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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

March 2007: 

Inspectors General: 

Activities of the Department of State Office of Inspector General: 

GAO-07-138: 

GAO Highlights: 

Highlights of GAO-07-138, a report to the Chairman and Ranking Member, 
Committee on Foreign Affairs, and the Honorable F. James Sensenbrenner, 
Jr., House of Representatives. 

Why GAO Did This Study: 

GAO was asked to review the Department of State Office of Inspector 
General (State IG) including its (1) organization, budget levels, and 
accomplishments; (2) audit and inspection coverage of the department; 
(3) role of inspections in the oversight of the department; (4) quality 
assurance process including assurance of independence; and (5) 
coordination of State IG investigations with the State Department’s 
Bureau of Diplomatic Security. GAO obtained information from State IG 
reports, interviews, and documentation for a sample of inspections. 

What GAO Found: 

The State IG provides oversight of the State Department, the 
Broadcasting Board of Governors, and the foreign affairs community, 
including the approximately 260 bureaus and posts around the world, 
through financial and performance audits, inspections, and 
investigations. Over fiscal years 2001 through 2005, in terms of 
constant dollars, the State IG’s budget has increased by 1 percent 
while the State Department’s overall budget has increased by 50 
percent. This represents a relative decrease when comparing State IG 
with other agencies’ ratios of IG budget to total agency budget. 

The State IG provides oversight coverage of the areas designated as 
high-risk by GAO and management challenges identified by the IG, with a 
heavy emphasis on inspections. The State IG covers the high-risk areas 
of human resources, counterterrorism, public diplomacy, and information 
security, almost exclusively through inspections. In fiscal year 2005, 
the State IG’s ratio of inspections to audits was over two to one, 
while the federal statutory IGs had a combined ratio of one inspection 
to every ten audits. 

There are fundamental differences between inspections and audits. By 
design, audits performed under Government Auditing Standards are 
subject to more in-depth requirements for the levels of evidence and 
the documentation supporting the findings than are inspections 
performed under inspection standards. Due to the significance of the 
high-risk areas covered largely by inspections, the State IG would 
benefit by reassessing the mix of audit and inspection coverage of 
those areas. 

The State IG’s audit and investigative functions both had recent peer 
reviews of quality assurance that resulted in “clean opinions.” There 
is no requirement for a peer review of inspections; however, during our 
audit the State IG began an internal quality review process for 
inspections but did not include reviews of information technology 
inspections. 

Independence is critical to the quality and credibility of all the work 
of the State IG. Two areas of continuing concern that we have with the 
independence of the State IG involve (1) the temporary appointment of 
State Department management personnel to head the State IG office in an 
acting IG capacity and who subsequently return to management positions, 
and (2) the rotation of Foreign Service staff to lead IG inspections, 
including many who, along with other IG staff, move to positions in 
department management offices. Such staffing arrangements represent 
potential impairments to independence and the appearance of 
independence under professional standards applicable to the IGs. 

Both the State IG and the State Department’s Bureau of Diplomatic 
Security pursue allegations of fraud by department employees. There is 
no functional written agreement in place to help ensure the 
independence of internal departmental investigations and preclude the 
duplication of efforts. 

What GAO Recommends: 

GAO is making five recommendations for the State IG to (1) reassess the 
proper mix of audits and inspections to ensure appropriate oversight, 
(2) include reviews of information technology inspections in its 
internal quality review process, (3) develop a succession planning 
policy that specifies appropriate personnel to serve in an acting IG 
capacity, (4) provide staffing alternatives for identifying those who 
lead inspections, and (5) develop a formal agreement to coordinate 
internal department investigations with the Bureau of Diplomatic 
Security. 

In comments on a draft of the report, the State IG agreed with two 
recommendations, partially agreed with one, and disagreed with two. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-138]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Jeanette Franzel, (202) 
512-9471, franzelj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Scope and Methodology: 

Background: 

State IG Organization, Budgets, and Reported Accomplishments: 

State IG Audit and Inspection Coverage of High-Risk Areas and 
Management Challenges: 

Fundamental Differences between Audits and Inspections: 

State IG Quality Assurance Process, Including Assurance over 
Independence: 

IG Coordination with State Department Investigations: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Response: 

Appendix I: A Comparison of Fiscal Year 2001 Budgetary Resources for 
Selected Inspectors General and Agencies: 

Appendix II: A Comparison of Fiscal Year 2005 Budgetary Resources for 
Selected Inspectors General and Agencies: 

Appendix III: Comments from the Inspector General, Department of State: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: State IG Audit and Inspection Coverage of High-Risk Areas and 
Management Challenges for Fiscal Years 2004 through 2005: 

Table 2: State Department Positions Held by Management Officials before 
and after Serving in an Acting State IG Capacity from January 24, 2003, 
through May 2, 2005: 

Figures: 

Figure 1: State IG Organization: 

Figure 2: Selected State Department and State IG Resources for Fiscal 
Years 2001 through 2005: 

Figure 3: Distribution of State IG Onboard Staff, September 30, 2005: 

Abbreviations: 

DS: Bureau of Diplomatic Security: 
ECIE: Executive Council on Integrity and Efficiency: 
FISMA: Federal Information Security Management Act of 2002: 
FTE: Full-time-equivalent: 
IG: Inspector General: 
IG Act: Inspector General Act of 1978, as amended: 
IRS CI: Internal Revenue Service Criminal Investigation: 
IT: information technology: 
OMB: Office of Management and Budget: 
PCIE: President's Council on Integrity and Efficiency: 
State IG: Department of State Office of Inspector General: 
TIGTA: Treasury Inspector General for Tax Administration: 
TVA: Tennessee Valley Authority: 

United States Government Accountability Office: 
Washington, DC 20548: 

March 23, 2007: 

The Honorable Tom Lantos: 
Chairman: 
The Honorable Ileana Ros-Lehtinen: 
Ranking Member: 
Committee on Foreign Affairs: 
House of Representatives: 

The Honorable F. James Sensenbrenner, Jr. 
House of Representatives: 

This report responds to your request that we review the operations and 
activities of the Department of State Office of Inspector General 
(State IG), including the audit, inspection, and investigative 
functions of the office. The State IG was established by section 413 of 
the Omnibus Diplomatic Security and Antiterrorism Act of 1986,[Footnote 
1] which amended the Inspector General Act of 1978 (IG Act),[Footnote 
2] to include an independent office within the Department of State with 
a mission to prevent and detect waste, fraud, abuse and mismanagement, 
and to improve the efficiency, effectiveness, economy, integrity, and 
accountability of the department. The IG Act created independent and 
objective Offices of Inspectors General to conduct and supervise audits 
and investigations. 

The State IG provides oversight of the Department of State, the 
Broadcasting Board of Governors, and the foreign affairs community 
through audits, inspections, and investigations. The State IG performs 
financial and performance audits that cover a wide range of the 
department's operations, financial management, contracts and grants, 
property management, and procurement. The State IG also performs 
inspections of the department's approximately 260 bureaus and posts 
around the world to evaluate whether policy goals and objectives are 
being achieved, U.S. interests are effectively represented, posts are 
operating in accordance with U.S. foreign policy, and security 
vulnerabilities are identified that could compromise national security 
and threaten the safety and well-being of U.S. personnel and facilities 
domestically and abroad. Also, specific allegations or other 
information indicating possible violations of law or regulation are 
investigated by IG investigators, supported by experts from other IG 
offices. 

To review the activities of the State IG, our specific objectives were 
to provide information regarding (1) organization, budget levels, and 
reported accomplishments; (2) audit and inspection coverage of the 
department; (3) the role of inspections in the State IG's oversight of 
the department; (4) the quality assurance process used by the State IG, 
including assurance over independence; and (5) the coordination of the 
State IG's investigative activity with the department's Bureau of 
Diplomatic Security. We obtained information about the State IG's 
budget and staffing levels by analyzing budget data reported by the 
Office of Management and Budget (OMB), and information regarding 
reported accomplishments in the State IG's semiannual reports to the 
Congress. We conducted interviews with State IG officials and reviewed 
internal documents to obtain an understanding of the State IG's 
allocation of resources and its quality assurance processes. We also 
reviewed the State IG's documentation for a sample of inspection 
reports. 

Results in Brief: 

Over fiscal years 2001 through 2005, the State IG's budget has 
increased from $29 million to $32 million, which, when adjusted for 
inflation, represents an increase of approximately 1 percent in 
constant dollars. During the same period, the overall State Department 
budget has increased from $13.7 billion to $22.4 billion, an increase 
of approximately 50 percent in constant dollars adjusted for inflation. 
When compared with other federal IG budgets, State IG's relative 
ranking has declined in terms of its ratio of budgetary resources as a 
percentage of agency budget resources between fiscal years 2001 and 
2005. During these same years, the State IG's authorized full-time 
equivalent (FTE) staffing level went from 289 to 314, with staff on 
board at 191 at the end of fiscal year 2005. In distributing its 
resources, the State IG's greatest use of staff during fiscal year 2005 
was in performing inspections, which involved 38 percent of total 
staff, with audits representing 28 percent of staff, and investigations 
representing 9 percent. The remaining 25 percent of staff provided 
administrative, personnel and legal support, and other specialized 
services. The State IG's reported accomplishments over fiscal years 
2001 through 2005 include the issuance of 461 inspection reports and 
210 audit reports, and the closing of 252 investigative cases. The 
State IG also reported $75 million in financial accomplishments and 
$58.6 million in judicial recoveries and court-ordered fines and 
restitutions during that same period. 

The State IG provides oversight coverage of the areas designated as 
high-risk by GAO and of the significant management challenges 
identified by the IG through a combination of audits and inspections, 
with a heavy emphasis on inspections and to a lesser extent on audits. 
To illustrate, the State IG relies almost exclusively on inspections to 
provide coverage for the following four areas identified both as high- 
risk areas and as management challenges: human resources, 
counterterrorism, public diplomacy, and information security. In the 
high-risk areas and management challenges of physical security the 
State IG provides coverage mostly through inspections, but includes 
audits that address specific contracts and procurements for the 
purchase of equipment and services. The high-risk areas and management 
challenges of financial management are covered by the State IG's 
financial audits and by a related component in each post inspection. As 
a comparison with other IG offices, in fiscal year 2005, the State IG's 
ratio of inspections to audits was over two to one, while the statutory 
IGs across the federal government had a combined ratio of one 
inspection to every ten audits. Due to the significance of the high- 
risk areas covered largely by inspections, the State IG would benefit 
by reassessing the mix of audit and inspection coverage of those areas. 

There are fundamental differences between inspections and audits. For 
example, inspections and audits are typically conducted under separate 
standards with different basic requirements. IGs are required by the IG 
Act to follow Government Auditing Standards when performing 
audits.[Footnote 3] In contrast, there are no statutorily mandated 
standards for inspections, although IGs are encouraged by the 
President's Council on Integrity and Efficiency (PCIE) and the 
Executive Council on Integrity and Efficiency (ECIE)[Footnote 4] to 
follow the councils' jointly created standards, Quality Standards for 
Inspections, when conducting inspections. 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 the Quality Standards for 
Inspections. Also, auditing standards require external quality reviews 
of audits, or peer reviews, on a 3-year cycle, while inspection 
standards do not call for any such external reviews. 

The State IG has distinct quality assurance processes that cover, in 
varying degrees, its three major lines of work: audits, inspections, 
and investigations. The State IG has received "clean" opinions on its 
audit practice from the two external peer reviews it has received since 
2001. The State IG has also implemented regular internal reviews of its 
audit process. For investigations, the State IG obtained the results of 
its first external quality review in November 2005. The results 
included a conclusion that the State IG's investigative function was in 
full compliance with PCIE Quality Standards for Investigations and the 
Attorney General Guidelines For Offices Of Inspector General With 
Statutory Law Enforcement Authority. The external review also suggested 
improvements, which are being addressed by the IG. An external quality 
review, or peer review, of the State IG's inspections is not required 
under the inspection standards. However, during our audit, the State IG 
established an internal program to review the quality of the inspection 
practice to determine whether that work was done in accordance with the 
PCIE and ECIE inspection standards. The internal review did not include 
information technology (IT) inspections, and a report of the internal 
review results was not yet available at the time we completed our work. 

Independence is an overarching element critical to the quality and 
credibility of all the work of the State IG and is at the heart of 
Government Auditing Standards and the IG Act. In addition, the Quality 
Standards for Federal Offices of Inspector General issued by the PCIE 
and ECIE to provide an overall quality framework for all the activities 
of the IG offices states that independence is a critical element of an 
IG's obligation to be objective and free of conflicts of interest 
whether factual or perceived. Likewise, inspection standards also 
require that the inspection organization and each individual inspector 
be free both in fact and appearance from impairments to independence. 
The above standards recognize that personal impairments to independence 
can result from having responsibility for managing an entity or 
decision making that could affect operations of the entity or program 
being reviewed. 

Two continuing areas of concern that we have with the independence of 
the State IG involve (1) the temporary appointment of State Department 
management personnel to head the State IG office in an acting IG 
capacity and who subsequently return to management positions, and (2) 
the rotation of Foreign Service staff to lead IG inspections, including 
many who, along with other IG staff, move to positions in department 
management offices. For example, Foreign Service officials with the 
rank of ambassador or at the ambassador level typically lead the 
inspections work in accordance with the State IG's policy. Such 
staffing arrangements represent potential impairments to independence 
and to the appearance of independence under all applicable professional 
standards. We raised concerns about these independence issues in 
reports as far back as 1978[Footnote 5] and 1982.[Footnote 6] 

The IG Act established an independent and objective Office of Inspector 
General to conduct and supervise audits and investigations to prevent 
and detect fraud, waste, abuse, and mismanagement in the State 
Department.[Footnote 7] In addition to the State IG, the Bureau of 
Diplomatic Security (DS) of the State Department's Office of Management 
performs investigations for the department as part of its worldwide law 
enforcement functions and security mission. However, there is no 
functional agreement between DS and the State IG for coordinating their 
investigative activities. Both the State IG and DS investigators have 
responsibility for pursuing cases of passport and visa fraud that may 
involve State Department employees. Other agencies with investigative 
functions apart from their IGs, such as at the U.S. Postal Service and 
the Internal Revenue Service, have formal arrangements between the 
agency and the IG generally making the IG responsible for internal 
investigations of agency employees to help ensure not only the 
independence of the investigations, but also to prevent duplicative 
reviews. The State IG does not have such an agreement with DS regarding 
its internal investigations of department employees. Such an agreement 
could help to provide independent investigations of fraud with regard 
to State Department personnel, promote an efficient use of limited 
resources, and prevent duplication of efforts. 

Due to the risk and significance of the areas of the State Department's 
operations that are largely being covered by inspections, and in light 
of the increasing level of funding provided to the department, we 
recommend in this report that the State IG reassess the proper mix of 
audit and inspection coverage with input from key stakeholders in the 
department and the Congress. In addition, to provide for a more 
complete quality review, we recommend that the State IG include 
inspections performed by the State IG's Office of Information 
Technology (IT) in its quality review process. Also, to address our 
concerns regarding independence, we recommend that the State IG work 
with the Secretary of State to develop a succession planning policy 
that would prohibit career Foreign Service officers or other department 
management staff from heading the State IG office in an acting IG 
capacity, and would remove reliance on career Foreign Service staff, 
and others who routinely rotate to management offices, to lead 
inspections. We also recommend that the State IG work with DS, the 
State Department Office of Management, and the Secretary of State to 
develop a formal written agreement to help ensure the independence and 
coordination of internal department investigations. 

In comments on a draft of this report the State IG agreed to include 
all IG inspections, including inspections performed by IT, in its 
quality review process and to work with DS and others to develop a 
written agreement delineating the areas of responsibility for 
department investigations. The State IG disagreed with our 
recommendation to reassess the mix of audit and inspection coverage and 
stated that little can be accomplished by reassessment if there are not 
more auditors and more resources to perform audits. In addition, the 
State IG does not disagree with our concerns about Foreign Service 
officers temporarily heading the IG office in an acting capacity, but 
believes that our recommendation goes too far by limiting the pool of 
eligible candidates to personnel without State Department management 
careers. Also, the State IG believes that ambassadors who serve as team 
leaders for inspections raise a concern about the appearance of 
independence but that this concern is significantly outweighed by the 
overriding need for people with the experience and expertise of 
ambassadors to lead inspections. 

We continue to recommend that the State IG reassess the mix of audits 
and inspections as a way for the IG to define the appropriate level of 
oversight, reallocate current resources as appropriate, and justify any 
additional resources that may be necessary. In addition, we continue to 
recommend that the State IG better safeguard the independence 
requirements of his office through succession planning that excludes 
career department management officials from consideration for acting 
State IG positions. We also continue to recommend that the State IG 
inspections not be led by career Foreign Service officials, 
ambassadors, or other staff who could impair the independence of the 
inspection team or create the appearance of impaired independence. As 
team members rather than team leaders, such staff could provide the 
benefits of their experience and expertise without jeopardizing the 
inspection team's independence. 

Scope and Methodology: 

We obtained the budget authority and the staffing levels at the State 
IG office and the budget authority of the State Department for fiscal 
years 2001 through 2005 by analyzing OMB budget data for those years. 
Additional information on staff levels and resource distribution were 
obtained from the State IG to identify trends over this period. We 
identified audit, inspection, and investigative accomplishments 
reported by the State IG in semiannual reports to the Congress for 
fiscal years 2001 through 2005. We did not audit or otherwise verify 
the dollar amounts of the financial accomplishments reported by the 
State IG. 

To review the IG's audit and inspection oversight coverage of the State 
Department, we compared the contents of the audits and inspections 
completed by the State IG in fiscal years 2004 and 2005 with the high- 
risk areas designated by GAO and with the management and performance 
challenges identified by the State IG. To review the investigative 
coverage, we used the investigative accomplishments reported by the 
State IG to show the level of investigative activity. 

To obtain information about the quality control process used by the 
State IG, we obtained an understanding of the internal quality review 
process used by the IG. We also obtained reports of the most recent 
external quality peer reviews of the State IG's audit and investigative 
activities performed by other IG offices. Due to the lack of a peer 
review requirement for inspections, we compared the State IG's 
inspections with relevant standards related to independence, quality 
control, and evidence from the PCIE and ECIE Quality Standards for 
Inspections, 2005 revision, as well as the State IG's implementing 
policies and procedures for these standards. We also compared relevant 
inspection standards with Government Auditing Standards, and compared 
additional activities of the State IG related to independence with PCIE 
and ECIE Quality Standards for Offices of Inspector General, revised in 
October 2003. Specifically, we gained an understanding of the types of 
documentation and evidence supporting inspection recommendations 
through a judgmental sample of 10 inspection reports selected from a 
total of 112 inspection reports issued over fiscal years 2004 through 
2005 that were not classified for national security purposes, and that 
did not include inspections of the Board of Broadcasting Governors. We 
did not test the reasonableness of the inspection recommendations or 
otherwise re-perform the inspections. Our sample covered different 
months, various team leaders, and different State Department locations. 

Due to the concerns of the State IG about the confidentiality of 
information sources used to complete the IG's inspections, we agreed to 
limit the types of documentation subject to our review. Officials for 
the IG stated that the documents not provided for our review were 
memorandums with information from confidential sources. We base our 
conclusions on the documents and information that we reviewed related 
to our sample of inspection reports. In those examples where inspection 
report recommendations lacked documented support, we verified that this 
was not due to any such limitation to our review. 

To review the coordination of the State IG with DS, we obtained the 
annual reports issued by DS and additional information on cases of visa 
fraud that were investigated during fiscal years 2004 through 2005 from 
DS reports and a prior GAO report.[Footnote 8] We also compared the 
coordination of investigations at the State Department with the 
practices of other IG offices at the U.S. Postal Service and the 
Internal Revenue Service. 

We obtained comments on a draft of this report from the State IG which 
are reprinted in their entirety in appendix III. A summary of the State 
IG's written comments and our response are presented on page 29. We 
performed our audit from November 2005 through October 2006, in 
accordance with U.S. generally accepted government auditing standards. 

Background: 

The inspection function within the State Department originated in 1906, 
when the Congress statutorily created a consular inspection corps of 
five officers to inspect the activities of the U.S. consulates at least 
once every 2 years.[Footnote 9] In 1924, the Congress established the 
Foreign Service to replace the Diplomatic and Consular Service, and 
required the officers of the newly created Foreign Service to inspect 
diplomatic and consular branches, as provided under the 1906 
Act.[Footnote 10] The provisions of the 1906 and 1924 acts were 
repealed by the Foreign Service Act of 1946,[Footnote 11] which 
required the Secretary of State to assign Foreign Service officers to 
inspect the diplomatic and consular establishments of the United States 
at least once every 2 years. In 1957, the State Department established 
an Inspector General of Foreign Service, which carried out the 
inspections of diplomatic and consular offices for the State 
Department. In 1961, the Congress created a statutory Inspector General 
in the State Department with duties separate from that of the Inspector 
General of Foreign Service, which had been established by the State 
Department. The new inspector general had the statutory responsibility 
to conduct reviews, inspections, and audits of State Department 
economic and military assistance programs and the activities of the 
Peace Corps.[Footnote 12] Effective July 1, 1978, the statutory IG 
office created in 1961 was abolished by law and all of the duties of 
that office were statutorily transferred to the Inspector General of 
Foreign Service.[Footnote 13] The newly designated Inspector General of 
Foreign Service was tasked with carrying out the foreign assistance 
program review function and the inspections of diplomatic and consular 
offices that had previously been conducted by the two separate offices. 

In 1978, GAO reviewed the operations of the Inspector General of 
Foreign Service and determined that the IG's inspection reports lacked 
substance because of the legal requirement for biennial inspections and 
the exceedingly broad scope and thin coverage of each 
inspection.[Footnote 14] GAO recommended that the Congress substitute 
the requirement for an inspection of each diplomatic and consular post 
at least every 2 years with a more flexible review schedule. GAO also 
questioned the independence of Foreign Service officers who were 
temporarily detailed to the IG's office and recommended the elimination 
of this requirement provided by the Foreign Service Act of 1946. 

In 1980, the Congress again established a statutory IG, this time to 
act as a centralized unit within the State Department to include the 
functions of the previous IG of Foreign Service and to perform all 
audits, inspections, and investigations. Section 209 of the Foreign 
Service Act of 1980 established the Inspector General of the Department 
of State and Foreign Service and outlined the authority and functions 
of that position in specific terms.[Footnote 15] Section 209 patterned 
the State Department IG office after similar offices in other agencies 
under the IG Act, but added functions from the Foreign Service Act of 
1946 specific to the State Department. With regard to inspections, the 
Congress directed the IG to "periodically (at least every 5 years) 
inspect and audit the administration of activities and operations of 
each Foreign Service post and each bureau and other operating units of 
the Department of State." 

In 1982, we reviewed the operations of the Inspector General for the 
Department of State and Foreign Service.[Footnote 16] In that report, 
we compared the differences between the Foreign Service Act and the IG 
Act and noted that the 5-year inspection cycle required by the Foreign 
Service Act led to problems with the IG's effectiveness by limiting the 
ability to do other work. In addition, our report expressed our 
persistent concerns about independence. These concerns were due, in 
part, to the IG's continued use of temporarily assigned Foreign Service 
officers and other persons from operational units within the department 
to staff the IG office. Our report also noted that the IG had not 
established a quality review system to help ensure that the work of the 
office complied with professional standards, and that the IG used staff 
from the State Department's Office of Security, a unit of management, 
to conduct investigations of fraud, waste, and abuse. We recommended 
that the Secretary of State work with the IG to establish a permanent 
IG staff and discontinue its reliance on temporary staff who rotate 
back to assignments in the Foreign Service or management positions. We 
also recommended that the Secretary and the IG establish an 
investigative capability within the IG office to enable it to conduct 
its own investigations, and to transfer qualified investigators from 
the Office of Security to the IG for this work. 

Reacting to concerns similar to those expressed in our 1982 report, the 
Congress established an IG for the Department of State through 
amendments to the IG Act in both 1985[Footnote 17] and 1986.[Footnote 
18] These amendments designated the State Department as an agency 
requiring an IG under the IG Act and abolished the previous Office of 
Inspector General of State and Foreign Service, which was created under 
section 209 of the Foreign Service Act of 1980. The 1986 Act authorized 
the State IG to perform all duties and responsibilities, and to 
exercise the authorities, stated in section 209 of the Foreign Service 
Act and in the IG Act. The 1986 Act also prohibited a career member of 
the Foreign Service from being appointed as the State IG. 

Since 1996, the Congress, through Department of State appropriations 
acts, annually waives the language in section 209(a) of the Foreign 
Service Act that calls for every post to be inspected every 5 years. 
The State IG continues to inspect the department's approximately 260 
posts and bureaus, and international broadcasting installations 
throughout the world by applying a risk-based approach. To illustrate, 
the State IG completed inspections at 223 bureaus and posts over the 5- 
year period of fiscal years 2001 through 2005. These inspections 
encompass a wide range of objectives, which include reviewing whether 
department policy goals are being achieved and whether the interests of 
the United States are being represented and advanced effectively. In 
addition, the State IG performs specialized security inspections and 
audits in support of the department's mission to provide effective 
protection to its personnel, facilities, and sensitive intelligence 
information. Therefore, while there is no requirement as a result of 
the annual waiver that inspections be performed, the State IG continues 
to conduct inspections as part of its plan for oversight of the 
department, using a risk-based approach to identify locations for 
inspections rather than the 5-year requirement. 

Inspections are defined by the PCIE and ECIE[Footnote 19] 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. Inspections may be used to 
provide factual and analytical information; monitor compliance; measure 
performance; assess the efficiency and effectiveness of programs and 
operations; share best practices; and inquire into allegations of 
fraud, waste, abuse, and mismanagement. 

The IG Act requires the IGs to recommend policies, and to conduct, 
supervise, or coordinate other activities, in addition to audits and 
investigations, carried out by the department for the purpose of 
promoting economy and efficiency, and preventing fraud and abuse in its 
programs and operations.[Footnote 20] These requirements of the IG Act 
are broad enough to cover inspections, which are widely used by the IG 
community. According to the IG community, inspections provide the 
benefits of a flexible mechanism for optimizing resources, expanding 
agency coverage, and using alternative review methods and techniques. 
In fiscal year 2005, across the federal government, the statutory IGs 
issued a total of 443 inspection reports compared to a total of 4,354 
audit reports, a ratio of inspections to audits of about 1 to 10. As a 
comparison, the State IG issued 99 inspection reports and 44 audit 
reports during fiscal year 2005, or a ratio of inspections to audits of 
over 2 to 1. 

State IG Organization, Budgets, and Reported Accomplishments: 

The State IG currently provides oversight of the Department of State, 
the Broadcasting Board of Governors, and the foreign affairs community 
through audits, inspections, and investigations. This work is led by 
the State Department Inspector General, Deputy Inspector General, 
Assistant Inspectors General for Audits; Inspections; Management, 
Policy, and Planning; and Investigations, and a Director for 
Information Technology. In addition, the State IG has four advisory and 
support offices, which are the Office of Counsel, Congressional and 
Public Affairs, Senior Advisor for Security and Intelligence, and 
Coordinator for Iraq and Afghanistan. (See fig. 1.) 

Figure 1: State IG Organization: 

[See PDF for image] 

Source: State IG. 

[End of figure] 

From fiscal year 2001 through 2005, the State IG's overall budget 
authority went from $29 million to $32 million, which, when expressed 
in constant dollars,[Footnote 21] is an increase of approximately 1 
percent. (See fig. 2.) Over the same period of time, the State 
Department's overall budget authority increased from $13.7 billion in 
fiscal year 2001 to $22.4 billion in fiscal year 2005, an increase of 
approximately 50 percent in constant dollars. When compared with other 
federal IG budgets, the State IG's ranking in terms of percentage of 
total agency budgetary resources decreased from eighth (0.21 percent of 
total agency budgetary resources) to twelfth (0.14 percent of total 
agency budgetary resources) between fiscal years 2001 and 2005. (See 
apps. I and II.) The department's budgetary increases reflect, in part, 
initiatives in transformational diplomacy, particularly in Iraq and 
Afghanistan, and substantial increases in programs for counter 
narcotics, counterterrorism, embassy construction and security, and IT. 
During the same time period, the State IG's authorized FTE staff 
increased from 289 in fiscal year 2001 to 314 in fiscal year 2005; 
however, during 2005, the IG limited the actual onboard staffing to 191 
of the 314 authorized FTEs due to budgetary constraints. This 
represents a 16 percent reduction of onboard staff when compared to the 
fiscal year onboard staffing level of 227 in fiscal year 2001. The 
State IG has reported that its limited resources are further strained 
by the significant growth in the number of department programs and 
grants with mandated IG oversight and requests for joint activities 
with other departments, agencies, and IG offices. 

Figure 2: Selected State Department and State IG Resources for Fiscal 
Years 2001 through 2005: 

[See PDF for image] 

Source: OMB, State IG. 

[End of figure] 

For fiscal year 2005, the State IG Office distributed its 191 onboard 
staff as follows: 38 percent of the staff performing inspections in the 
Office of Inspections and in the Office of Information Technology, 28 
percent in the Office of Audits, 9 percent in the Office of 
Investigations, and the remaining 25 percent in support positions to 
address administrative, personnel, legal and other specialized issues. 
(See fig. 3.) This distribution shows the significant emphasis that the 
State IG places on inspections in relation to either audits or 
investigations. 

Figure 3: Distribution of State IG Onboard Staff, September 30, 2005: 

[See PDF for image] 

Source: State IG. 

[End of figure] 

Statutory IGs, including the State IG, are required by the IG Act to 
summarize the activities and accomplishments of their offices and 
include this information in semiannual reports provided for the 
Congress.[Footnote 22] The information includes the number of audit 
reports issued and the dollar amount of questioned costs, unsupported 
costs, and funds to be put to better use. As defined by the IG Act, 
questioned costs include alleged violations of laws, regulations, 
contracts, grants, or agreements; costs not supported by adequate 
documentation; or the expenditure of funds for an intended purpose that 
was unnecessary or unreasonable. In addition, unsupported costs are 
defined as costs that do not have adequate documentation, and funds to 
be put to better use are defined as inefficiencies in the use of agency 
funds identified by the IG. As an illustration of funds to be put to 
better use, the State IG identified weaknesses in the department's 
purchase card program that resulted in untimely purchase card payments 
that precluded the department from earning rebates from the purchase 
card provider.[Footnote 23] 

During fiscal years 2001 through 2005 the State IG reported that it 
issued a total of 210 audit reports with total financial 
accomplishments of approximately $75 million. This included $37.1 
million in questioned costs of which $17.9 million were unsupported 
costs, and $38 million in funds to be put to better use. The 
investigative activity reported over the same 5-year period included 
252 cases closed and financial accomplishments of $29.4 million in 
judicial recoveries, $17.6 million in court-ordered fines, and $11.5 
million in court-ordered restitutions. In addition, the State IG 
reported that its investigations resulted in 92 prosecutorial 
referrals, 53 indictments, 52 convictions, and 42 criminal sentences. 

Over the same 5-year period the State IG reported that it had issued 
461 inspection reports. The State IG's semiannual reports include 
summarized results of its inspection activity even though this 
information is not specifically required by the IG Act. The results 
vary from identification of weaknesses in operations to recommendations 
for proper implementation of State Department policies. There were no 
significant monetary results reported from the State IG's inspections. 

State IG Audit and Inspection Coverage of High-Risk Areas and 
Management Challenges: 

The State IG provides oversight coverage of the department primarily 
through a combination of audits and inspections, with, as shown 
earlier, a heavier emphasis on inspections. Although the Congress 
annually waives the requirement to conduct inspections under section 
209(a) of the Foreign Service Act, State IG officials told us that 
State Department management encourages the IG inspections and have 
found the results very significant and useful. Therefore, the IG 
continues to plan for inspections on a cyclical basis using a risk- 
based approach. As a result, over the 5-year period of fiscal years 
2001 through 2005, the IG completed inspections at 223 of the 260 
department bureaus and posts. 

We also analyzed the State IG's coverage of the areas designated as 
high risk by GAO and the significant management challenges identified 
by the State IG. Since 1990, we have periodically reported on 
government operations, including those of the State Department that we 
have designated as high risk because of their greater vulnerabilities 
to fraud, waste, abuse, and mismanagement. In addition, the IGs began 
the identification of management challenges in 1997 at the request of 
congressional members who asked the IGs to identify the most serious 
management problems in their respective agencies. This began a yearly 
process that continues as a result of the Reports Consolidation Act of 
2000.[Footnote 24] The act requires executive agencies, including the 
State Department, to include their IGs' lists of significant management 
challenges in their annual performance and accountability reports to 
the President, OMB, and the Congress. 

In our most recent reports of government high-risk areas issued in 
January 2003[Footnote 25] and January 2005,[Footnote 26] we identified 
seven such areas at the State Department. These high-risk areas were 
also included in management challenges identified by the State IG. (See 
table 1.) Each year the State IG's Office of Inspections includes the 
management challenges identified by the IG as areas of emphasis in 
inspections of the department's bureaus or missions. Some areas of 
emphasis may be applicable only to embassies and other missions, while 
other areas of emphasis may be applicable only to domestic entities 
such as bureaus, offices, and other units. 

In our review of the issues addressed by the State IG's audit and 
inspection reports for fiscal years 2004 and 2005, we determined that 
the State IG had provided oversight of all identified high-risk areas 
and management challenges largely through inspections. The State IG 
inspectors use a questionnaire during each inspection to compile the 
information regarding the areas of emphasis including management 
challenges identified by the IG. Each questionnaire can cover numerous 
areas of emphasis, including several management challenges. Therefore, 
while the State IG issued a total of 203 inspection reports over fiscal 
years 2004 through 2005, these inspections addressed 605 management 
challenges in the various posts, bureaus, and offices reviewed. In 
addition, the State IG relies almost exclusively on the results of 
inspections, as compared to audits, to cover the four high-risk areas 
and management challenges related to human resources, counterterrorism, 
public diplomacy and information security. (See table 1.) 

Table 1: State IG Audit and Inspection Coverage of High-Risk Areas and 
Management Challenges for Fiscal Years 2004 through 2005: 

GAO high-risk areas[A]: Physical security and management of U.S. 
facilities overseas; 
Management challenges identified by the State IG[B]: Protection of 
people and facilities; 
Fiscal year 2004 State IG reports[C]: Audits: 27; 
Fiscal year 2004 State IG reports[C]: Inspections: 98; 
Fiscal year 2005 State IG reports[D]: Audits: 21; 
Fiscal year 2005 State IG reports[D]: Inspections: 92. 

GAO high-risk areas[A]: Enhance information technology and security, 
strengthen financial management, improve performance planning[E]; 
Management challenges identified by the State IG[B]: Information 
security; 
Fiscal year 2004 State IG reports[C]: Audits: 1; 
Fiscal year 2004 State IG reports[C]: Inspections: 6; 
Fiscal year 2005 State IG reports[D]: Audits: 0; 
Fiscal year 2005 State IG reports[D]: Inspections: 7. 

GAO high-risk areas[A]: Enhance information technology and security, 
strengthen financial management, improve performance planning[E]; 
Management challenges identified by the State IG[B]: Financial 
management; 
Fiscal year 2004 State IG reports[C]: Audits: 10; 
Fiscal year 2004 State IG reports[C]: Inspections: 0[F]; 
Fiscal year 2005 State IG reports[D]: Audits: 16; 
Fiscal year 2005 State IG reports[D]: Inspections: 0[F]. 

GAO high-risk areas[A]: Continue to right-size embassy staffing levels; 
Management challenges identified by the State IG[B]: Human resources; 
Fiscal year 2004 State IG reports[C]: Audits: 1; 
Fiscal year 2004 State IG reports[C]: Inspections: 50; 
Fiscal year 2005 State IG reports[D]: Audits: 0; 
Fiscal year 2005 State IG reports[D]: Inspections: 53. 

GAO high-risk areas[A]: Better manage human capital strategies; 
Management challenges identified by the State IG[B]: Human resources; 
Fiscal year 2004 State IG reports[C]: Audits: 1; 
Fiscal year 2004 State IG reports[C]: Inspections: 50; 
Fiscal year 2005 State IG reports[D]: Audits: 0; 
Fiscal year 2005 State IG reports[D]: Inspections: 53. 

GAO high-risk areas[A]: Strengthen the visa process through issuance of 
policies and procedures as an antiterrorism tool; 
Management challenges identified by the State IG[B]: Counterterrorism 
and border security; 
Fiscal year 2004 State IG reports[C]: Audits: 0; 
Fiscal year 2004 State IG reports[C]: Inspections: 98; 
Fiscal year 2005 State IG reports[D]: Audits: 2; 
Fiscal year 2005 State IG reports[D]: Inspections: 92. 

GAO high-risk areas[A]: Improve the management of public diplomacy 
programs; 
Management challenges identified by the State IG[B]: Public diplomacy; 
Fiscal year 2004 State IG reports[C]: Audits: 1; 
Fiscal year 2004 State IG reports[C]: Inspections: 50; 
Fiscal year 2005 State IG reports[D]: Audits: 1; 
Fiscal year 2005 State IG reports[D]: Inspections: 53. 

GAO high-risk areas[A]: Manage the large-scale reconstruction and 
nation-building programs; 
Management challenges identified by the State IG[B]: Postconflict 
stabilization and reconstruction; 
Fiscal year 2004 State IG reports[C]: Audits: 4; 
Fiscal year 2004 State IG reports[C]: Inspections: 0; 
Fiscal year 2005 State IG reports[D]: Audits: 4; 
Fiscal year 2005 State IG reports[D]: Inspections: 6. 

Total high-risk areas and management challenges addressed by audit and 
inspection reports; 
Fiscal year 2004 State IG reports[C]: Audits: 44; 
Fiscal year 2004 State IG reports[C]: Inspections: 302; 
Fiscal year 2005 State IG reports[D]: Audits: 44; 
Fiscal year 2005 State IG reports[D]: Inspections: 303. 

Total audit and inspection reports issued; 
Fiscal year 2004 State IG reports[C]: Audits: 44; 
Fiscal year 2004 State IG reports[C]: Inspections: 104; 
Fiscal year 2005 State IG reports[D]: Audits: 44; 
Fiscal year 2005 State IG reports[D]: Inspections: 99. 

Source: GAO. 

[A] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005) and GAO, High-Risk Series: An Update, GAO-03-119 
(Washington, D.C.: January 2003). 

[B] Department of State, FY 2005 Performance and Accountability Report. 

[C] State IG semiannual reports to the Congress for the periods ending 
March 31 and September 30, 2004. 

[D] State IG semiannual reports to the Congress for the periods ending 
March 31 and September 30, 2005. 

[E] Strategic and performance planning were removed in recognition of 
the State Department's considerable progress in addressing that 
challenge. 

[F] Post inspections include a selected financial management component. 

[End of table] 

To illustrate, for fiscal years 2004 and 2005 combined, the State IG 
covered human resource issues with 1 audit and 103 inspections, 
counterterrorism and border security with 2 audits and 190 inspections, 
public diplomacy with 2 audits and 103 inspections, and information 
security with 1 audit and 13 inspections. (See table 1.) In contrast, 
over the same 2-year period, the State IG issued 88 audit reports and 
each addressed a single management challenge. For example, in the high- 
risk areas and management challenges of physical security, the State IG 
provides coverage mostly through inspections but includes audits that 
address specific contracts and procurements for the purchase of 
equipment and services. Also, while the State IG's inspections obtain 
financial information at the department's bureaus and posts, the high- 
risk areas and management challenges of financial management are 
covered almost exclusively by the State IG's financial audits. Due to 
the significance of the high-risk areas covered largely by inspections, 
the State IG would benefit by reassessing the mix of audit and 
inspection coverage for those areas. 

Fundamental Differences between Audits and Inspections: 

There are fundamental differences between inspections and audits. The 
PCIE and ECIE developed Quality Standards for Inspections in 1993, and 
revised them in 2005, to provide a framework for performing 
inspections. There are similarities between these inspection standards 
and the Government Auditing Standards required by the IG Act for 
audits; but there are fundamental differences as well. Both standards 
require that (1) staff be independent, (2) evidence for reported 
results be documented, and (3) the elements of a finding--criteria, 
condition, cause, and effect--be included with the reported results. A 
fundamental difference between audits and inspections is the level of 
detail and requirements in the areas of sufficient, appropriate 
evidence to support findings and conclusions, and the levels of 
documentation of evidence needed to support findings, conclusions, and 
recommendations. Audits performed under Government Auditing Standards, 
by design, are subject to more depth in the requirements for levels of 
evidence and documentation supporting the findings than inspections 
performed under the inspection standards. In addition, while auditing 
standards require external quality reviews of auditing practices, or 
peer reviews, on a 3-year cycle by reviewers independent of the State 
IG's office, neither the inspection standards nor the State IG's 
policies and procedures require such external reviews of inspections. 

We reviewed the documentation for 10 inspections to gain an 
understanding of the extent of documented evidence in the inspectors' 
working papers to support each report's recommendations. The 10 
inspections were taken from a total of 112 inspections, completed over 
fiscal years 2004 and 2005 that were not classified for national 
security purposes, and for which we had access. The reports for the 10 
inspections included a total of 183 recommendations. We found that the 
inspectors relied heavily on questionnaires completed by the staff at 
each bureau or post that was inspected, official State Department 
documents, correspondence and electronic mail, internal department 
memos including those from the Secretary, interview memorandums, and 
the inspectors' review summaries. We did not find additional testing of 
evidence or sampling of agency responses to test for the relevance, 
validity, and reliability of the evidence as would be required under 
auditing standards. 

We also found that for 43 of the 183 recommendations contained in the 
10 inspections we reviewed, the related inspection files did not 
contain documented support beyond written summaries of the findings and 
recommendations. While the State IG's inspection policies for 
implementing the PCIE and ECIE inspection standards require that 
supporting documentation be attached to the written summaries, the 
summaries indicated that there was no additional supporting 
documentation. 

State IG Quality Assurance Process, Including Assurance over 
Independence: 

The State IG has quality assurance processes that cover its three main 
lines of work: (1) audits, (2) investigations, and (3) inspections. 
Independence is a key element that should permeate all of the IG's 
major lines of work. For audits, Government Auditing Standards requires 
an appropriate internal quality control system and an external peer 
review of audit quality every 3 years. These standards specify that 
quality control systems should include procedures for monitoring, on an 
ongoing basis, whether the policies and procedures related to the 
standards are suitably designed and are being effectively applied. For 
investigations, the Homeland Security Act of 2002[Footnote 27] amended 
the IG Act to require that each IG office with investigative or law 
enforcement authority under the act have its investigative function 
reviewed periodically by another IG office and that the results be 
communicated in writing to the IG and to the Attorney General. For 
inspections, PCIE and ECIE inspection standards provide guidance for 
quality control and include a requirement for ongoing internal quality 
inspection, but they do not contain a requirement for an external 
quality review, or peer review. 

Following is a summary of recent quality reviews of the State IG's 
audit, inspection, and investigative work: 

Audits. Peer reviews provide an independent opinion on the quality 
control system related to audits. The State IG has obtained two 
external peer reviews of its audit practice from other IG offices since 
the beginning of fiscal year 2001 and obtained an unqualified, or 
"clean," opinion in each review. Both peer reviews concluded that the 
State IG's quality control system for the audit function had been 
designed in accordance with professional auditing standards. In 
addition, the most recent peer review completed by the Department of 
the Interior IG in 2004, provided useful suggestions for improvement. 
The most significant suggestion was for the State IG to establish 
ongoing internal quality reviews of the audit function as required by 
professional auditing standards. While the State IG did conduct 
internal quality reviews for its audit practice that were completed in 
May 2001 and March 2003, the Interior IG found that the reviews were 
not the result of an ongoing process. To address the peer review's 
suggestion, the State IG established the Policy, Planning, and Quality 
Assurance Division in November 2005 under the Assistant IG for Audits, 
to conduct internal reviews and provide summary reports on a semiannual 
basis, which we view as a very positive action to help ensure ongoing 
audit quality. 

Investigations. The State IG obtained the results of the first external 
quality review of its investigations from the Tennessee Valley 
Authority (TVA) IG on November 16, 2005. The TVA IG used the PCIE 
Quality Standards for Investigations, the Quality Assessment Review 
guidelines established by the PCIE, and the Attorney General Guidelines 
For Offices Of Inspector General With Statutory Law Enforcement 
Authority to review the quality of the State IG's investigations. The 
TVA IG concluded that the State IG's system of internal safeguards and 
management procedures for the investigative function was in full 
compliance with quality standards established by the PCIE and the 
Attorney General's guidelines, and provides reasonable assurance of 
conforming with professional standards. The reviewers also suggested 
improvements for the State IG and these are currently being addressed 
by the Assistant IG for Investigations. 

Inspections. An external quality review, or peer review, of the State 
IG's inspections is not required under the inspection standards. During 
our review, the State IG implemented a plan for conducting an internal 
quality review of inspections as called for by the PCIE and ECIE 
inspection standards. The first such review was currently being 
conducted at the time of our audit, but the report on inspection 
quality had not yet been completed. This review includes a sample of 
completed inspections to determine whether they meet the PCIE and ECIE 
quality inspection standards. Currently, the State IG's quality review 
does not include inspections by the Office of Information Technology, 
and at the time of our review there was no internal quality review 
process for IT inspections. Because the inspection work of the IG's IT 
office is used, at least in part, by the department to ensure its 
compliance with the requirements of the Federal Information Security 
Management Act of 2002 (FISMA)[Footnote 28] for effective information 
security controls, the quality of the IT inspections is critical to the 
department for providing overall assurance of FISMA compliance. 
Inspection quality is critical also because of the State IG's almost 
exclusive reliance on inspections to cover the information security 
area, which has been identified by GAO as high-risk and by the State IG 
as a management challenge for the department. 

Independence. Independence is an overarching element that is critical 
to quality and credibility across all of the work of the State IG and 
is fundamental to Government Auditing Standards and the IG Act. Quality 
Standards for Federal Offices of Inspector General, updated by the PCIE 
and ECIE in October 2003, also addresses independence in its quality 
standards for the management, operations, and conduct of federal IG 
offices. Both sets of standards recognize that IG independence is a 
critical element of the IG's obligation to be objective, impartial, 
intellectually honest, and free of conflicts of interest. Also, 
consistent with Government Auditing Standards, the IG quality standards 
for IG offices state that without independence both in fact and in 
appearance, objectivity is impaired. In addition, the PCIE and ECIE 
Quality Standards for Inspections require that the inspections 
organization and each individual inspector to be free both in fact and 
appearance from impairments to independence. 

Two areas of continuing concern regarding independence are (1) the 
temporary appointment of management personnel with various titles such 
as Deputy IG, Acting IG, or Acting Deputy IG, to head the State IG 
office; and (2) the use of Foreign Service staff to lead State IG 
inspections. For example, between the last two presidentially appointed 
IGs--covering a period of over 2 years from January 24, 2003, until May 
2, 2005--all four of those heading the State IG office in an acting IG 
capacity were selected from State Department management staff and 
temporarily employed in the State IG office. These individuals had 
served in the Foreign Service in prior management positions, including 
as U.S. ambassadors to foreign countries. In addition, three of these 
individuals returned to significant management positions within the 
State Department after heading the State IG office. Table 2 shows prior 
and subsequent positions held by those heading the State IG office for 
a recent 27-month period until the current IG was confirmed on May 2, 
2005. This use of temporarily assigned State Department management 
staff to head the State IG office can affect the perceived independence 
of the entire office in its reviews of department operations, and the 
practice is not consistent with (1) independence requirements of 
Government Auditing Standards, (2) other professional standards 
followed by the IGs, and (3) the purpose of the IG Act. Career members 
of the Foreign Service are prohibited by statute from being appointed 
as State IG.[Footnote 29] This exclusion of career Foreign Service 
staff from consideration when appointing the State IG avoids the 
personal impairments to independence that could result when reviewing 
the bureaus and posts of fellow Foreign Service officers and diplomats. 
The same concern with independence arises when career Foreign Service 
officers and diplomats temporarily head the State IG office in an 
acting IG capacity. 

Table 2: State Department Positions Held by Management Officials before 
and after Serving in an Acting State IG Capacity from January 24, 2003, 
through May 2, 2005: 

Department positions prior to serving as acting State IG: Ambassador to 
Kyrgyzstan; 
Department positions after serving as acting State IG: Retired from 
government service; 
Beginning dates of service as acting State IG: January 24, 2003; 
Period of time serving as the acting State IG: 8 months. 

Department positions prior to serving as acting State IG: Ambassador to 
Columbia; 
Department positions after serving as acting State IG: Deputy and 
Acting Permanent Representative at the U.S. Mission to the United 
Nations[A]; 
Beginning dates of service as acting State IG: September 28, 2003; 
Period of time serving as the acting State IG: 10 months. 

Department positions prior to serving as acting State IG: Deputy Global 
AIDS Coordinator; 
Department positions after serving as acting State IG: Special 
Representative on Avian and Pandemic Influenza; 
Beginning dates of service as acting State IG: August 3, 2004; 
Period of time serving as the acting State IG: 1 month. 

Department positions prior to serving as acting State IG: Ambassador to 
South Africa; 
Department positions after serving as acting State IG: Chargé 
d'Affaires, Khartoum, Sudan; 
Beginning dates of service as acting State IG: August 23, 2004; 
Period of time serving as the acting State IG: 8 months. 

Source: State IG. 

[A] Currently the Assistant Secretary for International Narcotics and 
Law Enforcement Affairs. 

[End of table] 

In addition to the potential independence impairment of acting IGs, the 
State IG can impair its independence with its reliance on staff in the 
Foreign Service temporarily employed by the IG office to lead 
inspections. As a condition of their employment, Foreign Service staff 
are expected to help formulate, implement, and defend government 
policy, which severely limits the appearance of objectivity when 
reviewing department activities that may require them to question 
official policies. 

The State IG's inspection policy is for Foreign Service staff with the 
rank of ambassador, or other staff who serve at the ambassador level, 
to lead inspections. Long-serving State IG officials told us that the 
program knowledge of these State Department officials is important when 
reviewing the department's bureaus and posts. In the 112 inspections 
completed during fiscal years 2004 and 2005 for which we had access, 79 
had team leaders who held the rank of ambassador or served at the 
ambassador level. Foreign Service staff on these inspections often move 
through the State IG office on rotational assignments to serve again in 
Foreign Service positions for the department after working for the 
State IG. For example, 9 of the 22 Foreign Service officials who were 
assigned to these 112 inspections as either staff or team leaders had 
transferred or returned to management offices in the State Department 
by December 2005. 

The State IG's use of career Foreign Service staff and others at the 
ambassador level to lead inspections provides a potential impairment to 
independence. In both our 1978 and 1982 reports we reported concerns 
about the independence of inspection staff reassigned to and from 
management offices within the department. In these prior reports, we 
stated that the desire of State IG staff to receive favorable 
assignments after their State IG tours could influence their 
objectivity. While they may offer valuable insights from their 
experience in the department, we believe that there is considerable 
risk that independence could be impaired, resulting in a detrimental 
effect on the quality of State IG inspections and the effectiveness of 
the State Department, and that it is important that officials not 
sacrifice independence, in fact or appearance, for other factors in the 
staffing and leadership of the IG's office. As an alternative, such 
staff could provide the benefits of their experience and expertise as 
team members rather than team leaders without impairing the inspection 
team's independence. 

IG Coordination with State Department Investigations: 

The IG Act established the State IG to conduct and supervise 
independent audits and investigations that prevent and detect fraud, 
waste, abuse, and mismanagement in the State Department.[Footnote 30] 
The Bureau of Diplomatic Security (DS)--as part of its worldwide 
responsibilities for law enforcement and security operations--also 
performs investigations of passport and visa fraud both externally and 
within the department.[Footnote 31] Currently, there is no functional 
written agreement or other formal mechanism in place between DS and the 
State IG to coordinate their investigative activities. 

DS assigns special agents to U.S. diplomatic missions overseas and to 
field offices throughout the United States. The special agents conduct 
passport and visa fraud investigations and are responsible for security 
at 285 diplomatic facilities around the world. This effort currently 
entails a global force of approximately 32,000 special agents, security 
specialists, and other professionals who make up the security and law 
enforcement arm of the State Department. In fiscal year 2004, DS 
reported that it opened 5,275 new criminal investigations and made 538 
arrests for passport fraud, 123 for visa fraud, and 54 for other 
offenses. For fiscal year 2005, DS reported 1,150 arrests combined for 
passport and visa fraud. 

Both the State IG and DS pursue allegations of passport and visa fraud 
by State Department employees. State IG officials stated that they were 
aware of DS investigations in these areas that were not coordinated 
with the State IG. Without a formal agreement to outline the 
responsibilities of both DS and the State IG regarding these 
investigations, there is inadequate assurance that this work will be 
coordinated to avoid duplication or that independent investigations of 
department personnel will be performed. Also, because DS reports to the 
State Department's Undersecretary for Management, DS investigations of 
department employees, especially when management officials are the 
subjects of the allegations, can result in management investigating 
itself. 

In other agencies where significant law enforcement functions like 
those at DS exist alongside their inspectors general, the division of 
investigative functions between the agency and the IG is established 
through written agreements. For example, the U.S. Postal Service has 
the Postal IG established by the IG Act and the Chief Postal Inspector 
who is head of the U.S. Postal Inspection Service with jurisdiction in 
criminal matters affecting the integrity and security of the mail. 
Postal inspectors investigate postal crimes and provide security for 
the protection of postal employees at 37,000 postal facilities 
throughout the country. In 2006, a memorandum was signed by the 
Chairman of the Board of Governors and the Postmaster General 
announcing the completion of the transfer of investigative jurisdiction 
for postal employees from the Postal Inspection Service to the Office 
of Inspector General. The Postal IG was recognized as having full 
responsibility for the investigation of internal crimes, whereas the 
Postal Inspection Service is responsible for security and the 
investigation of external crimes. This agreement also included a shift 
of resources between both organizations to cover their 
responsibilities. 

In another example, the Internal Revenue Service Criminal Investigation 
(IRS CI) and the Treasury Inspector General for Tax Administration 
(TIGTA) have signed a memorandum of understanding that recognizes IRS 
CI's responsibility to investigate criminal violations of the tax code 
while TIGTA has the responsibility to protect the IRS against attempts 
to corrupt or threaten IRS employees, and to investigate violations by 
IRS employees. This agreement includes the coordination of 
investigative activities between these offices and recognizes TIGTA as 
the final authority to investigate IRS Criminal Investigation 
employees. Agreements such as those crafted by the U.S. Postal Service 
and the IRS can serve as models for a formal agreement between DS and 
the State IG. 

Conclusions: 

The State IG relies heavily on inspections instead of audits for 
oversight of high-risk areas and management challenges. Areas such as 
human resources, counterterrorism, public diplomacy, and information 
security, are almost exclusively covered through inspections. By 
design, inspections are conducted under less in-depth requirements than 
audits performed under Government Auditing Standards in terms of levels 
of evidence and documentation to support findings and recommendations. 
Federal IGs use inspections as an important oversight tool along with 
audits and investigations, which are specifically required by the IG 
Act. However, the State IG conducts a much greater proportion of 
inspections to audits than the federal statutory IG community as a 
whole. Due to the risk and significance of the high-risk areas being 
covered largely by inspections, the State IG would benefit from 
reassessing risk and its heavy reliance on inspections in those areas 
to determine whether the current mix of audits and inspections provides 
the amount and type of oversight coverage needed. Given the important 
role that inspections currently play in the State IG's oversight of the 
department, assurance of inspection quality is also important. The 
State IG is currently conducting its first internal review of 
inspections, but the results are not yet reported and the review does 
not include IT inspections. 

Independence is a critical element to the quality and credibility of an 
IG's work under the IG Act and is fundamental to Government Auditing 
Standards and professional standards issued by the PCIE and ECIE. Based 
on our current concerns and those from our past reports, we believe 
that the State IG would benefit from additional policies and revised 
structures in order to avoid situations that raise concerns about 
independence, such as State Department management officials appointed 
to head the State IG office in an acting IG capacity, and State 
Department career Foreign Service staff and others who transfer from or 
return to department management offices leading IG inspections. Such 
policies and structures would be geared toward (1) providing for 
independent acting IG coverage in the event of delays between IG 
appointments and (2) assuring that State IG inspections are not led by 
career Foreign Service or other staff who move to assignments within 
State Department management. With regard to ambassadors, Foreign 
Service officers, and other rotational staff leading inspections, 
approaches could range from the State IG limiting its inspection 
activities to a level that is supportable without reliance on staff 
that routinely rotate to management offices, to permanently 
transferring or hiring additional staff, or FTEs, along with associated 
resources for the State IG office to eliminate the need to rely on 
Foreign Service and other rotational staff to conduct inspections. In 
addition, the State IG's inspection teams could include experienced 
ambassadors and Foreign Service officers at the ambassador level as 
team members rather than team leaders to help mitigate concerns 
regarding the lack of an appearance of independence caused by the State 
IG's current practice. 

Finally, there is a need for a formal agreement between the State IG 
and the State Department Bureau of Diplomatic Security to coordinate 
their investigative activities to help ensure the independence of 
investigations of the State Department's management staff and to 
prevent duplication. 

Recommendations for Executive Action: 

To help ensure that the State IG provides the appropriate breadth and 
depth of oversight of the State Department's high-risk areas and 
management challenges, we recommend that the State IG reassess the 
proper mix of audit and inspection coverage for those areas. This 
reassessment should include input from key stakeholders in the State 
Department and the Congress and also entail an analysis of an 
appropriate level of resources needed to provide adequate IG coverage 
of high-risk and other areas in light of the increasing level of 
funding provided to the State Department. 

To provide for more complete internal quality reviews of inspections we 
recommend that the State IG include inspections performed by the State 
IG's Office of Information Technology in its internal quality review 
process. 

To help ensure the independence of the IG office, we recommend that the 
State IG work with the Secretary of State to take the following 
actions: 

* Develop a succession planning policy for the appointment of 
individuals to head the State IG office in an acting IG capacity that 
is consistent with the IG Act regarding State IG appointment and 
provides for independent coverage in the event of delays between IG 
appointments. The policy should prohibit career Foreign Service 
officers from heading the State IG office in an acting IG capacity and 
specify within the IG's own succession order that acting IG vacancies 
are to be filled by eligible personnel without State Department 
management careers. 

* Develop options to ensure that State IG inspections are not led by 
career Foreign Service officials or other staff who rotate to 
assignments within State Department management. Approaches could range 
from the State IG limiting its inspection activities to a level that is 
supportable without reliance on staff who routinely rotate to 
management offices, to permanently transferring or hiring additional 
staff, or FTEs, along with associated resources for the State IG office 
to eliminate the need to rely on Foreign Service and other rotational 
staff to lead inspections. 

In order to provide for independent investigations of State Department 
management and to prevent duplicative investigations, we recommend that 
the State IG work with the Bureau of Diplomatic Security, the Office of 
Management, and the Secretary of State to develop a formal written 
agreement that delineates the areas of responsibility for State 
Department investigations. Such an agreement would, for example, 
address the coordination of investigative activities to help ensure the 
independence of internal departmental investigations and preclude the 
duplication of efforts. 

Agency Comments and Our Response: 

In comments on a draft of this report the State IG provided additional 
clarifying information and acknowledged that our review helped identify 
areas for improvement. With respect to our five recommendations in the 
draft report, the State IG agreed with two recommendations, partially 
agreed with one, and disagreed with two others. We are reaffirming our 
recommendations and provide our reasons below. 

With respect to the two recommendations for which there is agreement, 
the State IG agreed with our recommendations to (1) include all IG 
inspections, including inspections performed by the Office of 
Information Technology, in the internal quality review process and (2) 
work with DS and others to develop a written agreement delineating the 
areas of responsibility for department investigations. 

The State IG disagreed with our recommendation to reassess the mix of 
audit and inspection coverage stating that "simply reassessing the mix 
of audit and inspection coverage will accomplish little if there are 
not more auditors and more resources available to perform audits." Our 
recommendation provides the IG with a way to define the appropriate 
level of oversight of the department, reallocate current resources as 
appropriate, and justify any additional resources that may be 
necessary. This reassessment is especially important given the 
increased appropriations provided to the State Department and in light 
of the fact that the current mix of audits and inspections has evolved 
over a number of years when State Department management personnel 
served as acting IGs. By achieving a proper mix of audits and 
inspections the State IG can help maximize the use of the department's 
resources through more effective oversight. In addition, the State IG's 
comments do not recognize the potential for reallocating inspection 
staff to an audit role. Under Government Auditing Standards, the 
current inspection staff may also conduct performance audits in order 
to provide both a forward-looking analysis and a review of historical 
performance. Redesigning some inspections as performance audits to be 
performed by the current inspection staff could meet the needs of 
management for inspection results at the department's bureaus and posts 
and also provide the level of objectivity and evidence needed to assess 
high-risk areas and management challenges. Thus, for all the above 
stated reasons we continue to recommend that the State IG reassess the 
mix of audit and inspection coverage. 

The State IG does not disagree with our concerns about Foreign Service 
officers temporarily heading the IG office in an acting capacity, but 
believes that the recommendation goes too far by limiting the pool of 
eligible candidates to personnel without State Department management 
careers. We disagree with the IG's comments due to the importance of 
independence which is the most critical element for IG effectiveness 
and success. To preserve IG independence, the IG Act requires that the 
IG not report to or be subject to supervision by any other officer 
other than the Secretary, or if delegated, the Deputy Secretary. 
Appointing career department managers as acting State IGs would 
effectively have the IG office subject to supervision by a management 
official other than the Secretary or Deputy Secretary. Therefore, we 
continue to recommend that the State IG exclude from consideration in 
the succession planning of his office department officials with 
management careers due to possible conflicts of interest and resulting 
independence issues. As alternatives, the State IG could consider PCIE 
recommendations for personnel to fill future acting IG positions, as 
well as IG staff with proven ability from other agencies. In addition, 
we have revised the recommendation in our report to clarify that the 
intended action is directed to the succession planning activities of 
the State IG's office in order to avoid any unintended conflict with 
the Vacancies Act,[Footnote 32] which gives the President wide 
authority to appoint personnel to acting positions throughout the 
executive branch of the federal government. 

The State IG acknowledged that ambassadors who serve as team leaders 
for inspections raise a concern about the appearance of independence. 
The State IG also believes that this concern is significantly 
outweighed by the overriding need for people with the experience and 
expertise of ambassadors to lead inspections. We disagree with putting 
independence second to experience and expertise and believe that the 
State IG can achieve both objectives with the proper staffing and 
structuring of its inspections. Our position remains that the State 
IG's inspection teams should not be led by career Foreign Service 
officers and ambassadors, but could include experienced ambassadors and 
staff at the ambassador level as team members rather than team leaders 
to help mitigate concerns about the appearance of independence caused 
by the State IG's current practice. Therefore, we continue to recommend 
that the State IG work with the Secretary of State to develop options 
to ensure that the IG's inspections are not led by career Foreign 
Service officials, including ambassadors or other staff who rotate from 
State Department management. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we will not distribute it until 30 days from 
its date. At that time we will send copies of the report to the 
Secretary of State, the State Department IG, the State Department 
Undersecretary for Management, the State Department Assistant Secretary 
for Diplomatic Security, the OMB Deputy Director for Management, the 
Chairman and Ranking Member of the Senate Committee on Foreign 
Relations, other congressional committees, and interested parties. This 
report will also be available at no charge on the GAO Web site at 
http://www.gao.gov. If you have any questions or would like to discuss 
this report please contact me at (202) 512-9471 or by e-mail at 
franzelj@gao.gov. Major contributors to this report are listed in 
appendix IV. 

Signed by: 

Jeanette M. Franzel: 
Director: 
Financial Management and Assurance: 

[End of section] 

Appendix I: A Comparison of Fiscal Year 2001 Budgetary Resources for 
Selected Inspectors General and Agencies: 

Dollars in millions. 

1; 
Federal departments and agencies: Nuclear Regulatory Commission ; 
IG total budgetary resources: 7; 
Agency total budgetary resources: 546; 
IG budgetary resources as a percentage of agency budgetary resources: 
1.28. 

2; 
Federal departments and agencies: Small Business Administration; 
IG total budgetary resources: 15; 
Agency total budgetary resources: 2,580; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.58. 

3; 
Federal departments and agencies: Environmental Protection Agency; 
IG total budgetary resources: 56; 
Agency total budgetary resources: 11,577; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.48. 

4; 
Federal departments and agencies: Corporation for National and 
Community Service; 
IG total budgetary resources: 6; 
Agency total budgetary resources: 1,265; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.47. 

5; 
Federal departments and agencies: Agency for International Development; 
IG total budgetary resources: 35; 
Agency total budgetary resources: 9,269[A]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.38. 

6; 
Federal departments and agencies: Treasury Inspector General for Tax 
Administration; 
IG total budgetary resources: 127; 
Agency total budgetary resources: 39,937; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.32. 

7; 
Federal departments and agencies: Department of Commerce; 
IG total budgetary resources: 21; 
Agency total budgetary resources: 8,632; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.24. 

8; 
Federal departments and agencies: Department of State; 
IG total budgetary resources: 29; 
Agency total budgetary resources: 13,679[B]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.21. 

9; 
Federal departments and agencies: Department of Justice; 
IG total budgetary resources: 60; 
Agency total budgetary resources: 31,780; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.19. 

10; 
Federal departments and agencies: Department of the Interior; 
IG total budgetary resources: 31; 
Agency total budgetary resources: 19,871; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.16. 

11; 
Federal departments and agencies: General Services Administration; 
IG total budgetary resources: 36; 
Agency total budgetary resources: 23,115; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.16. 

12; 
Federal departments and agencies: National Aeronautics and Space 
Administration; 
IG total budgetary resources: 24; 
Agency total budgetary resources: 15.807; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.15. 

13; 
Federal departments and agencies: Tennessee Valley Authority (TVA); 
IG total budgetary resources: 8[C]; 
Agency total budgetary resources: 7,016; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.11. 

14; 
Federal departments and agencies: Department of Energy; 
IG total budgetary resources: 34; 
Agency total budgetary resources: 30,638; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.11. 

15; 
Federal departments and agencies: Department of Housing and Urban 
Development; 
IG total budgetary resources: 95; 
Agency total budgetary resources: 83,063; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.11. 

16; 
Federal departments and agencies: Department of Labor; 
IG total budgetary resources: 69; 
Agency total budgetary resources: 65,489; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.11. 

17; 
Federal departments and agencies: Department of Veterans Affairs; 
IG total budgetary resources: 50; 
Agency total budgetary resources: 57,391; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.09. 

18; 
Federal departments and agencies: Federal Deposit Insurance 
Corporation; 
IG total budgetary resources: 43; 
Agency total budgetary resources: 47,967; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.09. 

19; 
Federal departments and agencies: Department of Agriculture; 
IG total budgetary resources: 78; 
Agency total budgetary resources: 106,365; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.07. 

20; 
Federal departments and agencies: Railroad Retirement Board; 
IG total budgetary resources: 6[D]; 
Agency total budgetary resources: 9,201; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.07. 

21; 
Federal departments and agencies: Department of Education; 
IG total budgetary resources: 37; 
Agency total budgetary resources: 55,858; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.07. 

22; 
Federal departments and agencies: Department of Transportation; 
IG total budgetary resources: 55; 
Agency total budgetary resources: 85,399; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

23; 
Federal departments and agencies: Department of Health and Human 
Services; 
IG total budgetary resources: 231[E]; 
Agency total budgetary resources: 555,621; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.04. 

24; 
Federal departments and agencies: Department of Defense--Military; 
IG total budgetary resources: 156; 
Agency total budgetary resources: 453,875; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.03. 

25; 
Federal departments and agencies: Office of Personnel Management; 
IG total budgetary resources: 12; 
Agency total budgetary resources: 126,224; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.01. 

26; 
Federal departments and agencies: Social Security Administration; 
IG total budgetary resources: 70; 
Agency total budgetary resources: 498,918; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.01. 

27; 
Federal departments and agencies: Department of the Treasury; 
IG total budgetary resources: 35; 
Agency total budgetary resources: 366,620[F]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.01. 

28; 
Federal departments and agencies: Department of Homeland Security[G]; 
IG total budgetary resources: n.a; 
Agency total budgetary resources: n.a; 
IG budgetary resources as a percentage of agency budgetary resources: 
n.a. 

29; 
Federal departments and agencies: Central Intelligence Agency[G]; 
IG total budgetary resources: n.a; 
Agency total budgetary resources: n.a; 
IG budgetary resources as a percentage of agency budgetary resources: 
n.a. 

Source: GAO analysis of OMB data. 

Notes: The agencies presented are those with presidentially appointed 
inspectors general (IG). 

[A] Total budgetary resources appearing in Agency for International 
Development's FY 2001 Performance and Accountability Report. 

[B] State Department budget does not include amounts for the 
Broadcasting Board of Governors. 

[C] Amount for TVA IG is from fiscal year 2002 PCIE profile data. 

[D] Amount for Railroad Retirement Board IG is from fiscal year 2002 
PCIE profile data. 

[E] Includes budget authority to combat Medicare fraud. 

[F] Treasury's total budget authority excludes amounts for IRS. 

[G] Information not available. 

[End of table] 

[End of section] 

Appendix II: A Comparison of Fiscal Year 2005 Budgetary Resources for 
Selected Inspectors General and Agencies: 

Dollars in millions. 

1; 
Federal departments and agencies: Nuclear Regulatory Commission; 
IG total budgetary resources: 9; 
Agency total budgetary resources: 723; 
IG budgetary resources as a percentage of agency budgetary resources: 
1.24. 

2; 
Federal departments and agencies: Corporation for National and 
Community Service; 
IG total budgetary resources: 9; 
Agency total budgetary resources: 1,190; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.76. 

3; 
Federal departments and agencies: Environmental Protection Agency; 
IG total budgetary resources: 64; 
Agency total budgetary resources: 13,153; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.49. 

4; 
Federal departments and agencies: Agency for International Development; 
IG total budgetary resources: 49; 
Agency total budgetary resources: 14,822[A]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.33. 

5; 
Federal departments and agencies: Small Business Administration; 
IG total budgetary resources: 14; 
Agency total budgetary resources: 4,855; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.29. 

6; 
Federal departments and agencies: Department of Justice; 
IG total budgetary resources: 80; 
Agency total budgetary resources: 31,073; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.26. 

7; 
Federal departments and agencies: Department of Commerce; 
IG total budgetary resources: 22; 
Agency total budgetary resources: 10,179; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.22. 

8; 
Federal departments and agencies: Treasury Inspector General for Tax 
Administration; 
IG total budgetary resources: 131; 
Agency total budgetary resources: 66,338; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.20. 

9; 
Federal departments and agencies: General Services Administration; 
IG total budgetary resources: 46; 
Agency total budgetary resources: 26,378; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.17. 

10; 
Federal departments and agencies: National Aeronautics and Space 
Administration; 
IG total budgetary resources: 31; 
Agency total budgetary resources: 19,045; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.16. 

11; 
Federal departments and agencies: Department of Interior; 
IG total budgetary resources: 42; 
Agency total budgetary resources: 26,890; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.16. 

12; 
Federal departments and agencies: Department of State; 
IG total budgetary resources: 32; 
Agency total budgetary resources: 22,371[B]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.14. 

13; 
Federal departments and agencies: Department of Housing and Urban 
Development; 
IG total budgetary resources: 103; 
Agency total budgetary resources: 83,359; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.12. 

14; 
Federal departments and agencies: Department of Energy; 
IG total budgetary resources: 42; 
Agency total budgetary resources: 34,728; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.12. 

15; 
Federal departments and agencies: Tennessee Valley Authority (TVA); 
IG total budgetary resources: 9[C]; 
Agency total budgetary resources: 8,027; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.11. 

16; 
Federal departments and agencies: Department of Homeland Security; 
IG total budgetary resources: 117; 
Agency total budgetary resources: 121,830; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.10. 

17; 
Federal departments and agencies: Department of Labor; 
IG total budgetary resources: 69; 
Agency total budgetary resources: 72,893; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.09. 

18; 
Federal departments and agencies: Department of Veterans Affairs; 
IG total budgetary resources: 74; 
Agency total budgetary resources: 83,656; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.09. 

19; 
Federal departments and agencies: Railroad Retirement Board; 
IG total budgetary resources: 7[D]; 
Agency total budgetary resources: 10,849; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

20; 
Federal departments and agencies: Department of Agriculture; 
IG total budgetary resources: 84; 
Agency total budgetary resources: 135,903; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

21; 
Federal departments and agencies: Department of Education; 
IG total budgetary resources: 48; 
Agency total budgetary resources: 84,359; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

22; 
Federal departments and agencies: Federal Deposit Insurance 
Corporation; 
IG total budgetary resources: 28; 
Agency total budgetary resources: 50,612; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

23; 
Federal departments and agencies: Department of Transportation; 
IG total budgetary resources: 65; 
Agency total budgetary resources: 117,707; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

24; 
Federal departments and agencies: Department of Health and Human 
Services; 
IG total budgetary resources: 437[E]; 
Agency total budgetary resources: 789,041; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.06. 

25; 
Federal departments and agencies: Department of Defense--Military; 
IG total budgetary resources: 205; 
Agency total budgetary resources: 716,702; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.03. 

26; 
Federal departments and agencies: Social Security Administration; 
IG total budgetary resources: 91; 
Agency total budgetary resources: 605,134; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.02. 

27; 
Federal departments and agencies: Office of Personnel Management; 
IG total budgetary resources: 18; 
Agency total budgetary resources: 160,759; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.01. 

28; 
Federal departments and agencies: Department of the Treasury; 
IG total budgetary resources: 20; 
Agency total budgetary resources: 329,345[F]; 
IG budgetary resources as a percentage of agency budgetary resources: 
0.01. 

29; 
Federal departments and agencies: Central Intelligence Agency[G]; 
IG total budgetary resources: n.a; 
Agency total budgetary resources: n.a; 
IG budgetary resources as a percentage of agency budgetary resources: 
n.a. 

Source: GAO analysis of OMB data. 

Notes: The agencies presented are those with presidentially appointed 
inspectors general (IG). 

[A] Total budgetary resources appearing in Agency for International 
Development's FY 2005 Performance and Accountability Report. 

[B] State Department budget does not include amounts for the 
Broadcasting Board of Governors. 

[C] Amount for TVA IG is from fiscal year 2005 PCIE profile data. 

[D] Amount for Railroad Retirement Board IG is from fiscal year 2005 
PCIE profile data. 

[E] Includes budget authority to combat Medicare fraud. 

[F] Treasury's total budget authority excludes amount for IRS. 

[G] Information not available. 

[End of table] 

[End of section] 

Appendix III: Comments from the Inspector General, Department of State: 

United States Department of State and the Broadcasting Board of 
Governors: 
Inspector General: 

March 2, 2007: 

Jeanette M. Franzel: 
Director: 
Financial Management and Assurance: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Franzel: 

Thank you for the opportunity to review and comment on the draft GAO 
report on the Activities of the Department of State Office of Inspector 
General ("OIG"). GAO's review has helped to identify areas where 
improvements can be made to OIG's oversight activities. OIG appreciates 
the professionalism and courtesies extended by you and your staff in 
carrying out this review. 

GAO's review covers a period consisting of fiscal years 2001 through 
2005. Over 90% of that period occurred prior to my arrival at OIG. 
Nevertheless, I will try to comment on several of the broad issues 
raised in GAO's report. In a previous e-mail, OIG has provided what it 
believes to be technical and factual corrections to the draft report. 
For purposes of this letter, I am assuming changes and corrections will 
be made as necessary in the final report to reflect the points 
previously made. 

There are at least two elements that significantly affect OIG's 
structure and activities and against which the structure and activities 
should be judged: 

1. Statutorily Mandated Post and Bureau Inspections. 

As noted by GAO, Section 209 of the Foreign Service Act of 1980 
mandates that OIG inspect each Foreign Service post and each bureau and 
other operating unit of the Department of State (the "Department") at 
least every five years. This means that OIG must plan its work, staff 
its personnel, and budget its resources in order to comply with this 
statutory mandate. Parenthetically, it should be noted that the number, 
size and complexity of U.S. missions abroad have expanded vastly since 
1980 - for example, missions in places such as Baghdad, Kabul, Hanoi, 
the former states of the Soviet Union, Beijing, member states of the 
United Nations that did not exist, and others either were not present 
in 1980 or have changed radically since. As early as 1982, GAO noted 
that the mandated five-year inspection cycle adversely affected OIG's 
effectiveness by limiting its ability to do other work. 

For the years reviewed by GAO (2001 through 2005), Congress, in 
Department appropriations acts, annually waived the five-year 
inspection language. However, those waivers have come from three to six 
months after the commencement of each fiscal year, and their eventual 
grant by Congress cannot be assumed, with the result that OIG has had 
to go into each fiscal year with work plans, staff, and resources 
designed to comply with existing law. Moreover, the Department has come 
to rely on the deterrent effects and constructive evaluations and 
recommendations that come from the inspection process, and to have 
posts and bureaus go more than seven or so years without inspection is 
considered to be high risk. On balance, OIG tries to comply with a five 
to seven year cycle, but my experience suggests this should be done 
free from a statutory mandate so that high risk or high priority 
matters at a particular time can be attended to. 

2. Declining Resources. 

While OIG's numbers show an actual decrease in OIG resources over the 
five-year period (as opposed to the 1 % increase suggested in the draft 
report) and an increase in Department resources even greater than the 
50% suggested in the draft report --particularly if numbers for the 
Broadcasting Board of Governors, for which OIG also has oversight 
authority, are included --whatever numbers are used, it is abundantly 
clear that over a period where world events have exponentially 
increased the demands upon OIG and the opportunities for it to produce 
savings, increase efficiency, reduce waste, and bring about positive 
change throughout the Department's activities, OIG's resources have 
been static or declining. This anomaly is accentuated when one 
considers that approximately 85% of OIG's resources go to compensation 
and the next biggest expense is foreign travel. Even in a period of 
relatively low inflation, OIG has faced to a greater proportion than 
most others mandatory wage increases and higher travel costs due to 
increased jet fuel costs, post 9/11 security costs, and lower dollar 
exchange rates. 

Against the foregoing background, I will comment on GAO's broadest 
areas: 

Proper Mix of Audits and Inspections: 

The statutory mandate for inspections means that OIG must have the 
people on board to perform inspections. For the most part, auditors and 
inspectors are not inter-changeable or fungible. Simply "reassessing 
the mix of audit and inspection coverage" will accomplish little if 
there are not more auditors and more resources available to perform 
audits. One thing that OIG does, and which skews the figures cited by 
GAO comparing the number of inspection reports issued to the number of 
audit reports, is to include auditors and audit-like procedures in most 
inspections. Thus, while GAO observes that OIG covers high-risk areas 
"almost exclusively through inspections" with a higher ratio of 
inspections to audits than other federal statutory IGs, in fact many of 
these inspections have audit components to them. Moreover, I am unaware 
of any other IG that has a statutory inspection mandate such as OIG, 
and more than a few perform few or no inspections. The House Committee 
on Foreign Affairs report on Section 209 of the Foreign Service Act 
explained that it went beyond the financial audit and investigation 
aspects of the Inspector General Act of 1978 by providing for authority 
to determine compliance with U.S. foreign policy objectives. "In the 
view of the committee, the historically dual responsibility of the 
office of the Inspector General to prevent waste and misuse of funds 
and also to determine compliance with U.S. foreign policy objectives 
sets this office apart from other Inspectors General." 

Because of the Congressional mandate and OIG's limited resources to 
hire more auditors, there are things that could be done in the context 
of an audit which OIG has to do through an inspection. If an inspection 
team is already going to a foreign location, it would not be a wise use 
of limited resources to also send an audit team to that location. 
Nevertheless, OIG does provide coverage through audits not just to 
contracts, procurements, and financial management, but also to matters 
such as emergency preparedness. Moreover, OIG Audit's significant 
contributions to the audit of the Department's financial statements and 
the implementation of OMB Circular 123 have come near and subsequent to 
the close of the period reviewed by GAO. 

With respect to the "fundamental differences between audits and 
inspections" cited by GAO, I agree that inspections have a different 
level of detail and requirements in the areas of sufficient, 
appropriate evidence to support findings and conclusions and the level 
of documentation to reflect that support. This is a principal reason 
why your reviewers did not find the level of documented support they 
might have expected. Inspections by their nature tend to be much more 
subjective and less objective than audits, and they require experience 
and expertise in the unique operations of foreign posts. Many 
inspection assignments do not lend themselves to audits. Inspections 
also tend to be forward looking as well as historical, and it is often 
difficult to document just why a particular recommendation will improve 
the overall effectiveness of a post. Nevertheless, OIG very much takes 
to heart GAO's observation that summary worksheets, questionnaires from 
post employees, and interview memoranda are not always adequate, and 
OIG's Office of Inspections has increased its emphasis on workpapers 
and supporting documentation in the training of new inspectors. 

Independence: 

1. I agree with GAO's concern when career Foreign Service officers and 
diplomats temporarily head OIG in an acting IG capacity. While 
independence is a part of my concern, perhaps an even greater concern 
is that a career Foreign Service officer is specifically precluded by 
law (22 USC 4861 d) from becoming IG of the Department. Thus, a Foreign 
Service Acting IG, no matter how good a job he/she is doing, cannot 
become permanent and is always temporary, and is known by all to be so. 
This can have a debilitating effect on OIG, particularly over a lengthy 
period. 

The four Foreign Service Acting IGs were, of course, prior to my time. 
However, I am aware that each was the Deputy Inspector General at the 
time of becoming Acting IG. In OIG at the present time under my 
leadership, the Deputy Inspector General is a Civil Service officer 
rather than Foreign Service. This reduces the possibility that a 
Foreign Service officer would become Acting IG. 

Although I do not disagree with GAO's recommendation that a policy be 
adopted to "prohibit career Foreign Service officers from heading the 
State IG office in an acting IG capacity", I believe the recommendation 
goes too far by limiting eligibility to "personnel without State 
Department management careers". To eliminate all Foreign Service 
officers and all Civil Service officers with management careers is to 
unduly limit the eligible sources for an Acting IG and inhibit the 
ability to get a prompt, capable Acting IG in place. GAO should also 
consider whether its recommendation is consistent with the Vacancies 
Act (5 USC 3345-3349d). 

2. 1 do not agree with GAO's recommendation "to ensure that State IG 
inspections are not led by career Foreign Service officials or other 
staff who rotate to assignments within State Department management". 
Having spent nearly 25 years in the private sector as legal counsel to 
Big Eight and Big Six independent public accounting firms, I can assure 
you I am extremely sensitive to the concept of independence. 
Independence comprises the appearance of independence and the fact of 
independence. I acknowledge that OIG's policy of having ambassadors 
serve as team leaders for inspections raises a concern about the 
appearance of independence. However, I believe this concern is 
significantly outweighed by the overriding need to have people with the 
experience and expertise of an ambassador lead an inspection of a 
foreign post. There is simply no substitute for "having been there, 
done that", "having walked in those shoes", and having performed under 
the difficult and often adverse conditions that characterize a foreign 
post. Likewise, there is no substitute to the credibility which is 
given to the evaluations and recommendations of an ambassador, 
including the critical Inspector Evaluation Reports on the performance 
of the COM and DCM at a post, or to the trust and acceptance accorded 
to an ambassador by people at a foreign post. A keystone of the 
inspection process is the willingness of the whole range of foreign and 
civil service personnel at a post, foreign service nationals, locally 
employed staff, entry and junior level officers, eligible family 
members, and the whole community up to the COM --and even outsiders in 
the host country and the local diplomatic corps --to be open, candid, 
and critical in expressing views to the inspection team. I just do not 
believe this process can be replicated without the presence of an 
ambassador team leader and to the exclusion from the team of those with 
foreign service experience. As the Preface to the PCIE Quality 
Standards for Inspections states: "The inspection function at each 
Department/Agency is tailored to the unique mission of the respective 
Department/Agency." OIG needs the experience and expertise of 
ambassadorial leaders and Foreign Service staff to design and implement 
inspections tailored to the unique mission of the State Department. I 
believe that 9 of 22 Foreign Service officers transferring over the 
five years is, if anything, too low, not too high. As the House Foreign 
Affairs Committee Report referred to above observed: "The Inspector 
General must be served . by individuals who possess foreign policy 
training and knowledge of the Foreign Service". 

Even more critical than the appearance of independence is the fact of 
independence. As the draft report notes, GAO has been expressing for 
nearly 30 years --going back to its 1978 report --its concern that the 
desire of OIG staff to receive favorable assignments could influence 
their objectivity. Based on my knowledge and experience, this concern 
is theoretical but is unwarranted in fact. There are several checks and 
balances in OIG's policies and procedures, as well as in Department 
standards and PCIE Quality Standards, but more important, I am unaware 
of any situation in thirty years of a credible allegation supporting 
this concern and I have not seen during my tenure any sign of actual 
impairment of independence. I also note that the entire Federal 
government is characterized by and populated with people moving and 
graduating to other positions within and outside their present 
agencies, and to make that a negative or a prima facie concern for 
objectivity risks greater concerns for efficiency. In terms of actual 
numbers, I am advised that over the past five years, out of 14 Foreign 
Service team leaders, only three went back to the Department (one for a 
brief time before leaving) and 11 have retired or plan to retire after 
leaving OIG. Fifteen other team leaders were retired annuitants and not 
likely to present a concern. At the end of FY 06 only 18 of the 65 
Office of Inspection positions were filled by Foreign Service officers. 

Reviews of IT Inspections: 

The draft report recognizes that, although external quality or peer 
review is not required for inspections, at the time of GAO's work "the 
State IG established an internal program to review the quality of the 
inspection practice". The draft report states that the internal review 
did not include information technology inspections. Actually, the 
internal quality review undertaken by OIG does include a review of the 
information technology portion of any inspection in which IT staff 
participated. However the draft report rightly notes that the quality 
of IT inspections is critical for providing overall assurance of FISMA 
compliance. Accordingly, OIG agrees with the recommendation that all 
inspections performed by the Office of Information Technology be 
included in the internal quality review process. 

Agreement on Investigative Activities: 

The draft report correctly points out the absence of a functional 
agreement between OIG and the Bureau of Diplomatic Security ("DS") for 
coordinating investigative activities. It is my understanding that 
efforts were made some ten years ago and thereafter to, reach a 
Memorandum of Understanding between OIG and DS but it was never 
completed. I am advised that an obstacle was the significant disparity 
in size and resources between DS and OIG/INV. The GAO draft report 
describes DS as "a global force of approximately 32,000". I cannot 
confirm that number or its components, but OIG/INV consisted at the end 
of FY 2006 of 21 people of whom 17 were Special Agents, whereas DS had 
approximately 1,448 Special Agents. 

OIG agrees with GAO's recommendation that it work with DS and others to 
develop a written agreement delineating the areas of responsibility for 
Department investigations. OIG appreciates the examples provided by GAO 
of other agencies where significant law enforcement functions exist 
alongside inspectors general and the written agreements they have 
achieved. OIG will pursue efforts to develop an agreement with DS using 
the models suggested. 

Thank you again for the professionalism and courtesies of your staff. 
Should you have any questions regarding the comments herein, please 
contact me. 

Sincerely, 

Signed by: 

Howard J. Krongard: 
Inspector General: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Jeanette M. Franzel, (202) 512-9471 or franzelj@gao.gov: 

Acknowledgments: 

Financial Management and Assurance: 

Jackson W. Hufnagle, Assistant Director Clarence A. Whitt, Analyst-in- 
Charge: 

Office of the General Counsel: 

Francis Dymond, Assistant General Counsel Jacquelyn Hamilton, Deputy 
Assistant General Counsel Amy Bowser, Attorney: 

FOOTNOTES 

[1] Pub. L. No. 99-399, Title IV, § 413, 100 Stat. 853, 867-68 (Aug. 
27, 1986). 

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

[3] 5 U.S.C. App. § 4(b)(1). 

[4] The PCIE is composed principally of the presidentially appointed 
and Senate-confirmed IGs, and the ECIE is composed principally of IGs 
appointed by the heads of designated federal entities defined by the IG 
Act. Both were established by Executive Order to coordinate and enhance 
the work of the IGs. 

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

[6] GAO, State Department's Office of Inspector General Should Be More 
Independent and Effective, AFMD-83-56 (Washington, D.C.: June 2, 1982). 

[7] 5 U.S.C. App. § 2. 

[8] GAO, Border Security: More Emphasis on State's Consular Safeguards 
Could Mitigate Visa Malfeasance Risks, GAO-06-115 (Washington, D.C.: 
Oct. 6, 2005). 

[9] Pub. L. No. 83, ch. 1366, § 4, 34 Stat. 99, 100 (Apr. 5, 1906). 

[10] Pub. L. No. 135, ch. 182, § 10, 43 Stat. 140, 142 (May 24, 1924). 

[11] Pub. L. No. 724, ch. 957, § 681, 60 Stat. 999, 1018 (Aug. 13, 
1946). 

[12] Pub. L. No. 87-195, § 624, 75 Stat. 424, 447 (Sept. 4, 1961). 

[13] Pub. L. No. 95-88, § 124, 91 Stat. 533, 541-42 (Aug. 3, 1977). 
Section 124 authorized the President to assign to the Inspector General 
of Foreign Service all of the duties and responsibilities of the 
Inspector General of Foreign Assistance, which he did by Executive 
Order 12066, June 29, 1978. 

[14] ID-78-19. 

[15] Pub. L. No. 96-465, Title I, ch. 2, § 209, 94 Stat. 2071, 2080 
(Oct. 17, 1980). 

[16] AFMD-83-56. 

[17] Pub. L. No. 99-93, § 150, 99 Stat. 405, 427 (Aug. 16, 1985). 

[18] Pub. L. No. 99-399, Title IV, § 413. 

[19] The PCIE and ECIE make no distinction between inspections and 
evaluations and include both in their definition. 

[20] 5 U.S.C. App. § 4(a)(3). 

[21] We adjusted for inflation using the OMB Gross Domestic Product 
(GDP) inflator. 

[22] 5 U.S.C. App. § 5. 

[23] State IG, Review of the Department of State's Overseas Purchase 
Card Program, AUD/PPA-05-01 (Washington, D.C.: December 2004). 

[24] Pub. L. No. 106-531, 114 Stat. 2537 (Nov. 22, 2000). 

[25] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: 
January 2003). 

[26] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

[27] Pub. L. No. 107-296, § 812, 116 Stat. 2135, 2223 (Nov. 25, 2002). 

[28] Title III, E-Government Act of 2002, Pub. L. No. 107-347, 116 
Stat. 2899, 2946 (Dec. 17, 2002). 

[29] 22 U.S.C. § 4861(d). 

[30] 5 U.S.C. App. § 2. 

[31] 22 U.S.C. § 4807. 

[32] 5 U.S.C. §§ 3345-3349(d). 

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