Inspectors General: Activities of the Department of State Office of Inspector General
Published: 2007-03-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO was asked to review the Department of State Office of Inspector General (State IG) including its (1) organization, budget levels, and accomplishments; (2) audit and inspection coverage of the department; (3) role of inspections in the oversight of the department; (4) quality assurance process including assurance of independence; and (5) coordination of State IG investigations with the State Department's Bureau of Diplomatic Security. GAO obtained information from State IG reports, interviews, and documentation for a sample of inspections.
section_title: What GAO Found
paragraphs: The State IG provides oversight of the State Department, the Broadcasting Board of Governors, and the foreign affairs community, including the approximately 260 bureaus and posts around the world, through financial and performance audits, inspections, and investigations. Over fiscal years 2001 through 2005, in terms of constant dollars, the State IG's budget has increased by 1 percent while the State Department's overall budget has increased by 50 percent. This represents a relative decrease when comparing State IG with other agencies' ratios of IG budget to total agency budget. The State IG provides oversight coverage of the areas designated as high-risk by GAO and management challenges identified by the IG, with a heavy emphasis on inspections. The State IG covers the high-risk areas of human resources, counterterrorism, public diplomacy, and information security, almost exclusively through inspections. In fiscal year 2005, the State IG's ratio of inspections to audits was over two to one, while the federal statutory IGs had a combined ratio of one inspection to every ten audits. There are fundamental differences between inspections and audits. By design, audits performed under Government Auditing Standards are subject to more in-depth requirements for the levels of evidence and the documentation supporting the findings than are inspections performed under inspection standards. Due to the significance of the high-risk areas covered largely by inspections, the State IG would benefit by reassessing the mix of audit and inspection coverage of those areas. The State IG's audit and investigative functions both had recent peer reviews of quality assurance that resulted in "clean opinions." There is no requirement for a peer review of inspections; however, during our audit the State IG began an internal quality review process for inspections but did not include reviews of information technology inspections. Independence is critical to the quality and credibility of all the work of the State IG. Two areas of continuing concern that we have with the independence of the State IG involve (1) the temporary appointment of State Department management personnel to head the State IG office in an acting IG capacity and who subsequently return to management positions, and (2) the rotation of Foreign Service staff to lead IG inspections, including many who, along with other IG staff, move to positions in department management offices. Such staffing arrangements represent potential impairments to independence and the appearance of independence under professional standards applicable to the IGs. Both the State IG and the State Department's Bureau of Diplomatic Security pursue allegations of fraud by department employees. There is no functional written agreement in place to help ensure the independence of internal departmental investigations and preclude the duplication of efforts.

section_title: Letter
paragraphs: Pub. L. No. 99-399, Title IV, § 413, 100 Stat. 853, 867-68 (Aug. 27, 1986).
Pub. L. No. 95-452, 92 Stat. 1101 (Oct. 12, 1978), codified as amended at 5 U.S.C. App. domestically and abroad. Also, specific allegations or other information  indicating possible violations of law or regulation are investigated by IG  investigators, supported by experts from other IG offices.
To review the activities of the State IG, our specific objectives were to  provide information regarding (1) organization, budget levels, and  reported accomplishments; (2) audit and inspection coverage of the  department; (3) the role of inspections in the State IG’s oversight of the  department; (4) the quality assurance process used by the State IG,  including assurance over independence; and (5) the coordination of the  State IG’s investigative activity with the department’s Bureau of  Diplomatic Security. We obtained information about the State IG’s budget  and staffing levels by analyzing budget data reported by the Office of  Management and Budget (OMB), and information regarding reported  accomplishments in the State IG’s semiannual reports to the Congress. We  conducted interviews with State IG officials and reviewed internal  documents to obtain an understanding of the State IG’s allocation of  resources and its quality assurance processes. We also reviewed the State  IG’s documentation for a sample of inspection reports.
subsections: section_title: Scope and Methodology
paragraphs: We obtained the budget authority and the staffing levels at the State IG  office and the budget authority of the State Department for fiscal years  2001 through 2005 by analyzing OMB budget data for those years.  Additional information on staff levels and resource distribution were  obtained from the State IG to identify trends over this period. We  identified audit, inspection, and investigative accomplishments reported  by the State IG in semiannual reports to the Congress for fiscal years 2001  through 2005. We did not audit or otherwise verify the dollar amounts of  the financial accomplishments reported by the State IG.
To review the IG’s audit and inspection oversight coverage of the State  Department, we compared the contents of the audits and inspections  completed by the State IG in fiscal years 2004 and 2005 with the high-risk  areas designated by GAO and with the management and performance  challenges identified by the State IG. To review the investigative coverage,  we used the investigative accomplishments reported by the State IG to  show the level of investigative activity.
To obtain information about the quality control process used by the State  IG, we obtained an understanding of the internal quality review process  used by the IG. We also obtained reports of the most recent external  quality peer reviews of the State IG’s audit and investigative activities  performed by other IG offices. Due to the lack of a peer review  requirement for inspections, we compared the State IG’s inspections with  relevant standards related to independence, quality control, and evidence  from the PCIE and ECIE Quality Standards for Inspections, 2005  revision, as well as the State IG’s implementing policies and procedures  for these standards. We also compared relevant inspection standards with  Government Auditing Standards, and compared additional activities of  the State IG related to independence with PCIE and ECIE Quality  Standards for Offices of Inspector General, revised in October 2003.  Specifically, we gained an understanding of the types of documentation  and evidence supporting inspection recommendations through a  judgmental sample of 10 inspection reports selected from a total of 112  inspection reports issued over fiscal years 2004 through 2005 that were not  classified for national security purposes, and that did not include  inspections of the Board of Broadcasting Governors. We did not test the  reasonableness of the inspection recommendations or otherwise re- perform the inspections. Our sample covered different months, various  team leaders, and different State Department locations.
Due to the concerns of the State IG about the confidentiality of  information sources used to complete the IG’s inspections, we agreed to  limit the types of documentation subject to our review. Officials for the IG  stated that the documents not provided for our review were  memorandums with information from confidential sources. We base our  conclusions on the documents and information that we reviewed related  to our sample of inspection reports. In those examples where inspection  report recommendations lacked documented support, we verified that this  was not due to any such limitation to our review.
To review the coordination of the State IG with DS, we obtained the  annual reports issued by DS and additional information on cases of visa  fraud that were investigated during fiscal years 2004 through 2005 from DS  reports and a prior GAO report. We also compared the coordination of  investigations at the State Department with the practices of other IG  offices at the U.S. Postal Service and the Internal Revenue Service.
We obtained comments on a draft of this report from the State IG which  are reprinted in their entirety in appendix III. A summary of the State IG’s  written comments and our response are presented on page 29. We  performed our audit from November 2005 through October 2006, in  accordance with U.S. generally accepted government auditing standards.
section_title: Background
paragraphs: The inspection function within the State Department originated in 1906,  when the Congress statutorily created a consular inspection corps of five  officers to inspect the activities of the U.S. consulates at least once every 2  years. In 1924, the Congress established the Foreign Service to replace the  Diplomatic and Consular Service, and required the officers of the newly  created Foreign Service to inspect diplomatic and consular branches, as  provided under the 1906 Act. The provisions of the 1906 and 1924 acts  were repealed by the Foreign Service Act of 1946, which required the  Secretary of State to assign Foreign Service officers to inspect the  diplomatic and consular establishments of the United States at least once  every 2 years. In 1957, the State Department established an Inspector  General of Foreign Service, which carried out the inspections of  diplomatic and consular offices for the State Department. In 1961, the  Congress created a statutory Inspector General in the State Department  with duties separate from that of the Inspector General of Foreign Service,  which had been established by the State Department. The new inspector  general had the statutory responsibility to conduct reviews, inspections,  and audits of State Department economic and military assistance  programs and the activities of the Peace Corps. Effective July 1, 1978, the  statutory IG office created in 1961 was abolished by law and all of the  duties of that office were statutorily transferred to the Inspector General  of Foreign Service. The newly designated Inspector General of Foreign  Service was tasked with carrying out the foreign assistance program  review function and the inspections of diplomatic and consular offices  that had previously been conducted by the two separate offices.
In 1978, GAO reviewed the operations of the Inspector General of Foreign  Service and determined that the IG’s inspection reports lacked substance  because of the legal requirement for biennial inspections and the  exceedingly broad scope and thin coverage of each inspection. GAO  recommended that the Congress substitute the requirement for an  inspection of each diplomatic and consular post at least every 2 years with  a more flexible review schedule. GAO also questioned the independence of  Foreign Service officers who were temporarily detailed to the IG’s office  and recommended the elimination of this requirement provided by the  Foreign Service Act of 1946.
In 1980, the Congress again established a statutory IG, this time to act as a  centralized unit within the State Department to include the functions of  the previous IG of Foreign Service and to perform all audits, inspections,  and investigations. Section 209 of the Foreign Service Act of 1980  established the Inspector General of the Department of State and Foreign  Service and outlined the authority and functions of that position in specific  terms. Section 209 patterned the State Department IG office after similar  offices in other agencies under the IG Act, but added functions from the  Foreign Service Act of 1946 specific to the State Department. With regard  to inspections, the Congress directed the IG to “periodically (at least every  5 years) inspect and audit the administration of activities and operations  of each Foreign Service post and each bureau and other operating units of  the Department of State.”
In 1982, we reviewed the operations of the Inspector General for the  Department of State and Foreign Service. In that report, we compared the  differences between the Foreign Service Act and the IG Act and noted that  the 5-year inspection cycle required by the Foreign Service Act led to  problems with the IG’s effectiveness by limiting the ability to do other  work. In addition, our report expressed our persistent concerns about  independence. These concerns were due, in part, to the IG’s continued use  of temporarily assigned Foreign Service officers and other persons from  operational units within the department to staff the IG office. Our report  also noted that the IG had not established a quality review system to help  ensure that the work of the office complied with professional standards,  and that the IG used staff from the State Department’s Office of Security, a  unit of management, to conduct investigations of fraud, waste, and abuse.  We recommended that the Secretary of State work with the IG to establish  a permanent IG staff and discontinue its reliance on temporary staff who  rotate back to assignments in the Foreign Service or management  positions. We also recommended that the Secretary and the IG establish an  investigative capability within the IG office to enable it to conduct its own  investigations, and to transfer qualified investigators from the Office of  Security to the IG for this work.
Reacting to concerns similar to those expressed in our 1982 report, the  Congress established an IG for the Department of State through  amendments to the IG Act in both 1985 and 1986. These amendments  designated the State Department as an agency requiring an IG under the IG  Act and abolished the previous Office of Inspector General of State and  Foreign Service, which was created under section 209 of the Foreign  Service Act of 1980. The 1986 Act authorized the State IG to perform all  duties and responsibilities, and to exercise the authorities, stated in  section 209 of the Foreign Service Act and in the IG Act. The 1986 Act also  prohibited a career member of the Foreign Service from being appointed  as the State IG.
Since 1996, the Congress, through Department of State appropriations  acts, annually waives the language in section 209(a) of the Foreign Service  Act that calls for every post to be inspected every 5 years. The State IG  continues to inspect the department’s approximately 260 posts and  bureaus, and international broadcasting installations throughout the world  by applying a risk-based approach. To illustrate, the State IG completed  inspections at 223 bureaus and posts over the 5-year period of fiscal years  2001 through 2005. These inspections encompass a wide range of  objectives, which include reviewing whether department policy goals are  being achieved and whether the interests of the United States are being  represented and advanced effectively. In addition, the State IG performs  specialized security inspections and audits in support of the department’s  mission to provide effective protection to its personnel, facilities, and  sensitive intelligence information. Therefore, while there is no  requirement as a result of the annual waiver that inspections be  performed, the State IG continues to conduct inspections as part of its  plan for oversight of the department, using a risk-based approach to  identify locations for inspections rather than the 5-year requirement.
Inspections are defined by the PCIE and ECIE as a process that  evaluates, reviews, studies, and analyzes the programs and activities of an  agency for the purposes of providing information to managers for decision  making; making recommendations for improvements to programs, polices,  or procedures; and identifying where administrative action may be  necessary. Inspections may be used to provide factual and analytical  information; monitor compliance; measure performance; assess the  efficiency and effectiveness of programs and operations; share best  practices; and inquire into allegations of fraud, waste, abuse, and  mismanagement.
The IG Act requires the IGs to recommend policies, and to conduct,  supervise, or coordinate other activities, in addition to audits and  investigations, carried out by the department for the purpose of promoting  economy and efficiency, and preventing fraud and abuse in its programs  and operations. These requirements of the IG Act are broad enough to  cover inspections, which are widely used by the IG community. According  to the IG community, inspections provide the benefits of a flexible  mechanism for optimizing resources, expanding agency coverage, and  using alternative review methods and techniques. In fiscal year 2005,  across the federal government, the statutory IGs issued a total of 443  inspection reports compared to a total of 4,354 audit reports, a ratio of  inspections to audits of about 1 to 10. As a comparison, the State IG issued  99 inspection reports and 44 audit reports during fiscal year 2005, or a  ratio of inspections to audits of over 2 to 1.
section_title: State IG Organization, Budgets, and Reported Accomplishments
paragraphs: The State IG currently provides oversight of the Department of State, the  Broadcasting Board of Governors, and the foreign affairs community  through audits, inspections, and investigations. This work is led by the  State Department Inspector General, Deputy Inspector General, Assistant  Inspectors General for Audits; Inspections; Management, Policy, and  Planning; and Investigations, and a Director for Information Technology.  In addition, the State IG has four advisory and support offices, which are  the Office of Counsel, Congressional and Public Affairs, Senior Advisor for  Security and Intelligence, and Coordinator for Iraq and Afghanistan. (See  fig. 1.)
From fiscal year 2001 through 2005, the State IG’s overall budget authority  went from $29 million to $32 million, which, when expressed in constant  dollars, is an increase of approximately 1 percent. (See fig. 2.) Over the  same period of time, the State Department’s overall budget authority  increased from $13.7 billion in fiscal year 2001 to $22.4 billion in fiscal year  2005, an increase of approximately 50 percent in constant dollars. When  compared with other federal IG budgets, the State IG’s ranking in terms of  percentage of total agency budgetary resources decreased from eighth  (0.21 percent of total agency budgetary resources) to twelfth (0.14 percent  of total agency budgetary resources) between fiscal years 2001 and 2005.  (See apps. I and II.) The department’s budgetary increases reflect, in part,  initiatives in transformational diplomacy, particularly in Iraq and  Afghanistan, and substantial increases in programs for counter narcotics,  counterterrorism, embassy construction and security, and IT. During the  same time period, the State IG’s authorized FTE staff increased from 289  in fiscal year 2001 to 314 in fiscal year 2005; however, during 2005, the IG  limited the actual onboard staffing to 191 of the 314 authorized FTEs due  to budgetary constraints. This represents a 16 percent reduction of  onboard staff when compared to the fiscal year onboard staffing level of  227 in fiscal year 2001. The State IG has reported that its limited resources  are further strained by the significant growth in the number of department  programs and grants with mandated IG oversight and requests for joint  activities with other departments, agencies, and IG offices.
For fiscal year 2005, the State IG Office distributed its 191 onboard staff as  follows: 38 percent of the staff performing inspections in the Office of  Inspections and in the Office of Information Technology, 28 percent in the  Office of Audits, 9 percent in the Office of Investigations, and the  remaining 25 percent in support positions to address administrative,  personnel, legal and other specialized issues. (See fig. 3.) This distribution  shows the significant emphasis that the State IG places on inspections in  relation to either audits or investigations.
Statutory IGs, including the State IG, are required by the IG Act to  summarize the activities and accomplishments of their offices and include  this information in semiannual reports provided for the Congress. The  information includes the number of audit reports issued and the dollar  amount of questioned costs, unsupported costs, and funds to be put to  better use. As defined by the IG Act, questioned costs include alleged  violations of laws, regulations, contracts, grants, or agreements; costs not  supported by adequate documentation; or the expenditure of funds for an  intended purpose that was unnecessary or unreasonable. In addition,  unsupported costs are defined as costs that do not have adequate  documentation, and funds to be put to better use are defined as  inefficiencies in the use of agency funds identified by the IG. As an  illustration of funds to be put to better use, the State IG identified  weaknesses in the department’s purchase card program that resulted in  untimely purchase card payments that precluded the department from  earning rebates from the purchase card provider.
During fiscal years 2001 through 2005 the State IG reported that it issued a  total of 210 audit reports with total financial accomplishments of  approximately $75 million. This included $37.1 million in questioned costs  of which $17.9 million were unsupported costs, and $38 million in funds to  be put to better use. The investigative activity reported over the same 5- year period included 252 cases closed and financial accomplishments of  $29.4 million in judicial recoveries, $17.6 million in court-ordered fines,  and $11.5 million in court-ordered restitutions. In addition, the State IG  reported that its investigations resulted in 92 prosecutorial referrals, 53  indictments, 52 convictions, and 42 criminal sentences.
Over the same 5-year period the State IG reported that it had issued 461  inspection reports. The State IG’s semiannual reports include summarized  results of its inspection activity even though this information is not  specifically required by the IG Act. The results vary from identification of  weaknesses in operations to recommendations for proper implementation  of State Department policies. There were no significant monetary results  reported from the State IG’s inspections.
section_title: State IG Audit and Inspection Coverage of High-Risk Areas and Management Challenges
paragraphs: The State IG provides oversight coverage of the department primarily  through a combination of audits and inspections, with, as shown earlier, a  heavier emphasis on inspections. Although the Congress annually waives  the requirement to conduct inspections under section 209(a) of the  Foreign Service Act, State IG officials told us that State Department  management encourages the IG inspections and have found the results  very significant and useful. Therefore, the IG continues to plan for  inspections on a cyclical basis using a risk-based approach. As a result,  over the 5-year period of fiscal years 2001 through 2005, the IG completed  inspections at 223 of the 260 department bureaus and posts.
We also analyzed the State IG’s coverage of the areas designated as high  risk by GAO and the significant management challenges identified by the  State IG. Since 1990, we have periodically reported on government  operations, including those of the State Department that we have  designated as high risk because of their greater vulnerabilities to fraud,  waste, abuse, and mismanagement. In addition, the IGs began the  identification of management challenges in 1997 at the request of  congressional members who asked the IGs to identify the most serious  management problems in their respective agencies. This began a yearly  process that continues as a result of the Reports Consolidation Act of  2000. The act requires executive agencies, including the State  Department, to include their IGs’ lists of significant management  challenges in their annual performance and accountability reports to the  President, OMB, and the Congress.
In our most recent reports of government high-risk areas issued in January  2003 and January 2005, we identified seven such areas at the State  Department. These high-risk areas were also included in management  challenges identified by the State IG. (See table 1.) Each year the State IG’s  Office of Inspections includes the management challenges identified by  the IG as areas of emphasis in inspections of the department’s bureaus or  missions. Some areas of emphasis may be applicable only to embassies  and other missions, while other areas of emphasis may be applicable only  to domestic entities such as bureaus, offices, and other units.
In our review of the issues addressed by the State IG’s audit and  inspection reports for fiscal years 2004 and 2005, we determined that the  State IG had provided oversight of all identified high-risk areas and  management challenges largely through inspections. The State IG  inspectors use a questionnaire during each inspection to compile the  information regarding the areas of emphasis including management  challenges identified by the IG. Each questionnaire can cover numerous  areas of emphasis, including several management challenges. Therefore,  while the State IG issued a total of 203 inspection reports over fiscal years  2004 through 2005, these inspections addressed 605 management  challenges in the various posts, bureaus, and offices reviewed. In addition,  the State IG relies almost exclusively on the results of inspections, as  compared to audits, to cover the four high-risk areas and management  challenges related to human resources, counterterrorism, public  diplomacy and information security. (See table 1.)
To illustrate, for fiscal years 2004 and 2005 combined, the State IG covered  human resource issues with 1 audit and 103 inspections, counterterrorism  and border security with 2 audits and 190 inspections, public diplomacy  with 2 audits and 103 inspections, and information security with 1 audit  and 13 inspections. (See table 1.) In contrast, over the same 2-year period,  the State IG issued 88 audit reports and each addressed a single  management challenge. For example, in the high-risk areas and  management challenges of physical security, the State IG provides  coverage mostly through inspections but includes audits that address  specific contracts and procurements for the purchase of equipment and  services. Also, while the State IG’s inspections obtain financial information  at the department’s bureaus and posts, the high-risk areas and  management challenges of financial management are covered almost  exclusively by the State IG’s financial audits. Due to the significance of the  high-risk areas covered largely by inspections, the State IG would benefit  by reassessing the mix of audit and inspection coverage for those areas.
section_title: Fundamental Differences between Audits and Inspections
paragraphs: There are fundamental differences between inspections and audits. The  PCIE and ECIE developed Quality Standards for Inspections in 1993, and  revised them in 2005, to provide a framework for performing inspections.  There are similarities between these inspection standards and the  Government Auditing Standards required by the IG Act for audits; but  there are fundamental differences as well. Both standards require that   (1) staff be independent, (2) evidence for reported results be documented,  and (3) the elements of a finding—criteria, condition, cause, and effect— be included with the reported results. A fundamental difference between  audits and inspections is the level of detail and requirements in the areas  of sufficient, appropriate evidence to support findings and conclusions,  and the levels of documentation of evidence needed to support findings,  conclusions, and recommendations. Audits performed under Government  Auditing Standards, by design, are subject to more depth in the  requirements for levels of evidence and documentation supporting the  findings than inspections performed under the inspection standards. In  addition, while auditing standards require external quality reviews of  auditing practices, or peer reviews, on a 3-year cycle by reviewers  independent of the State IG’s office, neither the inspection standards nor  the State IG’s policies and procedures require such external reviews of  inspections.
We reviewed the documentation for 10 inspections to gain an  understanding of the extent of documented evidence in the inspectors’  working papers to support each report’s recommendations. The 10  inspections were taken from a total of 112 inspections, completed over  fiscal years 2004 and 2005 that were not classified for national security  purposes, and for which we had access. The reports for the 10 inspections  included a total of 183 recommendations. We found that the inspectors  relied heavily on questionnaires completed by the staff at each bureau or  post that was inspected, official State Department documents,  correspondence and electronic mail, internal department memos including  those from the Secretary, interview memorandums, and the inspectors’  review summaries. We did not find additional testing of evidence or  sampling of agency responses to test for the relevance, validity, and  reliability of the evidence as would be required under auditing standards.
We also found that for 43 of the 183 recommendations contained in the 10  inspections we reviewed, the related inspection files did not contain  documented support beyond written summaries of the findings and  recommendations. While the State IG’s inspection policies for  implementing the PCIE and ECIE inspection standards require that  supporting documentation be attached to the written summaries, the  summaries indicated that there was no additional supporting  documentation.
section_title: State IG Quality Assurance Process, Including Assurance over Independence
paragraphs: The State IG has quality assurance processes that cover its three main  lines of work: (1) audits, (2) investigations, and (3) inspections.  Independence is a key element that should permeate all of the IG’s major  lines of work. For audits, Government Auditing Standards requires an  appropriate internal quality control system and an external peer review of  audit quality every 3 years. These standards specify that quality control  systems should include procedures for monitoring, on an ongoing basis,  whether the policies and procedures related to the standards are suitably  designed and are being effectively applied. For investigations, the  Homeland Security Act of 2002 amended the IG Act to require that each  IG office with investigative or law enforcement authority under the act  have its investigative function reviewed periodically by another IG office  and that the results be communicated in writing to the IG and to the  Attorney General. For inspections, PCIE and ECIE inspection standards  provide guidance for quality control and include a requirement for ongoing  internal quality inspection, but they do not contain a requirement for an  external quality review, or peer review.
Following is a summary of recent quality reviews of the State IG’s audit,  inspection, and investigative work:  Audits. Peer reviews provide an independent opinion on the quality  control system related to audits. The State IG has obtained two external  peer reviews of its audit practice from other IG offices since the beginning  of fiscal year 2001 and obtained an unqualified, or “clean,” opinion in each  review. Both peer reviews concluded that the State IG’s quality control  system for the audit function had been designed in accordance with  professional auditing standards. In addition, the most recent peer review  completed by the Department of the Interior IG in 2004, provided useful  suggestions for improvement. The most significant suggestion was for the  State IG to establish ongoing internal quality reviews of the audit function  as required by professional auditing standards. While the State IG did  conduct internal quality reviews for its audit practice that were completed  in May 2001 and March 2003, the Interior IG found that the reviews were  not the result of an ongoing process. To address the peer review’s  suggestion, the State IG established the Policy, Planning, and Quality  Assurance Division in November 2005 under the Assistant IG for Audits, to  conduct internal reviews and provide summary reports on a semiannual  basis, which we view as a very positive action to help ensure ongoing audit  quality.
Investigations. The State IG obtained the results of the first external  quality review of its investigations from the Tennessee Valley Authority  (TVA) IG on November 16, 2005. The TVA IG used the PCIE Quality  Standards for Investigations, the Quality Assessment Review guidelines  established by the PCIE, and the Attorney General Guidelines For Offices  Of Inspector General With Statutory Law Enforcement Authority to  review the quality of the State IG’s investigations. The TVA IG concluded  that the State IG’s system of internal safeguards and management  procedures for the investigative function was in full compliance with  quality standards established by the PCIE and the Attorney General’s  guidelines, and provides reasonable assurance of conforming with  professional standards. The reviewers also suggested improvements for  the State IG and these are currently being addressed by the Assistant IG  for Investigations.
Inspections. An external quality review, or peer review, of the State IG’s  inspections is not required under the inspection standards. During our  review, the State IG implemented a plan for conducting an internal quality  review of inspections as called for by the PCIE and ECIE inspection  standards. The first such review was currently being conducted at the time  of our audit, but the report on inspection quality had not yet been  completed. This review includes a sample of completed inspections to  determine whether they meet the PCIE and ECIE quality inspection  standards. Currently, the State IG’s quality review does not include  inspections by the Office of Information Technology, and at the time of  our review there was no internal quality review process for IT inspections.  Because the inspection work of the IG’s IT office is used, at least in part,  by the department to ensure its compliance with the requirements of the  Federal Information Security Management Act of 2002 (FISMA) for  effective information security controls, the quality of the IT inspections is  critical to the department for providing overall assurance of FISMA  compliance. Inspection quality is critical also because of the State IG’s  almost exclusive reliance on inspections to cover the information security  area, which has been identified by GAO as high-risk and by the State IG as  a management challenge for the department.
Independence. Independence is an overarching element that is critical to  quality and credibility across all of the work of the State IG and is  fundamental to Government Auditing Standards and the IG Act. Quality  Standards for Federal Offices of Inspector General, updated by the PCIE  and ECIE in October 2003, also addresses independence in its quality  standards for the management, operations, and conduct of federal IG  offices. Both sets of standards recognize that IG independence is a critical  element of the IG’s obligation to be objective, impartial, intellectually  honest, and free of conflicts of interest. Also, consistent with Government  Auditing Standards, the IG quality standards for IG offices state that  without independence both in fact and in appearance, objectivity is  impaired. In addition, the PCIE and ECIE Quality Standards for  Inspections require that the inspections organization and each individual  inspector to be free both in fact and appearance from impairments to  independence.
Two areas of continuing concern regarding independence are (1) the  temporary appointment of management personnel with various titles such  as Deputy IG, Acting IG, or Acting Deputy IG, to head the State IG office;  and (2) the use of Foreign Service staff to lead State IG inspections. For  example, between the last two presidentially appointed IGs—covering a  period of over 2 years from January 24, 2003, until May 2, 2005—all four of  those heading the State IG office in an acting IG capacity were selected  from State Department management staff and temporarily employed in the  State IG office. These individuals had served in the Foreign Service in  prior management positions, including as U.S. ambassadors to foreign  countries. In addition, three of these individuals returned to significant  management positions within the State Department after heading the State  IG office. Table 2 shows prior and subsequent positions held by those  heading the State IG office for a recent 27-month period until the current  IG was confirmed on May 2, 2005. This use of temporarily assigned State  Department management staff to head the State IG office can affect the  perceived independence of the entire office in its reviews of department  operations, and the practice is not consistent with (1) independence  requirements of Government Auditing Standards, (2) other professional  standards followed by the IGs, and (3) the purpose of the IG Act. Career  members of the Foreign Service are prohibited by statute from being  appointed as State IG. This exclusion of career Foreign Service staff from  consideration when appointing the State IG avoids the personal  impairments to independence that could result when reviewing the  bureaus and posts of fellow Foreign Service officers and diplomats. The  same concern with independence arises when career Foreign Service  officers and diplomats temporarily head the State IG office in an acting IG  capacity.
In addition to the potential independence impairment of acting IGs, the  State IG can impair its independence with its reliance on staff in the  Foreign Service temporarily employed by the IG office to lead inspections.  As a condition of their employment, Foreign Service staff are expected to  help formulate, implement, and defend government policy, which severely  limits the appearance of objectivity when reviewing department activities  that may require them to question official policies.
The State IG’s inspection policy is for Foreign Service staff with the rank  of ambassador, or other staff who serve at the ambassador level, to lead  inspections. Long-serving State IG officials told us that the program  knowledge of these State Department officials is important when  reviewing the department’s bureaus and posts. In the 112 inspections  completed during fiscal years 2004 and 2005 for which we had access, 79  had team leaders who held the rank of ambassador or served at the  ambassador level. Foreign Service staff on these inspections often move  through the State IG office on rotational assignments to serve again in  Foreign Service positions for the department after working for the State  IG. For example, 9 of the 22 Foreign Service officials who were assigned to  these 112 inspections as either staff or team leaders had transferred or  returned to management offices in the State Department by December  2005.
The State IG’s use of career Foreign Service staff and others at the  ambassador level to lead inspections provides a potential impairment to  independence. In both our 1978 and 1982 reports we reported concerns  about the independence of inspection staff reassigned to and from  management offices within the department. In these prior reports, we  stated that the desire of State IG staff to receive favorable assignments  after their State IG tours could influence their objectivity. While they may  offer valuable insights from their experience in the department, we believe  that there is considerable risk that independence could be impaired,  resulting in a detrimental effect on the quality of State IG inspections and  the effectiveness of the State Department, and that it is important that  officials not sacrifice independence, in fact or appearance, for other  factors in the staffing and leadership of the IG’s office. As an alternative,  such staff could provide the benefits of their experience and expertise as  team members rather than team leaders without impairing the inspection  team’s independence.
section_title: IG Coordination with State Department Investigations
paragraphs: The IG Act established the State IG to conduct and supervise independent  audits and investigations that prevent and detect fraud, waste, abuse, and  mismanagement in the State Department. The Bureau of Diplomatic  Security (DS)—as part of its worldwide responsibilities for law  enforcement and security operations—also performs investigations of  passport and visa fraud both externally and within the department.  Currently, there is no functional written agreement or other formal  mechanism in place between DS and the State IG to coordinate their  investigative activities.
DS assigns special agents to U.S. diplomatic missions overseas and to field  offices throughout the United States. The special agents conduct passport  and visa fraud investigations and are responsible for security at 285  diplomatic facilities around the world. This effort currently entails a global  force of approximately 32,000 special agents, security specialists, and  other professionals who make up the security and law enforcement arm of  the State Department. In fiscal year 2004, DS reported that it opened 5,275  new criminal investigations and made 538 arrests for passport fraud, 123  for visa fraud, and 54 for other offenses. For fiscal year 2005, DS reported  1,150 arrests combined for passport and visa fraud.
Both the State IG and DS pursue allegations of passport and visa fraud by  State Department employees. State IG officials stated that they were  aware of DS investigations in these areas that were not coordinated with  the State IG. Without a formal agreement to outline the responsibilities of  both DS and the State IG regarding these investigations, there is  inadequate assurance that this work will be coordinated to avoid  duplication or that independent investigations of department personnel  will be performed. Also, because DS reports to the State Department’s  Undersecretary for Management, DS investigations of department  employees, especially when management officials are the subjects of the  allegations, can result in management investigating itself.
In other agencies where significant law enforcement functions like those  at DS exist alongside their inspectors general, the division of investigative  functions between the agency and the IG is established through written  agreements. For example, the U.S. Postal Service has the Postal IG  established by the IG Act and the Chief Postal Inspector who is head of the  U.S. Postal Inspection Service with jurisdiction in criminal matters  affecting the integrity and security of the mail. Postal inspectors  investigate postal crimes and provide security for the protection of postal  employees at 37,000 postal facilities throughout the country. In 2006, a  memorandum was signed by the Chairman of the Board of Governors and  the Postmaster General announcing the completion of the transfer of  investigative jurisdiction for postal employees from the Postal Inspection  Service to the Office of Inspector General. The Postal IG was recognized  as having full responsibility for the investigation of internal crimes,  whereas the Postal Inspection Service is responsible for security and the  investigation of external crimes. This agreement also included a shift of  resources between both organizations to cover their responsibilities.
In another example, the Internal Revenue Service Criminal Investigation  (IRS CI) and the Treasury Inspector General for Tax Administration  (TIGTA) have signed a memorandum of understanding that recognizes IRS  CI’s responsibility to investigate criminal violations of the tax code while  TIGTA has the responsibility to protect the IRS against attempts to corrupt  or threaten IRS employees, and to investigate violations by IRS employees.  This agreement includes the coordination of investigative activities  between these offices and recognizes TIGTA as the final authority to  investigate IRS Criminal Investigation employees. Agreements such as  those crafted by the U.S. Postal Service and the IRS can serve as models  for a formal agreement between DS and the State IG.
section_title: Conclusions
paragraphs: The State IG relies heavily on inspections instead of audits for oversight of  high-risk areas and management challenges. Areas such as human  resources, counterterrorism, public diplomacy, and information security,  are almost exclusively covered through inspections. By design, inspections  are conducted under less in-depth requirements than audits performed  under Government Auditing Standards in terms of levels of evidence and  documentation to support findings and recommendations. Federal IGs use  inspections as an important oversight tool along with audits and  investigations, which are specifically required by the IG Act. However, the  State IG conducts a much greater proportion of inspections to audits than  the federal statutory IG community as a whole. Due to the risk and  significance of the high-risk areas being covered largely by inspections, the  State IG would benefit from reassessing risk and its heavy reliance on  inspections in those areas to determine whether the current mix of audits  and inspections provides the amount and type of oversight coverage  needed. Given the important role that inspections currently play in the  State IG’s oversight of the department, assurance of inspection quality is  also important. The State IG is currently conducting its first internal  review of inspections, but the results are not yet reported and the review  does not include IT inspections.
Independence is a critical element to the quality and credibility of an IG’s  work under the IG Act and is fundamental to Government Auditing  Standards and professional standards issued by the PCIE and ECIE.  Based on our current concerns and those from our past reports, we  believe that the State IG would benefit from additional policies and revised  structures in order to avoid situations that raise concerns about  independence, such as State Department management officials appointed  to head the State IG office in an acting IG capacity, and State Department  career Foreign Service staff and others who transfer from or return to  department management offices leading IG inspections. Such policies and  structures would be geared toward (1) providing for independent acting IG  coverage in the event of delays between IG appointments and (2) assuring  that State IG inspections are not led by career Foreign Service or other  staff who move to assignments within State Department management.  With regard to ambassadors, Foreign Service officers, and other rotational  staff leading inspections, approaches could range from the State IG  limiting its inspection activities to a level that is supportable without  reliance on staff that routinely rotate to management offices, to  permanently transferring or hiring additional staff, or FTEs, along with  associated resources for the State IG office to eliminate the need to rely on  Foreign Service and other rotational staff to conduct inspections. In  addition, the State IG’s inspection teams could include experienced  ambassadors and Foreign Service officers at the ambassador level as team  members rather than team leaders to help mitigate concerns regarding the  lack of an appearance of independence caused by the State IG’s current  practice.
Finally, there is a need for a formal agreement between the State IG and  the State Department Bureau of Diplomatic Security to coordinate their  investigative activities to help ensure the independence of investigations  of the State Department’s management staff and to prevent duplication.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that the State IG provides the appropriate breadth and  depth of oversight of the State Department’s high-risk areas and  management challenges, we recommend that the State IG reassess the  proper mix of audit and inspection coverage for those areas. This  reassessment should include input from key stakeholders in the State  Department and the Congress and also entail an analysis of an appropriate  level of resources needed to provide adequate IG coverage of high-risk and  other areas in light of the increasing level of funding provided to the State  Department.
To provide for more complete internal quality reviews of inspections we  recommend that the State IG include inspections performed by the State  IG’s Office of Information Technology in its internal quality review  process.
To help ensure the independence of the IG office, we recommend that the  State IG work with the Secretary of State to take the following actions:    Develop a succession planning policy for the appointment of individuals to  head the State IG office in an acting IG capacity that is consistent with the  IG Act regarding State IG appointment and provides for independent  coverage in the event of delays between IG appointments. The policy  should prohibit career Foreign Service officers from heading the State IG  office in an acting IG capacity and specify within the IG’s own succession  order that acting IG vacancies are to be filled by eligible personnel without  State Department management careers.
Develop options to ensure that State IG inspections are not led by career  Foreign Service officials or other staff who rotate to assignments within  State Department management. Approaches could range from the State IG  limiting its inspection activities to a level that is supportable without  reliance on staff who routinely rotate to management offices, to  permanently transferring or hiring additional staff, or FTEs, along with  associated resources for the State IG office to eliminate the need to rely on  Foreign Service and other rotational staff to lead inspections.
In order to provide for independent investigations of State Department  management and to prevent duplicative investigations, we recommend  that the State IG work with the Bureau of Diplomatic Security, the Office  of Management, and the Secretary of State to develop a formal written  agreement that delineates the areas of responsibility for State Department  investigations. Such an agreement would, for example, address the  coordination of investigative activities to help ensure the independence of  internal departmental investigations and preclude the duplication of  efforts.
section_title: Agency Comments and Our Response
paragraphs: In comments on a draft of this report the State IG provided additional  clarifying information and acknowledged that our review helped identify  areas for improvement. With respect to our five recommendations in the  draft report, the State IG agreed with two recommendations, partially  agreed with one, and disagreed with two others. We are reaffirming our  recommendations and provide our reasons below.
With respect to the two recommendations for which there is agreement,  the State IG agreed with our recommendations to (1) include all IG  inspections, including inspections performed by the Office of Information  Technology, in the internal quality review process and (2) work with DS  and others to develop a written agreement delineating the areas of  responsibility for department investigations.
The State IG disagreed with our recommendation to reassess the mix of  audit and inspection coverage stating that “simply reassessing the mix of  audit and inspection coverage will accomplish little if there are not more  auditors and more resources available to perform audits.” Our  recommendation provides the IG with a way to define the appropriate  level of oversight of the department, reallocate current resources as  appropriate, and justify any additional resources that may be necessary.  This reassessment is especially important given the increased  appropriations provided to the State Department and in light of the fact  that the current mix of audits and inspections has evolved over a number  of years when State Department management personnel served as acting  IGs. By achieving a proper mix of audits and inspections the State IG can  help maximize the use of the department’s resources through more  effective oversight. In addition, the State IG’s comments do not recognize  the potential for reallocating inspection staff to an audit role. Under  Government Auditing Standards, the current inspection staff may also  conduct performance audits in order to provide both a forward-looking  analysis and a review of historical performance. Redesigning some  inspections as performance audits to be performed by the current  inspection staff could meet the needs of management for inspection  results at the department’s bureaus and posts and also provide the level of  objectivity and evidence needed to assess high-risk areas and management  challenges. Thus, for all the above stated reasons we continue to  recommend that the State IG reassess the mix of audit and inspection  coverage.
The State IG does not disagree with our concerns about Foreign Service  officers temporarily heading the IG office in an acting capacity, but  believes that the recommendation goes too far by limiting the pool of  eligible candidates to personnel without State Department management  careers. We disagree with the IG’s comments due to the importance of  independence which is the most critical element for IG effectiveness and  success. To preserve IG independence, the IG Act requires that the IG not  report to or be subject to supervision by any other officer other than the  Secretary, or if delegated, the Deputy Secretary. Appointing career  department managers as acting State IGs would effectively have the IG  office subject to supervision by a management official other than the  Secretary or Deputy Secretary. Therefore, we continue to recommend that  the State IG exclude from consideration in the succession planning of his  office department officials with management careers due to possible  conflicts of interest and resulting independence issues. As alternatives, the  State IG could consider PCIE recommendations for personnel to fill future  acting IG positions, as well as IG staff with proven ability from other  agencies. In addition, we have revised the recommendation in our report  to clarify that the intended action is directed to the succession planning  activities of the State IG’s office in order to avoid any unintended conflict  with the Vacancies Act, which gives the President wide authority to  appoint personnel to acting positions throughout the executive branch of  the federal government.
The State IG acknowledged that ambassadors who serve as team leaders  for inspections raise a concern about the appearance of independence.  The State IG also believes that this concern is significantly outweighed by  the overriding need for people with the experience and expertise of  ambassadors to lead inspections. We disagree with putting independence  second to experience and expertise and believe that the State IG can  achieve both objectives with the proper staffing and structuring of its  inspections. Our position remains that the State IG’s inspection teams  should not be led by career Foreign Service officers and ambassadors, but  could include experienced ambassadors and staff at the ambassador level  as team members rather than team leaders to help mitigate concerns about  the appearance of independence caused by the State IG’s current practice.  Therefore, we continue to recommend that the State IG work with the  Secretary of State to develop options to ensure that the IG’s inspections  are not led by career Foreign Service officials, including ambassadors or  other staff who rotate from State Department management.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we will not distribute it until 30 days from its date. At  that time we will send copies of the report to the Secretary of State, the  State Department IG, the State Department Undersecretary for  Management, the State Department Assistant Secretary for Diplomatic  Security, the OMB Deputy Director for Management, the Chairman and  Ranking Member of the Senate Committee on Foreign Relations, other  congressional committees, and interested parties. This report will also be  available at no charge on the GAO Web site at http://www.gao.gov. If you  have any questions or would like to discuss this report please contact me  at (202) 512-9471 or by e-mail at franzelj@gao.gov. Major contributors to  this report are listed in appendix IV.
section_title: Appendix I: A Comparison of Fiscal Year 2001 Budgetary Resources for Selected Inspectors General and Agencies
subsections: section_title: Federal departments and agencies
paragraphs: Corporation for National and Community Service  Treasury Inspector General for Tax Administration  National Aeronautics and Space Administration  Tennessee Valley Authority (TVA)
Department of Housing and Urban Development  Department of Health and Human Services  n.a. n.a. n.a. n.a. n.a. n.a.
section_title: Appendix II: A Comparison of Fiscal Year 2005 Budgetary Resources for Selected Inspectors General and Agencies
subsections: section_title: Federal departments and agencies
paragraphs: Corporation for National and Community Service  Treasury Inspector General for Tax Administration  National Aeronautics and Space Administration  Department of Housing and Urban Development  Tennessee Valley Authority (TVA)
Department of Health and Human Services  n.a. n.a. n.a.
Information not available.
section_title: Appendix III: Comments from the Inspector General, Department of State
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments