oversight

Authority and Resources of the Deputy Assistant Secretary of Defense (Audit)

Published by the Government Accountability Office on 1977-07-14.

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

                                  DOCUMENT RESUME

02814   -   A1993052]   (pLtLt1                     /4/   /   77
[Aulthority and Resources of the Deputy Assistant Secretary of
Defense (Audit)]. GMSD-77-52; B-134192. Jujy 14, 1977. 7 pp. +
enclosure (1 pp.) .

Report to Rep. Jack Brooks, Chairman, House Committee on
Government Operations: Legislation and National Security
Subcommittee; by Elmer B. Staats, Comptroller General.
Issue Area: Internal Auditing Syste., (200); Internal Auditing
     Systems: Sufficiency of Federal Auditors and Coverage (201!.
Contact: Fiaancial and General Management Studies Div.
Budget Function: iscellaneous: Financial Management and
     Infor      !ion Systems 1002).
Organizat .n Cor-serned: Department of Defense: Deputy Assistant
     secretary (Audit).
Cong; -. sionai   Relevauce: House Committ,e on Government
     Operations: Legislation and National Security Subcommittee.
Authority: National Security Act of 1949 (10 U.S.C. 136). DOD
     Directive 7600.2.

         The Deputy Assistant Secret:iry of Defense (Audit) has
the responsibility to develop internal audit policy and to
review its implementation, but he does not have the authority to
provide policy and procedural direction to the military service
internal audi. agencies. He has sufficient resources to develop
internal audit policy, but may not have sufficient resources to
review its implementation. He may develop policy and evaluate
the implementation of policies that have been approved by the
Assistant Secretary of Defense (Comptroller).   Recommendations:
To improve the internal audit function in the Office of the
Secretary of Defense, te Secretary of Dfense should: combine
the audit policy, audit operations, and reporting functions into
one functional organization; require the head of the combined
organization to periodically review the implementation of policy
and procedural directives by the military services and other
internal audit organizations in the Department of Defense and to
provide formal, written reports on policy violations directly to
the Secretary or De'uty Secretary of Defense; and give careful
consideration to required workload and the capabilities o te
staff to perform that uorkload and bring the two into balance
before making further staff reductions n the internal audit
function. (SC)
                       A ns'rRICYC7 - tloC       b      ~releailed euteM the General
                       .Acutng O           xct    N th b            .f specifi approval
                        by the  l50ft                                  STATES
                                 ,\   / ~WASHINGTON. D.C. 04




      i   485-134192


CKd          The Honorable Jack Brooks,
                                   'C'  Chairman
             Ilegislation and National
               Security Subcommittee
             Committee on Government Operations
             House of Representatives

             Dear Mr. Chairman:

                  In your February 24, 1977, letter you asked us to review
             the authority and resources of the Office of the Deputy
             Assistant Secretary of Defense (Audit) to provide policy and
             procedulal 6rrection to the military ervices' internal audit
             agencies. You also requested that we include recommendations
             outlining how improvements in this area may be accomplished.

                 We have completed our review and found that
                 -- the Deputy Assistant Secretary has the responsibility
                    to develop internal audit policy and review its imple-
                    mentation but does not have the authority to provide
                    policy and procedural direction to the military service
                    internal audit agencies and
                 --the Deputy Assistant Secretary has sufficient resources
                   to develop internal audit policy but may not have suffi-
                   cient resources to review its implementation.
                 Details of these and other findings resulting from our
            review are explained below.

            OFFICE OF THE ASSISTANT SECRETARY
            OF DEFENSE (COMPTROLLER)

                 The position of Assistant Secretary of Defense (Ccmp-
            troller) was established by the National Security Act of 1949
            (10 U.S.C. 136). The Comptroller's position carries staff
            responsibilities for establishina and supervising the execu-
            tion of principles, policies, and prvcedures for internal
            audit in the Office of the Secretary of Defense, Defense
            agencies, and the military services. The law provides that
            in carrying out staff rsponsibilities, the Assistant Secre-
            tary (and all other Assistant Secretaries) take precedent
            in the Department of Defense organizational structure after
            the Secretary, the Deputy Secretary of Defense, the Secretar-
            ies of the military services, and the Director, Defense Re-
            search and Engineering.

                                                                               FGMSD-77-52
B-134192


     The law further specifies that the Assistant Secretary
cannot issue an order to military departments unless author-
ized to do so by the Secretary of Defense. However, there
is also a provision that service Secretaries and subordinate
civilian and military ersaniiel will cooperate fully with
personnel of the Office of the Secretary of Defense t effec-
tively carry out the Seccetary's authority, direct.on, ano
control.

     Specific internal audit responsibilities have been dele-
gated to the Comptroller.  These are implemented in DOD Direc-
tive ?-00.2 and include responsibility for internal audit pol-
icy, evaluating the operations of all Defense internal audit
agencies, and taking such actions as may be necessary to as-
sure implementation of the Defense ide interns' audit pol-
icies set forth in the directive and related istructions.
Also, DOD Directive 5118.3 specifically authorizes the Comp-
trolle- to issue such orders--in the form qiinstructions and
one-time directives as may be necessary to rovide internal
audit policy and procedural direction to all Department of
Defense and military service internal audit agencies.

Office of the Deputy Assistant
Secretary of Defense (Audit)

     The Deputy Assistant Secretary of Defense (Audit) holds
both staff and line responsibilities under the direction of
the Comptroller.  He is both the Deputy Assistant Secretary,
reporting directly to the Comptroller on audit policy aid
reporting matters, and the Director of the recently created
Defense Audit Service, reporting directly to the Secretary
of Defense on the results of internal audit operations.   How-
ever, the Secretary does not provide day-to-day supervision
of the Defense Audit Servize but relies on the Comptroller to
provide such supervision.

     The Comptroller has delegated to the Deputy Assistant
Secretary staff responsibilities for developing internal au-
dit pDlicy and evaluating its implementation by all Defense
internal audit agencies.

     In his role 3s Director, Defense Audit Service, the Dep-
uty Assistant Secretary exercises line authority over (1) au-
dits by Defense Audit Service staff of interservice audits,
(2) audits requested by the Secretary and other Defense offi-
cials, and (3) audits of Department of Defense headquarters,
unified commands, specified commands, and Defense agencies.




                                 2
B-134192


AUTHORITY TO PROVIDE POLICY
AND PROCEDURAL DIRECTION

     In our opinion, the Deputy Assistant Secretary should be
delegated the responsibility and authority to provide policy
and procedural direction on internal audit matters to the
military services and other Defense internal audit agencies.
Further, we believe the Deputy Assistant Secretary's responsi-
bilities for policy development and review of agency imple-
mentation should be merged with his responsibilities for in-
ternal audit operations of the Defense Audit Service.

     Public law sets the stage for accomplishment of duties
and responsibilities of the Comptroller and Deputy Assistant
Secretay. But:, because both ur these positions are essen-
tially staff positions, attempts to prescribe and insure that
internal audit policy is carried out is, of necessity, accom-
plished on an advisory basis. Both the Assistant Secretary
and Deputy Assistant Secretary have adopted a policy of mutual
cooperation with service Secretaries and their line manacers.
The Deputy Assistant Secretary told us that in matters involv-
ing internal audit policy and its implementation, they have,
through friendly persuasion, attempted to reach mutual uder-
standings to carry out their responsibilities. We believe
this approach is both practical and consistent with basic
line-staff management relationships.

     The approach has not always been successful, however, and
significant internal audit problems and recommended solutions
have not always been brought to the attention of the Secretary
or Deputy Secretary of Defense.

     For example, in our draft report on the Army's internal
audit function, a copy of which was provided to you on
March 15, 1977, we suggested that, to provide for more effec-
tive Defense internal auditing consistent with our standards,
the Congress amend the National Security Act to require
placing internal audit functions of the three military depart-
ments under the Secretary or Under Secretary of the respective
military departments dnd have the internal auditors report
directly to those officials. We suggested this because we
found that the scope f internal audit work of the Army Audit
Agency had been unnecessarily restricted. As a result, too
Army managers could not realize the full benefit of the
management control function provided by internal audit.

     The Comptroller and Deputy Assistant Secretary were aware
of the problems in the Army and had ursuccessfully attempted
through negotiation and friendly persuasion to prevent the
restrictions and other problems from occurring.

                                 3
B-134192


     We believe that this situation arose, partly ecause
of the staff relationship of the Comptroller to the Secretary
of Defense and service Secretaries and partly, we believe,
because the matter was never reported to the Secretary of
Defense. Also, we were told that in considering whether to
bring matters involving internal audit to the attention of
the Secretary and/or Deputy Secretary of Defense, the
Comptroller must ive consider tion to higher priority areas.
Consequently, few matters involving internal audit, as a
practical matter, would be brought to the attention of the
Secretary and Deputy Secretary of Defense.

     While this is a normal part of the decisionmaKing proc-
ess, the Deputy Assistant'Secretary is charged with the re-
sponsibility for evaluating and reporting on policy implemen-
tation in each of the military services.    Crnsistent with
Department of Defense  and our  reporting standards, we believe
that evaluations and  reports  must be made as a matter of
record.

     In ur opinion, a decision that internal audit ;itters
are of relatively low priority and should not be brought to
the attention of higher management levels is inconsistent with
our standards. Further, such decisions cannot always best be
reacled without a complete evaluation and formal report being
made. Our report on the Army's internal audit functions,
discussed on page 3, is a case in point.

AUD'T RESOURCES

      Including the Deputy Assistant Secretary, a total staff
of 21, consisting of 15 professional and 6 administrative
persor iel, is assigned to assist te Deputy Assistant Secre-
tary in carrying out functional responsibilities for develop-
ing and reviewing internal audit policy in all Defense internal
audit agencies.

     In the Defense Audit Service, the Deput Assistant Secre-
tary has an authorized personnel strength of 367.      Currently,
the Defense Audit Service has  a total of 356   staff  on board to
carry cut the Deputy Assistant  Secretary's  internal    audit oper-
ations responsibilities. While   the Deputy  Assistant    Secretary
has a combined audit policy and  operations  strength    of 377
personnel this my not be enough to carry    out  all  of  his as-
signed responsibilities.

     In our report, "Ations Needed to Strengtben the New
Defense Internal Audit Service" (FGMSD-77-11), January 27,
1977, we noted that the reorganization which established the


                                  4
 B-134192


 Defense Audit Service, combined the work of the old
                                                      office of
 audit operations with a broader responsibility for Defense-wide
 reviews. We also noted that a staff reduction of 15 percent
 was made without first determining whether the remaining
                                                           staff
 was adequate to erform that work. We rcommended that
 Secretary of Defense assess both the minimum required    the
                                                        workload
 and the capability of the planned staff to do the work
 that appropriate consideration be given to bringing     and
 and staff capability into balance.                  worklcad

     The Secretary agreed with or recc;imendation and on
March 25, 1977. said the assessment would be made as soon
practicable.  nd the orkload and staff capability would beas
brought inLo balance.

      The assessment has not yt been completed. However. in
October 1976, the Deputy Assistant SecLetary estimated
                                                        that
the Defense Audit Service needed a total of 698 spaces
                                                        to
accomplish the projected annual audit workload. With
                                                       an au-
thorized strenygth of only 367 in the Defense Audit Service
and a combined staff of only 377 on board to carry out
                                                        toth
audit po:icy and audit operations responsibilities, it
unlikely that all required                              appears
                             ork can be accomplished by the
existing staff. Further, a recent Department of Defense
release indicated that an additional 25 percent staff     press
                                                       reduc-
tion may be required by the Secretary.

     On the policy side, the Deputy Assistant Secretary
us that he has sufficient staff to develop internal audittold
policy.  He also said that he had identified several areas
where improvements were needed to carry out audit policy
                                                          re-
quirements including

     -- strengthening the audit policy role,

     -- reviewiing and evaluating DOD audit operations,

     -- improving audit workload planning,

     -- establishing career development and training standards,
        and

     -- establishing audit followup capabilities.

     According to .:he Depu:y Assistant Secretary, several
projects to bring about these improvements are now underway.
We noted that one of the projects, a study of the interface
of audit, inspection, internal review, =nd other DOD study



                                 5
 B-134192


 groups is underway and jointly staffed by the Deputy
 Secretary's policy staff and the military service     Assistant
                                                    audit agen-
 cies.   Two Defense Audit Service staff members are partici-
 pating.

 CONCLUSIONS

      The Assistant Secretary of Defense (Com.Dtroller) has
adequate authority to p:ovide policy and procedural
to the ilitary services internal audit agencies; thedirection
Assistant Scretary of Defense (Audit) does nt. Instead, Deputy
the Deputy Assistant Secretar , who also has ceraticnal
responsibilities as Director of the Defense Aucit           udit
                                                    Service. oniv
has the authority to develop policy and evaluate the
tation of policies approved by the Comptroller.        ilemen-

     The Deputy Assistant Secretary's
audit, and reporting responsibilities policy,  operational
                                       should not be separate.
Instead, the internal audit functior., including  nternal
audit policy, should be merged under one internal audit
ganization. Audit policy formulation is best developed or-
it is made as a result of knowledge ained through         when
                                                    first-
hand experience and should not b made independently
                                                      of the
audi- function.

    The Deputy Assistant Secretary should periodically
the implementation of policy and procedural directives review
military services and other internal audit organizationsby the
the Department of Defense and should provide formal,       in
                                                     written
reports on olicy violations directly to the Secretary
Deputv Secretary of Defense.                            and

      hile the Deputy Assistant Secretary ma:y have adequate
resour es to carry out police, development responsibilities,
it is unlikely that the staff is sufficient to review agency
imlementation of those policies given the limited
                                                    staff
avaiiaLle in the Defense Audit Service and priority lines
work,                                                       of
        ombiing the policy and operational audit functions
under one office would facilitate assessment of policy
audit operations piorities and the identification       and
                                                    of respec-
t:ve resource needs.

REC,MIENDTIONS TO THE
SECRETARY OF DEFENSE

      To improve the internal audit function in
thoe Secre ary of Defense, we recommend that the the Office of
                                                  Secretary of
Defense:



                               6
 B-134192


      -- Combine the audit policy, audit operations,
                                                     and
         reporting functions into one functional
                                                 organi-
         zation.

      -- Require the head of the combined oraunization
         periodically review the implementation        to
                                                of policy
        and procedural directives by the military
                                                   services
        and other internal audit organizations in the
        Department of Defense, and provide formal,
        reports on policy violations directly to the ritten
        Secretary or Deputy Secretary of Defense.
      -- Give careful consideratior t recuired workload
         and the ca-abilitieS of te   taff to perform that
         workload and to bring the two into balance
                                                    before
         naking further staff redux-ions i: the internal
         audit function.


     As you know, section 236 of the Legislative
tion Act of 1970 requires the head of a Federal Reorcaniza-
submit a written statement on actions taken       agency to
dations ,to the House.Committee on Government on our recommen-
the Senate Cor'uittee on Governmental Affairs  Operations and
                                               not later than
60 days after the date of the report and to
Senate Committees on Appropriations with the the house and
request for appropriations made more than      agency's first
                                           60 days after the
date of the report.
     As arranged with your offi , we are sending
this report to the Secretary of Defense, the         copies of
tary of Defense (Cmptroller), and the Deputy  Assistant   Secre-'
tary of Defense (Audit). As you requested,      Assistant  Secre-
                                             we
written comments from the Department of Defense. did  not obtain
requested that we make no further distribution       Your office
prior to committee hearings at which the report  of  the report
                                                  will be used.
The hearings are now scheduled to be held
                                          on July 27, 1977.
                                     Sin   ely yours,   /

                                     Ccmptroller General
                                     of the United States
Enclosure


                                 7
     ENCLOSURE 1
                                                              ENCLOSURE 1

                  PRINCIPAL DEPARTMENT OF DEFENSE OFFICIALS

                  RESPONSIBLE FOR ADMINISTERING ACTIVITIES

                           DISCUSSED IN THIS REPORT

                                                  Tenure of office
                                                  From         To
     SECRETARY OF DEFENSE:
         Harold Brown                           Jan.
         Donald
                                                       1977     Present
                   . Rumsfeld                   Nov.   1975     Jan. 1977
         Wziliam P. Clement3, Jr.    (acting)   Nov.   1975
         James R. Schlesinger                                   Nov. 1975
                                                July   1973     Nov. 1975
     ASSISTANT SECRETARY OF DEFENSE
       (COMPTROLLER):
         Fred ?P. Wacker                        Sept. 1976      Present
        Terence E. McClary                      June   1973
        Donald razier (acting)                                  Aug. 1976
                                                Jan.   3973     Jun- 1973
        Robert Moot                             Aug.   1968     Jan. 19,3
 DEPUTY ASSISTANT SECRETARY OF
   DEFENSE (AUDIT):
     Frank S. Sato                              Aug.  1974
     Joseph P. Welsch                                           Present
                                                Sept. 1971      Aug. 1974
or