Change The Focus of The Inspectors General

Change the Focus of the Inspectors General

Background

Congress established the Offices of Inspectors General (OIG's) in
response to growing public concern over fraud, waste, and abuse in the
federal government. Inspector General (IG) offices were organized to
perform external oversight of federal programs and operations. The
Inspector General Act of 1978 (IG Act) and subsequent amendments require
IG's to promote the efficiency, economy, and integrity of federal
programs. Audits and investigations attempt to identify fraud, waste,
and abuse, in part, by focusing on compliance with requirements--i.e.,
by focusing on whether program offices, federal employees, grantees,
contractors, and others connected to the government conform to laws and
regulations. The FY 1994 President's budget provided budget authority of
$1.3 billion and staffing of over 15,000 staff years for IG's.(1)

The IG community is diverse but closely knit. In 1981, the President's
Council on Integrity and Efficiency (PCIE) was established to encourage
cross-communication among the 26 presidentially-appointed IG's. The
Council is composed of the 26 IG's and the Deputy Director for
Management from the Office of Management and Budget. The Executive
Council on Integrity and Efficiency was established later for the 34
non-presidentially-appointed IG's for the same purpose.

An Evolving Role.

Many IG's place a major emphasis on monitoring agency compliance with
laws and regulatory requirements; however, no common vision exists
across all sixty OIG's.(2) While all perform compliance audits and
investigations, many also review annual financial statements of
agencies, and some have branched off into new areas, such as program
evaluation and collaborative program assessments.

The IG Act requires that compliance audits meet the financial and
performance auditing standards established by the Comptroller General of
the United States. A financial audit determines whether financial
reports and related items are accurately presented according to
established and specific financial compliance requirements.(3)
Performance audits include both "economy and efficiency" and "program"
audits. Economy and efficiency audits determine whether the entity is
acquiring, protecting, and using its resources economically and
efficiently. In addition, economy and efficiency audits pinpoint the
causes of inefficiencies or uneconomical practices and whether the
entity complied with laws and regulations controlling economy and
efficiency. Program audits are intended to assess program
accomplishments and compare them to intended results or benefits; the
effectiveness of organizations, programs, activities, or functions; and
the compliance of an entity with applicable laws and regulations.(4) The
IG's submit their findings in audit reports to their agency heads,
investigative reports to U.S. Attorneys, and semi-annual reports to
Congress summarizing both audit and investigative findings.(5) Many of
NPR's agency recommendations were initially found in these IG reports.
IG work is initiated through statute, legislative direction, agency head
requests, input from line managers, agency employees, and the IG offices
themselves.(6)

A few IG's have moved beyond compliance monitoring to develop more
collaborative, results-oriented relationships with management. For
example, the OIG at the Department of Health and Human Services (HHS)
established an office of evaluation and inspections that has developed
award-winning program evaluation expertise.(7) The HHS OIG conducts
"program inspections" using methods drawn from several disciplines,
including traditional program evaluations, policy analyses, fiscal
audits, program monitoring, compliance reviews, investigations, and
management analysis.

Need for Change

The majority of IG program audits focus on areas of non-compliance with
rules and regulations. As required by the IG Act, the IG's report
dollars recovered or better used based on these audits, and the number
of convictions obtained as a result of IG criminal investigations, in
semiannual reports to Congress. These reporting requirements, along with
previous administrations' requests for this type of information, have
encouraged the OIG's to allocate more resources to audits that resulted
in reports of non-compliance with process requirements.(8)

These compliance audits seek to foster program integrity by identifying
areas of non-compliance with statutes and policy, and by using negative
sanctions, sometimes targeted at individuals.(9) However, audits that
solely focus on compliance do not always foster better government. They
may, instead, spawn additional compliance reviews and recommendations
for more regulatory guidance, followed by still more process regulations
with which to be in non-compliance.

Adversarial Relationships.

Federal employees at several town meetings with the Vice President
voiced their beliefs that existing IG operations often create an
institutional culture that discourages entrepreneurship and innovation
due to excessive emphasis on compliance. Because the IG's' audit work
generally focuses on what is wrong, rather than creating a balanced
assessment of program results, agency personnel are often reluctant to
fully cooperate with IG staff for fear of being implicated in
wrongdoing.(10) As a consequence, IG's sometimes reinforce rules at the
expense of innovation and program effectiveness.

Shift in Focus Needed.

The IG's need to shift their focus in three aspects. First, IG's should
shift their strategic focus from conducting compliance reviews to
conducting evaluations of the effectiveness of the internal control
systems used by managers. For program management to be more effective
and accountable, managers must learn to self-monitor.  According to
Dwight Ink, the president of the Institute of Public Administration,

. . . a serious problem occurs where agency management no longer has
auditors under its control because they have been all shifted to the IG.
In such cases, agency heads and program managers have lost much of their
capability to utilize auditors effectively in managing their
organizations. Consider for a moment the frustration and the
vulnerability of an agency head who wishes to look quickly at an
emerging financial problem, but has to wait until it has grown into a
scandal because the auditors are under someone else's control and cannot
help since they are too busy responding to a constituent concern of a
member of Congress.(11)

Therefore, managers need to create their own capacity to audit internal
operations and ensure compliance--and not rely on the IG's to do it for
them.

Second, IG's should see their mission as not only to identify problems,
but to get them solved. Too often IG recommendations are based solely on
IG staff judgments. In a number of a cases, these are viewed as
unreasonable by program staff and no action is taken.  Therefore, IG's
need to build a collaborative, not adversarial, relationship with the
staffs being audited.

And third, to maintain objectivity, IG recommendations must be viewed by
program management as being free from outside influence. One impediment
to objectivity is the appearance of a conflict-of-interest when IG's
accept bonuses from the heads of the agencies they oversee.  Of the 26
presidentially-appointed IG's, those from prior positions in the Senior
Executive Service are entitled to bonuses under the Civil Service Reform
Act of 1978. At least nine IG's accepted bonuses between 1987 and 1989,
which could call into question their objectivity if called upon to
investigate the agency heads who approve the bonuses.

Cross References to Other NPR Accompanying Reports

Improving Financial Management, FM04: Increase the Use of Technology to
Streamline Financial Services; and FM05: Use the Chief Financial
Officers (CFO) Act to Improve Financial Services.

Executive Office of the President, EOP05: Reinvent OMB's Management
Mission.

Endnotes

1. This number includes 4,500 postal inspectors with IG and other postal
inspector responsibilities outside the purview of the IG Act.  While an
IG office for the Arms Control and Disarmament Agency was created in
1987, it is not staffed or funded. The IG for the Department of State
fulfills the OIG function of the Arms Control and Disarmament Agency
OIG.

2. By 1989, Congress had created 60 statutory OIG's. The IG Act and its
amendments established 26 presidentially-appointed IG's for larger
Executive Branch agencies, 33 non-presidentially-appointed IG's for
Designated Federal Entities (DFE), and one non- presidentially-appointed
IG for the Government Printing Office.

3. U.S. Comptroller General, Government Auditing Standards (Washington,
D.C.: U.S. General Accounting Office, 1988), p. G-4.

4. Ibid., p. G-9.

5. The CIA IG reports directly to the Director of Central Intelligence
who reports to the two congressional intelligence committees.

6. Many audits conducted by IG's are not discretionary. For example,
currently about 60 percent of the IG workload at the Department of
Veterans Affairs is pursuant to requests from congressmen, the
Secretary, veterans, and employees regarding suspected criminal
activity.

7. In November 1991, the HHS OIG Office of Evaluations and Inspections
received the prestigious Myrdal Award from the American Evaluation
Association for excellence in government service. In 1987, HHS received
the Elmer B. Staats Award for Program Evaluation from the American
Society for Public Administration, a commendation for leadership in
federal program evaluation.

8. Light, Paul C., Monitoring Government: Inspectors General and the
Search for Accountability (Washington, D.C.: The Brookings Institute,
1993), pp. 21-22.

9. Ibid., p. 15.

10. Ink, Dwight, Are Federal Oversight and Agency Management Out of
Sync? (New York: Institute of Public Administration, 1993), p. 2.

11. Ibid, p. 3.

12. This shift in focus should not be construed as limiting an IG's
authority or independence under the IG Act. There may be some value to
conducting compliance audits sporadically. Each IG should consciously
assess the potential benefit to be realized by the agency when a
compliance audit is contemplated.

13. See Mission-Driven, Results-Oriented Budgeting, BGT01:  Develop
Performance Agreements with Senior Political Leadership that Reflect
Organizational and Policy Goals.