The 31 DFEs we surveyed were established in various statutes as commissions, boards, authorities, corporations, endowments, institutions, agencies, and administrations. Their heads may be individuals, such as a chairperson or a director, or groups, such as commissions or boards. Individuals and members of commissions and boards are generally appointed by the President and confirmed by the Senate, but members for some entities are set statutorily without additional appointment and confirmation. For instance, the Pension Benefit Guaranty Corporation’s statute sets the corporation’s board members as the Secretary of Labor, Secretary of the Treasury, and Secretary of Commerce, all of whom are appointed to their cabinet positions by the President and confirmed by the Senate. Each year, the Office of Management and Budget (OMB) determines and publishes a list of DFEs and their heads. OMB uses the definition under the IG Act, as amended, for the head of a DFE, which is any person or persons designated by statute as the head of the DFE or if no such designation exists, the chief policymaking officer or board of the DFE. It is important to note that the term governing body for purposes of this report is broad and therefore could include members in addition to the entity head under the IG Act, as amended. Table 1 shows the 31 DFEs categorized by organizational structure and entity head for 2008. Governance can be described as the process of providing leadership, direction, and accountability in fulfilling an organization’s mission, meeting its objectives, and providing stewardship of public resources, while establishing clear lines of responsibility for results. Accountability represents the processes, mechanisms, and other means—including financial reporting and internal controls—by which an entity’s management carries out its stewardship and responsibility for resources and performance. Commonly accepted governance practices for federal entities and nonprofit corporations have significantly evolved since the financial scandals at large public companies in the early 2000s and passage of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act outlined a framework for more effective corporate governance and introduced reforms to public company financial reporting and auditing. Although the act strengthened corporate governance only in the private sector, the federal government and nonprofit sectors have also strengthened governance and internal control requirements and practices. According to OMB, passage of the Sarbanes-Oxley Act served as an impetus for the federal government to reevaluate its current policies related to internal control over financial reporting and management’s related responsibility. The Inspector General Act of 1978 (1978 IG Act) created offices of inspectors general at major departments and agencies to prevent and detect fraud and abuse in their departments’ and agencies’ programs and operations; conduct audits and investigations; and recommend policies to promote economy, efficiency, and effectiveness. In 1988, the 1978 IG Act was amended to establish additional IG offices in certain federal entities designated by the legislation. Generally, the DFE IGs have the same authorities and responsibilities as those established by the 1978 IG Act, but there is a clear distinction—they are appointed and removed by their agency heads rather than by the President and are not subject to Senate confirmation. The 31 DFE IGs make up about half of all IG offices established under the IG Act, as amended, and in fiscal year 2007 were responsible for oversight with respect to gross agency budgets that ranged from $10 million to $80.2 billion. The IG Reform Act of 2008 (2008 Reform Act) was enacted on October 14, 2008, to, among other things, enhance the independence of the inspectors general. (We have reported several times on independence issues and challenges for the IG community.) Specifically, the 2008 Reform Act provides that both the President and DFE heads must give written reasons to Congress for removing an IG at least 30 days prior to removal. The 2008 Reform Act mandates that IGs shall submit their budget to their entity’s head, who shall include, among other things, an aggregate request for the IG in the entity’s budget proposal to the President. The President must include in the budget of the U.S. government submitted to Congress a separate statement of each IG’s budget request, and the amount requested by the President for each IG. Before the act, only the presidentially appointed IGs and three DFE IGs had such transparency over their budgets. Regarding pay, the presidentially appointed IGs have been paid at Executive Level IV, while the DFE IGs have been paid at the GS-15 grade, Senior Executive Service level, or equivalent salary level determined by their entity. The 2008 Reform Act requires that all presidentially appointed IGs be paid at Executive Level III, plus 3 percent, and all DFE IGs shall be paid at a level at or above the level of a majority of senior executives of the respective DFEs. The 2008 Reform Act was effective upon passage, but it provided up to 180 days to establish the Council of Inspectors General on Integrity and Efficiency. While Congress has historically weighed many political and policy factors in deciding on DFE governance structures, and applied specific accountability requirements to achieve its original objectives, current private sector guidance says that governing bodies need to be large enough to accommodate the necessary skills set, but still small enough to promote cohesion, flexibility, and effective participation. DFEs vary in their statutory size and structure as well as their statutory purpose and requirements for governance. Survey responses showed that the size of DFE governing bodies ranges from 1 to 24 members. Thirteen of the 31 DFEs had at least one vacancy in their governing body. At 2 of the DFEs— the Consumer Product Safety Commission and National Labor Relations Board—active members were outnumbered by vacancies. Only 7 of 29 DFE governing bodies have committees that deal with governance or oversight. Committees can enhance the overall effectiveness of the governing body by ensuring focus and oversight in areas of concern. In order to improve governance and accountability at federal agencies, a variety of laws covering a range of management and administrative practices and processes have been enacted. Of 12 key governance and accountability statutes that we selected for review, 13 of 31 DFEs responded that they are statutorily required to comply with all 12 statutes. Based on the responses of the remaining 18 DFEs, the applicability of the 12 statutes varied, with 1 DFE—the Corporation for Public Broadcasting—stating that it is not subject to any of the 12 key governance and accountability statutes. Some entities that said they are not statutorily required to comply with the statutes indicated that they have adopted the provisions voluntarily or implemented an alternative mechanism to attain the objectives of the statute. Finally, in relation to the governing body’s effectiveness, 19 of the 29 DFEs surveyed reported having orientation programs for the new governing body, while only 10 DFEs reported having ongoing training for governing body members. Orientation and training programs for governing body members aimed at providing information on governance practices and the regulatory environment are important for the DFE governing body’s ability to carry out its responsibilities effectively and efficiently. Corporate governance guidelines in the private sector state that governing bodies should establish committees that will enhance their overall effectiveness by ensuring focus and oversight for areas of concern. Our work shows that few DFEs reportedly have audit committees, none have an ethics committee, and only a limited number have orientation and ongoing training for governing body members, which is inconsistent with the governance practices established in other sectors such as public companies or nonprofits. Congress has over many decades weighed a variety of political and policy considerations, such as political independence and accountability, efficiency, and specific entity missions, in deciding on DFE governance structures, and applied specific accountability requirements, such as governing body appointment and removal authorities and governing body public meeting requirements, to achieve its original objectives. Current private sector guidance says that governing bodies need to be large enough to accommodate the necessary skills set, but still small enough to promote cohesion, flexibility, and effective participation. The DFE’s governing bodies range in size from 1 to 24 members. For comparison, according to the 2006 edition of the annual Directors’ Compensation and Board Practices report by The Conference Board, the median board size of publicly traded corporations, depending on the industry, ranges from 9 to 11 members. Of the 31 DFEs, only the Corporation for Public Broadcasting, Legal Services Corporation, and United States Postal Service statutorily have 9 to 11 governing body members. Three entities— the National Science Foundation, Smithsonian Institution, and Appalachian Regional Commission—statutorily have more than 11 members, while the remaining 25 DFEs have 8 or fewer governing-body members. (See table 2.) At the time of our review, vacancies reportedly outnumbered active members on the governing bodies of the Consumer Product Safety Commission (CPSC) and the National Labor Relations Board. In recent years, Amtrak and the Federal Election Commission have also had significant vacancies. In January 2008, four of the six commissioner seats for the Federal Election Commission were vacant. Over the past several years the number of active board members at Amtrak has fluctuated, and at least twice—between December 2007 and March 2008 and between October 2003 and June 2004—the board had only two voting members (excluding the Secretary of Transportation or his designee). Without the minimum number of members required to conduct business, a board may be legally unable to make certain decisions. For instance, the Federal Election Commission’s enabling legislation requires that four of its six commissioners be present for certain entity business to be carried out. Also, the National Endowment for the Humanities and the National Endowment for the Arts governing bodies, which are single-member governing bodies, are currently vacant. According to The Conference Board’s corporate governance guidelines, corporate boards should be structured so that the composition and skill set of a board is appropriate based on the corporation’s particular challenges and strategic vision. The size of a governing body is important not only for establishing the necessary range of skills, but in promoting cohesion, flexibility, and effective participation of the members to achieve their governance objectives. Generally, the membership of DFE governing bodies is defined by the DFE’s authorizing legislation, with many DFE governing body members appointed by the President, with the advice and consent of the Senate. For instance, the Pension Benefit Guaranty Corporation’s governing body is statutorily composed of three members—the Secretary of Labor, Secretary of Treasury, and Secretary of Commerce. The Secretary of Labor is the chairperson and entity head under the IG Act. The Appalachian Regional Commission is statutorily composed of governors of the 13 Appalachian states and a federal cochair. The Smithsonian Board of Regents is statutorily composed of the Vice President, the Chief Justice of the United States, three members of the Senate, three members of the House of Representatives, and nine other members not from Congress. In order to improve governance and accountability at federal agencies, a variety of laws covering a range of management and administrative practices and processes have been enacted. We identified 12 statutes as key to governance and accountability. The statutes, which are described in Appendix III, cover funds control, performance and financial reporting, accounting and internal control systems, human resources management, and recordkeeping and access to information. They are the: Anti-Deficiency Act (ADA), “Purpose Statute” (31 U.S.C. § 1301(a)), Improper Payments Information Act of 2002 (IPIA), Accountability of Tax Dollars Act of 2002 (ATDA), Government Performance and Results Act of 1993 (GPRA), Federal Managers’ Financial Integrity Act of 1982 (FMFIA), Federal Information Security Management Act of 2002 (FISMA), Travel, Transportation, and Subsistence (5 U.S.C. Chapter 57), Whistleblower Protection Act (WPA), Ethics in Government Act of 1978 (Ethics), Freedom of Information Act (FOIA), and Government in the Sunshine Act (Sunshine). Based on results from a data request we sent to the DFEs, table 3 shows 13 of 31 reported that they are subject to all 12 key governance statutes. Reponded as subject to the te. In responding to our data request, several DFEs indicated that although they are not required to comply with a particular statute, they are in essence following the statute, having adopted the provisions of the statute voluntarily or implemented an alternative mechanism to attain the statute’s objectives. (See Appendix IV.) Corporate governance guidelines in the private sector state that governing bodies should establish committees that will enhance their overall effectiveness by ensuring focus and oversight for areas of concern. In the private sector, statutes and standards require that public company boards of directors maintain certain standing committees, such as audit, nominating, ethics, and compensation. In addition, governing bodies have established committees to focus on issues or particular concerns of the board such as risk, technology, public policy, and corporate governance. Committees handle specific issues or topics and usually make policy recommendations for the full board to consider. Most DFEs do not have governance or internal oversight committees. However, DFEs, like all federal entities, do receive oversight by congressional committees. Of the 29 DFEs responding to our survey, only 7—the Corporation for Public Broadcasting, Election Assistance Commission, Federal Reserve Board, Legal Services Corporation, National Science Foundation, Smithsonian Institution, and United States Postal Service—indicated that they have committees or advisory panels for enhancing governing body effectiveness that are commonly found in public companies or nonprofit organizations. As shown in table 5, 5 of those 7 have audit committees. None of the 29 governing bodies responding to our survey reported having a standing ethics committee. (See table 5.) Some federal entities have applied private sector corporate governance guidelines for oversight committees in response to recent governance challenges or reports on governance and accountability practices. Some of these challenges have even resulted in board reorganization and other governance changes. For instance, in response to an IG report, the Corporation for Public Broadcasting created a governance committee for its board and revised the board’s by-laws to clarify the board’s and president’s roles. In response to a GAO report, the Legal Services Corporation created an audit committee and also added the responsibilities of corporate governance to its Performance Review committee, which was renamed Governance and Performance Review. Based on recommendations of the Smithsonian Institution Board of Regents’ Governance Committee, the board adopted a set of duties and responsibilities for all regents, examined the board structure, and appointed new leadership for each committee. In the last 3 years, the United States Postal Service has added the role of governance to the responsibilities of its Strategic Planning Committee, added the Government Relations and Regulatory Committee, and developed a plan to comply with the Postal Accountability and Enhancement Act. The Board of Governors of the Federal Reserve combines functions of finance, budget, performance review, and operations in its Board Affairs Committee. According to The Conference Board’s Corporate Governance Handbook 2007, a company board’s responsibility typically includes: monitoring and evaluating senior management, reviewing and approving management’s strategic and business plans, reviewing and approving the entity’s risk management program, reviewing and approving financial objectives and plans, monitoring the entity’s performance against the strategic plan, and helping to ensure ethical behavior and compliance with laws and regulations. The Corporate Governance Handbook 2007 further states that a company board’s effectiveness depends on the quality and timeliness of information received in order to make informed decisions and perform its oversight function. Governing bodies establish committees to enhance the overall effectiveness of the board by ensuring focus on and oversight of matters of particular concern. Since the IG is responsible for preventing and detecting fraud and abuse, conducting audits and investigations, and recommending policies to promote economy, efficiency, and effectiveness, the work of an IG at an entity can benefit the governing body, particularly governing body and committee efforts to focus on issues and provide oversight of the entity. Because single-member governing bodies and other noncorporate entity governing bodies have many of the same responsibilities as corporate boards of directors, we believe that public company and nonprofit corporation governance practices may provide benefits to those governing bodies. Only five of the DFE governing bodies indicated they have an audit committee, which is one of the key elements in effective corporate governance. According to the National Council on Nonprofits Association, an audit committee provides independent oversight of the organization’s accounting and financial reporting and oversees the organization’s annual audits. In the private sector, an audit committee is generally responsible for the appointment, compensation, and oversight of the external auditor; handling board communication with the external auditor regarding financial reporting matters; and overseeing the entity’s financial reporting and the adequacy of internal control over financial reporting. In the federal government environment, the audit committee could also provide a key venue for the IG’s role in governance and in communicating with those charged with governance. Unless provided otherwise, the IG is responsible for conducting or overseeing the annual agency audit. New auditing standards reinforce the importance of communication between the financial auditor and those overseeing the organization’s governance. The auditing standards require that the auditor communicate with those charged with governance, who have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity. The standards recognize that multiple parties may be charged with governance including oversight bodies, members of legislative committees, boards of directors, audit committees, or parties contracting the audit. Without an audit committee, organizations may find it more difficult to ensure that weaknesses found during the financial audit as well as IG recommendations are addressed properly. None of the DFE governing bodies has a separate standing ethics committee. An ethics committee is responsible for ensuring that the organization has systems in place to provide assurance over employee compliance with the organization’s code of conduct and ethics. According to Standards for Internal Control in the Federal Government, a positive control environment includes integrity and ethical values that are provided by leadership through setting and maintaining the organization’s ethical tone, providing guidance for proper behavior, removing temptations for unethical behavior, and providing discipline when appropriate. The New York Stock Exchange requires that an ethics committee function be contained within the audit committee of listed companies. Although audit and ethics committees are accepted governance practices, in order to determine whether a governing body should create these committees, consideration should be given to the entity’s structure, size, mission, and risk. Nineteen of the 29 DFEs responding to our survey reported having orientation programs for new governing body members, and at least 15 of the 19 programs reportedly provide key information on oversight and governance issues, such as governing body policies and communications with management. Seventeen DFEs reported that the roles and duties of their entities’ IGs are included in the orientation program. Of 9 DFEs that reported having ongoing training for governing body members covering topics such as the fiduciary duty of board members and role of the IG, only 5 addressed some of the statutory requirements and oversight topics— such as Government in the Sunshine Act and Freedom of Information Act, travel policy, and ethics—considered necessary to keep board members updated on current federal government and management practices. DFEs are organizations unique in their missions, entity structure, governing body and oversight framework, and budget. They are also subject to varying governance and accountability statutes. Therefore, orientation and training can be especially important for new governing body members from the private sector who have not worked in the federal government and may not be familiar with the federal government statutes and environment, particularly the role of the IG and how the IG can assist the board in achieving its oversight duties. The initial training and orientation of new governing body members is a critical area for the governing body due to the significance of the stewardship, oversight, and potential fiduciary responsibilities of individual governing body members and the governing body as a whole. Current commonly accepted practice for public companies and nonprofit corporations is to provide board members with a broad-based orientation that encompasses the organization’s mission, vision, and strategic plan; its history; the members’ obligations and performance objectives; board policies on meetings and attendance; and board member job descriptions, including performance expectations and fiduciary obligations. Orientation and training programs help governing bodies to stay current with information on governance practices and the regulatory environment. In addition, a governing body needs to be kept up to date on key management practices and requirements in such areas as risk assessment and mitigation, internal controls, and financial reporting so that the governing body can oversee management’s key processes. As the governing body’s operating environment changes, new issues—whether regulatory, current practice, or industry specific—emerge with the changes. The orientation and training programs could help members of the governing body identify and address the new issues. According to The Conference Board’s corporate governance guidelines, governing bodies should meet regularly and focus principally on broader issues, such as corporate philosophy and mission, broad entitywide policy, strategic management, oversight and monitoring of management, and company performance against business plans. Of those we surveyed, the number of meetings that the 25 DFE governing bodies with more than 1 member held each year varied greatly from 2005 through 2007 (see table 6). It is critical that the number and length of governing body meetings allow the governing body members to appropriately fulfill their stewardship, oversight, and potential fiduciary duties, which include providing active oversight of the entity’s strategy implementation and risk management. The IGs were created equally under the IG Act, as amended; however, the entities’ structures, governance practices, and policies and procedures vary, thereby affecting the role of the IG. These variances can be seen in different ways including the IG reporting relationship, budget or spending authority, and the entity’s governing body and management response to IG recommendations. The IG Act, as amended, requires that DFE IGs report to and be under the general supervision of their entity head. Most of the DFE IGs we surveyed report to the highest levels in their entities, a structure that helps to safeguard IG independence in accordance with the IG Act and generally accepted government auditing standards. GAO’s Internal Control Management and Evaluation Tool states that the IG should have sufficient levels of competent and experienced staff and that the responsibilities, scope of work, and audit plans of the IG should be appropriate to the agency’s needs. The IG surveys also showed that most DFE IGs had limited control over their resources and that their budgets and staffing were not always adequate to perform audits or investigations related to the missions or management challenges of their entities. Government Auditing Standards state that restrictions on funds or other resources provided to the audit organization can impair independence and adversely affect the organization’s ability to carry out its responsibilities. Nine of the 31 DFE IGs who responded to our survey stated that they need approval from entity management for spending on specific activities such as travel and contracting and 12 DFE IGs responded that they need entity approval to hire staff. Management responsiveness to IG recommendations is another critical factor that can influence the effectiveness of IG oversight and the effect of IG work. IG responses to the survey showed that management responsiveness to recommendations and audit resolution activities also varied, with some DFE IGs reporting that agency responsiveness to recommendations was lacking. One entity reported having 117 outstanding recommendations, some dating to 1998. Only 10 DFEs reported that their governing bodies have written policies for monitoring the implementation of IG recommendations. Nine of those 10 have policies that require the governing body to respond in writing acknowledging the recommendations and to develop a plan to address them. Audit and oversight committees, which can help oversee implementation of recommendations, could assist IGs in providing effective oversight and actively tracking and resolving recommendations. The IG Act, as amended, requires that DFE IGs report to and be under the general supervision of their entity heads. The IG Act also requires IGs to perform audits in compliance with Government Auditing Standards, which state that for a government internal audit function to be independent, the head of the audit organization must be accountable to the head or deputy head of the government entity or to those charged with governance and be located organizationally outside the staff or line management function of the unit under audit. Without any other safeguards, the independence of an IG who must report audit or investigative findings in areas under the direct responsibility of his or her supervisor may be impaired in both fact and appearance. Twenty-nine of the 31 IGs we surveyed responded that they report either to their entity head or the entity governing body. Table 7 shows that 16 IGs responded that they meet with their entity heads at least weekly or monthly and 12 meet with them quarterly. Government Auditing Standards state that the internal audit organization, such as the IGs, should report regularly to those charged with governance. Six of the 31 IGs responded that their entity had an audit or other oversight committee that they meet with and 4 indicated that they met with the committee quarterly (See table 8). Government Auditing Standards state that multiple parties may be charged with governance, including oversight bodies, boards of directors, audit committees, or parties contracting for the audit. Since those charged with governance have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity, the IG’s regular communication with the audit or other oversight committee is important for the committee to carry out its governance duties. Government Auditing Standards state that audit organizations must be free from external impairments to independence. External impairments occur when auditors are deterred from acting objectively and exercising professional skepticism by actual or perceived pressures from management and employees of the entity. For example, an IG’s lack of control over the budgetary resources from its entity, such as the entity head restricting funds or other resources to the IG, can impair an IG’s independence and ability to carry out its responsibilities. Separate appropriation accounts for IGs can help provide transparency about the amount of the IG’s budget and reveal trends in resources provided to them. However, until passage of the 2008 Reform Act, there was no statute, including the IG Act, requiring separate appropriations accounts for all DFE IGs. Three DFE IGs have a separate appropriation account or line item in the Budget of the U.S. Government (Legal Services Corporation, National Science Foundation, and Federal Reserve Board). Twenty-six of 31 DFE IGs responding to the survey reported that they developed or oversaw development of their budgets, with 8 of the 26 receiving guidance from entity management which the survey responder indicated limited the size of the original request. Eight DFE IGs reported that they needed approval from entity management to spend funds for purchases, travel, training, and other IG activities (see table 9). Of the entities listed in table 9, the National Endowment for the Arts, National Endowment for the Humanities, National Archives and Records Administration, and the Consumer Product Safety Commission IGs indicated they have never had a problem obtaining additional funds when necessary. IGs at the Federal Labor Relations Authority (FLRA) and U.S. International Trade Commission, however, informed us that they had not been able to obtain funding for staff. A recent peer review of FLRA, for instance, found that the IG did not perform the required FISMA evaluations in 2006 and 2007 because management had not responded to the IG’s requests for funds to hire contract auditors. The peer reviewer recommended that the FLRA IG provide a copy of the peer review report to FLRA management and that the FLRA IG use the peer review report to seek assistance from other oversight bodies—including the appropriate subcommittees of Congress and OMB—for help in addressing the existing impairments to independence. The 2008 Reform Act mandates that IGs shall submit their budget to their entity’s head, who shall include, among other things, an aggregate request for the IG in their agency budget proposal to the President. The President must include in the budget submitted to Congress a separate statement of each IG’s budget request, and the amount requested by the President for each IG. This should provide more transparency to the IG budget process. GAO’s Internal Control Management and Evaluation Tool states that in assessing office of inspector general internal controls, the IG should consider whether it has sufficient levels of competent and experienced staff and that the responsibilities, scope of work, and audit plans of the IG should be appropriate to the agency’s needs. In fiscal year 2008, the 31 DFE IGs had budgets ranging from $331,000 to $233,300,000, with 5 having budgets $500,000 or under and 12 having budgets under $1,000,000. In addition to the IGs’ overall mandate to prevent and detect waste, fraud, and abuse and to promote economy and efficiency, specific audit work may arise from legal mandates, requests from entity management, requests from Congress, or from discretionary work deemed necessary by the IG. The IGs also reported that the percent of IG work spent on mandatory audits ranged from 0 to 100 percent. All 19 IGs who responded that their agencies are subject to the Accountability of Tax Dollar Act of 2002 (ATDA) reported that funding for the entity’s financial statements came from their IG budgets. In fiscal year 2008, 15 of 31 DFE IGs reported having 5 or fewer staff. Twelve of the 31 IGs responded that they need entity approval to hire staff. Limited staffing may affect the ability of the IG to conduct the full range of audits required by its mandate (See table 10). Twenty of 31 IGs reported they had their own full or part-time General Counsel. The IG offices that did not have their own General Counsel had 5 or fewer staff, except for Peace Corps, which had 17. Of those that did not have their own General Counsel, all but FLRA used a member of their entity’s General Counsel staff. FLRA used the General Counsel of another entity’s Office of Inspector General. Absent adequate safeguards, cases where the IG has no access to General Counsel other than that internal to entity management could pose a potential impairment to IG independence. GAO’s Internal Control and Management Evaluation Tool states that in assessing an entity’s internal controls, the entity should consider whether its IG regularly provides recommendations to management that are evaluated and implemented when appropriate. The tool also considers whether agency management has a mechanism to ensure prompt resolution of findings and recommendations from audits and other reviews. According to their survey responses, IGs made recommendations ranging in number from 0 to 593 in 2007. A number of the IGs we interviewed stated that agency responsiveness to IG and financial audit recommendations was lacking. One entity had 117 recommendations outstanding, some dating to 1998. Audit or advisory committees, which can play an oversight role in tracking and resolving recommendations, exist at only seven of the DFEs. Ten of the 29 DFEs that responded to our survey reported that their governing bodies have written policies for monitoring the implementation of IG recommendations. Nine of those 10 have policies that require the governing body to respond in writing acknowledging the recommendations and develop a plan to address them. Eight of the 10 also require that the governing body provide a time frame for implementing the IG recommendations and that the IG make a determination about whether the recommendations have been implemented. The Report Consolidation Act of 2000, as implemented by OMB Circular No. A-136, Financial Reporting Requirements, requires that IGs of executive agencies summarize the most serious management challenges faced by their entities and assess their entities’ progress in addressing these challenges. The challenges and any responses from the head of the agency are to be included in the agency’s Performance and Accountability Report (PAR). Twenty-four DFE IGs developed a list of management challenges annually for their entities, while Amtrak, Election Assistance Commission, Federal Reserve Board, National Credit Union Administration, Postal Regulatory Commission, and Smithsonian Institution reported they did not. Of those who prepared management challenges, 10 reported them in both their semiannual reports and their Performance and Accountability Reports. Another 10 documented management challenges only in their entity’s PAR and 2 reported them only in the IG semiannual report. Some entities documented their list of challenges in multiple places. The Legal Services Corporation IG did not report management challenges in either the semiannual report or the PAR, neither of which it is required to issue, but included them in the IG’s strategic plan. Despite the modernization of governance structures and practices that have occurred in the private sector in recent years, many DFEs, while similar to private corporations and nonprofits, have not updated their governance structures and practices. Therefore, the DFEs lag in commonly accepted governance practices, such as the use of audit committees, ethics committees, and orientation and training of governing body members. For entities using funding from taxpayers and donors, effective governance, accountability, and internal control are keys to maintaining trust and credibility. Although the DFE IGs receive equal treatment under the IG Act, as amended, variations in governance structures and practices among the entities create differing environments for them. Governance structures and practices can aid or hamper the work of the IGs, which were created by Congress to provide oversight and enhance the effectiveness of the mission of these entities. Reviewing and updating their governance structures, and the IG’s role, can provide DFE governing bodies with the opportunity to determine how to best use the IGs to enhance accountability and improve overall governance. As the 2008 Reform Act is implemented, some of the issues identified in our survey, such as lack of budget transparency and lack of control over budgets, may be mitigated. We are not making specific recommendations in this report, but are providing this information for consideration in future oversight of DFEs and their IGs. The information on governance structures and practices provided in this report can help inform continuing work to improve the effectiveness of government, such as the new IG Council established under the 2008 Reform Act, which can also use this information in its role of promoting and supporting the effectiveness of the IG community and fostering governmentwide efforts to improve management. The information provides a basis for beginning discussions on the governance structures and practices as well as the IG role, but additional individual entity analysis that considers entity structure, size, mission, and risk should be completed in order to determine whether the governance or IG practice would provide value. We requested comments on a draft of this report from all 31 DFE entity heads and IGs. Of the entity heads and IGs responding, a number provided technical comments that we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. We will then send copies of this report to other appropriate congressional committees, the DFE entity heads, and the DFE IGs. The report also is available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-2600 or franzelj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix V. Our reporting objectives were to describe (1) the statutory structure of the governing body for each designated federal entity (DFE) organization and (2) the inspector generals’ (IG) roles within the governance structure and management of their respective entities. We conducted this engagement from September 2007 to January 2009 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objective. 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 conclusion. To obtain the information needed for our two reporting objectives, we reviewed and summarized information from a variety of sources, including the enabling legislation of each DFE; the IG Act, as amended; the 2007 Performance and Accountability Report (PAR) or 2007 Annual Report of each DFE; the Office of Management and Budget’s (OMB) FY 2007 list of designated federal entities and federal entities; and prior GAO reports on inspectors general, accountability, and governance at the DFEs. Based on prior work, we identified relevant current private sector guidance for governance that included the following: The Conference Board, Corporate Governance Handbook, 2007: Legal Standards and Board Practices. National Council of Nonprofit Associations, Financial Accountability Lipman, F.D. and L.K. Lipman, Corporate Governance Best Practices: Strategies for Public, Private, and Not-For-Profit Organizations. American Bar Association, Guide to Nonprofit Corporate Governance in the Wake of Sarbanes-Oxley. Organization for Economic Cooperation and Development (OECD), OECD Principles of Corporate Governance. We also conducted a survey of the DFE entity heads and DFE IGs and conducted follow-up interviews as needed. We also submitted a data request of the DFE general counsels to ascertain whether their entities were statutorily required to comply, voluntarily complied, or do not follow 12 key governance and accountability statutes that we selected for review. We express no opinion on the applicability of the 12 statutes selected to any of the DFEs. We summarized survey, data request, and interview results for entity head and management control and supervision over the IG, budgets, use of resources, and other operational issues. We identified key factors regarding the effectiveness of the IG and summarized survey results and other information for impact on IG effectiveness. Much of the data presented in this report were obtained from the two surveys directed to the DFE entity heads and the DFE IGs. The DFE entity head survey included questions about governing body committees, meetings, orientation, training, financial statement audits, IG oversight, and internal controls. The DFE IG survey included questions about IG experience, staffing, budget, supervision, salary, communications, and resources. Since the population for both samples was known to be 31, we surveyed all DFE entity heads and DFE IGs. We identified inquiry areas based on the congressional request, previously conducted literature searches on governance responsibilities and structures, and our prior internal experience and reporting on related topics. A listing of numerous relevant publications is printed as appendix VI. We conducted a pretest of our questionnaire for DFE entity heads and for DFE IGs. We directed our DFE entity head survey to the entity head designated by OMB under the IG Act, as amended. We directed our DFE IG survey to the IG for each entity. We e-mailed the entity head questionnaires on March 25 and 26, 2008, and the IG questionnaires on March 25, 2008. Those entity heads not completing the questionnaire were e-mailed replacement questionnaires on April 16, 2008. Those IGs not completing the questionnaire were e- mailed replacement questionnaires on April 11, 2008. On May 21, 2008, we also made follow-up phone calls to nine entity heads and three IGs who had yet to complete the survey. We received 29 of 31 entity head questionnaires and all 31 of the IG questionnaires as of September 16, 2008. We also augmented our work by conducting a data request to obtain information from DFE general counsels. The data request included 12 questions about key governance and accountability statutes we selected and whether the entity was statutorily required to comply with, voluntarily complied with, or was neither statutorily required to follow nor voluntarily chose to comply with the statute. To determine the key governance and accountability statutes for our data request, we reviewed relevant prior GAO reports and compared published governance practices to the statutes. We directed our data request to the general counsel of the individual DFEs. We e-mailed the data requests on June 17 and 18, 2008. Those general counsels not completing the data request were e-mailed replacement data requests on August 1, 2008. On August 19, 2008, we also made phone calls to five general counsels. We received all 31 data requests. Statutory inspectors general were established by Congress after a series of events in the 1970s that included: a 1975 study by a subcommittee of the House of Representatives that found inadequacies in internal audit and investigative procedures in the Department of Health, Education, and Welfare, and a 1977 study by the House Intergovernmental and Human Resources Subcommittee that found serious deficiencies in a number of audit and investigative efforts including a systemic lack of (1) central leadership for audits and investigations, (2) auditor and investigator independence, (3) procedures to ensure Congress would be informed of serious problems, and (4) programs that looked for possible fraud or abuse. The Inspector General Act of 1978 (IG Act) was intended to address these issues by providing for independent IGs appointed by the President. The act charged the IGs with conducting and supervising audits and investigations; recommending policies to promote economy, efficiency, and effectiveness; and preventing and detecting fraud and abuse in their agencies’ programs and operations. IGs are also required to report on the results of their audits and investigations and prepare semiannual reports to agency heads and the Congress. Between 1978 and 1988, Congress passed legislation to establish statutory IGs in 8 additional agencies. The House Subcommittee on Legislation and National Security, Committee on Government Operations asked GAO to study the internal audit capabilities of smaller federal agencies. In May of 1984 GAO issued Status of Internal Audit Capabilities of Federal Agencies Without Statutory Inspectors General. Based on 99 responses to surveys of 105 federal organizations, GAO uncovered many of the issues that led to the establishment of 12 IGs in the IG Act. These included auditors supervised by officials responsible for the programs under review, leading to lack of auditor independence; inadequate audit coverage of vulnerable agency operations; lack of evaluation of significant fraud problems; and audit resolution and follow-up systems that did not meet government requirements. In a June 1986 follow-up report, Nonstatutory Audit and Investigative Groups Need to Be Strengthened, GAO reviewed 41 agencies without statutory IGs and found lack of independent and sufficient audit capabilities within agencies continued to be a problem. In its conclusion to the report, GAO supported legislation that had been recently introduced in Congress that would extend IG Act protections and requirements to most existing executive branch audit units. The Inspector General Act Amendments of 1988 and the Government Printing Office Inspector General Act of 1988 established statutory IGs in 5 additional departments and agencies, the Government Printing Office, and 33 designated federal entities (DFE) listed in the act. Under the 1988 amendments, the IGs established in the 5 departments and agencies were to be appointed by the President with Senate confirmation while the DFE IGs were to be appointed by entity heads. Various other statutes since 1978 have amended the IG Act to add or remove entities required to have IGs. Since the designated federal entities (DFEs) were established with different missions and during different years, the statutory requirements for the identified key governance and accountability statutes vary. Following are the key governance and accountability statutes identified that cover funds control and budgeting, performance and financial reporting, accounting and internal control systems, human resources management, and recordkeeping and access to information. Antideficiency Act (codified as amended in 31 U.S.C. 1341, 1342, 1351, and 1517)—Prohibits officers and employees of the government from obligating or expending funds in advance of or in excess of appropriations. Purpose Statute (31 U.S.C. § 1301(a))—Requires federal agencies and all U.S. government corporations, both mixed ownership and wholly owned, to use appropriated funds only for the purposes provided in the law. Improper Payments Information Act of 2002 (Public Law 107- 300)—Requires agencies to identify susceptible programs and activities, estimate their improper payments, and report on actions to reduce improper payments. Accountability of Tax Dollars Act of 2002 (Public Law 107-289)— The Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government Management Reform Act of 1994 (GMRA), requires the 24 agencies of the federal government covered by the CFO Act, including some independent agencies, to submit annual audited financial statements to the Office of Management and Budget (OMB) and Congress. The financial statements must be prepared in accordance with generally accepted accounting principles and audited in accordance with generally accepted government auditing standards. The Accountability of Tax Dollars Act of 2002 (ATDA) expanded this requirement to include most other federal executive agencies. Government Performance and Results Act of 1993 (Public Law 103-62)—Requires an annual performance report. The annual performance report shall reflect, among other things, the agency’s or corporation’s progress in achieving the performance goals set out in its annual performance plan, which implements a mandatory longer-term strategic plan. Federal Managers’ Financial Integrity Act of 1982 (FMFIA) (31 U.S.C. 3512 (c), (d))—Provides the statutory basis for management’s responsibility for and assessment of internal control. OMB Circular No. A-123, Management’s Responsibility for Internal Control (rev. Dec. 21, 2004), sets out the guidance for implementing the statute’s provisions, including agencies’ assessment of internal control under the standards prescribed by the Comptroller General. Agencies are required to annually provide a statement of assurance on the effectiveness of internal control. U.S. government corporations are not subject to FMFIA, but they are subject to similar requirements under the Government Corporation Control Act, which incorporates by reference the FMFIA standards in requiring U.S. government corporations to include in their annual management reports a statement on internal accounting and administrative control systems. Federal Information Security Management Act of 2002 (FISMA) (Public Law 107-347)—Requires the development and implementation of an entitywide information security program. As part of that program, FISMA requires entity heads to periodically (1) perform risk assessments of the harm that could result from information security problems, such as the unauthorized disclosure or destruction of information; (2) test and evaluate the effectiveness of elements of the information security program; and (3) provide security awareness training to personnel and contractors. FISMA also requires the federal entity to annually have its IG or an external auditor perform an independent evaluation of the entity’s information security programs and practices to determine their effectiveness and to annually submit a report on the adequacy and effectiveness of information systems to OMB, GAO, and Congress. Travel, Transportation, and Subsistence (5 U.S.C. Chapter 57) and Federal Travel Regulation—Statutory requirements and executive branch policies for travel by federal civilian employees and others authorized to travel at government expense. Whistleblower Protection Act (5 U.S.C. 2302)—Provides certain protections to employees of federal agencies and, to a limited extent, U.S. government corporations, when they engage in “whistleblowing,” which involves reporting evidence of illegal or improper federal employer activities to the relevant authorities. Ethics in Government Act of 1978(Public Law 95-521)—Governs ethical conduct, including public financial disclosure requirements, and limits outside earned income and activities. Freedom of Information Act (5 U.S.C. 552)—Requires that federal entities make their records available for public inspection and copying unless one of the listed FOIA exemptions applies, such as for records pertaining to medical files, internal personnel practices, or trade secrets. Government in the Sunshine Act(5 U.S.C. 552b; Public Law 94- 409)—Requires that all board meetings, including meetings of any executive committee of the board, must be open to public observation, unless an exception applies. This appendix contains profiles of the 31 designated federal entities (DFEs) and their offices of inspectors general (IG). The National Railroad Passenger Corporation was statutorily established to meet the nation’s intercity passenger transportation needs. Amtrak’s board statutorily consists of seven voting members and one ex- officio, nonvoting member (the President of Amtrak). The voting members are appointed by the President and confirmed by the Senate for a 5-year term. The President may choose to appoint the Secretary of Transportation to be a voting member. The Secretary of Transportation does not require the advice and consent of the Senate. As of October 2008, Amtrak had five voting board members including the Secretary of Transportation, and two vacancies. Audit and Finance; Government Relations, Legal, and Corporate Affairs; Personnel and Compensation; Security, Safety, and Environmental Affairs; and Service Development, Marketing, Product Management and Customer Service. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 166 recommendations for which management action was still needed. The Appalachian Regional Commission is a federal-state partnership that works with the people of Appalachia to create opportunities for self- sustaining economic development and improved quality of life. The commission’s purpose is to reduce the substantial socioeconomic gaps between Appalachia and the rest of the nation. The commission, a federal program, attempts to reduce these gaps by awarding grants to various projects such as workforce training, highway construction, small business start-up assistance, and education programs. The ARC has a 14-member commission composed of a cochairman and the governors of 13 Appalachian states. The federal cochairman is appointed by the President and confirmed by the Senate. The governors select a state cochairman from their number. The commission has an executive director responsible for carrying out the administrative functions of the commission and directing commission staff. Only the federal cochairman and his or her staff are federal employees. None. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were six outstanding recommendations. The Federal Reserve System (Federal Reserve), the central bank of the United States, is charged with conducting the nation’s monetary policy. Through its supervisory and regulatory banking functions, the Federal Reserve maintains the safety and soundness of the nation’s financial system. The Federal Reserve also maintains the stability of the financial system and provides services to depository institutions, the U.S. government, and foreign official institutions. The seven members of the Board of Governors of the Federal Reserve System are appointed by the President and confirmed by the Senate. A full term is 14 years. A member who serves a full term may not be reappointed. The chairman and the vice chairman of the board are designated by the President from among the members and are confirmed by the Senate. They serve a term of 4 years. A member’s term on the board is not affected by his or her status as chairman or vice chairman. The Committee on Board Affairs combines functions of finance, budget, performance review, and operations. Regulations are assigned to the committees on Supervisory and Regulatory Affairs and Consumer and Community Affairs. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 16 outstanding recommendations. The Broadcasting Board of Governors oversees all U.S. government and government-sponsored, nonmilitary, international broadcasting. These functions are carried out by the individual BBG international broadcasters: the Voice of America, Alhurra, Radio Sawa, Radio Farda, Radio Free Europe/Radio Liberty, Radio Free Asia, and Radio and TV Marti, with the assistance of the International Broadcasting Bureau. The board has nine members, eight appointed by the President and confirmed by the Senate, and the Secretary of State. The President appoints one member as chairman subject to the advice and consent of the Senate. No more than four members, excluding the Secretary of State, may be of the same political party. Members serve 3 years, excepting the Secretary of State, and receive compensation for time spent on BBG matters at the Level IV rate of the Executive Schedule. The Secretary of State does not receive any compensation for service to the board. All members are eligible for expense related to travel. Voice of America; International Broadcasting Bureau; Office of Cuba Broadcasting; Radio Free Europe/Radio Liberty; Radio Free Asia; Middle East (MBN); Personnel; and Language Service Review. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The Commodity Futures Trading Commission protects market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity futures and options, and fosters open, competitive, and financially sound futures and option markets. The President appoints, and the Senate confirms, five commissioners with demonstrated knowledge in futures trading or its regulation, or the production, merchandising, processing, or distribution of one or more of the commodities or other goods and articles, services, rights, and interests covered by 7 U.S.C. Chapter 1. No more than three commissioners can be of the same political party, and one commissioner is appointed as the chairman by the President, by and with the advice and consent of the Senate. Commissioners serve 5-year terms and generally serve until their successor is appointed and qualified. The chairman serves at the pleasure of the President. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There was one outstanding recommendation. The Consumer Product Safety Commission protects the public against unreasonable risks of injury from consumer products; assists consumers in evaluating the comparative safety of consumer products; develops uniform safety standards for consumer products and minimizes conflicting state and local regulations; and promotes research and investigation into the causes and prevention of product-related deaths, illnesses, and injuries. There are five commissioners, who are appointed by the President, with the advice and consent of the Senate. Commission members can be removed by the President for neglect of duty or malfeasance in office, but for no other reason. Commissioners are appointed to 7-year terms, with any vacancies filled for the remainder of the term. No more than three members may be of the same political party. The chairman is appointed by the President from among the members of the commission and confirmed by the Senate. The commission elects a vice chairman annually to act in the absence or disability of the chairman or in the case of a vacancy in the office of the chairman. The chairman, subject to commission approval, appoints the various officers for the commission’s operations. At least 30 days before the beginning of each fiscal year, the commission must establish an agenda for commission action. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The Corporation for Public Broadcasting is a steward of the federal government’s investment in public broadcasting. It helps support the operations of more than 1,000 locally owned and operated public television and radio stations nationwide and is a source of funding for research, technology, and program development for public radio, television, and related on-line services. The CPB board has nine members, appointed by the President with advice and consent of the Senate to terms of 6 years. No more than five may be members of the same political party. Annually, the board elects a chairman from its members as well as one or more vice chairmen. The board also selects the president of the corporation and appoints other corporate officers. A member whose term has expired may serve until his successor has taken office or until the end of the calendar year, whichever comes first. No member may serve in excess of two consecutive terms. The members of the board are not considered officers or employees of the United States. Members receive $150 per day for meetings and board work, including travel time and are reimbursed for actual, reasonable, and necessary expenses. No member may receive compensation of more than $10,000 in any fiscal year. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were six outstanding recommendations. The Denali Commission is a federal-state partnership designed to provide critical utilities, infrastructure, and economic support throughout Alaska. There are seven board members including the federal cochair. Six of the seven positions are statutorily defined as the Governor of the State of Alaska, who serves as the state cochair; the President of the University of Alaska; the President of the Alaska Municipal League; the President of the Alaska Federation of Natives; the Executive President of the Alaska State AFL/CIO; and the President of the Associated General Contractors of Alaska. The Secretary of Commerce appoints the federal cochair from a list of nominations from the President pro temporare of the Senate and the Speaker of the House of Representatives. The federal cochair serves for 4 years and may be reappointed. Except for the federal cochair, members receive a basic rate of pay at Level IV of the Executive Schedule plus travel expenses for time spent on commission work. The commission must meet at least twice a year. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 27 outstanding recommendations as of March 31, 2008. The EAC, established by the Help America Vote Act of 2002, serves as a national clearinghouse and resource for information and review of procedures with respect to the administration of federal elections. The commission has four members appointed by the President with the advice and consent of the Senate. The commission selects the chair and vice chair, who may not be from the same political party, from among its members. The chair and vice chair each serve 1-year terms and may only serve in that position once during each term of office. Members serve for 4 years and may only serve two terms. Each member is compensated at the annual rate of basic pay for Level IV of the Executive Schedule. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 41 recommendations outstanding. The Equal Employment Opportunity Commission enforces laws that prohibit discrimination based on race, color, religion, sex, national origin, disability, or age in hiring, promoting, firing, setting wages, testing, training, and all other terms and conditions of employment. The commission has five members, no more than three of whom may be from the same political party. They are appointed by the President with the advice and consent of the Senate. The President also designates two of the members to be the chairman and vice chairman. The chairman runs the commission’s operations. Members serve for 5 years. None. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 12 recommendations outstanding. The Farm Credit Administration is responsible for ensuring the safe and sound operation of the banks, associations, affiliated service organizations, and other entities that collectively comprise what is known as the Farm Credit System, and for protecting the interests of the public and those who borrow from Farm Credit institutions or invest in Farm Credit securities. The FCA board has three members appointed by the President with the advice and consent of the Senate. One member is designated by the President as the chairman and also serves as the CEO. Members serve for 6 years and may not be reappointed unless they were appointed to fill unexpired terms of 3 years or less. (1) GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were three outstanding recommendations. The Federal Communications Commission regulates interstate and foreign commerce in communications by radio, television, wire, satellite, and cable. It is responsible for the provision of rapid, efficient nationwide and worldwide communication services at reasonable rates. Its responsibilities also include the use of communications for promoting safety of life and property and for strengthening the national defense. Five commissioners are appointed by the President, with the advice and consent of the Senate for a term of 5 years. The President designates one commissioner to be chairman. Commissioners receive an annual rate of pay at Level IV of the Executive Schedule, with the chairman receiving Level III. The commission has the authority to appoint the officers and staff of the FCC and determine their compensation. Meetings of the commission must be held no less than once a month. No data. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The FEC ensures the campaign finance process is fully disclosed and that laws regarding campaign finance are enforced. It also enforces the Federal Election Campaign Act (FECA) and oversees the Presidential public funding program. The commission is made up of six members, who are appointed by the President and confirmed by the Senate. Each member serves a single, 6- year term. By law, no more than three commissioners can be members of the same political party, and at least four votes are required for any official commission action. A new chairman is chosen each year from among the members, with no member serving as chairman more than once during his or her term. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 51 outstanding recommendations. The Federal Housing Finance Board ensures the safety and soundness of the Federal Home Loan Banks, their access to the capital markets, and the fulfillment of their housing finance mission. Under the Housing and Economic Recovery Act (HERA) of 2008 (Pub. L. No. 110-289, 122 Stat. 2654 (July 30, 2008)), the FHFB will cease to exist 1 year after the effective date of HERA, or July 30, 2009, to be replaced by the Federal Housing Finance Agency (FHFA). HERA also amended the IG Act to require that the FHFA have an IG appointed by the President and confirmed by the Senate. The board is comprised of four members appointed by the President and confirmed by the Senate, who serve a 7-year term, and the Secretary of HUD. The President designates one of the board members as chairman. No more than three may be of the same political party and terms are staggered to end every other year. Members filling a vacancy serve only the remainder of the predecessor’s term. None. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The Federal Labor Relations Authority oversees the federal service labor- management relations program. It administers the law that protects the right of employees of the federal government to organize, bargain collectively, and participate through labor organizations of their own choosing in decisions affecting them. The authority also ensures compliance with the statutory rights and obligations of federal employees and the labor organizations that represent them in their dealings with federal agencies. The authority is comprised of three board members who are appointed to 5-year terms by the President and confirmed by the Senate. No more than two may be from the same political party. The President designates one member to be chairman, who acts as chief executive and administrative officer of the authority. The chairman is compensated at Level III of the Executive Schedule and the other members are compensated at Level IV. None. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 179 outstanding recommendations. The Federal Maritime Commission is responsible for regulating the waterborne foreign commerce of the United States. It ensures that U.S. ocean-borne trades are open to all on fair and equitable terms and protects against concerted activities and unlawful practices. The commission is comprised of five commissioners, who are appointed by the President and confirmed by the Senate to 5-year terms. The President designates one of the commissioners as chairman. No more than three may be members of the same political party. The chairman is the chief executive and administrative officer for the commission. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The Federal Trade Commission enforces the laws that prohibit business practices that are deceptive or unfair to consumers; promotes informed consumer choice and public understanding of the competitive process; and seeks to accomplish its mission without impeding legitimate business activity. The commission is comprised of five commissioners, nominated by the President and confirmed by the Senate, each serving a 7-year term. The President chooses one commissioner to act as chairman. No more than three commissioners can be of the same political party. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were three outstanding recommendations. The Legal Services Corporation’s mission is to promote equal access to justice and to provide high-quality civil legal assistance to low-income persons. The board has 11 members appointed by the President and confirmed by the Senate for 3-year terms. The board elects a chairman annually from among its members and appoints the president of the corporation. The board must meet at least four times per year. Audit; Finance; Governance and Performance Review; Operations and Regulations; Provision for the Delivery of Legal Services. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The National Archives and Records Administration safeguards and preserves the records of our government, ensuring that the people can discover, use, and learn from this documentary heritage; establishes policies and procedures for managing U.S. government records; manages the Presidential Libraries system; and publishes the laws, regulations, and presidential and other public documents. The Archivist is appointed by the President and confirmed by the Senate. There is no set term of office. The Archivist chooses the Deputy Archivist. Not applicable. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The National Credit Union Administration is responsible for chartering, insuring, and supervising federal credit unions and administering the National Credit Union Share Insurance Fund. The administration also administers the Community Development Revolving Loan Fund and manages the Central Liquidity Facility, a mixed-ownership government corporation that supplies emergency loans to member credit unions. The management of NCUA is vested in a full-time, three-member board appointed by the President and confirmed by the Senate. No more than two board members can be from the same political party, and each member serves a staggered 6-year term. The NCUA board normally meets monthly, except August. (571) GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The National Endowment for the Arts, established by Congress in 1965 as an independent federal agency, is the official arts organization of the United States government. It is dedicated to supporting excellence in the arts, both new and established; bringing the arts to all Americans; and providing leadership in arts education. The NEA is headed by a chairperson appointed by the President and confirmed by the Senate. The chairperson serves for 4 years and may be reappointed or serve until a successor is appointed. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The National Endowment for the Humanities is an independent federal agency established by Congress in 1965 to support research, education, preservation, and public programs in the humanities. NEH is directed by a chairperson, who is appointed by the President and confirmed by the U.S. Senate, for a term of 4 years. The chairperson is eligible for reappointment and may continue to serve until a successor has been appointed and qualified. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The National Labor Relations Board is vested with the power to prevent and remedy unfair labor practices committed by private sector employers and unions and to safeguard employees’ rights to organize and determine whether to have unions as their bargaining representative. The chairman and four board members are selected by the President and confirmed by the Senate. Board members serve staggered 5-year terms. The President designates one member to serve as chairman of the board. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 20 outstanding recommendations. The National Science Foundation promotes the progress of science and engineering through the support of research and education programs. The National Science Board (NSB) is made up of 24 members appointed by the President and confirmed by the Senate, and the NSF director is an ex officio member. Members serve 6-year terms; one-third of the board is appointed every 2 years. NSB members are drawn from industry and universities, and represent a variety of science and engineering disciplines and geographic areas. The NSB meets about six times a year. It reviews and approves major NSF awards and new programs and initiates and conducts studies and reports on a broad range of policy topics. The NSB also publishes occasional policy papers or statements on issues of importance to U.S. science and engineering. Audit and Oversight; Strategy and Budget; Programs and Plans; Education and Human Resources; and Executive. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 76 outstanding recommendations. The mission of the Peace Corps is to help the people of interested countries in meeting their need for trained men and women, and to help promote better mutual understanding between Americans and citizens of other countries. The director and deputy director are appointed by the President and confirmed by the Senate. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 113 outstanding recommendations. The Pension Benefit Guaranty Corporation provides for timely and uninterrupted pension benefits payments to participants and beneficiaries of voluntary private pension plans. PBGC is administered by a director who reports to a board of directors, which consists of the Secretaries of Labor, Commerce, and Treasury. The Secretary of Labor is chairman of the board and calls meetings. Members serve without compensation, but are reimbursed for expenses incurred during board business. The corporation is aided by a seven-member Advisory Committee appointed by the President. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 113 outstanding recommendations. The Postal Regulatory Commission oversees the Market Dominant and Competitive Products of the U.S. Postal Service, adjusts as necessary lists of these products, and reviews related complaints. The commission is composed of five commissioners, each of whom is appointed by the President, with the advice and by consent of the Senate, for a term of 6 years. The Chairman is designated by the President. A commissioner may continue to serve after the expiration of his or her term for up to 1 year. No more than three members of the commission may be members of the same political party. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were no outstanding recommendations. The Securities and Exchange Commission administers federal securities laws that seek to provide protection for investors; to ensure that securities markets are fair; and, when necessary, to provide the means to enforce securities laws through sanctions. The SEC consists of five commissioners appointed by the President and confirmed by the Senate, with staggered 5-year terms. One of them is designated by the President as chairman of the commission—the agency’s chief executive. No more than three of the commissioners may belong to the same political party. (531) GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 59 outstanding recommendations. The Smithsonian Institution is an independent trust instrumentality of the United States which comprises an extensive museum and research complex. It is dedicated to the increase and diffusion of knowledge. The Board of Regents has 17 members, including the Vice President, the Chief Justice of the United States, 3 members of the U.S. Senate, and 3 members of the House of Representatives. Nine other persons other than members of Congress, 2 of whom must be Washington D.C. residents and 7 from U.S. states, make up the remainder. House members serve for 2 years, the Senate members serve their term as Senators, and the other 9 members serve for 6 years. The board elects its own chancellor, who is the presiding officer of the Board of Regents. The board also elects the Secretary of the institution and three board members as an executive committee. At least 8 members must be present for the meeting to have a quorum. Members are paid travel expenses to attend meetings but their service is otherwise gratuitous. Audit and Review; Executive; Compensation and Human Resources; Facilities; Finance; Investment; Governance and Nominating; Advancement; and Strategic Planning and Programs. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 61 outstanding recommendations. The United States International Trade Commission administers U.S. trade remedy laws within its mandate; provides the President, the United States Trade Representative, and Congress with analysis, information, and support on matters of tariffs and international trade and competitiveness; and maintains the Harmonized Tariff Schedule of the United States. The USITC is headed by six commissioners who are nominated by the President and confirmed by the U.S. Senate. No more than three commissioners may be members of the same political party. The commissioners serve overlapping terms of 9 years each, with a new term beginning every 18 months. The chairman and vice chairman are designated by the President from among the current commissioners for 2- year terms. The chairman and vice chairman must be from different political parties, and the chairman cannot be from the same political party as the preceding chairman. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There was one outstanding recommendation. The mission of the USPS is to provide the nation with reliable, affordable, universal mail service. The Board of Governors of USPS is composed of 11 members. It includes nine governors who are appointed by the President and confirmed by the Senate and the Postmaster General and the Deputy Postmaster General. The nine governors select the Postmaster General, who becomes a member of the board, and those 10 select the Deputy Postmaster General, who also serves on the board. The Postmaster General serves at the pleasure of the governors for an indefinite term. The Deputy Postmaster General serves at the pleasure of the governors and the Postmaster General. Members of the Board of Governors serve for 7 years. Each governor receives $300 per day for not more than 42 days of meetings each year and travel expenses, in addition to an annual salary of $30,000. Audit and Finance; Compensation and Management Resources; Government Relations and Regulatory; Governance and Strategic Planning; and Ad Hoc Committee on Operations. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 212 outstanding recommendations. Jeanette Franzel (202) 512-2600 or franzelj@gao.gov. In addition to the person named above, major contributors to this report were Kimberly McGatlin (Assistant Director), Lisa Crye, Francis Dymond, Joel Grossman, Jacquelyn Hamilton, Maxine Hattery, Jennifer Henderson, Jack Hufnagle, Chelsea Lounsbury, and Tory Wudtke. Inspectors General: Independent Oversight of Financial Regulatory Agencies. GAO-09-524T. Washington, D.C.: March 25, 2009. Inspectors General: Actions Needed to Improve Audit Coverage of NASA. GAO-09-88. Washington, D.C.: December 18, 2008. Legal Services Corporation: Improvements Needed in Governance, Accountability, and Grants Management and Oversight. GAO-08-833T. Washington, D.C.: May 22, 2008. Smithsonian Institution: Board of Regents Has Implemented Many Governance Reforms, but Ensuring Accountability and Oversight Will Require Ongoing Action. GAO-08-632 . Washington, D.C.: May 15, 2008. Federal Oversight: The Need for Good Governance, Transparency, and Accountability. GAO-07-788CG. Washington, D.C.: April 16, 2007. Smithsonian Institution: Status of Efforts to Address a Range of Funding and Governance Challenges. GAO-08-250T. Washington, D.C.: December 12, 2007. Inspectors General: Limitations of IG Oversight at the Department of State. GAO-08-135T. . Washington, D.C.: October 31, 2007. Legal Services Corporation: Governance and Accountability Practices Need to Be Modernized and Strengthened. GAO-07-993. Washington, D.C.: August 15, 2007. Pension Benefit Guaranty Corporation: Governance Structure Needs Improvements to Ensure Policy Direction and Oversight. GAO-07-808. Washington, D.C.: July 6, 2007. Inspectors General: Proposals to Strengthen Independence and Accountability. GAO-07-1021T. Washington, D.C.: June 20, 2007. Inspectors General: Activities of the Department of State Office of Inspector General. GAO-07-138. Washington, D.C.: March 23, 2007. Corporate Governance: NCUA’s Controls and Related Procedures for Board Independence and Objectivity Are Similiar to Other Financial Regulators, but Opportunities Exist to Enhance Its Governance Structure. GAO-07-72R. Washington, D.C.: November 30, 2006. Suggested Areas for Oversight for the 110th Congress. GAO-07-235R. Washington, D.C.: November 17, 2006. Intercity Passenger Rail: National Policy and Strategies Needed to Maximize Public Benefits from Federal Expenditures. GAO-07-15. Washington, D.C.: November 13, 2006. Highlights of the Comptroller General’s Panel on Federal Oversight and the Inspectors General. GAO-06-931SP. Washington, D.C.: September 11, 2006. United Nations: Funding Arrangements Impede Independence of Internal Auditors. GAO-06-575. Washington, D.C.: April 25, 2006. Activities of the Treasury Inspector General for Tax Administration. GAO-05-999R. Washington, D.C.: September 27, 2005. Amtrak: Management and Accountability Issues Contribute to Unprofitability of Food and Beverage Service. GAO-05-761T. Washington, D.C.: June 9, 2005. Kennedy Center: Stronger Oversight of Fire Safety Issues, Construction Projects, and Financial Management Needed. GAO-05-334. Washington, D.C.: April 22, 2005. Tax-Exempt Sector: Governance, Transparency, and Oversight Are Critical for Maintaining Public Trust. GAO-05-561T. Washington, D.C.: April 20, 2005. Activities of the Amtrak Inspector General. GAO-05-306R. Washington, D.C.: March 4, 2005. Inspectors General: Enhancing Federal Accountability. GAO-04-117T. Washington, D.C.: October 8, 2003. Department of Health and Human Services: Review of the Management of Inspector General Operations. GAO-03-685. Washington, D.C.: June 10, 2003. Inspectors General: Office Consolidation and Related Issues. GAO-02-575. Washington, D.C.: August 15, 2002. Inspectors General: Comparison of Ways Law Enforcement Authority Is Granted. GAO-02-437. Washington, D.C.: May 22, 2002. Inspectors General: Department of Defense IG Peer Reviews. GAO-02-253R. Washington, D.C.: December 20, 2001. U.S. Export-Import Bank: Views on Inspector General Oversight. GAO-01-1038R. Washington, D.C.: September 6, 200l. HUD Inspector General: Actions Needed to Strengthen Management and Oversight of Operation Safe Home. GAO-01-794. Washington, D.C.: June 29, 2001.

Summary: For entities that rely on others for funding, effective governance, accountability, and internal control are keys to maintaining trust and credibility. In recent years, corporate governance and accountability have received increased scrutiny and emphasis in the nonprofit, federal government, and public company sectors. Governance and accountability problems have also been identified at designated federal entities (DFE) such as the Smithsonian Institution, the Legal Services Corporation, and the Pension Benefit Guaranty Corporation. This report responds to a congressional request that GAO describe (1) the statutory structure of the governing bodies for each DFE organization and (2) the role of the inspectors general (IGs) in the governance structure. To accomplish this, GAO surveyed the DFE heads and IGs on governance issues and reviewed information from a variety of sources, including the IG Act and subsequent amendments; enabling legislation for the DFEs; and legislative and regulatory standards and requirements for financial reporting and internal control. GAO is not making specific recommendations in this report, but is providing this information for consideration in future efforts to update the governance of DFEs, oversee the entities and their IGs, and continue work to improve the effectiveness of government. GAO received technical comments, which were incorporated as appropriate. The DFEs vary in structure and requirements for governance. At the time of GAO's review, the designated size of the governing bodies of the 31 DFEs ranged from 1 to 24 members. Fifteen had at least one vacancy and 2 had more vacancies than sitting members. The frequency of DFE multimember governing-body meetings ranged from daily to rarely or not at all. In GAO's survey of DFEs, 13 indicated that they are required to comply with 12 key statutes that cover management and accountability. The remaining 18 reported varying requirements, with one not subject to any of the statutes. Only 7 DFE governing bodies have a structure that includes governance or oversight committees for ensuring oversight of management decisions, results of operations, and emerging risks. While 19 DFEs reported having orientation programs for new governing body members, only 9 reported ongoing training. IG effectiveness is influenced by an entity's governance structure and practices. Within DFEs, IGs vary in their role and relationship with management. IGs are charged with preventing and detecting fraud and abuse; conducting audits and investigations; and recommending policies to promote economy, efficiency, and effectiveness. To accomplish these objectives, IGs must be able to establish and maintain independence; have control of their resources to plan and perform work; recruit, retain, and manage sufficient professional staff; and be able to resolve audit and investigation recommendations. GAO's survey of IGs showed that most report to the highest levels in their entities, a legislative requirement that is a key element of independence. At the same time, the IGs had limited control over their resources, and their budgets and staffing were not always adequate to perform needed audits and investigations. Only 3 IGs had the transparency that a separate line item in their entity's budget provides, and 8 needed management approval for spending. Audit resolution varied, with some IGs reporting a lack of entity responsiveness to recommendations. Only 10 DFEs reported that their governing bodies have written policies for monitoring the implementation of IG recommendations. Nine of the 10 have policies that require the governing body to respond in writing and to develop a plan to address recommendations. During the course of GAO's work, Congress passed and the President signed into law on October 14, 2008, the Inspector General Reform Act of 2008, which was intended to enhance IG independence. Its implementation may mitigate some of the issues GAO found.