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United States Government Accountability Office: 
GAO: 

Testimony: 

Before the Committee on Foreign Affairs, House of Representatives: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Tuesday, April 5, 2011: 

State Department Inspector General: 

Actions to Address Independence and Effectiveness Concerns Are Under 
Way: 

Statement of Jeanette M. Franzel: 
Managing Director: 
Financial Management and Assurance: 

GAO-11-382T: 

GAO Highlights: 

Highlights of GAO-11-382T, a testimony before the Committee on Foreign 
Affairs, House of Representatives. 

Why GAO Did This Study: 

In 2007 GAO reported on concerns with the independence and 
effectiveness of the Department of State Inspector General (State 
OIG). GAO was asked to provide testimony on the issues we raised and 
the status of recommendations made to the State OIG in that report. 
This testimony focuses on the importance of auditor and IG 
independence, GAO’s prior concerns with the State OIG’s independence 
and effectiveness, and the status of OIG actions to address GAO’s 
recommendations. The testimony is primarily based on GAO’s 2007 report 
conducted in accordance with generally accepted government auditing 
standards, as well as the activities conducted to follow up on the 
status of our previous recommendations. 

What GAO Found: 

The State Department Office of Inspector General (State OIG) has a 
critical responsibility in preventing and detecting fraud, waste, 
abuse, and mismanagement; and in providing independent audits and 
investigations of the department’s programs and operations. In 
addition, the Foreign Service Act of 1980 requires the State OIG to 
perform inspections of the department’s bureaus and posts, which is a 
unique requirement for an IG office. Independence is a critical 
element to the quality and credibility of an IG’s work under the IG 
Act and is fundamental to professional auditing standards as well as 
an essential element of IG effectiveness. An IG must be independent 
and free from personal, external, and organizational impairments to 
independence in order to effectively fulfill the full range of 
requirements for the office. 

GAO’s 2007 report identified areas of concern regarding the State 
OIG’s independence and effectiveness. Specifically, the appointment of 
management and Foreign Service officials to head the State OIG in an 
acting capacity for extended periods of time is not consistent with 
professional standards for independence. In addition, GAO reported 
that the use of Foreign Service officers at the ambassador level to 
lead OIG inspections resulted in, at a minimum, the appearance of 
independence impairment. GAO also reported that inspections, by 
design, are conducted under less in-depth requirements and do not 
provide the same level of assurance as audits. However, the OIG relied 
on inspections rather than audits to provide oversight coverage, 
resulting in gaps to the audit oversight of the department. GAO also 
reported that inspections performed by the OIG’s Office of Information 
Technology (IT) were not part of an internal quality review process, 
and that the State OIG and the department’s Bureau of Diplomatic 
Security (DS) lacked an agreement to coordinate their investigative 
activities. 

The State OIG implemented two of GAO’s five recommendations and has 
actions under way related to the remaining three. Specifically, the 
OIG now includes IT-related inspections in its internal quality-review 
process and has completed an agreement to coordinate investigations 
with DS. Also, the OIG is implementing a change to the succession 
planning for acting IG positions to exclude Foreign Service officers 
and is in the process of increasing the level of audit coverage 
through the distribution of staff and audit planning. In addition, the 
State OIG continues to assign Foreign Service officers at the 
ambassador level as team leaders for inspections, however, four of the 
six officers are rehired annuitants unlikely to rotate to State 
Department Foreign Service positions. GAO remains concerned, however, 
about the OIG’s use of Foreign Service officers and the State 
Department’s need to rely on acting IGs for extended periods of time. 
GAO continues to reaffirm its recommendations, and encourages the 
State OIG, with the assistance of the Secretary, to fully address 
these recommendations to enhance the effectiveness of the OIG’s 
oversight of the State Department’s programs and operations. 

What GAO Recommends: 

In the 2007 report, GAO recommended that the IG work with the 
Secretary of State to address two recommendations regarding concerns 
about the State OIG’s independence, and to reassess the mix of audits 
and inspections to help provide effective audit coverage of the 
department. In addition, GAO recommended that the IG include 
inspections performed by the OIG’s Office of Information Technology in 
its internal quality review process and that it work with the 
department’s Bureau of Diplomatic Security (DS) on an agreement to 
coordinate their investigative efforts. 

View [hyperlink, http://www.gao.gov/products/GAO-11-382T] or key 
components. For more information, contact Susan Ragland, (202) 512-
8486, raglands@gao.gov. 

[End of section] 

Madam Chairman Ros-Lehtinen, Ranking Member Berman, and Members of the 
Committee: 

I am pleased to be here today to discuss the Department of State 
Office of Inspector General (State OIG), which is responsible for 
providing oversight of the State Department including the Foreign 
Affairs community in more than 270 embassies, consulates, and other 
posts worldwide as well as the Broadcasting Board of Governors. The 
State Inspector General (IG) has a critical responsibility to provide 
effective and objective oversight of the department to support 
managers in their efforts to improve performance and prevent or detect 
losses from fraud, waste, or abuse and to the Congress in its 
responsibility for oversight of the executive branch. 

The statutory IGs, including the State IG, play a critical role in 
federal agency oversight and in identifying mismanagement of scarce 
taxpayer dollars. In light of this important role, the IG Act provides 
specific protections to IG independence that are unprecedented for an 
audit and investigative function located within an organization being 
reviewed. These protections are necessary due in large part to the 
unusual reporting requirements of the IGs who are both part of their 
federal agencies and also expected to provide independent reports of 
their work externally to the Congress. 

My statement today is based primarily on our March 2007[Footnote 1] 
report on the activities of the State OIG, our October 2007 testimony 
[Footnote 2] that followed on the same subject, and updated 
information we received from State OIG officials to follow up on the 
status of our recommendations. In our 2007 report and testimony, we 
raised a number of concerns with the State OIG's independence, the 
lack of audit oversight in high-risk areas, and the lack of assurance 
that the department is receiving independent investigations. I will 
discuss in more detail (1) the importance of auditor and IG 
independence, (2) prior reporting on our concerns with the State OIG's 
independence and effectiveness, and (3) information about the current 
status of the State OIG's actions to address our recommendations. This 
testimony is based on our prior work and follow-up activities which 
were performed in accordance with generally accepted government 
auditing standards. 

Background: 

The State OIG, as currently constituted, was established by the 
Omnibus Diplomatic Security and Antiterrorism Act of 1986,[Footnote 3] 
which expanded on the 1985 amendments[Footnote 4] to the Inspector 
General Act of 1978 (IG Act),[Footnote 5] as an independent office to 
prevent and detect fraud, waste, abuse, and mismanagement in the 
department's programs and operations; conduct and supervise audits and 
investigations; and recommend policies to promote economy, efficiency, 
and effectiveness. 

The State OIG is unique among federal inspectors general in its 
history and responsibilities due to a statutory requirement for the 
OIG to provide inspections of the department's bureaus and posts 
worldwide. From 1906 until 1957, inspections were to be carried out at 
least once every 2 years and were viewed as a management function, and 
not a function of an independent inspector general. In 1957, the State 
Department administratively established an Inspector General of 
Foreign Service, which was the first inspector general office within 
the State Department to conduct inspections. Congress enacted 
legislation in 1961 and in 1980 creating statutory inspectors general 
who were tasked with performing inspections on certain State 
Department activities. In 1978, GAO reviewed the IG's inspection 
reports and questioned the independence of Foreign Service officers 
who were temporarily detailed to the IG's office and recommended the 
elimination of this requirement. [Footnote 6] The 1980 legislation, 
section 209(a) of the Foreign Service Act, required the State IG to 
inspect every foreign service post, bureau, or other operating unit in 
the State Department at least once every 5 years. 

In 1982, we reviewed the IG's operations and noted that the 5-year 
inspection cycle led to problems with the IG's effectiveness by 
limiting the ability to do other work.[Footnote 7] In addition, we 
continued to question the use of Foreign Service officers and other 
persons from operational units within the department to staff the IG 
office. In 1986, reacting to concerns similar to those expressed in 
our 1982 report, Congress made the State IG a presidentially appointed 
inspector general subject to the Inspector General Act and prohibited 
a career member of the Foreign Service from being appointed as the 
State IG. Starting in 1996 and continuing until today, Congress, in 
the Department of State appropriations acts, annually waives the 5-
year statutory requirement for inspections. However, while the 
inspection requirement is waived annually by Congress, the State IG 
continues to conduct inspections as part of its plan for oversight of 
the department. 

The State OIG's inspection responsibilities encompass a wide range of 
objectives, which include reviewing whether department policy goals 
are achieved and whether the interests of the United States are 
represented and advanced effectively. In addition, the State OIG is 
assigned responsibility for specialized security inspections in 
support of the department's mission to provide effective protection to 
its personnel, facilities, and sensitive intelligence information. 
Inspections are defined by the Council of the Inspectors General on 
Integrity and Efficiency (CIGIE)[Footnote 8] as a process that 
evaluates reviews, studies, and analyzes the programs and activities 
of an agency for the purposes of providing information to managers for 
decision making; making recommendations for improvements to programs, 
polices, or procedures; and identifying where administrative action 
may be necessary. 

There are fundamental differences between inspections and audits. 
Inspections and audits are typically conducted under separate 
standards with different basic requirements. That is, IGs are required 
by the IG Act to conduct audits in accordance with Government Auditing 
Standards (also known as generally accepted government auditing 
standards).[Footnote 9] In contrast, the IGs follow CIGIE's Quality 
Standards for Inspection and Evaluation[Footnote 10] when conducting 
inspections as required by law.[Footnote 11] By design, audits 
performed under Government Auditing Standards are subject to more in- 
depth requirements for levels of evidence and documentation supporting 
the findings than are inspections performed under CIGIE's inspection 
standards. Also, auditing standards require external quality reviews 
of audit organizations (peer reviews) on a 3-year cycle, while 
inspection standards do not require such external reviews. According 
to CIGIE, inspections provide the benefits of a flexible mechanism for 
optimizing resources, expanding agency coverage, and using alternative 
review methods and techniques. However, as reported by a recent peer 
review performed by the National Aeronautics and Space Administration 
(NASA) IG, the State OIG's Middle East Regional Office did not always 
provide audits consistent with generally accepted government auditing 
standards (GAGAS). Consequently, because these audits were not 
performed in accordance with GAGAS, they were reclassified by the OIG 
as inspections. 

Importance of Auditor and IG Independence: 

Independence is a fundamental principle to the auditing profession and 
the most critical element for IG effectiveness. Without independence, 
an audit organization cannot conduct independent audits in compliance 
with generally accepted government auditing standards. Likewise, an IG 
who lacks independence cannot effectively fulfill the full range of 
requirements of the office. Lacking this critical attribute, an audit 
organization's work might be classified as studies, research reports, 
consulting reports, or reviews, rather than independent audits. 

Quality Standards for Federal Offices of Inspector General adopted by 
CIGIE includes requirements for IG independence.[Footnote 12] 
Specifically, IGs and their staff must be free both in fact and 
appearance from personal, external, and organizational impairments to 
their independence. The IGs and their staff have a responsibility to 
maintain independence so that opinions, conclusions, judgments, and 
recommendations will be impartial and viewed as impartial by 
knowledgeable third parties. Likewise, Government Auditing Standards 
states: "in all matters relating to the audit work, the audit 
organization and the individual auditor, whether government or public, 
must be free from personal, external, and organizational impairments 
to independence and must avoid the appearance of such impairments to 
independence. Auditors and audit organizations must maintain 
independence so that their opinions, findings, conclusions, judgments, 
and recommendations will be impartial and viewed as impartial by 
objective third parties with knowledge of the relevant information." 

Personal independence applies to individual auditors at all levels of 
the audit organization, including the head of the organization. 
Personal independence refers to the auditor's ability to remain 
objective and maintain an independent attitude in all matters relating 
to the audit, as well as the auditor's ability to be recognized by 
others as independent. The auditor is to have an independent and 
objective state of mind that does not allow personal bias or the undue 
influence of others to override the auditor's professional judgments. 
This attitude is also referred to as intellectual honesty. The auditor 
must also be free from direct financial or managerial involvement with 
the audited entity or other potential conflicts of interest that might 
create the perception that the auditor is not independent. 

The IG's personal independence and appearance of independence to 
knowledgeable third parties is critical to IG decision making related 
to the nature and scope of audit and investigative work to be 
performed by the IG office. The IG's personal independence must be 
maintained when conducting any audit and investigative work and when 
making decisions to determine the type of work to pursue and the 
nature and scope of the individual audits themselves. 

External independence refers to both the auditor's and the audit 
organization's freedom to make independent and objective judgments 
free from external influences or pressures. Examples of impairments to 
external independence include restrictions on access to records, 
government officials, or other individuals needed to conduct the 
audit; external interference over the assignment, appointment, 
compensation, or promotion of audit personnel; restrictions on funds 
or other resources provided to the audit organization that adversely 
affect the audit organization's ability to carry out its 
responsibilities; or external authority to overrule or to 
inappropriately influence the auditors' judgment as to appropriate 
reporting content. 

The IG Act provides the IGs with protections against impairments to 
external independence by providing that IGs have access to all agency 
documents and records, prompt access to the agency head, and the 
authority to independently (1) select and appoint IG staff, (2) obtain 
services of experts, and (3) enter into contracts. The IGs may choose 
whether to exercise the act's specific authority to obtain access to 
information that is denied by agency officials. 

In addition, the IG Act granted the IGs additional insulation from 
impairment of external independence by requiring that IGs report the 
results of their work in semiannual reports to Congress without 
alteration by their respective agencies, and that these reports 
generally are to be made available to the general public. The IG Act 
also directed the IGs to keep their agency heads and Congress fully 
and currently informed of any deficiencies, abuses, fraud, or other 
serious problems relating to the administration of programs and 
operations of their agencies. Also, the IGs are required to report 
particularly serious or flagrant problems, abuses, or deficiencies 
immediately to their agency heads, who are required to transmit the 
IG's report to Congress within 7 calendar days. 

Organizational independence refers to the audit organization's 
placement in relation to the activities being audited. Professional 
auditing standards have different criteria for organizational 
independence for external and internal audit organizations. The IGs, 
in their statutory role of providing oversight of their agencies' 
operations, represent a unique hybrid including some characteristics 
of both external and internal reporting responsibilities. For example, 
the IGs have external-reporting requirements outside their agencies, 
such as to the Congress, which are consistent with the reporting 
requirements for external auditors. At the same time the IGs are part 
of their respective agencies and must also keep their agency heads, as 
well as the Congress, concurrently informed. 

The IG Act provides specific protections to the IGs' organizational 
independence including the requirement that IGs report only to their 
agency heads and not to lower-level management. The head of the agency 
may delegate supervision of the IG only to the officer next below in 
rank, and is prohibited from preventing the IG from initiating, 
carrying out, or completing any audit or investigation. In addition, 
IGs in large federal departments and agencies, such as the State 
Department, are appointed by the President and confirmed by the 
Senate. Only the President has the authority to remove these IGs and 
can do so only after explaining the reasons to the Congress 30 days 
before taking action. 

The Inspector General Reform Act of 2008 provided additional 
enhancements to overall IG independence that included establishing 
CIGIE by statute to continually address areas of weakness and 
vulnerability to fraud, waste, and abuse in federal programs and 
operations; requiring that IGs have their own legal counsel or use 
other specified counsel; and requiring that the budget amounts 
requested by the IGs for their operations be included in the overall 
agency-budget requests to the President and the Congress. 

Independence and Effectiveness Concerns We Reported in 2007: 

Concerns Regarding the State OIG's Independence: 

In March 2007, we reported on two areas of continuing concern 
regarding the independence of the State OIG. These concerns involved 
the appointment of management officials to head the State OIG in an 
acting capacity for extended periods of time and the use of Foreign 
Service staff to lead State OIG inspections. These concerns were 
similar to independence issues we reported in 1978 and 1982 regarding 
Foreign Service officers temporarily detailed from program offices to 
the IG's office and inspection staff reassigned to and from management 
offices within the department. In response to concerns about personal 
impairments to the State IG's independence, the act that created the 
current IG office prohibits a career Foreign Service official from 
becoming an IG of the State Department.[Footnote 13] 

Nevertheless, our 2007 review found that during a period of 
approximately 27 months, from January 2003 through April 2005, four 
management officials from the State Department served as an acting 
State IG. All four of these officials had served in the Foreign 
Service in prior management positions, including political 
appointments as U.S. ambassadors to foreign countries. In addition, we 
also found that three of the officials returned to significant 
management positions in the State Department after serving as acting 
IGs. We found that acting IG positions continue to be used and are 
filled by officials with prior management positions at the department. 
Independence concerns surrounding such acting appointments are 
additionally troublesome when the acting IG position is held for such 
prolonged periods. (See table 1.) 

Table 1: Length of Service of the State Department IG and Management 
Officials Who Served as Acting IGs January 24, 2003, to the present: 

Position prior to serving as IG: Ambassador to Kyrgyzstan; 
Starting dates and length of service: 1/24/2003 - 8 months; 
Position after serving as IG: Retired from government service. 

Position prior to serving as IG: Ambassador to Columbia; 
Starting dates and length of service: 9/28/2003 - 10 months; 
Position after serving as IG: Permanent Representative at the U.S. 
Mission to the United Nations. 

Position prior to serving as IG: Deputy Global AIDs Coordinator; 
Starting dates and length of service: 8/3/2004 - 1 month; 
Position after serving as IG: Special Representative on Avian and 
Pandemic Influenza. 

Position prior to serving as IG: Ambassador to South Africa; 
Starting dates and length of service: 8/23/2004 - 8 months; 
Position after serving as IG: Charge d'Affaires, Kharton, Sudan. 

Position prior to serving as IG: State Department Inspector General 
served 32 months 5/2/2005 - 1/15/2008. 

Position prior to serving as IG: Executive Director/Controller, Bureau 
of International Narcotics and Law Enforcement Affairs; 
Starting dates and length of service: 1/16/2008 - 6 months; 
Position after serving as IG: Ambassador to Brunei. 

Position prior to serving as IG: 25 years in senior State Department 
positions; 
Starting dates and length of service: 6/2/2008 - 33 months; 
Position after serving as IG: Currently Deputy IG. 

Source: GAO's March 2007 report and current information from the State 
Department. 

[End of table] 

Another independence concern discussed in our March 2007 report is the 
use of Foreign Service officers to lead inspections of the 
department's bureaus and posts. We found it was State OIG policy for 
inspections to be led by ambassador-level Foreign Service officers. 
These Foreign Service officers frequently move through the OIG on 
rotational assignments. As Foreign Service officers, they are expected 
to help formulate, implement, and defend government policy which now, 
as team leaders for the IG's inspections, they are expected to review. 
These officers may return to Foreign Service positions in the 
department after their rotation through the OIG which could be viewed 
as compromising the OIG's independence. Specifically, the appearance 
of objectivity is severely limited by this potential impairment to 
independence resulting in a detrimental effect to the quality of the 
inspection results. 

Reliance on Inspections Limited Effectiveness due to Gaps in Oversight: 

In our 2007 audit, we found that the State OIG's emphasis on 
inspections limited its effectiveness because it resulted in gaps in 
the audit coverage of the State Department's high-risk areas and 
management challenges. These critical areas were covered almost 
exclusively through OIG inspections that were not subject to the same 
level of scrutiny that would have been the case if covered by audits. 
Specifically, we found gaps of OIG audit coverage in key State 
Department programs and operations such as (1) information security, 
(2) human resources, (3) counterterrorism and border security, and (4) 
public diplomacy. In these areas the State OIG was relying on 
inspections rather than audits for oversight. In the 10 inspections 
that we examined, we found that the State OIG inspectors relied 
heavily on invalidated agency responses to questionnaires completed by 
the department staff at each inspected bureau or post. We did not find 
any additional testing of evidence or sampling of agency responses to 
determine the relevance, validity, and reliability of the evidence as 
would be required under auditing standards. In addition, we found that 
for 43 of the 183 recommendations contained in the 10 inspections we 
reviewed, the related inspection files did not contain any documented 
support beyond written report summaries of the findings and 
recommendations. 

Inspections by the OIG's Office of Information Technology Were Not 
Included in Quality Reviews: 

In our 2007 report we also found that inspections by the OIG's Office 
of Information Technology were not included in the internal quality 
reviews that the OIG conducts of its own work. Information security is 
a high-risk area and management challenge for the State Department, 
and the OIG relied almost exclusively on inspections for oversight of 
this area. Therefore, the quality of these inspections is key to the 
OIG's oversight effectiveness. In addition, CIGIE's standards for 
inspections require that IG inspections be part of a quality-control 
mechanism that provides an assessment of the inspection work. 

Lack of Coordination of Investigations between the State OIG and the 
Bureau of Diplomatic Security: 

We found in 2007 that there was inadequate assurance that the 
investigative efforts of the State Department were coordinated to 
avoid duplication or to ensure that independent OIG investigations of 
the department would be performed. Specifically, while part of its 
worldwide responsibilities for law enforcement and security 
operations, the department's Bureau of Diplomatic Security(DS) 
performed investigations that included passport and visa fraud, both 
externally and within the department; these investigations were not 
coordinated with the OIG investigators. The IG Act, as amended, 
authorizes the State IG to conduct and supervise independent 
investigations and prevent and detect fraud, waste, abuse, and 
mismanagement throughout the State Department. 

DS performs its investigations as a function of management, reporting 
to the State Department Undersecretary for Management. In contrast, 
the State OIG is required by the IG Act to be independent of the 
offices and functions it investigates. We reported in 2007 that 
without a formal agreement to outline the responsibilities of both DS 
and the State OIG regarding these investigations, there was inadequate 
assurance that this work would be coordinated to avoid duplication or 
that independent OIG investigations of the department would be 
performed. 

The State Department's OIG Has Actions Under Way or Completed to 
Address Most of Our Recommendations: 

Recommendations from Our 2007 Report: 

To address the concerns we raised in our March 2007 report we made 
five recommendations. 

To help ensure the independence of the IG Office, which also impacts 
the effectiveness of the office, we recommended that the IG work with 
the Secretary of State to: 

(1) develop a succession-planning policy for the appointment of 
individuals to head the State IG office in an acting capacity that 
provides for independent coverage between IG appointments and also to 
prohibit career Foreign Service officers and other department managers 
from heading the State OIG in an acting capacity, and: 

(2) develop options to ensure that State OIG inspections are not led 
by career Foreign Service officials or other staff who rotate to 
assignments within State Department management. 

We also made the following three recommendations to the State IG to 
address the effectiveness of the OIG: 

(1) help ensure that the State IG provides the appropriate breath and 
depth of oversight of the State Department's high-risk areas and 
management challenges, reassess the proper mix of audit and inspection 
coverage for these areas; 

(2) provide for more complete internal quality reviews of inspections, 
include inspections performed by the State IG's Office of Information 
Technology in the OIG's internal quality review process; and: 

(3) develop a formal written agreement with the Bureau of Diplomatic 
Security to coordinate departmental investigations in order to provide 
for more independent investigations of State Department management and 
to prevent duplicative investigations. 

Progress Has Been Made in Addressing Our Prior Recommendations: 

In response to a draft of our 2007 report, the State OIG has 
implemented two recommendations and has taken actions related to the 
remaining three recommendations. Although the State OIG has not fully 
addressed a recommendation that has been the subject of GAO 
recommendations regarding the independence of the State OIG's 
inspections since our 1978 report, there has also been some progress 
in this area. 

The OIG implemented our recommendation to include inspections 
performed by the Office of Information Technology in its internal 
quality review process in June 2008, by abolishing the State OIG's 
Office of Information Technology and transferring staff into either 
the Office of Audits or into the Office of Inspections. As a result, 
the OIG's information technology inspections are now included in the 
Office of Inspections' internal quality-review process. 

The OIG has implemented our recommendation that the office work with 
the Secretary of State and the Bureau of Diplomatic Security (DS) to 
develop a formal written agreement that delineates the areas of 
responsibility for State Department investigations. In December 2010, 
the State IG's investigative office completed an agreement with the 
bureau's Assistant Director of Domestic Operations to address the 
coordination of investigative activities. This agreement, when fully 
implemented, should help to ensure proper coordination of these 
offices in their investigations. 

Regarding a succession plan for filling acting IGs positions, the 
State Deputy IG stated that he issued a memo to abolish the deputy IG 
for Foreign Service position to help ensure that any future deputy IG 
moving into an acting IG position would not be a Foreign Service 
officer. The Deputy IG stated that he is currently working with the 
department to update the Foreign Affairs Manual to reflect this 
change. Furthermore, the elimination of this position helps to 
strengthen the independence of the OIG. We believe the State IG's 
changes are responsive to the recommendation made in our 2007 report. 
Nevertheless, the State Department has relied on acting IGs to provide 
oversight for over 5 of the last 8 years since January 2003. (See 
table 1.) This use of temporarily assigned State Department management 
staff to head the State OIG can affect the perceived independence of 
the entire office in its oversight of the department's operations, and 
the practice is questionable when compared to the independence 
requirements of Government Auditing Standards and other professional 
standards followed by the IGs. Further, career members of the Foreign 
Service are prohibited by statute from being appointed as State IG. 
[Footnote 14] This exclusion helps to protect against the personal 
impairments to independence that could result when a Foreign Service 
officer reviews the bureaus and posts of fellow Foreign Service 
officers and diplomats. 

Regarding our recommendation to reassess the mix of audits and 
inspections for the appropriate breadth and depth of oversight 
coverage, especially in high-risk areas and management challenges, we 
noted gaps in audit coverage. Specifically, in both fiscal years 2009 
and 2010, the OIG had gaps in the audit coverage of management 
challenges in the areas of (1) coordinating foreign assistance, (2) 
public diplomacy, and (3) human resources. However, the State OIG has 
made progress in planning for and providing additional audit coverage. 
Since 2007 the State OIG's resources have increased, providing the 
opportunity to augment its audit oversight of the department. 
Specifically, the OIG's total on board staff increased to 227, from 
191 in at the end of fiscal year 2005. Also, the OIG's audit staff 
increased to 64 compared to 54 at the end of fiscal year 2005. In 
addition, the Office of Audits and the Middle East Regional Office are 
planning to merge resulting in the OIG's largest component. 

In January 2010, the State OIG reorganized the focus of the Office of 
Audits and began to align its oversight efforts with the department's 
growing global mission and strategic priorities. The newly reorganized 
Office of Audit consists of six functional divisions and an audit 
operations division to address (1) contracts and grants, (2) 
information technology, (3) financial management, (4) international 
programs, (5) human capital and infrastructure, (6) security and 
intelligence, and (7) audit operations, which includes quality 
assurance. These audit areas are intended to develop expertise and 
address the department's management challenges. According to the 
Office of Audits Fiscal Year 2011 Performance Plan, the office will 
target high-cost programs, key management challenges, and vital 
operations to provide managers with information that will assist them 
in making operational decisions. The 2011 plan includes new areas such 
as global health, food security, climate change, democracy and 
governance, and human resource issues within the State Department. In 
addition, with the assistance of an independent public accountant, the 
State OIG has completed an audit of a major issue in coordinating 
foreign assistance, the Global HIV/AIDS Initiative related to the 
President's emergency plan for AIDS relief.[Footnote 15] 

Regarding our recommendation concerning the use of career Foreign 
Service officials to lead inspection teams, the State OIG's 
inspections handbook requires that the team leaders for inspections be 
a Foreign Service officer at the rank of ambassador. We also stated in 
our 2007 report that experience and expertise are important on 
inspection teams, but the expert need not be the team leader. However, 
the Deputy IG stated that having Foreign Service officers with the 
rank of ambassador as team leaders is critical to the effectiveness of 
the inspection teams. OIG officials stated that there are currently 
six Foreign Service officers at the ambassador level serving as the 
team leaders for inspections, four of whom are rehired annuitants 
working for the State OIG. To address independence impairments the 
State OIG relies on a recusal policy where Foreign Service officers 
must self-report whether they have worked in a post or embassy that is 
subject to an inspection and therefore presents a possible impairment. 
Further, State OIG officials noted that the team leaders report to a 
civil service Assistant IG and the inspection teams include other 
members of the civil service. We continue to believe that the State 
OIG's use of management staff who have the possibility of returning to 
management positions, even if they are rehired annuitants or currently 
report to civil service employees in the OIG, presents at least an 
appearance of impaired independence and is not fully consistent with 
professional standards. 

Closing Observations: 

The mission of the State OIG is critical to providing independent and 
objective oversight of the State Department and identifying 
mismanagement of taxpayer dollars. While the IG Act provides each IG 
with the ability to exercise judgment in the use of protections to 
independence specified in the act, the ultimate success or failure of 
an IG office is largely determined by the individual IG placed in that 
office and that person's ability to maintain personal, external, and 
organizational independence both in fact and appearance, while 
reporting the results of the office's work to both the agency head and 
to the Congress. An IG who lacks independence cannot effectively 
fulfill the full range of requirements for this office. 

The State OIG has either implemented or is in the process of 
implementing the recommendations from our 2007 report, with the 
exception of our recommendation to discontinue the use of Foreign 
Service officers as team leaders for inspections. We remain concerned 
about the independence issues that can arise from such an arrangement. 
In addition, we remain concerned that a permanent IG has not been 
appointed at the State Department for almost 3 years. 

We commend the OIG for the steps it is taking to build and strengthen 
its audit practice, and we are re-emphasizing our 2007 recommendation 
for the OIG to reassess its mix of audit and inspections to achieve 
effective oversight of the department's areas of high risk and 
management challenges. 

Madam Chairman Ros-Lehtinen, Ranking Member Berman, and Members of the 
Committee, this concludes my prepared statement. I would be happy to 
respond to any questions you or other Members of the Committee might 
have at this time. 

[End of section] 

Footnotes: 

[1] GAO, Inspectors General: Activities of the Department of State 
Office of Inspector General, [hyperlink, 
http://www.gao.gov/products/GAO-07-138] (Washington, D.C.: Mar. 23, 
2007). 

[2] GAO, Inspectors General: Limitations of IG Oversight at the 
Department of State, [hyperlink, 
http://www.gao.gov/products/GAO-08-135T] (Washington, D.C.: Oct. 31, 
2007). 

[3] Pub. L. No. 99-399, 100 Stat. 853 (Aug. 27, 1986). 

[4] Pub. L. No. 99-93, 99 Stat. 427 (Aug. 16, 1985). 

[5] Pub. L. No. 95-452, 92 Stat. 1101 (Oct. 12, 1978), codified as 
amended at 5 U.S.C. App. 

[6] GAO, State Department's Office of Inspector General, Foreign 
Service, Needs to Improve Its Internal Evaluation Process, [hyperlink, 
http://www.gao.gov/products/ID-78-19] (Washington, D.C.: Dec. 6, 1978). 

[7] GAO, State Department's Office of Inspector General Should Be More 
Independent and Effective, [hyperlink, 
http://www.gao.gov/products/AFMD-83-56] (Washington, D.C.: June 2, 
1982). 

[8] The Council of the Inspectors General on Integrity and Efficiency 
was established by the Inspector General Reform Act of 2008 (Pub. L. 
110-409, 122 Stat. 4302 (Oct. 14, 2008) and consists mainly of IGs, to 
address integrity, economy, and effectiveness issues that transcend 
individual government agencies, and to increase the professionalism 
and effectiveness of personnel in the IG offices. 

[9] GAO, Government Auditing Standards, January 2007 Revision, 
[hyperlink, http://www.gao.gov/products/GAO-07-162G] (Washington, 
D.C.: January 2007). 

[10] Council of the Inspectors General on Integrity and Efficiency, 
Quality Standards for Inspection and Evaluation (Washington, D.C.: 
January 2011). 

[11] The Inspector General Reform Act of 2008 requires IGs who are 
members of CIGIE to adhere to professional standards developed by 
CIGIE for inspections and other work. 

Pub. L. 110-409, 122 Stat. 4302, 4308 (Oct. 14, 2008). 

[12] Council of the Inspectors General on Integrity and Efficiency, 
Quality Standards for Federal Offices of Inspector General 
(Washington, D.C.: Oct. 2003). 

[13] 22 U.S.C. § 4861(d). 

[14] 22 U.S.C. § 4861(d). 

[15] State Department OIG, Audit of Sources and Uses of Global 
HIV/AIDS Initiative Global Health and Child Survival Funds Related to 
the President's Emergency Plan for AIDS Relief (PEPFAR) for FYs 2007 
and 2008 (Washington, D.C.: Dec. 2010). 

[End of section] 

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