STATUTORY OFFICES OF INSPECTOR GENERAL (LEADERSHIP AND RESOURCES) SIXTH REPORT BY THE COMMITTEE ON GOVERNMENT OPERATIONS TOGETHER WITH ADDITIONAL VIEWS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T00234R000100160047-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 23
• Document Creation Date: December 27, 2016
• Document Release Date: January 11, 2013
• Sequence Number: 47
• Publication Date: July 30, 1981
• Content Type: REPORT

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97th Congress, 1st Session
Union Calendar No. 144
House Report No. 97-211
STATUTORY OFFICES OF INSPECTOR
GENERAL (LEADERSHIP AND
RESOURCES)
SIXTH REPORT
BY THE
COMMITTEE ON GOVERNMENT
OPERATIONS
together with
ADDITIONAL VIEWS
JULY 30, 1981.?Committed to the Committee of the Whole House on .
the State of the Union and ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
82-4880 WASHINGTON: 1981
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COMMITTEE ON GOVERNMENT OPERATIONS
JACK BROOKS,
L. H. FOUNTAIN, North Carolina
DANTE B. FASCELL, Florida
BENJAMIN S. ROSENTHAL, New York
DON FUQUA, Florida
JOHN CONYERS, JR., Michigan
CARDISS COLLINS, Minot?
JOHN L. BURTON, California
GLENN ENGLISH, Oklahoma
ELLIOTT H. LEVITAS, Georgia
DAVID W. EVANS, Indiana
TOBY MOFFETT, Connecticut
HENRY A. WAXMAN, California
FLOYD J. FITHIAN, Indiana
TED WEISS, New York
MIKE SYNAR, Oklahoma
EUGENE V. ATKINSON, Pennsylvania
STEPHEN L. NEAL, North Carolina
DOUG BARNARD, Ia., Georgia
PETER A. PEYSER, New York
BARNEY FRANK, Massachusetts
HAROLD WASHINGTON, Illinois
TOM LANTOS, California
Texas, Chairman
FRANK HORTON, New York
JOHN N. ERLENBORN, Illinois
CLARENCE J. BROWN, Ohio
PAUL N. McCLOSKEY, Ia., California
THOMAS N. KINDNESS, Ohio
ROBERT S. WALKER, Pennsylvania
M. CALDWELL BUTLER, Virginia
LYLE WILLIAMS, Ohio
JOEL DECKARD, Indiana
WILLIAM F. CLINGER, JR., Pennsylvania
RAYMOND J. McGRATH, New York
HAL DAUB, Nebraska
JOHN HILER, Indiana
WENDELL BAILEY, Missouri
LAWRENCE J. DENARDIS, Connecticut
JUDD GREGG, New Hampshire
WILLIAM M. JONES, General Counsel
Jour( E. MOORE, Staff Administrator
ELmsa W. HENDERSON, Senior Counsel
JOHN M. DUNCAN, Minority Staff Director
INTERGOVERNMENTAL RELATIONS AND HUMAN RESOURCES SUBCOMMITTEE
L. H. FOUNTAIN, North Carolina, Chairman
BARNEY FRANK, Massachusetts CLARENCE J. BROWN, Ohio
ELLIOTT H. LEVITAS, Georgia RAYMOND J. McGRATH, New York
FLOYD J. FITHIAN, Indiana LAWRENCE J. DENARDIS, Connecticut
STEPHEN L. NEAL, North Carolina
JACK BROOKS, Texas
Ex OFFICIO
FRANK HORTON, New York
JAMES R. NAUGHTON, COBBABI
HELPERS C. GoLunmici, Professional Staff Member
GILBERT S. GOLDRAMMEB, Consultant
PAMELA H. WELSH, Secretary
LETTER OF TRANSMITTAL
HOUSE OF REPRESENTATIVES,
Washington, D.C., July 30, 1981.
Hon. THOMAS P. O'Npri.T., Jr.,
Speaker of the House of Representatives,
Washington, D.C.
DEAR MR. SPEAKER: By direction of the Committee on Government
Operations, I submit herewith the committee's sixth report to the 97
Congress. The committee's report is based on a study made by its
tergovemmental Relations and Human Resources Subcommittee.
JACK BROOKS, Chairman.
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CONTENTS
?
Page
I. Introduction 1
II. Summary 2
III. Findings and conclusions 5
IV. Recommendations 8
V. Background 8
Development of the Inspector General concept 8
Events during mid-1970's 9
Establishment of statutory Inspector General at HEW
di
Serious deficiencies at other departments and agencies
Grossly inadequate audit and investigative resources
Inspector General Act of 1978 12
Other satutory Offices of Inspector General 13
Inspector General Act amendments 13
VI. Developments under Carter administration 14
Statement of support 14
Actions designed to assist Inspectors General 14
Appointment of Inspector General by President Carter 15
OMB claim of increased OIG resources during Carter adminis-
tration 15
Carter administration hiring freeze 16
Earlier record of OMB and agencies on requests for audit
- resources 17
Substantially increased resources at some IG offices 17
VII. Development under Reagan administration 18
Emphasis on need to combat fraud, waste, and abuse 18
Mass removal of incumbent Inspectors General 19
Concern about mass removal 20
Assurances from the President 20
Circumstances of mass removal 21
Adverse effects of mass removals and continuing vacancies 22
Appointment of new Inspectors General by President Reagan 23
OMB claim of increased OIG resources during Reagan adminis-
tration
VIII. Adequacy of current resources
0
1980 views of Inspectors General
Current budget situation 26
1981 views of Offices of Inspector General 27
June 1981 testimony 30
IX. Savings and accomplishments 31
X. Ratio of costs to benefits 33
Problems in ascertaining cost/benefit ratios 33
Measurable savings and recoveries 34
"Deterrent" value of IG work 34
XI. Budget procedures 35
Testimony of General Accounting Office 35
APPENDIXES
Appendix I.?Inspector General appointments?Carter administration_ 37
Appendix II.?Inspector General appointments?Reagan administration_ _ 37
VIEWS
Additional views of Hon. Elliott H. Levitas 38
(V)
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97r8 CONGRESS HOUSE OF REPRESENTATIVES REPORT
18t Session f 1 No. 97-211
STATUTORY OFFICES OF INSPECTOR GENERAL
(LEADERSHIP AND RESOURCES)
JULY 30, 1981.?Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. BROOKS, from the Committee on Government Operations,
submitted the following
SIXTH REPORT
together with
ADDITIONAL VIEWS.
On July 30, 1981, the Committee on Government Operations ap-
proved and adopted a report entitled "Statutory Offices of Inspector
General (Leadership and Resources)." The chairman was directed to
transmit a copy to the Speaker of the House.
I. INTRODITCTION
Since 1976, 15 statutory Offices of Inspector General have been
established under legislation initiated by the Committee on Govern-
ment Operations; a sixteenth has been created under similar legi-
lation reported out by other committees. Four additional statuto
offices would be established under further legislation developed b
the Committee on Government Operations which has been approved
by the House but not yet acted upon by the Senate.
During the 96th Congress, the Intergovernmental Relations and
Human Resources Subcommittee began a continuing oversight re-
view of the laws establishing statutory Offices of Inspector General
and the operations and activities being conducted pursuant to such
laws. This report, which is concerned primarily with problems relat-
ing to leadership and resources, is the first in what is expected to be a
number of reports on the subcommittee's review.
As part of the current phase of its review, the subcommittee held
public hearings on April 1 and June 10, 1981,1 taking testimony from
the following Federal officials:
1 Hearings before a subcommittee of the Committee on Government Operations on
oversight of statutory Offices of Inspector General, April 1 and June 10, 1981; here-
after cited as "1981 Hearings."
(1)
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OFFICE OF MANAGEMENT AND BUDGET
Edwin L Harper, Deputy Director (Mr. Harper is also Chair-
man of the Council on integrity and Efficiency).
Harold I. Steinberg, Associate Director for Management.
U.S GENERAL ACCOUNTING OFFICE
Donald L. Scantlebury, Chief Accountant of GAO, and Direc-
tor, Accounting and Financial Management Division.
George L. Egan, Associate Director, Accounting and Financial
Management Division.
John J. Adair, Deputy Associate Director, Accounting and
Financial Management Division.
U.S. DEPARTMENT OF AGRICULTURE
Robert E. Magee, Acting Inspector General.
DEPARTMENT OF COMMERCE
Frederick Heim, Assistant Inspector General for Auditing.
DEPARTMENT OF LABOR
Edward Stepnick, Assistant Inspector General for Audit.
ENVIRONMENTAL PROTECTION AGENCY
Ernest E. Bradley, Acting Inspector General.
Richard Campbell, Assistant Inspector General for Investiga-
tions.
Thomas Gower, Acting Assistant Inspector General for
Audits.
Testimony at the hearings was supplemented by data furnished
for the record and by additional information obtained by the sub-
committee staff. A review of earlier hearings and reports relating to
the statutory Offices of Inspector General was also made.
II. SUMMARY
The Inspector General concept came into being in 1962, after a sub-
committee investigation of the activities of Billie Sol Estes disclosed
that audit and investigative activities of the Department of Agricul-
ture were being conducted by a number of separate and uncoordinated
units which reported to officials directly responsible for the programs
being reviewed. Disclosure of these organizational and procedural
deficiencies led to consolidation by then Secretary of Agriculture
Freeman of USDA auditing and investigative responsibilities under
a single high-level official reporting directly to the Secretary.
A 1974-75 investigation found that units respOnsible for combating
fraud and abuse in programs of the Department of Health, Education,
and Welfare were scattered throughout the Department in a hap-
hazard and fragmented patte-- -1- ^ ---
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all responsibility and authority necessary to provide effective leader-
ship. Moreover, although HEW then had more than 129,000 employees
and was responsible for the expenditure of well over $100 billion
annually, its central investigative unit had only ten investigators
with a ten-year backlog of uninvestigated cases.
That investigation?together with the 1974 abolition of the Depart-
ment of Agriculture's non-statutory Office of Inspector General?
resulted in the establishment in 1976 of the first statutory Inspector
General at HEW. A second statutory Office of Inspector General was
created at the Department of Energy when that Department was
formed in 1977.
Comprehensive hearings in 1977 on the desirability of establishing
additional statutory Inspectors General disclosed serious deficiencies
in the auditing and investigative organization and procedures of prac-
tically every agency reviewed, such as:
Multiple audit or investigative units within a single agen
organized in fragmented fashion and without effective cent
leadership;
Auditors and investigators reporting to officials who were re-
sponsible for the programs under review or were devoting only
a fraction of their time to audit and investigative responsibilities;
Instances in which, because of lack of independence, investi-
gators had been kept from looking into suspected irregularities,
or even ordered to discontinue an ongoing investigation; and
There were no procedures to insure that Congress was informed
of serious problems disclosed by agency audits and investigations,
and there was evidence that agency officials frequently ignored
audit recommendations.
Because of inadequate resources, some departments and agencies
had audit cycles ranging from 9 to 10 years to as long as 20 years.
Some activities had never been audited. One department had only 6
trained investigators to look into irregularities in the expenditure of
approximately $25 billion annually.
Despite strong initial opposition from the Office of Management
and Budget, the Justice Department and all departments and agency*
affected, legislation to establish statutory Offices of Inspector GeW
eral in twelve additional establishments was reported by the Com-
mittee on Government Operations, approved by the House by a vote
of 388 to 6, and became law as the Inspector General Act of 1978.
A statutory Inspector General with the same powers and duties as
those created under the 1978 law was established in 1979 as a part of
the new Department of Education. A sixteenth statutory Inspector
General with substantially the same powers and duties as the. others
was created in the Department of State under the Foreign Service Act
of 1980.
Further legislation to include the Departments of Defense, Justice
and Treasury and the Agency for International Development under
the provisions of the Inspector General Act of 1978 was approved by
the House in May 1981 by a vote of 334 to 65?over the opposition of
the Departments of Defense and Justice?and is currently pending
in the Senate.
President Carter eventually supported enactment of the Inspector
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statements praising the new law. The Office of Management and Budg-
et, which had strongly opposed the IG bill in 1977, described the 1978
Act in 1980 as "landmark legislation that warrants full and active
support of all three branches of government."
In December 1978, President Carter asked Federal agencies which
did not have statutory Inspectors General to designate a single official
to oversee their efforts to eliminate waste, fraud and error. In May
1979, he established an Executive Group composed of statutory IG's
and other Federal officials to combat fraud and waste on a coordinated
basis.
In most instances, President Carter nominated experienced career
employees to fill Inspctor General positions within a few mouths after
the posts were authorized. In other cases, however, there were long
delays in making nominations. Two vacancies occurred because of
resignations during the Carter Administration. In one instance, a
replacement was not nominated for more than a year; in the other, no
replacement was nominated during the more than eight months re-
maining before the end of the Carter Administration.
An official of the Office of Management and Budget testifying at a
Committee hearing in August 1980 said that OMB had instituted
special procedures to review the adequacy of resources provided for
statutory Offices of Inspector General and that the Carter budget
would allow the Offices a 5 percent increase in staffing to a total of
5,917 positions for fiscal year 1981. He failed to disclose, however, that
a hiring freeze already imposed by the Carter administration would
insure that the number of positions actually available would be far
less.
A July 1979 report by the General Accounting Office showed that
most Federal audit organizations have historically had little success
in obtaining added resources requested from their agencies and OMB.
Over a five-year period from 1973 to 1978, the report stated, 21 audit-
ing organizations requested a total of 3,084 additional staff posi-
tions. Their agencies approved only 1,242?about 40 percent of the
ntimber requested. OMB then made a further reduction to 638 positions.
Although some statutory Offices of Inspector General managed to
obtain substantial increases in staffing during the Carter Adminis-
tration, there is little reason to believe that assistance from OMB
was a major factor in their success.
Both before and after being elected, President Reagan emphasized
his concern about the magnitude of fraud and waste in Federal pro-
grams and the urgent need for corrective action. However, on In-
auguration Day the President imposed a freeze on hiring by Inspec-
tors General which was even stricter than the one previously imposed
under the Carter Administration. In a second action on the same day,
the President summarily removed all incumbent Inspectors General
without notice or specific reason.
A subsequent subcommittee inquiry disclosed that no meaningful
examination of the qualifications and performance of the incumbent
IG's had been made before they were removed. Moreover, no Members
of Congress of either party and no individuals designated to head
the affected agencies were either notified or consulted before the IG's
were removed.
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Unlike most Presidential appointees, statutory Inspectors General
are required to be appointed without regard to political affiliation on
the basis of integrity and professional qualifications and are .pro-
hibited from engaging in partisan political activities. Removal of the
IG's in the same manner as Carter Administration political appointees
caused widespread concern that the move might be part of an attempt
to "politicize" their offices. President Reagan subsequently assured
Committee members that he had no intention of "politicizing" the
IG offices.
Although Administration officials had initially predicted that the
vacant 10 positions would be filled rapidly, the process turned out
to be more time-consuming than had been anticipated. Four months
after the removal of the IG's all sixteen statutory Inspector General
positions were still vacant and only three nominations had been sent
to the Senate. After the subcommittee scheduled a hearing concerning
the matter, twelve more nominations were sent to the Senate in a thrello
week period.
Six former Inspectors General were reappointed to IG positions;
most of the other nominees have had extensive Federal Government
experience. As of July 21, 1981, nine nominees had been confirmed
and six nominations were awaiting final action by the Senate. No nom-
ination had yet been made for the IG position at the Environmental
Protection Agency
In testimony before the subcommittee, OMB Deputy Director
Harper contended that the Reagan Administration budget reflected
increases in the total staffing for Offices of Inspector General. How-
ever, the "increases" were calculated by comparing positions requested
for fiscal years 1981 and 1982 with the number of persons actually em-
ployed in fiscal year 1980.
While there is some disagreement. as to whether the Carter Admin-
istration or the Reagan- Administration requested the most resources
for the Offices of Inspector General, information provided by the IG
offices indicates that resources provided for many of them have been
grossly inadequate under both administrations.
Disruption caused by the mass removal of Inspectors Generalt la
of permanent leadership for many months, and serious deficiencies
resources have undoubtedly severely hampered the work of the I
offices. However, evidence presented to the subcommittee indicates
that the Offices have continued to achieve impressive savings and re-
coveries in spite of these handicaps. ?
III. FINDINGS AND CONCLUSIONS
1. The mass removal of all incumbent Inspectors General on Janu-
ary 20, 1981 wa,s not in accordance with the intent of the laws
authorizing these offices
The laws establishing statutory Offices of Inspector General were
carefully drawn to distinguish the IG's from political appointees. In-
spectors General are required to be appointed without regard to po-
litical affiliation on the basis of integrity and demonstrated ability in
specified professional disciplines. Unlike most Presidential appointees,
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they are prohibited by law from engaging in partisan political
activities.
While removal of an Inspector General for unsatisfactory perform-
ance would clearly not contravene the intent of the authorizing legisla-
tion, it was never intended that IG's be automatically replaced on a
wholesale basis without regard to their individual merits whenever
there is a change in administrations.
The President's letters to Congress concerning the removal gave no
specific reason or reasons for the action, but strongly suggested the
IG's were being routinely removed, in the same manner as political
appointees, to be replaced by persons of the President's own choosing.
The mass removal of the Inspectors General without regard to their
individual merits created widespread concern that it was the first
step in an effort to "politicize" these offices. Subsequent events, as
noted below, have done much to alleviate this concern.
R. The 111488 removal of incumbent Inspectors General was carried out
abruptly and without careful consideration and had serious ad-
verse effects on the operations of Offices of Inspector General
The action was taken on Inauguration Day, without notice to or
consultation with Members of Congress of either party or any of the
individuals designated to head the affected agencies.
No meaningful review of the qualifications and performance of the
incumbent Inspectors General was made before they were removed.
Inquiries conducted by the Reagan Administration immediately after-
ward resulted in the conclusion that approximately half of the IG's
were highly qualified, highly professional, and had done a truly out-
standing job.
No apparent thought was given to how long it would take to fill
the vacancies resulting from the mass removals or how the IG offices
would be managed in the meantime.
Because of the mass removals, there were no statutory Inspectors
General for at least four months; most of the IG positions were
vacant for nearly six months. On July 21, 1981, seven IG positions
were still vacant, including one for which no nomination had yet
been made. Ongoing operations of the Offices of Inspector General
have been delayed or impaired because of the confusion, uncertainty
and loss of permanent leadership resulting from the removals; the
damagewould have been even worse without the efforts of a number
of lily competent professionals serving in the IG offices.
3. Asswrances by the President and the appointment or re-appoint-
ment of highly-qualified individuals as Inspectors General have
done much, to alleviate concern about "politicization" of the Offices
of Inspector General. Edwin Harper, Deputy Director of the Of-
/ice of Management and Budget, deserves to be commended for
his part in this process
Shortly after the removal of the Inspectors General, President
Reagan told Committee members?both personally and through corre-
spondence?that he had no intention of "politicizing" the Offices and
pledged to appoint an outstanding team of top-qualified professionals
to pursue the bipartisan objective of eliminating fraud and waste.
Nominations have now been made for fifteen of the sixteen statu-
tory Inspector General positi(---
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tion to make an informed judgment about every nominee on an indi-
vidual basis at this time, it is clear that the nominees as a group have
excellent qualifications and experience. Six of them are former Inspec-
tors General who were reappointed.
Deputy OMB Director Edwin Harper was in charge of the selec-
tion process; his efforts undoubtedly contributed substantially to the
generally high quality of the nominees.
4. Staffing and other resources available to the statutory Offices of
' Inspector General are grossly inadequate
Serious inadequacies in the resources available to audit and in-
vestigative units were one of the motivating factors in the establish-
ment of statutory Offices of Inspector General. While there have been
some improvements since the Offices were created, overall resources
are still grossly inadequate.
The sixteen statutory Offices of Inspector General are responsibip
for monitoring the expenditure of around $400 billion annually
public funds. Yet the total staffing for all sixteen offices is substan-
tially less than 5,500 persons. By comparison, the Department of
Defense has more than 18,000 auditors, investigators and inspectors
and the Federal Bureau of Investigation employs nearly 20,000 peo-
ple. The Los Angeles County Sheriff alone has far more employees
than all sixteen statutory Offices of Inspector General combined.
Some IG Offices have particularly serious problems. The Environ-
mental Protection Agency has only ten investigators with a five-year
backlog of uncompleted work to look into fraud, waste and abuse in
12,000 water pollution control grants totalling $29 billion. The Com-
merce Department Office of Inspector General has such limited re-
sources that there is a 36-year audit cycle for management audits. In
order to monitor the CETA program, the Labor Department OIG has
had to practically ignore a number of other large programs which are
exceptionally vulnerable to fraud, waste and abuse.
Both President Carter and President Reagan have made strong pub-
lice statements emphaszing their concern about fraud, waste and
abuse and their support of the statutory Offices of Inspector Gener.
but neither one has backed up his word by requesting adequate st
and other resources for the Inspectors General.
The Office of Management and Budget under both the Carter and
Reagan administrations has not taken effective action to provide ade-
quate resources for the Offices of Inspector General and has been less
than candid in keeping the Congress informed about the resources
needed.
The inadequacy of OIG resources is particularly ironic and indefen-
sible in the light of strong evidence that additional personnel for these
offices would return far more in savings and recoveries than the cost of
hiring and supporting them.
5. The Nature of the budget process has contributed to the inadequacy
of OIG resources
The Office of Management and Budget customarily sets overall ceil-
ings for executive departments and agencies and )eaves it to these
establishments to allocate the available resources. Consequently, Offices
of Inspector General must compete against other segments of their
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own agency for limited resources, with the final decisions usually being
made by program and budget personnel. Program officials are likely to
be less than enthusiastic about giving up any of their own resources to
the Office of Inspector General.
Funds for Offices of Inspector General, in many instances have not
been separately identified but have been included as part of the appro-
priation for a larger unit, such as the Office of the Secretary, making it
more difficult to ascertain the amount actually available to the IG.
IV. RECOMMENDATIONS
1. The committee recommends that both Congress and the Adminis-
tration work toward strengthening and maintaining a system of
strong, independent Offices of Inspector General, headed by non-
partisan, highly competent and thoroughly professional Inspectors
General.
2. The committee recommends that the Administration:
(a) to the extent feasible and appropriate, take immediate
steps to meet urgent needs of Offices of Inspector General for ad-
ditional resources; and
(b) take appropriate action to assure that adequate resources
are requested for Offices of Inspector General in the future.
The committee further recommends that the Office of Management
and Budget request separately identified appropriations for Offices of
Inspector General in the future.
3. The committee recommends that the Congress closely examine
the resources being provided to the statutory Offices of Inspector
General through appropriations and agency allocations with a view
to insuring their adequacy.
In this connection, the committee wishes to acknowledge and ex-
press appreciation for the support provided for the Offices of Inspec-
tor General by the Ohairman and Members of the House Appropria-
tions Committee and other concerned Members of Congress.
V. BACKGROUND
Development of the Inspector General concept
The Inspector General concept?which might best be described as
the consolidation of auditing and investigative responsibilities under
a single high-level official reporting directly to the agency head?came
into being in 1962, when then Secretary Orville Freeman established a
non-statutory Office of Inspector General for the Department of Agri-
culture.
Secretary Freeman's action was motivated to a considerable extent
by an investigation of the activities of Billie Sol Estes conducted by
the Intergovernmental Relations and Human Resources Subcommit-
tee
At that time, USDA audit and investigative activities were being
conducted by a number of separate units, which reported to officials
directly responsible for the programs being reviewed. The investiga-
Hearings before a subcommittee of the Comtnittee on Government Operations on,
Inspector General Act Amendments of 1980, Aug. 27 and 28, 1980; hereafter cited as
"1980 Hearings," p. 18.
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tion disclosed that several separate audit or investigative units of the
Department of Agriculture had looked into various phases of Mr.
Estes' questionable activities over a period of nearly ten years; how-
ever, because of an almost total lack of coordination or communica-
tion among these units, no effective remedial action was taken until
after a newspaper story disclosed the extent of Mr. Estes' illegal
operations.3
Although similarly named, the USDA Office of Inspector General
was not patterned after existing Offices of Inspector General in the
military services' which are a different type of institution.
Establishment of a non-statutory Office of Inspector General at the
Department of Agriculture resulted in very substantial improvements
in the auditing and investigative activities of that department.4
Additional nonstatutory Offices of Inspector General were estab-
lished at the Department of Housing and Urban Development in
1972 5 and at the Veterans Administration in late 1977.6
Events during mid-1970'8
Two events in the mid-1970's led directly to the establishment of a
statutory Office of Inspector General at the Department of Health,
Education, and Welfare.
The potentially impermanent nature of non-statutory Offices of In-
spector General was clearly demonstrated in 1974 when then Secretary?
of Agriculture, Earl Butz, abolished that agency's Office of Inspector
General. 7 (A non-statutory Inspector General was reestablished by
Bob Bergland when he became Secretary of Agriculture in 1977.) 8
In late 1974 and 1975, the Intergovernmental Relations and Human
Resources Subcommittee made a comprehensive review of the proce-
dures and resources being used by the Department of Health, Educa-
tion, and Welfare to prevent and detect fraud and program abuse in
its operations. The subcommittee found that: 9
HEW's operations?which then involved about 300 separate
programs totaling more than $118 billion annually?presented an
unparalleled danger of loss from fraud and abuse.
Basic data needed by both Congress and HEW for effective a -
tion against fraud and abuse was simply not available. HEW o
cials could not provide information on which to base a meaningfu
estimate of losses from fraud, waste and abuse; in fact, they could
not even give the subcommittee an accurate count of the number
of programs the department was administering.
HEW's investigative resources were ridiculously inadequate.
Although the department had more than 110,000 full-time per-
manent employees, its central investigative unit had only 10 inves-
Ntigators with a 10-year backlog of uninvestigated cases.
HEW had no central unit with the overall authority, responsi-
bility and resources necessary to insure effective action against
fraud and program abuse. The units it did have were scattered
8 1980 hearings, p. 18-19.
* Hearings before a subcommittee of the Committee on Government Operations on
Establishment of Offices of Inspector General, May 17, 24; June 1, 7, 13, 21, 29; and
July 25, 27, 1977; hereafter cited as "1977 Hearings," pp. 21-22. ?
1977 hearings, p. 121.
8 1977 hearings, pp. 334-337.
T 1977 hearings, pp. 25-29.
8 1977 hearings, pp. 30-31.
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throughout the department in a haphazard, fragmented and ineffi-
cient fashion. Under these organizational arrangements, there was
little assurance that the Secretary would be kept informed of se-
rious fraud and abuse problems or that action necessary to correct
such problems would be taken.
Personnel of fraud and abuse units lacked independence. In
most instances, they reported to and were hired and fired by offi-
cials directly responsible for the programs they were investigating.
Personnel of the Office of Investigations were required to obtain
specific approval of the Secretary or Undersecretary before under-
taking any investigation.
When serious deficiencies were disclosed in reports to program
officials, there was little incentive for those responsible to take
prompt and aggressive corrective action which might necessitate
public laundering of their own dirty linen. The investigation dis-
closed instances in which it took as long as five years or more for
HEW to take corrective action concerning known deficiencies.
Establishment of statutory Inspector General at HEW
On the basis of its findings, the subcommittee developed legislation
to establish a statutory Office of Inspector General at the Department
of Health, Education' and Welfare. The proposed legislation assigned
overall responsibility for coordination and leadership of HEW's audit-
ing and investigative activities to a single individual with no program
responsibilities, reporting directly to the Secretary, who would be
responsible for giving undivided attention to the prevention and detec-
tion of fraud and abuse and the promotion of economy and efficiency
in HEVV's programs and operations. The legislation provided for ap-
pointment of the Inspector General by the President, and directed the
IG to report to both the Secretary and the Congress concerning sig-
nificant problems, abuses or deficiencies and the progress of corrective
action concerning them. In addition, it crave the IG broad authority
to conduct audits and investigations and to obtain the information nec-
essary for this purpose.10
Despite the obvious need for strengthened audit and investigative
procedures and resources, HEW did not support establishment of a
statutory Inspector General." However, the IG legislation was unani-
mously approved by both House and Senate, and was signed into law
by President Ford on October 15, 1976.12
Serious deficiencies at other departments and agencies
In early 1977, the subcommittee began a comprehensive inquiry to
determine whether statutory Offices of Inspector General were needed
in other Federal departments and agencies. The subcommittee investi-
gation disclosed serious deficiencies in the organization and procedures
of auditing and investigative units at a number of these establishments.
The subcommittee found that auditors and investigators at a number
of departments and agencies reported to different officials, rather than
being under the same leadership." In other instances, there was no
18 H. Rept. 94-1573, "HEW Office of Inspector General," Sept. 16, 1976, pp. 5-6.
u Hearings before a subcommittee of the Committee on Government Operations to
Establish the Office of Inspector General in the Department of Health, Education, and
Welfare. May 25 and 27. 1976, pp. 77-78.
Is Public Law 94-505.
151977 hearings, pp. 98-99. 162-163, 177-178, 218. 360-363.
11
unit with agencywide audit or investigative jurisdiction; the Depart-
ment of Transportation reported having 116 separate audit and in-
vestigative units.14
Almost without exception, auditors and investigators were reporting
to officials who either had responsibility for programs subject to audit
or investigation or were unable to devote full time to their audit or in-
vestigative responsibilities."
Most of the departments and agencies included in the bill had no
affirmative programs to look for possible fraud or abuse; instead, they
relied primarily on complaints.16 In some cases, agency regulations
did not even require employees to report evidence of irregularities."
Other agencies had not prepared annual audit plans, even though prep-
aration of such plans is required by OMB Circular 73-2."
Even when complaints were received, investigators in some agencies
were not permitted to initiate investigations without clearance from
officials responsible for the programs involved."
Justice Department officials responsible for prosecuting fraud ?
against the Government testified that, with some exceptions, working
relationships with other Federal departments and agencies on fraud
matters were far from optimum.20 They also told the subcommittee
that coordination would be easier if all agencies had a single high-level
official devoting full time to overall direction of both audit and investi-
gative activities.21
Although Justice Department witnesses endorsed direct referral of
fraud cases to Justice by investigators, some agencies required that all
such referrals be cleared by their Office of General Counse1.22 In some
instances, potential fraud cases were never referred to Justice by agency
Offices of General Counsel." A partial review of Agriculture Depart-
ment files disclosed that, during a two-year period, 24 cases referred by
the USDA Office of Investigation were held for more than six months
in the Office of General Counsel before being sent to the Department of
Justice; one case was held for more than two years.24
Although some agencies testified that it was their policy to volun-
tarily inform Congress concerning serious problems,25 the subcommit-
tee found no evidence that any formal procedures existed to insure such
reporting.26
Other testimony indicated that program officials frequently ignored ill
recommendations of auditors."
Grossly inadequate audit and investigative resources
Subcommittee hearings disclosed serious deficiencies in the resources
devoted to auditing and investigations.
Internal audit cycles (the length of time between audits) were
incredibly long. General Services Administration representatives testi-
"1977 hearings, pp. 102, 219, and 560.
15 1977 hearings, pp. 96-98, 100-101. 166-169, 192, 222, 243,
363, and 495.
1'5 1977 hearings, pp. 100, 104, 197. 221, 309-311, 348, and 383.
11 1977 hearings, pp. 104, 184, and 381.
18 1977 hearings, pp. 86. 338.
'61977 hearings, pp. 101-102, and 381.
251977 hearings, pp. 414, 429-430, and 436.
21 1977 bearings, pp. 429-430.
21 1977 hearings, pp. 50, 187, 384. 434, and 552.
251977 hearings, pp. 51-55, and 384.
24 1977 hearings, pp. 56-57.
25 1977 hearings, pp. 181-182.
261977 hearings, PP. 113, 182. 197, and 245.
11 1977 hearings, pp. 148-149, and 393-394.
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fled that it would take as long as 20 years to audit all activities with
that agency's present resources.28 Other lengthy audit cycles reported
were 13 years for the Department of Commerce,29 nine or ten years for
Interior,30 .and ten years for the Department of Transportation." The
Small Business Administration and the Veterans' Administration esti-
mated their audit cycles as 12 to 14 and 10 to 12 years, respectively.32
Witnesses from the Department of the Interior and the Department
of Transportation acknowledged that their departments had never
audited some activities.33
Many agency representatives told the subcommittee that their audit
itncl/or investigative manpower was only a fraction of the amount
,neeclato do an adequate job. Interior Department witnesses said their
audit manpower was sufficient for only about half of the agency's prior-
ity workload, with no resources available for affirmative programs'to
detect fraud."
Representatives of the Department of Labor and the Small Busi-
ness Administration testified that they had only one-third the audit
manpower they needed.35 Community Services Administration wit-
nesses indicated their audit resources were even less than one-third
the amount needed."
According to testimony from Labor Department witnesses, that
department had only six trained criminal investigators to look into
irregularities in the expenditure of some $25 billion annually." Vet-
erans' Administration officials told the subcommittee they had less
than one-fifth the number of investigators they believed they needed."
The severe shortages of manpower at many agencies were partic-
ulary ironic in view of uniform testimony that additional auditors
and investigators would more than repay their cost through savings
and recoveries.39 National Aeronautics and Space Administration of-
ficials estimated their auditors recover three to four times the amount
spent." According to Veterans' Administration witnesses, their inter-
nal auditors saved or recovered more than $14 million at a cost of less
than $3 million." GSA officials estimated their agency's ratio of
savings to costs at 20 to 1.42
The importance of adequate auditing and investigative personnel
was emphasized by Justice Department officials, who testified that
the bulk of Government fraud cases originate through referrals from
program agencies; if agency investigative operations are ineffective
because of lack of personnel, potential fraud cases will not be referred."
Inspector General Act of 1978
In order to correct the deficiencies disclosed by its investigation,
the subcommittee proposed establishment of 12 additional statutory
041977 hearings, pp. 274-273.
291977 hearings, pp. 103.
ar 1977 hearings. pp. 192-193.
11 1977 bearings, pp. 235.
ss 1977 hearings, pp. 193, and 235.
33 1977 bearings, pp. 193 and 235.
" 1977 hearings, pp. 201-202.
*5 1977 bearings, pp. 188 and 308.
I e 1977 hearings, pp. 371.
8, 1977 hearings, p. 176.
10 1977 hearings, p. 350.
1977 bearings, pp. 149, 188. 275, 292. 313, 349.
1977 hearings, p. 289.
41 1977 bearings, p. 349.
"1977 hearings, p. 275.
"1977 hearings, P. 437.
13
Offices of Inspector General patterned generally after the existing
statutory IG office at HEW.
Most of the 12 departments and agencies for which statutory In-
spectors General were proposed readily acknowledged that ?the IG
concept was a desirable one.44 However, all 12 cited various reasons
for opposing enactment of the proposed legislation."
The Justice Department contended that a "serious constitutional
problem" was raised by provisions of the bill 1) requiring the Presi-
dent to notify Congress of the reasons for removal of an Inspector
General and 2) providing for IG reports to be submitted to Congress
without interference by the agency concerned."
In a May 13, 1977, letter, the Office of Management and Budget
stated that 'we strongly oppose" establishment of statutory Inspec-
tors General. In addition to citing the Justice Department's conten-
tion that certain provisions of the proposed legislation were "con-
stitutionally infirm," OMB argued that enactment of a law assigninip
specific responsibility for combating fraud, waste and abuse to stat
tory Inspectors General would not be "sound public policy." 42
The OMB letter also stated that enactment of the legislation "would
not be in accord with the program of the President." However, after
a number of minor modifications?not involving significant changes?
were made in the proposed legislation, President Carter eventually
supported
The proposed legislation passed the House in April 1978 by a vote of
388 to 6, and was approved by the Senate in September without a
dissenting vote. It was signed into law by President Carter on Octo-
ber 12, 1978.4?
Other Statutory Offices of Inspector General
A statutory Office of Inspector General, patterned after the one at
HEW, was established as a part of the Department of Energy when
that Department was created in August 1977.5?
A statutory Inspector General with the same powers and duties as
those created under the 1978 Act was provided for the Department of
Education under the October 17, 1979, Act establishing that depart-
ment.51
The Foreign Service Act of 1980 52 established a statutory Inspect?.
General for the Department of State with substantially the same
powers and duties as the IG's previously created under the 1978 Act.
Inspector General Act amendments
Proposed amendments to include the Departments of Defense, Jus-
tice and Treasury and the Agency for International Development
within the provisions of the Inspector General Act of 1978 53 have been
approved by the House but not yet acted upon by the Senate.
President Reagan has announced his support of statutory Inspectors
4+1.977 hearings, pp. 21-22, 24, 30-31, 120. 286-287, 290, 306, 323, and 337.
.0 H. Rept. 95-584, "Establishment of Offices of Inspector General In Certain Execu-
tive Departments and Agencies," Aug. 5, 1977, pp. 7-8; hereafter referred to as "House
Report 95-584."
"H. Rept. 95-584, pp. 8-10.
47 1977 bearings. pp. 768-769.
"Letter to Senator Robert C. Byrd, Sept. 22, 1978.
"Public Law 95-452.
W Public Law 95-91.
,1 Public Law 96-88.
?public Law 96-465.
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General for these four agencies." However, the Departments of De-
fense and Justice, while professing support for the concept of statutory
Inspectors General, have conditioned their support on changes which
would fundamentally alter the nature of the proposed Offices.
The Department of Defense insists that 'a statutory IG must be
"subject to the authority, direction, and control" of the Secretary of
Defense, so that the Secretary can prohibit the Inspector General from
looking into matters the Secretary does not want investigated.55
The Justice Department indicated it would support a statutory
Inspector General only if the IG had no authority to look into matters
involving "law enforcement, litigation, and corrections" 56?a restric-
tion that would deprive the Justice Department IG of jurisdiction over
almost every activity of that Department.
VI. DEVELOPMENTS UNDER CARTER ADMINISTRATION
Statements of support
President Carter did not issue a formal statement of support for
the 1978 Inspector General legislation until September 1978, just be-
fore the Senate acted on the bill.57
On the day the bill was signed, the President stated that ". . . the
Inspectors General will be of prime importance to my administra-
tion in our continuing, concerted effort to root out fraud, abuse, and
waste in agency programs." 55
A few weeks later, on December 13, 1978, the President described the
Inspectors General as "Perhaps the most important new tools in the
fight against fraud . . 21.52
The publicly expressed attitude of the Office of Management and
Budget changed significantly during the course of the Carter Admin-
istration. In May 1977,0MB told the subcommittee ". . we strongly
oppose [the IG bill] and its enactment would not be in accord with
the program of the President." 60 Two years later, then OMB Direc-
tor McIntyre told a St. Louis audience that "The Administration gave
strong support to the Inspectors General Act that became law last
year." 61 In August 1980, John White, then Deputy Director of OMB,
publicly stated that "The Inspector General Act of 1978 is landmark
legislation that warrants full and active support of all three branches
of the government." 62
Actions designed to assist Inspectors General
Shortly after enactment of the Inspector General Act of 1978, Presi-
dent Carter asked the Office of Management and Budget to provide
Testimony of Edwin L. Harper, Deputy Director, Office of Management and Budget,
before the Legislation and National Security Subcommittee, House Committee on Gov-
ernment Operations. Mar. 8, 1981.
56 Testimony of William H. Taft, IV, General Counsel, Department of Defense, before the
Legislation and National Security Subcommittee, House Committee on Government Opera-
tions, Mar. 8, 1981.
6. P ropo sed amendment furnished by the Department of Justice to the Legislation and
National Security Subcommittee, House Cotrunittee on Government Operations.
'7 Letter to Senator Robert C. Byrd, Sept. 22, 1978.
Statement on signing H.R. 8588 into law. Oct. 12, 1978.
59 Remarks at HEW National Conference on Fraud, Abuse, and Error.
eo 1977 hearings, p. 769.
al Remarks at the Annual Symposium, Association of Government Accountants, June 20,
1979.
" 1980 hearings, p. 50.
15
direction and assistance in implementing the Act and to assume over-
sight responsibility for governmentwide efforts to combat fraud,
waste, and mismanagement in program operations."
In December 1978, the President told the heads of all departments
and agencies that significant features of the Inspector General pro-
gram should be extended through the Federal Government to agen-
cies not covered by the 1978 Act. The agency heads were not asked to
appoint nonstatutory Inspectors General but were asked to designate
a signal official accountable directly to them to oversee their agencies'
efforts to eliminate waste, fraud and error."
In May 1979, President Carter established an Executive Group to
Combat Fraud and Waste in Government. Its membership consisted
of all statutory Inspectors General and representatives of OMB, the
Justice Department and other Federal agencies. Responsibilities and
functions of the Executive Group included providing leadership and
formulating policy and operational guidance to the Inspectors Gal
eral and other officers of the Executive Branch in combating frall,
and waste in Government programs. The Executive Group was also
assigned responsibility for promoting coordinated allocation and di-
rection of audit and investigative resources and for dealng with prob-
lems relating to fraud and waste which were beyond the capacity or
authority of individual executive departments or agencies.65
Appointment of Inspectors General by President Carter
President Carter sent nominations to the Senate for ten of the
twelve Inspector General positions created under the 1978 Act by
March 7, 1979. Eight of the ten persons nominated were career Federal
employees with extensive government experience. However, the
eleventh nomination was not made until June 14, 1979; the twelfth
name was sent to the Senate on September 20, 1979?nearly a year after
enactment of the Inspector General Act of 1978.
Seven of the 12 persons nominated by President Carter for IG posi-
tions under the 1978 Act had been confirmed by the end of June 1979.
Three more were confirmed in July, and another in October. The last
of the 12 nominees was not confirmed until December 1979, more thank
a year after enactment of the 1978 law.
Thomas Morris, the Inspector General at the Department of HeaR!
Education, and Welfare, resigned effective September 28, 1979. No
replacement was nominated until August 5, 1980?nearly 11 months
later.
Marjorie Knowles, the Inspector General at the Department of
Labor, resigned effective May 2, 1980. No replacement .was nominated
during the remaining eight months of the Carter Administration.
Further details concerning the Carter Administration Inspector
i
General appointments appear n Appendix I.
OMB claim of increased OIG resources during Carter administration
As noted earlier in this report, a comprehensive inquiry by the sub-
committee in 1977?the first year of the Carter Administration?dis-
" Memorandum for the Heads of Executive Departments and Agencies, Nov. 13, 1978.
e4 1980 hearings, p. 46.
0, Memorandum from the President on Federal programs to improve management and
combat waste and fraud, May 3, 1979.
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closed that audit and investigative resources at a number of Federal
departments and agencies were grossly inadequate.
In August 1980, John P. White, then Deputy Director of the Office
of Management and Budget, testified in some detail about the post-
1977 role of OMB in seeking to assure adequate resources for the statu-
tory Offices of Inspector General. According to Mr. White: 66
The President was determined to make the Inspector Gen-
eral legislation a success and secure its implementation in as
many Executive Branch processes as possible, including the
resource allocation decisions made in the budget process.
Mr. White further indicated that an extensive special review by
OMB had resulted in a significant increase in personnel for the statu-
tory Offices of Inspector General, stating that: 67
Last year, as part of our effort to assure effective implemen-
tation of the Inspector General program, we paid special at-
tention to the Inspectors General throughout the fiscal year
1981 budget process. We built into the process an Inspector
General Resources review that included a government-wide
overview by our management staff as well as special individ-
ual analyses in each Inspector General agency by our budget
examiners.
Early in last year's budget process, the budget guidance
letters from OMB to each agency having a statutory Inspec-
tor General noted: "The President has asked that you make a
special review of the resources supporting your office of In-
spector General. Within the planning ceiling provided, and
in the context of your department ( agency ) -wide ranking
in the zero-base budget process, the adequacy of Inspector
General program support should be considered thoroughly."
OMB examiners addressed the Inspector General resources
issue in individual agency hearings and prepared a special
analysis in each case. These were specifically addressed in the
final Director's Review sessions. Finally, an across-the-board
analysis was done by our management staff.
The result of this extensive special review was inclusion in
the President's Budget of overall increases totaling almost 12
percent in fiscal year 1981 budget authority and almost 5 per-
cent in the number of positions over fiscal year 1980 for the
statutory Inspector General agencies. This translates into
$246.9 million and 5,917 positions?a clear demonstration of
the President's support for the Inspector General program in
a very tight budget year.
During 1981 hearings by the Intergovernmental Relations and Hu-
man Resources Subcommittee, OMB was asked to provide copies of
any available reports on the special review. However, an OMB witness
testified that there was no written report."
Carter administration hiring freeze
Mr. White's testimony strongly suggested that 5,917 positions were
being made available to the statutory Inspectors General for fiscal
541980 hearings, p. 44.
6,1980 hearings, pp. 48-50.
48 1981 hearings, p. 60.
17
year 1981. However, Mr. White failed to point out that a hiring freeze
already imposed by OMB prohibited Inspectors General from filling
any vacancies existing in their offices on February 29 and allowed them
to fill only half of any vacancies occurring 'thereafter."' In view of the
luring freeze, OMB officials must have known that the number of
positions actually available to the IG's in fiscal 1981 would be far less
than 5,917.
The impact of the hiring freeze was especially severe on those IG
offices which experienced a large number of retirements or resignations
or had a large number of vacancies on February 29, 1980. The Depart-
ment of Transportation's Office of Inspector General was particularly
hard-hit. Because of the freeze, that office had 94 vacancies in mid-1980
and faced the prospect of having to incur 65 more vacancies before
being able to hire a single replacement.7?
At the urging of the subcommittee chairman, OMB eventually
agreed to allow the Transportation Department OIG and two ?the.
IG offices some limited relief from the hiring freeze.71
Earlier record of OMB and agencies on requests for audit resources
The General Accounting Office has been concerned for a number of
years about the adequacy of resources available to Federal audit orga-
nizations. In a July 1979 report 72 GAO described the results of ef-
forts by 21 Federal auditing organizations to obtain additional staff
over a five-year period ending on September 30, 1978;
GAO found that the 21 auditing organizations had requested a
total of 3,084 additional positions from their agencies during the
period. The agencies approved only 1,242 positions?about 40 percent
of the number requested. OMB then made a further reduction of
almost 50 percent, approving only 638 positions.
Congress subsequently approved a total of 798 positions, 160 more
than OMB had requested.
Substantially increased resources at some IG *es
Some Offices of Inspector General managed to obtain substantial
increases in personnel during the Carter Administration.
The HEW OIG's Office of Investigations increased its staff fron*
10 to 100 or more.73
GSA 's Office of Inspector General nearly doubled in size fronli.
1978 to 1980?going from 243 to 470.74
The Veterans Administration Office of Inspector General increased
its authorized staff from 114 in 1977 to 358 in 1980.73
It is doubtful that the Office of Management and Budget played
any significant role in obtaining additional resources for these offices.
Congress acted rapidly to provide more resources for HEW's Office
of Investigations after a 1975 investigation by this subcommittee re-
vealed the Office had only ten investigators with a ten-year backlog
of uninvestigated cases.
550MB Bulletin No. 80-7, Mar. 17,1980.
7? Information obtained from Office of Inspector General, Department of Transportation.
711?81 hearings. pp. 62-63.
72 "Federal Civilian Audit Organizations Have Often Been Unsuccessful in Obtaining
Additional Staff,' FGMSD 79-43, July 27,1979.
73 Hearings, p. 191.
74 Information obtained from Office of Inspector General, General Services Administration.
75 Information obtained from Office of Inspector General, Veterans' Administration.
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President Carter personally promised to provide at least 100 more
positions for GSA's Office of Inspector General after widely publicized
Congressional investigations disclosed serious corruption problems at
that agency."
Max Cleland, Administrator of the Veterans Administration during
the Carter Administration, was a strong supporter of the Inspector
General concept; Mr. Cleland established a nonstatutory Inspector
General at VA even before enactment of the 1978 law.'7
The overall adequacy of OIG resources at the present time is
discussed later in this report.
VII. DEVELOPMENTS UNDER REAGAN ADMINISTRATION
Emph,asis on need to combat fraud, waste, and abuse
As a presidential candidate, Governor Reagan emphasized his
concern about the magnitude of fraud and waste in Federal pro-
grams and the need for corrective action. One September 1980 press
report indicated that Governor Reagan had said in Chicago that
government spending could be reduced $195 billion over a five-year
period by eliminating waste and "outright fraud." 78
During the campaign debate with President Carter, Governor
Reagan stated that "We've had the General Accounting Office esti-
mate that there is probably tens of billions of dollars that is lost in
fraud alone, and they have added that waste adds even more to
that." 78
In an address to a joint session of Congress on February 18, 1981,
President Reagan commented on this subject as follows: 80
Let me say a word here about the general problem of waste
and fraud in the Federal Government. One government
estimate indicated that fraud alone may account for any-
where from 1 to 10 percent?as much as $25 billion?of
Federal expenditures for social programs. If the tax dollars
that are wasted or mismanaged are added to this fraud total,
the staggering dimensions of this problem begin to emerge.
The Office of Management and Budget is now putting
together an interagency task force to attack waste and
fraud. We are also planning to appoint as Inspectors Gen-
eral highly trained professionals who will spare no effort to
do this job.
No administration can promise. to immediately stop a
trend that has grown in recent years as quickly as Govern-
ment expenditures themselves. But let me say this: waste
and fraud in ,the Federal budget is exactly what I have
called it before?an unrelenting national scandal?a scandal
we are bound and determined to do something about.
On March 26. 1981, President Reagan told the beads of Federal
departments and agencies that "The reduction of fraud and waste
/*Remarks at bill signing ceremony, Inspector General Act of 1978, Oct. 12, 1978.
811977 hearings, pp. 334-337.
/8 Wall Street Journal. Sept. 10, 1980.
66 Presidential campaign debate. Cleveland, Ohio, Oct. 28, 1980.
Congressional Record, IL H512.
19
in the operation of all Federal programs is a major commitment and
priority of my Administration." The President then announced that
he was establishing a Presidents Council on Integrity and Efficiency
"to focus- and improve our efforts to deal with the problem." 87
In an accompanying statement, the President pledged that "we are
going to follow every lead, root out every incompetent, and prose-
cute any crook we find who's cheating the people of this Nation. This
I promise." 82
President Reagan reemphasized his intentions the following
month, stating that ". . . we will not tolerate fraud, waste, and abuse
of the taxpayers' dollars. Every allegation of wrongdoing:, every in-
vestigative lead will be pursued thoroughly and objectively.88
Mass removal of incumbent Inspectors General
Material included in the Weekly Compilation of Presidential Docu-
ments for January 20, 1981, indicates that, in addition to nomination
of Cabinet Members, two official actions took place that day.
The first action was the imposition of a new hiring freeze by Presi-
dent Reagan which was even tougher than the earlier one put into
effect by President Carter. This freeze was clearly destined to cause
further problems for Offices of Inspector General whose staff resources
were already grossly inadequate.84 ?
However, the freeze was overshadowed by the second official action on
January 20?the mass removal of all incumbent Inspectors General.
Under the law, Inspectors General are required to be appointed by
the President, by and with the advice and consent of the Senate, "with-
out regard to political affiliation and solely on the basis of integrity
and demonstrated ability in accounting, auditing, financial analysis,
law, management analysis, public administration, or investigations." 85
An Inspector General cannot be removed by an agency head. If re-
moved by the President, the law specifies that "The President shall
communicate the reasons for any such removal to both Houses of
Congress." 88 Unlike most Presidential appointees, Inspectors Gen-
eral are not permitted to engage in partisan, political activities.87
In January 20 letters to the Speaker of the House and the President
of the Senate, President Reagan gave no specific reasons for removing
the incumbent Inspectors General. Instead, the President simply noted
that Inspectors General would have critical roles in the achievement
of his objective of uncovering fraud, waste and mismanagement and
promoting economy, efficiency, and effectiveness. He then stated that
"As is the case with regard to all positions where I, as President, have
the power of appointment by and with the advice and consent of the
Senate, it is vital that I have the fullest confidence in the ability, in-
tegrity and commitment of each appointee to the position of Inspector
General." 88
a Memorandum for the Heads of Departments and Agencies on Government-Wide Anti-
Fraud and Waste Efforts; 1981 hearings, p. 43.
82 Statement on signing Executive Order 12301. Mar. 26, 1981.
o Statement on actions taken by the President's Council on Integrity and Efficiency,
Apr. 16, 1981-
84 Memorandum from the President on Federal employee hiring freeze.
86 Section 3(a), Public Law 95-452.
86 Section 3 ( b ) , Public Law 95-452.
/7 Section 3(c), Public Law 95-452.
88 Notification pursuant to Public Law 95-452.
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Concern about mass removal
On January 23, 1981, the subcommittee chairman wrote to the Presi-
dent to express concern about the mass removal of the Inspectors
General.
It is common practice for political appointees to be removed when
there is a change in administrations. The President's letters made
it unmistakably clear that the Inspectors General were being treated
in the same manner as political appointees. In his letter the chair-
man pointed out that "Unlike most Presidential appointees, Inspec-
tors General are prohibited by law from engaging in partisan politi-
cal activities" and emphasized that the provision relating to removal
by the President "was intended to permit the .President to make
changes where the performance of an Inspector General was unsatis-
factory or where it appeared that appointment of another individual
might result in more effective performance of the responsibilities of
the office. It was never intended, however, that Inspectors General
be automatically replaced on a wholesale basis without regard to
their individual merits whenever there is a chancre in administrations."
The chairman further noted that most of the statutory Inspectors
General were career employees who had served under both Republican
and Democratic administrations in non-political positions and com-
mented "However intended, the wholesale removal of all current
Inspectors General without any meaningful examination of their
qualifications and performance has inevitably given the appearance
of an attempt to politicize these vitally important offices."
Assurances from the President
On February 19, 1981, Max Friedersdorf, Assistant to the President
for Legislative Affairs, wrote to Chairman Fountain to assure him
that both the President and Deputy OMB Director Edwin Harper
had made personal pledges "to insure that the Inspector General pro-
gram not become infested with partisan political considerations" and
that "the single bipartisan objective of eliminating fraud and waste
be observed and thoroughly pursued by an outstanding team of top-
qualified professionals.' 9?
Mr. Friedersdorf's letter also stated that "the appointment of
the next corps of Inspectors General is expected to be accomplished
in the very near future" and that there was a possibility that as many
as half the dismissed Inspectors General would be reoffered I(3-
positions.
Shortly thereafter, the President personally assured Chairman
Fountain that he recognized the vitally important role of the statu-
tory Offices of the Inspectors General, and he intended to give them
strong support."
The President had previously a ssm.ed Congressmen Jack Brooks
and Frank Horton, Chairman and Ranking Minority Member of the
Committee on Government Operations, that he had no intention of
"politicizing" the Offices of the Inspector General."
ba Letter to the President from Hon. L. H. Fountain, chairman, intergovernmental Re-
lations and Human Resources Subcommittee, Jan. 23, 1981 ; 1981 hearings, p. 4.
se 1981 hearings, p. 8.
9, 1981 hearings, p. 2.
a 1981 hearings, pp. 11, 51-52.
21
Circumstances of mass removal
Although The President's assurances considerably lessened concern
that the mass removal of the Inspectors General might be the first step
in a plan to "politicize" theiir offices, the subcommittee subsequently
conducted an inquiry to obtain additional details concerning the
matter.
The removal of the Inspectors General was handled by the White
House Personnel Office. An invitation for a representative of that Of-
fice to testify at subcommittee hearings was not accepted; conse-
quently, the subcommittee was not in a position to obtain first-hand
information about some aspects of the situation.
In the absence of a representative of the White House Personnel
Office, the principal witness who testified about the removal of the
Inspectors General and the process used to select new ones was Edwin
Harper, Deputy Director of the Office of Management and Budget.
Mr. Harper also serves as Chairman of the President's Council on
Integrity and Efficiency and has played a key role in the selection of
nominees for IG positions."
Mr. Harper testified that he had not been involved in the decision
to remove all incumbent Inspectors General. However, Harper indi-
cated he concurred in the decision. His reasoning was based on the
belief that, given the importance of the IG positions, it was not unrea-
sonable to drop any person who had not done an outstanding job. And,
while some IG's had clearly done outstanding jobs, others had been less
suecessful. It was "humanitarian," Harper suggested, to fire all the
IG's rather than single out those who were believed to have done a less
than outstanding job."
While the subcommittee has not taken testimony from any of the
former Inspector Generals who were removed on January 20, informal
inquiries suggest it is safe to assume that none of them regarded their
removal as a 'humanitarian" gesture.
Although questions remain concerning the motivation for the mass
removal of Inspectors General, there is no doubt that it was carried
out in an abrupt and disorganized manner.
Harper's testimony?and the subcommittee's own inquiry?dis-
closed that :95
Neither Harper nor anyone else at OMB was consulted prior to
the decision to terminate all incumbent IG's;
No meaningful examination of the qualifications and perform-
ance of the incumbent Inspector General was made before they
were summarily removed;
No Members of Congress of either party were consulted or even
notified prior to the mass removal; and
None of the individuals designated to head the affected depart-
ments or agencies were consulted or notified prior to the removal
of their establishment's Inspector General.
The Inspectors General were removed on January 20. 1981, but were
not told what had happened to them until the next day, when most
of them received letters dated January 21 from E. Pendleton James,
031981 hearings, pp. 20, and 23-24.
94 1981 hearings, p. 22.
?6 1981 hearings, pp. 22 and 53.
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Assistant to the President for Presidential Personnel. One former
inspector General first learned of her removal from a television news
program. Another was notified of hisl"removal" three weeks after the
effective data of his retirement.
Except for the name of the addressee and the agency, all the letters
were identical, reading as follows:
This is to inform you that the President has removed you
from the position of Inspector General of the
effective January 20, 1981. The reasons for your removal are
stated in the President's communications to Congress, copies
of which are enclosed for your reference.
If you are interested in being considered for reappoint-
ment to this position, please make your interest known by
sending your application, together with a copy of this letter,
to the White House personnel office."
On behalf of the President, I wish to thank you for your
service to the United States.
In the typed signature on each .of the letters, Mr. James' middle
named was misspelled "Pendelton."
Although no meaningful examination of the qualifications and per-
formance of the incumbent IG's was made before they were removed,
inquiries about them were made immediately after January '20. Ac-
cording to Harper, these ituriiries produced a very clear consenus that
"approximately half of the Inspectors General had done a truly out-
standing job, were highly qualified and highly professional and would
be recommended for reappointment." 98
Adverse effects of mass removals and continuing vacancies'
At a March 26, 1981, press briefing, OMB Deputy Director Harper
contended that the IG offices were continuing to carry out their duties
vigorously despite the removal of the Inspectors General. He acknowl-
edged, however, that an ongoing program can continue on its own
momentum for only a short period of time."
Donald L. Scantlebury, Chief Accountant of the General Account-
ing Office and Director of GAO's Accounting and Financial Manage-
ment Division, told the subcommittee that the disruptive effect of not
having IG's in place "throws organizations into turmoil. Generally
while government agencies or even subagencies are waiting for a new
leader nobody strikes out in any strong new directions. They tend to
tread water to see what is going to happen." 88
Scantlebury's view was reinforced by the testimony of Ernest E.
Bradley, Acting Inspector General of the Environmental Protection
Agency, who said that "we do not want to make any decisions to tie
the new Inspector General when he comes in to something he will be
held to that he is not-in accordance with." 89
Questions concerning the status and authority of acting Inspectors
General added to the confusion. An April 1981 memorandum by
Fred F. Fielding, Counsel to the President, concluded that each
as 1951 hearings, p. 16.
g7 Briefing for reporters by members of the Presidential Council on Integrity and Effi-
ciency, Mar. 26, 1981.
221951 hearings, p. 152.
22 1981 bearings, p. 191.
23
former IG's first assistance would take over as acting IG under appli-
cable law "until a successor is appointed." However Fielding also
concluded that a provision of the Vacancies Act, 5 .U.S.C. 3348, im-
poses a 30-day limitation on the power of acting IG's in the Executive
Departments to act in that capacity. As a result, Fielding stated, the
Departments of Agriculture, Commerce, Energy, HHS, HUD, Labor,
Interior and Transportation "are and have been without IG's subse-
quent to February 20, 1981.'/ 1.00
The terminated Inspectors General, according to Fielding, lost all
legal authority to exercise the powers of their former offices on Janu-
ary 20; nominees for IG positions could not legally exercise powers
of the offices until confirmed or reconfirmed by the Senate.
It is impossible to determine exactly what might have happened
if Presidentially-appointed Inspectors General had been present to
fight for adequate resources for their offices. However, there is no
doubt that the absence of IG's contributed to the serious deficiencies
in resources discussed elsewhere in this report.
In the long run, whether or not the January 20 removals have a
lasting adverse impact on the Offices of Inspector General depends on
whether or not such action is perceived as likely to be repeated in the
future. Certainly, if outstanding service as an Inspector General is
considered likely to be rewarded with preemptory dismissal whenever
there is a change in administrations, it will be difficult to continue to
obtain the highly qualified professionals needed to realize the full
potential of the Inspector General offices.
In this connection, it is encouraging to note the following testimony
of OMB Deputy Director Harper: 101
I would not anticipate that a future administration would;
or that something like this would be done again with respect
to the Inspectors General. I think there has been some confu-
sion, frankly, in people's minds about what is the relationship
of the Inspector General to the Executive Branch and to the
Congress.
I think that members of the Administration have a clearer
sense of that now than they may have had in the past, and
I think the point is better understood on everybody's part
with respect to the future.
Appointment of new Inspectors General by President Reagan
In his January 20, 1981, letters to the Speaker of the House and the
President of the Senate concerning removal of the Inspectors General,
President Reagan advised that he would be submitting nominations
for the vacant positions to the Senate "in the near future." During
his April 1, 1981, testimony, OMB Deputy Director Harper told the
subcommittee he hoped all the new Inspectors General would be named
"in the next couple of weeks." 102
However, by May 20, 1981?four months after the IG's were re-
moved?only three nominations had been submitted to the Senate
for the 16 vacant Inspector General positions, and none had been eon-
= Memorandum for Edwin L. Harper from Fred F. Fielding, Apr. 21, 1981; 1981 bear-
ings, p. 144.
= 1981 hearings, p. 54.
"2 1981 bearings, p. 56.
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94
firmed. On May 22, the subcommittee chairman wrote President
Reagan to advise that he was scheduling a further hearing to look
into the slow pace at which nominations were being submitted. By
June 10, when the hearing was held, twelve additional nominations
had been made. As of July 16, nearly six months after Inauguration
Day, only five nominees had been confirmed and eleven IG positions
were still vacant. Four additional nominees were confirmed on July 17.
(See Appendix 11 for details concerning Reagan Administration In-
spector General appointments.)
Although the subcommittee is not in a position to make an informed
judgment about every nominee on an individual basis at this time, it
is clear that the nominees as a group have excellent qualifications and
experience. The obviously high quality of the nominees has helped con-
siderably in alleviating concern that the removal of the former IG's
was the first step in a plan to "politicize" the offices. OMB Deputy
Director Harper and those who assisted him in the selection process
deserve to be commended for this achievement.
Six former Inspectors General were reappointed, three to the same
department or agency and three to new ones. (A seventh former IG,
whose qualifications and record were acknowledged to be outstand-
ing, was not reappointed.) 105
OMB claim of increa8ed OIG re8ource8, during Reagan admini8tration
In his April 1, 1981, testimony, OMB Director Harper told the sub-
committee that President Reagan's budget reflected increases in total
staffing for Inspectors General in both fiscal years 1981 and 1982 over
fiscal year 1980 actual figures. According to Harper, the actual figure
for 1980 was 5,224 positions as compared to 5,395 for 1981 and 5,523
in 1982.104
Harper subsequently advised that 53 additional positions had been
added for both 1981 and 1982 at two IG offices and that 50 field
auditors at another agency were being transferred to IG control.105
While the above figures suggest a modest increase in IG staffing
in the Reagan budget as compared with the Carter administration,
the comparison is not really that simple. The Reagan figures represent
"authorized" positions?the maximum number that the Inspectors
General will be permitted to hire. "Actual" figures represent the num-
ber of positions actually filled; because of continuing staff turnover
and unavoidable delays in filling vacancies, the actual number of posi-
tions filled is almost always less than the number authorized.
Consequently, the subcommittee asked OMB to provide a compari-
son of the authorized?rather that "actual"?staffing for fiscal year
1980 with the authorized figures already provided for fiscal years 1981
and 1982. The response provided by OMB appears below in its
entirety: 106
Clarification of authorized staffing in the Offices of Inspec-
tor General versus actual staffing.
We cannot provide specific "authorization" figures since
OMB maintains its record on either "Full Time Equivalent"
103 1 99 1 bearings. p. 142.
1" 1981 bearings. pp. 24-25.
1061981 hearings, p. 112.
10 1981 hearings, p. 146.
25
or "End of Year" basis. According to the OMB records, the
total IG staffing level has clearly increased in fiscal years 1981
and 1982 over fiscal year 1980. (This is the information pro-
vided for the record with Dr. Harper's testimony.)
"Authorization" levels are estimates that the Congress
deals with. "Actual" levels frequently differ from "author-
ized," often resulting in lower figures.
While we do not have "authorization" figures to compare
the three years in question, we believe we know the reason for
the Committee's concern. In early 1980, Dr. John White, then
Deputy Director of OMB, testified that the IG program
would have some 5,900 positions for fiscal year 1981. This was
the then current estimate. Subsequently, however, the Carter
Administration imposed a hiring freeze that affected IG staff-
ing levels. Since 1980 staffing levels, consequently, never
reached the level anticipated, that Administration revised
downward its estimates for 1981 staffing levels. Our current
estimates for 1982 are based on what actually occurred in
1980 and thus far in 1981, rather than on Dr. White's earlier
estimates. We believe these earlier estimates are what Mr.
Naughton of the Committee's staff has been referring to as
"authorized" levels.
The statement provided by OMB was?to say the least?puzzling,
since the subcommittee has been operating under the impression that
"authorized" positions represented the maximum number of persons
who could be hired rather than mere "estimates."
Moreover, it is hard to reconcile with testimony of John White,
OMB Deputy Director under the Carter Administration, on Au-
gust 28, 1980?long after the imposition of the Carter Administra-
tion's hiring freeze. At that time, Dr. White described an "extensive
special review" conducted by OMB of the adequacy of OIG resources.
Dr. White then stated that :1?7
The result of this extensive special review was inclusion in
the President's budget of overall increases totalling almost 12
percent in fiscal year 1981 budget authority and almost 5 per-
cent in the number of positions over fiscal year 1980 for the
statutory Inspector General agencies. This translates into
$246.9 million and 5,917 positions?a clear demonstration of
the President's support for the Inspector General program in
a very tight budget year.
Figures submitted by OMB indicate that the revised fiscal year 1981
Budget request submitted by the Carter Administration after the 1980
election Called for total Ia staffing of 5,446 for fiscal year 1981 and
5,604 for fiscal year 1982. The Carter Administration figures did not
include any positions for the State Department, which did not yet
have a statutory Office of Inspector General; the Reagan Budget in-
cludes 74 positions for the State Department IG in fiscal year 1981
and 75 in fiscal year 1982. After subtracting the State Department
positions and adding on the 53 additional IG positions granted after
submission of the Reagan Budget, the Carter Administration totals
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for both 1981 and 1982 are slightly higher than those in the Reagan
Budget.
An argument could be made that the Carter Administration re-
quested a few more IG positions than the Reagan Administration?or
vice versa. But the argument is not worth making.
What is significant?and is documented elsewhere in this report?
is that the Office of Management and Budget under both administra-
tions has provided grossly inadequate resources for the statutory
Offices of Inspector General and has been less than candid in telling
the Congress what it has done.
VIII. ADEQUACY OF CURRENT RESOURCES
1980 views of Inspectors General
In March 1980, the subcommittee .asked etieli inspector General to
advise wfietAel0 not, in theiPjtatritibht, the current Viiffing of their
ace was adequate. At that time there were 14 statutory Offices of
Inspector General. Eleven of the fourteen IG's reported that their
staffing was not adequate. Two others advised that their staffing was
marginally adequate or could be if the hiring freeze was lifted and the
remaining one did not take a position."8
Two of the fourteen Inspectors General reported that they had ade-
quate travel funds; four others regarded their travel funds as "prob-
ably" adequate. Eight IG's said their travel funds were not adequate."9
Three Inspectors General regarded their office space and equipment
as adequate; three more responded with qualified "yes" answers. Eight
IG's said their support facilities were not adequate.119
Current budget situation
As noted earlier, the Reagan Budget currently calls for Inspectors
General to receive only very modest increases in resources?if any?
over the levels provided in 1980.
The 16 statutory Offices of Inspector General are responsible for
monitoring around $400 billion annually in expenditures of public
funds.111 (Budget of the United States Government, Fiscal Year 1982,
page 553.) Yet the total staffing presently planned for these offices is
only around 5,500 and current staffing is substantially less."2 By con-
trast, the Department of Defense has more than 18,000 auditors, in-
vestigators and inspectors il3 and the Federal Bureau of Investigation
employs nearly 20,000 people." The Los Angeles County Sheriff alone
has a staff which is substantially larger than all 16 statutory Offices of
Inspector General combined.""
The IG's staffing problems have been aggrevated by the establish-
ment of the Presidential Council on Integrity and Efficiency, which has
called upon the Inspectors General to use their staffs for a dozen proj-
ects assigned by the Counci1.118
155 Replies to Mar. 4. 1980. questionnaire.
us Ibid.
uo Ibid.
m Budget of the U.S. Government, fiscal year 1982, p. 553.
552 1981 hearings. p. 68.
lu Report by the Task Force on Evaluation of Audit. Inspection and Investigative
Components of the Demrtment of Defense. May 1. 1980. vol. I. pp. 294-297.
US Hearings before House Subcommittee on the Departments of Commerce, Justice,
and State, the Judiciary, and Related Agencies, part VI. Apr. 2. 1981. p. 794.
U5 According to information obtained from Los Angeles County, the total staff author-
ized for the sheriff's department in 1980 was 7,534 persons.
US 1981 bearings, pp. 113, 160-161.
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Deputy OMB Director Harper told the subcommittee he believed
the current budget request would provide enough resources so that
Inspectors General will be able to carry out President Reagan's pledge
that "Every allegation of wrongdoing, every investigative lead will
be pursued thoroughly and objectively," but acknowledged that he
thought it was something that deserved to be continually monitored."7
However, a study conducted by the Merit Systems Protection Board
concluded that a substantial number of Federal employees have failed
to report wasteful or illegal activities because of the belief that "noth-
ing would be done." 118
1981 views of Offices of Inspector General
In their semi-annual reports for the six-month period ending
March 31, 1981, Offices of Inspector General expressed the following
views on the adequacy of their resources :
Department of Agriculture
The lack of sufficient resources, both travel and personnel,
continued to be a major impediment in terms of operating
at the effectiveness and level which was envisioned by our
1981 budget. . . . Our effectiveness has also been hampered
by restrictions on travel. . . . The programs of the Depart-
ment are widely dispersed geographically, and our auditors
and investigators must travel in order to be effective in their
jobs.
Department of Education
The magnitude of our workload, coupled with increasing
demands by Congress, the Office of Management and Budget,
and the U.S. General Accounting Office makes it evident that
the current personnel ceiling of 304 is far below our actual
needs.
The Department has provided some relief by increasing
our ceiling from the Fiscal Year 1981 level of 304 to 335 in
Fiscal Year 1982.
Department of Labor
A matter of major concern to the Office of Inspector Gen-
eral as a whole concerns staffing resources. During this period,
OIG employment strength increased from 388 to 459. De-
spite this sizable increase, the cumulative effect of the govern-
ment-wide hiring freezes, in place during much of the past
year, prevented anticipated staff expansion to the authorized
level of 487. This made it impossible to accomplish all of the
previously planned MG initiatives. The revised Fiscal Year
1981 and 1982 budgets provide for 441 positions. As a result,
while there will be an increase in OIG activity over previous
levels, there will be reductions in relation to previously
planned program levels.
m 1981 hearings, p. 157.
no Statement on actions taken by the President's Council on Integrity and Efficiency,
Apr. 16.1981.
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Department of Tramportation
Our workload requirements continue to be greater than our
resource availability. As a result, there are audit and investi-
gative areas which are not receiving the required attention.
Owing to our present staff levels, we have not been able to
allocate sufficient resources to increase the coverage and fre-
quency of internal audits of DOT programs and activities.
These audits are a primary means of assuring that adequate
controls are in place to prevent fraud, waste, and misman-
agement. Another area of concern is our growing backlog of
investigative cases. Despite internal reprogramming of some
positions to increase investigative staffing, our backlog con-
tinues to grow.
* ?
Our staffing levels have improved only slightly since our
last Semi-annual Report to Congress. We were given author-
ity in October 1980 to fill 50 existing vacancies and replace
losses on a one-for-two basis. We were able to hire 59 people
before the most recent hiring freeze was imposed in January
1981. However, these gains were mostly offset by 47 person-
nel losses that occurred during the 6-month period ended
March 31, 1981.
Since September 30, 1980, our authorization and budget
ceilings have been reduced by a total of 50 spaces. Further re-
ductions are programmed each year through Fiscal Year 1986.
However, corresponding reductions are not occurring in our
workload. In fact, as we pointed out in our previous Semi-
annual Report to Congress, recent legislation has imposed
further responsibilities on the Office of Inspector General
(OIG) and there are legislative proposals which contem-
plate OIG involvement in additional areas. Consequently, we
anticipate that our workload requirements will continue to be
greater than our capabilities, thus resulting in a continued
backlog of audits and investigations.
Community Semi,' ices Administration
Operating under a continuing Congressional resolution,
MG authorized staffing remained at 61 employees, subse-
quently reduced to 60 by the CSA Director. As a result of hir-
ing freezes imposed by both the incoming and outgoing
Administrations, vacant positions could not be filled. Ten ad-
ditional OIG positions which had been approved by the Office
of Management and Budget were included in the FY 1981
CSA budget. request. However, since a new appropriation was
not enacted by the Congress, the, Agency was directed to op-
erate on a continuing resolution which limited spending to the
FY 1980 level.
?
29
Hiring freezes prolonged an almost intolerable situation
in which the Office of Inspector General was severely ham-
pered in its efforts to effectively meet the mandates of the In-
spector General Act of 1978. The Office was forced to set
stricter priorities and was unable to perform economy and
efficiency audits, program results audits and the planned num-
ber of Quality Assurance Reviews. The office was also unable
to prepare and revise the Auditing Office's standards and pol-
icies and was unable to conduct vulnerability reviews and
approximately one-fourth of planned internal audits. In addi-
tion, the backlog of investigative cases continued to grow.
Environmental Protection Agency
The most critical problem facing the Inspector General cit
EPA continues to be the shortage of manpower necessary to
provide an appropriate level of oversight to EPA programs
and functions. . . .
During the last six months, our staff shortage situations has
worsened instead of improving. Staff cutbacks for the re-
mainder of the fiscal year will reduce the efforts which Can be
expended in combating fraud, abuse, and waste in EPA pro-
grams, activities, and functions. At the same time, it has be-
come exceedingly clear that even more resources are needed
than were formerly projected.
Some of the shortages caused by this reduction are consid-
ered especially disruptive. For example, the investigative staff
now has no personnel in two of our divisional offices which
cover five EPA regional offices administering more than $10.2
billion of active grants. In the Dallas office, we are now down
to only two auditors.
As workload needs continue to grow and resources are not
made available to provide even reasonable coverage of EPA
programs, the Office of Inspector General becomes less able
to fulfill its established mission of reducing fraud, waste,
abuse, and mismanagement in EPA programs.
General Services Administration
. . . on the basis of a funding reduction imposed by the
Office of Management and Budget (OMB), this Office's per-
sonnel ceiling for Fiscal Year (FY) 1981 was recently re-
(Need from 622 to 538. Our current staffing level of 536 is just
below this reduced ceiling. However, because of the Full-Time
Equivalency (FTE) restrictions imposed by OMB for FY
1982, we cannot as a practical matter fill any more positions,
even those which may be vacated during the remainder of
FY 1981.
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National Aeronautics and Space Administration
The Office of Inspector General workforce was reduced
from 114 to 100 positions, a cut of 12 percent when the. agency
was reduced less than 4 percent, and our equipment funds
(hardware for our management information system) were
halved. These reductions are at variance with President
Reagan's budget as presented to Congress at the Inspector
General oversight hearing on April 1, 1981, and now threaten
the Office's ability to execute its audit plan and initiate timely
investigations of procurement fraud.
June 1981 testimony
Testimony at the subcommittee's June 10 hearing provided even
more striking evidence of inadequacies in IG resources.
Witnesses from the Office of Inspector General at the Environmen-
tal Protection Agency testified that their office had only ten investi-
gators with a five-year backlog of uncompleted work to investigate
fraud, waste and abuse in 12,000 water pollution control grants total-
ing $29 billion."9
EPA OIG witnesses further testified that their office had eight va-
cancies in the fall of 1980 which could not be filled because of the
Carter Administration hiring freeze. OMB, at the urging of the sub-
committee, then gave the EPA OIG an exemption from the freeze.
Only one vacancy had been filled by January 20, 1981; imposition of
the Reagan Administration hiring freeze on that day left the office
with seven vacancies which it could not fill."?
Thereafter, 15 more vacancies occurred because of resignations and
retirements, leaving a total of 22 vacancies which could not be filled.
The Reagan Administration hiring freeze was subsequently lifted;
however, before any of the vacant positions could be filled, EPA
imposed its own hiring freeze.121
The Assistant Inspector General for Auditing at the Department of
Commerce told the subcommittee that his unit's resources were so lim-
ited that there was approximately a 36-year audit cycle for manage-
ment audits.122
The Labor Department's Assistant Inspector General for Audit tes-
tified that his office believed it was doing a fairly decent job of moni-
toring the CETA program, but in order to do so, it had been necessary
to practically ignore a number of other large programs which are ex-
ceptionally vulnerable to fraud. waste and abuse.121
A memorandum from an HITS investigator, which was included in
he record, described a project being carried out by their Sacramento,
California, office which was returning $7 for every $1 expended. How-
ever, the two investigators working on the project were losing the.
equivalent of approximately one week per month?an eighth of the
professional time available?because they did not have a copying
machine and had to stand in line and feed coins into a public machine
in the hall whenever copies were needed.12'
1" 1981 hearings, pp. 180-1117.
U? 1981 hearings, pp. 184-185.
121 1981 hearings, p. 155.
"21951 hearings, p. 202.
I" 1 951 hearings. p. 192
1241981 hearings, pp. 152-155.
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IX. SAVINGS AND ACCOMPLISHMENTS
In spite of severe shortages of resources, the statutory Offices of
Inspector General-have achieved impressive savings and other accom-
plishments. Examples of items included in semi-annual reports for the
six-month period ending March 31, 1981, follow:
Department of Agriculture
During the reporting period, we issued 874 investigative
reports and 243 audit reports. Our audit and investigative
work during the period identified, or resulted in, approxi-
mately $90 million in recoveries, savings, erroneous payments,
management improvements, incorrect loan amounts penalties,
claims, fines and judgments. Our investigative work resulted
in 381 indictments and 235 convictions during the period.
? *
?Most of our indictinents were for felony offenses such as
food stamp trafficking, and fraud in relationship to depart-
mental loan programs.
Department of Commerce
During the first six months of fiscal year 1981, our audit
efforts resulted in $3.7 million of estimated savings and ap-
proximately $0.6 million in cost avoidance or deferrals. In
addition, we made recommendations for improvements for
which savings are not readily determinable. Our preventive
investigative efforts assisted Department officials in identify-
ing and avoiding loan actions totalling $3.1 million which car-
ried associated undue risks.
Department of Education
We have issued or processed a total of 2,761 audit reports
during this period which questioned costs totalling about $30
million and recommended numerous improvements in opera,
tions. The number of reports issued or processed increased by
61 percent over the previous period and is indicative of a
trend which is expected to continue. Our accomplishments
also included resolution and closure of 1,061 audit reports. Of
these, 442 had monetary findings which have or will result in
recoveries or savings of about $8.8 million. During this pe-
riod, we also initiated a number of important internal audits
on Departmental programs and activities and issued a major
internal audit report on the Department's control over pay-
ments. . . . Investigation activities culminated in five indict-
Department of Health and Human Services (1980 Annual
Report)
In calendar year 1980, audit reports identified some $80
million in nroposed adjustments; even more meaningful some
$126.5 million in audit recommended financial adjustments
were concurred with by the responsible program officials last
year. . . . 01- was responsible for 137 indictments, 145 con-
victions and $4.7 million in savings through recoveries, fines
and restitutions for calendar year 1980.
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Department of Housing and Urban Development
[Dollars in millions]
Cash recoveries (OIG and non-Federal audits) $14.2
Dollar value of reported deficencies and questionable items
(OKI) and non-Federal audits) $363.6
Investigation cases opened
Investigation cases pending, March 31, 1981
Investigation cases referred for prosecution
Persons/flrms indicted
HUD employees indicted
Persons/fIrms convicted
HUD employees convicted
Department of the Interior
During this reporting period we referred 25 cases to the
Department of Justice. Of the 25 cases referred, 15 were ac-
cepted for prosecution, 5 were returned for administrative
action, and 5 are pending final decision. So far, the cases
accepted for prosecution have resulted in 16 indictments and
11 convictions.
Department of Labor
171 audit reports were issued on DOL grantees and con-
tractors which took exception to $86 million of the $3.4 billion
audited. Major continuing problems noted were enrollment of
ineligible CETA participants, inadequate monitoring of
CETA sub-grantee activities, poor financial management sys-
tems, and insufficient documentation to support expendi-
tures. . . . 284 fraud investigative cases were opened and 272
were closed. 40 indictments and 26 convictions were ob-
tained. . . . 54 organized crime and labor racketeering cases
were opened. 16 indictments and 10 convictions were obtained.
Community Services Administration
During the six-month period ending March 31, 1981, the
Auditing staff reviewed and issued 747 reports and questioned
grantee costs of $14 million. Costs were questioned in 256
audit reports and ranged from $8.00 in one report to $2,044,-
631 in another.
All questioned costs for the period between 1971 through
1981 were reviewed. The review disclosed that of the $8.8 bil-
lion in grant funds awarded, $271 million (3 percent) was
questioned by auditors. Of that amount, $157 million (58 per-
cent) was allowed by program officials, $68 million (25 per-
cent) was disallowed and the balance of $46 million (17
percent) remained unresolved as of March 31, 1981. Program
officials resolved an average of 97 audits per month during
the six-month period which ended March 31, 1981.
Enrironimental Protection Agency
We issued 789 audit reports which questioned $56.7 million
of the $1.7 billion audit' A A ciillefontisal nrfnn of these
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1,089
2, 166
277
85
3
50
1
33
monies should be recovered. Other audit reports identified
systems and control deficiencies and recommended corrective
actions to help prevent fraud, abuse, waste, and mismanage-
ment.
General Services Administration
Made 120 referrals for prosecution to the Department of
Justice. . . . Issued 187 internal audit reports and 244 con-
tract audit reports, the latter recommending savings in excess
of $52,688,000.
National Aeronautics and Space Administration
The latest measurable results for all audits for fiscal year
1980 showed the auditors questioned $181 million on actions
completed during the period and issued about 590 pre-award
and post-award reports. This resulted in a net saving or cost
avoidance of about $30.9 million.
Small Business Administration
Investigations completed during this report period and final
action on previous investigations have resulted in savings or
recoveries to SBA amounting to $13,793,493.63.
Veterans Administration
During the six-month period, 10 special initiative audits
and one preinstallation audit were completed along with 61
cyclical internal audits which included five followup audits.
. . . Estimated savings for the 61 reports, primarily in the
nature of cost avoidance, totalled $18 million.
The 227 completed external audits of contractors, grantees,
and other external organizations participating in VA pro-
grams represented $136 million of audited costs. Cost adjust-
ments of $12.7 million were recommended and $5.8 million in
unsupported costs were identified.
X. RATIO OF COSTS TO BENEFITS
Problems in ascertaining cost/benefit ratios
In trying to ascertain the true actual work done by the Offices of
Inspector General, it is important to remember that recommendations
by auditors and investigators will not result in specific, measurable
savings or recoveries unless they are implemented by the agency con-
cerned. Testimony during the 1977 hearings which led to the Inspector
General Act of 1978 indicated that program officials frequently ignored
recommendations of auditors.125
More recently, former Comptroller General Elmer Staats told the
Legislation and National Security Subcommittee of the House Gov-
ernment Operations Committee that the GAO had identified more
than $4.3 billion in unresolved audit findings at 34 agencies two years
1251977 hearings, pp. 148-149, and 393-394.
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34
ago. A new survey early this year showed that these same agencies had
unresolved audit findings totaling $14.3 billion.128
GAO witnesses told the subcommittee that even when amounts are
collected because of audit recommendations, weaknesses in agency
accounting and collection systems often make it difficult to accurately
measure the savings.127
Measurable savings and recoveries
GAO witnesses told the subcommittee that the Inspectors General
reports questioned costs which had been agreed to by the agency con-
cerned totaling $1.4 billion. This amount is approximately 7 times the
costs of the IG offices. Not all of the $1.4 billion will be collected, of
course, but GAO personnel indicated they believed that a substantial
portion of it would be recovered.128
Robert Magee, Acting Inspector General at the Department of
Agriculture, told the subcommittee that his investigators had saved
or recovered an average of $90,000 per year each over a four-year pe-
riod and that auditors had averaged about $150,000 per year during
the same period. Magee told the subcommittee that these figures did
not include "soft" amounts which might or might not be collected.12?
Since the cost of hiring auditors and investigators?including bene-
fits and travel costs?was less than $50,000 per year, Magee estimated
that OIG auditors and investigators were returning to the taipayers
two or three times the amount it cost to hire and support them.18?
OMB officials were subsequently asked to review Mr. Magee's figures
and advise the subcommittee if they disagreed with his savings claims;
after reviewing Mr. Magee's figures, OMB advised the subcommittee
that ". . . we don't feel it is appropriate to dispute his calculations." 131
Despite solid evidence that reducing the stliff of the Agriculture De-
partment's Office of Inspector General would cost at least twice as
much in lost savings and recoveries as it would save in salaries and
related costs, Deputy OMB Director Harper defended a cut of 50
positions (from 930 to 880) for that office as "an appropriate level
of resources." 132
On an earlier occasion, Harper acknowledged that the Offices of
Inspector General were more than paying for themselves, commenting
that ". . . Certainly the Inspectors General and the audit function
has paid for itself many times over in the past and it will, I'm sure,
do even better in the future . . ."168
"Deterrent" value of IG work
In addition to measurable savings and recoveries, Offices of Inspec-
tor General undoubtedly benefit the taxpayers through the "deterrent"
'*Hearing for the Legisla non and National Security Subcommittee, House Committee
on Government Onerations, Feb. 25, 1981.
1271881 hearings. P. 171.
198' hearings. n. 170.
119 19R1 hearings, p. 90.
la? 1081 hearings. p. 100.
19R1 hearings, p. 148.
MO 1981 hearings. n. 118.
10 Briefing for renorters by Members of the Presidential Council on Integrity and Effi-
ciency, Mar. 26, 1981.
35
value of their activities. Well-publicized investigations, indictments
and convictions undoubtedly may discourage persons disposed to en-
gage in fraudulent activities from doing so or may encourage others
to discontinue such activities even if they have not been detected.
For example, an investigation by the Agriculture Department Office
of Inspector General led to conviction of a South Dakota man for
fraud in an emergency hay transportation program. After the convic-
tion, some 300 individuals repaid money obtained through overstated
transportation claims.134
XI. BUDGET PROCEDURES
Testimony of General Accounting Office
Witnesses from the General Accounting Office told the subcommittee
that "workload requirements imposed on the Inspectors General are
constantly growing, but the Inspectors General have not been given
the resources to meet these new demands." Moreover, they added,
"Government-wide hiring freeze and travel fund restrictions have
seriously affected their ability to obtain needed staff and have limited
the number of audits and investigations started and the scopes of both
ongoing and planned efforts." 135
The GAO witnesses further noted that lack of a separate line item
in the budget at some IG offices made it more difficult for Congress
to keep track of the resources actually available for auditing and
investigative activities.186
The witnesses also advocated giving more flexibility to Inspectors
General in the use of available resources, pointing out that there were
situations in which IG offices had funds available for hiring outside
auditors but could not use them to employ additional staff no matter
how much more efficient it might be.'-'
1" Information obtained from the South Dakota Agricultural Stabilization and Conserva-
tion Service office.
185 1981 hearings, pp. 176-177.
us 1981 hearings, p. 177.
120 1981 hearings, p. 178.
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APPENDIXES
APPENDIX I.-INSPECTOR GENERAL APPOINTMENTS-
CARTER ADMINISTRATION
.....
Date of an- Date of Date Termination
Department or agency and appointee nouncement nomination confirmed of service
Agriculture: Thomas McBride Feb. 28, 1979 Feb. 28, 1979 July 24, 1979 Jan. 20, 1981
Commerce: Mary Bass Mar. 8, 1979 Mar. 7,1979 July 2, 1979 Do.
Education: James Thomas June 12, 1980 June 13, 1980 Aug. 24, 1980 Do.
Energy: J. K. Mansfield Apr. 19, 1978 Apr. 20, 1978 May 3,1978 Do. '
HEW/HHS:
Thomas Morris._ Feb. 24, 1977 Feb. 24, 1977 Mar. 27, 19727 'Sept 28, 1979
Richard Lowe Aug. 5, 1980 Aug. 5, 1980
HUD: Charles Dempsey. Feb. 28, 1979 Feb. 28,1979 June 27, 19q Jan. 20,1981
Interior: June Brown do do May 10, 1979 Do.
Labor: Marjorie Knowles do do do 'May 2, 1980
State: No statutory position.
Transportation: Frank Sato Mar. 8, 1979 Mar. 7,1979 do Jan. 20, 1981
CSA: Frankie Freeman June 14,1979 June 14,1979 Oct 5, 1979 Do.
EPA: Inez Reid Sept 19,1979 Sept 20, 1979 Dec. 9,1979 Do.
GSA: Kurt Muellenberg Jan. 30, 1979 Mai. 1,1979 Apr. 11,1979 Do.
NASA: Eldon Taylor Mar. 8,1979 Mar. 7, 1979 July 30,1979 2 Dec. 31,1980
SBA: Paul Boucher do do June 27, 1979 Jan. 20, 1981
VA: Allan Reynolds Feb. 28, 1979 Feb. 28,1979 May 10, 1979 Do.
I Effective date of resignation.
2 Mr. Lowe's nomination was not acted upon by the Senate.
2 Effective date of resignation.
4 Effective date of retirement.
APPENDIX II.-INSPECTOR GENERAL APPOINTMENTS-
REAGAN ADMINISTRATION (As of July 21,1981 )
Department or agency and appointee
Date of an-
nouncement
Date of
nomination
Date
confirmed
Agriculture: John Graziano
May 6, 1981
June 9,
1981
Commerce: Sherman Funk
Apr. 22, 1981
June 1,
1981
Education: James Thomas
Mar. 26, 1981
do
July 17, 1981
Energy: James Richards
May 15, 1981
June 9,
1981
HHS: Richard Kusserow
Apr. 28, 1981
May 5,
1981
June 1,
1981
HUD: Charles Dempsey
Mar. 26, 1981
May 27,
1981
Interior: Richard Mulberry
June 1, 1981
June 1,
1981
July 10,
1981
Labor: Thomas McBride
Mar. 26, 1981
do
July 17,
1981
State: Robert Brown
do
Mar. 26,
1981
June 22,
1981
Transportation: Joseph Welsch
Apr. 21, 1981
May 29,
1981
July 17,
1981
CSA: William O'Connor
May 6, 1981
June 9,
1981
July 10,
1981
EPA:
Frank Sato'
Mar. 26, 1981
Vinton Lida 2
May 15, 1981
GSA: Joseph Sickon
May 6, 1981
June 1,
1981
NASA: June Brown
June 2, 1981
June 10,
1981
July 17, 1981
SBA: Paul Boucher
Mar. 26,1981
May 12,
1981
June 19, 1981
VA: Frank Sato
May 13, 1981
May 29,
1981
I Mr. Sato was subsequently nominated to be Inspector General at the Veterans' Administration.
2 Mr. tide withdrew before being nominated.
Note: Matthew Novick was nominated to be Inspector General at the Environmental Protection Agency on July 23, 1981.
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ADDITIONAL VIEWS OF HON. ELLIOTT H. LEVITAS
I think the report is constructive and well-documented. It does an
excellent job of calling attention to serious problems facing the statu-
tory Offices of Inspector General, and I fully support its adoption.
However, I think the report might well have been more critical of
both the Carter and Reagan Administrations.
While President Carter eventually supported enactment of legisla-
tion to establish statutory Offices of Inspector General in the major
civilian agencies, he did so only after it was clear that the Congress
would overwhelmingly approve such legislation over the opposition of
his Administration.
As recently as August of last year, President Carter stood aside
while the Department of Defense and the Department of Justice con-
tinued to oppose legislation to provide statutory Inspectors General
for those Departments.
Moreover, while President Carter and his associates frequently
pledged support for the statutory Offices of Inspector General after
they were established, very little was done to assure that the Inspectors
General had adequate resources to carry out their responsibilities.
President Reagan has assured the subcommittee that he had no in-
tention of "politicizing" the Offices of Inspector General when he re-
moved all incumbent IG's on January 20. The report does not question
the President's motives?nor do I.
Unfortunately, the circumstances surrounding the bizarre removal
of all incumbent IG's remain shrouded in mystery because the White
House was unwilling to permit the testimony of witnesses who had
first-hand knowledge of the facts. In this connection, it is interesting
to note that E. Pendleton James, Assistant to the President for Per-
sonnel, who was directly involved in the removals, formerly worked in
the Nixon 'White House under Fred Malek. In a December 23, 1971,
memorandum to H. R.. Haldeman concerning efforts to support Presi-
dent Nixon's re-election, Malek flatly stated that one of the basic ob-
jectives of his operation was to "politicize" the Executive Branch. In
order to accomplish this objective, Malek recommended that:
'We should take action to ensure that the day-to-day De-
partmental operations are conducted as much as possible to
support the President's re-election. Since it is impossible for
the White House to directly control day-to-day activities, we
must establish management procedures to ensure that the
Departments systematically identify opportunities end utilize
resources for maximum political benefit.
(38)
39
Malek further recommended that:
As this concept is refined further, I propose we stop calling
it "politicizing the Executive Branch," and instead call it
something like strengthening the Government's responsive-
ness.
President Reagan has been even more outspoken than President
Carter in condemning waste, fraud and abuse in Federal programs and
in pledging remedial action. But he has?so far?done little or nothing
to carry out his pledges by requesting adequate resources for the Offices
of Inspector General.
Moreover, although President Reagan has announced his support
for statutory Offices of Inspector General in the Defense and Justice
Departments, there is so far no indication that the President is using
his well-known powers of persuasion to help secure Senate passage of
legislation establishing such offices.
I hope that President Reagan will act without delay to make it un-
mistakably clear that his pledges of support for the statutory Offices
of Inspector General are not just empty words. He can do this by
moving rapidly to secure adequate resources for these offices and by
giving his full and unqualified support to legislation to provide statu-
tory IG's for the Departments of Defense and Justice.
0
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