The current State IG was created by a 1986 amendment to the Inspector General Act of 1978 (IG Act) to prevent and detect fraud, waste, abuse, and mismanagement in the department’s programs and operations; conduct and supervise independent audits and investigations; and recommend policies to promote economy, efficiency, and effectiveness. Unique to the State IG is a requirement to provide inspections of the department’s Foreign Service posts, bureaus, and operating units. The State Department has had inspection functions in various forms since 1906. The function has changed and evolved over the years in response to numerous statutory changes. Since the terrorist attacks of September 11, 2001, the State Department has become involved in expanded reconstruction and stabilization roles and manages a global presence that includes mobilizing some 180 countries and territories in the war on terrorism. To manage this expanded role, the State Department’s budget has increased over fiscal years 2001 through 2006 from $13.7 billion to about $24 billion, an increase of about 75 percent (55 percent in constant dollars adjusted for inflation). At the same time, the State IG’s budget has been inadequate and its workforce has declined by approximately 20 percent. For example, from 2001 to 2006, the State IG’s budget for oversight has increased from $29 million to $31 million, which when considered relative to inflation, is a budget decrease of approximately 6 percent over 6 years in constant dollars. During that same period, the State IG’s staffing level has declined from 227 to 182. Of the 318 authorized staff in the State IG’s fiscal year 2006 budget, the actual onboard staff averaged 182, or about 57 percent of the authorized level. (See fig. #1.) In the State Department’s Performance and Accountability Report for fiscal year 2006, the State IG reported the need for expanded oversight to encompass new department initiatives in transformational diplomacy, global repositioning, and public diplomacy, as well as substantial increases in programs for Iraq and Afghanistan, counternarcotics, counterterrorism, embassy construction, and information technology. In addition, the IG has noted significant growth in the number of programs and grants with mandated IG oversight, congressional and management requests for special reviews and investigations, and opportunities for joint activities with other departments. The 1986 amendment that created the current IG office was a reaction to concerns expressed in prior GAO reports in 1978 and 1982. In those reports, we raised concerns about the independence of the previous IG offices established administratively by the department and through statutes prior to 1986. At the same time, our concerns about the State IG’s independence were based in part on the IG’s use of temporarily assigned Foreign Service officers to staff the IG office for performing inspections. We continue to be concerned about the independence of the State IG, an issue that we first reported on almost three decades ago. Independence is the cornerstone of professional auditing. Without independence, an audit organization cannot conduct independent audits in compliance with generally accepted government auditing standards (Government Auditing Standards). Likewise, an IG who lacks independence cannot effectively fulfill the full range of requirements for the office. Lacking this critical attribute, an audit organization’s work might be classified as studies, research reports, consulting reports, or reviews, rather than independent audits. Independence is one of the most important elements of an effective IG function. In fact, much of the IG Act provides specific protections to IG independence that are unprecedented for an audit and investigative function located within the organization being reviewed. These protections are necessary in large part because of the unusual reporting requirements of the IGs, who are both subject to the general supervision and budget processes of the agencies they audit, while at the same time being expected to provide independent reports of their work externally to the Congress. Government Auditing Standards states, “in all matters relating to the audit work, the audit organization and the individual auditor, whether government or public, must be free from personal, external, and organizational impairments to independence, and must avoid the appearance of such impairments to independence. Auditors and audit organizations must maintain independence so that their opinions, findings, conclusions, judgments, and recommendations will be impartial and viewed as impartial by objective third parties with knowledge of the relevant information.” Personal independence applies to individual auditors at all levels of the audit organization, including the head of the organization. Personal independence refers to the auditor’s ability to remain objective and maintain an independent attitude in all matters relating to the audit, as well as the auditor’s ability to be recognized by others as independent. The auditor needs an independent and objective state of mind that does not allow personal bias or the undue influence of others to override the auditor’s professional judgments. This attitude is also referred to as intellectual honesty. The auditor must also be free from direct financial or managerial involvement with the audited entity or other potential conflicts of interest that might create the perception that the auditor is not independent. External independence refers to both the auditor’s and the audit organization’s freedom to make independent and objective judgments free from external influences or pressures. Examples of impairments to external independence include restrictions on access to records, government officials, or other individuals needed to conduct the audit; external interference over the assignment, appointment, compensation, or promotion of audit personnel; restrictions on funds or other resources provided to the audit organization that adversely affect the audit organization’s ability to carry out its responsibilities; or external authority to overrule or to inappropriately influence the auditors’ judgment as to appropriate reporting content. Organizational independence refers to the audit organization’s placement in relation to the activities being audited. Professional auditing standards have different criteria for organizational independence for external and internal audit organizations. The IGs, in their statutory role of providing oversight of their agencies’ operations, represent a unique hybrid of external and internal reporting responsibilities. The IG Act requires IGs to perform audits in compliance with Government Auditing Standards. In addition, much of the act provides specific protections to IG independence for all the work of the IGs. Protections to IG independence include the requirement that IGs report only to their agency heads and not to lower-level management, and a prohibition on the ability of the agency head to prevent or prohibit the IG from initiating, carrying out, or completing any audit or investigation. This prohibition is meant to protect the IG office from external forces that could compromise an IG’s independence. The IG’s personal independence and the need to appear independent to knowledgeable third parties is also critical when the IG makes decisions related to the nature and scope of audit and investigative work performed by the IG office. The IG must determine how to utilize the IG Act’s protection of independence in conducting and pursuing the audit and investigative work. The IG’s personal independence is necessary to make the proper decisions in such cases. The IG Act also provides the IG with protections to external independence by providing access to all agency documents and records, prompt access to the agency head, the ability to select and appoint IG staff, the authority to obtain services of experts, and the authority to enter into contracts. The IG may choose whether to exercise the act’s specific authority to obtain access to information that is denied by agency officials. Again, each IG must make decisions regarding the use of the IG Act’s provisions for access to information, and the IG’s personal independence becomes key in making these decisions. The IGs’ external reporting requirements in the IG Act include reporting the results of their work in semiannual reports to the Congress. Under the IG Act, the IGs are to report their findings without alteration by their respective agencies, and these reports are to be made available to the general public. The IG Act also directs the IGs to keep their agency heads and the Congress fully and currently informed, which they do through these semiannual reports and otherwise, of any problems, deficiencies, abuses, fraud, or other serious problems relating to the administration of programs and operations of their agencies. Also, the IGs are required to report particularly serious or flagrant problems, abuses, or deficiencies immediately to their agency heads, who are required to transmit the IG’s report to the Congress within 7 calendar days. With the growing complexity of the federal government, the severity of the problems it faces, and the fiscal constraints under which it operates, it is important that an independent, objective, and reliable IG structure be in place at federal agencies to ensure adequate audit and investigative coverage of federal programs and operations. The IG Act provides each IG with the ability to exercise judgment in the use of protections to independence specified in the act. While the IG Act provides for IG independence, the ultimate success or failure of an IG office is largely determined by the individual IG placed in that office and that person’s ability to maintain personal, external, and organizational independence both in fact and appearance while reporting the results of the office’s work to both the agency head and to the Congress. An IG who lacks independence cannot effectively fulfill the full range of requirements for the office. Two continuing areas of concern that we have with the independence of the office of the State IG involve (1) the appointment of management officials to head the State IG in an acting capacity for extended periods of time and (2) the use of Foreign Service staff to lead State IG inspections. These concerns are similar to those independence issues we reported in our 1978 and 1982 reports. In 1978, GAO reviewed the operations of the office of the IG of Foreign Service and questioned the independence of Foreign Service officers who were temporarily detailed from program offices to the IG’s office. In 1982, we reviewed the operations of the IG and again expressed our concerns about the independence of inspection staff reassigned to and from management offices within the department. In these reports we stated that the desire of State IG staff to receive favorable assignments after their State IG tours could influence their objectivity. Reacting to concerns similar to those 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.