review the overall management control system for recording and reporting transactions involving Federal grant programs. This approach will provide us with the information necessary for scheduling such audits on a more realistic basis than the annual audit cycle previously followed. Other measures being implemented are as follows: (a) Existing audit programs are being reviewed and where appropriate, revised to take advantage of such timesaving devices as statistical sampling procedures, and full utilization of internal or independent audits performed by State agency audit staffs or public accounting firms. (b) Measures are now being taken to establish cross-servicing arrangements with other Federal agencies involved in the award of grants to State and local governments. This aproach will expand audit coverage and at the same time minimize Federal audit impact on State and local governments. 3. Internal audits of department operations.-During this fiscal year we are continuing to perform internal reviews of Department operations on a regularly scheduled basis. In addition, we have initiated a number of comprehensive reviews designed to provide management with a complete analysis of a given functional activity or project. Typical of such reviews are audits of travel management practices and procedures at both the headquarters offices and all of the Department's major field installations. Also in process is a continuing review of grants management practices and procedures. These across-the-boardtype reviews have the advantage of being able to pinpoint departmentwide problem areas. 4. Reports planned for fiscal year 1966.-During fiscal year 1966 the Office of Audit will complete the following number of audit reports: A. Training: With a professional audit staff of 350 auditors authorized in fiscal year 1966 and 400 planned for in 1967, the development of a training and career development program is a primary factor toward raising audit standards and increasing the effectiveness of audits. During fiscal year 1966, two comprehensive training programs were held to orient regional auditors and their assistants in the new concepts, philosophies, and operating procedures of the Office of Audit. Primary emphasis was given to methods for accomplishing improved utilization of audit manpower; to cross-training of auditors in all Department programs and to installing uniform procedures and approaches with respect to both technical and administrative aspects of operational responsibilities. Steps also have been taken to develop a formal training course to be presented by a recognized university to all present members of our staff and all new members on a continuing basis. Proposals are now being solicited from five major universities with respect to costs for development and presentation of a 2- or 3-week course designed to meet the specialized needs of our organization. B. Realinement of field staff: We have been studying the problem of distribution of auditors throughout the United States so as to most effectively accomplish our overall audit responsibilities. In our studies we have considered the needs of grantee institutions as well as the personal problems of auditors in terms of travel problems and costs, the distances involved, and time away from their families. We have concluded that we will provide a more effective audit service if we restrict the number of locations where we maintain permanent audit staff to those locations where the predictable workload will require three or more professional auditors. We are now in the process of making necessary adjustments in our field audit staff. C. Improving communication: Steps have been taken to devise a reporting system that will keep the Secretary and other responsible officials currently advised of significant audit findings. This procedure will provide top manage ment officials with the information necessary for timely and effective action when required. D. Quality control: Emphasis is being placed on the review of audit reports for adequacy of scope, soundness of conclusions, format, tone, and accuracy. This is being accomplished through the issuance of uniform audit and reporting guides and through quality control testing by the headquarters staff. E. Correlating and reporting: We have initiated a procedure for accumulating individual audit exceptions on a programwide basis. These are then correlated, evaluated, and reported on to management. This information will permit the pinpointing of trends and weaknesses on a nationwide basis and facilitate overall administration of the Department's programs. F. Recruitment: At the present time there are approximately 60 vacancies within the Office of Audit. An additional 51 auditor positions are planned for fiscal year 1967. To fill this gap, steps have been taken to initiate an aggressive recruiting program. We plan to coordinate this program with a training and career development program so that we can both attract, develop, and hold our qualified personnel. G. Supervision of field audit staff: An assistant to each regional auditor has been appointed as a step toward strengthening regional office supervision of field audit activities. With the increase in the number of professional employees in the regional office and the resulting increase in audit responsibilities as well as administrative duties, it is essential that the regional auditor give adequate attention to all activities for which he is responsible. The appointment of an assistant regional auditor will allow more time for supervision of field audit activities. IV. Program for fiscal year 1967 During fiscal year 1967 continued emphasis will be given to performing our audits on a more current basis. Although the measures previously cited provide an aggressive aproach to this problem, they are not intended to minimize the seriousness of the situation on hand. It is anticipated, however, that full implementation of the previously cited revised audit techniques and maximum effort in recruiting and training of our professional staff will place us on a current basis within 2 years. By that time we will have gathered the audit history necessary to devise a realistic frequency cycle that is responsive to the management's needs and interests. During fiscal year 1967, it is estimated that the Office of Audit will issue the following number of reports: Classification State and local agencies Number of reports 1,500 Universities and nonprofit organizations, grants, and contracts_. 1,000 Foreign grants___ 800 Economic Opportunity Act, titles IIA, IIB, V__ 550 Social Security Administration health insurance benefits programs_. 150 70 Total 8,470 The above is subject to obtaining approval for the full number of professional auditors requested in our budget. V. Fiscal year 1967 increases Workload increases in the following areas will support the need for additional staff as requested in this justification. A. Increased workload resulting under existing programs (15 positions): The 15 new positions requested in fiscal year 1967 resulted from legislation enacted by the 88th Congress, and are directly related to increased authorization for the construction of new facilities. The new positions are requested at this time due to the normal delay of approximately 2 years between approval and completion of new facilities. It is necessary to give priority to these audits because final payment to grantees is withheld pending final audit. The requested 15 positions are based upon estimated additional workloads occurring under the following acts: Higher Education Facilities Act of 1963 (Public Law 88–204). Health Professions Educational Assistance Act of 1963 (Public Law 88-129) Total...... B. Increased workload under new or expanded programs (36 positions): The following new legislation contains major new programs. The audit workload in fiscal year 1967 will consist of program liaison, policy determinations, development of audit work programs, and training, in addition to the actual performance of audits. The Office of Audit will expand its audit activities to (1) comprehensive audits which will include a review and evaluation of the adequacy of the grantees' internal control systems and procedures in addition to accounting records, and (2) perform reviews or surveys soon after the inception of the program so as to identify existing or potential problem areas for immediate consideration by operating agencies or other interested parties. 1. The Appalachian Regional Development Act (Public Law 89-4).—This act provides funds which may be used for construction and operation of demonstration health facilities, construction of vocational education schools and sewage treatment works, and authorizes an increase in the amount of Federal matching in all grant-in-aid programs. It is anticipated that 25 projects will be completed and subject to audit in fiscal year 1967. The audit of projects approved under this act will require two audit positions. 2. Elementary and Secondary Education Act of 1965 (Public Law 89-10).— This act provides financial assistance to 56 State educational agencies, 20,000 local school districts, and 1,500 university and nonprofit educational institutions for all appropriate costs incident to the conduct of an adequate school program, including construction of school facilities, equipment, and staffing. This act will not receive maximum audit effort until fiscal year 1967, the first full year of program operation. As stipulated in our request for 29 positions in the fiscal year 1966 request, which was allowed, an additional 10 positions would be required in fiscal year 1967 based upon an estimated workload of 0.7 man-years per State. 3. Social Security Amendments of 1965 (Public Law 89-97).-Title I of the Social Security Amendments of 1965 provides for a national hospital insurance program for the aged with a supplementary health program, and an expanded program of medical and public assistance programs. Sixteen positions are requested to perform audits of approximately 150 public and private organizations (estimated 3 per State) which will be established to process and make payments to providers of services in fiscal year 1967. 4. Higher Education Act of 1965 (Public Law 89-329).-This is the first year of a 5-year program to strengthen the educational resources of our colleges and universities, and to provide increased assistance to students in postsecondary and institutions of higher education. Title I provides for grants through States to assist in the development of a program for institutions of higher education which offer community service programs. Title II provides for funds to be used for grants to educational institutions to assist them in the acquisition of books and certain materials for library purposes, and to encourage the training of library personnel. During fiscal year 1966, 2,000 applications for grants were approved and will be subject to audit in fiscal year 1967. Title III provides for grants to public and nonprofit educational institutions to assist in raising the academic quality of such schools. Grants under these titles will be made to an estimated 55 State agencies and 1,500 educational institutions. Five positions are requested to perform audits under these titles. 5. College work study program.—The Higher Education Act of 1965, title IV-C provides for a transfer of authority of the college work study program from the Office of Economic Opportunity to the Office of Education. Twelve positions were provided for the first time in fiscal year 1966 to perform audits of an estimated 1,200 participating institutions on a 2-year audit cycle. Three additional auditors are requested to provide for the increased workload resulting from an anticipated increase in the number of participating institutions to 1,400 in fiscal year 1967. 1 Some institutions and State and local agencies are duplicated between HEW constituent agencies awarding grants. 2 Public Health Service includes grants and contracts by Water Pollution Agency. 3 Welfare Administration (State and local agencies). Represents number of local agencies in decentral. ized States requiring local audits. Expenditures and documentation of Federal funds at local level. Senator HILL. Mr. Kelly, do you want to address yourself to the Office of Audit. Mr. KELLY. Not to be outdone by Mr. Cohen, may I offer the opening statement for the record and summarize it by reading the last paragraph. In our budget submission for 1967 we are requesting obligational authority of $5,155,000, an increase of $964,000 and 51 positions over funds available for this activity in fiscal year 1966. This increase will provide the funds necessary to meet the increased audit workload resulting from the Department's new and expanding programs, along with mandatory full-year costs of positions authorized in 1966. CONSOLIDATION OF AUDIT FUNCTIONS Last year you established a program putting together all of the audit functions of the Department. I think we are in the process of a productive year. It is an awesome task; it is a large enterprise. We have, I think, made very substantial progress in organizing the new audit agency. We still have a substantial number of vacancies. It is a hard area to recruit for. We are now visiting colleges and universities endeavoring to recruit new people to the organization. We believe there was merit in the recommendation to establish this as a central agency and we believe next year the efforts of the organization will be productive to demonstrate it. Senator HILL. Senator Cotton. GENERAL ACCOUNTING OFFICE AUDIT REPORTS Senator COTTON. Do you receive a good deal of attention from the GAO? Mr. KELLY. Yes, sir. The General Accounting Office has recognized HEW as an agency of Government expending considerable funds and they have appointed an assistant auditor who has the responsibility for HEW programs administered from headquarters in Washington. They have appointed an additional assistant director with the responsibility of auditing the Social Security Administration with headquarters in Baltimore. They have been increasingly productive in recent years and are turning out a very considerable number of audit reports, some in the form of letters addressed to our program administrators and some in the form of reports addressed to the Secretary, but most of them in the form of reports addressed to the Congress. |