Inspectors General: Improvements Needed in the Office of Inspector General's Oversight of the Denali Commission
Published: 2014-09-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Commission was established to promote sustainable infrastructure improvement, job training, and other economic development services in Alaska. The Commission is a designated federal entity under the IG Act and is required to have an IG. IG oversight includes assessing the effectiveness and efficiency of agency programs and operations; providing leadership and coordination to detect fraud and abuse; and making recommendations to management to promote the economy, efficiency, and effectiveness of program and agency operations. GAO was asked to review the management and operations of the Commission's OIG. GAO's objectives were to (1) identify the resources appropriated to and expensed by the OIG and the OIG's work products reported for fiscal years 2011 through 2013, (2) assess the extent to which the OIG provided oversight of the Commission's programs and operations, (3) determine the extent to which the design and implementation of the OIG's policies and procedures and its work products were consistent with professional standards, and (4) identify alternatives for OIG oversight of the Commission.
section_title: What GAO Found
paragraphs: The Denali Commission (Commission) Office of Inspector General (OIG) received budgetary resources of approximately $1 million from fiscal years 2011 through 2013. OIG budgetary resources increased approximately 7 percent from fiscal years 2011 through 2013, from approximately $310,000 to $331,000. During this period, the OIG consisted of one full-time employee, the Inspector General (IG), who obtained additional support through contracts with auditors and others. The OIG issued six semiannual reports to the Congress and conducted 12 inspections during fiscal years 2011 through 2013.
The OIG provided limited oversight of the Commission's major programs (energy, transportation, health facilities, and training) and operations. GAO's analysis of the 12 inspections completed by the OIG found that the OIG provided oversight for $150,000 of the $167 million in grant funds disbursed during fiscal years 2011 through 2013. The $150,000 of grant funds inspected by the OIG represented less than 1 percent of total grants awarded by the Commission during this period. The $167 million in disbursed grant funds are subject to the Single Audit Act, as applicable. While the OIG oversaw the Commission's annual financial statement audit, it did not conduct any performance audits or investigations related to the Commission's major programs and operations.
The OIG did not have documented policies and procedures for its office operations and management that adhered to the Council of the Inspectors General on Integrity and Efficiency's Quality Standards for Federal Offices of Inspector General . The OIG did not implement the following four quality standards that are critical for the management and operations of the OIG: planning and coordinating; maintaining quality assurance; ensuring internal control; and receiving and reviewing allegations of potential fraud, waste, and abuse. For example, the OIG did not conduct any investigations for potential criminal prosecution. Also, the OIG did not prepare an annual work or strategic plan to document the office's planned activities. Additionally, the OIG's work products were not fully consistent with applicable professional standards, its own policies and procedures for inspections, or section 5 of the Inspector General Act of 1978, as amended (IG Act). For example, there was insufficient evidence in the OIG's inspection case files to support the conclusions and recommendations reported, and the semiannual reports prepared by the OIG did not provide information on the status of OIG recommendations as required by the act.
If corrective actions are taken to mitigate the challenges faced by a one-person office, the current structure of the Commission OIG is one option for OIG oversight. GAO has also identified three alternative OIG oversight structures that could be applied to the Commission: (1) consolidation into a larger OIG; (2) consolidation into a regional commission OIG; and (3) division of OIG oversight responsibilities between two separate federal OIGs, such as a regional commission OIG or a larger OIG.
The Commission IG resigned on December 28, 2013. On May 28, 2014, the Commission entered into an agreement with the Department of Commerce's OIG to provide oversight services pursuant to the IG Act. The agreement expires on September 30, 2014, but may be extended or amended by mutual written consent of the parties.
section_title: What GAO Recommends
paragraphs: GAO is making nine recommendations to the OIG to improve the operating effectiveness and efficiency of the OIG, including steps that the OIG should take to develop and implement policies and procedures consistent with professional standards to provide oversight of Commission programs and operations.
The Commission concurred with the report's conclusions and recommendations.

section_title: Letter
paragraphs: The Denali Commission (Commission) was established by the Denali  Commission Act of 1998 to promote and provide sustainable  infrastructure improvement, job training, and other economic development  services that improve health and safety and economic self-sufficiency  within rural communities in Alaska. For fiscal years 2011, 2012, and 2013,  the Commission awarded grants totaling approximately $24 million,   $19 million, and $14 million, respectively, and disbursed approximately  $73 million, $55 million, and $39 million, respectively, under new and  previously awarded grants.
The Inspector General Act of 1978, as amended (IG Act), Commission as a designated federal entity (DFE)entities to have an Office of Inspector General (OIG).
Pub. L. No. 95-452 (Oct. 12, 1978), codified as amended at 5 U.S.C. App.
Cochairperson (Federal Cochair) appointed a Denali Commission  Inspector General (IG),on December 28, 2013.   who served in that capacity until his resignation  The Commission entered into a memorandum of understanding (MOU)  with the Office of Inspector General for the Department of Commerce on  May 28, 2014. The MOU established the terms and conditions for the  provision of oversight services to the Commission pursuant to the IG Act  and the Economy Act, as amended. This agreement terminates on September 30, 2014, but may be amended or extended at any time by  mutual written consent of the parties.
This report responds to your request that we review the management and  operations of the Commission’s OIG. Our objectives were to (1) identify  the resources appropriated to and expensed by the OIG and the IG’s  work products reported for fiscal years 2011 through 2013, (2) assess the  extent to which the OIG provided oversight of the Commission’s major  programs and operations, (3) determine the extent to which the design  and implementation of the OIG’s policies and procedures and its work  products were consistent with applicable professional standards, and   (4) identify alternatives for OIG oversight that exist in other federal  agencies that could be applied to the Commission. To address our  objectives, we did the following:
Reviewed the OIG-related budget justification documents, travel  expense invoices, contractor expense invoices, and actual  expenditure reports to determine the resources provided to the OIG  and how those resources were used.
Compared the OIG’s work products with the Commission’s major  programs and operations to determine the extent to which the OIG  provided oversight of major Commission programs and operations.
Compared the OIG’s policies and procedures to the Quality Standards  for Inspection and Evaluation and the Quality Standards for Federal  Offices of Inspector General both published by the Council of the  Inspectors General on Integrity and Efficiency (CIGIE)  and the IG  Act. We also compared the OIG’s work products to its policies and  procedures, the CIGIE standards, and the IG Act.
Reviewed previous GAO work to identify federal OIGs that provide (or  have provided) OIG oversight for smaller federal agencies, identified  regional commissions with missions similar to that of the Commission,  and consulted with Department of Commerce officials who were  involved with appointing the Federal Cochair of the Commission. We  also consulted with six OIGs at other federal agencies to identify  existing oversight structures.
Appendix I includes further details on our scope and methodology.
We conducted this performance audit from May 2013 to September 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
Section 7 of the Inspector General Reform Act of 2008 (IG Reform Act), Pub. L. No. 110- 409 (Oct. 14, 2008), created CIGIE, eliminating two previous councils of executive branch  IGs and establishing one united federal IG council. Members of CIGIE have formulated  and adopted these quality standards, which are for OIG use to guide the conduct of official  duties in a professional manner. In addition, CIGIE investigates and reports on issues  brought to the attention of CIGIE’s Integrity Committee.
subsections: section_title: Background
paragraphs: The Commission acts as a regional partner with state and local  governments focusing on basic infrastructure needs and promoting  economic growth for rural Alaska. Since the Commission’s inception in  1998, programs focused on developing transportation, energy, health  facilities, economic development, training, and community facilities have  received funding for infrastructure projects and to promote economic  growth. Although congressional priorities have changed recently, as have  funding levels, four major programs—energy, transportation, health  facilities, and training—continued to receive grant funds. The Commission  has historically received federal funding from several sources, including  an annual appropriation, and is a party to allocation transfers with other  federal agencies, such as transfers from the Federal Highway  Administration under the Department of Transportation (DOT). The  Commission also receives funds from the Trans-Alaska Pipeline Liability  Fund.
subsections: section_title: Commission’s Programs and Funding
paragraphs: The Commission implements its major programs and operations by  awarding grants for implementing specific projects in rural Alaska.
In fiscal year 2013, the Commission’s energy program—which is  focused on bulk fuel storage tank upgrades; community power  generation and rural power systems upgrades; energy cost reduction  projects; renewable, alternative, and emerging energy technologies;  and power line interties—received approximately $14 million in federal  funding, or 78 percent of the Commission’s budgetary authority. The  purpose of the program is to provide code-compliant bulk fuel storage  and electrification with a goal of improving energy efficiency and  decreasing energy costs. In fiscal year 2013, the energy program  funded the completion of three bulk fuel facilities, two rural power  system upgrades, energy efficiency upgrades in 13 communities, and  one emerging energy technology project.
The transportation program divides funds between the roads and  waterfront components of the program. One major objective of the  roads component is to improve roads between rural communities. The  waterfront component addresses port and harbor needs, such as  regional port reconstruction and boat launch ramp construction. Since  its establishment in fiscal year 2005, the transportation program has  completed 86 road projects and 97 waterfront development projects.  In addition, the Commission reported that as of March 2014, 24 road  and waterfront development projects were in the planning, design, or  construction phase. The transportation program was not included in  the fiscal year 2013 Commission budget; however, approximately   $15 million in previously awarded program grants were disbursed in  fiscal year 2013.
The health facilities program provides technical assistance as well as  business planning for the facilities. This program was initially  established to improve Alaska’s health infrastructure through  investments in renovations, repairs, and replacement of health  facilities. Since the program’s inception in fiscal year 1999, the  Commission reported that in conjunction with the Department of  Health and Human Services, it has contributed to 140 primary care  clinics, 20 elder supportive housing facilities, 49 primary care projects,  and 20 behavioral health facilities. The health facilities program was  not included in the fiscal year 2013 Commission budget; however,  approximately $7 million in previously awarded program grants were  disbursed in fiscal year 2013.
The training program was established to provide training and  employment opportunities to rural residents employed in the  construction, maintenance, and operation of Commission projects.  Program funds paid for courses, books, tools, tuition, lodging, and  transportation. In fiscal year 2013, the Commission reported that 137  people completed training courses or received certificates in  construction, maintenance, and operation of Commission projects; 53  obtained certificates in construction education; and 17 were placed in  construction apprenticeships. In addition, the Commission partnered  with the University of Alaska to assist 402 students in completing  course work in community health aide, dental assistance, medical  office/health care reimbursement, and medical lab-related skills. The  training program was not included in the fiscal year 2013 Commission  budget; however, approximately $1 million in previously awarded  program grants were disbursed in fiscal year 2013.
section_title: Inspector General’s Role and Responsibilities
paragraphs: The IG Act establishes that one of the primary responsibilities of a federal  agency’s OIG is to keep the agency head and the Congress informed  about problems and deficiencies related to the administration of the  agency’s programs and operations, corrective actions needed, and the  progress of those corrective actions. The IG Act created independent IG  offices at major departments and agencies with IGs who are appointed by  the President, are confirmed by the Senate, and may be removed only by  the President with advance notice to the Congress stating the reasons. In  1988, the IG Act was amended to establish IG offices in DFEs. OIGs of  DFEs have many of the same authorities and responsibilities as the OIGs  originally established by the IG Act, but with the distinction that IGs are  appointed by and may be removed by their agency heads rather than by  the President and that their appointment is not subject to Senate  confirmation.
The IG Act addresses the qualifications and expertise of the IGs,  specifying that each IG appointment is to be made without regard to  political affiliation and solely on the basis of integrity and demonstrated  ability in accounting, auditing, financial analysis, law, management  analysis, public administration, or investigation. The fields in which an IG  can have experience are intended to be sufficiently diverse so that many  qualified people could be considered but are also limited to areas relevant  to the tasks considered necessary.
The Inspector General Reform Act of 2008 (Reform Act) amended the IG  Act by adding requirements related to OIG independence and  effectiveness. The Reform Act includes a provision intended to provide  additional OIG independence through the transparent reporting of OIG  budget requests. This provision requires an agency’s submission for the  President’s budget to separate the OIG’s budget request from the  agency’s and include any comments provided by the OIG with respect to  the proposal.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of   specifying that for  2010 (Dodd-Frank Act) further amended the IG Act, DFEs with a board or commission, the board or commission is the head  of the DFE for purposes of IG appointment, general supervision, and  reporting under the IG Act. Furthermore, if the DFE has a board or  commission, the IG Act requires the OIG to report organizationally to the  entire board or commission as the head of the DFE. In addition, the  Dodd-Frank Act requires the written concurrence of a two-thirds majority  of the board or commission to remove an IG. Prior to this provision, most  OIGs at commission or board led DFEs reported to, and were subject to  removal by, the individual serving as head of the commission or board.
section_title: OIG Budgeted Resources, Expenditures, and Work Products
subsections: section_title: OIG Budgeted Resources and Actual Expenses
paragraphs: Our analysis of the budget information provided by the Commission’s  Chief Financial Officer (CFO) showed that the Commission allocated  budgetary funds for the OIG of approximately $1 million over the 3-year  period from fiscal years 2011 through 2013. The total budgetary  resources of the Commission OIG increased from fiscal years 2011  through 2013, from $310,000 to $331,000, for an increase of about 7  percent (see fig. 1). During this 3-year period, the OIG consisted of one  full-time employee, the IG, who obtained additional support through  contracts with both auditors and others to assist with his oversight  responsibilities, such as interviews related to ongoing inspections, and to  mediate disputes between Commission officials and grant recipients  regarding grant payments. Based on the budget and expenditure  information we received from the Commission, we found that during fiscal  years 2011 through 2013, the OIG spent an average of 84 percent per  fiscal year of the budgetary resources provided to his office. The  Commission reported that the budgeted amounts not used by the OIG  within the fiscal year to which they were allocated were returned to the  Commission and were available for the Commission’s use. The OIG did  not carry over unused funding into the next fiscal year.
Our review of the OIG’s use of the resources provided in fiscal years  2011 through 2013 showed that about 59 percent of the OIG’s annual  budget was for salary and benefits for the IG. The rest of the annual  budget was for the Commission’s annual financial statement audit (13.4  percent), travel (12.4 percent), other contract services (11.7 percent),  training (3.1 percent), supplies (0.3 percent), and the CIGIE assessment  (0.2 percent). (See fig. 2.)
section_title: Commission OIG’s Reported Work Products
paragraphs: During fiscal years 2011 through 2013, the Commission OIG issued six  semiannual reports to the Congress, as required by the IG Act, and  conducted 12 inspections. The 12 inspections conducted by the  Commission OIG reviewed various issues, such as management policies  and practices and compliance with applicable laws. The OIG did not  perform any audits or investigations. The IG told us that for the 12  inspections he conducted, he used the following methods to communicate  the results of completed inspections: written inspection reports available on the OIG’s website,  inspection results included in the semiannual reports to the Congress,  and  inspection results included in the Commission’s annual agency  financial reports (see fig. 3).
section_title: OIG Provided Limited Oversight of the Commission’s Major Programs and Operations
paragraphs: During fiscal years 2011 through 2013, the OIG provided limited oversight  of the Commission’s major programs and operations. Per the IG Act, OIG  oversight includes assessing the effectiveness and efficiency of agency  programs and operations; providing leadership and coordination to detect  fraud and abuse; and making recommendations to management to  promote the economy, efficiency, and effectiveness in the administration  of these programs. It also includes providing a means for keeping the  head of the agency and the Congress informed about problems and  deficiencies relating to program administration and agency operations  and the necessity for, and progress of, corrective action. The 12 OIG  inspections provided oversight of less than 1 percent of the total grant  dollars the Commission awarded during fiscal years 2011 through 2013.  The OIG contracted with an independent public accountant (IPA) to  conduct the Commission’s annual financial statement audit but did not  follow up on the IPA’s concerns related to grant monitoring.
Furthermore, the OIG did not have a risk-based annual work plan or  policies and procedures to identify the Commission’s major programs and  operations that needed OIG oversight. Without adequate OIG oversight of  the Commission’s programs and operations, including grants, the OIG is  unable to reasonably ensure accountability over federal funds. The OIG is  also limited in its ability to minimize the Commission’s risk of fraud, waste,  and abuse occurring in its major programs and operations.
subsections: section_title: OIG Conducted Limited Inspections of the Commission’s Programs
paragraphs: The Commission’s OIG oversight covered a small percentage of the  Commission’s programs. During fiscal years 2011 through 2013, the  Commission’s major programs were energy, transportation, health  facilities, and training. These programs represent approximately 84  percent of funds granted by all Commission programs. According to the  Commission’s CFO, during fiscal years 2011 through 2013, the agency  awarded grants totaling $56 million and disbursed $167 million on both  new and previously awarded grants.
Our analysis of the 12 inspections completed by the OIG over that period  found that 5 of these inspections focused on the Commission’s grant  administration and 7 focused on the agency’s operations. Of the 5 grant- related inspections, only 2 of these inspections clearly identified specific  grant amounts disbursed by the Commission that were examined by the  OIG. In these 2 inspections, the OIG provided oversight for $150,000 of  grant funds disbursed for training programs, all of which were reported in  fiscal year 2012. The $150,000 of grant funds inspected by the OIG  represented less than 1 percent of the total grants awarded by the  Commission during fiscal years 2011 through 2013. We found that 3 of  the OIG’s inspection reports examined various complaints and issues  related to the grants process, such as assessing whether a grant  applicant was improperly denied a subaward (grant preaward stage),  assessing whether certain agency policy resulted in the unfair treatment  of a grantee (grant implementation stage), and determining whether a  grantee was treated unfairly because of a specific Commission policy and  legal requirements that were attached to a grant (grant implementation  stage). However, the OIG did not conduct any inspections that assessed  the effectiveness and efficiency of the agency’s other major programs— energy, transportation, and health facilities—or make recommendations  to management promoting the economy, efficiency, and effectiveness in  the administration of these programs, which is one of the major OIG goals  established in the IG Act.
The other 7 inspections completed by the OIG over that period focused  on (1) whether agency operations complied with applicable laws and  regulations, (2) the Commission’s authority for accepting funds from  nonfederal sources, and (3) potential agency restructuring.
According to the IG, his workload was driven by requests from four  sources: the Federal Cochair, aided by the CFO; Office of Management  and Budget (OMB) officials; the House Committee on Oversight and  Government Reform; and three Senate Oversight Committees (Finance,  Budget, and Homeland Security and Governmental Affairs). The training  grants he inspected were based on referrals from the Federal Cochair.
Under the IG Act, OIGs are responsible for coordinating audits and  investigations. Further, OIGs are required by the IG Act to adhere to  professional standards developed by CIGIE, to the extent permitted by  law and not inconsistent with applicable auditing standards. The  Commission OIG’s primary vehicle for oversight was the inspection.  CIGIE’s Quality Standards for Inspection and Evaluation defines an  inspection as a systematic and independent assessment of the design,  implementation, or results of an agency’s operations, programs, or  policies. The inspection function at each agency is tailored to its unique  mission; is not overly prescriptive; and may be used by the agency to  provide factual and analytical information, measure performance, identify  savings and funds put to better use, or assess allegations of fraud, waste,  abuse and mismanagement. The Commission OIG’s policies and  procedures for inspections specifically stated that the Commission OIG  “will conduct its interviews of agency issues through an ‘inspection’  methodology that conforms to the CIGIE quality standards for that  procedure.”12 inspections.
section_title: OIG Oversaw the Commission’s Annual Financial Statement Audit but Did Not Conduct Audits or Investigations of Commission Programs
paragraphs: As part of its oversight duties, the OIG is responsible for selecting and  overseeing the IPA responsible for performing the Commission’s annual  financial statement audit. These responsibilities include providing  technical advice, serving as the agency liaison to the IPA, and ensuring  that the audit was completed timely and in accordance with generally  accepted government auditing standards. As the agency’s Contracting  Officer’s Technical Representative (COTR) for the Commission’s annual  financial statement audit, the IG developed detailed policies and  procedures and completed a detailed audit monitoring plan documenting  the OIG’s oversight activities. The IG also reviewed the IPA’s workpapers  at key phases during the audit process to determine whether the fieldwork  completed supported the IPA’s conclusions. We found that the OIG had  practices in place to effectively monitor the annual financial statement  audit conducted by the IPA.
In fiscal years 2011 through 2013, the IPA reported several concerns to  the Commission about the agency’s grants monitoring activities. A sample  of grant-funded projects reviewed by the IPA found that the Commission  did not (1) have a follow-up process to determine whether grants were  used as intended; (2) include the review of the grantee’s single audit  reports as part of its grants monitoring practices; (3) review past  performance (and current status of previous projects) to ensure that the  grant was used as intended, prior to approval of new grants; and   (4) assess the extent to which it could recapture grant amounts from  grantees as a result of substantial changes in the use of these grants.  Although the OIG effectively monitored the IPA performing the  Commission’s annual financial statement audit, we found that the OIG did  not focus its oversight efforts after the audit had been completed to  ensure that the Commission addressed the IPA’s concerns with the  agency’s grants monitoring practices.
We found that the OIG issued inspections related to some of the  Commission’s major programs and operations; however, the OIG did not  conduct any performance audits related to these same programs and  operations. There are fundamental differences between inspections and  audits. Inspections are narrower and more focused in scope than audits  and they are also significantly less rigorous than an audit conducted in  accordance with Government Auditing Standards. Audits provide  essential accountability and transparency over government programs.
According to the IG, he leveraged his resources (one full-time employee)  to do the most good. The IG stated that his office was not staffed at a  level that would support audits; he decided inspections were an effective  method for leveraging what he had and responding to very specific issues  that were often complaint driven. However, because the OIG did not  conduct audits of the agency’s programs and operations, the Commission  did not have the benefit of the broader scope and more rigorous  standards of audits to help ensure effective grant oversight, accountability  for grant funds, and the proper use of taxpayer dollars.
We also found that the OIG did not conduct investigations. OIG  investigations help federal agency managers strengthen program integrity  and use funds more effectively and efficiently. Investigations vary in  purpose and scope and may involve alleged violations of criminal or civil  laws as well as administrative requirements. The focus of an investigation  can include the integrity of programs, operations, and personnel in  agencies at federal, state, and local levels of government. According to  CIGIE’s Quality Standards for Investigations, areas investigated by the  OIG may also focus on issues related to procurement and grant fraud  schemes; environment, safety, and health violations; benefits fraud; the  background and suitability of individuals for employment or a security  clearance designation; whistle-blower retaliation; and other matters  involving alleged violations of law, rules, regulations, and policies. Some  investigations address allegations of both civil and criminal violations,  ranging in significance from a misdemeanor to a felony, while others  could involve administrative misconduct issues. CIGIE’s Quality  Standards for Investigations also state that investigations can lead to  criminal prosecutions and program exclusions; recovery of damages and  penalties through criminal, civil, and administrative proceedings; and  corrective management actions. Without conducting investigations, the  Commission OIG was limited in its ability to identify criminal, civil, and  administrative activities of fraud or misconduct related to Commission  programs and operations.
section_title: OIG Did Not Have Documented Policies and Procedures for Office Operations and Management, and Its Work Products Did Not Fully Adhere to Professional Standards
paragraphs: Our review of the OIG’s policies and procedures in place during fiscal  years 2011 through 2013 found that the OIG did not document its policies  and procedures for its management and operations as an OIG. CIGIE’s  Quality Standards for Federal Offices of Inspector General sets forth the  overall quality framework to which OIGs must adhere, to the extent  permitted under law. Although the OIG did not document its policies and  procedures for managing and operating its office, we identified some  quality standards that were implemented, while others were not.
Our review of the OIG’s inspections issued during fiscal years 2011  through 2013 found that the inspections did not fully adhere to CIGIE’s  Quality Standards for Inspection and Evaluation. While the OIG had  documented policies and procedures for inspections, we found that the  design and implementation of the inspection policies and procedures did  not fully adhere to professional standards. Our review also found that the  semiannual reports submitted to the Congress by the IG did not include  required information in accordance with the reporting requirements of the  IG Act.
subsections: section_title: Policies and Procedures for OIG Office Operations and Management Were Not Documented and Did Not Fully Adhere to Professional Standards
paragraphs: The Commission OIG did not have documented policies and procedures  for conducting office operations that adhered to CIGIE’s Quality  Standards for Federal Offices of Inspector General. These quality  standards are used as guidance by OIGs in the operation of federal OIGs  and consist of (1) ethics, independence, and confidentiality;   (2) professional standards; (3) ensuring internal control; (4) maintaining  quality assurance; (5) planning and coordinating; (6) communicating the  results of OIG activities; (7) managing human capital; (8) reviewing  legislation and regulations; and (9) receiving and reviewing allegations.
Although the Commission OIG did not document its policies and  procedures for its operations and management, we found that the OIG did  implement, to some extent, certain standards in CIGIE’s Quality  Standards for Federal Offices of Inspector General. Specifically, the  Commission OIG implemented, to some extent, the following five quality  standards: ethics, independence, and confidentiality; professional  standards; communicating results of OIG activities; managing human  capital; and reviewing legislation and regulations. However, the  Commission OIG did not implement the following four quality standards  that are critical for the management and operations of the OIG: planning  and coordinating, maintaining quality assurance, ensuring internal control,  and receiving and reviewing allegations. The extent to which the IG  implemented these quality standards is discussed below.
Ethics, independence, and confidentiality. The CIGIE quality standard  for ethics, independence, and confidentiality states that the IG and OIG  staff shall adhere to the highest ethical principles by conducting their work  with integrity. Objectivity, independence, professional judgment, and  confidentially are all elements of integrity.
We found no evidence to indicate that the IG did not adhere to CIGIE’s  quality standard to ethically conduct his work and no evidence to indicate  the IG did not adhere to CIGIE’s quality standards for independently  performing his duties. We also found no evidence to indicate that the IG  did not safeguard the identity of confidential sources and protect  privileged, confidential, and national security or classified information in  compliance with applicable laws, regulations, and professional standards.
Professional standards. The CIGIE quality standard for professional  standards states that each OIG shall conduct, supervise, and coordinate  its audits, investigations, and inspections in compliance with applicable  professional standards. We found that the Commission OIG provided  some evidence for adhering to professional standards. Although the  Commission OIG’s inspection reports did not always adhere to CIGIE’s  Quality Standards for Inspection and Evaluation, we found that the IG did  complete inspections. Also, the OIG’s monitoring of the contract with the  IPA hired to conduct the Commission’s annual financial statement audit  documented the OIG’s detailed oversight and coordination of this agency  requirement, providing evidence of adherence to Government Auditing  Standards.
Ensuring internal control. The CIGIE standard for ensuring internal  control states that each IG and OIG staff shall direct and control OIG  operations consistent with Standards for Internal Control in the Federal  Government. These standards require that internal control be part of the  OIG’s management infrastructure, serve as a continuous built-in  component of operations effected by people, and provide reasonable  assurance that the OIG’s objectives are met. The internal control  structure includes the control environment, risk assessment, control  activities, information and communication, and monitoring. Control  activities are policies, procedures, techniques, and mechanisms that help  ensure that the OIG’s directives are carried out.
Effective internal control also assists the OIG in managing change to  cope with shifting environments and evolving demands. An internal  control structure is continually assessed and evaluated to ensure that it is  well designed and operated, is appropriately updated to meet changing  conditions, and provides reasonable assurance that objectives are being  achieved. The OIG should design internal control activities to contribute to  its mission, goals, and objectives. Specifically, control activities include a  wide range of diverse activities, such as approvals, authorizations,  verifications, reconciliations, performance reviews, security activities, and  the production of records and documentation.
We found that the Commission OIG lacked critical elements of an  effective internal control structure. For example, the OIG did not conduct  a risk assessment to determine which agency programs or operations to  evaluate. Instead, the IG relied on the input from Commission officials  and congressional staff to determine which programs and operations to  evaluate. The OIG also lacked policies and procedures for managing and  operating its office, which would have provided the needed guidance to  ensure that the OIG’s directives were carried out efficiently and  effectively. While we acknowledge that the OIG is an office of one,  independently determining which programs or agency operations to  evaluate as well as developing policies and procedures for the OIG’s  management and operations are elements of internal control that are still  achievable by a small office. Without an effective internal control  structure, it is difficult for an OIG to ensure its own effective and efficient  management and operations and safeguard its assets.
Maintaining quality assurance. The CIGIE standard for maintaining  quality assurance states that each OIG shall establish and maintain a  quality assurance program to ensure that work performed adheres to  established OIG policies and procedures; meets applicable professional  standards; and is carried out economically, efficiently, and effectively.  Because OIGs evaluate how well agency programs and operations are  functioning, they have a special responsibility to ensure that their own  operations are as effective as possible. The OIG quality assurance  program is an evaluative effort conducted by reviewers external to the  units or personnel being reviewed to ensure that the overall work of the  OIG meets appropriate standards. The quality assurance program has an  internal and an external component. Furthermore, organizations that  perform audits are subject to a peer review at least once every 3 years.  Audits performed in accordance with Government Auditing Standards  must provide reasonable assurance that the audit organization and its  personnel are consistent with professional standards and applicable legal  and regulatory requirements.
Internal quality assurance reviews can include reviews of all aspects of  the OIG’s operations and are distinct from regular management and  supervisory activities, comparisons, and other activities by OIG staff  performing their duties. External quality assurance reviews provide OIGs  with added assurance regarding their adherence to prescribed standards,  regulations, and legislation through a formal objective assessment of OIG  operations. OIGs are strongly encouraged to have external quality  assurance reviews of audits, investigations, inspections, evaluations, and  other OIG activities. While the nature and extent of an OIG’s quality  assurance program depends on a number of factors—such as the OIG  size, the degree of operating autonomy allowed its personnel and its  offices, the nature of its work, its organization structure, and appropriate  cost-benefit considerations—CIGIE standards state that each OIG shall  establish and maintain a quality assurance program.
The Commission OIG did not have a quality assurance program and had  not developed policies and procedures to help ensure quality assurance.  The Commission IG told us that peer reviews were only required if an  OIG had conducted audits, and because his office did not perform audits,  it was not subject to this quality assurance requirement. Conversely, the  Commission OIG inspection and semiannual reports could have been  subjected to an internal quality assurance review, an external quality  assurance review, or both. The Commission OIG provided draft  inspection and semiannual reports to the Federal Cochair and the other  commissioners, providing management an opportunity to comment on the  drafts prior to final issuance. However, the Federal Cochair and  commissioners do not qualify as external quality assurance reviewers  because they are directly involved in the activities or programs being  reviewed. In addition, they may not be familiar with applicable  professional standards that govern OIG-issued work products.
Without documented policies and procedures for maintaining a quality  assurance program, the OIG could not ensure that its management and  operations adhered to the CIGIE standards or complied with the IG Act. In  addition, the risk is significantly increased that issued work will not meet  established standards of performance, including applicable professional  standards, or be carried out economically, efficiently, and effectively.  While we acknowledge that the Commission OIG is an office of one and  maintaining quality assurance under these circumstances presents  challenges, adherence to this quality standard is required.
Planning and coordinating. The CIGIE standard for planning and  coordinating states that each OIG shall maintain a planning system  assessing the nature, scope, and inherent risks of agency programs and  operations. strategic and performance plans, including goals, objectives, and  performance measures to be accomplished by the OIG within a specific  time period. Some of the elements of the planning process include   (1) using a strategic planning process that carefully considers current and  emerging agency programs, operations, risks, and management  challenges; (2) developing a methodology and process for identifying and  prioritizing agency programs and operations as potential subjects for  audit, investigation, inspection, or evaluation; and (3) using an annual  performance planning process that identifies the activities to audit,  investigate, inspect, or evaluate and translates these priorities into  outcome-related goals, objectives, and performance measures. Strategic  and annual work plans are useful tools in documenting the IG’s strategic  vision for providing leadership for activities designed to promote  economy, efficiency, and effectiveness for an entity’s programs and  operations.
Council of the Inspectors General on Integrity and Efficiency, Quality Standards for  Federal Offices of Inspector General (Washington, D.C.: August 2012).
We found that the OIG did not prepare an annual work plan or strategic  plan. Instead, an informal and undocumented planning process was used  by the IG and Federal Cochair that involved routine meetings, e-mails,  and conversations. Without an annual work plan or strategic plan, the  Commission OIG is limited in its ability to ensure that the oversight it  provided was relevant, timely, and responsive to the priorities to the  Commission. Further, without a risk-based approach for oversight that  includes identifying and prioritizing agency programs and operations as  potential subjects for audit, investigation, inspection, or evaluation, the  OIG did not have a road map to help guide the general direction and  focus of its work to ensure appropriate oversight of the Commission’s  major programs.
Communicating results of OIG activities. The CIGIE quality standard  related to communicating the results of OIG activities states that the OIG  shall keep agency management, program managers, and the Congress  fully and currently informed about appropriate aspects of OIG operations  and findings. The OIG should also assess and report to the Congress, as  appropriate, the OIG’s strategic and annual performance, as well as the  performance of the agency it oversees. Furthermore, the OIG is  responsible for reporting promptly to the Attorney General whenever the  IG has reasonable grounds to believe there has been a violation of  federal criminal law. The IG and Federal Cochair told us that they did  discuss the areas the IG planned to inspect. The OIG communicated the  results of its activities by submitting semiannual reports to the Congress,  ensuring that inspection reports were available on the OIG’s website, and  meeting with congressional staff to discuss various issues.
Managing human capital. The CIGIE quality standard for managing  human capital states that the OIG should have a process to ensure that  OIG staff possess the core competencies needed to accomplish the  OIG’s mission. Because the Commission OIG consisted of the IG and no  staff, standards for managing human capital are applicable only to the  Commission IG. The IG provided documentation verifying that as a  certified public accountant and attorney in the state of Alaska, he had met  the continuing education requirements for these designations and  possessed the core competencies needed to accomplish the OIG’s  mission.
Because the Commission OIG was an office of one, the IG used the  services of others to assist with his oversight duties. As discussed earlier,  he contracted with an IPA for the agency’s annual financial statement  audit and contracted with a retired investigator to assist with inspections.
We found that the OIG had a process to ensure that these contractors  possessed the needed skills for the services they provided.
Reviewing legislation and regulations. The CIGIE quality standard for  reviewing legislation and regulations states that the OIG shall establish  and maintain a system for reviewing and commenting on existing and  proposed legislation, regulations, and directives that affect both the  program and operations of the OIG’s agency or the mission and functions  of the OIG. While the OIG had not established a documented system for  the steps it followed for reviewing legislation and regulations, we found an  assessment of relevant Commission-related legislation and regulations in  the OIG’s semiannual reports to the Congress.
Receiving and reviewing allegations. The CIGIE quality standard for  receiving and reviewing allegations states that the OIG shall establish and  follow policies and procedures for receiving and reviewing allegations.  This process should ensure that appropriate disposition, including  appropriate notification, is made for each allegation. Furthermore, the IG  Act requires each OIG to establish a direct link on the OIG website for  individuals to anonymously report fraud, waste, and abuse.
The Commission OIG did not have an OIG hotline link on its website to  serve as a mechanism for receiving and reviewing allegations, as  appropriate. The IG provided his e-mail address and telephone number  on the Commission’s OIG website. He reported that there was no OIG  hotline link on the website because the Commission only had about 15  employees and a tip through an OIG hotline was not necessarily how  employees made contact with the OIG. According to the IG, contact with  the Commission’s small workforce was primarily through e-mails, phone  calls, and group teleconferences.
OIG hotlines exist to elicit information from federal employees,  contractors, and the general public that furthers an OIG’s mission to   (1) promote effectiveness, efficiency, and economy in its organization’s  programs and operations and (2) prevent and detect fraud, waste, and  abuse in such programs and operations. Accordingly, hotlines play a  critical role in the work of OIGs, because an OIG can only investigate,  refer, or otherwise handle matters of which it is aware. Agency  employees, contractors, and members of the public who make reports to  an OIG via its hotline are an important resource because they can provide  the OIG with notification of or insider information about potential  problems.
Hotlines have been used in organizations as a means for individuals  fearing retaliation to seek remedies for problems anonymously within the  organization. In recent years, there has been increased interest in the use  of OIG hotlines as the principal mechanism for reporting and detecting  fraud, waste, and abuse. Entities both within and outside the IG  community have studied OIG hotlines and their important impact on the  effectiveness of the IG community. In addition to detecting fraud, waste,  and abuse, hotlines are used by some OIGs to identify agency programs  or operations as potential subjects for audit or investigation. However, the  Commission OIG did not conduct any investigations for criminal  prosecution, and there was no supporting evidence of the disposition of  referrals or tips received.
Without an established OIG hotline, with its protection of anonymity, it  may be difficult for agency employees, contractors, and the general public  to report insider information about potential problems at the Commission.
section_title: OIG Inspection and Semiannual Reports Generally Did Not Fully Adhere to Professional Standards
paragraphs: We reviewed the OIG’s work products, which consisted of inspection  reports and semiannual reports issued during fiscal years 2011 through  2013, and their associated policies and procedures. Our evaluation of the  OIG’s written policies and procedures for inspections found that they did  not include guidance for all of the 14 CIGIE inspection standards and that  there were deficiencies in the guidance that was included. In addition, we  found that the inspection reports the OIG issued during fiscal years 2011  through 2013 did not fully adhere to applicable CIGIE inspection  standards. Finally, we found that the semiannual reports issued by the  OIG during fiscal years 2011 through 2013 did not fully comply with the  reporting requirements per the IG Act.
section_title: OIG Inspection Policies and Procedures and Inspection Reports Did Not Generally Adhere to CIGIE Standards
paragraphs: CIGIE’s Quality Standards for Inspection and Evaluation promulgates 14  sets of criteria for performing inspections: (1) competency;   (2) independence; (3) professional judgment; (4) quality control;   (5) planning; (6) data collection and analysis; (7) evidence; (8) records  maintenance; (9) timeliness; (10) fraud, other illegal acts, and abuse;   (11) reporting; (12) follow-up; (13) performance management; and   (14) working relationships and communication. CIGIE inspection  standards state that it is the responsibility of each OIG that conducts  inspections to develop internal written policies and procedures to ensure  that all work adheres to the standards and is in compliance with the IG  Act. The IG Act requires OIGs to adhere to these standards to the extent  permitted under law and not inconsistent with applicable auditing  standards. The Commission OIG had established written policies and  procedures that provide guidance for 7 of the 14 CIGIE standards;  however, our review of the guidance found deficiencies.
Regarding implementation of the CIGIE inspection standards, we  reviewed the OIG’s 12 inspections reported from fiscal years 2011  through 2013 and found documentary evidence that some CIGIE  standards, including some that were not included in the OIG’s policies  and procedures, were implemented. However, inspections were not  conducted in full accordance with the standards.
subsections: section_title: Standards Not Included in the OIG’s Policies and Procedures for Inspections
paragraphs: The following standards were not included in the OIG’s policies and  procedures but were implemented to some extent in the conduct of  inspections.
Data collection and analysis. CIGIE inspection standards state that the  collection of information and data focuses on the function being  inspected, consistent with inspection objectives and sufficient to provide a  reasonable basis for reaching conclusions.
The Commission OIG did not have policies and procedures for data  collection and analysis that adhered to CIGIE’s standards for inspections.  However, the supporting documentation for the inspections we reviewed  did have information to support data collection for the inspections.  Specifically, we found that 9 of the 12 inspections completed had  supporting documentation sufficient in detail for reaching the identified  findings in the inspection reports. We also found that the methods used to  collect supporting documentation for the inspections were reliable and  valid. The supporting documentation collected consisted of source  documents such as interview write-ups by the contracted investigator,  relevant excerpts from the laws and regulations referenced in the  inspection reports, and other information. Supporting documentation for 5  of the 12 inspections showed evidence that the information had been  reviewed for accuracy and reliability, and another 4 of 12 inspections  showed evidence of partial review by the Commission IG. The remaining  3 inspection reports did not show evidence of supporting documentation  being reviewed for accuracy and reliability.
Evidence. CIGIE’s standards for inspections state that evidence to  support findings, conclusions, and recommendations should be sufficient,  competent, and relevant and should provide a basis for bringing a  reasonable person to the reported conclusions and findings. Furthermore,  evidence may take many forms, such as physical, testimonial,  documentary, and analytical, which includes computations, comparisons,  and rational arguments.
The Commission OIG did not have policies and procedures for evidence  that adhered to CIGIE’s standards for inspections. Although the OIG’s  policy and procedure stated that “the Denali IG’s basic documentation will  include the inspection plan, a cross-referenced copy to work papers, and  detailed footnotes,” the policy and procedure did not adhere to the CIGIE  inspection standard. Additionally, we found no documented evidence in  the OIG’s workpapers to support the inspection conclusions and  recommendations for its reports. For example, we did not find any  workpapers containing the Commission IG’s analysis of the supporting  documentation or that linked the Commission IG’s processes or methods  used to the reported findings, conclusions, or recommendations for all 12  of the inspection reports we reviewed.
Records maintenance. CIGIE inspection standards state that all relevant  documentation generated, obtained, and used in supporting inspection  findings, conclusions, and recommendations should be retained for an  appropriate amount of time.
The Commission OIG did not have policies and procedure for records  maintenance that adhered to CIGIE’s standards for inspections. Although  the Commission OIG’s policies and procedures did not address records  maintenance, the OIG did maintain supporting documentation in its  workpaper files. We found that the OIG retained documentation for 9 of  the 12 inspection reports completed. However, for the 2 inspection  reports included in the Commission’s agency financial report, the OIG did  not have any workpapers. For the remaining inspection report, the  supporting documentation that was maintained was incomplete.
Timeliness. CIGIE inspection standards state that inspections should  strive to deliver significant information to appropriate management  officials and customers in a timely manner.
The Commission OIG did not have policies and procedures for timeliness  that adhered to CIGIE’s standards for inspections. Although the  Commission OIG’s policies and procedures did not address timeliness,  we found no evidence to suggest that the inspection reports were not in  accordance with the timeliness standard. This is based on the time the  inspections began and the inspection report dates, which ranged from 1  month to about 2 years.
Fraud, other illegal acts, and abuse. CIGIE standards for inspections  state that inspectors should be alert to any indicator of fraud, other illegal  acts, or abuse. They also state that inspectors should be aware of  vulnerabilities to fraud and abuse associated with the area under review  to facilitate identifying potential or actual illegal acts or abuse that may  have occurred.
The Commission OIG did not have policies and procedures for  considering fraud, other illegal acts, and abuse that adhered to CIGIE’s  standards for inspections. We also found that the OIG did not conduct a  fraud assessment for any of the 12 inspections the OIG conducted.
Follow-up. CIGIE standards for inspections state that appropriate follow- up will be performed to ensure that any inspection recommendations  made to department or agency officials are adequately considered and  appropriately addressed.
The Commission OIG did not have policies and procedures related to  following up on report recommendations to determine whether corrective  actions had been taken. We found that the OIG did not perform follow-up  for any of the 12 inspection reports. Of the 5 published inspection reports,  the OIG did not follow up on the three recommendations made in those  reports. In addition, of the 5 inspections mentioned in the OIG’s  semiannual reports to the Congress, the OIG did not follow up on the 13  recommendations made as a result of those inspections. The remaining 2  inspections published in the agency financial report did not contain any  recommendations.
Performance measurement. CIGIE standards for inspections state that  mechanisms should be in place to measure the effectiveness of  inspection work. CIGIE standards describe the importance of being able  to demonstrate the positive results that inspections contribute to the more  effective management and operation of federal programs. Performance  measures for OIG inspections, for example, could focus on the number of  implemented recommendations and outcomes or changes in policy.
The Commission OIG did not have policies and procedures related to  performance measurement that adhered to CIGIE’s standards for  inspections. We also found that the OIG did not establish performance  measures to determine the effectiveness of inspections completed.
section_title: Standards Included in the OIG’s Policies and Procedures for Inspections
paragraphs: The following standards were included in the OIG’s policies and  procedures and were implemented to some extent in the conduct of  inspections.
Competency. CIGIE’s competency standard states that inspection  organizations need to ensure that the personnel conducting an inspection  collectively have the knowledge, skills, abilities, and experience  necessary for the assignment.
The Commission OIG’s policies and procedures for competency adhered  to CIGIE’s standards for inspections. They state that the Commission IG  will, as a condition of employment, maintain his or her competency to  multitask as a one-person OIG. In addition, the OIG’s policies and  procedures state that the IG will take a minimum of 40 hours of training  per fiscal year, which is in accordance with CIGIE standards.
The Commission IG was a licensed attorney and certified public  accountant, and he provided us documents of his current continuing  professional education credits. Thus, we considered the Commission IG’s  qualifications to be consistent with CIGIE inspection standards.
Independence. The CIGIE inspection standard for independence states  that in all matters relating to inspection work, the inspection organization  and each individual inspector should be free both in fact and appearance  from personal, external, and organizational impairments to independence.
The Commission OIG’s policies and procedures adhered to CIGIE  inspection standards for independence. They state the Commission IG  will maintain strict political neutrality and an appropriate level of social  detachment from the Commission’s management and beneficiaries as a  critical element of OIG independence. We did not find any impairment, in  fact or appearance, with the independence of the Commission OIG.
Professional judgment. The CIGIE inspection standard for professional  judgment states that due professional judgment should be used in  planning and performing inspections and in reporting the results.
The Commission OIG’s policies and procedures addressed professional  judgment but did not address the broader intent of the CIGIE inspection  standard for professional judgment. The OIG’s policy states that it will  conduct interviews of agency officials through an inspection methodology  that conforms to the CIGIE quality standards for that inspection  procedure, which is in accordance with the CIGIE inspection standard for  professional judgment. The OIG’s policy only addresses the intent to  interview agency officials in accordance with these standards instead of  the OIG’s intent to use professional judgment when performing all  aspects of inspection procedures. This would include the intent to use  professional judgment in selecting the type of inspections to perform,  defining the scope and methodology, and determining the type and  amount of evidence to gather. In addition, the problems with the OIG’s  inspection plans and lack of evidence and analysis in the workpapers, as  discussed in this report, are indications that the OIG’s professional  judgment did not adhere to CIGIE standards.
Quality control. CIGIE standard for quality control states that each OIG  organization that conducts inspections should have internal quality  controls for its processes and work.
The Commission OIG’s policies and procedures addressed quality control  but did not fully adhere to CIGIE’s inspection standards. The Commission  OIG’s policy for quality control states that the OIG will arrange for  feedback from an external expert for at least 50 percent of its published  reports. However, the Commission OIG did not have procedures  established to provide for an independent assessment of its inspection  processes or inspection reports. Consequently, none of the 12 inspection  reports we reviewed had an independent assessment for quality control  completed. While the Commission OIG is an office of one full-time  employee, which created challenges in instituting extensive quality  control, the IG did not take the necessary steps to mitigate this challenge  by implementing control procedures that provide an independent  assessment of inspection processes and work.
Planning. The CIGIE standard states that inspection planning is intended  to ensure that appropriate care is given to selecting inspection topics and  should be developed to clearly define the inspection objective, scope, and  methodology. It may also include time frames and work assignments.  Additionally, the CIGIE inspection standard for planning states that  research, work planning, and coordination should be thorough enough to  ensure that the inspection objectives are met.
The Commission OIG’s policies and procedures addressed planning but  did not fully adhere to CIGIE’s inspection standards. We found that the  Commission OIG’s policy for planning inspections did not adhere to the  CIGIE standards for inspections related to planning. The Commission  OIG’s policy for planning states that the basic documentation for an  inspection will include (1) an inspection plan, (2) a copy of the report with  cross-references to the evidence workpapers, and (3) detailed footnotes  in the report itself. This policy does not address the purpose or contents  of the plan as described in the CIGIE inspection standard.
Regarding implementation, we found that the OIG’s inspection plans were  not adequately developed. Specifically, we found that none of the 12  inspections included clearly defined descriptions of the objective, scope,  and methodology. In addition, 9 of the 12 inspection plans were not  planned sufficiently to reach reasonable conclusions about the topic  inspected because of a lack of detailed procedures in the inspection plan  to perform the inspection. The remaining 3 inspections plans, despite not  having documented the objective, scope, and methodology, did have  sufficient planned steps to reach reasonable conclusions as reported in  the inspection report.
Reporting. The CIGIE standard states that inspection reporting shall  present factual data accurately, fairly, and objectively, and present  findings, conclusions, and recommendations in a persuasive manner.  Additionally, the standard states that inspection reports must include the  objective, scope, and methodology of the inspection and a statement that  the inspection was conducted in accordance with CIGIE standards for  inspection.
The Commission OIG’s policies and procedures addressed reporting but  did not fully adhere to CIGIE’s inspection standards. The Commission  OIG’s policy for reporting states that published inspection reports will  emphasize plain language, readability to a nationwide audience, and  usefulness to decision makers. However, the OIG’s policies and  procedures do not require that reports include the objective, scope, and  methodology of the inspection or a statement that the inspection was  conducted in accordance with CIGIE standards for inspections. Despite  these omissions in the Commission OIG’s policies and procedures, we  found that 1 of the 12 inspections clearly listed the objective, scope, and  methodology, and 4 of 12 reports stated that the inspection was  conducted in accordance with CIGIE standards for inspections.
Working relationships and communication. The CIGIE standard for  inspections related to working relationships and communication states  that each inspection organization should seek to facilitate positive working  relationships and effective communication with those entities inspected  and other interested parties.
The Commission OIG’s policies and procedures adhered to CIGIE’s  inspection standards for working relationships and communication. The  Commission OIG policy states that its key inspection procedure is  management’s feedback regarding the draft report, which the  Commission OIG seeks at several levels: (1) oral conversation, (2) e- mailed comments, and (3) a formal response letter for publication with the  OIG’s final report. We found evidence of OIG communication with the  Commission through e-mail correspondence for all published inspection  reports. In addition, the OIG reported and communicated the results of  OIG activities related to issued work products to agency management  officials and the Congress.
section_title: OIG Did Not Include Some Required Information in Its Semiannual Reports to the Congress
paragraphs: Section 5 of the IG Act requires that each IG shall, not later than April 30  and October 31 of each year, prepare and submit to the Congress  semiannual reports summarizing the activities of the office during the  immediately preceding 6-month periods ending March 31 and   September 30. These reports are intended to keep the Congress  informed by highlighting, among other things, the OIG’s review of existing  and proposed legislation and regulations affecting an agency’s programs  and operations to foster economy and efficiency and detect fraud, waste,  and abuse. These reports are also intended to keep the Congress  informed about significant problems, abuses, and deficiencies in an  agency’s programs and operations and the status of recommendations for  corrective actions. While the IG Act requires that semiannual reports  include a summary of matters referred to prosecutive authorities and  resulting convictions, the Commission IG told us that he is not aware of  anyone who has been charged in a criminal court case as a result of his  work. Section 5 of the IG Act also establishes a uniform set of statistical  categories under which OIGs must report the quantitative results of their  audit, investigation, inspection, and evaluation activities. The statistical  information reported in an OIG’s semiannual report must show the total  dollar value of questioned costs and the dollar value of  recommendations that funds be put to better use.
The Commission OIG submitted semiannual reports as required by the IG  Act; however, we found that the reports did not fully comply with the  reporting requirements of the IG Act. Specifically, we found that for the six  semiannual reports we reviewed, the OIG did not provide statistical  information showing the dollar value of recommendations that funds be  put to better use or the total value of questioned costs (including a  separate category for the dollar value of unsupported costs). We  understand that that there may not have been any amounts identified by  the OIG of funds that could be put to better use or questioned costs for  the reporting period. However, if the OIG does not state this in the  semiannual reports to the Congress, both management and the Congress  do not have the necessary information to take appropriate actions to  enhance management practices and procedures, which would result in  more efficient and effective use of Commission funds. Furthermore, this  statistical information is required by the IG Act and should be included in  the OIG’s semiannual reports to the Congress.
We also found that for five of the semiannual reports we reviewed, the  OIG did not identify the significant recommendations described in  previous semiannual reports for which corrective action had not been  completed by agency management. While the OIG provided this  information in its May 2011 semiannual report, the OIG did not provide  the status of the 48 open recommendations identified in this report in  subsequent semiannual reports. The IG Act requires the OIG to identify  each significant recommendation described in previous semiannual  reports on which corrective action has not been completed by  management. Not knowing the current status of the recommendations for  which corrective actions are needed limits both the agency’s and the  Congress’s awareness of outstanding actions that may still need to be  taken.
We found that the OIG did not have written policies and procedures to  guide the preparation of its semiannual reports to the Congress. We did  find that for one of the semiannual reports we tested (the report for the  first half of fiscal year 2011) at the request of the Federal Cochair, the  OIG included an appendix that identified and provided the status of  recommendations from all the semiannual reports issued by the OIG in  fiscal year 2006 through the first half of fiscal year 2011. The information  in the appendix identified 159 recommendations made by the OIG during  fiscal years 2006 through 2010 and the first half of fiscal year 2011.
While the IG provided the status of recommendations in fiscal year 2011,  he did not provide updated information on the status of these  recommendations in the semiannual reports issued going forward, in  compliance with the IG Act. According to the IG, he received a request at  least annually from the House Committee on Oversight and Government  Reform requesting an update on the status of open recommendations.  The IG also told us that a common focus of his meetings with OMB and  congressional committee staff was to discuss the status of open  recommendations.
section_title: Alternate IG Oversight Structures at Other Federal Agencies
paragraphs: As we recently testified, GAO has long supported the creation of  independent IG offices in appropriate federal departments, agencies, and  entities, and we continue to believe that significant federal programs and  entities should be subject to oversight by independent IGs. At the same  time, we have reported some concerns about creating and maintaining  small IG offices with limited resources, where an IG might not have the  ability to obtain the technical skills and expertise needed to provide  adequate and cost-effective oversight. Although the limitations of a single- person office can create challenges to developing and implementing  policies and procedures to ensure effective oversight, if corrective actions  are taken to address the issues identified in this report, the current DFE  OIG structure can provide a viable option for oversight of the  Commission. Nevertheless, there are alternative structures that may also  facilitate effective OIG oversight of the Commission.
We identified examples of alternative approaches that exist in other  federal agencies that may also provide effective OIG oversight for the  Commission. Three alternative IG oversight structures and their  respective advantages and disadvantages are summarized in figure 4  and more fully described in the paragraphs that follow.
subsections: section_title: Consolidation into a Larger IG Office
paragraphs: The Commission OIG could be consolidated into a larger IG office.  Specifically, OIGs with presidentially appointed IGs would assume the  operational responsibilities of the Commission OIG as established under  the IG Act. This includes reporting to the Congress semiannually;  performing audits, investigations, inspections, and evaluations of program  areas; as well as conducting and overseeing the agency’s annual  financial statement audit. This alternative could strengthen the quality of  work and use of resources through the implementation of best practices  usually employed at larger, presidentially appointed and Senate- confirmed IGs and their related offices.
This oversight structure exists at the Department of State OIG. For  example, the Department of State OIG has oversight authority over the  Broadcasting Board of Governors (BBG), which had a budget of   $712 million for fiscal year 2013. The Department of State OIG had an  average annual budget of $61 million for fiscal years 2011 through 2013  and employed approximately 270 full-time and 16 part-time employees.  The Department of State OIG conducts independent performance and  financial statement audits, inspections, and investigations that advance  the missions of the Department of State and BBG. The Department of  State OIG prepares an annual performance plan (including audits,  inspections, and evaluations) and a 5-year strategic plan for oversight of  the Department of State and BBG using Department of State  management challenges as a baseline, along with input collected from  the Department of State, BBG management, and other sources of  information. The Department of State OIG also uses a risk-based  approach to determine which posts and bureaus should be inspected  based on the most recent inspection and other data collected during the  course of its oversight work. In addition, when possible, the Department  of State OIG performs a review of BBG foreign offices during Department  of State site visits, allowing it to leverage efficiencies and resources when  performing other oversight work.
In another example, the U.S. Agency for International Development Office  of Inspector General (USAID OIG) provides oversight to several small  entities, including the Millennium Challenge Corporation, U.S. African  Development Foundation, Inter-American Foundation, and Overseas  Private Investment Corporation, with budgets of $898 million, $30 million,  $22 million, and approximately $75 million to 100 million, respectively, for  fiscal year 2013. USAID OIG has approximately 230 employees and had  an average budget of approximately $45.6 million for fiscal years 2011  through 2013. USAID OIG prepares annual performance (i.e., audit) plans  for oversight of these entities that are aligned with its 5-year strategic plan  following consultations with stakeholders and OIG personnel. In addition  to these consultations, annual performance plans are developed based  on a risk assessment of the portfolios they monitor. USAID OIG audits  activities relating to the worldwide foreign assistance programs and  agency operations of these entities and considers several factors when  assessing agency program risk, such as inherent risk, fraud and  corruption risk, and control risk. Audit activities include performance  audits and reviews of programs and management systems, financial  statement audits, and audits related to financial accountability of grantees  and contractors. The USAID OIG also investigates allegations of fraud,  waste, and abuse relating to the foreign assistance programs and  operations.
The quality of an OIG’s work is a critical element of IG effectiveness.  Consolidation with a larger OIG could improve the quality of work at the  Commission OIG. This could be accomplished by using a strategic, risk- based approach for auditing and increasing staffing resources with the  requisite technical auditing and accounting expertise necessary to  improve program efficiency and effectiveness. As we noted earlier, audits  performed in accordance with generally accepted government auditing  standards (GAGAS) provide information used for oversight,  accountability, transparency, and improvements of government programs  and operations. When auditors comply with GAGAS in reporting the  results, their work can lead to improved management, better decision  making and oversight, effective and efficient operations, accountability,  and transparency for resources. In addition, consolidation with a larger  OIG could increase the OIG’s ability to effectively plan for work, including  implementing a strategic and risk-based approach to auditing agency  programs and operations of high risk. Routine access to staff resources  with the requisite subject matter expertise, such as information  technology personnel, payroll services personnel, and a highly trained  financial management workforce, could also be an advantage of  consolidating with a larger OIG.
However, consolidation with larger OIGs could also result in  disadvantages, such as limited contact with agency program  management officials who have the institutional knowledge pertaining to  agency missions and priorities. There may also be management  challenges in determining the appropriate amount of resources to  dedicate toward performing sufficient oversight of the Commission’s  programs. For example, the Commission may not be a material entity  when compared to the larger agency; therefore, when using a risk-based  approach, the Commission may not get the necessary OIG oversight with  respect to its critical programs and operations from the larger OIG.
section_title: Consolidation with a Regional Commission OIG
paragraphs: Consolidation with a single regional commission OIG could serve as  another alternative structure. This option would consolidate the  Commission OIG with a regional commission OIG. As under the  consolidation with a larger IG office alternative, the regional commission  OIG would assume the oversight responsibilities of the Commission OIG.
There are currently seven regional commissions; however, only the  Appalachian Regional Commission (ARC) and the Denali Commission  have their own OIGs. Legislation enacted in 2008 directed that a single IG  be appointed by the President, in accordance with the IG Act, for three of  the other regional commissions, but it has not been implemented. The  regional commissions are as follows: (1) Northern Border Regional  Commission, (2) Southwest Border Regional Commission, (3) Southeast  Crescent Regional Commission, (4) Delta Regional Authority,   (5) Appalachian Regional Commission, (6) Northern Great Plains  Regional Authority, and (7) Denali Commission.
Regional commissions are regional development agencies that focus on  developing infrastructure and targeting new resources to promote wealth  generation and economic growth to distressed portions of specific  geographical areas within their regions. For example, the ARC is a  regional economic development agency that represents a partnership of  federal, state, and local governments. Established by the Congress in the  Appalachian Regional Development Act of 1965, the ARC was established to assist the region in promoting economic development and  establishing a framework for joint federal and state efforts to provide the  basic facilities essential to its growth on a coordinated and concerted  regional basis. The ARC is composed of the governors of the 13  Appalachian states and a Federal Cochair, who is appointed by the  President. Local participation is provided through multicounty local  development districts.
The ARC OIG reported that it has three full-time employees, has an  annual budget of approximately $634,000, and has performed 81 audits  and inspections during fiscal years 2011 to 2013. According to the ARC  OIG website, the ARC OIG provides independent and objective audits,  inspections, and evaluations relating to agency programs and operations.  The ARC prepares a 5-year strategic plan and annual work plans to  identify grant audits that represent the most significant aspect of the  ARC’s programs. The ARC OIG’s grant audits are based on factors such  as the value of the grant, location, type of grant, and prior history. The  ARC OIG also provides a means for keeping the ARC Federal Cochair,  the other commissioners, and the Congress fully informed about  problems and deficiencies at the ARC.
Consolidation of the Commission OIG with another regional commission  OIG could serve to (1) strengthen institutional knowledge regarding  agency programs and operations and (2) achieve economies of scale.  Since regional commissions are focused on building the infrastructure  and targeting economic growth to distressed areas in specific rural  geographic locations, consolidation of the Commission OIG with another  regional OIG could improve institutional knowledge at the Commission  OIG. Given the similarities in their scope and mission, efficiencies may be  achieved by leveraging resources between the two regional commissions.  In addition, consolidation could serve to increase the availability of  investigative resources to detect fraud, waste, and abuse while achieving  other efficiencies. A disadvantage to this approach could be that  resources become strained, limiting the effectiveness of the OIG to  perform its duties for both agencies.
section_title: Divide OIG Oversight Responsibilities
paragraphs: The Commission IG stated that he spent approximately 25 percent of his  time overseeing the contracted auditor for the Commission annual  financial statement audit and therefore used inspections to leverage the  time he had to perform oversight. Another alternative is to divide OIG  oversight responsibilities for the agency performance audits,  investigations, and inspections and the agency financial statement audits  between two separate federal OIGs, such as a regional commission OIG  or a larger OIG. The regional commission OIG would perform the audits,  investigations, and inspections of agency programs and operations based  on its similar mission and scope. The larger OIG would conduct and  oversee the agency’s annual financial statement audit. A current example  of this structure exists at the Department of Transportation (DOT) OIG.  The DOT OIG has the authority to review the financial statement audit,  property management, and business operations of the National  Transportation Safety Board (NTSB), including internal accounting and  administrative control systems, to determine whether they comply with  applicable laws, rules, and regulations. GAO conducts broad  management reviews on behalf of the NTSB. In addition, Amtrak is a DFE  under the IG Act and has an OIG, but Amtrak itself, rather than the OIG,  is required to engage an IPA to audit its annual financial statements. In  fiscal year 2011, the Amtrak OIG began monitoring the IPA that  performed the financial statement audit for Amtrak. Further, the DOT OIG  is required by statute to conduct certain oversight of Amtrak operations,  including an annual review of Amtrak’s budget and 5-year financial plan.
This divided approach could reduce the strain of oversight responsibilities  on one OIG by providing a shared responsibility between two OIGs while  potentially providing sufficient agency oversight. In addition, dividing  responsibilities between two OIGs would serve to leverage the OIGs’  expertise (i.e., similar mission, subject matter experts, etc.) in conducting  performance audits, investigations, inspections, and evaluations for one  OIG assuming oversight responsibilities. The other OIG’s expertise could  also be leveraged for conducting the annual financial statement audit.
However, disadvantages in this approach could be a lack of effective  communication and coordination between the two OIGs. For example,  internal control deficiencies and recommendations resulting from the  financial statement audit may not be communicated in a timely manner to  the OIG with program and operational oversight responsibilities of the  agency. This could delay the implementation and preparation of  corrective action plans to address and correct deficiencies found during  the financial statement audit in a timely manner, which could also have a  programmatic or operational impact. In addition, this approach could  require the agencies to coordinate activities such as requests for financial  statement audit documents and requests for documentation for  performance audits and investigations. This could put additional stress on  the smaller OIG to fulfill requests for documentation and meetings while  still performing daily duties required at the agency.
Figure 5 demonstrates how various responsibilities could be divided  among various IG offices.
While there is no clear-cut option with respect to the alternative OIG  structures presented above, any specific decision concerning  consolidations of IG offices should result from dialogue among the  affected agencies, CIGIE, and the Congress.
section_title: Conclusions
paragraphs: OIG’s are responsible for coordinating audits, inspections, and  investigations. While the Commission OIG conducted limited oversight  through inspections, it did not conduct performance audits or  investigations and many of the critical standards in CIGIE’s Quality  Standards for Federal Offices of Inspector General, such as planning and  coordination, ensuring internal control, maintaining quality assurance, and  receiving and reviewing allegations, were not addressed in the policies  and procedures or the operations of the Commission OIG. For example,  planning and coordination would include a risk-based approach to  assessing the nature, scope, and inherent risk of Commission programs  and operations. A risk-based approach for oversight would guide the  general direction and focus of OIG work to ensure effective oversight of  the Commission’s major programs and operations. Furthermore, it is  important that OIG work products provide reliable information and adhere  to CIGIE professional standards and the IG Act. However, we found no  documented evidence in the OIG’s workpapers to support the inspection  conclusions and recommendations for its reports. These OIG work  products are used by the Congress and others to assess whether the  Commission’s major programs and operations are achieving their desired  results.
section_title: Recommendations for Executive Action
paragraphs: We are making the following nine recommendations to the Commission  IG, or to the individual or entity that ultimately assumes IG oversight  responsibilities for the Commission under an alternate structure, in order  to ensure that the Commission receives effective oversight of its major  programs and operations.
Develop and implement a risk-based approach that adheres to  professional standards to help ensure effective oversight of the major  Commission programs and operations in the form of audits and  investigations.
Develop policies and procedures for OIG office operations and  management activities in accordance with CIGIE’s Quality Standards  for Federal Offices of Inspector General.  Implement the OIG’s policies and procedures developed in  accordance with CIGIE’s Quality Standards for Federal Offices of  Inspector General to ensure that the OIG’s management and  operation of its office includes the following: annual work and strategic plans that identify goals, objectives, and  performance measures to be accomplished by the OIG within a  specific period; a quality assurance framework that includes both internal and  external quality assurance reviews; an internal control structure that includes all elements of internal  control, such as the control environment, risk assessment, control  activities, information and communication, and monitoring; and an OIG hotline to receive and review anonymous tips, referrals,  and allegations to help prevent and detect potential fraud, waste,  and abuse.
Update the OIG’s policies and procedures for inspections to ensure  that they are fully in accordance with CIGIE’s Quality Standards for  Inspection and Evaluation.
Conduct inspections that are fully in accordance with CIGIE’s Quality  Standards for Inspection and Evaluation and the OIG’s policies and  procedures.
Prepare semiannual reports to the Congress that fully comply with the  reporting requirements of the IG Act.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Denali Commission for review  and comment. The Commission concurred with the report’s conclusions  and recommendations, and provided its perspective of the IG’s  performance as well as the challenges for a one-person DFE OIG. The  Commission’s letter is reprinted in appendix II.
We are sending copies of this report to the appropriate congressional  committees, the Federal Cochair and Commissioners of the Denali  Commission, the Office of the Inspector General for the Department of  Commerce, the Assistant Secretary for Economic Development for the  Department of Commerce, and other interested parties. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To determine the resources appropriated to and expensed by the Denali  Commission’s (Commission) Office of Inspector General (OIG) for fiscal  years 2011 through 2013, we reviewed OIG-related budget justification  documents and expenditure reports for the OIG’s salary and benefits,  contracts, training, and travel. We reviewed the cost elements used to  develop the OIG’s annual budget estimate, as well as the contract types  and contract payments made to assist with OIG-related activities. We  interviewed the commissioners and agency management to determine  whether the OIG obtained their input for program or operation areas of  concern for which they wanted assistance. We also interviewed  Commission staff to gain an understanding of the resources provided to  the OIG from the Commission and from other federal agencies.
To determine the number of work products issued by the OIG, we  reviewed the Inspector General’s (IG) activity log and the OIG’s website  to identify which publications were within our scope and provided the list  to the IG for confirmation that the list was complete. We requested copies  of the OIG’s annual work plan and strategic plan and interviewed  commissioners and Commission staff to determine the extent to which  they provided input to the OIG’s annual work and strategic plans.  However, the IG did not prepare written annual work and strategic plans.  Therefore, we had to rely on the interviews we conducted with the  commissioners and Commission staff to determine the extent to which  they provided input to the IG on areas the IG evaluated.
To determine the extent to which the IG provided oversight of the  Commission’s major programs and operations, we compared the grant  funds awarded and disbursed by the Commission for fiscal years 2011  through 2013 to the work products issued by the OIG. We obtained the  grant funds awarded and disbursed information from the Commission  (including the program descriptions for these grants) and performed  procedures that allowed us to determine that the grant information  provided by the Commission was sufficient for our purposes. We did  compare these grant amounts to the total grant funds reviewed by the  OIG in its work products. We analyzed all of the OIG’s work products  issued in fiscal years 2011 through 2013, noting the objectives, scope,  and methodology of the reports to determine the extent to which these  work products reviewed Commission programs or operations. We  reviewed the Commission’s fiscal year 2015 budget justification to identify  accomplishments by program, and we also reviewed the Commission’s  annual financial report to identify the budgetary authority amounts by  program. We compared the fiscal year budgeted amounts reported in the  Commission’s audited annual financial statements with the amounts  reported in the President’s budget, which allowed us to determine that the  budget amounts provided by the Commission were sufficient for our  purposes.
To determine whether the design of the OIG’s policies and procedures  adhered to applicable professional standards, we reviewed the Inspector  General Act of 1978, as amended (IG Act), and the Council of the  Inspectors General on Integrity and Efficiency’s (CIGIE) Quality  Standards for Federal Offices of Inspector General and Quality Standards  for Inspection and Evaluation, and compared the OIG’s inspection  policies and procedures to these professional standards. To determine  the extent to which the OIG implemented the CIGIE standards and its  inspection policies and procedures, we prepared a data collection  instrument using the CIGIE inspection standards and the OIG’s policies  and procedures. We tested all of the OIG’s work products issued during  fiscal years 2011 through 2013 to determine whether the OIG’s work  products adhered to the CIGIE standards and were consistent with the  OIG’s inspection policies and procedures. We reviewed the OIG’s  inspection reports and supporting case files and compared them to the  OIG’s policies and procedures and applicable CIGIE standards, including  those related to quality control, planning, evidence, and reporting.
We reviewed all of the semiannual reports issued by the OIG during fiscal  years 2011 through 2013 to determine whether these reports were  prepared in accordance with the reporting requirements of the IG Act. We  reviewed the OIG’s semiannual reports and supporting case files and  compared them to the IG Act reporting standards.
To determine alternatives for OIG oversight structures that exist in federal  agencies that could be applied at the Commission, we used previous  GAO work to identify federal OIGs that provide (or have provided) OIG  oversight for smaller agencies, and also identified other regional  commissions with similar missions to that of the Commission. In addition,  because the Denali Commission Federal Cochair is appointed by the  Secretary of Commerce, we consulted with officials from the Department  of Commerce to gain an understanding of their relationship and roles and  responsibilities to the Commission. We conducted structured interviews  with officials from these other OIGs with structures we considered to be  potential alternative OIG oversight structures to gain an understanding of  how they are organized and operate. We analyzed prior GAO reports to  review recommendations made regarding alternatives for providing OIG  oversight and Congressional Research Service reports and other relevant  reports to identify applicable criteria for OIG oversight.
We conducted this performance audit from May 2013 to September 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Denali Commission
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Chanetta Reed (Assistant  Director), Matthew Frideres, Maxine Hattery, Jason Kirwan, Carroll M.  Warfield Jr., and Doris Yanger made key contributions to this report.