Inspectors General: Continued Actions Needed to Strengthen IG Oversight of the United States International Trade Commission
Released: 2010-10-29T00:00:00

Letter

Background

Congress established the basic functions of USITC on September 8, 1916, as the U.S. Tariff Commission. In 1975, the name was changed to the U.S. International Trade Commission by section 171 of the Trade Act of 1974. USITC is headed by six Commissioners who are appointed by the President and confirmed by the Senate for terms of 9 years, unless appointed to fill an unexpired term. The terms are set by statute and are staggered so that a different term expires every 18 months. No more than three Commissioners may be members of the same political party. From among the appointed Commissioners in office, the President designates a Chairman and Vice Chairman to each serve for a 2-year term. The Chairman may not be of the same political party as the preceding Chairman, and the Chairman and the Vice Chairman may not be of the same political party. The Chairman is responsible, within statutory limits, for the administrative functions of USITC.

The mission of USITC is to (1) administer U.S. trade remedy laws within its mandate; (2) provide the President, the U.S. Trade Representative, and Congress with independent high-quality analysis, information, and support on matters relating to tariffs and international trade and competitiveness; and (3) maintain the Harmonized Tariff Schedule of the United States (HTS). Through the Director of Operations, five offices—Offices of Economics, Industries, Investigations, Tariff Affairs and Trade Agreements, and Unfair Import Investigation—are responsible for USITC’s operations regarding international trade. See appendix II for additional information on USITC operations.

The Inspector General Act of 1978 (IG Act), as amended, provides the legal foundation for the federal executive branch IG offices. Currently there are 59 IGs established by the IG Act throughout the executive branch with broad authority to conduct independent audits and investigations. Of the 59 IGs, the President, with the advice and consent of the Senate, appointed 29. These presidentially appointed IGs may only be removed by the President. The other 30 IG Offices were established by the 1988 amendments to the IG Act in designated federal entities (DFE) named in the legislation. The USITC IG is one of the 30 DFE IGs. Generally, the DFE IGs have the same authorities and responsibilities as those IGs established by the original IG Act of 1978; however, they are appointed and may be removed by their entity heads rather than by the President and are not subject to Senate confirmation. For purposes of the IG Act, the USITC Chairman was the head of USITC during our review period.

The act provides the IGs with independence by authorizing them, among other things, to select and employ their own staffs, make such investigations and reports as they deem necessary, and report the results of their work directly to Congress. In addition, the IG Act provides the IGs with a right of access to information, and prohibits interference with IG audits or investigations by agency personnel. The act further provides the IGs with the duty to inform the Attorney General of suspected violations of federal criminal law.

Congress passed the IG Reform Act of 2008 (IG Reform Act) to further enhance IG independence and accountability. The act maintains the framework and IG community that existed under the IG Act and adds authorities and requirements to help build a stronger, more independent, professional, and accountable IG community. The act requires that the heads of entities, including USITC, and the President, for those IGs appointed by the President, inform both houses of Congress 30 days before taking actions to remove or transfer an IG. The act also provides a statutory process for handling allegations of wrongdoing by IGs so that such reviews are not done by the same management officials who are subject to IG oversight.

The IG Reform Act also specifies that DFE IGs, such as the USITC IG, be classified at a grade level or rank designation at or above those of a majority of the senior-level executives of the DFE. It requires the head of each DFE to transmit proposed budgets to the President with an aggregate request for the IG, amounts for IG training, and amounts for the support of the Council of the Inspectors General on Integrity and Efficiency (CIGIE). In addition, the IG is to provide certification that the amount requested satisfies all training requirements for the IG for that fiscal year and any resources necessary to support the activities of CIGIE.

USITC IG Conducted Limited Oversight Activities during Fiscal Years 2005 through 2009

The IG Act requires IGs to provide independent audits and investigations of the programs, offices, and activities of their respective federal entities. However, during fiscal years 2005 through 2009 the USITC IG office did not conduct any audits, and provided no investigative case files or reports to indicate that any investigations had been performed. The IG office’s oversight of USITC consisted primarily of monitoring and reviewing the work of independent public accountants (IPA) who conducted mandatory audits of USITC’s financial statements and information security as required by specific statutes. The IPAs performed these audits under contract with the acting and temporary IGs during this 5-year period with no additional audits conducted by these IGs. The most recent peer review of the IG office’s audit quality, performed by the National Archives and Records Administration IG, concluded in a May 12, 2010, report that an opinion could not be expressed on the audit organization because no audits had been conducted in the past 5 years.

The USITC IG office also did not provide audits or perform follow-up in areas with weaknesses identified by the IPAs’ audits. Specifically, the audit of USITC’s fiscal year 2009 financial statements resulted in a disclaimer of opinion by the IPA due to the lack of sufficient evidence to support the amounts presented in the financial statements. The IPA also noted a number of material and significant issues surrounding internal control and concluded that USITC was not able to comply with the requirements of the Federal Managers’ Financial Integrity Act. The Chairman and the Director of the Office of Finance stated that the audit results primarily stemmed from the implementation of a new financial system at the beginning of fiscal year 2009. However, the IG’s office had not perform audits or other oversight of the new system and its implementation o r related internal control.

In USITC’s annual Performance and Accountability Report, issued for each year of our review, the IG office identified management challenges related to USITC’s procurement and contract management, financial management, human capital management plan, and budget and performance integration. Issues related to USITC’s financial management were annually audited through mandatory audits performed by IPAs. However, the remaining management challenges were not audited by the IG office, and therefore have not received audit recommendations for corrective actions to address these identified weaknesses. (See table 1.)

Performance audits and other IG oversight activities can provide managers, and those charged with governance, with information regarding the economy, efficiency, and effectiveness of the programs, offices, and activities reviewed, and may include assessments of internal control, compliance, and prospective analyses. The USITC IG office’s limited oversight of the programs, offices, and activities responsible for the fundamental mission of USITC regarding international trade resulted in a lack of valuable audit information for management to help improve program performance and operations, reduce costs, facilitate decision making, oversee or initiate corrective action, and contribute to accountability.

USITC Lacked an Appointed IG and Adequate Staff Resources Prior to Fiscal Year 2010

The IG Act requires designated entity heads to appoint an IG and provide adequate budgetary resources and sufficient staff for the IG’s office to conduct independent audits and investigations. USITC lacked an appointed IG and did not provide the IG office with adequate budget and staff resources for fiscal years 2005 through 2009. This contributed significantly to the IG office’s limited oversight of USITC and the lack of audits and investigations. However, in fiscal year 2010, the USITC Chairman appointed an IG and provided additional resources to the IG office due, in part, to the requirements of the IG Reform Act.

The USITC IG Position Was Filled by Acting and Temporary IGs for an Extended Period before Appointment of the Current IG

For over 4 years, between November 2005 and December 2009, the USITC relied on acting IGs and a temporary IG to provide oversight. In addition, for a period of 17 months during this time—from March 2006 until August 2007—the USITC IG position was vacant. Specifically, when the IG retired in October 31, 2005, the Chairman designated the Assistant IG for Audits (AIGA) to serve as acting IG. When the acting IG position expired in March 2006, the Chairman sought to hire a new IG instead of renewing the acting IG position. Although the USITC continued to rely upon the AIGA to fulfill the requirements and responsibilities of the IG, the IG position was vacant. The Chairman renewed the AIGA’s acting IG position in August 2007—17 months after it had expired.

The AIGA reported the vacant IG position in each of the semiannual reports over this 17-month period. During this period, the AIGA did not have the full statutory protections of independence and stated authorities under the IG Act to provide audits and investigations; promote economy, efficiency, and effectiveness; prevent and detect fraud and abuse; and recommend actions for improvement to USITC.

In January 2008, the Chairman selected a former USITC budget officer to serve as a temporary IG not to exceed 6 months of service, which was extended for another 6 months starting in June 2008. In January 2009, USITC extended the temporary IG position for another 6 months while the Chairman and Commissioners studied how to implement the IG Reform Act, which requires that DFE IGs, such as the USITC IG, be classified at a pay level at or above a majority of the senior-level executives of the DFE. In June 2009, USITC published a vacancy announcement for a permanent IG position at the Senior Executive Service (SES) level. The temporary IG was reassigned to another USITC office on August 16, 2009, and the AIGA from the IG Office of the Commodity Futures Trading Commission served as the acting USITC IG from August 17, 2009, to December 5, 2009. On December 6, 2009, the Chairman appointed the first Senior Executive Service (SES)–level USITC IG. See table 2 for a listing of the USITC IGs and their periods of service.

USITC IG Received Limited Resources Prior to Fiscal Year 2010

The only specific budget resources provided to the IG office during fiscal years 2005 through 2009 were the amounts for statutorily mandated audits performed by IPAs. Despite increases in the overall USITC budget, the IG office’s budget resources remained relatively flat and its staffing remained below its authorized levels. Between fiscal years 2005 and 2009, the USITC budget increased from $61 million to $75 million—approximately 23 percent—while the IG budget remained relatively constant. (See table 3.) A former acting IG stated that in order to perform any additional functions, including travel or training, she had to seek USITC’s permission for each additional expense. Although the acting and temporary IGs were authorized to have between three and four full-time equivalent (FTE) staff members (including themselves) during 4 of the 5 years reviewed, their offices did not receive the necessary funding to hire these authorized staff. The former acting and temporary IGs we contacted also explained that their oversight of USITC was limited because they did not have sufficient resources to audit areas other than those required by specific statutes.

Ensuring the adequacy of audit resources is ultimately a responsibility of the USITC Chairman. However, the USITC Commissioners told us that in the past they were not made fully aware of the IG office’s need for additional resources. The acting and temporary IGs had not prepared comprehensive audit plans over the 5-year period with a staffing analysis to justify additional budget and staffing resources and effectively communicate their resource needs. As part of a comprehensive audit plan, a staffing analysis provides the basis for determining the number and experience level of the audit staff needed, external service providers, financial support, technology-based audit techniques, and other resource needs such as training and travel.

Consistent with provisions of the IG Reform Act, the USITC budget request for fiscal year 2010 included IG budget information and the required IG certification that the amounts are sufficient for training and support of CIGIE activities. On the basis of discussions with the current IG, USITC approved an IG budget of $816,837 with a total of 5 FTEs, including a legal counsel who is also expected to conduct investigations. With the assistance of the additional staff, the IG issued a series of audit reports with recommendations regarding information security and internal control. The current IG stated that future oversight may require additional resources.

During our review, the current IG completed a strategic plan and an annual audit plan for fiscal year 2011. These plans define the USITC audit universe, provide goals for oversight, and specify the objectives and anticipated starting dates for individual audits including mandatory audits, audits of management challenges, and audits of program economy and efficiency. While these plans are an important first step, neither the high- level strategic plan nor the annual audit plan for the coming year provide a staffing analysis to identify the number of staff and other resources necessary for a comprehensive audit plan that communicates and justifies the IG budgets and staffing needed for USITC oversight.

Improvements Needed to Strengthen the IG’s Role within USITC Governance

The IG Act provides each IG with protections of independence including the authority for access to all entity documents and records, and does not allow the entity head to prevent or prohibit the IG from initiating, carrying out, or completing any audit or investigation. In addition, the IG is required to refer cases with potential violations of federal criminal law to the Attorney General. These protections and responsibilities are necessary in large part because of the unique reporting requirements of the IGs, who are both subject to the general supervision of the heads of the agencies they audit while at the same time expected to provide reports of their work externally to Congress. During our review period, we found instances where USITC’s governance structure did not fully support the acting and temporary IGs’ responsibilities due to USITC’s lack of clear policies surrounding IG access to information and the lack of coordination with the IG office when referring an investigative case to the Department of Justice (DOJ). The effectiveness and independence of IG’s are closely related to the governance and accountability structure of the organization and the role that the IG plays within that structure. IGs must be able to operate independently within the governance framework at their respective entities in order to be effective.

USITC Needs Clarifying Guidance on IG Access to Documents

The IG Act provides the authority for IG access to all USITC documents and records, and also prohibits the agency head from preventing or prohibiting the IG from initiating, carrying out, or completing any audit or investigation. However, in 2009, the USITC IG was unable to obtain prompt access to original USITC contract documents during an inquiry into USITC procurement procedures because of the Chairman’s uncertainty about the IG’s authority to have access. In the April 2009 semiannual report to Congress, the temporary USITC IG stated that on March 5, 2009, a USITC employee removed certain procurement files from the possession of the IG without the IG’s permission. The employee had requested clarification from USITC management regarding the IG’s access to the documents that the procurement office was responsible for safeguarding, but received no clear answer. Due to the lack of guidance from USITC management and the lack of a clear policy on IG access to documents, the IG’s review was delayed until the issue was resolved, and the IG’s inquiry ended without any record of an investigation.

Although USITC policies and procedures provide the IG with full access to all USITC documents, they do not specify the process to be followed to grant the IG access to original sensitive USITC documents that must be safeguarded. In the example cited above, after deliberations with the General Counsel, the Chairman provided the temporary IG access to the documents after a delay of almost 2 months. However, the Chairman included a written qualification that the IG’s full access to USITC documents only applied to the specific files under the IG’s immediate review. Consequently, future disagreements regarding the IG’s access to USITC documents may occur until the IG’s authority is specifically addressed by USITC policies and procedures.

The USITC program directors that we interviewed expressed their concerns for the safety and security of the business and trade information used during their international trade investigations and in the preparation of their reports. However, IG access to both information and individuals is essential for effective oversight and the IG Act specifically authorizes the IG to have access to all records, reports, audits, reviews, documents, papers, recommendations, or other material related to the programs and operations of an entity.

In addition, the Commissioners told us that although USITC provides an orientation book to inform newly appointed Commissioners about USITC’s operations, this orientation information does not include a section on the authority and responsibilities of the IG. Because Commissioners are not always appointed from prior federal positions and may not be aware of the important statutory independence of IGs, an orientation book could include information to facilitate interactions with the IG by minimizing uncertainties regarding the unique authorities and responsibilities of the IG.

The USITC Chairman Did Not Always Coordinate Investigations with the IG Office

The IG Act requires the IG to report to the Attorney General whenever the IG has reasonable grounds to believe federal criminal law has been violated. The USITC Chairman also reports potential criminal violations to DOJ. On June 15, 2009, the USITC Chairman referred a possible criminal violation by a USITC employee to the Criminal Division of DOJ based on an investigation conducted by USITC’s Chief Information Security Officer. The USTIC Chairman neither informed the temporary IG of the investigation performed by USITC, nor of the referral of the case to DOJ. The lack of coordination could result in the duplication of efforts if both the Chairman and the IG were to investigate the same subject.

In order to avoid duplication of investigative efforts, other federal entities utilize a memorandum of understanding (MOU) or similar mechanism to require the sharing of investigative information between the IG and the entity. For example, the Treasury IG for Tax Administration (TIGTA) at the Internal Revenue Service (IRS) within the Department of the Treasury and the Chief of IRS Criminal Investigation have established an MOU that specifies the areas to be investigated by each office to ensure coordination while preventing duplication of efforts. A similar agreement between the USITC Chairman and the IG could decrease the potential risk of duplicative investigations.

Conclusions

Considering the need to enhance oversight of USITC, it is important that an independent, objective, and reliable IG structure be in place to provide adequate audit and investigative coverage of its programs, offices, and activities. Effective USITC governance and accountability require policies and procedures to help ensure that the activities of the IG are independent and the results are viewed as independent by Congress and other users of the IG’s work. USITC has recently made progress towards improving governance and accountability; however, notwithstanding these advances, we believe it is important to build on and sustain the progress made in fiscal year 2010. Increased attention to USITC governance and accountability through the design and implementation of policies and procedures, and ongoing attention to the resource needs of the IG’s office, would help to ensure that the activities of the IG are effective and independent.

Recommendations for Executive Action

We recommend that the USITC IG prepare a staffing analysis to determine the level of budget and staff resources needed to conduct the audits identified in audit plans, including audits required by statutes; audits of management challenges identified by the IG; and performance audits of economy, efficiency, and effectiveness of USITC’s programs, offices, and activities.

We recommend that the Chairman of USITC revise the policies and procedures for all offices and programs to recognize the authorities and responsibilities of the IG under the IG Act, including procedures for recognizing the IG’s authority for access to USITC documents, records, and information; revise the formal written orientation information provided to the Commissioners to include sections on the overall authorities and responsibilities of the IG; the IG’s authority and USITC’s policies for IG access to USITC documents, records, and information; and the responsibilities of the Chairman to maintain an appointed IG; and work with the IG to establish a memorandum of understanding (MOU) or similar mechanism to ensure that all USITC investigative matters that may cover areas also investigated by the IG are coordinated with the IG’s office.

Agency Comments and Our Evaluation

We received written comments on a draft of this report from the USITC Chairman, which are reprinted in appendix III. The USITC Chairman stated that the agency is dedicated to ensuring the proper level of IG oversight and looked forward to working with the IG to achieve enhanced performance and accountability throughout USITC. The Chairman concurred with our recommendations and identified actions taken to implement them. We agree that USITC has fully addressed our recommendation to establish an MOU to ensure the agency and IG coordination of investigations of possible criminal violations; however, while USITC has taken steps to address the remaining recommendations, further corrective actions are necessary. Specifically, the USITC IG prepared a staffing analysis for fiscal year 2010 audits that allowed him to hire additional staff; however, we continue to recommend that the IG develop a staffing analysis to support the audits in future years identified by the IG’s strategic plan. Also, although USITC prepared an MOU addressing the IG’s authorities and responsibilities regarding access and custody of USITC records, USITC has yet to include this information in the policies and procedures for the offices subject to the IG’s review. Further, USITC prepared an overview of the IG’s authority and responsibilities to be included in the orientation of the USITC Commissioners, but has not yet provided a place for it in the formal orientation of the Commissioners.

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 USITC Chairman; USITC IG; Deputy Director for Management, Office of Management and Budget; Chairman of the Senate Committee on Finance; and other 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) 512-9095 or raglands@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To determine the extent of oversight provided by the U.S. International Trade Commission (USITC) Inspectors General (IG) during fiscal years 2005 through 2009, we obtained and reviewed the results of the IGs’ audit reports and investigative activity as reported in the IGs’ semiannual reports to Congress for the 5-year period. We also identified the management challenges identified by the USITC IGs over the 5-year period. In addition, we compared IG audit activity to these reports over the same 5-year period to determine the nature and extent of oversight provided in areas of identified weaknesses. We further identified the programs and offices responsible for carrying out USITC’s mission from relevant performance and accountability reports and compared them with the areas covered by the IG’s audits.

We analyzed the budgets and staffing resources for the USITC IGs for fiscal years 2005 through 2009 by reviewing IG planning documents and budget requests to USITC management as well as internal entity budget documents. We also obtained USITC’s overall budget and staffing from the President’s Budget of the United States Government and compared USITC’s budgets for the 5-year period to the IG’s budgets. We also interviewed the current and former acting and temporary IGs who were in office from November 1, 2005, to the present time to gain an understanding of the conditions of their employment, obtained Office of Personnel Management documents to verify their employment status, and gained an understanding of the level of audit oversight provided based on available resources.

To determine how the role of the IG is addressed in the governance and management of USITC, we reviewed existing policies and procedures regarding the governance and management of USITC for accountability and regarding the IG; interviewed the Commissioners; and obtained information from the former acting and temporary IGs as well as the current IG. We also reviewed the statutory roles and responsibilities of the IG for independent audits and investigations as provided by the IG Act and noted where the activities of USITC governance were not consistent with the independence principles of the act. We reviewed the activities of USITC management regarding requirements for IG access to information by analyzing information obtained through interviews with USITC program directors, the former IGs, the USITC Chairman, former Chairmen, and the Commissioners. We also reviewed internal USITC documents related to the deliberation of the roles and responsibilities of the IGs. To obtain information about the investigative case referred to the Department of Justice (DOJ), we interviewed the IG Counsel at the Treasury IG for Tax Administration, Internal Revenue Service, who provided legal counsel to the USITC IG office.

We conducted this performance audit from November 2009 to October 2010 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.

Appendix II: Major USITC Operations, Offices, and Roles and Responsibilities

Information about the structure and activities of the U.S. International Trade Commission (USITC) is shown in table 4.

Additional USITC offices support the work of the five major operations shown in table 4: The Office of the Administrative Law Judges holds hearings and makes initial determinations in investigations of intellectual property–based imports.

The Office of the General Counsel serves as the chief legal advisor. The Office of the Director of Operations provides supervision of USITC offices that provide the five major operations.

The Office of External Relations develops and maintains a liaison between USITC and its diverse external customers.

The Office of the Chief Information Officer provides information technology leadership including information security.

The Office of the Director of Administration compiles and monitors the annual budget, and provides services for human capital, procurement, facilities management, and physical security.

The Office of Equal Employment Opportunity administers the affirmative action program and advises the Chairman and the Commissioners on equal employment issues.

The Office of the Secretary coordinates hearings and meetings and is responsible for official record keeping.

Appendix III: Comments from the Chairman, U.S. International Trade Commission

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the contact named above, Jackson Hufnagle, Assistant Director; Clarence Whitt; Francis Dymond; Jacquelyn Hamilton; and Cynthia Jackson made key contributions to this report.