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entitled 'Inspectors General: Improvements Needed in the Office of 
Inspector General's Oversight of the Denali Commission' which was 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

September 2014: 

Inspectors General: 

Improvements Needed in the Office of Inspector General's Oversight of 
the Denali Commission: 

GAO-14-320: 

GAO Highlights: 

Highlights of GAO-14-320, a report to congressional requesters. 

Why GAO Did This Study: 

The Commission was established to promote sustainable infrastructure 
improvement, job training, and other economic development services in 
Alaska. The Commission is a designated federal entity under the IG Act 
and is required to have an IG. IG oversight includes assessing the 
effectiveness and efficiency of agency programs and operations; 
providing leadership and coordination to detect fraud and abuse; and 
making recommendations to management to promote the economy, 
efficiency, and effectiveness of program and agency operations. GAO 
was asked to review the management and operations of the Commission's 
OIG. GAO's objectives were to (1) identify the resources appropriated 
to and expensed by the OIG and the OIG's work products reported for 
fiscal years 2011 through 2013, (2) assess the extent to which the OIG 
provided oversight of the Commission's programs and operations, (3) 
determine the extent to which the design and implementation of the 
OIG's policies and procedures and its work products were consistent 
with professional standards, and (4) identify alternatives for OIG 
oversight of the Commission. 

What GAO Found: 

The Denali Commission (Commission) Office of Inspector General (OIG) 
received budgetary resources of approximately $1 million from fiscal 
years 2011 through 2013. OIG budgetary resources increased 
approximately 7 percent from fiscal years 2011 through 2013, from 
approximately $310,000 to $331,000. During this period, the OIG 
consisted of one full-time employee, the Inspector General (IG), who 
obtained additional support through contracts with auditors and 
others. The OIG issued six semiannual reports to the Congress and 
conducted 12 inspections during fiscal years 2011 through 2013. 

The OIG provided limited oversight of the Commission's major programs 
(energy, transportation, health facilities, and training) and 
operations. GAO's analysis of the 12 inspections completed by the OIG 
found that the OIG provided oversight for $150,000 of the $167 million 
in grant funds disbursed during fiscal years 2011 through 2013. The 
$150,000 of grant funds inspected by the OIG represented less than 1 
percent of total grants awarded by the Commission during this period. 
The $167 million in disbursed grant funds are subject to the Single 
Audit Act, as applicable. While the OIG oversaw the Commission's 
annual financial statement audit, it did not conduct any performance 
audits or investigations related to the Commission's major programs 
and operations. 

The OIG did not have documented policies and procedures for its office 
operations and management that adhered to the Council of the 
Inspectors General on Integrity and Efficiency's Quality Standards for 
Federal Offices of Inspector General. The OIG did not implement the 
following four quality standards that are critical for the management 
and operations of the OIG: planning and coordinating; maintaining 
quality assurance; ensuring internal control; and receiving and 
reviewing allegations of potential fraud, waste, and abuse. For 
example, the OIG did not conduct any investigations for potential 
criminal prosecution. Also, the OIG did not prepare an annual work or 
strategic plan to document the office's planned activities. 
Additionally, the OIG's work products were not fully consistent with 
applicable professional standards, its own policies and procedures for 
inspections, or section 5 of the Inspector General Act of 1978, as 
amended (IG Act). For example, there was insufficient evidence in the 
OIG's inspection case files to support the conclusions and 
recommendations reported, and the semiannual reports prepared by the 
OIG did not provide information on the status of OIG recommendations 
as required by the act. 

If corrective actions are taken to mitigate the challenges faced by a 
one-person office, the current structure of the Commission OIG is one 
option for OIG oversight. GAO has also identified three alternative 
OIG oversight structures that could be applied to the Commission: (1) 
consolidation into a larger OIG; (2) consolidation into a regional 
commission OIG; and (3) division of OIG oversight responsibilities 
between two separate federal OIGs, such as a regional commission OIG 
or a larger OIG. 

The Commission IG resigned on December 28, 2013. On May 28, 2014, the 
Commission entered into an agreement with the Department of Commerce's 
OIG to provide oversight services pursuant to the IG Act. The 
agreement expires on September 30, 2014, but may be extended or 
amended by mutual written consent of the parties. 

What GAO Recommends: 

GAO is making nine recommendations to the OIG to improve the operating 
effectiveness and efficiency of the OIG, including steps that the OIG 
should take to develop and implement policies and procedures 
consistent with professional standards to provide oversight of 
Commission programs and operations. 

The Commission concurred with the report's conclusions and 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-14-320]. For more 
information, contact Beryl H. Davis at (202) 512-2623 or 
davisbh@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

OIG Budgeted Resources, Expenditures, and Work Products: 

OIG Provided Limited Oversight of the Commission's Major Programs and 
Operations: 

OIG Did Not Have Documented Policies and Procedures for Office 
Operations and Management, and Its Work Products Did Not Fully Adhere 
to Professional Standards: 

Alternate IG Oversight Structures at Other Federal Agencies: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Denali Commission: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Denali Commission Office of Inspector General Fiscal Years 
2011 through 2013 Budgeted Resources and Expenditures: 

Figure 2: Denali Commission Office of Inspector General Fiscal Years 
2011 through 2013 Budgeted Resources and Expenditure Categories: 

Figure 3: Number of Denali Commission (Commission) Office of Inspector 
General (OIG) Inspections Reported for Fiscal Years 2011 through 2013: 

Figure 4: Summary of Alternate Office of Inspector General (OIG) 
Oversight Structures' Potential Advantages and Disadvantages: 

Figure 5: Alternative Structures for Dividing Inspector General (IG) 
Responsibilities: 

Abbreviations: 

APR: Annual Performance Report: 

ARC: Appalachian Regional Commission: 

BBG: Broadcasting Board of Governors: 

CIGIE: Council of the Inspectors General on Integrity and Efficiency: 

COTR: Contracting Officer Technical Representative: 

DFE: designated federal entity: 

DOT: Department of Transportation: 

GAGAS: generally accepted government auditing standards: 

IG: Inspector General: 

IG Act: Inspector General Act of 1978, as amended: 

IPA: independent public accountant: 

MOU: memorandum of understanding: 

NTSB: National Transportation Safety Board: 

OIG: Office of Inspector General: 

OMB: Office of Management and Budget: 

USAID: U.S. Agency for International Development: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

September 18, 2014: 

The Honorable Lisa Murkowski: 
Ranking Member: 
Committee on Energy and Natural Resources: 
United States Senate: 

The Honorable Mark Begich: 
United States Senate: 

The Honorable Don Young: 
House of Representatives: 

The Denali Commission (Commission) was established by the Denali 
Commission Act of 1998[Footnote 1] to promote and provide sustainable 
infrastructure improvement, job training, and other economic 
development services that improve health and safety and economic self-
sufficiency within rural communities in Alaska. For fiscal years 2011, 
2012, and 2013, the Commission awarded grants totaling approximately 
$24 million, $19 million, and $14 million, respectively, and disbursed 
approximately $73 million, $55 million, and $39 million, respectively, 
under new and previously awarded grants. 

The Inspector General Act of 1978, as amended (IG Act),[Footnote 2] 
lists the Commission as a designated federal entity (DFE)[Footnote 3] 
and requires such entities to have an Office of Inspector General 
(OIG). 

Under the provisions of the IG Act, OIGs are responsible for, among 
other things, coordinating audits and investigations and are expected 
to provide a significant layer of oversight and accountability. Prior 
to 2005, the Appalachian Regional Commission (ARC) OIG provided 
oversight of the Denali Commission. In 2005, the Denali Commission 
Federal Cochairperson (Federal Cochair)[Footnote 4] appointed a Denali 
Commission Inspector General (IG),[Footnote 5] who served in that 
capacity until his resignation on December 28, 2013. 

The Commission entered into a memorandum of understanding (MOU) with 
the Office of Inspector General for the Department of Commerce on May 
28, 2014. The MOU established the terms and conditions for the 
provision of oversight services to the Commission pursuant to the IG 
Act and the Economy Act, as amended.[Footnote 6] This agreement 
terminates on September 30, 2014, but may be amended or extended at 
any time by mutual written consent of the parties. 

This report responds to your request that we review the management and 
operations of the Commission's OIG. Our objectives were to (1) 
identify the resources appropriated to and expensed by the OIG and the 
IG's work products reported for fiscal years 2011 through 2013, (2) 
assess the extent to which the OIG provided oversight of the 
Commission's major programs and operations, (3) determine the extent 
to which the design and implementation of the OIG's policies and 
procedures and its work products were consistent with applicable 
professional standards, and (4) identify alternatives for OIG 
oversight that exist in other federal agencies that could be applied 
to the Commission. To address our objectives, we did the following: 

* Reviewed the OIG-related budget justification documents, travel 
expense invoices, contractor expense invoices, and actual expenditure 
reports to determine the resources provided to the OIG and how those 
resources were used.[Footnote 7] 

* Compared the OIG's work products with the Commission's major 
programs and operations to determine the extent to which the OIG 
provided oversight of major Commission programs and operations. 
[Footnote 8] 

* Compared the OIG's policies and procedures to the Quality Standards 
for Inspection and Evaluation and the Quality Standards for Federal 
Offices of Inspector General both published by the Council of the 
Inspectors General on Integrity and Efficiency (CIGIE)[Footnote 9] and 
the IG Act. We also compared the OIG's work products to its policies 
and procedures, the CIGIE standards, and the IG Act. 

* Reviewed previous GAO work to identify federal OIGs that provide (or 
have provided) OIG oversight for smaller federal agencies, identified 
regional commissions with missions similar to that of the Commission, 
and consulted with Department of Commerce officials who were involved 
with appointing the Federal Cochair of the Commission. We also 
consulted with six OIGs at other federal agencies to identify existing 
oversight structures. 

Appendix I includes further details on our scope and methodology. 

We conducted this performance audit from May 2013 to September 2014 in 
accordance with generally accepted government auditing 
standards.[Footnote 10] Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to 
provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

Background: 

The Commission acts as a regional partner with state and local 
governments focusing on basic infrastructure needs and promoting 
economic growth for rural Alaska. Since the Commission's inception in 
1998, programs focused on developing transportation, energy, health 
facilities, economic development, training, and community facilities 
have received funding for infrastructure projects and to promote 
economic growth. Although congressional priorities have changed 
recently, as have funding levels, four major programs--energy, 
transportation, health facilities, and training--continued to receive 
grant funds. The Commission has historically received federal funding 
from several sources, including an annual appropriation, and is a 
party to allocation transfers with other federal agencies, such as 
transfers from the Federal Highway Administration under the Department 
of Transportation (DOT). The Commission also receives funds from the 
Trans-Alaska Pipeline Liability Fund. 

Commission's Programs and Funding: 

The Commission implements its major programs and operations by 
awarding grants for implementing specific projects in rural Alaska. 

* In fiscal year 2013, the Commission's energy program--which is 
focused on bulk fuel storage tank upgrades; community power generation 
and rural power systems upgrades; energy cost reduction projects; 
renewable, alternative, and emerging energy technologies; and power 
line interties--received approximately $14 million in federal funding, 
or 78 percent of the Commission's budgetary authority.[Footnote 11] 
The purpose of the program is to provide code-compliant bulk fuel 
storage and electrification with a goal of improving energy efficiency 
and decreasing energy costs. In fiscal year 2013, the energy program 
funded the completion of three bulk fuel facilities, two rural power 
system upgrades, energy efficiency upgrades in 13 communities, and one 
emerging energy technology project. 

* The transportation program divides funds between the roads and 
waterfront components of the program. One major objective of the roads 
component is to improve roads between rural communities. The 
waterfront component addresses port and harbor needs, such as regional 
port reconstruction and boat launch ramp construction. Since its 
establishment in fiscal year 2005, the transportation program has 
completed 86 road projects and 97 waterfront development projects. In 
addition, the Commission reported that as of March 2014, 24 road and 
waterfront development projects were in the planning, design, or 
construction phase. The transportation program was not included in the 
fiscal year 2013 Commission budget; however, approximately $15 million 
in previously awarded program grants were disbursed in fiscal year 
2013. 

* The health facilities program provides technical assistance as well 
as business planning for the facilities. This program was initially 
established to improve Alaska's health infrastructure through 
investments in renovations, repairs, and replacement of health 
facilities. Since the program's inception in fiscal year 1999, the 
Commission reported that in conjunction with the Department of Health 
and Human Services, it has contributed to 140 primary care clinics, 20 
elder supportive housing facilities, 49 primary care projects, and 20 
behavioral health facilities. The health facilities program was not 
included in the fiscal year 2013 Commission budget; however, 
approximately $7 million in previously awarded program grants were 
disbursed in fiscal year 2013. 

* The training program was established to provide training and 
employment opportunities to rural residents employed in the 
construction, maintenance, and operation of Commission projects. 
Program funds paid for courses, books, tools, tuition, lodging, and 
transportation. In fiscal year 2013, the Commission reported that 137 
people completed training courses or received certificates in 
construction, maintenance, and operation of Commission projects; 53 
obtained certificates in construction education; and 17 were placed in 
construction apprenticeships. In addition, the Commission partnered 
with the University of Alaska to assist 402 students in completing 
course work in community health aide, dental assistance, medical 
office/health care reimbursement, and medical lab-related skills. The 
training program was not included in the fiscal year 2013 Commission 
budget; however, approximately $1 million in previously awarded 
program grants were disbursed in fiscal year 2013. 

Inspector General's Role and Responsibilities: 

The IG Act establishes that one of the primary responsibilities of a 
federal agency's OIG is to keep the agency head and the Congress 
informed about problems and deficiencies related to the administration 
of the agency's programs and operations, corrective actions needed, 
and the progress of those corrective actions. The IG Act created 
independent IG offices at major departments and agencies with IGs who 
are appointed by the President, are confirmed by the Senate, and may 
be removed only by the President with advance notice to the Congress 
stating the reasons. In 1988, the IG Act was amended to establish IG 
offices in DFEs. OIGs of DFEs have many of the same authorities and 
responsibilities as the OIGs originally established by the IG Act, but 
with the distinction that IGs are appointed by and may be removed by 
their agency heads rather than by the President and that their 
appointment is not subject to Senate confirmation. 

The IG Act addresses the qualifications and expertise of the IGs, 
specifying that each IG appointment is to be made without 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 investigation. The 
fields in which an IG can have experience are intended to be 
sufficiently diverse so that many qualified people could be considered 
but are also limited to areas relevant to the tasks considered 
necessary. 

The Inspector General Reform Act of 2008 (Reform Act) amended the IG 
Act by adding requirements related to OIG independence and 
effectiveness.[Footnote 12] The Reform Act includes a provision 
intended to provide additional OIG independence through the 
transparent reporting of OIG budget requests. This provision requires 
an agency's submission for the President's budget to separate the 
OIG's budget request from the agency's and include any comments 
provided by the OIG with respect to the proposal. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(Dodd-Frank Act) further amended the IG Act,[Footnote 13] specifying 
that for DFEs with a board or commission, the board or commission is 
the head of the DFE for purposes of IG appointment, general 
supervision, and reporting under the IG Act.[Footnote 14] Furthermore, 
if the DFE has a board or commission, the IG Act requires the OIG to 
report organizationally to the entire board or commission as the head 
of the DFE. In addition, the Dodd-Frank Act requires the written 
concurrence of a two-thirds majority of the board or commission to 
remove an IG. Prior to this provision, most OIGs at commission or 
board led DFEs reported to, and were subject to removal by, the 
individual serving as head of the commission or board. 

OIG Budgeted Resources, Expenditures, and Work Products: 

OIG Budgeted Resources and Actual Expenses: 

Our analysis of the budget information provided by the Commission's 
Chief Financial Officer (CFO) showed that the Commission allocated 
budgetary funds for the OIG of approximately $1 million over the 3-
year period from fiscal years 2011 through 2013. The total budgetary 
resources of the Commission OIG increased from fiscal years 2011 
through 2013, from $310,000 to $331,000, for an increase of about 7 
percent (see figure 1). During this 3-year period, the OIG consisted 
of one full-time employee, the IG, who obtained additional support 
through contracts with both auditors and others to assist with his 
oversight responsibilities, such as interviews related to ongoing 
inspections, and to mediate disputes between Commission officials and 
grant recipients regarding grant payments. Based on the budget and 
expenditure information we received from the Commission, we found that 
during fiscal years 2011 through 2013, the OIG spent an average of 84 
percent per fiscal year of the budgetary resources provided to his 
office. The Commission reported that the budgeted amounts not used by 
the OIG within the fiscal year to which they were allocated were 
returned to the Commission and were available for the Commission's 
use. The OIG did not carry over unused funding into the next fiscal 
year. 

Figure 1: Denali Commission Office of Inspector General Fiscal Years 
2011 through 2013 Budgeted Resources and Expenditures: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2011; 
Budgeted resources: $310,000; 
Actual expenses and obligations: $273,000. 

Fiscal year: 2012; 
Budgeted resources: $329,000; 
Actual expenses and obligations: $289,000. 

Fiscal year: 2013; 
Budgeted resources: $331,000; 
Actual expenses and obligations: $255,000. 

Source: Denali Commission (rounded to the nearest thousand). 
GAO-14-320. 

[End of figure] 

Our review of the OIG's use of the resources provided in fiscal years 
2011 through 2013 showed that about 59 percent of the OIG's annual 
budget was for salary and benefits for the IG. The rest of the annual 
budget was for the Commission's annual financial statement audit (13.4 
percent), travel (12.4 percent), other contract services (11.7 
percent), training (3.1 percent), supplies (0.3 percent), and the 
CIGIE assessment (0.2 percent).[Footnote 15] (See figure 2.) 

Figure 2: Denali Commission Office of Inspector General Fiscal Years 
2011 through 2013 Budgeted Resources and Expenditure Categories: 

[Refer to PDF for image: vertical bar graph] 

Salary and benefits: 
Budgeted resources: $190,000; 
Actual expenses and obligations: $177,000. 

Financial statement contract; 
Budgeted resources: $43,000; 
Actual expenses and obligations: $43,000. 

Travel: 
Budgeted resources: $40,000; 
Actual expenses and obligations: $24,000. 

Other contracts: 
Budgeted resources: $64,000; 
Actual expenses and obligations: $24,000. 

Training: 
Budgeted resources: $10,000; 
Actual expenses and obligations: $5,000. 

Supplies; 
Budgeted resources: $1,000; 
Actual expenses and obligations: $1,000. 

Council of the Inspectors General on Integrity and Efficiency
assessment; 
Budgeted resources: $1,000
Actual expenses and obligations: 0. 

Source: Denali Commission (rounded to the nearest thousand). 
GAO-14-320. 

[End of figure] 

Commission OIG's Reported Work Products: 

During fiscal years 2011 through 2013, the Commission OIG issued six 
semiannual reports to the Congress, as required by the IG Act, and 
conducted 12 inspections.[Footnote 16] The 12 inspections conducted by 
the Commission OIG reviewed various issues, such as management 
policies and practices and compliance with applicable laws. The OIG 
did not perform any audits or investigations. The IG told us that for 
the 12 inspections he conducted, he used the following methods to 
communicate the results of completed inspections: 

* written inspection reports available on the OIG's website, 

* inspection results included in the semiannual reports to the 
Congress, and: 

* inspection results included in the Commission's annual agency 
financial reports (see figure 3).[Footnote 17] 

Figure 3: Number of Denali Commission (Commission) Office of Inspector 
General (OIG) Inspections Reported for Fiscal Years 2011 through 2013: 

[Refer to PDF for image: illustrated table] 

Inspections posted on the OIG's website: 
Fiscal year 2011: 0; 
Fiscal year 2012: 3; 
Fiscal year 2013: 2; 
Total: 5. 

Inspections reported in the OIG's semiannual reports to the Congress: 
Fiscal year 2011: 1; 
Fiscal year 2012: 4; 
Fiscal year 2013: 0; 
Total: 5. 

Inspections reported in the agency financial reports: 
Fiscal year 2011: 0; 
Fiscal year 2012: 2; 
Fiscal year 2013: 0; 
Total: 2. 

Total inspections: 
Fiscal year 2011: 1; 
Fiscal year 2012: 9; 
Fiscal year 2013: 2; 
Total: 12. 

Source: GAO prepared based upon an analysis of Commission OIG data. 
GAO-14-320. 

Note: According to the Commission Chief Financial Officer, because 
there was no Commission Federal Cochair from January 4, 2014, to April 
20, 2014, and the Office of Management and Budget's deadline for 
submitting the fiscal year 2013 agency financial report had passed, 
the Commission will not issue a fiscal year 2013 agency financial 
report. 

[End of figure] 

OIG Provided Limited Oversight of the Commission's Major Programs and 
Operations: 

During fiscal years 2011 through 2013, the OIG provided limited 
oversight of the Commission's major programs and operations. Per the 
IG Act, OIG oversight includes assessing the effectiveness and 
efficiency of agency programs and operations; providing leadership and 
coordination to detect fraud and abuse; and making recommendations to 
management to promote the economy, efficiency, and effectiveness in 
the administration of these programs. It also includes providing a 
means for keeping the head of the agency and the Congress informed 
about problems and deficiencies relating to program administration and 
agency operations and the necessity for, and progress of, corrective 
action. The 12 OIG inspections provided oversight of less than 1 
percent of the total grant dollars the Commission awarded during 
fiscal years 2011 through 2013. The OIG contracted with an independent 
public accountant (IPA) to conduct the Commission's annual financial 
statement audit but did not follow up on the IPA's concerns related to 
grant monitoring. 

Furthermore, the OIG did not have a risk-based annual work plan or 
policies and procedures to identify the Commission's major programs 
and operations that needed OIG oversight. Without adequate OIG 
oversight of the Commission's programs and operations, including 
grants, the OIG is unable to reasonably ensure accountability over 
federal funds. The OIG is also limited in its ability to minimize the 
Commission's risk of fraud, waste, and abuse occurring in its major 
programs and operations. 

OIG Conducted Limited Inspections of the Commission's Programs: 

The Commission's OIG oversight covered a small percentage of the 
Commission's programs. During fiscal years 2011 through 2013, the 
Commission's major programs were energy, transportation, health 
facilities, and training. These programs represent approximately 84 
percent of funds granted by all Commission programs. According to the 
Commission's CFO, during fiscal years 2011 through 2013, the agency 
awarded grants totaling $56 million and disbursed $167 million on both 
new and previously awarded grants.[Footnote 18] 

Our analysis of the 12 inspections completed by the OIG over that 
period found that 5 of these inspections focused on the Commission's 
grant administration and 7 focused on the agency's operations. Of the 
5 grant-related inspections, only 2 of these inspections clearly 
identified specific grant amounts disbursed by the Commission that 
were examined by the OIG. In these 2 inspections, the OIG provided 
oversight for $150,000 of grant funds disbursed for training programs, 
all of which were reported in fiscal year 2012. The $150,000 of grant 
funds inspected by the OIG represented less than 1 percent of the 
total grants awarded by the Commission during fiscal years 2011 
through 2013. We found that 3 of the OIG's inspection reports examined 
various complaints and issues related to the grants process, such as 
assessing whether a grant applicant was improperly denied a subaward 
(grant preaward stage), assessing whether certain agency policy 
resulted in the unfair treatment of a grantee (grant implementation 
stage), and determining whether a grantee was treated unfairly because 
of a specific Commission policy and legal requirements that were 
attached to a grant (grant implementation stage). However, the OIG did 
not conduct any inspections that assessed the effectiveness and 
efficiency of the agency's other major programs--energy, 
transportation, and health facilities--or make recommendations to 
management promoting the economy, efficiency, and effectiveness in the 
administration of these programs, which is one of the major OIG goals 
established in the IG Act. 

The other 7 inspections completed by the OIG over that period focused 
on (1) whether agency operations complied with applicable laws and 
regulations, (2) the Commission's authority for accepting funds from 
nonfederal sources, and (3) potential agency restructuring. 

According to the IG, his workload was driven by requests from four 
sources: the Federal Cochair, aided by the CFO; Office of Management 
and Budget (OMB) officials; the House Committee on Oversight and 
Government Reform; and three Senate Oversight Committees (Finance, 
Budget, and Homeland Security and Governmental Affairs). The training 
grants he inspected were based on referrals from the Federal Cochair. 

Under the IG Act, OIGs are responsible for coordinating audits and 
investigations. Further, OIGs are required by the IG Act to adhere to 
professional standards developed by CIGIE, to the extent permitted by 
law and not inconsistent with applicable auditing standards. The 
Commission OIG's primary vehicle for oversight was the inspection. 
CIGIE's Quality Standards for Inspection and Evaluation defines an 
inspection as a systematic and independent assessment of the design, 
implementation, or results of an agency's operations, programs, or 
policies. The inspection function at each agency is tailored to its 
unique mission; is not overly prescriptive; and may be used by the 
agency to provide factual and analytical information, measure 
performance, identify savings and funds put to better use, or assess 
allegations of fraud, waste, abuse and mismanagement. The Commission 
OIG's policies and procedures for inspections specifically stated that 
the Commission OIG "will conduct its interviews of agency issues 
through an 'inspection' methodology that conforms to the CIGIE quality 
standards for that procedure."[Footnote 19] The OIG was assisted by a 
contractor in conducting these 12 inspections. 

OIG Oversaw the Commission's Annual Financial Statement Audit but Did 
Not Conduct Audits or Investigations of Commission Programs: 

As part of its oversight duties, the OIG is responsible for selecting 
and overseeing the IPA responsible for performing the Commission's 
annual financial statement audit.[Footnote 20] These responsibilities 
include providing technical advice, serving as the agency liaison to 
the IPA, and ensuring that the audit was completed timely and in 
accordance with generally accepted government auditing standards. As 
the agency's Contracting Officer's Technical Representative (COTR) for 
the Commission's annual financial statement audit,[Footnote 21] the IG 
developed detailed policies and procedures and completed a detailed 
audit monitoring plan documenting the OIG's oversight activities. The 
IG also reviewed the IPA's workpapers at key phases during the audit 
process to determine whether the fieldwork completed supported the 
IPA's conclusions.[Footnote 22] We found that the OIG had practices in 
place to effectively monitor the annual financial statement audit 
conducted by the IPA. 

In fiscal years 2011 through 2013, the IPA reported several concerns 
to the Commission about the agency's grants monitoring activities. A 
sample of grant-funded projects reviewed by the IPA found that the 
Commission did not (1) have a follow-up process to determine whether 
grants were used as intended; (2) include the review of the grantee's 
single audit reports as part of its grants monitoring practices; (3) 
review past performance (and current status of previous projects) to 
ensure that the grant was used as intended, prior to approval of new 
grants; and (4) assess the extent to which it could recapture grant 
amounts from grantees as a result of substantial changes in the use of 
these grants. Although the OIG effectively monitored the IPA 
performing the Commission's annual financial statement audit, we found 
that the OIG did not focus its oversight efforts after the audit had 
been completed to ensure that the Commission addressed the IPA's 
concerns with the agency's grants monitoring practices. 

We found that the OIG issued inspections related to some of the 
Commission's major programs and operations; however, the OIG did not 
conduct any performance audits related to these same programs and 
operations.[Footnote 23] There are fundamental differences between 
inspections and audits. Inspections are narrower and more focused in 
scope than audits and they are also significantly less rigorous than 
an audit conducted in accordance with Government Auditing Standards. 
[Footnote 24] Audits provide essential accountability and transparency 
over government programs. 

According to the IG, he leveraged his resources (one full-time 
employee) to do the most good. The IG stated that his office was not 
staffed at a level that would support audits; he decided inspections 
were an effective method for leveraging what he had and responding to 
very specific issues that were often complaint driven. However, 
because the OIG did not conduct audits of the agency's programs and 
operations, the Commission did not have the benefit of the broader 
scope and more rigorous standards of audits to help ensure effective 
grant oversight, accountability for grant funds, and the proper use of 
taxpayer dollars. 

We also found that the OIG did not conduct investigations. OIG 
investigations help federal agency managers strengthen program 
integrity and use funds more effectively and efficiently. 
Investigations vary in purpose and scope and may involve alleged 
violations of criminal or civil laws as well as administrative 
requirements. The focus of an investigation can include the integrity 
of programs, operations, and personnel in agencies at federal, state, 
and local levels of government. According to CIGIE's Quality Standards 
for Investigations,[Footnote 25] areas investigated by the OIG may 
also focus on issues related to procurement and grant fraud schemes; 
environment, safety, and health violations; benefits fraud; the 
background and suitability of individuals for employment or a security 
clearance designation; whistle-blower retaliation; and other matters 
involving alleged violations of law, rules, regulations, and policies. 
Some investigations address allegations of both civil and criminal 
violations, ranging in significance from a misdemeanor to a felony, 
while others could involve administrative misconduct issues. CIGIE's 
Quality Standards for Investigations also state that investigations 
can lead to criminal prosecutions and program exclusions; recovery of 
damages and penalties through criminal, civil, and administrative 
proceedings; and corrective management actions. Without conducting 
investigations, the Commission OIG was limited in its ability to 
identify criminal, civil, and administrative activities of fraud or 
misconduct related to Commission programs and operations. 

OIG Did Not Have Documented Policies and Procedures for Office 
Operations and Management, and Its Work Products Did Not Fully Adhere 
to Professional Standards: 

Our review of the OIG's policies and procedures in place during fiscal 
years 2011 through 2013 found that the OIG did not document its 
policies and procedures for its management and operations as an OIG. 
CIGIE's Quality Standards for Federal Offices of Inspector General 
sets forth the overall quality framework to which OIGs must adhere, to 
the extent permitted under law. Although the OIG did not document its 
policies and procedures for managing and operating its office, we 
identified some quality standards that were implemented, while others 
were not. 

Our review of the OIG's inspections issued during fiscal years 2011 
through 2013 found that the inspections did not fully adhere to 
CIGIE's Quality Standards for Inspection and Evaluation. While the OIG 
had documented policies and procedures for inspections, we found that 
the design and implementation of the inspection policies and 
procedures did not fully adhere to professional standards. Our review 
also found that the semiannual reports submitted to the Congress by 
the IG did not include required information in accordance with the 
reporting requirements of the IG Act. 

Policies and Procedures for OIG Office Operations and Management Were 
Not Documented and Did Not Fully Adhere to Professional Standards: 

The Commission OIG did not have documented policies and procedures for 
conducting office operations that adhered to CIGIE's Quality Standards 
for Federal Offices of Inspector General. These quality standards are 
used as guidance by OIGs in the operation of federal OIGs and consist 
of (1) ethics, independence, and confidentiality; (2) professional 
standards; (3) ensuring internal control; (4) maintaining quality 
assurance; (5) planning and coordinating; (6) communicating the 
results of OIG activities; (7) managing human capital; (8) reviewing 
legislation and regulations; and (9) receiving and reviewing 
allegations. 

Although the Commission OIG did not document its policies and 
procedures for its operations and management, we found that the OIG 
did implement, to some extent, certain standards in CIGIE's Quality 
Standards for Federal Offices of Inspector General. Specifically, the 
Commission OIG implemented, to some extent, the following five quality 
standards: ethics, independence, and confidentiality; professional 
standards; communicating results of OIG activities; managing human 
capital; and reviewing legislation and regulations. However, the 
Commission OIG did not implement the following four quality standards 
that are critical for the management and operations of the OIG: 
planning and coordinating, maintaining quality assurance, ensuring 
internal control, and receiving and reviewing allegations. The extent 
to which the IG implemented these quality standards is discussed below. 

Ethics, independence, and confidentiality. The CIGIE quality standard 
for ethics, independence, and confidentiality states that the IG and 
OIG staff shall adhere to the highest ethical principles by conducting 
their work with integrity. Objectivity, independence, professional 
judgment, and confidentially are all elements of integrity. 

We found no evidence to indicate that the IG did not adhere to CIGIE's 
quality standard to ethically conduct his work and no evidence to 
indicate the IG did not adhere to CIGIE's quality standards for 
independently performing his duties. We also found no evidence to 
indicate that the IG did not safeguard the identity of confidential 
sources and protect privileged, confidential, and national security or 
classified information in compliance with applicable laws, 
regulations, and professional standards. 

Professional standards. The CIGIE quality standard for professional 
standards states that each OIG shall conduct, supervise, and 
coordinate its audits, investigations, and inspections in compliance 
with applicable professional standards. We found that the Commission 
OIG provided some evidence for adhering to professional standards. 
Although the Commission OIG's inspection reports did not always adhere 
to CIGIE's Quality Standards for Inspection and Evaluation, we found 
that the IG did complete inspections. Also, the OIG's monitoring of 
the contract with the IPA hired to conduct the Commission's annual 
financial statement audit documented the OIG's detailed oversight and 
coordination of this agency requirement, providing evidence of 
adherence to Government Auditing Standards. 

Ensuring internal control. The CIGIE standard for ensuring internal 
control states that each IG and OIG staff shall direct and control OIG 
operations consistent with Standards for Internal Control in the 
Federal Government.[Footnote 26] These standards require that internal 
control be part of the OIG's management infrastructure, serve as a 
continuous built-in component of operations effected by people, and 
provide reasonable assurance that the OIG's objectives are met. The 
internal control structure includes the control environment, risk 
assessment, control activities, information and communication, and 
monitoring. Control activities are policies, procedures, techniques, 
and mechanisms that help ensure that the OIG's directives are carried 
out. 

Effective internal control also assists the OIG in managing change to 
cope with shifting environments and evolving demands. An internal 
control structure is continually assessed and evaluated to ensure that 
it is well designed and operated, is appropriately updated to meet 
changing conditions, and provides reasonable assurance that objectives 
are being achieved. The OIG should design internal control activities 
to contribute to its mission, goals, and objectives. Specifically, 
control activities include a wide range of diverse activities, such as 
approvals, authorizations, verifications, reconciliations, performance 
reviews, security activities, and the production of records and 
documentation. 

We found that the Commission OIG lacked critical elements of an 
effective internal control structure. For example, the OIG did not 
conduct a risk assessment to determine which agency programs or 
operations to evaluate. Instead, the IG relied on the input from 
Commission officials and congressional staff to determine which 
programs and operations to evaluate. The OIG also lacked policies and 
procedures for managing and operating its office, which would have 
provided the needed guidance to ensure that the OIG's directives were 
carried out efficiently and effectively. While we acknowledge that the 
OIG is an office of one, independently determining which programs or 
agency operations to evaluate as well as developing policies and 
procedures for the OIG's management and operations are elements of 
internal control that are still achievable by a small office. Without 
an effective internal control structure, it is difficult for an OIG to 
ensure its own effective and efficient management and operations and 
safeguard its assets. 

Maintaining quality assurance. The CIGIE standard for maintaining 
quality assurance states that each OIG shall establish and maintain a 
quality assurance program to ensure that work performed adheres to 
established OIG policies and procedures; meets applicable professional 
standards; and is carried out economically, efficiently, and 
effectively. Because OIGs evaluate how well agency programs and 
operations are functioning, they have a special responsibility to 
ensure that their own operations are as effective as possible. The OIG 
quality assurance program is an evaluative effort conducted by 
reviewers external to the units or personnel being reviewed to ensure 
that the overall work of the OIG meets appropriate standards. The 
quality assurance program has an internal and an external component. 
Furthermore, organizations that perform audits are subject to a peer 
review at least once every 3 years.[Footnote 27] Audits performed in 
accordance with Government Auditing Standards must provide reasonable 
assurance that the audit organization and its personnel are consistent 
with professional standards and applicable legal and regulatory 
requirements. 

Internal quality assurance reviews can include reviews of all aspects 
of the OIG's operations and are distinct from regular management and 
supervisory activities, comparisons, and other activities by OIG staff 
performing their duties. External quality assurance reviews provide 
OIGs with added assurance regarding their adherence to prescribed 
standards, regulations, and legislation through a formal objective 
assessment of OIG operations. OIGs are strongly encouraged to have 
external quality assurance reviews of audits, investigations, 
inspections, evaluations, and other OIG activities. While the nature 
and extent of an OIG's quality assurance program depends on a number 
of factors--such as the OIG size, the degree of operating autonomy 
allowed its personnel and its offices, the nature of its work, its 
organization structure, and appropriate cost-benefit considerations--
CIGIE standards state that each OIG shall establish and maintain a 
quality assurance program. 

The Commission OIG did not have a quality assurance program and had 
not developed policies and procedures to help ensure quality 
assurance. The Commission IG told us that peer reviews were only 
required if an OIG had conducted audits, and because his office did 
not perform audits, it was not subject to this quality assurance 
requirement. Conversely, the Commission OIG inspection and semiannual 
reports could have been subjected to an internal quality assurance 
review, an external quality assurance review, or both. The Commission 
OIG provided draft inspection and semiannual reports to the Federal 
Cochair and the other commissioners, providing management an 
opportunity to comment on the drafts prior to final issuance. However, 
the Federal Cochair and commissioners do not qualify as external 
quality assurance reviewers because they are directly involved in the 
activities or programs being reviewed. In addition, they may not be 
familiar with applicable professional standards that govern OIG-issued 
work products. 

Without documented policies and procedures for maintaining a quality 
assurance program, the OIG could not ensure that its management and 
operations adhered to the CIGIE standards or complied with the IG Act. 
In addition, the risk is significantly increased that issued work will 
not meet established standards of performance, including applicable 
professional standards, or be carried out economically, efficiently, 
and effectively.[Footnote 28] While we acknowledge that the Commission 
OIG is an office of one and maintaining quality assurance under these 
circumstances presents challenges, adherence to this quality standard 
is required. 

Planning and coordinating. The CIGIE standard for planning and 
coordinating states that each OIG shall maintain a planning system 
assessing the nature, scope, and inherent risks of agency programs and 
operations.[Footnote 29] It is this assessment that forms the basis 
for establishing strategic and performance plans, including goals, 
objectives, and performance measures to be accomplished by the OIG 
within a specific time period. Some of the elements of the planning 
process include (1) using a strategic planning process that carefully 
considers current and emerging agency programs, operations, risks, and 
management challenges; (2) developing a methodology and process for 
identifying and prioritizing agency programs and operations as 
potential subjects for audit, investigation, inspection, or 
evaluation; and (3) using an annual performance planning process that 
identifies the activities to audit, investigate, inspect, or evaluate 
and translates these priorities into outcome-related goals, 
objectives, and performance measures. Strategic and annual work plans 
are useful tools in documenting the IG's strategic vision for 
providing leadership for activities designed to promote economy, 
efficiency, and effectiveness for an entity's programs and operations. 

We found that the OIG did not prepare an annual work plan or strategic 
plan. Instead, an informal and undocumented planning process was used 
by the IG and Federal Cochair that involved routine meetings, e-mails, 
and conversations. Without an annual work plan or strategic plan, the 
Commission OIG is limited in its ability to ensure that the oversight 
it provided was relevant, timely, and responsive to the priorities to 
the Commission. Further, without a risk-based approach for oversight 
that includes identifying and prioritizing agency programs and 
operations as potential subjects for audit, investigation, inspection, 
or evaluation, the OIG did not have a road map to help guide the 
general direction and focus of its work to ensure appropriate 
oversight of the Commission's major programs. 

Communicating results of OIG activities. The CIGIE quality standard 
related to communicating the results of OIG activities states that the 
OIG shall keep agency management, program managers, and the Congress 
fully and currently informed about appropriate aspects of OIG 
operations and findings. The OIG should also assess and report to the 
Congress, as appropriate, the OIG's strategic and annual performance, 
as well as the performance of the agency it oversees. Furthermore, the 
OIG is responsible for reporting promptly to the Attorney General 
whenever the IG has reasonable grounds to believe there has been a 
violation of federal criminal law. The IG and Federal Cochair told us 
that they did discuss the areas the IG planned to inspect. The OIG 
communicated the results of its activities by submitting semiannual 
reports to the Congress, ensuring that inspection reports were 
available on the OIG's website, and meeting with congressional staff 
to discuss various issues. 

Managing human capital. The CIGIE quality standard for managing human 
capital states that the OIG should have a process to ensure that OIG 
staff possess the core competencies needed to accomplish the OIG's 
mission. Because the Commission OIG consisted of the IG and no staff, 
standards for managing human capital are applicable only to the 
Commission IG. The IG provided documentation verifying that as a 
certified public accountant and attorney in the state of Alaska, he 
had met the continuing education requirements for these designations 
and possessed the core competencies needed to accomplish the OIG's 
mission. 

Because the Commission OIG was an office of one, the IG used the 
services of others to assist with his oversight duties. As discussed 
earlier, he contracted with an IPA for the agency's annual financial 
statement audit and contracted with a retired investigator to assist 
with inspections. We found that the OIG had a process to ensure that 
these contractors possessed the needed skills for the services they 
provided. 

Reviewing legislation and regulations. The CIGIE quality standard for 
reviewing legislation and regulations states that the OIG shall 
establish and maintain a system for reviewing and commenting on 
existing and proposed legislation, regulations, and directives that 
affect both the program and operations of the OIG's agency or the 
mission and functions of the OIG. While the OIG had not established a 
documented system for the steps it followed for reviewing legislation 
and regulations, we found an assessment of relevant Commission-related 
legislation and regulations in the OIG's semiannual reports to the 
Congress. 

Receiving and reviewing allegations. The CIGIE quality standard for 
receiving and reviewing allegations states that the OIG shall 
establish and follow policies and procedures for receiving and 
reviewing allegations. This process should ensure that appropriate 
disposition, including appropriate notification, is made for each 
allegation. Furthermore, the IG Act requires each OIG to establish a 
direct link on the OIG website for individuals to anonymously report 
fraud, waste, and abuse. 

The Commission OIG did not have an OIG hotline link on its website to 
serve as a mechanism for receiving and reviewing allegations, as 
appropriate. The IG provided his e-mail address and telephone number 
on the Commission's OIG website. He reported that there was no OIG 
hotline link on the website because the Commission only had about 15 
employees and a tip through an OIG hotline was not necessarily how 
employees made contact with the OIG. According to the IG, contact with 
the Commission's small workforce was primarily through e-mails, phone 
calls, and group teleconferences. 

OIG hotlines exist to elicit information from federal employees, 
contractors, and the general public that furthers an OIG's mission to 
(1) promote effectiveness, efficiency, and economy in its 
organization's programs and operations and (2) prevent and detect 
fraud, waste, and abuse in such programs and operations. Accordingly, 
hotlines play a critical role in the work of OIGs, because an OIG can 
only investigate, refer, or otherwise handle matters of which it is 
aware. Agency employees, contractors, and members of the public who 
make reports to an OIG via its hotline are an important resource 
because they can provide the OIG with notification of or insider 
information about potential problems.[Footnote 30] 

Hotlines have been used in organizations as a means for individuals 
fearing retaliation to seek remedies for problems anonymously within 
the organization. In recent years, there has been increased interest 
in the use of OIG hotlines as the principal mechanism for reporting 
and detecting fraud, waste, and abuse. Entities both within and 
outside the IG community have studied OIG hotlines and their important 
impact on the effectiveness of the IG community. In addition to 
detecting fraud, waste, and abuse, hotlines are used by some OIGs to 
identify agency programs or operations as potential subjects for audit 
or investigation. However, the Commission OIG did not conduct any 
investigations for criminal prosecution, and there was no supporting 
evidence of the disposition of referrals or tips received. 

Without an established OIG hotline, with its protection of anonymity, 
it may be difficult for agency employees, contractors, and the general 
public to report insider information about potential problems at the 
Commission. 

OIG Inspection and Semiannual Reports Generally Did Not Fully Adhere 
to Professional Standards: 

We reviewed the OIG's work products, which consisted of inspection 
reports and semiannual reports issued during fiscal years 2011 through 
2013, and their associated policies and procedures. Our evaluation of 
the OIG's written policies and procedures for inspections found that 
they did not include guidance for all of the 14 CIGIE inspection 
standards and that there were deficiencies in the guidance that was 
included. In addition, we found that the inspection reports the OIG 
issued during fiscal years 2011 through 2013 did not fully adhere to 
applicable CIGIE inspection standards. Finally, we found that the 
semiannual reports issued by the OIG during fiscal years 2011 through 
2013 did not fully comply with the reporting requirements per the IG 
Act. 

OIG Inspection Policies and Procedures and Inspection Reports Did Not 
Generally Adhere to CIGIE Standards: 

CIGIE's Quality Standards for Inspection and Evaluation promulgates 14 
sets of criteria for performing inspections: (1) competency; (2) 
independence; (3) professional judgment; (4) quality control; (5) 
planning; (6) data collection and analysis; (7) evidence; (8) records 
maintenance; (9) timeliness; (10) fraud, other illegal acts, and 
abuse; (11) reporting; (12) follow-up; (13) performance management; 
and (14) working relationships and communication. CIGIE inspection 
standards state that it is the responsibility of each OIG that 
conducts inspections to develop internal written policies and 
procedures to ensure that all work adheres to the standards and is in 
compliance with the IG Act. The IG Act requires OIGs to adhere to 
these standards to the extent permitted under law and not inconsistent 
with applicable auditing standards. The Commission OIG had established 
written policies and procedures that provide guidance for 7 of the 14 
CIGIE standards; however, our review of the guidance found 
deficiencies. 

Regarding implementation of the CIGIE inspection standards, we 
reviewed the OIG's 12 inspections reported from fiscal years 2011 
through 2013 and found documentary evidence that some CIGIE standards, 
including some that were not included in the OIG's policies and 
procedures, were implemented. However, inspections were not conducted 
in full accordance with the standards. 

Standards Not Included in the OIG's Policies and Procedures for 
Inspections: 

The following standards were not included in the OIG's policies and 
procedures but were implemented to some extent in the conduct of 
inspections. 

Data collection and analysis. CIGIE inspection standards state that 
the collection of information and data focuses on the function being 
inspected, consistent with inspection objectives and sufficient to 
provide a reasonable basis for reaching conclusions. 

The Commission OIG did not have policies and procedures for data 
collection and analysis that adhered to CIGIE's standards for 
inspections. However, the supporting documentation for the inspections 
we reviewed did have information to support data collection for the 
inspections. Specifically, we found that 9 of the 12 inspections 
completed had supporting documentation sufficient in detail for 
reaching the identified findings in the inspection reports. We also 
found that the methods used to collect supporting documentation for 
the inspections were reliable and valid. The supporting documentation 
collected consisted of source documents such as interview write-ups by 
the contracted investigator, relevant excerpts from the laws and 
regulations referenced in the inspection reports, and other 
information. Supporting documentation for 5 of the 12 inspections 
showed evidence that the information had been reviewed for accuracy 
and reliability, and another 4 of 12 inspections showed evidence of 
partial review by the Commission IG. The remaining 3 inspection 
reports did not show evidence of supporting documentation being 
reviewed for accuracy and reliability. 

Evidence. CIGIE's standards for inspections state that evidence to 
support findings, conclusions, and recommendations should be 
sufficient, competent, and relevant and should provide a basis for 
bringing a reasonable person to the reported conclusions and findings. 
Furthermore, evidence may take many forms, such as physical, 
testimonial, documentary, and analytical, which includes computations, 
comparisons, and rational arguments. 

The Commission OIG did not have policies and procedures for evidence 
that adhered to CIGIE's standards for inspections. Although the OIG's 
policy and procedure stated that "the Denali IG's basic documentation 
will include the inspection plan, a cross-referenced copy to work 
papers, and detailed footnotes," the policy and procedure did not 
adhere to the CIGIE inspection standard. Additionally, we found no 
documented evidence in the OIG's workpapers to support the inspection 
conclusions and recommendations for its reports. For example, we did 
not find any workpapers containing the Commission IG's analysis of the 
supporting documentation or that linked the Commission IG's processes 
or methods used to the reported findings, conclusions, or 
recommendations for all 12 of the inspection reports we reviewed. 

Records maintenance. CIGIE inspection standards state that all 
relevant documentation generated, obtained, and used in supporting 
inspection findings, conclusions, and recommendations should be 
retained for an appropriate amount of time. 

The Commission OIG did not have policies and procedure for records 
maintenance that adhered to CIGIE's standards for inspections. 
Although the Commission OIG's policies and procedures did not address 
records maintenance, the OIG did maintain supporting documentation in 
its workpaper files. We found that the OIG retained documentation for 
9 of the 12 inspection reports completed. However, for the 2 
inspection reports included in the Commission's agency financial 
report, the OIG did not have any workpapers. For the remaining 
inspection report, the supporting documentation that was maintained 
was incomplete. 

Timeliness. CIGIE inspection standards state that inspections should 
strive to deliver significant information to appropriate management 
officials and customers in a timely manner. 

The Commission OIG did not have policies and procedures for timeliness 
that adhered to CIGIE's standards for inspections. Although the 
Commission OIG's policies and procedures did not address timeliness, 
we found no evidence to suggest that the inspection reports were not 
in accordance with the timeliness standard. This is based on the time 
the inspections began and the inspection report dates, which ranged 
from 1 month to about 2 years. 

Fraud, other illegal acts, and abuse. CIGIE standards for inspections 
state that inspectors should be alert to any indicator of fraud, other 
illegal acts, or abuse. They also state that inspectors should be 
aware of vulnerabilities to fraud and abuse associated with the area 
under review to facilitate identifying potential or actual illegal 
acts or abuse that may have occurred. 

The Commission OIG did not have policies and procedures for 
considering fraud, other illegal acts, and abuse that adhered to 
CIGIE's standards for inspections. We also found that the OIG did not 
conduct a fraud assessment for any of the 12 inspections the OIG 
conducted. 

Follow-up. CIGIE standards for inspections state that appropriate 
follow-up will be performed to ensure that any inspection 
recommendations made to department or agency officials are adequately 
considered and appropriately addressed. 

The Commission OIG did not have policies and procedures related to 
following up on report recommendations to determine whether corrective 
actions had been taken. We found that the OIG did not perform follow-
up for any of the 12 inspection reports. Of the 5 published inspection 
reports, the OIG did not follow up on the three recommendations made 
in those reports. In addition, of the 5 inspections mentioned in the 
OIG's semiannual reports to the Congress, the OIG did not follow up on 
the 13 recommendations made as a result of those inspections. The 
remaining 2 inspections published in the agency financial report did 
not contain any recommendations. 

Performance measurement. CIGIE standards for inspections state that 
mechanisms should be in place to measure the effectiveness of 
inspection work. CIGIE standards describe the importance of being able 
to demonstrate the positive results that inspections contribute to the 
more effective management and operation of federal programs. 
Performance measures for OIG inspections, for example, could focus on 
the number of implemented recommendations and outcomes or changes in 
policy. 

The Commission OIG did not have policies and procedures related to 
performance measurement that adhered to CIGIE's standards for 
inspections. We also found that the OIG did not establish performance 
measures to determine the effectiveness of inspections completed. 

Standards Included in the OIG's Policies and Procedures for 
Inspections: 

The following standards were included in the OIG's policies and 
procedures and were implemented to some extent in the conduct of 
inspections. 

Competency. CIGIE's competency standard states that inspection 
organizations need to ensure that the personnel conducting an 
inspection collectively have the knowledge, skills, abilities, and 
experience necessary for the assignment. 

The Commission OIG's policies and procedures for competency adhered to 
CIGIE's standards for inspections. They state that the Commission IG 
will, as a condition of employment, maintain his or her competency to 
multitask as a one-person OIG.[Footnote 31] In addition, the OIG's 
policies and procedures state that the IG will take a minimum of 40 
hours of training per fiscal year, which is in accordance with CIGIE 
standards. 

The Commission IG was a licensed attorney and certified public 
accountant, and he provided us documents of his current continuing 
professional education credits. Thus, we considered the Commission 
IG's qualifications to be consistent with CIGIE inspection standards. 

Independence. The CIGIE inspection standard for independence states 
that in all matters relating to inspection work, the inspection 
organization and each individual inspector should be free both in fact 
and appearance from personal, external, and organizational impairments 
to independence. 

The Commission OIG's policies and procedures adhered to CIGIE 
inspection standards for independence. They state the Commission IG 
will maintain strict political neutrality and an appropriate level of 
social detachment from the Commission's management and beneficiaries 
as a critical element of OIG independence. We did not find any 
impairment, in fact or appearance, with the independence of the 
Commission OIG. 

Professional judgment. The CIGIE inspection standard for professional 
judgment states that due professional judgment should be used in 
planning and performing inspections and in reporting the results. 

The Commission OIG's policies and procedures addressed professional 
judgment but did not address the broader intent of the CIGIE 
inspection standard for professional judgment. The OIG's policy states 
that it will conduct interviews of agency officials through an 
inspection methodology that conforms to the CIGIE quality standards 
for that inspection procedure, which is in accordance with the CIGIE 
inspection standard for professional judgment. The OIG's policy only 
addresses the intent to interview agency officials in accordance with 
these standards instead of the OIG's intent to use professional 
judgment when performing all aspects of inspection procedures. This 
would include the intent to use professional judgment in selecting the 
type of inspections to perform, defining the scope and methodology, 
and determining the type and amount of evidence to gather. In 
addition, the problems with the OIG's inspection plans and lack of 
evidence and analysis in the workpapers, as discussed in this report, 
are indications that the OIG's professional judgment did not adhere to 
CIGIE standards. 

Quality control. CIGIE standard for quality control states that each 
OIG organization that conducts inspections should have internal 
quality controls for its processes and work. 

The Commission OIG's policies and procedures addressed quality control 
but did not fully adhere to CIGIE's inspection standards. The 
Commission OIG's policy for quality control states that the OIG will 
arrange for feedback from an external expert for at least 50 percent 
of its published reports. However, the Commission OIG did not have 
procedures established to provide for an independent assessment of its 
inspection processes or inspection reports. Consequently, none of the 
12 inspection reports we reviewed had an independent assessment for 
quality control completed. While the Commission OIG is an office of 
one full-time employee, which created challenges in instituting 
extensive quality control, the IG did not take the necessary steps to 
mitigate this challenge by implementing control procedures that 
provide an independent assessment of inspection processes and work. 

Planning. The CIGIE standard states that inspection planning is 
intended to ensure that appropriate care is given to selecting 
inspection topics and should be developed to clearly define the 
inspection objective, scope, and methodology. It may also include time 
frames and work assignments. Additionally, the CIGIE inspection 
standard for planning states that research, work planning, and 
coordination should be thorough enough to ensure that the inspection 
objectives are met. 

The Commission OIG's policies and procedures addressed planning but 
did not fully adhere to CIGIE's inspection standards. We found that 
the Commission OIG's policy for planning inspections did not adhere to 
the CIGIE standards for inspections related to planning. The 
Commission OIG's policy for planning states that the basic 
documentation for an inspection will include (1) an inspection plan, 
(2) a copy of the report with cross-references to the evidence 
workpapers, and (3) detailed footnotes in the report itself. This 
policy does not address the purpose or contents of the plan as 
described in the CIGIE inspection standard. 

Regarding implementation, we found that the OIG's inspection plans 
were not adequately developed. Specifically, we found that none of the 
12 inspections included clearly defined descriptions of the objective, 
scope, and methodology. In addition, 9 of the 12 inspection plans were 
not planned sufficiently to reach reasonable conclusions about the 
topic inspected because of a lack of detailed procedures in the 
inspection plan to perform the inspection. The remaining 3 inspections 
plans, despite not having documented the objective, scope, and 
methodology, did have sufficient planned steps to reach reasonable 
conclusions as reported in the inspection report. 

Reporting. The CIGIE standard states that inspection reporting shall 
present factual data accurately, fairly, and objectively, and present 
findings, conclusions, and recommendations in a persuasive manner. 
Additionally, the standard states that inspection reports must include 
the objective, scope, and methodology of the inspection and a 
statement that the inspection was conducted in accordance with CIGIE 
standards for inspection. 

The Commission OIG's policies and procedures addressed reporting but 
did not fully adhere to CIGIE's inspection standards. The Commission 
OIG's policy for reporting states that published inspection reports 
will emphasize plain language, readability to a nationwide audience, 
and usefulness to decision makers. However, the OIG's policies and 
procedures do not require that reports include the objective, scope, 
and methodology of the inspection or a statement that the inspection 
was conducted in accordance with CIGIE standards for inspections. 
Despite these omissions in the Commission OIG's policies and 
procedures, we found that 1 of the 12 inspections clearly listed the 
objective, scope, and methodology, and 4 of 12 reports stated that the 
inspection was conducted in accordance with CIGIE standards for 
inspections. 

Working relationships and communication. The CIGIE standard for 
inspections related to working relationships and communication states 
that each inspection organization should seek to facilitate positive 
working relationships and effective communication with those entities 
inspected and other interested parties. 

The Commission OIG's policies and procedures adhered to CIGIE's 
inspection standards for working relationships and communication. The 
Commission OIG policy states that its key inspection procedure is 
management's feedback regarding the draft report, which the Commission 
OIG seeks at several levels: (1) oral conversation, (2) e-mailed 
comments, and (3) a formal response letter for publication with the 
OIG's final report. We found evidence of OIG communication with the 
Commission through e-mail correspondence for all published inspection 
reports. In addition, the OIG reported and communicated the results of 
OIG activities related to issued work products to agency management 
officials and the Congress. 

OIG Did Not Include Some Required Information in Its Semiannual 
Reports to the Congress: 

Section 5 of the IG Act requires that each IG shall, not later than 
April 30 and October 31 of each year, prepare and submit to the 
Congress semiannual reports summarizing the activities of the office 
during the immediately preceding 6-month periods ending March 31 and 
September 30. These reports are intended to keep the Congress informed 
by highlighting, among other things, the OIG's review of existing and 
proposed legislation and regulations affecting an agency's programs 
and operations to foster economy and efficiency and detect fraud, 
waste, and abuse. These reports are also intended to keep the Congress 
informed about significant problems, abuses, and deficiencies in an 
agency's programs and operations and the status of recommendations for 
corrective actions. While the IG Act requires that semiannual reports 
include a summary of matters referred to prosecutive authorities and 
resulting convictions, the Commission IG told us that he is not aware 
of anyone who has been charged in a criminal court case as a result of 
his work. Section 5 of the IG Act also establishes a uniform set of 
statistical categories under which OIGs must report the quantitative 
results of their audit, investigation, inspection, and evaluation 
activities. The statistical information reported in an OIG's 
semiannual report must show the total dollar value of questioned 
costs[Footnote 32] and the dollar value of recommendations that funds 
be put to better use.[Footnote 33] 

The Commission OIG submitted semiannual reports as required by the IG 
Act; however, we found that the reports did not fully comply with the 
reporting requirements of the IG Act. Specifically, we found that for 
the six semiannual reports we reviewed, the OIG did not provide 
statistical information showing the dollar value of recommendations 
that funds be put to better use or the total value of questioned costs 
(including a separate category for the dollar value of unsupported 
costs). We understand that there may not have been any amounts 
identified by the OIG of funds that could be put to better use or 
questioned costs for the reporting period. However, if the OIG does 
not state this in the semiannual reports to the Congress, both 
management and the Congress do not have the necessary information to 
take appropriate actions to enhance management practices and 
procedures, which would result in more efficient and effective use of 
Commission funds. Furthermore, this statistical information is 
required by the IG Act and should be included in the OIG's semiannual 
reports to the Congress. 

We also found that for five of the semiannual reports we reviewed, the 
OIG did not identify the significant recommendations described in 
previous semiannual reports for which corrective action had not been 
completed by agency management. While the OIG provided this 
information in its May 2011 semiannual report, the OIG did not provide 
the status of the 48 open recommendations identified in this report in 
subsequent semiannual reports. The IG Act requires the OIG to identify 
each significant recommendation described in previous semiannual 
reports on which corrective action has not been completed by 
management. Not knowing the current status of the recommendations for 
which corrective actions are needed limits both the agency's and the 
Congress's awareness of outstanding actions that may still need to be 
taken. 

We found that the OIG did not have written policies and procedures to 
guide the preparation of its semiannual reports to the Congress. We 
did find that for one of the semiannual reports we tested (the report 
for the first half of fiscal year 2011) at the request of the Federal 
Cochair, the OIG included an appendix that identified and provided the 
status of recommendations from all the semiannual reports issued by 
the OIG in fiscal year 2006 through the first half of fiscal year 
2011. The information in the appendix identified 159 recommendations 
made by the OIG during fiscal years 2006 through 2010 and the first 
half of fiscal year 2011. 

While the IG provided the status of recommendations in fiscal year 
2011, he did not provide updated information on the status of these 
recommendations in the semiannual reports issued going forward, in 
compliance with the IG Act. According to the IG, he received a request 
at least annually from the House Committee on Oversight and Government 
Reform requesting an update on the status of open recommendations. The 
IG also told us that a common focus of his meetings with OMB and 
congressional committee staff was to discuss the status of open 
recommendations. 

Alternate IG Oversight Structures at Other Federal Agencies: 

As we recently testified, GAO has long supported the creation of 
independent IG offices in appropriate federal departments, agencies, 
and entities, and we continue to believe that significant federal 
programs and entities should be subject to oversight by independent 
IGs.[Footnote 34] At the same time, we have reported some concerns 
about creating and maintaining small IG offices with limited 
resources, where an IG might not have the ability to obtain the 
technical skills and expertise needed to provide adequate and cost-
effective oversight. Although the limitations of a single-person 
office can create challenges to developing and implementing policies 
and procedures to ensure effective oversight, if corrective actions 
are taken to address the issues identified in this report, the current 
DFE OIG structure can provide a viable option for oversight of the 
Commission. Nevertheless, there are alternative structures that may 
also facilitate effective OIG oversight of the Commission. 

We identified examples of alternative approaches that exist in other 
federal agencies that may also provide effective OIG oversight for the 
Commission. Three alternative IG oversight structures and their 
respective advantages and disadvantages are summarized in figure 4 and 
more fully described in the paragraphs that follow. 

Figure 4: Summary of Alternate Office of Inspector General (OIG) 
Oversight Structures' Potential Advantages and Disadvantages: 

[Refer to PDF for image: illustrated table] 

Alternative OIG structure: Consolidation within larger OIG; 
Potential advantages: 
* Greater resources; 
* Strategic and risk-based planning; 
* Best-practices work environment; 
Potential disadvantages: 
* Competition for oversight; 
* Competition for resources; 
* Decreased contact between inspector general and DFE management. 

Alternative OIG structure: Consolidation within another regional
commission OIG; 
Potential advantages: 
* Greater resources; 
* Achieving economies of scale; 
* Increased institutional knowledge; 
Potential disadvantages: 
* Limited effectiveness of OIG oversight. 

Alternative OIG structure: Divided OIG oversight 
responsibilities; 
Potential advantages: 
* Greater expertise in area of responsibility; 
* Reduced strain on designated federal entity (DFE) OIG resources and
expertise; 
Potential disadvantages: 
* Coordination difficulties between agencies; 
* Communication difficulties between IGs. 

Source: GAO analysis. GAO-14-320. 

Note: We understand that there are certain mitigating actions related 
to potential disadvantages that can be implemented at federal 
oversight agencies, however, we have only identified disadvantages for 
the purposes of this report. 

[End of figure] 

Consolidation into a Larger IG Office: 

The Commission OIG could be consolidated into a larger IG office. 
Specifically, OIGs with presidentially appointed IGs would assume the 
operational responsibilities of the Commission OIG as established 
under the IG Act. This includes reporting to the Congress 
semiannually; performing audits, investigations, inspections, and 
evaluations of program areas; as well as conducting and overseeing the 
agency's annual financial statement audit. This alternative could 
strengthen the quality of work and use of resources through the 
implementation of best practices usually employed at larger, 
presidentially appointed and Senate-confirmed IGs and their related 
offices. 

This oversight structure exists at the Department of State OIG. For 
example, the Department of State OIG has oversight authority over the 
Broadcasting Board of Governors (BBG), which had a budget of $712 
million for fiscal year 2013. The Department of State OIG had an 
average annual budget of $61 million for fiscal years 2011 through 
2013 and employed approximately 270 full-time and 16 part-time 
employees. The Department of State OIG conducts independent 
performance and financial statement audits, inspections, and 
investigations that advance the missions of the Department of State 
and BBG. The Department of State OIG prepares an annual performance 
plan (including audits, inspections, and evaluations) and a 5-year 
strategic plan for oversight of the Department of State and BBG using 
Department of State management challenges as a baseline, along with 
input collected from the Department of State, BBG management, and 
other sources of information. The Department of State OIG also uses a 
risk-based approach to determine which posts and bureaus should be 
inspected based on the most recent inspection and other data collected 
during the course of its oversight work. In addition, when possible, 
the Department of State OIG performs a review of BBG foreign offices 
during Department of State site visits, allowing it to leverage 
efficiencies and resources when performing other oversight work. 

In another example, the U.S. Agency for International Development 
Office of Inspector General (USAID OIG) provides oversight to several 
small entities, including the Millennium Challenge Corporation, U.S. 
African Development Foundation, Inter-American Foundation, and 
Overseas Private Investment Corporation, with budgets of $898 million, 
$30 million, $22 million, and approximately $75 million to 100 
million, respectively, for fiscal year 2013. USAID OIG has 
approximately 230 employees and had an average budget of approximately 
$45.6 million for fiscal years 2011 through 2013. USAID OIG prepares 
annual performance (i.e., audit) plans for oversight of these entities 
that are aligned with its 5-year strategic plan following 
consultations with stakeholders and OIG personnel. In addition to 
these consultations, annual performance plans are developed based on a 
risk assessment of the portfolios they monitor. USAID OIG audits 
activities relating to the worldwide foreign assistance programs and 
agency operations of these entities and considers several factors when 
assessing agency program risk, such as inherent risk, fraud and 
corruption risk, and control risk. Audit activities include 
performance audits and reviews of programs and management systems, 
financial statement audits, and audits related to financial 
accountability of grantees and contractors. The USAID OIG also 
investigates allegations of fraud, waste, and abuse relating to the 
foreign assistance programs and operations. 

The quality of an OIG's work is a critical element of IG 
effectiveness. Consolidation with a larger OIG could improve the 
quality of work at the Commission OIG. This could be accomplished by 
using a strategic, risk-based approach for auditing and increasing 
staffing resources with the requisite technical auditing and 
accounting expertise necessary to improve program efficiency and 
effectiveness. As we noted earlier, audits performed in accordance 
with generally accepted government auditing standards (GAGAS) provide 
information used for oversight, accountability, transparency, and 
improvements of government programs and operations. When auditors 
comply with GAGAS in reporting the results, their work can lead to 
improved management, better decision making and oversight, effective 
and efficient operations, accountability, and transparency for 
resources. In addition, consolidation with a larger OIG could increase 
the OIG's ability to effectively plan for work, including implementing 
a strategic and risk-based approach to auditing agency programs and 
operations of high risk. Routine access to staff resources with the 
requisite subject matter expertise, such as information technology 
personnel, payroll services personnel, and a highly trained financial 
management workforce, could also be an advantage of consolidating with 
a larger OIG. 

However, consolidation with larger OIGs could also result in 
disadvantages, such as limited contact with agency program management 
officials who have the institutional knowledge pertaining to agency 
missions and priorities. There may also be management challenges in 
determining the appropriate amount of resources to dedicate toward 
performing sufficient oversight of the Commission's programs. For 
example, the Commission may not be a material entity when compared to 
the larger agency; therefore, when using a risk-based approach, the 
Commission may not get the necessary OIG oversight with respect to its 
critical programs and operations from the larger OIG. 

Consolidation with a Regional Commission OIG: 

Consolidation with a single regional commission OIG could serve as 
another alternative structure. This option would consolidate the 
Commission OIG with a regional commission OIG. As under the 
consolidation with a larger IG office alternative, the regional 
commission OIG would assume the oversight responsibilities of the 
Commission OIG. There are currently seven regional commissions; 
however, only the Appalachian Regional Commission (ARC) and the Denali 
Commission have their own OIGs. Legislation enacted in 2008 directed 
that a single IG be appointed by the President, in accordance with the 
IG Act, for three of the other regional commissions, but it has not 
been implemented.[Footnote 35] The regional commissions are as 
follows: (1) Northern Border Regional Commission, (2) Southwest Border 
Regional Commission, (3) Southeast Crescent Regional Commission, (4) 
Delta Regional Authority,[Footnote 36] (5) Appalachian Regional 
Commission, (6) Northern Great Plains Regional Authority,[Footnote 37] 
and (7) Denali Commission. 

Regional commissions are regional development agencies that focus on 
developing infrastructure and targeting new resources to promote 
wealth generation and economic growth to distressed portions of 
specific geographical areas within their regions. For example, the ARC 
is a regional economic development agency that represents a 
partnership of federal, state, and local governments. Established by 
the Congress in the Appalachian Regional Development Act of 1965, 
[Footnote 38] the ARC was established to assist the region in 
promoting economic development and establishing a framework for joint 
federal and state efforts to provide the basic facilities essential to 
its growth on a coordinated and concerted regional basis. The ARC is 
composed of the governors of the 13 Appalachian states and a Federal 
Cochair, who is appointed by the President. Local participation is 
provided through multicounty local development districts. 

The ARC OIG reported that it has three full-time employees, has an 
annual budget of approximately $634,000, and has performed 81 audits 
and inspections during fiscal years 2011 to 2013.[Footnote 39] 
According to the ARC OIG website, the ARC OIG provides independent and 
objective audits, inspections, and evaluations relating to agency 
programs and operations. The ARC prepares a 5-year strategic plan and 
annual work plans to identify grant audits that represent the most 
significant aspect of the ARC's programs. The ARC OIG's grant audits 
are based on factors such as the value of the grant, location, type of 
grant, and prior history. The ARC OIG also provides a means for 
keeping the ARC Federal Cochair, the other commissioners, and the 
Congress fully informed about problems and deficiencies at the ARC. 

Consolidation of the Commission OIG with another regional commission 
OIG could serve to (1) strengthen institutional knowledge regarding 
agency programs and operations and (2) achieve economies of scale. 
Since regional commissions are focused on building the infrastructure 
and targeting economic growth to distressed areas in specific rural 
geographic locations, consolidation of the Commission OIG with another 
regional OIG could improve institutional knowledge at the Commission 
OIG. Given the similarities in their scope and mission, efficiencies 
may be achieved by leveraging resources between the two regional 
commissions. In addition, consolidation could serve to increase the 
availability of investigative resources to detect fraud, waste, and 
abuse while achieving other efficiencies. A disadvantage to this 
approach could be that resources become strained, limiting the 
effectiveness of the OIG to perform its duties for both agencies. 

Divide OIG Oversight Responsibilities: 

The Commission IG stated that he spent approximately 25 percent of his 
time overseeing the contracted auditor for the Commission annual 
financial statement audit and therefore used inspections to leverage 
the time he had to perform oversight. Another alternative is to divide 
OIG oversight responsibilities for the agency performance audits, 
investigations, and inspections and the agency financial statement 
audits between two separate federal OIGs, such as a regional 
commission OIG or a larger OIG. The regional commission OIG would 
perform the audits, investigations, and inspections of agency programs 
and operations based on its similar mission and scope. The larger OIG 
would conduct and oversee the agency's annual financial statement 
audit. A current example of this structure exists at the Department of 
Transportation (DOT) OIG. The DOT OIG has the authority to review the 
financial statement audit, property management, and business 
operations of the National Transportation Safety Board (NTSB), 
including internal accounting and administrative control systems, to 
determine whether they comply with applicable laws, rules, and 
regulations. GAO conducts broad management reviews on behalf of the 
NTSB. In addition, Amtrak is a DFE under the IG Act and has an OIG, 
but Amtrak itself, rather than the OIG, is required to engage an IPA 
to audit its annual financial statements.[Footnote 40] In fiscal year 
2011, the Amtrak OIG began monitoring the IPA that performed the 
financial statement audit for Amtrak. Further, the DOT OIG is required 
by statute to conduct certain oversight of Amtrak operations, 
including an annual review of Amtrak's budget and 5-year financial 
plan.[Footnote 41] 

This divided approach could reduce the strain of oversight 
responsibilities on one OIG by providing a shared responsibility 
between two OIGs while potentially providing sufficient agency 
oversight. In addition, dividing responsibilities between two OIGs 
would serve to leverage the OIGs' expertise (i.e., similar mission, 
subject matter experts, etc.) in conducting performance audits, 
investigations, inspections, and evaluations for one OIG assuming 
oversight responsibilities. The other OIG's expertise could also be 
leveraged for conducting the annual financial statement audit. 

However, disadvantages in this approach could be a lack of effective 
communication and coordination between the two OIGs. For example, 
internal control deficiencies and recommendations resulting from the 
financial statement audit may not be communicated in a timely manner 
to the OIG with program and operational oversight responsibilities of 
the agency. This could delay the implementation and preparation of 
corrective action plans to address and correct deficiencies found 
during the financial statement audit in a timely manner, which could 
also have a programmatic or operational impact. In addition, this 
approach could require the agencies to coordinate activities such as 
requests for financial statement audit documents and requests for 
documentation for performance audits and investigations. This could 
put additional stress on the smaller OIG to fulfill requests for 
documentation and meetings while still performing daily duties 
required at the agency. 

Figure 5 demonstrates how various responsibilities could be divided 
among various IG offices. 

Figure 5: Alternative Structures for Dividing Inspector General (IG) 
Responsibilities: 

[Refer to PDF for image: illustration] 

IG oversight responsibilities: 

Program and operations oversight responsibilities (Audits, 
investigations, and inspections): 
All responsibilities go to one of three possible IGs: 
Regional commission IG; 
Larger IG; 
Other independent entity. 

Annual financial statement audit responsibilities (Financial statement 
audit): 
All responsibilities go to one of three possible IGs: 
Regional commission IG; 
Larger IG; 
Other independent entity. 

Source: GAO analysis. GAO-14-320. 

[End of figure] 

While there is no clear-cut option with respect to the alternative OIG 
structures presented above, any specific decision concerning 
consolidations of IG offices should result from dialogue among the 
affected agencies, CIGIE, and the Congress. 

Conclusions: 

OIG's are responsible for coordinating audits, inspections, and 
investigations. While the Commission OIG conducted limited oversight 
through inspections, it did not conduct performance audits or 
investigations and many of the critical standards in CIGIE's Quality 
Standards for Federal Offices of Inspector General, such as planning 
and coordination, ensuring internal control, maintaining quality 
assurance, and receiving and reviewing allegations, were not addressed 
in the policies and procedures or the operations of the Commission 
OIG. For example, planning and coordination would include a risk-based 
approach to assessing the nature, scope, and inherent risk of 
Commission programs and operations. A risk-based approach for 
oversight would guide the general direction and focus of OIG work to 
ensure effective oversight of the Commission's major programs and 
operations. Furthermore, it is important that OIG work products 
provide reliable information and adhere to CIGIE professional 
standards and the IG Act. However, we found no documented evidence in 
the OIG's workpapers to support the inspection conclusions and 
recommendations for its reports. These OIG work products are used by 
the Congress and others to assess whether the Commission's major 
programs and operations are achieving their desired results. 

Recommendations for Executive Action: 

We are making the following nine recommendations to the Commission IG, 
or to the individual or entity that ultimately assumes IG oversight 
responsibilities for the Commission under an alternate structure, in 
order to ensure that the Commission receives effective oversight of 
its major programs and operations. 

* Develop and implement a risk-based approach that adheres to 
professional standards to help ensure effective oversight of the major 
Commission programs and operations in the form of audits and 
investigations. 

* Develop policies and procedures for OIG office operations and 
management activities in accordance with CIGIE's Quality Standards for 
Federal Offices of Inspector General. 

* Implement the OIG's policies and procedures developed in accordance 
with CIGIE's Quality Standards for Federal Offices of Inspector 
General to ensure that the OIG's management and operation of its 
office includes the following: 

- annual work and strategic plans that identify goals, objectives, and 
performance measures to be accomplished by the OIG within a specific 
period; 

- a quality assurance framework that includes both internal and 
external quality assurance reviews; 

- an internal control structure that includes all elements of internal 
control, such as the control environment, risk assessment, control 
activities, information and communication, and monitoring; and: 

- an OIG hotline to receive and review anonymous tips, referrals, and 
allegations to help prevent and detect potential fraud, waste, and 
abuse. 

* Update the OIG's policies and procedures for inspections to ensure 
that they are fully in accordance with CIGIE's Quality Standards for 
Inspection and Evaluation. 

* Conduct inspections that are fully in accordance with CIGIE's 
Quality Standards for Inspection and Evaluation and the OIG's policies 
and procedures. 

* Prepare semiannual reports to the Congress that fully comply with 
the reporting requirements of the IG Act. 

Agency Comments: 

We provided a draft of this report to the Denali Commission for review 
and comment. The Commission concurred with the report's conclusions 
and recommendations, and provided its perspective of the IG's 
performance as well as the challenges for a one-person DFE OIG. The 
Commission's letter is reprinted in appendix II. 

We are sending copies of this report to the appropriate congressional 
committees, the Federal Cochair and Commissioners of the Denali 
Commission, the Office of the Inspector General for the Department of 
Commerce, the Assistant Secretary for Economic Development for the 
Department of Commerce, and other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-2623 or davisbh@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix III. 

Signed by: 

Beryl H. Davis: 
Director: 
Financial Management and Assurance: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To determine the resources appropriated to and expensed by the Denali 
Commission's (Commission) Office of Inspector General (OIG) for fiscal 
years 2011 through 2013, we reviewed OIG-related budget justification 
documents and expenditure reports for the OIG's salary and benefits, 
contracts, training, and travel. We reviewed the cost elements used to 
develop the OIG's annual budget estimate, as well as the contract 
types and contract payments made to assist with OIG-related 
activities. We interviewed the commissioners and agency management to 
determine whether the OIG obtained their input for program or 
operation areas of concern for which they wanted assistance. We also 
interviewed Commission staff to gain an understanding of the resources 
provided to the OIG from the Commission and from other federal 
agencies. 

To determine the number of work products issued by the OIG, we 
reviewed the Inspector General's (IG) activity log and the OIG's 
website to identify which publications were within our scope and 
provided the list to the IG for confirmation that the list was 
complete. We requested copies of the OIG's annual work plan and 
strategic plan and interviewed commissioners and Commission staff to 
determine the extent to which they provided input to the OIG's annual 
work and strategic plans. However, the IG did not prepare written 
annual work and strategic plans. Therefore, we had to rely on the 
interviews we conducted with the commissioners and Commission staff to 
determine the extent to which they provided input to the IG on areas 
the IG evaluated. 

To determine the extent to which the IG provided oversight of the 
Commission's major programs and operations, we compared the grant 
funds awarded and disbursed by the Commission for fiscal years 2011 
through 2013 to the work products issued by the OIG. We obtained the 
grant funds awarded and disbursed information from the Commission 
(including the program descriptions for these grants) and performed 
procedures that allowed us to determine that the grant information 
provided by the Commission was sufficient for our purposes. We did 
compare these grant amounts to the total grant funds reviewed by the 
OIG in its work products. We analyzed all of the OIG's work products 
issued in fiscal years 2011 through 2013, noting the objectives, 
scope, and methodology of the reports to determine the extent to which 
these work products reviewed Commission programs or operations. We 
reviewed the Commission's fiscal year 2015 budget justification to 
identify accomplishments by program, and we also reviewed the 
Commission's annual financial report to identify the budgetary 
authority amounts by program. We compared the fiscal year budgeted 
amounts reported in the Commission's audited annual financial 
statements with the amounts reported in the President's budget, which 
allowed us to determine that the budget amounts provided by the 
Commission were sufficient for our purposes. 

To determine whether the design of the OIG's policies and procedures 
adhered to applicable professional standards, we reviewed the 
Inspector General Act of 1978, as amended (IG Act), and the Council of 
the Inspectors General on Integrity and Efficiency's (CIGIE) Quality 
Standards for Federal Offices of Inspector General and Quality 
Standards for Inspection and Evaluation, and compared the OIG's 
inspection policies and procedures to these professional standards. To 
determine the extent to which the OIG implemented the CIGIE standards 
and its inspection policies and procedures, we prepared a data 
collection instrument using the CIGIE inspection standards and the 
OIG's policies and procedures. We tested all of the OIG's work 
products issued during fiscal years 2011 through 2013 to determine 
whether the OIG's work products adhered to the CIGIE standards and 
were consistent with the OIG's inspection policies and procedures. We 
reviewed the OIG's inspection reports and supporting case files and 
compared them to the OIG's policies and procedures and applicable 
CIGIE standards, including those related to quality control, planning, 
evidence, and reporting. 

We reviewed all of the semiannual reports issued by the OIG during 
fiscal years 2011 through 2013 to determine whether these reports were 
prepared in accordance with the reporting requirements of the IG Act. 
We reviewed the OIG's semiannual reports and supporting case files and 
compared them to the IG Act reporting standards. 

To determine alternatives for OIG oversight structures that exist in 
federal agencies that could be applied at the Commission, we used 
previous GAO work to identify federal OIGs that provide (or have 
provided) OIG oversight for smaller agencies, and also identified 
other regional commissions with similar missions to that of the 
Commission. In addition, because the Denali Commission Federal Cochair 
is appointed by the Secretary of Commerce, we consulted with officials 
from the Department of Commerce to gain an understanding of their 
relationship and roles and responsibilities to the Commission. We 
conducted structured interviews with officials from these other OIGs 
with structures we considered to be potential alternative OIG 
oversight structures to gain an understanding of how they are 
organized and operate. We analyzed prior GAO reports to review 
recommendations made regarding alternatives for providing OIG 
oversight and Congressional Research Service reports and other 
relevant reports to identify applicable criteria for OIG oversight. 

We conducted this performance audit from May 2013 to September 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Denali Commission: 

Denali Commission: 
510 L Street. Suite 410: 
Anchorage, AK 99501: 
907-271-1414 (P): 
907-271-1415 (F): 
888-480-4321 (TF): 
[hyperlink, http://www.denali.gov] 

September 2, 2014: 

Ms. Beryl Davis: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G St, NW: 
Washington, DC 20548: 

Dear Ms. Davis: 

Re: Commissioner Response to GAO Report (14·320) - "Improvements 
Needed in the Office of Inspector General's Oversight of the Denali 
Commission" 

This letter is written to provide a response from the seven 
Commissioners for the Denali Commission to the above referenced Report 
(14-320). It is signed by the State Co-Chair and the Federal Co-Chair 
on behalf of all seven Commissioners. We concur with the referenced 
Report (14-320) conclusions and nine recommendations. 

While certainly we agree that the former Inspector General's 
"professional judgment did not adhere to CIGIE standards" and there 
are challenges for a one· person Office of an Inspector General, we 
believe that the subject report does not tell the full story of the 
Denali Commission's experience with the Inspector General Act of 1978, 
as amended (IG Act). 

Our recent experience with the former Inspector General has led us to 
conclude that there are vulnerabilities with the IG Act for small 
agencies that are designated Federal entities (DFE). We recognize that 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(Dodd-Frank) amended the IG Act so that DFE boards or commissions 
shall provide general supervision of the agency's Inspector General. 
Prior to Dodd-Frank, the Inspector General was subject to removal 
solely by the agency head. This amendment to the IG Act ostensibly 
protects the Inspector General from an agency head who may be a bad 
actor. What happens though when the Inspector General is a bad actor - 
whether intentional or without recognition that his/her performance 
and conduct are outside of generally accepted professional standards? 

As the referenced Report (14·320) acknowledges, the former Inspector 
General was free from external review since he elected not to carry 
out audits and investigations, but only conducted inspections. He 
elected not to seek external review of his inspections, and with no 
one in his one-person office to consult with (other than his 
contractors) he had no peers to review his work, his investigations, 
and report conclusions. We are not aware of a single instance in which 
he consulted with his peers in the Inspector General community about 
his performance or conduct. Somewhere along his eight year career as 
the Inspector General we believe that he lost his objectivity. The 
conclusions in his reports to Congress, as noted in the referenced 
Report (14-320), are not supported with documented evidence. His 
opinions about the agency grew more extreme with resultant 
undisciplined report writing (mixing facts and opinions) so that. in our
viewpoint, the public and Congress were misled about agency operations. 

As the Commissioners twice (in writing) reached out to the former 
Inspector General in the summer of 2013, he refused to meet. He 
largely shut down communications with agency staff, including general 
counsel, short of limited contact with the agency Chief Financial 
Officer. We note that he only communicated with your agency on the 
referenced Report (14-320) via e-mail and refused to meet. This is not 
the professional conduct that is expected of an individual who has
been assigned significant responsibilities in ensuring the public's 
funds are used efficiently and effectively. 

We are pleased that the referenced Report (14~320) found that the 
former Inspector Genera1's independence was not compromised with the 
seven Commissioners serving as the agency head for general 
supervision. We also note that the Office of Management and Budget 
(OMB) in consultation with your agency and the Council of Inspectors 
General on Integrity and Efficiency (CIGIE) had informed the former 
Inspector General (via e~mail on August 23, 2013) of this same
conclusion. Subsequently, in a letter dated December 2, 2013 to 
Senator Claire McCaskill and Congressman Darrel Issa, OMB again stated 
that the former Inspector General's independence was not compromised. 
Yet the former Inspector General held the opinion that his 
independence was compromised until his final days as a Federal 
employee, and he left Federal service perhaps as the only person 
believing this. This is one example of why we question his objectivity 
and his conclusions that have been so damaging to the reputation and 
the work of the Denali Commission. 

It is our opinion that the conduct and performance of the former 
Inspector General is an example of a vulnerability of the IG Act for 
small Inspector General offices that serve DFE agencies. The agency 
was largely helpless in addressing his conduct and we found the 
present resources available to us to be insufficient. Granted the 
Denali Commission did hire the former Inspector Genera1, so
the agency holds much of the responsibility of what transpired, but at 
some point help from Congress, GAO, OMB, and CIGIE is necessary when 
an agency believes that it's Inspector General is exercising poor 
professional judgment and is no longer objective. We encourage 
Congress to explore this question because we expect that in the future 
another DFE agency will find itself in a similar position. 

Lastly, we wish to acknowledge the hard work and professionalism 
exhibited by you and your staff in the course of researching and 
drafting the referenced Report (14-320). It has been our pleasure to 
work with you and your agency on this matter. 

Sincerely, 

Signed by: 

Susan Bell: 
State Co-Chair: 
Commissioner, Alaska Department of Commerce, Community and Economic 
Development: 

Signed by: 

Joel Neimeyer: 
Federal Co~Chair: 
Denali Commission: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Beryl H. Davis, (202) 512-2623 or davisbh@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Chanetta Reed (Assistant 
Director), Matthew Frideres, Maxine Hattery, Jason Kirwan, Carroll M. 
Warfield Jr., and Doris Yanger made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 102-277, div. C, tit. III (Oct. 21, 1998), codified as 
amended at 42 U.S.C. § 3121 note. 

[2] Pub. L. No. 95-452 (Oct. 12, 1978), codified as amended at 5 
U.S.C. App. 

[3] DFEs are federal government entities specifically designated by 
section 8G of the IG Act, many of which are structured as commissions, 
boards, government corporations, endowments, or institutions. 

[4] The Federal Cochair for the Commission is appointed by the 
Secretary of Commerce and is considered an employee of the Department 
of Commerce. The Federal Cochair serves for a term of 4 years; may be 
reappointed; and prior to January 4, 2014, served as the Commission's 
agency head for purposes of the IG Act. 

[5] The IG initially served the Commission as a detailed employee from 
the Alaska state legislature beginning in November 2005 and was 
officially hired as a federal employee of the Commission effective 
February 4, 2008. 

[6] The Economy Act, 31 U.S.C. § 1535, authorizes federal agencies to 
enter into agreements for the interagency provision of goods or 
services. 

[7] The Commission's Chief Financial Officer provided detailed 
information for fiscal years 2011 through 2013 on OIG-related 
expenditures. 

[8] A work product includes OIG accomplishments defined as a final 
audit, inspection, or investigation reports issued by the Commission 
OIG within the period covered by our review. Work products also 
include the OIG's semiannual reports to the Congress and the 
inspections reported in the Inspector General's Perspective on 
Management & Performance Challenges Facing the Denali Commission, 
which is included in the Commission's annual agency financial report. 

[9] Section 7 of the Inspector General Reform Act of 2008 (IG Reform 
Act), Pub. L. No. 110-409 (Oct. 14, 2008), created CIGIE, eliminating 
two previous councils of executive branch IGs and establishing one 
united federal IG council. Members of CIGIE have formulated and 
adopted these quality standards, which are for OIG use to guide the 
conduct of official duties in a professional manner. In addition, 
CIGIE investigates and reports on issues brought to the attention of 
CIGIE's Integrity Committee. 

[10] GAO, Government Auditing Standards: 2011 Revision, [hyperlink, 
http://www.gao.gov/products/GAO-12-331G] (Washington, D.C.: December 
2011). 

[11] Budgetary authority figures were not compiled for fiscal year 
2013 because the Commission did not publish an Annual Performance 
Report (APR) because of the vacancy in the Federal Cochair position. 

[12] Pub. L. No. 110-409 (Oct. 14, 2008). 

[13] Pub. L. No. 111-203, §§ 989B-989D (July 21, 2010). 

[14] The IG Act requires the Office of Management and Budget (OMB) to 
publish on an annual basis a list of DFEs that specifies what person 
or body is the head of each DFE. On January 10, 2014, OMB published 
its most recent update of the DFE list, which reflected the passage of 
the Dodd-Frank Act by indicating that the seven Denali Commissioners 
(including the Federal Cochair) are the "head of the designated 
entity" for the purposes of the IG Act. Prior to the Dodd-Frank Act, 
OMB had specified the Federal Cochair alone as the head of the 
Commission for IG Act purposes. 

[15] Pursuant to section 11 of the IG Act, CIGIE is funded via 
interagency transfers from the entities whose IGs are members. The 
amount for each OIG member is prorated based on the member's 
appropriation or funding level and is used to cover the anticipated 
annual costs of the council. 

[16] The term inspection includes evaluations, inquiries, and similar 
types of reviews that do not constitute an audit or investigation. 

[17] Agency financial reports are prepared in accordance with guidance 
from section II of OMB Circular No. A-136, Financial Reporting 
Requirements, and generally contain a brief message from the agency 
head, Management's Discussion and Analysis, a financial section, and 
other information as appropriate. 

[18] Federal grants are subject to the Single Audit Act, 31 U.S.C. §§ 
7501-7507, and its implementing guidance promulgated by OMB, 2. C.F.R. 
part 200, subpart F. Under this law, the recipient of federal 
financial assistance must undergo either an audit specific to the 
program through which it receives federal assistance or a "single 
audit" covering the entire entity and all of its federal assistance. 

[19] Denali Commission Office of Inspector General, Policies and 
Procedures For Inspections, Chapter 1, OIG Policy 1.1 (Anchorage: 
revised July 2013). 

[20] The Chief Financial Officers Act of 1990, Pub. L. No. 101-576 
(Nov. 15, 1990), as amended by the Government Management and Reform 
Act of 1994, Pub. L. No. 103-356 (Oct. 13, 1994) and the 
Accountability of Tax Dollars Act of 2002, and codified as amended in 
sections 3515 and 3521 of Title 31, United States Code, requires that 
executive agencies prepare financial statements covering all accounts 
and associated activities of each office, bureau, and activity of the 
agency. The financial statements should conform to OMB guidance and be 
audited by the agency IG or by an independent external auditor, as 
determined by the IG. 

[21] The Federal Acquisition Regulation, 48 C.F.R. § 2.101, defines 
the COTR as an individual designated and authorized in writing by the 
contracting officer to perform specific technical or administrative 
functions. 

[22] To accomplish this, the OIG conducted a review using applicable 
standards for reviewing the work of others, as stated in Planning and 
General, 650 - Using the Work of Others in GAO and President's Council 
on Integrity and Efficiency, GAO/PCIE Financial Audit Manual, volume 
2, [hyperlink, http://www.gao.gov/products/GAO-08-586G] (Washington, 
D.C.: July 2008). 

[23] Audits include financial audits, attestation engagements, and 
performance audits conducted in accordance with generally accepted 
government auditing standards (GAGAS) and begin with objectives which 
determine the type of audit to be performed and the applicable 
standards to be followed. Financial statement audits provide an 
opinion about whether an entity's financial statements are presented 
fairly in all material respects in conformity with an applicable 
financial reporting framework. Attestation engagements cover a broad 
range of financial or nonfinancial objectives about a specific subject 
matter or assertion depending on the users' needs. Performance audits 
provide objective analysis to assist management in using the 
information to improve program performance and operations, reduce 
costs, facilitate decision making by those responsible for oversight, 
and contribute to public accountability. 

[24] [hyperlink, http://www.gao.gov/products/GAO-12-331G]. These 
standards provide a framework for conducting high-quality audits with 
competence, integrity, objectivity, and independence. Audits conducted 
in accordance with GAGAS can lead to improved government management, 
better decision making and oversight, effective and efficient 
operations and accountability, and transparency for resources and 
results. 

[25] Council of the Inspectors General on Integrity and Efficiency, 
Quality Standards for Investigations (Washington, D.C.: Nov. 15, 2011). 

[26] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[27] As part of its quality control and assurance framework, each 
audit organization performing audits in accordance with government 
auditing standards must maintain a system of quality control and is 
also required to have an external peer review. The external peer 
review is performed by reviewers independent of the audit organization 
being reviewed and is conducted at least once every 3 years. 

[28] Quality Standards for Federal Offices of Inspector General is 
issued by CIGIE and is based on GAO's Standards for Internal Control 
in the Federal Government and the quality control and assurance 
standard in Government Auditing Standards (sec. 3.49). 

[29] Council of the Inspectors General on Integrity and Efficiency, 
Quality Standards for Federal Offices of Inspector General 
(Washington, D.C.: August 2012). 

[30] Department of Homeland Security, Office of Inspector General, 
Recommended Practices for Office of Inspector General Hotlines 
(Washington, D.C.: October 2010). 

[31] Denali Commission Office of Inspector General, Policies and 
Procedures For Inspections. 

[32] These are costs that the OIG questioned because of an alleged 
violation of a provision of a law, regulation, contract, or other 
agreement or document governing the expenditure of funds; because they 
are not supported by adequate documentation; or because the 
expenditure of funds for the intended purpose is unnecessary or 
unreasonable. 

[33] A recommendation that funds be put to better use refers to a 
finding by the OIG that funds could be used more efficiently if 
management took actions to implement and complete the OIG's 
recommendations. 

[34] GAO, Inspectors General: Oversight of Small Federal Agencies and 
the Role of the Inspectors General, [hyperlink, 
http://www.gao.gov/products/GAO-14-503T] (Washington, D.C.: Apr. 10, 
2014). 

[35] See 40 U.S.C. § 15704. Section 14217 of the Food, Conservation, 
and Energy Act of 2008, Pub. L. No. 110-246 (June 18, 2008), 
authorized the Northern Border Regional Commission, Southwest Border 
Regional Commission, and Southeast Crescent Regional Commission and 
provided for the appointment of a single IG to oversee them. 

[36] The Delta Regional Authority Act of 2000, Pub. L. No. 106-554, 
app. D. div. B. title V (Dec. 21, 2000), established the Delta 
Regional Authority and tasked the Department of Agriculture (USDA) IG 
with the responsibility to audit it annually. However, the USDA IG no 
longer oversees this regional commission. 

[37] The Farm Security and Rural Investment Act of 2002, Pub. L. No. 
107-171. § 6028 (May 12, 2002), established the Northern Great Plains 
Regional Authority and tasked the USDA IG with the responsibility to 
audit it annually. However, the USDA IG no longer oversees this 
regional commission. 

[38] Pub. L. No. 89-4 (Mar. 9, 1965), codified as amended at, 40 
U.S.C. §§ 14101-14704. 

[39] See [hyperlink, 
http://www.arc.gov/about/OfficeofInspectorGeneralAuditandInspectionRepor
ts.asp]. 

[40] 49 U.S.C. § 24315(d). 

[41] See Amtrak Reform and Accountability Act of 1997, Pub. L. No. 105-
134, § 409(c) (Dec. 2, 1997); Passenger Rail Investment and 
Improvement Act of 2008, Pub. L. No. 110-432, div. B, §§ 204, 221 
(Oct. 16, 2008). 

[End of section] 

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