Inspectors General: Progress in Establishing OIGs at Designated Federal Entities

Published by the Government Accountability Office on 1990-04-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                --   I Jni ted St.at,es General   Accounting   Offiw

~6AO                 Report to the Chairman, Committee on ‘if ’
                     Governmental Affairs, U.S. Senate

Apri I 1!)!jO
                     Progress in
                     Establishing OIGs at
                     Designated Federal

             United States
,,bGAO       General Accounting  Office
             Washington, D.C. 20648

             Accounting and Financial
             Management Division


             April 24,lQQO

             The Honorable John Glenn
             Committee on Governmental Affairs
             United States Senate

             Dear Mr. Chairman:

             The Inspector General Act Amendments of 1988 (Public Law 100-604)
             established offices of inspector general (OIGs) in 33 designated federal
             entities. In response to your request, we reviewed the progress made by
             these entities in establishing their OIGs.

             The designated federal entities have taken steps to establish their OIGS in
             accordance with the 1988 amendments. All of the entities have officially
             established an OIG and have appointed an inspector general (IG) or an
             acting inspector general. In addition, all of the entities have developed
             policy documents describing the mission of the OIG and the IG’S duties,

             We found that IG independence, authority, and capability to do work
             were sometimes,constrained because of limitations imposed by the enti-
             ties. Most of these constraints were removed through our discussions
             with officials at these designated federal entities. However, problems in
             establishing effective OIGS remain, For example, (1) at least eight of the
             new OIGS have inadequate resources and (2) the entity head responsible
             for supervising the IG has not been correctly identified at two entities.

             Prior to the 1988 amendments, the Inspector General Act of 1978, as
Background   amended, provided for independent inspectors general, presidentially
             appointed, to conduct and supervise audits and investigations and rec-
             ommend policies to promote economy, efficiency, and effectiveness as
             well as the prevention and detection of fraud and abuse in programs and
             operations of their agencies. IGS are responsible for keeping agency
             heads and the Congress fully informed of agency problems and correc-
             tive actions. IGS are required to report on the results of their audits and
             investigations and to prepare semiannual reports to agency heads and
             the Congress.

             The Congress enacted the Inspector General Act Amendments of 1988 to
             establish statutory OIGS at 33 designated federal entities defined in the

             Page 1                         GAO/A.FMD-M    OIGa at De&n&d   Federal   Entities

                         act.’ (See appendix I for a list of the 33 designated federal entities.) The
                         amendments provided for the entity heads to appoint their inspectors
                         general. The powers and duties extended to the IGs appointed by the
                         entity heads are essentially the same as those provided to presidentially
                         appointed IGS. The 1988 amendments required the entities to establish
                         their OIGS by April 17, 1989.

                         The objectives of our review were to determine the designated federal
Objectives, Scope, and   entities’ progress in implementing the 1988 amendments and to identify
Methodology              any problems they were encountering in so doing. We interviewed IGS,
                         acting IGS, and other entity officials responsible for establishing the OIG
                         at 27 entities. We reviewed draft and final policy documents, including
                         IG position descriptions, statements of duties and responsibilities, mis-
                         sion and function statements, and memorandums of understanding with
                         other entity components. We also reviewed legal opinions about imple-
                         mentation of the 1988 amendments.

                         We obtained similar information on the remaining five entities from sep-
                         arate reviews we have conducted of these entities’ progress in establish-
                         ing OIGS. We issued reports on the status of OIG implementation at the
                         Tennessee Valley Authority (TVA) and at the National Science Founda-
                         tion.2 We plan to issue a report on the Federal Deposit Insurance Corpo-
                         ration, the Federal Reserve Board, and the National Credit Union

                         We met with representatives of the Office of Management and Budget
                         (OMB) and the President’s Council on Integrity and Efficiency (PCIE). We
                         also met with representatives of the PCIE Coordinating Conference-an
                         interagency committee monitoring entity efforts to implement OIGS-t0
                         obtain their views on the establishment of OIGS at designated federal

                         In accordance with your request, we are providing details on the status
                         of OIG implementation at the Corporation for Public Broadcasting and
                         the Federal Election Commission. Both entities experienced difficulty in

                         ‘One of the entities, the Federal Home Loan Bank Board, was abolished by Public Law 101-73
                         (August 1989), leaving 32 designated federal entities.
                         21nspectorsGeneral: Adequacy of TVA’s Office of Inspector General (GAO/AFMD-89-68, July 3,

                         Page 2                                   GAO/AFND-30-46     OIGs at Designated   Federal   Entities
                                 establishing an OIG because officials at each entity thought the         OIG    con-
                                 cept conflicted with the entity’s mission.

                                 At your request, we did not obtain agency comments on a draft of this
                                 report. However, the views of responsible entity officials were sought
                                 during the course of our work and are incorporated where appropriate.
                                 We explained to officials at each entity where we identified problems
                                 that certain provisions in their policy documents were not consistent
                                 with the act and should be changed.

                                 Our audit work was conducted in accordance with generally accepted
                                 government auditing standards and was conducted from July 1989 to
                                 January 1990.

                                 Our review showed that all of the designated federal entities have taken
All Designated Federal           steps to establish their OIGs in accordance with the 1988 amendments.
Entities Have                    All entities have established an office of inspector general and have
Established an OIG               appointed an IG or acting IG. In addition, all entities have prepared policy
                                 documents describing the mission and function of the OIG.

                                 While the entities’ initial policy documents did not always reflect the
                                 role and authority of the IG and needed modification, entity officials
                                 were generally cooperative in reviewing these issues with us and making
                                 appropriate revisions to their documents. However, at the National
                                 Archives and Record Administration, documents containing question-
                                 able provisions have not yet been revised. The documents with these
                                 provisions were prepared by the entity’s policy staff and show that the
                                 entity head has considerable control over the IG’S audit plan. He can
                                 require audits to be done and has approval authority over other audits.
                                 In addition, the IG must notify the entity head before taking cases to a
                                 U.S. attorney. We believe these types of provisions restrict the IG’S statu-
                                 tory independence. The IG told us that he disagreed with these provi-
                                 sions and notified entity officials of his disagreement. He stated that he
                                 has now been authorized to write his own operating procedures and
                                 intends to correct the problems we cited.

Lack of Resources May The   designated federal entities expend considerable resources and are
                        responsible for carrying out important federal activities. Their OIGS need
Restrict Operations for to have the necessary resources to fulfill their statutory mission of
at Least Eight OIGs     detecting and preventing fraud, waste, and abuse. (See appendix I for a
                                 comparison of entity and inspector general resources.)

                                 Page 3                          GAO/AFMD-!I@46   OIGs at Designated   Federal   Entities
In 8 of the 32 entities, the IG was the only professional staff person
assigned to the office. In most cases, a secretary was also provided. Not
having sufficient resources can prevent IGS from adequately carrying
out their roles and responsibilities. The IGS lacking resources told us
they intend to use staff from management or other federal agencies to
accomplish their plans or to rely on contracting out for audit services.

At one of these entities-the    Federal Trade Commission-the IG told us
he intends to contract with private accounting firms for all audits and to
obtain investigative services from within the entity’s office of general
counsel. We believe the lack of permanent staff would not permit the OIG
to develop in-depth and comprehensive knowledge of agency programs
and would thus limit the OIG’S effectiveness. At the remaining seven
entities, OIGs plan to obtain additional staff from the entity or another
federal agency or to contract out for temporary assistance until the OIG
can obtain additional staff.

We believe that relying on management staff could detract from IG inde-
pendence and objectivity. Furthermore, the lack of permanent staff
could hamper an IG’S ability to develop in-depth, continuous knowledge
of agency operations. We are concerned that a minimal level of staff
resources will not permit effective fulfillment of IG responsibilities as
defined in the act. We believe one professional staff person-the IG him-
self-is not sufficient for any OIG to accomplish the work required. Past
experience has shown that having too few OIG resources restricts the
effectiveness of an OIG.3

We believe the appropriate staff level for each entity’s OIG must be
determined based on the IG’S work plan, which includes an assessment of
priorities and a determination of staff levels needed to perform the
work. Most IGS were in the process of assessing their staff needs and
were discussing staff levels with entity management. They pointed out
that they were still getting organized and needed some experience over a
period of time to adequately determine their staff needs.

3The Inspector General Act of 1978: A lo-Year Review (House Report No. 100-1027, October 3,198s)

Page 4                                   GAO/AFMDQO-4tl     OIGs at Designated   Federal   Entities
                     The 1988 amendments require that the inspector general report to the
GAO Disagreement     head of the designated federal entity and to no other employee. Accord-
With the OMB-        ing to the amendments, the authority to appoint and supervise the IG
Identified Head at   cannot be delegated to any other party. This provision helps ensure that
                     IGS will be independent from program management and will have the
Two Entities         authority to carry out their responsibilities. The 1988 amendments
                     define the head of the entity as the head designated by statute, or, if no
                     such designation exists, the chief policy-making officer or board as iden-
                     tified in a list published by OMB. The 1988 amendments required that
                     OMB, in consultation with the Comptroller General, publish its first list of
                     entity heads in the Federal Register by April 30,1989, and annually

                     We disagree with the identification of entity heads for the Pension Bene-
                     fit Guaranty Corporation (PBGC) and the Legal Services Corporation
                     (19c) in the list published on November 9,1989. The statutes governing
                     PBGC and ISC do not explicitly designate the head of these entities.
                     Accordingly, the 1988 amendments require that OMB’S list identify the
                     chief policy-making officer or board as the head of PBGC and ISC. OMB’S
                     list identified PBGC’S executive director as the entity head, and in the
                     case of I.%, the list identified the entity’s president. Neither of these
                     officers is the chief policy-making officer or board for the entities. As
                     required by the 1988 amendments, we consulted with OMB on its pro-
                     posed list of entity heads prior to publication of the OMB list. We
                     expressed concern with the entity heads OMB proposed for PBG~ and LSC
                     and suggested that the board of directors or the chairman would be a
                     better choice for these entities.

                     Officials we interviewed at both entities agreed with OMB’S decision even
                     though both entities have boards of directors who have policy-making
                     authority. These officials indicated that the entity head identified is
                     largely responsible for running the entity’s daily operations. They also
                     indicated that the boards of directors meet infrequently and their mem-
                     bers are geographically dispersed.

                     Our disagreement with the OMB list is based on the statutes and regula-
                     tions governing PBGC and LSCand on our belief that inspectors general
                     should be independent from program officials who run the very opera-
                     tions the IGS audit and investigate. The statute governing PBGC does not
                     describe its powers and duties as being those of a particular board or
                     person. But the statute does provide that the corporation shall be
                     administered by the Secretary of Labor, as Chairman of the Board of
                     Directors, in accordance with policies established by the Board [29

                     Page 6                          GAO/AND-90-46   OIGs at Designated   Federal   Entities
USC. 1302 (a)(d)]. In this regard, we note that PBGCJ’Sown regulations
state that the Board “shall establish the policies” of PBGC and that final
decisions on certain policy matters are reserved to the Board and may
not be delegated [29 C.F.R. 2601.3 (1989)]. The position of executive
director is not established by statute, and, therefore, the executive
director has no authority, policy-making or otherwise, other than that
provided by the Board. The 1988 amendments do not include responsi-
bility for an entity’s daily operations as criteria for who shall be identi-
fied as an entity head on OMB’S list. In view of PB~C’S statute and
regulations, we find no basis for the executive director being, in the
words of the 1988 amendments, the chief policy-making officer of PEKX.

The statute governing IX does not describe its powers and duties as
being those of a particular board or person. However, the statute does
refer to the policy-making function of the IX Board.4 Furthermore, IX’S
own regulations provide that the president’s responsibility and author-
ity as Chief Executive Officer is subject to the direction and policies
established by the Board [45 C.F.R. 1601.33 (1988)]. Therefore, we also
believe that the president cannot be viewed as the chief policy-making
officer of rsc.

Our disagreement with OMB’S list is not based solely on our reading of
the statutes and regulations described above. As far back as 1977, when
the Congress was considering the bill which ultimately became the
Inspector General Act of 1978, it expressed the view that having audi-
tors and investigators report to agency officials with program operating
responsibilities was a deficiency in organizational structure and a con-
flict of interest [S. Rep. No. 95-1071, p. 7 (1978); II. Rep. No. 95-584, p, 5
(1977)]. The Congress thus provided that inspectors general would
report only to the agency head or the officer next in rank if the agency
head so delegated. This delegation is not authorized by the 1988 amend-
ments for the 33 designated entities. Since the PBGC executive director
and the 1.x president are largely responsible for the daily operations of
their entity, and thus the very activities the inspectors general will be
reviewing, we believe OMB’S designation will create the type of organiza-
tional structure deficiency the Congress sought to correct.

Accordingly, we continue to believe that OMB’S list should identify the
board of directors or the chairman as the head of PBGC and ISC.

4The Lsc president’s authority to appoint and remove IAC employees is subject to the general poli-
cies of the Board (42 USC: 2996d].

Page 6                                    GAO/AFMD-904        OIGa at Designated   Federal   Entities


                         At your request, we examined the issues raised by the Corporation for
OIGs at the              Public Broadcasting and the Federal Election Commission in establishing
Corporation for Public   t heir. 01~s. Officials at both entities expressed serious concerns about the
Broadcasting and the     establishment of an OIG at their entities because they thought the OIG’S
                         role would conflict with the entities’ missions. However, we found that
Federal Election         an OIG could function satisfactorily at these entities because the IG’S role
Commission Were          would be to audit and investigate the activities of the entity and not
Properly Established     become involved in the entity’s program operating responsibilities. After
                         our discussions with officials at both entities, most of their concerns
                         over the establishment of an OIG were resolved.

Corporation for Public   The Corporation for Public Broadcasting (CPB) originally objected to
Broadcasting             having a statutory IG because CPB thought that it conflicted with its
                         authorizing legislation, which protects the Corporation from government
                         interference. Officials were concerned that the activities of the IG would
                         undermine CPB’S ability to protect the recipients of its funds from extra-
                         neous interference and control over program content and broadcasting
                         activities, both of which are protected by the First Amendment. Because
                         of these concerns, CPB officials told us that they initially attempted to
                         place restraints on the IG role so that it would not conflict with CPB’S
                         mission or interfere with the free expression of CPB funding recipients.

                         In reviewing CPB’S original statement of IG duties and responsibilities, we
                         found it had made one individual serve as both inspector general and
                         director of audit. As IG, he would report to the Congress and manage-
                         ment on his investigative activities. But as director of audit, he would
                         report on his audit activities to management only. The IG act requires
                         that audit activities be included in the IG’s duties and that the IG report
                         to both the Congress and management on all of his activities, including
                         audits. The arrangement originally established by CPB would have the IG
                         reporting only to management for that part of his duties performed as
                         director of audit. We also found that the board of directors of CPB had
                         delegated the authority to supervise the IG to CPB’S president, and this
                         delegation is not permitted by the act.

                         We told CPB officials that we had reviewed the entity’s role and mission
                         and concluded that an OIG could function satisfactorily at CPB because
                         the IG’s role was to audit and investigate the activities of CPB and not
                         become involved with CPB’S program operating responsibilities. We also
                         stated that the act intended for the IG to report to the chief policy-
                         making officer or board at the entity and that having an IG’S role divided

                         Page 7                          GAO/~90-46     OIGa at Designated   Federal   Entities


                   into two parts with different rules governing each was not consistent
                   with the intent of the IG act.

                   Following our discussions of these issues, CPB officials reconsidered their
                   position and changed their policies. The board of directors assumed
                   responsibility for appointing the IG and maintaining general supervision.
                   A revised policy document modified the role of the IG to include the
                   duties of the director of audit and the duties of the inspector general,
                   and provided that in the fulfillment of all of these duties, the IG would
                   be responsible to both the Congress and the entity head.

Federal Election   The Federal Election Commission (FEC)took the position that the opera-
Commission         tions of its OIG needed to be constrained, The FECmaintained that its
                   audits and investigations of presidential campaign funds and other cam-
                   paign financing entities are part of the programmatic responsibilities of
                   the FECand not the responsibility of an FIX IG. The FECalso claimed that
                   the IG concept threatened the political balance within the agency, which
                   requires an absolute majority approval for all policies and actions.

                   Bills were introduced in the House of Representatives and Senate to
                   remove the FEC from the IG Act Amendments of 1988. In a bill authoriz-
                   ing appropriations for the FECfor fiscal year 1990 (H.R. 1326) the
                   House Committee on House Administration included a provision to
                   strike the F’ECfrom the IG Act Amendments of 1988. However, the House
                   Government Operations Committee subsequently recommended that the
                   bill retain the FEC in the IG Act Amendments of 1988, with the stipula-
                   tion that the FECIG is not to undertake the FEC'S external audit functions.
                   The Senate Committee on Rules and Administration also introduced a
                   bill (S. 1074) to authorize appropriations for the FIX2 for fiscal year 1990,
                   with a provision to remove the FEC from the IG Act Amendments of
                   1988. Neither bill passed.

                   The FEC has established an OIG, appointed an IG, and developed OIG policy
                   documents in a manner consistent with the 1988 amendments. Based on
                   our review of the FEC'S role and mission, we believe an IG can function
                   satisfactorily at FXCbecause the IG'S role is to audit and investigate the
                   functions of F’EC,not the presidential campaign funds or campaign
                   financing entities which are the subject of FEC’Sprogram operating
                   responsibility. We agree that the FEC IG should not engage in activities
                   deemed to be program operating responsibilities of the Commission.

                   Page 8                          GAO/~90-46     OIGs at Designated   Federal   Entities
                 Designated federal entities have taken steps to establish offices of
Conclusions      inspector general in accordance with the 1988 amendments. However,
                 the level of resources provided to at least eight of the new OIGS may not
                 be adequate for the successful achievement of OIG objectives. If adequate
                 resources are not provided, the IGS’ objectivity and independence could
                 be impaired because they may rely too heavily on resources borrowed
                 from the entity. In addition, a lack of permanent staff could prevent IGS
                 from developing an in-depth, continuous knowledge of agency programs.
                 During the course of our review, most of the IGS were in the process of
                 assessing their staff needs and were discussing staff levels with entity

                 OMB’S   list has identified chief executive officers as the entity heads at
                 PBGC   and LSC,and entity officials have agreed with OMB’S judgment.
                 These officers are responsible for the entities’ operations and are not the
                 entities’ chief policy-making officers or board. The 1988 amendments
                 state that the head of the entity is the head designated by statute, or if
                 no such designation exists, the chief policy-making officer or board as
                 identified in a list published by OMB. Based on this provision, we believe
                 the board or chairman of the board at these entities would be a better
                 choice because at these entities, they perform the chief policy-making

                 To ensure thatthe IGS at the Pension Benefit Guaranty Corporation and
Recommendation   at the Legal Services Corporation are reporting to the proper authority,
                 OMB, in its next annual list of entity heads, should identify the board of
                 directors or its chairman as the entity head at these entities.

                 Page !J                         GAO/AFMD-90-46   OIGs at Designated   Federal   Entities

B235108                                                                                     1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 15 days from
the date of this letter. At that time, we will send copies to the Director of
the Office of Management and Budget; the Chairman of the Committee
on Government Operations, House of Representatives; all statutory
inspectors general and acting inspectors general; and other interested
parties upon request. Major contributors to this report are listed in
appendix II.

Sincerely yours,

Donald H. Chapin
Assistant Comptroller    General

Page 10                         GAO/AFMD-!30-48   OIGs at Designated   Federal   Entities
Page 11   GAO/AFMD-90-46   OIGa at Designated   Federal   Entities

Letter                                                                                                             1

Appendix I                                                                                                     14
Designated Federal
Entities: Resources
Compared to OIG Staff
Appendix II                                                                                                    15
Major Contributors to
This Report


                        CPB        Corporation for Public Broadcasting
                        FEC        Federal Election Commission
                        IG         inspector general
                        1232       Legal Services Corporation
                        OIG        Office of Inspector General
                        OMB        Office of Management Budget
                        PBGC       Pension Benefit Guaranty Corporation
                        ICIE       President’s Council on Integrity and Efficiency
                        TVA        Tennessee Valley Authority

                        Page 12                         GAO/AFMD-90-46   OIGs at Designated   Federal   Entities
Page 13   GAO/AFMJS90-46   OIGs at Designated   Federal   Entities
Appendix I

Thurty-Three DesignatedFederal Entities:
ResourcesComparedto OIG Staff

                                                                                                   1990 Estimate
                                                              Total entity staff ekea               Budget authoritya                     Size of 010 staffb
-~           federal
       --._._..^..       entity .-~
                   _ _...-.-.---.                               (Full-tlme pO8itiOn8)            (Dollar8 in thOU88nd8)            (Full-time equivalents)
ACTION                                                                                 460                      $175.665                                            6
Amtrak                                                                                                           ~604.685
Appalachian   Regional   Commission
Federal Reserve-----
                        System___-                                                 1,576                                     d
                                                                                                                                                         -__        9
Board for International Broadcastina                                                  17                          373,021                                           2
Commodity Futures Trading Commission                                                 545                           37,186                                           3
Consumer Product Safety Commission                                                   514                           35,147                                         1.5
Corporation for Public Broadcastina                                                      c                        229.391                                         11
Eaual Employment Opportunity Commission                                            3,200                          184,926                                       12.1
Farm Credit Administration                                                           594                                     d                                      6
Federal Communications
~-^I_---_                            Commission
                              .-.._ .-. _.~                                        1,835                           82,550                   .______             2
Federal Deposit Insurance Corporation                                              3,585                        1.996.557                                        144
Federal Election Commission                                                          243                           15,330                                           2
Federal   Home Loan Bank Boarde                                                         .                                .                                          .
Federal Labor Relations Authoritv                                                      256                         17.590                                          2
Federal Maritime Commission                                                            225                         15,452                                          3
Federal Trade Commission                                                               899                         53,876                                          2
        --- Commerce            Commission
                       .._---__---                                                     661                         44,205                                          1
Leaal Services Corporation                                                                   c                    316,525                                          6
National Archives and Records Administration                                       1,785                          125,112                                         IO
National Credit____- Union Administration
                                .-._-                                                920                                                                           6
National Endowment for the Arts                                                      219                          171,285                             --___        8
National Endowment
            ---                for the Humanities
                      -...--.-__-______                                              251                          157,510                                          6
National Labor Relations Board                                                    3,000                           140,111                                          7
___-__ Science--.-_..---Foundation                                                1,096                         2,103,608                                -._     25
Panama -___-
           Canal .._..
                        - .._..-~.---                                             8,056                             4,078                                    __. 22
Peace Corps                                                                       1,080                           166,049                  -__---__           16.5
Pension Benefit Guaranty Corporation                                                562                                                                           6
Securities and Exchange Commission                                                2,451                           143,717                                         7
Smithsonian   Institution
                _ _....,. - -     --___             __                            5,308                           313,554                                 --     20
Tennessee Valley Authority                                                       21,000                           476,979                                   __ 155
U.S. International
-_-__-       -_-.. . Trade Commission
                      ..~ .__--..                                                   502                            38,477                                -__-. 2
U.S. Postal Service                                                             655,584                         4,577,077                                      4,419

                                                    8Budget authority and total agency staff (full-time positions) were derived from Budget of the United
                                                    States Government, Fiscal Year 1991.
                                                    blncludes professional and secretarial staff planned for 1990 based on entity estimates.
                                                    CData not available from budget.
                                                    dNo budget authority.
                                                    eEntity abolished by Public Law 101-73 (August 1989).

                                                    Page 14                                       GAO/AFMD&SM         OIGs at Designated       Federal   Entities
      a/ ‘I

Appendix II

*MajorContributors to This Report

                                John J. Adair, Director, Audit Oversight and Policy
Accounting and                  Marsha L. Boals, Assistant Director, (202) 276-8646
Financial Management            Warren C. Underwood, Evaluator-in-Charge
Division,         Washington,   Johnny R. Bowen, Evaluator
                                Jackson W. Hufnagle, Accountant
DC.                             Ann R. Lewis, Evaluator
                                Steven H. Farnsworth, Accountant

                                Jeffrey A. Jacobson, Assistant General Counsel
Office of the General
Counsel, Washington,

(1111644)                       Page 16                       GAO/AFMD-90-46   OIGs at Designated   Federal   Entitiee
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