oversight

Financial Audit: Independent Counsel Expenditures for the Six Months Ended March 31, 2003

Published by the Government Accountability Office on 2003-09-30.

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

                 United States General Accounting Office

GAO              Report to Congressional Committees




September 2003
                 FINANCIAL AUDIT
                 Independent Counsel
                 Expenditures for the
                 Six Months Ended
                 March 31, 2003




GAO-03-1098
                 a
Contents



Letter                                                                                                                  1


Auditor’s Report                                                                                                        3
                             Background                                                                                 3
                             Opinion on Statements of Expenditures                                                      5
                             Consideration of Internal Control                                                          5
                             Compliance with Laws and Regulations                                                       6
                             Objectives, Scope, and Methodology                                                         6
                             Agency Comments                                                                            7


Appendixes
              Appendix I:    Statement of Expenditures for Independent Counsel
                             Barrett                                                                                10
              Appendix II:   Statement of Expenditures for Independent Counsel
                             Thomas                                                                                 13




                             Abbreviations

                             AOUSC                 Administrative Office of the U.S. Courts
                             FBI                   Federal Bureau of Investigation
                             OIC                   Office of Independent Counsel




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                             Page i                                                  GAO-03-1098 Independent Counsel
A
United States General Accounting Office
Washington, D.C. 20548



                                    September 30, 2003                                                           Leter




                                    Congressional Committees

                                    Enclosed is our report on the statements of expenditures of two offices of
                                    independent counsel for the 6 months ended March 31, 2003. We are
                                    sending copies of this report to the Attorney General, the Director of the
                                    Administrative Office of the U.S. Courts, the Independent Counsels
                                    included in our audit, and other interested parties. Copies of this report
                                    will be made available to others upon request. This report will also be
                                    available at no charge on GAO’s Web site at www.gao.gov.

                                    If you or your staffs have any questions concerning this report, please
                                    contact me at (202) 512-6906 or Hodge Herry, Assistant Director, at (202)
                                    512-9469. You can also reach us by E-mail at williamsM1@gao.gov or
                                    herryh@gao.gov. Key contributors to this report were Carol Keightley,
                                    Kwabena Ansong, and Heather Dunahoo.




                                    McCoy Williams
                                    Director
                                    Financial Management and Assurance




                                    Page 1                                        GAO-03-1098 Independent Counsel
Page 2   GAO-03-1098 Independent Counsel
A
United States General Accounting Office
Washington, D.C. 20548



                                    Congressional Committees                                                              Aud
                                                                                                                            to
                                                                                                                             R
                                                                                                                             sir’eport




                                    This report presents the results of our audits of expenditures1 reported by
                                    two offices of independent counsel for the 6 months ended March 31, 2003.
                                    The Department of Justice and the independent counsels are required
                                    under 28 U.S.C. 594 (d)(2), (h) and 596 (c)(1) (2000) to report on
                                    expenditures from a permanent, indefinite appropriation established
                                    within the Department of Justice to fund independent counsel activities.
                                    We are required under 28 U.S.C. 596 (c)(2) to audit the statements of
                                    expenditures prepared by the independent counsels.

                                    In our audits covering the 6 months ended March 31, 2003, we found

                                    • the statements of expenditures presented in appendixes I and II, for the
                                      offices of independent counsel (OIC) David M. Barrett and Julie F.
                                      Thomas, respectively, are presented fairly, in all material respects, in
                                      conformity with the basis of accounting described in note 1 of each
                                      counsel’s statement, which is principally the cash basis, a
                                      comprehensive basis of accounting other than U.S. generally accepted
                                      accounting principles;

                                    • no material weaknesses in internal control over financial reporting
                                      (including safeguarding assets) and compliance with laws and
                                      regulations; and

                                    • no reportable noncompliance with laws and regulations we tested.

                                    The following sections provide background information, outline each
                                    conclusion in more detail, and discuss the scope of our audits.



Background                          The Ethics in Government Act of 1978 amended title 28 of the United States
                                    Code to authorize the judicial appointment of independent counsels when
                                    the Attorney General determines that reasonable grounds exist to warrant
                                    further investigation of high-ranking government officials for certain
                                    alleged crimes. The independent counsel law (28 U.S.C. 591-599 (2000))
                                    was intended to preserve and promote the accountability and integrity of
                                    public officials and of the institutions of the federal government. The


                                    1
                                     The term expenditures as used in this report generally means cash disbursed.




                                    Page 3                                                  GAO-03-1098 Independent Counsel
independent counsel law expired on June 30, 1999. Provisions of the law
allow the independent counsels serving at the expiration date to continue
investigating pending matters until they determine that the investigations
of such matters have been completed.

The independent counsel law directs the Department of Justice to pay all
costs relating to the establishment and operation of independent counsel
offices from the permanent, indefinite appropriation established to fund
independent counsel activities. The independent counsel law also
designates specific responsibilities to the Administrative Office of the U.S.
Courts (AOUSC) for independent counsels’ administrative support. The
Department of Justice periodically disburses lump-sum payments to
AOUSC for this purpose.

During any 6-month reporting period, there may be other significant costs
incurred in support of the work of the counsels. These costs are paid from
appropriations other than the permanent, indefinite appropriation
established to fund independent counsel activities. These costs arise when
a counsel uses detailees from other federal agencies, such as the Federal
Bureau of Investigation (FBI). Independent counsels are not required to
reflect such costs in their statements of expenditures nor do they do so.
For the 6 months ended March 31, 2003, there were no costs reported by
other agencies in support of independent counsel activities.

Also, these statements and related notes do not include certain
expenditures related to the investigation by former independent counsel
Daniel M. Pearson. Mr. Pearson’s office officially closed in April 2002, and
accordingly, no longer prepares financial statements. However, OIC
Pearson had $2,585 in expenditures this period for payment of late
contractor billings. Further, a lump-sum leave payment is expected to be
made from the independent counsel permanent, indefinite appropriation at
some future point pending the satisfactory completion of administrative
responsibilities by a former OIC Pearson employee.

In addition, these statements and related notes do not include certain
expenditures related to the investigation by Special Counsel John C.
Danforth. The investigation by Special Counsel Danforth was officially
terminated when Mr. Danforth closed his office in March 2001.
Accordingly, Special Counsel Danforth no longer prepares financial
statements. However, the Department of Justice paid $22,612 from the
permanent, indefinite appropriation during this period for delayed billings
for rental of copying equipment and a correction to the account for



Page 4                                          GAO-03-1098 Independent Counsel
                        background investigation services provided by the Office of Personnel
                        Management for the Office of Special Counsel Danforth. Justice originally
                        mistakenly charged the latter to another unit within the Department of
                        Justice.

                        The office of independent counsel Ralph I. Lancaster is also officially
                        closed and no longer prepares financial statements. However, the U.S.
                        Court of Appeals for the D.C. Circuit awarded reimbursement of $32,437
                        for attorneys’ fees and expenses of individuals who had been investigated
                        by Mr. Lancaster but not indicted, as authorized by 28 U.S.C. 593(f)(1). The
                        reimbursement was made from the permanent fund established for the
                        payment of judgments.



Opinion on Statements   The statements of expenditures, including the accompanying notes for the
                        offices of independent counsel David M. Barrett and Julie F. Thomas,
of Expenditures         present fairly, in all material respects, the expenditures of these counsels
                        for the 6 months ended March 31, 2003, on the basis of accounting
                        described in note 1 of each office’s statement.

                        The counsels prepared their statements of expenditures principally on a
                        cash basis of accounting, which is a comprehensive basis of accounting
                        other than U.S. generally accepted accounting principles. The basis of
                        accounting is described in note 1 of each counsel’s statement.



Consideration of        In planning and performing our audits, we considered internal control over
                        financial reporting and compliance.2 We did this to determine our
Internal Control        procedures for auditing the statements of expenditures, not to express an
                        opinion on internal control. Accordingly, we do not express an opinion on
                        internal control over financial reporting and compliance. However, for the
                        controls we tested, we found no material weaknesses in internal control
                        over financial reporting (including safeguarding assets) and compliance for
                        the 6-month period ended March 31, 2003. A material weakness is a
                        condition in which the design or operation of one or more of the internal
                        control components does not reduce to a relatively low level the risk that


                        2
                         The objectives of internal control are to provide reasonable assurance that management
                        maintained effective internal control over financial reporting (including safeguarding
                        assets) and compliance with laws and regulations.




                        Page 5                                                 GAO-03-1098 Independent Counsel
                         errors, fraud, or noncompliance in amounts that would be material to the
                         statements of expenditures may occur and not be detected promptly by
                         employees in the normal course of performing their duties. Our internal
                         control work would not necessarily disclose all material weaknesses.



Compliance with Laws     Our tests for compliance with selected provisions of laws and regulations
                         disclosed no instances of noncompliance that would be reportable under
and Regulations          U.S. generally accepted government auditing standards. However, the
                         objective of our audit was not to provide an opinion on overall compliance
                         with laws and regulations. Accordingly, we do not express such an opinion.



Objectives, Scope, and   The independent counsels are responsible for preparing statements of
                         expenditures in conformity with the basis of accounting described in the
Methodology              accompanying notes. The counsels are also responsible for establishing,
                         maintaining, and assessing internal control to provide reasonable
                         assurance that the following internal control objectives are met and for
                         complying with applicable laws and regulations.

                         • Financial reporting: Transactions are properly recorded, processed, and
                           summarized to permit the preparation of the statements of expenditures
                           in conformity with the basis of accounting described in the notes to the
                           statements, and assets are safeguarded against loss from unauthorized
                           acquisition, use, or disposition.

                         • Compliance with laws and regulations: Transactions are executed in
                           accordance with laws and regulations that could have a direct and
                           material effect on the counsels’ statements of expenditures.

                         We are responsible for (1) obtaining reasonable assurance about whether
                         the counsels’ statements of expenditures are presented fairly, in all material
                         respects, in conformity with the basis of accounting described in the notes
                         accompanying their statements of expenditures, (2) obtaining a sufficient
                         understanding of internal control over financial reporting and compliance
                         to plan the audits, and (3) testing compliance with selected provisions of
                         laws and regulations that have a direct and material effect on the
                         statements.

                         In order to fulfill these responsibilities, for each counsel, we (1) examined,
                         on a test basis, evidence supporting the amounts and disclosures in the



                         Page 6                                          GAO-03-1098 Independent Counsel
                  statement of expenditures, (2) assessed the accounting principles used by
                  management, (3) evaluated the overall presentation of the statement of
                  expenditures, (4) obtained an understanding of internal control related to
                  financial reporting (including safeguarding assets) and compliance with
                  laws and regulations, and (5) tested compliance with selected provisions of
                  28 U.S.C. 591-599 (2000), 5 U.S.C. Chapter 55, and regulations relating to
                  pay administration.

                  We limited our internal control testing to controls over financial reporting
                  and compliance. Because of inherent limitations in internal control,
                  misstatements due to error, fraud, losses, or noncompliance may
                  nevertheless occur and not be detected. We also caution that projecting our
                  evaluation to future periods is subject to the risk that controls may become
                  inadequate because of changes in conditions or that the degree of
                  compliance with controls may deteriorate. In addition, we caution that our
                  internal control testing may not be sufficient for other purposes.

                  We did not test compliance with all laws and regulations applicable to the
                  offices of independent counsel. We limited our tests of compliance to
                  those laws and regulations that we deemed applicable to the statements of
                  expenditures. We caution that noncompliance may occur and not be
                  detected by these tests and that such testing may not be sufficient for other
                  purposes. We performed our audits in accordance with U.S. generally
                  accepted government auditing standards.



Agency Comments   We provided drafts of this report to the offices of independent counsel, the
                  Department of Justice, and AOUSC for review and comment. These
                  entities agreed with the facts and conclusions in our report.




                  McCoy Williams
                  Director
                  Financial Management and Assurance

                  September 15, 2003




                  Page 7                                          GAO-03-1098 Independent Counsel
List of Committees

The Honorable Ted Stevens
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable Susan M. Collins
Chairman
The Honorable Joseph I. Lieberman
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Orrin G. Hatch
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate

The Honorable C. W. Bill Young
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives

The Honorable Tom Davis
Chairman
The Honorable Henry A. Waxman
Ranking Minority Member
Committee on Government Reform
House of Representatives




Page 8                              GAO-03-1098 Independent Counsel
The Honorable F. James Sensenbrenner, Jr.
Chairman
The Honorable John Conyers, Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives




Page 9                                      GAO-03-1098 Independent Counsel
Appendix I

Statement of Expenditures for Independent                                                           Appendx
                                                                                                          ies




Counsel Barrett                                                                                      Append
                                                                                                          x
                                                                                                          Ii




                                           DAVID M. BARRETT

                                      Office of Independent Counsel

                                        Statement of Expenditures
                                              (Cash basis)

                                    Six Months Ended March 31, 2003


              Personnel compensation and benefits                                $440,364

              Travel (note 2)                                                      23,425

              Rent, communications, and utilities (note 3)                        276,414

              Contractual services (note 4)                                       103,393

              Supplies and materials (note 5)                                       2,123

              Acquisition of capital assets (note 6)                                1,368

              Administrative services (note 7)                                     84,550

              Total expenditures                                                 $931,637

             ____________________________________________________
             The accompanying notes are an integral part of this statement.




                 Page 10                                              GAO-03-1098 Independent Counsel
    Appendix I
    Statement of Expenditures for Independent
    Counsel Barrett




                              DAVID M. BARRETT

                        Office of Independent Counsel

                      Notes to Statement of Expenditures


Note 1 - Accounting policies

Reporting entity: The accompanying statement of expenditures presents the
expenditures of the Office of Independent Counsel-David M. Barrett (OIC-
Barrett) for the 6 months ended March 31, 2003. The statement of
expenditures includes only expenditures made from the permanent, indefinite
appropriation for the OIC that are processed through the Administrative Office
of the U.S. Courts (AOUSC) and the OIC. Mr. Barrett was appointed on May
24, 1995, to investigate certain allegations against the Secretary of Housing
and Urban Development. On March 17, 2003, the Special Division of the U.S.
Court of Appeals for the District of Columbia Circuit ordered that the
Independent Counsel continue his office to the extent necessary or appropriate
to perform the noninvestigative and nonprosecutorial tasks remaining of his
statutory duties as required to conclude the functions of his office.
Expenditures during this period principally relate to preparing the final report for
submission to the Court and to closing the office.

Basis of accounting: The accompanying statement of expenditures was
prepared principally on the cash basis of accounting, which is a comprehensive
basis of accounting other than U.S. generally accepted accounting principles.
Under this method, except for personnel compensation and benefits,
expenditures are recorded when the funds are disbursed by AOUSC or, for
noncash transfers, when charged by AOUSC. Most personnel compensation
and benefits are recorded at the end of the pay period when earned.


Note 2 - Travel

Travel generally includes expenditures for investigation-related travel paid for
OIC-Barrett personnel.


Note 3 - Rent, communications, and utilities

Approximately $236,000 in office rent is included in rent, communications, and
utilities.




    Page 11                                                 GAO-03-1098 Independent Counsel
    Appendix I
    Statement of Expenditures for Independent
    Counsel Barrett




Note 4 - Contractual services

Contractual services primarily consist of expenditures for investigators and
services of other experts in areas of interest to the investigation.


Note 5 - Supplies and materials

The supplies and materials expenditures are primarily for office supplies for
office use, including archiving of records.


Note 6 - Acquisition of capital assets

The capital assets expenditures are primarily for automated data processing
equipment. These assets will remain the property of the federal government at
the conclusion of the investigation.


Note 7 - Administrative services

AOUSC receives an administrative fee equal to 3 percent of OIC expenditures
for performing disbursement and accounting functions for OIC-Barrett.
Payment of these fees generally occurs in the month following the services.
Also included in administrative services are other costs incurred by AOUSC in
providing administrative guidance and support to independent counsel offices.
These costs were certified by AOUSC, paid from the independent counsel
appropriation, and allocated to the OIC.




    Page 12                                               GAO-03-1098 Independent Counsel
Appendix II

Statement of Expenditures for Independent
Counsel Thomas                                                                                      Appendx
                                                                                                          Ii




                                               JULIE F. THOMAS

                                      Office of Independent Counsel

                                        Statement of Expenditures
                                              (Cash basis)

                                    Six Months Ended March 31, 2003


               Personnel compensation and benefits                              $377,132

               Travel (note 2)                                                      7,851

               Rent, communications, and utilities (note 3)                      108,093

               Contractual services (note 4)                                     118,856

               Supplies and materials (note 5)                                       896

               Administrative services (note 6)                                   60,284

               Total expenditures                                               $673,112

              ____________________________________________________
              The accompanying notes are an integral part of this statement.




                  Page 13                                             GAO-03-1098 Independent Counsel
    Appendix II
    Statement of Expenditures for Independent
    Counsel Thomas




                         JULIE F. THOMAS

                  Office of Independent Counsel

               Notes to Statement of Expenditures


Note 1 - Accounting policies

Reporting entity: The accompanying statement of expenditures presents the
expenditures of the Office of Independent Counsel-Julie F. Thomas (OIC-
Thomas) for the 6 months ended March 31, 2003. The statement of
expenditures includes only expenditures made from the permanent, indefinite
appropriation for the OIC that are processed through the Administrative Office
of the U.S. Courts (AOUSC) and the OIC.

Kenneth W. Starr (OIC-Starr) was appointed on August 5, 1994, to assume the
investigation of possible violations of federal criminal law in Re: Madison
Guaranty Savings and Loan Association and other entities (Whitewater), which
was begun by regulatory Independent Counsel Robert B. Fiske, Jr. The U.S.
Court of Appeals subsequently expanded OIC-Starr's jurisdiction to include
selected White House Travel Office and access-to-personnel-file issues on
March 22, 1996, and June 21, 1996, respectively. On October 25, 1996, it
further expanded OIC-Starr's jurisdiction to include issues related to statements
made on June 26, 1996, before the Government Reform and Oversight
Committee, U.S. House of Representatives. On January 16, 1998, the court
expanded OIC-Starr's jurisdiction to include issues related to whether, in a civil
case (commonly referred to as the Lewinsky matter), certain individuals
suborned perjury, obstructed justice, intimidated witnesses, or otherwise
violated federal law in dealing with witnesses, potential witnesses, attorneys, or
others.

On October 18, 1999, Mr. Starr resigned his appointment, and was succeeded
by Robert W. Ray as independent counsel effective the same date. On
March 16, 2000, Mr. Ray submitted to the Special Division of the U.S. Court of
Appeals for the District of Columbia Circuit two final reports on (1) the access-
to-personnel-file issues and (2) the issues related to statements made before
the Government Reform and Oversight Committee. On July 28, 2000, the court
ordered the public release of the two reports. Further, on June 22, 2000, Mr.
Ray submitted to the court a final report on the White House travel matter. On
October 18, 2000, the court ordered the public release of that report. On
January 19, 2001, Mr. Ray announced the conclusion of all current matters
before the OIC.

On August 21, 2001, the Special Division of the U.S. Court of Appeals for the
District of Columbia Circuit, at the request of the Independent Counsel, ordered




    Page 14                                               GAO-03-1098 Independent Counsel
    Appendix II
    Statement of Expenditures for Independent
    Counsel Thomas




the termination of the investigative functions of the Independent Counsel as of
March 31, 2002, except to the extent necessary to conclude any remaining
noninvestigative and nonprosecutorial tasks required by statute. On March 2,
2001, and May 18, 2001, Mr. Ray submitted to the court the final reports on the
Whitewater and Lewinsky matters, respectively. On March 6, 2002, the court
ordered the publication and release of the report on the Lewinsky matter. On
March 20, 2002, the court ordered the publication and release of the
Whitewater report. On March 12, 2002, Mr. Ray resigned his appointment and
was succeeded by Ms. Julie F. Thomas as Independent Counsel effective that
same date. Expenditures during this period were for archiving investigative
materials and reviewing petitions for reimbursement of attorneys’ fees.

Basis of accounting: The accompanying statement of expenditures was
prepared principally on the cash basis of accounting, which is a comprehensive
basis of accounting other than U.S. generally accepted accounting principles.
Under this method, except for personnel compensation and benefits,
expenditures are recorded when the funds are disbursed by AOUSC or, for
noncash transfers, when charged by AOUSC. Most personnel compensation
and benefits are recorded at the end of the pay period when earned.


Note 2 - Travel

Travel generally includes expenditures for investigation-related travel paid for
OIC-Thomas personnel and contractors.


Note 3 - Rent, communications, and utilities

Approximately $80,000 in office rent is included in rent, communications, and
utilities.


Note 4 - Contractual services

Contractual services primarily consist of expenditures for computer support and
maintenance, the repair and maintenance of office equipment, and specialists
in areas of interest to the investigation.


Note 5 - Supplies and materials

The supplies and materials expenditures are primarily for office supplies used in
the archiving of records.




    Page 15                                                GAO-03-1098 Independent Counsel
               Appendix II
               Statement of Expenditures for Independent
               Counsel Thomas




           Note 6 - Administrative services

           AOUSC receives an administrative fee equal to 3 percent of OIC expenditures
           for performing disbursement and accounting functions for OIC-Thomas.
           Payment of these fees generally occurs in the month following the services.
           Also included in administrative services are other costs incurred by AOUSC in
           providing administrative guidance and support to independent counsel offices.
           These costs were certified by AOUSC, paid from the independent counsel
           appropriation, and allocated to the OIC.




(195013)       Page 16                                             GAO-03-1098 Independent Counsel
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