We obtained the budget authority and the staffing levels at the State IG office and the budget authority of the State Department for fiscal years 2001 through 2005 by analyzing OMB budget data for those years. Additional information on staff levels and resource distribution were obtained from the State IG to identify trends over this period. We identified audit, inspection, and investigative accomplishments reported by the State IG in semiannual reports to the Congress for fiscal years 2001 through 2005. We did not audit or otherwise verify the dollar amounts of the financial accomplishments reported by the State IG. To review the IG’s audit and inspection oversight coverage of the State Department, we compared the contents of the audits and inspections completed by the State IG in fiscal years 2004 and 2005 with the high-risk areas designated by GAO and with the management and performance challenges identified by the State IG. To review the investigative coverage, we used the investigative accomplishments reported by the State IG to show the level of investigative activity. To obtain information about the quality control process used by the State IG, we obtained an understanding of the internal quality review process used by the IG. We also obtained reports of the most recent external quality peer reviews of the State IG’s audit and investigative activities performed by other IG offices. Due to the lack of a peer review requirement for inspections, we compared the State IG’s inspections with relevant standards related to independence, quality control, and evidence from the PCIE and ECIE Quality Standards for Inspections, 2005 revision, as well as the State IG’s implementing policies and procedures for these standards. We also compared relevant inspection standards with Government Auditing Standards, and compared additional activities of the State IG related to independence with PCIE and ECIE Quality Standards for Offices of Inspector General, revised in October 2003. Specifically, we gained an understanding of the types of documentation and evidence supporting inspection recommendations through a judgmental sample of 10 inspection reports selected from a total of 112 inspection reports issued over fiscal years 2004 through 2005 that were not classified for national security purposes, and that did not include inspections of the Board of Broadcasting Governors. We did not test the reasonableness of the inspection recommendations or otherwise re- perform the inspections. Our sample covered different months, various team leaders, and different State Department locations. Due to the concerns of the State IG about the confidentiality of information sources used to complete the IG’s inspections, we agreed to limit the types of documentation subject to our review. Officials for the IG stated that the documents not provided for our review were memorandums with information from confidential sources. We base our conclusions on the documents and information that we reviewed related to our sample of inspection reports. In those examples where inspection report recommendations lacked documented support, we verified that this was not due to any such limitation to our review. To review the coordination of the State IG with DS, we obtained the annual reports issued by DS and additional information on cases of visa fraud that were investigated during fiscal years 2004 through 2005 from DS reports and a prior GAO report. We also compared the coordination of investigations at the State Department with the practices of other IG offices at the U.S. Postal Service and the Internal Revenue Service. We obtained comments on a draft of this report from the State IG which are reprinted in their entirety in appendix III. A summary of the State IG’s written comments and our response are presented on page 29. We performed our audit from November 2005 through October 2006, in accordance with U.S. generally accepted government auditing standards. The inspection function within the State Department originated in 1906, when the Congress statutorily created a consular inspection corps of five officers to inspect the activities of the U.S. consulates at least once every 2 years. In 1924, the Congress established the Foreign Service to replace the Diplomatic and Consular Service, and required the officers of the newly created Foreign Service to inspect diplomatic and consular branches, as provided under the 1906 Act. The provisions of the 1906 and 1924 acts were repealed by the Foreign Service Act of 1946, which required the Secretary of State to assign Foreign Service officers to inspect the diplomatic and consular establishments of the United States at least once every 2 years. In 1957, the State Department established an Inspector General of Foreign Service, which carried out the inspections of diplomatic and consular offices for the State Department. In 1961, the Congress created a statutory Inspector General in the State Department with duties separate from that of the Inspector General of Foreign Service, which had been established by the State Department. The new inspector general had the statutory responsibility to conduct reviews, inspections, and audits of State Department economic and military assistance programs and the activities of the Peace Corps. Effective July 1, 1978, the statutory IG office created in 1961 was abolished by law and all of the duties of that office were statutorily transferred to the Inspector General of Foreign Service. The newly designated Inspector General of Foreign Service was tasked with carrying out the foreign assistance program review function and the inspections of diplomatic and consular offices that had previously been conducted by the two separate offices. In 1978, GAO reviewed the operations of the Inspector General of Foreign Service and determined that the IG’s inspection reports lacked substance because of the legal requirement for biennial inspections and the exceedingly broad scope and thin coverage of each inspection. GAO recommended that the Congress substitute the requirement for an inspection of each diplomatic and consular post at least every 2 years with a more flexible review schedule. GAO also questioned the independence of Foreign Service officers who were temporarily detailed to the IG’s office and recommended the elimination of this requirement provided by the Foreign Service Act of 1946. In 1980, the Congress again established a statutory IG, this time to act as a centralized unit within the State Department to include the functions of the previous IG of Foreign Service and to perform all audits, inspections, and investigations. Section 209 of the Foreign Service Act of 1980 established the Inspector General of the Department of State and Foreign Service and outlined the authority and functions of that position in specific terms. Section 209 patterned the State Department IG office after similar offices in other agencies under the IG Act, but added functions from the Foreign Service Act of 1946 specific to the State Department. With regard to inspections, the Congress directed the IG to “periodically (at least every 5 years) inspect and audit the administration of activities and operations of each Foreign Service post and each bureau and other operating units of the Department of State.” In 1982, we reviewed the operations of the Inspector General for the Department of State and Foreign Service. In that report, we compared the differences between the Foreign Service Act and the IG Act and noted that the 5-year inspection cycle required by the Foreign Service Act led to problems with the IG’s effectiveness by limiting the ability to do other work. In addition, our report expressed our persistent concerns about independence. These concerns were due, in part, to the IG’s continued use of temporarily assigned Foreign Service officers and other persons from operational units within the department to staff the IG office. Our report also noted that the IG had not established a quality review system to help ensure that the work of the office complied with professional standards, and that the IG used staff from the State Department’s Office of Security, a unit of management, to conduct investigations of fraud, waste, and abuse. We recommended that the Secretary of State work with the IG to establish a permanent IG staff and discontinue its reliance on temporary staff who rotate back to assignments in the Foreign Service or management positions. We also recommended that the Secretary and the IG establish an investigative capability within the IG office to enable it to conduct its own investigations, and to transfer qualified investigators from the Office of Security to the IG for this work. Reacting to concerns similar to those expressed in our 1982 report, the Congress established an IG for the Department of State through amendments to the IG Act in both 1985 and 1986. These amendments designated the State Department as an agency requiring an IG under the IG Act and abolished the previous Office of Inspector General of State and Foreign Service, which was created under section 209 of the Foreign Service Act of 1980. The 1986 Act authorized the State IG to perform all duties and responsibilities, and to exercise the authorities, stated in section 209 of the Foreign Service Act and in the IG Act. The 1986 Act also prohibited a career member of the Foreign Service from being appointed as the State IG. Since 1996, the Congress, through Department of State appropriations acts, annually waives the language in section 209(a) of the Foreign Service Act that calls for every post to be inspected every 5 years. The State IG continues to inspect the department’s approximately 260 posts and bureaus, and international broadcasting installations throughout the world by applying a risk-based approach. To illustrate, the State IG completed inspections at 223 bureaus and posts over the 5-year period of fiscal years 2001 through 2005. These inspections encompass a wide range of objectives, which include reviewing whether department policy goals are being achieved and whether the interests of the United States are being represented and advanced effectively. In addition, the State IG performs specialized security inspections and audits in support of the department’s mission to provide effective protection to its personnel, facilities, and sensitive intelligence information. Therefore, while there is no requirement as a result of the annual waiver that inspections be performed, the State IG continues to conduct inspections as part of its plan for oversight of the department, using a risk-based approach to identify locations for inspections rather than the 5-year requirement. Inspections are defined by the PCIE and ECIE as a process that evaluates, reviews, studies, and analyzes the programs and activities of an agency for the purposes of providing information to managers for decision making; making recommendations for improvements to programs, polices, or procedures; and identifying where administrative action may be necessary. Inspections may be used to provide factual and analytical information; monitor compliance; measure performance; assess the efficiency and effectiveness of programs and operations; share best practices; and inquire into allegations of fraud, waste, abuse, and mismanagement.