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entitled 'Financial Audit: Independent Counsel Expenditures for the Six 
Months Ended March 31, 2003' which was released on September 30, 2003.

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Report to Congressional Committees:

September 2003:

FINANCIAL AUDIT:

Independent Counsel Expenditures for the Six Months Ended March 31, 
2003:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1098] GAO-03-
1098:

Contents:

Letter: 

Auditor's Report: 

Background: 

Opinion on Statements of Expenditures: 

Consideration of Internal Control : 

Compliance with Laws and Regulations: 

Objectives, Scope, and Methodology: 

Agency Comments: 

Appendixes:

Appendix I: Statement of Expenditures for Independent Counsel 
Barrett: 

Appendix II: Statement of Expenditures for Independent Counsel 
Thomas: 

Abbreviations:

AOUSC: Administrative Office of the U.S. Courts:

FBI: Federal Bureau of Investigation:

OIC: Office of Independent Counsel:

Letter September 30, 2003:

Congressional Committees:

Enclosed is our report on the statements of expenditures of two offices 
of independent counsel for the 6 months ended March 31, 2003. We are 
sending copies of this report to the Attorney General, the Director of 
the Administrative Office of the U.S. Courts, the Independent Counsels 
included in our audit, and other interested parties. Copies of this 
report will be made available to others upon request. This report will 
also be available at no charge on GAO's Web site at [Hyperlink, 
www.gao.gov.] www.gao.gov.

If you or your staffs have any questions concerning this report, please 
contact me at (202) 512-6906 or Hodge Herry, Assistant Director, at 
(202) 512-9469. You can also reach us by E-mail at [Hyperlink, 
williamsM1@gao.gov] w [Hyperlink, williamsm1@gao.gov] 
illiamsM1@gao.gov or [Hyperlink, herryh@gao.gov] h [Hyperlink, 
herryh@gao.gov] erryh@gao.gov. Key contributors to this report were 
Carol Keightley, Kwabena Ansong, and Heather Dunahoo.

McCoy Williams 
Director 
Financial Management and Assurance:

Signed by McCoy Williams: 

Congressional Committees:

This report presents the results of our audits of expenditures[Footnote 
1] reported by two offices of independent counsel for the 6 months 
ended March 31, 2003. The Department of Justice and the independent 
counsels are required under 28 U.S.C. 594 (d)(2), (h) and 596 (c)(1) 
(2000) to report on expenditures from a permanent, indefinite 
appropriation established within the Department of Justice to fund 
independent counsel activities. We are required under 28 U.S.C. 596 
(c)(2) to audit the statements of expenditures prepared by the 
independent counsels.

In our audits covering the 6 months ended March 31, 2003, we found:

* the statements of expenditures presented in appendixes I and II, for 
the offices of independent counsel (OIC) David M. Barrett and Julie F. 
Thomas, respectively, are presented fairly, in all material respects, 
in conformity with the basis of accounting described in note 1 of each 
counsel's statement, which is principally the cash basis, a 
comprehensive basis of accounting other than U.S. generally accepted 
accounting principles;

* no material weaknesses in internal control over financial reporting 
(including safeguarding assets) and compliance with laws and 
regulations; and:

* no reportable noncompliance with laws and regulations we tested.

The following sections provide background information, outline each 
conclusion in more detail, and discuss the scope of our audits.

Background:

The Ethics in Government Act of 1978 amended title 28 of the United 
States Code to authorize the judicial appointment of independent 
counsels when the Attorney General determines that reasonable grounds 
exist to warrant further investigation of high-ranking government 
officials for certain alleged crimes. The independent counsel law (28 
U.S.C. 591-599 (2000)) was intended to preserve and promote the 
accountability and integrity of public officials and of the 
institutions of the federal government. The independent counsel law 
expired on June 30, 1999. Provisions of the law allow the independent 
counsels serving at the expiration date to continue investigating 
pending matters until they determine that the investigations of such 
matters have been completed.

The independent counsel law directs the Department of Justice to pay 
all costs relating to the establishment and operation of independent 
counsel offices from the permanent, indefinite appropriation 
established to fund independent counsel activities. The independent 
counsel law also designates specific responsibilities to the 
Administrative Office of the U.S. Courts (AOUSC) for independent 
counsels' administrative support. The Department of Justice 
periodically disburses lump-sum payments to AOUSC for this purpose.

During any 6-month reporting period, there may be other significant 
costs incurred in support of the work of the counsels. These costs are 
paid from appropriations other than the permanent, indefinite 
appropriation established to fund independent counsel activities. These 
costs arise when a counsel uses detailees from other federal agencies, 
such as the Federal Bureau of Investigation (FBI). Independent counsels 
are not required to reflect such costs in their statements of 
expenditures nor do they do so. For the 6 months ended March 31, 2003, 
there were no costs reported by other agencies in support of 
independent counsel activities.

Also, these statements and related notes do not include certain 
expenditures related to the investigation by former independent counsel 
Daniel M. Pearson. Mr. Pearson's office officially closed in April 
2002, and accordingly, no longer prepares financial statements. 
However, OIC Pearson had $2,585 in expenditures this period for payment 
of late contractor billings. Further, a lump-sum leave payment is 
expected to be made from the independent counsel permanent, indefinite 
appropriation at some future point pending the satisfactory completion 
of administrative responsibilities by a former OIC Pearson employee.

In addition, these statements and related notes do not include certain 
expenditures related to the investigation by Special Counsel John C. 
Danforth. The investigation by Special Counsel Danforth was officially 
terminated when Mr. Danforth closed his office in March 2001. 
Accordingly, Special Counsel Danforth no longer prepares financial 
statements. However, the Department of Justice paid $22,612 from the 
permanent, indefinite appropriation during this period for delayed 
billings for rental of copying equipment and a correction to the 
account for background investigation services provided by the Office of 
Personnel Management for the Office of Special Counsel Danforth. 
Justice originally mistakenly charged the latter to another unit within 
the Department of Justice.

The office of independent counsel Ralph I. Lancaster is also officially 
closed and no longer prepares financial statements. However, the U.S. 
Court of Appeals for the D.C. Circuit awarded reimbursement of $32,437 
for attorneys' fees and expenses of individuals who had been 
investigated by Mr. Lancaster but not indicted, as authorized by 28 
U.S.C. 593(f)(1). The reimbursement was made from the permanent fund 
established for the payment of judgments.

Opinion on Statements of Expenditures:

The statements of expenditures, including the accompanying notes for 
the offices of independent counsel David M. Barrett and Julie F. 
Thomas, present fairly, in all material respects, the expenditures of 
these counsels for the 6 months ended March 31, 2003, on the basis of 
accounting described in note 1 of each office's statement.

The counsels prepared their statements of expenditures principally on a 
cash basis of accounting, which is a comprehensive basis of accounting 
other than U.S. generally accepted accounting principles. The basis of 
accounting is described in note 1 of each counsel's statement.

Consideration of Internal Control:

In planning and performing our audits, we considered internal control 
over financial reporting and compliance.[Footnote 2] We did this to 
determine our procedures for auditing the statements of expenditures, 
not to express an opinion on internal control. Accordingly, we do not 
express an opinion on internal control over financial reporting and 
compliance. However, for the controls we tested, we found no material 
weaknesses in internal control over financial reporting (including 
safeguarding assets) and compliance for the 6-month period ended March 
31, 2003. A material weakness is a condition in which the design or 
operation of one or more of the internal control components does not 
reduce to a relatively low level the risk that errors, fraud, or 
noncompliance in amounts that would be material to the statements of 
expenditures may occur and not be detected promptly by employees in the 
normal course of performing their duties. Our internal control work 
would not necessarily disclose all material weaknesses.

Compliance with Laws and Regulations:

Our tests for compliance with selected provisions of laws and 
regulations disclosed no instances of noncompliance that would be 
reportable under U.S. generally accepted government auditing standards. 
However, the objective of our audit was not to provide an opinion on 
overall compliance with laws and regulations. Accordingly, we do not 
express such an opinion.

Objectives, Scope, and Methodology:

The independent counsels are responsible for preparing statements of 
expenditures in conformity with the basis of accounting described in 
the accompanying notes. The counsels are also responsible for 
establishing, maintaining, and assessing internal control to provide 
reasonable assurance that the following internal control objectives are 
met and for complying with applicable laws and regulations.

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the preparation of the statements of 
expenditures in conformity with the basis of accounting described in 
the notes to the statements, and assets are safeguarded against loss 
from unauthorized acquisition, use, or disposition.

* Compliance with laws and regulations: Transactions are executed in 
accordance with laws and regulations that could have a direct and 
material effect on the counsels' statements of expenditures.

We are responsible for (1) obtaining reasonable assurance about whether 
the counsels' statements of expenditures are presented fairly, in all 
material respects, in conformity with the basis of accounting described 
in the notes accompanying their statements of expenditures, (2) 
obtaining a sufficient understanding of internal control over financial 
reporting and compliance to plan the audits, and (3) testing compliance 
with selected provisions of laws and regulations that have a direct and 
material effect on the statements.

In order to fulfill these responsibilities, for each counsel, we (1) 
examined, on a test basis, evidence supporting the amounts and 
disclosures in the statement of expenditures, (2) assessed the 
accounting principles used by management, (3) evaluated the overall 
presentation of the statement of expenditures, (4) obtained an 
understanding of internal control related to financial reporting 
(including safeguarding assets) and compliance with laws and 
regulations, and (5) tested compliance with selected provisions of 28 
U.S.C. 591-599 (2000), 5 U.S.C. Chapter 55, and regulations relating to 
pay administration.

We limited our internal control testing to controls over financial 
reporting and compliance. Because of inherent limitations in internal 
control, misstatements due to error, fraud, losses, or noncompliance 
may nevertheless occur and not be detected. We also caution that 
projecting our evaluation to future periods is subject to the risk that 
controls may become inadequate because of changes in conditions or that 
the degree of compliance with controls may deteriorate. In addition, we 
caution that our internal control testing may not be sufficient for 
other purposes.

We did not test compliance with all laws and regulations applicable to 
the offices of independent counsel. We limited our tests of compliance 
to those laws and regulations that we deemed applicable to the 
statements of expenditures. We caution that noncompliance may occur and 
not be detected by these tests and that such testing may not be 
sufficient for other purposes. We performed our audits in accordance 
with U.S. generally accepted government auditing standards.

Agency Comments:

We provided drafts of this report to the offices of independent 
counsel, the Department of Justice, and AOUSC for review and comment. 
These entities agreed with the facts and conclusions in our report.


McCoy Williams 
Director 
Financial Management and Assurance:

Signed by McCoy Williams: 

September 15, 2003:

:

List of Committees:

The Honorable Ted Stevens 
Chairman 
The Honorable Robert C. Byrd 
Ranking Minority Member 
Committee on Appropriations 
United States Senate:

The Honorable Susan M. Collins 
Chairman 
The Honorable Joseph I. Lieberman 
Ranking Minority Member 
Committee on Governmental Affairs 
United States Senate:

The Honorable Orrin G. Hatch 
Chairman 
The Honorable Patrick J. Leahy 
Ranking Minority Member 
Committee on the Judiciary 
United States Senate:

The Honorable C. W. Bill Young 
Chairman 
The Honorable David R. Obey 
Ranking Minority Member 
Committee on Appropriations 
House of Representatives:

The Honorable Tom Davis 
Chairman 
The Honorable Henry A. Waxman 
Ranking Minority Member 
Committee on Government Reform 
House of Representatives:

The Honorable F. James Sensenbrenner, Jr. 
Chairman 
The Honorable John Conyers, Jr. 
Ranking Minority Member 
Committee on the Judiciary 
House of Representatives:

[End of section]

Appendixes:

[End of section]

Appendix I: Statement of Expenditures for Independent Counsel Barrett:

[See PDF for image]

[End of figure]

[End of section]

Appendix II Statement of Expenditures for Independent Counsel Thomas:

[See PDF for image]

[End of figure]

[End of section]

(195013):

FOOTNOTES

[1] The term expenditures as used in this report generally means cash 
disbursed.

[2] The objectives of internal control are to provide reasonable 
assurance that management maintained effective internal control over 
financial reporting (including safeguarding assets) and compliance with 
laws and regulations.

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