. We understand the systems. We 

understand the vulnerabilities. We understand the business model. 

And I think that is a benefit rather than a disadvantage. 

And I would say, in the corporate world, the for-profit audit industry is exactly that—for profit. 

And I would say we are more independent than for-profit audit 

organizations on the outside that are looking for the work the next 

year. 

Now I am not saying that they would do anything different than 

we would do, but we are completely independent, and I think that 

is a strength rather than a weakness. 

Senator JOHNSON. Well, I will agree with Ms. Gustafson. It really 

does depend on the individuals. 

We certainly saw that within the OIG’s office within DHS we 

had some real questions in terms of independence, and I think that 

was because of an individual, not necessarily the Act. 

But, again, you are dealing with people, both in the agencies and 

the IG’s office. So I think it is a serious concern in terms of how 

you maintain that type of independence. 

In terms of the consolidation, I see a real problem if you just 

take an OIG from a particular agency and then provide other 

smaller agencies that that IG is going to have to provide those inspections for. What type of attention are they going to get? Just 

speak to that issue. 

I think from my standpoint it almost seems better to have completely independent OIGs for five different agencies rather than 

have one associated with one agency and then offload four addi-
18 

tional agencies to that one because, again, I just think they are 

going to have far less attention. So can you speak to that problem? 

Mr. GRATACOS. Well, in our situation, the draft bill talks about 

OPIC. And OPIC fits very well with what we do already, and that 

is what IG Carroll was mentioning before. It is the same type of 

transactions we look into. One is the investment side, which is risk 

insurance, but they all go into that same process of underwriting. 

So, for us, we would have the infrastructure to take over OPIC, 

and it would be an easy match. 

Now there was a discussion a few years ago on the House side 

to bring also—I think it was the U.S. Trade and Development 

Agency (USTDA) under us. That was a little different; so, grants. 

We do not do grants. 

So, even though it is trade, it is grants. So USAID might be better equipped to handle that. 

Those are the challenges that we have. 

And, to add to the OPIC thing, the discussion they had a year 

ago or 2 years ago on the House side, they were talking about only 

in the audit component and only for a period of time—for 2 years, 

3 years. We did not think that was effective. 

I think we need full authorities in the IG Act because many 

times—and it happens to us at Ex-Im Bank—you are looking at a 

transaction in an audit and you find fraud. And so we are equipped 

right on the spot to investigate it. 

Senator JOHNSON. Let me go to that because it has been said 

that it is very important that the missions be similar. I want to 

just really probe that a little bit. 

I mean, a financial transaction is a financial transaction. No 

matter what type of agency, fraud is fraud. There are certain auditing standards. There is a process to go through. 

I mean, how important is it that the IGs are assigned to agencies 

with similar missions when you are talking about financial transactions that are common between different agencies no matter 

what their agency mission is? 

Mr. GRATACOS. I think from our perspective we are looking at, 

for example, at a product’s financial structure overseas, right. It is 

a little bit different than a financial transaction on the government 

perspective. So they are more commercial in nature. 

That is what OPIC does, too. That is what we do. That is what 

multilaterals do. World Bank, the Multilateral Investment Guarantee Agency (MIGA), the Inter-American Development Bank 

(IDB). And so that is a different component. 

Now, when we are talking about financial statement audits, 

there are very similar components. You can see skills that you can 

transfer across agencies. 

Performance audits, that is the Yellow Book. We can do that 

across agencies. 

But there are certain components and a certain level of sophistication on the transactions that are involved in some agencies that 

I think the expertise or the knowledge of at least the basics of the 

transaction can really save you a year or two of learning how it 

works. 

Senator JOHNSON. OK. My time has run out. 

Anybody want to chime in just on the questions I had. 
19 

Mr. SPARKS. Just back to your first question, Senator, I guess as 

a smaller IG I recommend individual IGs as you were talking about 

for each agency. I think the presence and the knowledge that you 

gain with that agency cannot be substituted by a part-time IG from 

another IG office, particularly a large IG office. 

Based on 30 years in the larger IGs, I recognized that we assigned and put highest priority on highest priority projects and 

risks that the agency had. And it is just human nature; we are not 

going to put our best staff on a $1 million or $2 million entity. 

So I think a separate IG with a significant budget and a sensitivity to a program is well worthwhile. 

With respect to the consolidation, what I was talking about is 

very small agencies that have similar things. When I talked about 

six economic development commissions, we do exactly the same 

thing, and maybe one IG who knows grants is sufficient. 

I have a counsel from another OIG and as Chairmam McCaskill 

said, we have some challenges. Some of us have to get legal counsel 

investigative help. And we generally have agreements with an IG 

that has similar responsibilities as we have if we are going to conduct a fraud investigation or get some legal opinions. 

So I think I agree with you on that, if possible, a separate IG 

is best. I do not think it costs any more to have the separate IG 

even though it is a small staff, with the onsite presence and knowledge of that agency, as opposed to farming it out to another agency 

who may or may not have targeted staff to put that oversight and 

may not have the priority that they would have for their regular 

programs. 

Senator JOHNSON. OK. Thank you. 

Senator MCCASKILL. I know this is not in the draft, and I know 

this is going to stir things up a little bit, but honestly, if I could 

wave a magic wand, I look at the model of the office that I am most 

familiar with, which is the State auditor’s office, we had the authority to go in anywhere, in a wide variety of places, with a wide 

variety of different missions, whether it was a highway commission 

or a county government or whether it was the prison system. 

And it was our experience that having someone who had done 

that audit before was helpful, but it was also helpful to have someone on that audit team who had never done that audit before because you had fresh eyes. You had someone who did not have a 

built-up relationship with the administration and that agency. You 

had someone who was taking a fresh look at it combined with the 

expertise of somebody on the team that knew the agency well. 

So, if we have 41 agencies that have nothing, why couldn’t we 

do an Inspector General for small agencies that has a staff large 

enough to develop the expertise—because here is the problem we 

are going to have. 

I could easily have you in front of this Committee, Mr. Carroll, 

and talk about your risk assessment and say to you, what in the 

world are you doing, looking at $10,000 program, when we are 

hemorrhaging billions in Iraq or Afghanistan, because all of you 

are tasked professionally with going to the places where there is 

the highest risk. 

And my problem is that we are never going to get economies of 

scale in some of these very small agencies in terms of overhead un-
20 

less we are going to go to CIGIE or some other organization to provide overhead, which I agree; I think the independence of the overhead—just the day-to-day H.R. administrative things—is something that can really stress a small IG office to the point that they 

are consumed with that instead of figuring out what rock they need 

to look under. 

So assuming that there would not be a widescale panic in the IG 

community that everyone was going to be disrupted and their plans 

for the next 10 or 15 years all of a sudden have disappeared in 

front of their eyes because they are pretty comfortable where they 

are and they are pretty sure they can stay at that agency until retirement. 

Other than that problem, what problem would you see with us 

trying to fashion the Inspector General of Small Agencies with the 

kind of competence staff and with the requirement that every agency would have to have a line item to support that agency in commiserate with the size of their agency and the risk they represent? 

Mr. CARROLL. I will just speak to my own universe. 

I do not see any problem with that, theoretically, but practically 

speaking, in my part of the world, it would be very difficult to find 

a domestic IG that has the kind of expertise and, like I said before, 

infrastructure. 

We are a Foreign Service organization. We have people posted 

around the world. And we can bring those people and that expertise and those experiences with SAIs and local law enforcement. 

We can bring all of that to bear on any of those five agencies’ programs being implemented in those countries. 

So I do not disagree that domestically that might work, but I 

think in my particular case, if you were looking to take IAF and 

the U.S. African Development Foundation (USADF) out from under 

my portfolio, or OPIC, I would not argue with that. I would be 

happy to do whatever you wanted. 

Senator MCCASKILL. I get the international distinction. I think 

there is some merit to that. 

Mr. CARROLL. Right. But, domestically, I think it could make 

sense, absolutely. 

Senator MCCASKILL. I know you have to go back to the IG communities. So I have to be careful here because I am sure this would 

not be the most popular proposal that has ever been put out by 

Congress. 

Mr. SPARKS. Well, actually, I agree. One of my recommendations—I was not necessarily talking about established IGs because 

I do think we want to look a lot harder at them. 

But one of my recommendations, particularly for some smaller 

entities that are being proposed, is one IG. I think that provides 

an IG staff that could have a couple of auditors, a couple of inspectors, a couple of evaluators, a lawyer and a couple of investigators. 

And they can gain the expertise on those very small programs fairly quickly. 

A lot of the programs I looked at are basically similar. Providing 

scholarships to high school students—for example by some of the 

smaller entities. 

Ronald Reagan, I think, proposed an Inspector General for the 

Executive Branch that would be like GAO and put us all in one IG. 
21 

There have been conversations about whether CIGIE should establish a staff to do it. I do not think that is practical. We would 

have 72 IGs trying to agree on an audit report, and we would never 

get it out. We are already late on getting most of them out, that 

type of thing. 

So I do not think it has benefits to consolidate in that sense. 

One of the things that I know my fellow IGs probably would not 

like is if I discussed the practicality of not assigning them to a larger OIG but consolidating some of the small ones. And least one 

small IG agrees with this concept. Most of them probably would 

not. 

Consolidating several of the smaller IGs, rather than putting 

them into a major IG office which does have a lot of other priorities—I think that is a more practical thing maybe to be discussed 

further, and I believe this is done in a couple of instances in your 

proposal. 

But I think the concept of what you are saying can work, particularly if you do not have special circumstances, like AID or the programs on FAST. 

I have worked with many State auditor offices in Appalachia, 

and as you say, they have a variety of programs that they operate. 

Ms. GUSTAFSON. Senator, I think basically, as Ms. Davis had 

noted in her opening statement, what you are talking about are 

policy questions over how this oversight is going to get done. 

And so I think that I am, again, very grateful that these conversations have been happening already. I think that this hearing 

is a good way to, again, have more of these conversations. 

I think the next most helpful thing will be to talk to the IGs who 

are directly affected. I think that they would, as Mr. Sparks said, 

have a lot of opinions because I think in the end it gets pretty 

granular. 

I think, this is a very bold idea. This is kind of a big swing. 

So I think that this is something that would be—would benefit 

from a lot more conversations with not only the small IGs affected 

but the big IGs. When you look at your draft bill, there are some 

responsibilities that would be given to some large IGs that I think 

it would be helpful to have those conversations as well. 

And then in the end, what it is, is a policy decision. 

Just pretty quickly, when you talk—and of course, I am well 

aware of the State auditor model. 

The only difference—and I think one of the things that you will 

hear about and one of the things you are grappling with is one of 

the differences is when you are not located within the agency. 

I do have to say that one of the big strengths about the IG Act 

in general and one of, I think, the strokes of genius that really happened in the IG Act was to say here is this incredibly independent 

entity, but you are in that agency. 

And there are definitely benefits to that. I can tell you that there 

are benefits to that—being able to be there in place and to be able 

to walk down the hall. And, to a certain extent, there is a different 

tenor to the conversations when you are not the State auditor kind 

of coming in. 

That does not mean that it is insurmountable. I just think it is 

something that is worth talking about, and that is why I think it 
22 

is an important conversation to have, especially when you are talking about IGs that maybe are in those agencies already. 

I think it is going to be an important conversation and just something to think about. 

Senator MCCASKILL. It may be that you could work a model, that 

you could have someone assigned interior to every agency, but then 

you would have the problem of the administrative overhead taken 

care of. You would have continuity in case there was someone— 

part of problem is we lose an IG and especially if it is—sometimes 

it takes forever. 

I mean, we have had major IGs sit vacant for years in this country, which is very frustrating. 

And, for these small agencies, it would provide continuity if they 

were there under the auspices of a small agency IG but assigned 

to actually be within the agency for their work. 

Mr. CARROLL. And, Senator, we do that with MCC. In MCC’s enabling legislation, there is a hard cap, and that is another thing 

maybe we can talk about—the hard cap. There is a hard cap of $5 

million set aside in MCC’s budget for oversight, and so we draw off 

of that. 

And because of the scale of MCC, about a billion dollars a year, 

we have created a separate infrastructure within the USAID OIG 

to address MCC. And we bill that direct labor back, and we bill 

the—— 

Senator MCCASKILL. We have a hard cap of $5 million on a budget of a billion? 

Mr. CARROLL. Yes. And I saw in the draft legislation some potential caps and some potential—for example, I may have misunderstood, but the IG would do one audit by a certain amount of time. 

I would strongly recommend no cap on audit and no cap on budget. 

If we can develop with GAO’s help—and they have looked at this 

in the past—a percentage based on the complexity and that sort of 

thing—— 

Senator MCCASKILL. Right. 

Mr. CARROLL [continuing]. I think that would be ideal. 

Senator MCCASKILL. OK, Senator Johnson. 

Senator JOHNSON. Mr. Sparks, you, to me, spoke the magic words 

here—prevention and deterrence. If there is a criteria that we really ought to be looking at as we try and design something here to 

take care of the small agencies, prevention and deterrence would 

probably be at the top of the list in terms of how we design this 

thing because you are a lot better off preventing and deterring 

than you are mopping up a fraud after the fact. 

So, Mr. Carroll, we were talking about the required audits, required inspections. Do any of these small agencies have any of 

those? 

In other words, if they do not have an IG office, are those inspections and are those audits being performed? 

Mr. CARROLL. Well, I am glad you asked the question because it 

is a mixed bag. For example, we have had discussions with the 

smaller agencies on whether some of this applies to them. 

IPERA, for example. There are discussions with the foundations. 

Does, in fact, the IPERA legislation apply to them? 
23 

And so we would say yes, but then we have to direct them to 

OMB to get the final answer. 

So that is why I think that if you capture all of these agencies 

under the IG Act, then the ambiguity is completely cleared up. 

The other thing I would say, Senator, related to prevention. We 

have a very robust program in USAID OIG—and I am sure the 

other agencies do as well—of what we call fraud awareness. We 

have our auditors and investigators go out and brief agency employees and brief agency contractors on what fraud looks like. 

And, inevitably, we are going to get calls on the hotline or people 

come right up to us—I saw that. And then they become a source, 

and then we create an investigation or an audit. 

So I do believe that—and I am not knocking the smaller IGs, but 

we have a very robust fraud awareness program/prevention program, and we have the expertise to implement that. 

And I am not saying that the DFE IGs do not. But, certainly, 

when you have scale, then you can wall off those resources available to do those kinds of things that are not audits and are not investigations. 

Senator JOHNSON. In the private sector, we have something 

called the Keep It Simple, Stupid (KISS) principle. 

To me, it makes perfect sense that if you are gaining your authority from multiple years, multiple layers of rules and regulation, 

it makes an awful lot of sense to centralize that authority under 

one act—— 

Mr. CARROLL. Agreed. 

Senator JOHNSON [continuing]. So that simplifies things. 

And then, if there is some way, whether to use CIGIE or maybe 

within a newly created office of Inspector General for smaller agencies, if you also have some sort of gathering space, an accumulator 

of best practices, in terms of fraud prevention, fraud notification, 

just education, that is what we have to look for. That is what I 

think would be far more effective. Mr. Sparks. 

Mr. SPARKS. Just to comment on deterrence and prevention, 

which I totally agree with, I mean, one of the things you look at— 

and I am sure folks have—is you look at the small IGs and you 

look at some of the audit reports, you are going to see in the tables 

a lot of zeroes, where there are not big monetary benefits. 

Well, a lot of the small IGs are in regulatory agencies that are 

not putting out—that are having specific programs or they are mediating things. I think the key to a smaller IG is the prevention 

and deterrent. 

Where we have grant programs, like my agency, we have dollars 

because you are looking at questioned costs and ineligible costs. 

If you talk to the agency head that I have, he would tell you the 

greatest benefit of our office is we go out to 25 or 30 grantees a 

year and do grant audits of contractors. And all those grantees of 

the 400 grants a year we make, they think we are coming. 

I put it with Internal Revenue Service (IRS) audits. There are 

very few personal tax audits of people now, but most people worry 

about an IRS audit and they make out their taxes correctly. 

And I think the benefit of a small IG is not that they have a twoperson staff or a three-person staff. It is how effectively they use 

that in prevention and deterrent. If you can accomplish that, you 
24 

have accomplished the biggest mission at the most value you are 

going to have. 

You are never going to see the small IGs with big dollars. 

On the investigative side, I think the impact of our investigations 

and the magnitude are probably a lot less because we have smaller 

agencies and smaller dollars. And we try to use another IG with 

the expertise in the investigation field and in that area to do it, 

and I think, we have been fairly successful. 

One quick comment since you may recognize I am a little biased 

on smaller IGs. On the administrative cross, I have not run into 

a problem. We do use our human resources (HR)—our agency for 

H.R. services. Obviously, we get counsels from other IGs if we need 

them. 

It can be a problem. I have not really seen it because our costs 

are relatively small because we have a small staff. 

And one of the things I wanted to mention before we conclude 

is I thoroughly agree with the discussion you had where you talked 

about having GAO look at the mandate in reviews. 

What are required of IGs at small agencies? 

Senator MCCASKILL. Right. 

Mr. SPARKS. How much staff is put in a financial statement and 

Federal Information Management System monitoring? 

We have to let the contracts. Is a one-year audit required of a 

small entity? 

And I think looking at that because when you ask what are we 

responsible for we have a lot of mandated requests from Congress 

for financial statement audits, improper payments, travel, credit 

card use. 

And, generally, a lot of times, the legislation comes down and 

says all IGs will do a review. 

I know we had one about use of government vehicles. Well, we 

have one leased vehicle used part-time. That is not going to affect 

the ecology of the world. 

But I think looking at the mandated things for IGs is a good initiative. 

I would also look at the mandated audits that a small entity is 

required to do. A lot of these small entities that you are looking 

at, I think, do require financial statement audits. 

Now do they need them every year? Do they need IG monitoring 

every year? I think we can get to a point of over-monitoring and 

over-auditing, and there have to be risk assessments to see how 

bad it is, just like there should be a risk assessment of how much 

staff is going to be required to service these new entities that you 

are looking at to put into it. 

Senator JOHNSON. OK. Well, again, I appreciate your testimony. 

I think you are exactly the kind of folks we ought to be talking to 

in depth, in detail, as we craft this so we can engage in those best 

practices so that the dollars that we put to use are put to effective 

use, as well as the personnel time. 

So, again, I appreciate the testimony and appreciate the hearing. 

Senator MCCASKILL. I do, too, and I think we will begin working 

in earnest to come up with a proposal that makes the most sense 

without disrupting the IG community too much. 
25 

I would appreciate, Ms. Gustafson, if you would check with 

CIGIE about formalizing recommendations they might have, particularly if there is any appetite for CIGIE being used as something 

other than what it is now. 

Could they be the clearinghouse for assigning auditors to small 

agencies on an ongoing basis? Does it make sense? 

I agree with Mr. Sparks. A recipe for disaster would be having 

CIGIE have to decide what the audit findings were going to be. I 

would not want to be in that room. I think there might be some 

serious disagreements. 

But we would like to get some formal input from CIGIE on the 

proposed legislation and whether or not it should be tweaked or 

changed in any way and maybe look at, seriously, a model of an 

Inspector General for Small Agencies and what that might look like 

also. 

We are going to try to move this. I think honestly this is something we could get passed. I cannot imagine that we would find 

something to fight about over providing a minimal amount—— 

Senator JOHNSON. We might. 

Senator MCCASKILL. We might, but I do not think so. 

Senator JOHNSON. No. This is just a good government piece of 

legislation. 

Senator MCCASKILL. Yes, especially if Senator Johnson and I 

stay joined at the hip on not going too far but going far enough. 

And I think removing some of the mandates for these smaller 

agencies is a terrific thing to do. It is stupid that you are having 

to spend a lot of time on paperwork for a partially one leased vehicle because we have mandated that. 

We ought to have it like what we did with banks. I mean, if you 

were under a certain amount of assets, we relieved them of some 

of the responsibilities in Dodd-Frank. 

We should do the same thing on these mandates. If you are 

under a certain threshold, we should look at those mandates and 

see if they really make sense. 

So we welcome—and GAO, too; your input is essential, Ms. 

Davis—all of you, if you would help us craft this in a way that 

makes sense and will accomplish the goals I think we all hold in 

common, which is making sure that we do not have agencies out 

there that know nobody is going to knock on their door. 

I do not like any government agency not thinking somebody is 

going to knock on their door. Ever. 

Mr. CARROLL. Senator, could I just make one more comment? 

I wanted to thank you personally for your trust and faith in the 

statutory IGs with the National Defense Authorization Act 

(NDAA), the 2013 NDAA, and the OCO legislation. 

I just talked to Jon Rymer and Steve Linick and we guarantee 

that we will be able to deliver, God forbid, in the next overseas contingency operation. So thank you very much for that. 

Senator MCCASKILL. That is great. And I am hoping I do not 

have to be here to hold you to that. 

I am hoping we do not have another OCO, but we probably will. 

And no one is going to be more angry than I am if we do not 

have lessons learned. This has been a painful process to get lessons 

learned in the contingency space. 
26 

By the way, you should know, Mr. Carroll, I am pressing the 

Pentagon on this as to whether or not they really can justify the 

infrastructure endeavors they have undertaken in a contingency 

with a counterinsurgency effort. I am not convinced that the AIF 

or that the SERP money on steroids has, in fact, been effective. 

And this notion that we keep transferring back and forth form 

AID to Defense, AID to Defense—who is building the highway? 

Who is building the health center? 

It is mind-boggling how this has gone back and forth, without 

rhyme or reason and without any data to support it. 

So I am on them, and I am asking them, you better show us 

where the data is that makes any sense for the military to be doing 

this infrastructure as opposed to AID. 

As you can tell, I can get jazzed about that. 

And, by the way, that is billions and billions of dollars. 

Mr. CARROLL. That it is. 

Senator MCCASKILL. So it is real big money. 

Thank you all very much for your service and the jobs you hold 

and for your time today. We appreciate it. 

[Whereupon, at 12:05 p.m., the Subcommittee was adjourned.] 
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