Inspectors General: Reporting on Independence, Effectiveness, and Expertise
Released: 2011-09-21T00:00:00

Letter

Background

The IG Act created independent IG offices at 30 major departments and agencies with IGs appointed by the President, confirmed by the Senate, and who may be removed only by the President with advance notice to the Congress stating the reasons. (A listing of these 30 departments and agencies with presidential IG offices is provided in app. I.) In 1988, the IG Act was amended to establish additional IG offices located in 33 DFEs defined by the act. (A listing of the DFEs with IGs is provided in app. II.) Generally, the DFE IGs have the same authorities and responsibilities as those IGs originally established by the IG Act, but with the distinction that they are appointed and may be removed by their agency heads rather than by the President and are not subject to Senate confirmation. Although not in the scope of our review, there are 10 IGs established by other statutes with provisions similar to those in the IG Act. (A listing of the IGs established under other statutes is provided in app. III.)

The IGs appointed by the President are generally located in the largest departments and agencies of the government; the DFEs have smaller budgets and their IGs have correspondingly smaller budgets and fewer staff. The presidentially appointed IGs and the DFE IGs reported to us total budget authority for fiscal year 2010 of about $2.2 billion with approximately 13,652 authorized full-time equivalent staff and 13,390 staff on board at the end of fiscal year 2010. The presidentially appointed IGs’ budget authority constituted about 84 percent (about $1.8 billion) of the total, and they had about 86 percent (11,564) of the total staff on board. The budgets of the DFE IGs made up about 16 percent (about $352 million) of the total budget authority for IGs, and they had about 14 percent (1,826) of the total staff on board at the end of fiscal year 2010.

The IG Reform Act of 2008 (Reform Act) amended the IG Act by adding requirements related to IG independence and effectiveness. Among other provisions, the Reform Act requires the rate of basic pay of the IGs appointed by the President to be at a specified level, and for the DFE IGs, at or above a majority of other senior-level executives at their entities. The Reform Act also requires an IG to obtain legal advice from his or her own counsel or to obtain counsel from another IG’s office or from the Council of the Inspectors General on Integrity and Efficiency (IG Council). The IG Act also provides protections to the independence of the IGs while keeping both their agency heads and the Congress fully and currently informed about particularly flagrant problems and deficiencies within their agencies through a 7-day process specified by the act.

In addition, the Dodd-Frank Act amended the IG Act with provisions to enhance the independence of IGs in DFEs with boards or commissions. Specifically, the Dodd-Frank Act changed who would be considered the head of the DFE for purposes of IG appointment, general supervision, and reporting under the IG Act. If the DFE has a board or commission the amendments would now require each of these IGs to report organizationally to the entire board or commission as the head of the DFE rather than an individual chairman. 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 protection, most DFE IGs reported to, and were subject to removal by, the individual serving as head of the DFE.

The Reform Act also included a provision intended to provide additional IG independence through the transparent reporting of their budgets. Specifically, the Reform Act requires the President’s budget submission to the Congress to have the IGs’ requested budget amounts identified separately within their respective agency budgets, along with any comments provided by the IGs on the sufficiency of their budgets.

The American Recovery and Reinvestment Act of 2009 (Recovery Act) is one of the federal government’s key efforts to stimulate the economy in response to the most serious economic crisis since the Great Depression. The Recovery Act provided for IG oversight of the funds by creating the Recovery Accountability and Transparency Board (Recovery Board), which has an IG Chairman and 12 additional IG board members to prevent and detect fraud, waste, and abuse in the stimulus-funded programs. Altogether, there are 30 IGs involved with the oversight of Recovery Act funds. (A listing of the IGs providing oversight of Recovery Act funds is provided in app. IV).

Also, the IG Act includes a provision addressing the qualifications and expertise of the IGs by specifying that each IG appointment is to be 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 also limited to areas relevant to the tasks considered necessary. The IG Act Amendments of 1988 created DFE IGs but did not specify that these IG appointments made by agency heads were to be without regard to political affiliation and on the basis of demonstrated ability in specified fields. The Reform Act addressed the differences in criteria for IG appointment by providing the same provisions for both the DFE IGs and the IGs appointed by the President.

Scope and Methodology

We addressed our reporting objectives through our summary of responses to a survey sent to the federal statutory IGs established by the IG Act regarding their activities for fiscal year 2010, and additional analysis. We obtained and analyzed survey responses from 62 IGs established by the IG Act: including 30 IGs who were appointed by the President and confirmed by the Senate, and 32 DFE IGs. We augmented the survey data with information obtained from prior GAO reports, the President’s budget submission to the Congress for fiscal year 2011, and the IGs’ semiannual reports to the Congress.

For our discussion of the independence of the IGs, we summarized information from the responses to our survey questions about the implementation of selected provisions in the Reform Act, the IG Act, and the Dodd-Frank Act that are intended to enhance IG independence. Specifically, we asked all of the 62 IGs about the implementation of Reform Act provisions intended to keep IG pay and salaries at a specified level for IGs appointed by the President and consistent with other senior- level executives for the DFE IGs, and about the IGs’ sources of legal counsel. Our survey also obtained information about the extent to which the IGs found it necessary to communicate particularly flagrant problems to their agency heads and the Congress within 7 days as prescribed by the IG Act. These IG reports are commonly referred to as 7-day letters.

Regarding the effect of Dodd-Frank Act provisions to enhance independence, we obtained the views of the 26 DFE IGs with boards or commissions on whether their independence was enhanced by these provisions designating their boards and commissions as DFE heads rather than individual chairmen, and the requirement for the concurrence of a two-thirds majority of the board or commission for removal of an IG. We also obtained information from the President’s budget submission to the Congress for fiscal year 2011, to determine whether the IG budget amounts were separately identified along with any comments by the IGs regarding the sufficiency of their budgets.

To address the effectiveness of the IGs, we obtained information on the accomplishments of the IGs as reported to the IG Council for fiscal year 2009, in preparation for their annual report to the President. We also obtained information reported by the Recovery Board on its mission and accomplishments in providing oversight of Recovery Act funds. In addition, our survey questionnaire obtained information for fiscal year 2010 on management challenges identified by the IGs reporting under requirements of the Reports Consolidation Act of 2000. To identify the extent of oversight provided by the IGs, we summarized the reported management challenges to identify the major focus of these issues and obtained IG reports relevant to these issues provided by the IGs to our survey and from our review of the IGs’ semiannual reports to the Congress.

To address the IGs’ qualifications and expertise we summarized the 62 IGs’ survey information provided on the background of each IG, including professional experience, academic degrees, and professional certifications obtained prior to being appointed to an IG position. We compared this information to the areas of demonstrated ability specified by the IG Act and summarized the number of IGs in each area.

We conducted our work from November 2010 to September 2011 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any findings and conclusions.

We requested comments on a draft of this report from the IG Council. Written comments from the IG Council are reprinted in appendix V and summarized in the “Agency Comments” section of this report. We also received and incorporated as appropriate technical comments from several IG offices.

Independence

Our survey obtained information from 62 federal IGs appointed under the IG Act on actions taken concerning legislative provisions in the Reform Act and the IG Act intended to enhance IG independence. The IGs reported  pay that was at the specified levels required by the Reform Act for IGs appointed by the President and consistent with those of other senior- level officials as required for DFE IGs, thus helping to maintain IG independence and enhance their relative stature within their agencies by increasing their fixed compensation and eliminating discretionary compensation that could create a conflict of interest;  having access to independent legal counsel reporting to an IG instead of an agency management official, thus helping to ensure the independence of legal advice available to the IG; and rarely using 7-day letters as a way to independently inform agency heads and the Congress of serious problems concerning agency operations because such issues were resolved without the need for such a letter.

We also surveyed the 26 DFE IGs affected by the Dodd-Frank Act provisions intended to enhance IG independence for those IGs reporting to boards or commissions. Just over half of these IGs responded that the change of agency head to the full board or commission increased their independence and most responded that the requirements for a two- thirds concurrence among the board or commission members prior to an IG’s removal increased their independence.

In addition, based on our review of the President’s fiscal year 2011 budget submission to the Congress, the IGs’ budget amounts were not always separately identified as required by the Reform Act. To the extent the IGs’ budgets are separately identified, the added transparency of these amounts to the Congress can help increase IG independence. After we informed the IG Council about the results of our review concerning the IGs’ budgets, they agreed to review and assess the matter.

IGs Reported Having Pay at Required Levels

The Reform Act addressed the compensation of IGs and requires that IGs appointed by the President have their pay adjusted from Executive Schedule IV to Executive Schedule III plus 3 percent. In addition, the Reform Act requires that the grade, level, or rank designation for the DFE IGs be set at or above that of a majority of the senior-level executives of the agency, such as the general counsel, chief acquisition officer, chief information officer, chief financial officer, and the chief human capital officer at that agency. In addition, the DFE IG pay cannot be less than the average total compensation (including bonuses) of the senior-level executives at that agency calculated on an annual basis.

Of the 30 IGs appointed by the President, 27 reported being at or even above the required pay level; with the remaining 3 IGs reporting that they were in acting positions and the requirement was not currently applicable to them. Of the 32 DFE IGs who responded to our survey, 29 reported that their pay and salaries were consistent with those of the senior-level executives of their agencies. Of the remaining 3 DFE IGs, 1 was newly established in fiscal year 2011 and had not yet determined an amount of pay consistent with senior-level executives, 1 IG reported having the correct salary but not the corresponding grade level, and 1 IG was in an acting capacity and reported the requirement was not currently applicable.

IGs Reported Having Access to Independent Legal Counsel

The Reform Act also requires that each IG established by the IG Act have his or her own legal counsel or obtain necessary legal counsel from another IG office or from the IG Council. In a March 1995 report, we reported that the IG community expressed concerns that IGs with attorneys located organizationally in their agencies’ offices of general counsel would not always receive independent legal advice and that the IGs’ own independence could be compromised.

The results from our survey show that all the IGs established by the IG Act reported having access to a legal counsel that is organizationally independent, and none of the IGs rely on the general counsel offices of their agencies. For the 30 IGs appointed by the President, 29 employ their own legal counsel while 1 IG uses the legal services of another IG. All 32 DFE IGs who responded to our survey indicated that they obtain independent legal counsel, with 26 employing their own counsel, 5 using the legal counsels of other IGs’ offices, and 1 using the legal resources of the IG Council.

IGs Reported Rarely Using the 7-Day Letter

The IG Act provides a reporting tool that can protect the independence of the IGs who report immediately to the agency head particularly serious or flagrant problems, abuses, or deficiencies relating the administration of programs or operations. The IG Act requires the agency head in turn to transmit the IG report, with the agency head’s comments, to the appropriate committees or subcommittees of the Congress within 7 calendar days.

We asked whether any of the 62 IGs we surveyed had used the 7-day letter at any time during fiscal years 2008, 2009, and 2010. Only one, a presidentially appointed IG, had used the 7-day letter during this time frame. Specifically, on May 6, 2009, the IG delivered a report to the acting head under the IG Act provisions for a 7-day letter, in which the IG disagreed with the terms of a settlement reached by the agency with a grantee. The acting head provided the IG’s report to the chairmen of numerous congressional committees on May 12, 2009, which was within the 7-day time frame. The IG’s report gained the interest of congressional members and the issues were resolved by the President.

Generally, issues have been resolved more informally before getting to the point of using a 7-day letter. In 1999 we reported that no IGs had used the 7-day letter during the period of January 1990 through April 1998. In addition, we reported that a 10-year review of the IG Act by the House Committee on Government Operations in 1988 found that the IGs viewed the use of the 7-day letter as a last resort to attempt to force appropriate action by the agency.

IGs in DFEs with Boards and Commissions Generally Responded That the Dodd-Frank Act Provisions Enhance Independence

Provisions of the Dodd-Frank Act amending the IG Act are intended to provide an additional degree of independence to those IGs in DFEs with boards or commissions. Specifically, the Dodd-Frank Act provides that the head of the DFE with a board or commission will be the board or commission and consequently, the IG appointment is no longer subject to the judgment of a single individual. In addition, the Dodd-Frank Act requires the written concurrence of two-thirds of the members of these DFE boards and commissions for the removal or transfer of their IGs.

Twenty-six of the 33 DFE IGs are in DFEs with boards and commissions. Of these 26 DFE IGs, 14 reported that the act’s provision designating the boards and commissions as the DFE heads enhances their independence, and 20 responded that their independence is enhanced by requiring a two-thirds majority for their removal. A smaller number of affected IGs stated that these provisions had no effect on their independence, with 10 stating that the provision specifying the board or commission as the head had no effect and 5 reporting that the removal provision had no effect.

One DFE IG affected by the provisions did not respond to these survey questions. Also, a former DFE IG stated that reporting to his commission would reduce his independence because the commission has both federal and state members. However, the current IG who took office during our review stated that the primary concern is how nonfederal members would exercise their authority over a federal IG.

IG Budget Amounts Are Not Always Identified in the President’s Budget Submissions

The Reform Act amended the IG Act to require that IG budget requests include certain information and be separately identified in the President’s budget submission to the Congress. In addition, along with the separately identified IG budgets, the IGs may include comments with respect to the budget if the amount of the IG budget submitted by the agency or the President would substantially inhibit the IG from performing the duties of the office. These budget provisions are intended to help ensure adequate funding and additional independence of IG budgets by providing the Congress with transparency into the funding of each agency’s IG while not interfering with the agency head’s or the President’s right to formulate and transmit their own budget amounts for the IG.

The fiscal year 2011 budget included amounts for 28 of the 30 presidentially appointed IGs. One presidentially appointed IG office was newly established and not included in the full fiscal year 2011 budget process. However another IG subject to these requirements did not have a specific budget amount separately disclosed in the President’s budget. Of the 28 presidential IGs with budget amounts separately disclosed in the President’s budget, 1 included comments indicating that the IG’s fiscal year 2011 budget would substantially inhibit the IG from performing the duties of the office.

Regarding the DFE IGs, the President’s budget had specific budget amounts for only 7 of the 33 DFE IGs. There were four newly established DFE IGs that were not part of the full fiscal year 2011 budget process. The President’s budget did not contain specified budget amounts for the 22 remaining DFE IGs subject to these requirements. We notified the IG Council that most of the DFE IGs and one presidentially appointed IG did not have separate budget amounts included in the President’s budget submission to the Congress. The IG Council has responded that it will review and assess this matter and, if necessary, work with congressional and administration officials to resolve this issue.

Effectiveness

The IGs’ effectiveness was reflected in a range of reported accomplishments, such as potential dollars to be saved by the government through the results of federal IG audits, investigations, and other reports. In addition, IG effectiveness was demonstrated in their efforts to help prevent fraud, waste, and abuse. For example, IGs in agencies receiving Recovery Act funds have reported providing oversight in the areas of establishing and maintaining controls to help ensure the funds are used properly. Also, the IGs’ effectiveness was demonstrated by their reporting on oversight of management challenges identified at their agencies.

IGs Reported Significant Measurable Accomplishments

In their annual report to the President, the IGs established by the IG Act identified billions of dollars in savings and cost recoveries and other accomplishments resulting from their work in fiscal year 2009. As part of this report for fiscal year 2009, these IGs identified $43.3 billion in potential savings from audits and investigations; and reported over 5,900 criminal actions, 1,100 civil actions, 4,460 suspensions or debarments, and over 6,100 indictments resulted from their work. Based on this information, the potential dollar savings reported by these IGs represent a return on investment of approximately $18 for every IG dollar spent when compared to total IG fiscal year 2009 budget appropriations of $2.3 billion.

Recovery Board Reports of IG Effectiveness

In addition to measurable accomplishments, IGs also reported actions taken to prevent problems within their agencies, although these outcomes are more difficult to measure. For example, the IGs assisted in the oversight of expenditures authorized by the Recovery Act by reporting on preventive measures taken to help reduce the vulnerability of Recovery Act disbursements to fraud, waste, and abuse. The Recovery Act requires IG reviews of concerns raised by the public about investments of stimulus funds and provides IGs the authority to examine records and interview Recovery Act fund contractors and grantees. The Recovery Act established the Recovery Board whose members include 12 IGs and an additional IG as the chair, to coordinate and conduct oversight of funds distributed under the act in order to prevent fraud, waste, and abuse. In addition, the board is charged under the act with establishing and maintaining a user friendly website to foster greater accountability and transparency in the use of Recovery Act funds. To help prevent fraud and other potential wrongdoing, the IGs offered training to federal, state, and local employees, as well as contractors, private entities, and award recipients. The IGs’ training was intended to improve awareness of the legal and administrative requirements of the Recovery Act programs.

As of June 2011, the Recovery Board reported that the IGs received over 7,000 complaints of wrongdoing associated with Recovery funds, opened over 1,500 investigations, and completed over 1,400 reviews of activities intended to improve the use of Recovery Act funds. In addition, the Recovery Board reported that IGs have provided over 2,000 training sessions to almost 139,000 individuals on the requirements of Recovery Act programs, how to prevent and report fraud, and how to manage grant and contract programs to meet legal and administrative requirements.

Management Challenges Emphasize Agency Mission Issues

The management challenges reported annually by federal agencies in their performance and accountability reports along with relevant IG reports to address these challenges are key to focusing on effective IG oversight. The identification of management challenges by the IGs began in 1997 when congressional leaders asked the IGs to identify the 10 most serious management problems in their respective agencies. This request began a yearly process that continues as a result of the Reports Consolidation Act of 2000. This act calls for executive agencies to include their IGs’ lists of significant management challenges in their annual performance and accountability reports to the President, the Office of Management and Budget, and the Congress.

Not all agencies with IGs have requirements to report management challenges. Fifty-four of the IGs we surveyed reported having certain responsibilities for identifying management challenges in their agencies for fiscal year 2010. Through our survey, 27 of the IGs appointed by the President and 27 of the DFE IGs reported their agencies’ management challenges and provided examples of audit reports that addressed about 90 percent of those challenges reported.

The responses from the IGs appointed by the President show that most of the 203 management challenges they reported for fiscal year 2010 focused on issues specific to their agencies’ missions and performance management. (See fig. 1.) For example, the National Aeronautics and Space Administration’s IG reported that major changes to the direction of the nation’s space program present several management challenges, and the Department of Health and Human Services IG cited the management challenges associated with delivery of the nation’s health care. The other management challenges addressed by the IGs relate to information technology, procurement, financial management, and human resources.

In addition, to provide oversight coverage of management challenges, the presidential IGs issued reports that addressed about 93 percent of the management challenges identified. These reports contained recommendations for improving the weaknesses specified by the management challenges. For example, the Federal Deposit Insurance Corporation IG recommended strengthening specific controls over managing the closing process for failed financial institutions which is a key aspect of FDIC’s mission regarding insured depository institutions. Also, the Social Security Administration IG identified transparency and accountability issues as an agency management challenge and provided report recommendations for improved performance in this area.

The DFE IGs reported 124 management challenges for fiscal year 2010, with a focus on their agencies’ missions, information technology, and performance management. (See fig. 2.) For example, the Farm Credit Administration’s IG reported management challenges related to the safety, soundness, and mission accomplishment of the Farm Credit System. In addition, information technology, including information security, was often identified as a management challenge. For example, the Federal Maritime Commission’s IG and the National Labor Relations Board’s IG identified challenges in upgrading their agencies’ management systems. The performance management issues the DFE IGs identified as management challenges included timely implementation of IG recommendations by the Peace Corps and expanding public access at the National Archives and Records Administration. The management challenges included in the “other” category included concerns over internal controls, improper payments, and the security of federal property.

In addition, the DFE IGs issued reports that addressed almost 90 percent of the management challenges identified and contained recommendations for corrective actions. For example, the Farm Credit Administration IG assessed the agency’s readiness to take enforcement actions related to its mission. In another example, the Postal Service IG provided recommendations to improve the efficiency of postal operations related to performance management in sorting the mail.

Expertise

The 62 federal IGs responding to our survey reported information on their expertise and qualifications including the backgrounds, academic degrees, and professional certifications. The IGs’ information showed a wide range of backgrounds, skills, and professional certifications relevant to their work consistent with the areas of demonstrated experience specified by the IG Act. Figure 3 summarizes the background experiences of the 62 IGs who responded to our survey. Most of the IGs appointed by the President reported that they had a background in criminal justice, investigations, law enforcement, and public administration, while most of the DFE IGs had backgrounds in inspections and evaluations, criminal justice, investigations, law enforcement, accounting and auditing, and financial analysis.

As summarized in figure 4, we also obtained information on the academic degrees obtained by the 62 IGs. Most of the IGs reported having degrees in areas that are relevant to performing in an IG position and in areas of demonstrated experience specified by the IG Act. To illustrate, 15 (about half of the IGs appointed by the President) had law degrees and 1 presidential IG had a degree in an accounting and auditing area. Twelve DFE IGs had law degrees and an equal number of DFE IGs had degrees in accounting and auditing related areas. Additional degrees were reported by both presidential and DFE IGs in areas of criminal justice, investigations, law enforcement; management analysis; and public administration. Other academic degrees reported by presidential and DFE IGs included mathematics, science, sociology, education, psychology, and English.

With respect to professional certifications, 6 IGs appointed by the President reported having professional certifications and 28 DFE IGs reported they possessed at least one professional certification related to their IG responsibilities. For the presidential IGs, 2 were certified fraud examiners, 1 reported being a certified internal auditor, 1 reported being a certified government financial manager, and 2 had certifications in additional separate areas. Of the DFE IGs, 6 reported they are certified public accountants and 6 reported that they are certified internal auditors. Additional certifications reported by the DFE IGs include 6 certified government financial managers, 4 fraud examiners, 3 certified information systems auditors, and 7 with other certifications such as a certified government auditing professional, certified information security manager, certified information officer, and certified inspector general. (See fig. 5.)

Agency Comments

We received comments from the IG Council (reprinted in app. V), on September 13, 2011. The council commented that the draft provided useful information on the independence, activities, and accomplishments of the federal inspectors general and, as such, will contribute to a greater understanding of the work of the IGs in providing oversight to a wide range of government programs. We also received, and incorporated as appropriate, technical comments from several IG offices.

We will send copies of this report to members of the IG Council, including the Office of Management and Budget’s Deputy Director for Management, the Chairperson, the Vice Chairperson, and the IGs who participated in our survey. We will also send copies of the report to the Chairman and the Ranking Member of the Senate Committee on Finance.

If you have any questions or would like to discuss this report, please contact me at (202) 512-8486 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.

Appendix I: Departments and Agencies with Inspectors General1

IGs established by the IG Act of 1978, as amended, with appointment by the President and Senate confirmation.

Appendix II: Designated Federal Agencies with Inspectors General1

IGs established by the IG Act of 1978, as amended, with appointment by the agency head. In addition, the Department of State IG provides oversight of the Broadcasting Board of Governors, which is a designed federal entity.

Appendix III: Agencies and Offices with Inspectors General Established by Various Statutes

Appendix IV: Departments and Agencies with Inspectors General Responsible for Oversight of Recovery Act Funds

The IG is a member of the Recovery Accountability and Transparency Board.

Appendix V: Comments from the Council of the Inspectors General on Integrity and Efficiency

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Jackson W. Hufnagle, Assistant Director; Jacquelyn Hamilton; Werner F. Miranda Hernandez; Rebecca Shea; and Clarence A. Whitt made key contributions to this report.