Archive

Streamlining Management Control

Recommendations and Actions

SMC03: Change the Focus of the Inspectors General

Background

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

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

An Evolving Role.

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

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

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

Need for Change

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

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

Adversarial Relationships.

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

Shift in Focus Needed.

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

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

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

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

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

Actions

1. Change the emphasis of IG's from compliance auditing to evaluating management control systems. (1)

IG's should shift their audit emphasis from ensuring compliance with procedures to evaluating the effectiveness of line managers' own systems of management control. By changing their emphasis, the IG's will oversee the effectiveness of agency line management control systems to ensure compliance with program requirements and efficient and economical service delivery. The evaluations should:

--- assess potential management, system, and service delivery problems;

--- analyze internal management evaluations for strengths and weaknesses;

--- identify alternative means of achieving results;

--- test management controls to reduce unnecessary spending, improve government purchasing, recover misspent funds, and detect areas vulnerable to fraud and abuse; and

--- identify unnecessary spending and ways to detect and prevent fraud and abuse.

Findings and recommendations should be limited to specific items significant in terms of a review's objectives. Oversight reviews must aim at one objective: timely, relevant, and accurate reports serving as valuable management tools.

Inspector General evaluations should not substitute for line managers' own internal management program evaluations. Likewise, IG's should not duplicate line management reviews. In agencies without line management program evaluation capabilities, IG's could develop this capability, possibly by shifting resources currently dedicated to procedural compliance audits.(12)

2. Change the IG's method of operation to be more collaborative and less adversarial. (1)

OIG's should conduct their reviews in a more collaborative manner with line management. Together, they need to develop a relationship built on trust. Government auditing standards strongly encourage a collaborative approach between auditors and auditees. However, many OIG's are burdened with a negative image because of their current adversarial relationships with line management. Such a negative image clearly indicates that some OIG staff either misinterpret the audit standards or simply ignore them. Too often, some OIG staff fail to give credit when credit is due, become obsessed with every infraction, blind-side the auditees, or fail to distinguish between the relevant and the insignificant. Together these practices lead auditees to conclude that auditors simply mean to justify their own existence rather than improve an auditee's program performance.

This image could change if each audit begins with discussions between the OIG and management staffs on objectives and audit methodology. While the OIG must retain its independence in order to remain objective, obtaining input from line management will ensure that auditee concerns about the objectives and methodologies are addressed. If concerns are resolved before the audit, mutual trust may be easier to develop. Early discussion does not compromise an IG's objectivity and prevents potentially damaging misunderstandings at the audit's conclusion. More importantly, it also builds the basis for action on implementing audit recommendations.

3. Establish performance criteria for IG's. (1)

The President's Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency--along with input from the Office of Management and Budget--should establish criteria for judging IG performance. While the National Performance Review recommends the use of performance agreements for senior-level political appointees,(13) IG's should be exempted from performance agreements because these agreements may create the appearance of interfering with the independence of IG offices. By having the IG's develop their own performance measures through the PCIE and ECIE, the appearance of interference with IG independence is mitigated. The performance criteria should include an easily understood and usable performance measurement system, one consistent with the Government Performance and Results Act of 1993. The performance measurement system should include the IG's' routine use of a feedback loop, consisting of questionnaires to determine to what degree the OIG service to the agency and Congress has been timely, relevant, accurate, and useful. In addition, the performance measurements should show what steps should be taken to improve IG performance. The feedback should be shared with the agency head and OMB, and in IG semiannual reports to Congress.

4. Do not offer bonuses to IG's. (1)

Agency heads should no longer offer bonuses to IG's, even if the IG's are eligible for them under the Civil Service Reform Act of 1978. There must be no question in the public's mind about an IG's objectivity. Although presidential appointees generally are not eligible for bonuses, some of the 26 presidentially-appointed IG positions are filled by career civil servants who are still entitled to receive bonuses as members of the Senior Executive Service. Furthermore, many of the 34 non-presidentially appointed IG positions are filled by career civil servants who also are eligible to receive bonuses. Prohibiting bonuses will help avoid even the appearance of impropriety among IG's.

Cross References to Other NPR Accompanying Reports

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

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

Endnotes

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

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

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

4. Ibid., p. G-9.

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

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

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

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

9. Ibid., p. 15.

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

11. Ibid, p. 3.

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

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

Return To Report Index