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3,200 | 30 days prior to removal. The 2008 Reform Act mandates that IGs shall submit their budget to their entity’s head, who shall include, among other things, an aggregate request for the IG in the entity’s budget proposal to the President. The President must include in the budget of the U.S. government submitted to Congress a separate statement of each IG’s budget request, and the amount requested by the President for each IG. Before the act, only the presidentially appointed IGs and three DFE IGs had such tran |
3,201 | sparency over their budgets. Regarding pay, the presidentially appointed IGs have been paid at Executive Level IV, while the DFE IGs have been paid at the GS-15 grade, Senior Executive Service level, or equivalent salary level determined by their entity. The 2008 Reform Act requires that all presidentially appointed IGs be paid at Executive Level III, plus 3 percent, and all DFE IGs shall be paid at a level at or above the level of a majority of senior executives of the respective DFEs. The 2008 Reform Act |
3,202 | was effective upon passage, but it provided up to 180 days to establish the Council of Inspectors General on Integrity and Efficiency. While Congress has historically weighed many political and policy factors in deciding on DFE governance structures, and applied specific accountability requirements to achieve its original objectives, current private sector guidance says that governing bodies need to be large enough to accommodate the necessary skills set, but still small enough to promote cohesion, flexibil |
3,203 | ity, and effective participation. DFEs vary in their statutory size and structure as well as their statutory purpose and requirements for governance. Survey responses showed that the size of DFE governing bodies ranges from 1 to 24 members. Thirteen of the 31 DFEs had at least one vacancy in their governing body. At 2 of the DFEs— the Consumer Product Safety Commission and National Labor Relations Board—active members were outnumbered by vacancies. Only 7 of 29 DFE governing bodies have committees that deal |
3,204 | with governance or oversight. Committees can enhance the overall effectiveness of the governing body by ensuring focus and oversight in areas of concern. In order to improve governance and accountability at federal agencies, a variety of laws covering a range of management and administrative practices and processes have been enacted. Of 12 key governance and accountability statutes that we selected for review, 13 of 31 DFEs responded that they are statutorily required to comply with all 12 statutes. Based |
3,205 | on the responses of the remaining 18 DFEs, the applicability of the 12 statutes varied, with 1 DFE—the Corporation for Public Broadcasting—stating that it is not subject to any of the 12 key governance and accountability statutes. Some entities that said they are not statutorily required to comply with the statutes indicated that they have adopted the provisions voluntarily or implemented an alternative mechanism to attain the objectives of the statute. Finally, in relation to the governing body’s effective |
3,206 | ness, 19 of the 29 DFEs surveyed reported having orientation programs for the new governing body, while only 10 DFEs reported having ongoing training for governing body members. Orientation and training programs for governing body members aimed at providing information on governance practices and the regulatory environment are important for the DFE governing body’s ability to carry out its responsibilities effectively and efficiently. Corporate governance guidelines in the private sector state that governin |
3,207 | g bodies should establish committees that will enhance their overall effectiveness by ensuring focus and oversight for areas of concern. Our work shows that few DFEs reportedly have audit committees, none have an ethics committee, and only a limited number have orientation and ongoing training for governing body members, which is inconsistent with the governance practices established in other sectors such as public companies or nonprofits. Congress has over many decades weighed a variety of political and po |
3,208 | licy considerations, such as political independence and accountability, efficiency, and specific entity missions, in deciding on DFE governance structures, and applied specific accountability requirements, such as governing body appointment and removal authorities and governing body public meeting requirements, to achieve its original objectives. Current private sector guidance says that governing bodies need to be large enough to accommodate the necessary skills set, but still small enough to promote cohes |
3,209 | ion, flexibility, and effective participation. The DFE’s governing bodies range in size from 1 to 24 members. For comparison, according to the 2006 edition of the annual Directors’ Compensation and Board Practices report by The Conference Board, the median board size of publicly traded corporations, depending on the industry, ranges from 9 to 11 members. Of the 31 DFEs, only the Corporation for Public Broadcasting, Legal Services Corporation, and United States Postal Service statutorily have 9 to 11 governi |
3,210 | ng body members. Three entities— the National Science Foundation, Smithsonian Institution, and Appalachian Regional Commission—statutorily have more than 11 members, while the remaining 25 DFEs have 8 or fewer governing-body members. (See table 2.) At the time of our review, vacancies reportedly outnumbered active members on the governing bodies of the Consumer Product Safety Commission (CPSC) and the National Labor Relations Board. In recent years, Amtrak and the Federal Election Commission have also had s |
3,211 | ignificant vacancies. In January 2008, four of the six commissioner seats for the Federal Election Commission were vacant. Over the past several years the number of active board members at Amtrak has fluctuated, and at least twice—between December 2007 and March 2008 and between October 2003 and June 2004—the board had only two voting members (excluding the Secretary of Transportation or his designee). Without the minimum number of members required to conduct business, a board may be legally unable to make |
3,212 | certain decisions. For instance, the Federal Election Commission’s enabling legislation requires that four of its six commissioners be present for certain entity business to be carried out. Also, the National Endowment for the Humanities and the National Endowment for the Arts governing bodies, which are single-member governing bodies, are currently vacant. According to The Conference Board’s corporate governance guidelines, corporate boards should be structured so that the composition and skill set of a bo |
3,213 | ard is appropriate based on the corporation’s particular challenges and strategic vision. The size of a governing body is important not only for establishing the necessary range of skills, but in promoting cohesion, flexibility, and effective participation of the members to achieve their governance objectives. Generally, the membership of DFE governing bodies is defined by the DFE’s authorizing legislation, with many DFE governing body members appointed by the President, with the advice and consent of the S |
3,214 | enate. For instance, the Pension Benefit Guaranty Corporation’s governing body is statutorily composed of three members—the Secretary of Labor, Secretary of Treasury, and Secretary of Commerce. The Secretary of Labor is the chairperson and entity head under the IG Act. The Appalachian Regional Commission is statutorily composed of governors of the 13 Appalachian states and a federal cochair. The Smithsonian Board of Regents is statutorily composed of the Vice President, the Chief Justice of the United State |
3,215 | s, three members of the Senate, three members of the House of Representatives, and nine other members not from Congress. In order to improve governance and accountability at federal agencies, a variety of laws covering a range of management and administrative practices and processes have been enacted. We identified 12 statutes as key to governance and accountability. The statutes, which are described in Appendix III, cover funds control, performance and financial reporting, accounting and internal control s |
3,216 | ystems, human resources management, and recordkeeping and access to information. They are the: Anti-Deficiency Act (ADA), “Purpose Statute” (31 U.S.C. § 1301(a)), Improper Payments Information Act of 2002 (IPIA), Accountability of Tax Dollars Act of 2002 (ATDA), Government Performance and Results Act of 1993 (GPRA), Federal Managers’ Financial Integrity Act of 1982 (FMFIA), Federal Information Security Management Act of 2002 (FISMA), Travel, Transportation, and Subsistence (5 U.S.C. Chapter 57), Whistleblow |
3,217 | er Protection Act (WPA), Ethics in Government Act of 1978 (Ethics), Freedom of Information Act (FOIA), and Government in the Sunshine Act (Sunshine). Based on results from a data request we sent to the DFEs, table 3 shows 13 of 31 reported that they are subject to all 12 key governance statutes. Reponded as subject to the te. In responding to our data request, several DFEs indicated that although they are not required to comply with a particular statute, they are in essence following the statute, having ado |
3,218 | pted the provisions of the statute voluntarily or implemented an alternative mechanism to attain the statute’s objectives. (See Appendix IV.) Corporate governance guidelines in the private sector state that governing bodies should establish committees that will enhance their overall effectiveness by ensuring focus and oversight for areas of concern. In the private sector, statutes and standards require that public company boards of directors maintain certain standing committees, such as audit, nominating, e |
3,219 | thics, and compensation. In addition, governing bodies have established committees to focus on issues or particular concerns of the board such as risk, technology, public policy, and corporate governance. Committees handle specific issues or topics and usually make policy recommendations for the full board to consider. Most DFEs do not have governance or internal oversight committees. However, DFEs, like all federal entities, do receive oversight by congressional committees. Of the 29 DFEs responding to our |
3,220 | survey, only 7—the Corporation for Public Broadcasting, Election Assistance Commission, Federal Reserve Board, Legal Services Corporation, National Science Foundation, Smithsonian Institution, and United States Postal Service—indicated that they have committees or advisory panels for enhancing governing body effectiveness that are commonly found in public companies or nonprofit organizations. As shown in table 5, 5 of those 7 have audit committees. None of the 29 governing bodies responding to our survey r |
3,221 | eported having a standing ethics committee. (See table 5.) Some federal entities have applied private sector corporate governance guidelines for oversight committees in response to recent governance challenges or reports on governance and accountability practices. Some of these challenges have even resulted in board reorganization and other governance changes. For instance, in response to an IG report, the Corporation for Public Broadcasting created a governance committee for its board and revised the board |
3,222 | ’s by-laws to clarify the board’s and president’s roles. In response to a GAO report, the Legal Services Corporation created an audit committee and also added the responsibilities of corporate governance to its Performance Review committee, which was renamed Governance and Performance Review. Based on recommendations of the Smithsonian Institution Board of Regents’ Governance Committee, the board adopted a set of duties and responsibilities for all regents, examined the board structure, and appointed new le |
3,223 | adership for each committee. In the last 3 years, the United States Postal Service has added the role of governance to the responsibilities of its Strategic Planning Committee, added the Government Relations and Regulatory Committee, and developed a plan to comply with the Postal Accountability and Enhancement Act. The Board of Governors of the Federal Reserve combines functions of finance, budget, performance review, and operations in its Board Affairs Committee. According to The Conference Board’s Corpora |
3,224 | te Governance Handbook 2007, a company board’s responsibility typically includes: monitoring and evaluating senior management, reviewing and approving management’s strategic and business plans, reviewing and approving the entity’s risk management program, reviewing and approving financial objectives and plans, monitoring the entity’s performance against the strategic plan, and helping to ensure ethical behavior and compliance with laws and regulations. The Corporate Governance Handbook 2007 further states t |
3,225 | hat a company board’s effectiveness depends on the quality and timeliness of information received in order to make informed decisions and perform its oversight function. Governing bodies establish committees to enhance the overall effectiveness of the board by ensuring focus on and oversight of matters of particular concern. Since the IG is responsible for preventing and detecting fraud and abuse, conducting audits and investigations, and recommending policies to promote economy, efficiency, and effectivene |
3,226 | ss, the work of an IG at an entity can benefit the governing body, particularly governing body and committee efforts to focus on issues and provide oversight of the entity. Because single-member governing bodies and other noncorporate entity governing bodies have many of the same responsibilities as corporate boards of directors, we believe that public company and nonprofit corporation governance practices may provide benefits to those governing bodies. Only five of the DFE governing bodies indicated they h |
3,227 | ave an audit committee, which is one of the key elements in effective corporate governance. According to the National Council on Nonprofits Association, an audit committee provides independent oversight of the organization’s accounting and financial reporting and oversees the organization’s annual audits. In the private sector, an audit committee is generally responsible for the appointment, compensation, and oversight of the external auditor; handling board communication with the external auditor regarding |
3,228 | financial reporting matters; and overseeing the entity’s financial reporting and the adequacy of internal control over financial reporting. In the federal government environment, the audit committee could also provide a key venue for the IG’s role in governance and in communicating with those charged with governance. Unless provided otherwise, the IG is responsible for conducting or overseeing the annual agency audit. New auditing standards reinforce the importance of communication between the financial au |
3,229 | ditor and those overseeing the organization’s governance. The auditing standards require that the auditor communicate with those charged with governance, who have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity. The standards recognize that multiple parties may be charged with governance including oversight bodies, members of legislative committees, boards of directors, audit committees, or parties contracting the audit. Without an audit |
3,230 | committee, organizations may find it more difficult to ensure that weaknesses found during the financial audit as well as IG recommendations are addressed properly. None of the DFE governing bodies has a separate standing ethics committee. An ethics committee is responsible for ensuring that the organization has systems in place to provide assurance over employee compliance with the organization’s code of conduct and ethics. According to Standards for Internal Control in the Federal Government, a positive c |
3,231 | ontrol environment includes integrity and ethical values that are provided by leadership through setting and maintaining the organization’s ethical tone, providing guidance for proper behavior, removing temptations for unethical behavior, and providing discipline when appropriate. The New York Stock Exchange requires that an ethics committee function be contained within the audit committee of listed companies. Although audit and ethics committees are accepted governance practices, in order to determine whet |
3,232 | her a governing body should create these committees, consideration should be given to the entity’s structure, size, mission, and risk. Nineteen of the 29 DFEs responding to our survey reported having orientation programs for new governing body members, and at least 15 of the 19 programs reportedly provide key information on oversight and governance issues, such as governing body policies and communications with management. Seventeen DFEs reported that the roles and duties of their entities’ IGs are included |
3,233 | in the orientation program. Of 9 DFEs that reported having ongoing training for governing body members covering topics such as the fiduciary duty of board members and role of the IG, only 5 addressed some of the statutory requirements and oversight topics— such as Government in the Sunshine Act and Freedom of Information Act, travel policy, and ethics—considered necessary to keep board members updated on current federal government and management practices. DFEs are organizations unique in their missions, e |
3,234 | ntity structure, governing body and oversight framework, and budget. They are also subject to varying governance and accountability statutes. Therefore, orientation and training can be especially important for new governing body members from the private sector who have not worked in the federal government and may not be familiar with the federal government statutes and environment, particularly the role of the IG and how the IG can assist the board in achieving its oversight duties. The initial training and |
3,235 | orientation of new governing body members is a critical area for the governing body due to the significance of the stewardship, oversight, and potential fiduciary responsibilities of individual governing body members and the governing body as a whole. Current commonly accepted practice for public companies and nonprofit corporations is to provide board members with a broad-based orientation that encompasses the organization’s mission, vision, and strategic plan; its history; the members’ obligations and pe |
3,236 | rformance objectives; board policies on meetings and attendance; and board member job descriptions, including performance expectations and fiduciary obligations. Orientation and training programs help governing bodies to stay current with information on governance practices and the regulatory environment. In addition, a governing body needs to be kept up to date on key management practices and requirements in such areas as risk assessment and mitigation, internal controls, and financial reporting so that th |
3,237 | e governing body can oversee management’s key processes. As the governing body’s operating environment changes, new issues—whether regulatory, current practice, or industry specific—emerge with the changes. The orientation and training programs could help members of the governing body identify and address the new issues. According to The Conference Board’s corporate governance guidelines, governing bodies should meet regularly and focus principally on broader issues, such as corporate philosophy and mission |
3,238 | , broad entitywide policy, strategic management, oversight and monitoring of management, and company performance against business plans. Of those we surveyed, the number of meetings that the 25 DFE governing bodies with more than 1 member held each year varied greatly from 2005 through 2007 (see table 6). It is critical that the number and length of governing body meetings allow the governing body members to appropriately fulfill their stewardship, oversight, and potential fiduciary duties, which include pr |
3,239 | oviding active oversight of the entity’s strategy implementation and risk management. The IGs were created equally under the IG Act, as amended; however, the entities’ structures, governance practices, and policies and procedures vary, thereby affecting the role of the IG. These variances can be seen in different ways including the IG reporting relationship, budget or spending authority, and the entity’s governing body and management response to IG recommendations. The IG Act, as amended, requires that DFE |
3,240 | IGs report to and be under the general supervision of their entity head. Most of the DFE IGs we surveyed report to the highest levels in their entities, a structure that helps to safeguard IG independence in accordance with the IG Act and generally accepted government auditing standards. GAO’s Internal Control Management and Evaluation Tool states that the IG should have sufficient levels of competent and experienced staff and that the responsibilities, scope of work, and audit plans of the IG should be app |
3,241 | ropriate to the agency’s needs. The IG surveys also showed that most DFE IGs had limited control over their resources and that their budgets and staffing were not always adequate to perform audits or investigations related to the missions or management challenges of their entities. Government Auditing Standards state that restrictions on funds or other resources provided to the audit organization can impair independence and adversely affect the organization’s ability to carry out its responsibilities. Nine |
3,242 | of the 31 DFE IGs who responded to our survey stated that they need approval from entity management for spending on specific activities such as travel and contracting and 12 DFE IGs responded that they need entity approval to hire staff. Management responsiveness to IG recommendations is another critical factor that can influence the effectiveness of IG oversight and the effect of IG work. IG responses to the survey showed that management responsiveness to recommendations and audit resolution activities als |
3,243 | o varied, with some DFE IGs reporting that agency responsiveness to recommendations was lacking. One entity reported having 117 outstanding recommendations, some dating to 1998. Only 10 DFEs reported that their governing bodies have written policies for monitoring the implementation of IG recommendations. Nine of those 10 have policies that require the governing body to respond in writing acknowledging the recommendations and to develop a plan to address them. Audit and oversight committees, which can help |
3,244 | oversee implementation of recommendations, could assist IGs in providing effective oversight and actively tracking and resolving recommendations. The IG Act, as amended, requires that DFE IGs report to and be under the general supervision of their entity heads. The IG Act also requires IGs to perform audits in compliance with Government Auditing Standards, which state that for a government internal audit function to be independent, the head of the audit organization must be accountable to the head or deputy |
3,245 | head of the government entity or to those charged with governance and be located organizationally outside the staff or line management function of the unit under audit. Without any other safeguards, the independence of an IG who must report audit or investigative findings in areas under the direct responsibility of his or her supervisor may be impaired in both fact and appearance. Twenty-nine of the 31 IGs we surveyed responded that they report either to their entity head or the entity governing body. Tabl |
3,246 | e 7 shows that 16 IGs responded that they meet with their entity heads at least weekly or monthly and 12 meet with them quarterly. Government Auditing Standards state that the internal audit organization, such as the IGs, should report regularly to those charged with governance. Six of the 31 IGs responded that their entity had an audit or other oversight committee that they meet with and 4 indicated that they met with the committee quarterly (See table 8). Government Auditing Standards state that multiple |
3,247 | parties may be charged with governance, including oversight bodies, boards of directors, audit committees, or parties contracting for the audit. Since those charged with governance have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity, the IG’s regular communication with the audit or other oversight committee is important for the committee to carry out its governance duties. Government Auditing Standards state that audit organizations must |
3,248 | be free from external impairments to independence. External impairments occur when auditors are deterred from acting objectively and exercising professional skepticism by actual or perceived pressures from management and employees of the entity. For example, an IG’s lack of control over the budgetary resources from its entity, such as the entity head restricting funds or other resources to the IG, can impair an IG’s independence and ability to carry out its responsibilities. Separate appropriation accounts |
3,249 | for IGs can help provide transparency about the amount of the IG’s budget and reveal trends in resources provided to them. However, until passage of the 2008 Reform Act, there was no statute, including the IG Act, requiring separate appropriations accounts for all DFE IGs. Three DFE IGs have a separate appropriation account or line item in the Budget of the U.S. Government (Legal Services Corporation, National Science Foundation, and Federal Reserve Board). Twenty-six of 31 DFE IGs responding to the survey |
3,250 | reported that they developed or oversaw development of their budgets, with 8 of the 26 receiving guidance from entity management which the survey responder indicated limited the size of the original request. Eight DFE IGs reported that they needed approval from entity management to spend funds for purchases, travel, training, and other IG activities (see table 9). Of the entities listed in table 9, the National Endowment for the Arts, National Endowment for the Humanities, National Archives and Records Adm |
3,251 | inistration, and the Consumer Product Safety Commission IGs indicated they have never had a problem obtaining additional funds when necessary. IGs at the Federal Labor Relations Authority (FLRA) and U.S. International Trade Commission, however, informed us that they had not been able to obtain funding for staff. A recent peer review of FLRA, for instance, found that the IG did not perform the required FISMA evaluations in 2006 and 2007 because management had not responded to the IG’s requests for funds to h |
3,252 | ire contract auditors. The peer reviewer recommended that the FLRA IG provide a copy of the peer review report to FLRA management and that the FLRA IG use the peer review report to seek assistance from other oversight bodies—including the appropriate subcommittees of Congress and OMB—for help in addressing the existing impairments to independence. The 2008 Reform Act mandates that IGs shall submit their budget to their entity’s head, who shall include, among other things, an aggregate request for the IG in |
3,253 | their agency budget proposal to the President. The President must include in the budget submitted to Congress a separate statement of each IG’s budget request, and the amount requested by the President for each IG. This should provide more transparency to the IG budget process. GAO’s Internal Control Management and Evaluation Tool states that in assessing office of inspector general internal controls, the IG should consider whether it has sufficient levels of competent and experienced staff and that the res |
3,254 | ponsibilities, scope of work, and audit plans of the IG should be appropriate to the agency’s needs. In fiscal year 2008, the 31 DFE IGs had budgets ranging from $331,000 to $233,300,000, with 5 having budgets $500,000 or under and 12 having budgets under $1,000,000. In addition to the IGs’ overall mandate to prevent and detect waste, fraud, and abuse and to promote economy and efficiency, specific audit work may arise from legal mandates, requests from entity management, requests from Congress, or from dis |
3,255 | cretionary work deemed necessary by the IG. The IGs also reported that the percent of IG work spent on mandatory audits ranged from 0 to 100 percent. All 19 IGs who responded that their agencies are subject to the Accountability of Tax Dollar Act of 2002 (ATDA) reported that funding for the entity’s financial statements came from their IG budgets. In fiscal year 2008, 15 of 31 DFE IGs reported having 5 or fewer staff. Twelve of the 31 IGs responded that they need entity approval to hire staff. Limited staff |
3,256 | ing may affect the ability of the IG to conduct the full range of audits required by its mandate (See table 10). Twenty of 31 IGs reported they had their own full or part-time General Counsel. The IG offices that did not have their own General Counsel had 5 or fewer staff, except for Peace Corps, which had 17. Of those that did not have their own General Counsel, all but FLRA used a member of their entity’s General Counsel staff. FLRA used the General Counsel of another entity’s Office of Inspector General. |
3,257 | Absent adequate safeguards, cases where the IG has no access to General Counsel other than that internal to entity management could pose a potential impairment to IG independence. GAO’s Internal Control and Management Evaluation Tool states that in assessing an entity’s internal controls, the entity should consider whether its IG regularly provides recommendations to management that are evaluated and implemented when appropriate. The tool also considers whether agency management has a mechanism to ensure p |
3,258 | rompt resolution of findings and recommendations from audits and other reviews. According to their survey responses, IGs made recommendations ranging in number from 0 to 593 in 2007. A number of the IGs we interviewed stated that agency responsiveness to IG and financial audit recommendations was lacking. One entity had 117 recommendations outstanding, some dating to 1998. Audit or advisory committees, which can play an oversight role in tracking and resolving recommendations, exist at only seven of the DFE |
3,259 | s. Ten of the 29 DFEs that responded to our survey reported that their governing bodies have written policies for monitoring the implementation of IG recommendations. Nine of those 10 have policies that require the governing body to respond in writing acknowledging the recommendations and develop a plan to address them. Eight of the 10 also require that the governing body provide a time frame for implementing the IG recommendations and that the IG make a determination about whether the recommendations have |
3,260 | been implemented. The Report Consolidation Act of 2000, as implemented by OMB Circular No. A-136, Financial Reporting Requirements, requires that IGs of executive agencies summarize the most serious management challenges faced by their entities and assess their entities’ progress in addressing these challenges. The challenges and any responses from the head of the agency are to be included in the agency’s Performance and Accountability Report (PAR). Twenty-four DFE IGs developed a list of management challen |
3,261 | ges annually for their entities, while Amtrak, Election Assistance Commission, Federal Reserve Board, National Credit Union Administration, Postal Regulatory Commission, and Smithsonian Institution reported they did not. Of those who prepared management challenges, 10 reported them in both their semiannual reports and their Performance and Accountability Reports. Another 10 documented management challenges only in their entity’s PAR and 2 reported them only in the IG semiannual report. Some entities documen |
3,262 | ted their list of challenges in multiple places. The Legal Services Corporation IG did not report management challenges in either the semiannual report or the PAR, neither of which it is required to issue, but included them in the IG’s strategic plan. Despite the modernization of governance structures and practices that have occurred in the private sector in recent years, many DFEs, while similar to private corporations and nonprofits, have not updated their governance structures and practices. Therefore, t |
3,263 | he DFEs lag in commonly accepted governance practices, such as the use of audit committees, ethics committees, and orientation and training of governing body members. For entities using funding from taxpayers and donors, effective governance, accountability, and internal control are keys to maintaining trust and credibility. Although the DFE IGs receive equal treatment under the IG Act, as amended, variations in governance structures and practices among the entities create differing environments for them. G |
3,264 | overnance structures and practices can aid or hamper the work of the IGs, which were created by Congress to provide oversight and enhance the effectiveness of the mission of these entities. Reviewing and updating their governance structures, and the IG’s role, can provide DFE governing bodies with the opportunity to determine how to best use the IGs to enhance accountability and improve overall governance. As the 2008 Reform Act is implemented, some of the issues identified in our survey, such as lack of bu |
3,265 | dget transparency and lack of control over budgets, may be mitigated. We are not making specific recommendations in this report, but are providing this information for consideration in future oversight of DFEs and their IGs. The information on governance structures and practices provided in this report can help inform continuing work to improve the effectiveness of government, such as the new IG Council established under the 2008 Reform Act, which can also use this information in its role of promoting and s |
3,266 | upporting the effectiveness of the IG community and fostering governmentwide efforts to improve management. The information provides a basis for beginning discussions on the governance structures and practices as well as the IG role, but additional individual entity analysis that considers entity structure, size, mission, and risk should be completed in order to determine whether the governance or IG practice would provide value. We requested comments on a draft of this report from all 31 DFE entity heads a |
3,267 | nd IGs. Of the entity heads and IGs responding, a number provided technical comments that we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. We will then send copies of this report to other appropriate congressional committees, the DFE entity heads, and the DFE IGs. The report also is available at no charge on the GAO Web site at http://www.gao.gov. If you have any |
3,268 | questions concerning this report, please contact me at (202) 512-2600 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix V. Our reporting objectives were to describe (1) the statutory structure of the governing body for each designated federal entity (DFE) organization and (2) the inspector generals’ (IG) roles within the governance structure |
3,269 | and management of their respective entities. We conducted this engagement from September 2007 to January 2009 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objective. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any |
3,270 | findings and conclusion. To obtain the information needed for our two reporting objectives, we reviewed and summarized information from a variety of sources, including the enabling legislation of each DFE; the IG Act, as amended; the 2007 Performance and Accountability Report (PAR) or 2007 Annual Report of each DFE; the Office of Management and Budget’s (OMB) FY 2007 list of designated federal entities and federal entities; and prior GAO reports on inspectors general, accountability, and governance at the |
3,271 | DFEs. Based on prior work, we identified relevant current private sector guidance for governance that included the following: The Conference Board, Corporate Governance Handbook, 2007: Legal Standards and Board Practices. National Council of Nonprofit Associations, Financial Accountability Lipman, F.D. and L.K. Lipman, Corporate Governance Best Practices: Strategies for Public, Private, and Not-For-Profit Organizations. American Bar Association, Guide to Nonprofit Corporate Governance in the Wake of Sarbane |
3,272 | s-Oxley. Organization for Economic Cooperation and Development (OECD), OECD Principles of Corporate Governance. We also conducted a survey of the DFE entity heads and DFE IGs and conducted follow-up interviews as needed. We also submitted a data request of the DFE general counsels to ascertain whether their entities were statutorily required to comply, voluntarily complied, or do not follow 12 key governance and accountability statutes that we selected for review. We express no opinion on the applicability |
3,273 | of the 12 statutes selected to any of the DFEs. We summarized survey, data request, and interview results for entity head and management control and supervision over the IG, budgets, use of resources, and other operational issues. We identified key factors regarding the effectiveness of the IG and summarized survey results and other information for impact on IG effectiveness. Much of the data presented in this report were obtained from the two surveys directed to the DFE entity heads and the DFE IGs. The DF |
3,274 | E entity head survey included questions about governing body committees, meetings, orientation, training, financial statement audits, IG oversight, and internal controls. The DFE IG survey included questions about IG experience, staffing, budget, supervision, salary, communications, and resources. Since the population for both samples was known to be 31, we surveyed all DFE entity heads and DFE IGs. We identified inquiry areas based on the congressional request, previously conducted literature searches on g |
3,275 | overnance responsibilities and structures, and our prior internal experience and reporting on related topics. A listing of numerous relevant publications is printed as appendix VI. We conducted a pretest of our questionnaire for DFE entity heads and for DFE IGs. We directed our DFE entity head survey to the entity head designated by OMB under the IG Act, as amended. We directed our DFE IG survey to the IG for each entity. We e-mailed the entity head questionnaires on March 25 and 26, 2008, and the IG questi |
3,276 | onnaires on March 25, 2008. Those entity heads not completing the questionnaire were e-mailed replacement questionnaires on April 16, 2008. Those IGs not completing the questionnaire were e- mailed replacement questionnaires on April 11, 2008. On May 21, 2008, we also made follow-up phone calls to nine entity heads and three IGs who had yet to complete the survey. We received 29 of 31 entity head questionnaires and all 31 of the IG questionnaires as of September 16, 2008. We also augmented our work by condu |
3,277 | cting a data request to obtain information from DFE general counsels. The data request included 12 questions about key governance and accountability statutes we selected and whether the entity was statutorily required to comply with, voluntarily complied with, or was neither statutorily required to follow nor voluntarily chose to comply with the statute. To determine the key governance and accountability statutes for our data request, we reviewed relevant prior GAO reports and compared published governance |
3,278 | practices to the statutes. We directed our data request to the general counsel of the individual DFEs. We e-mailed the data requests on June 17 and 18, 2008. Those general counsels not completing the data request were e-mailed replacement data requests on August 1, 2008. On August 19, 2008, we also made phone calls to five general counsels. We received all 31 data requests. Statutory inspectors general were established by Congress after a series of events in the 1970s that included: a 1975 study by a subcom |
3,279 | mittee of the House of Representatives that found inadequacies in internal audit and investigative procedures in the Department of Health, Education, and Welfare, and a 1977 study by the House Intergovernmental and Human Resources Subcommittee that found serious deficiencies in a number of audit and investigative efforts including a systemic lack of (1) central leadership for audits and investigations, (2) auditor and investigator independence, (3) procedures to ensure Congress would be informed of serious |
3,280 | problems, and (4) programs that looked for possible fraud or abuse. The Inspector General Act of 1978 (IG Act) was intended to address these issues by providing for independent IGs appointed by the President. The act charged the IGs with conducting and supervising audits and investigations; recommending policies to promote economy, efficiency, and effectiveness; and preventing and detecting fraud and abuse in their agencies’ programs and operations. IGs are also required to report on the results of their au |
3,281 | dits and investigations and prepare semiannual reports to agency heads and the Congress. Between 1978 and 1988, Congress passed legislation to establish statutory IGs in 8 additional agencies. The House Subcommittee on Legislation and National Security, Committee on Government Operations asked GAO to study the internal audit capabilities of smaller federal agencies. In May of 1984 GAO issued Status of Internal Audit Capabilities of Federal Agencies Without Statutory Inspectors General. Based on 99 responses |
3,282 | to surveys of 105 federal organizations, GAO uncovered many of the issues that led to the establishment of 12 IGs in the IG Act. These included auditors supervised by officials responsible for the programs under review, leading to lack of auditor independence; inadequate audit coverage of vulnerable agency operations; lack of evaluation of significant fraud problems; and audit resolution and follow-up systems that did not meet government requirements. In a June 1986 follow-up report, Nonstatutory Audit and |
3,283 | Investigative Groups Need to Be Strengthened, GAO reviewed 41 agencies without statutory IGs and found lack of independent and sufficient audit capabilities within agencies continued to be a problem. In its conclusion to the report, GAO supported legislation that had been recently introduced in Congress that would extend IG Act protections and requirements to most existing executive branch audit units. The Inspector General Act Amendments of 1988 and the Government Printing Office Inspector General Act of |
3,284 | 1988 established statutory IGs in 5 additional departments and agencies, the Government Printing Office, and 33 designated federal entities (DFE) listed in the act. Under the 1988 amendments, the IGs established in the 5 departments and agencies were to be appointed by the President with Senate confirmation while the DFE IGs were to be appointed by entity heads. Various other statutes since 1978 have amended the IG Act to add or remove entities required to have IGs. Since the designated federal entities (DF |
3,285 | Es) were established with different missions and during different years, the statutory requirements for the identified key governance and accountability statutes vary. Following are the key governance and accountability statutes identified that cover funds control and budgeting, performance and financial reporting, accounting and internal control systems, human resources management, and recordkeeping and access to information. Antideficiency Act (codified as amended in 31 U.S.C. 1341, 1342, 1351, and 1517)— |
3,286 | Prohibits officers and employees of the government from obligating or expending funds in advance of or in excess of appropriations. Purpose Statute (31 U.S.C. § 1301(a))—Requires federal agencies and all U.S. government corporations, both mixed ownership and wholly owned, to use appropriated funds only for the purposes provided in the law. Improper Payments Information Act of 2002 (Public Law 107- 300)—Requires agencies to identify susceptible programs and activities, estimate their improper payments, and r |
3,287 | eport on actions to reduce improper payments. Accountability of Tax Dollars Act of 2002 (Public Law 107-289)— The Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government Management Reform Act of 1994 (GMRA), requires the 24 agencies of the federal government covered by the CFO Act, including some independent agencies, to submit annual audited financial statements to the Office of Management and Budget (OMB) and Congress. The financial statements must be prepared in accordance with gener |
3,288 | ally accepted accounting principles and audited in accordance with generally accepted government auditing standards. The Accountability of Tax Dollars Act of 2002 (ATDA) expanded this requirement to include most other federal executive agencies. Government Performance and Results Act of 1993 (Public Law 103-62)—Requires an annual performance report. The annual performance report shall reflect, among other things, the agency’s or corporation’s progress in achieving the performance goals set out in its annual |
3,289 | performance plan, which implements a mandatory longer-term strategic plan. Federal Managers’ Financial Integrity Act of 1982 (FMFIA) (31 U.S.C. 3512 (c), (d))—Provides the statutory basis for management’s responsibility for and assessment of internal control. OMB Circular No. A-123, Management’s Responsibility for Internal Control (rev. Dec. 21, 2004), sets out the guidance for implementing the statute’s provisions, including agencies’ assessment of internal control under the standards prescribed by the Co |
3,290 | mptroller General. Agencies are required to annually provide a statement of assurance on the effectiveness of internal control. U.S. government corporations are not subject to FMFIA, but they are subject to similar requirements under the Government Corporation Control Act, which incorporates by reference the FMFIA standards in requiring U.S. government corporations to include in their annual management reports a statement on internal accounting and administrative control systems. Federal Information Securit |
3,291 | y Management Act of 2002 (FISMA) (Public Law 107-347)—Requires the development and implementation of an entitywide information security program. As part of that program, FISMA requires entity heads to periodically (1) perform risk assessments of the harm that could result from information security problems, such as the unauthorized disclosure or destruction of information; (2) test and evaluate the effectiveness of elements of the information security program; and (3) provide security awareness training to |
3,292 | personnel and contractors. FISMA also requires the federal entity to annually have its IG or an external auditor perform an independent evaluation of the entity’s information security programs and practices to determine their effectiveness and to annually submit a report on the adequacy and effectiveness of information systems to OMB, GAO, and Congress. Travel, Transportation, and Subsistence (5 U.S.C. Chapter 57) and Federal Travel Regulation—Statutory requirements and executive branch policies for travel |
3,293 | by federal civilian employees and others authorized to travel at government expense. Whistleblower Protection Act (5 U.S.C. 2302)—Provides certain protections to employees of federal agencies and, to a limited extent, U.S. government corporations, when they engage in “whistleblowing,” which involves reporting evidence of illegal or improper federal employer activities to the relevant authorities. Ethics in Government Act of 1978(Public Law 95-521)—Governs ethical conduct, including public financial disclosu |
3,294 | re requirements, and limits outside earned income and activities. Freedom of Information Act (5 U.S.C. 552)—Requires that federal entities make their records available for public inspection and copying unless one of the listed FOIA exemptions applies, such as for records pertaining to medical files, internal personnel practices, or trade secrets. Government in the Sunshine Act(5 U.S.C. 552b; Public Law 94- 409)—Requires that all board meetings, including meetings of any executive committee of the board, mus |
3,295 | t be open to public observation, unless an exception applies. This appendix contains profiles of the 31 designated federal entities (DFEs) and their offices of inspectors general (IG). The National Railroad Passenger Corporation was statutorily established to meet the nation’s intercity passenger transportation needs. Amtrak’s board statutorily consists of seven voting members and one ex- officio, nonvoting member (the President of Amtrak). The voting members are appointed by the President and confirmed by |
3,296 | the Senate for a 5-year term. The President may choose to appoint the Secretary of Transportation to be a voting member. The Secretary of Transportation does not require the advice and consent of the Senate. As of October 2008, Amtrak had five voting board members including the Secretary of Transportation, and two vacancies. Audit and Finance; Government Relations, Legal, and Corporate Affairs; Personnel and Compensation; Security, Safety, and Environmental Affairs; and Service Development, Marketing, Produ |
3,297 | ct Management and Customer Service. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and accountability statutes to their entity. The table below reflects the response of the general counsel. We did not independently analyze the applicability of these statutes to each entity. There were 166 recommendations for which management action was still needed. The Appalachian Regional Commission is a federal-state partnership that works with the people of App |
3,298 | alachia to create opportunities for self- sustaining economic development and improved quality of life. The commission’s purpose is to reduce the substantial socioeconomic gaps between Appalachia and the rest of the nation. The commission, a federal program, attempts to reduce these gaps by awarding grants to various projects such as workforce training, highway construction, small business start-up assistance, and education programs. The ARC has a 14-member commission composed of a cochairman and the govern |
3,299 | ors of 13 Appalachian states. The federal cochairman is appointed by the President and confirmed by the Senate. The governors select a state cochairman from their number. The commission has an executive director responsible for carrying out the administrative functions of the commission and directing commission staff. Only the federal cochairman and his or her staff are federal employees. None. GAO sent a data request to the general counsel of each DFE asking about the applicability of 12 governance and acc |
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