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Mr. FOGARTY. This year you are requesting 51 additional auditors for 1967 ?

Mr. KELLY. Yes, sir.
Mr. FOGARTY. Why the additional increase?

Mr. KELLY. This is because we are now feeling the full effect of expenditure increases appropriated during the past year.

Mr. FOGARTY. Will this increase just allow you to keep up with the increased workload or will it provide sufficient manpower to cut into the backlog?

Mr. KELLY. I am hoping that by the end of fiscal year 1967 we will be able to say that we are on top of this program and that the auditors are on a current basis.

Mr. FOGARTY. I do not see any request for typists or stenographers. Are these 51 additional auditors going to do their own stenographic work?

Mr. THOMPSON. I think the typists that we have now should suffice. We are trying to cut typing help to a minimum and to put the largest number of employees on our direct audit work. We are hoping to manage with the typists we now have.

RECRUITING AUDITORS

Mr. FOGARTY. Do you have any difficulty in recruiting auditors?
Mr. KELLY. Yes, sir; we do.
Mr. Flood. Do you use a pool for these auditors?

Mr. KELLY. They are operating in and out of the regional offices of the Department and maintaining headquarters at duty stations for staff in those places where the workload in the area would justify three or more positions. This gives us about 45 duty stations around the country where we have located auditors.

It is true that the market for qualified auditors, has tightened up very considerably. We have put a task force to work on this problem. We are going to start visiting schools this month. We have lined up visits at 20 colleges and universities in order to get young professionals.

Mr. FLOOD. What do they start at?
Mr. KELLY. Entrance is generally at grade 7.
Mr. Flood. What is that in money, about,
Mr. KELLY. About $6,300.

We have worked out two things with the Department of Defense which are helping us: First, we have an arrangement with them whereby they will extend their audits at colleges and universities where they have audit cognizance to cover our activities so that both of us won't go into the same institutions.

Secondly, they have worked out with us an arrangement whereby their recruitment panel and their civil service register for selection of people to work in the Department of Defense will be made available to us so we can select personnel from them.

Mr. FLOOD. Is there much piracy going on between you personnel people?

Mr. KELLY. A substantial amount.
Mr. Flood. Thank you.

CONSOLIDATION OF AUDIT WORK Mr. FOGARTY. The consolidation of audit work in this one office is not quite complete, departmentwide, is it?

Mr. Kelly. We continue to have a headquarters internal audit stati for the Public Health Service and the Social Security Administration.

Mr. FOGARTY. Those are the only things not centralized !
Mr. KELLY. Yes.
Mr. FOGARTY. In your professional judgment, is this good or bad.

Mr. Kelly. I think we have worked out a plan which is a plan of some wisdom. I don't think there is any single answer to it. I think the Department's total coverage is extremely good, and that all of the field audit activities are centralized under one professional audit stati.

AUDIT OF FOREIGN GRANTS Mr. FOGARTY. I notice in your workload statisties, on pa ge tij, are 600 foreign grants. Do your auditors go overseas to audit such grant?

Mr. KELLY. At the moment what we are doing is a desk audit. We are receiving the papers and are auditing right here in Washington, but we are endeavoring to develop an audit program whereby we will establish what our minimum requirements are and use the equivalent of certified public accountants overseas.

Mr. FOGARTY. Mr. Denton.

AUDIT OF GRANTS TO STATES FOR PUBLIC ASSISTANCE
Mr. Denton. You don't audit the welfare payments, do you?

Mr. KELLY. Yes, sir; we do. We audit all of the grants to States for public assistance.

Mr. Denton. Do you go out in State offices and make a check there?

Mr. KELLY. Yes, we do. In 40 of the States we have audit stattlocated at the State capital.

Mr. DENTON. Are you able to check the welfare payments all over the country for this amount of money?

Mr. Kelly. We are making a financial audit of every State public assistance program every year.

Mr. DENTON. I see what you mean. But you don't make any audit of the actual payments?

Mr. KELLY. Às to the eligibility of the individuals themselves, 10, sir. We do determine there has been a payment made to individuals

a on the basis of the record.

Mr. DENTON. Does anybody in your Department check the payments to individuals?

Mr. KELLY. As a result of the disclosures that were made in the District of Columbia, the ('ongress asked us to make an evaluation of the national program to determine the extent to which there were in:eligibles on public assistance rolls. As a re-ult of setting this up, we established what we called a quality control program. We took a sample of cases that were considered to be statistically representative, and this sample of cases was evaluated by an independent group in each State. In other words, a social worker determined that this person was eligible and put him on the roll, or determined that thereon. tinues to be eligible, either every 6 months or every year, as required. A different social worker, a different trained professional on that staff, must make an independent evaluation of that sample case, and this is for the purpose of identifying for us whether or not our policies and procedures are working, and whether the States are carrying them out.

Mr. DENTON. But Welfare made the audit itself?
Mr. KELLY. That is correct.
Mr. DENTON. And you didn't make it?
Mr. KELLY. That is right.

Mr. DENTON. Could any procedure be worked out so that your agency would make this check of those payments?

Mr. KELLY. As a result of putting this new audit organization together, we are meeting now with each of the program officers. One of the aspects of our discussions with the Bureau of Family Services will relate to the question as to the extent we can be helpful to them,

Mr. DENTON. You are familiar with what was disclosed in the District?

Mr. KELLY. Yes, we are.
Mr. DENTON. Would your audit show that?
Mr. KELLY. As presently conducted, it would not.
Mr. Denton. You remember the situation that came up in other
places?

Mr. KELLY. Yes.
Mr. DENTOX. Would your audit show that?
Mr. KELLY. As presently conducted, it would not.

Mr. DENTON. Do you have any recommendation as to what we could do so an audit could be made to disclose those conditions ?

Mr. KELLY. I am hopeful that the discussions we are now having will extend and broaden somewhat the audit we are now making. This, together with the quality-control program, which is a requirement now that each State carry forward, will do this for you.

Mr. DENTON. That is all.
Mr. FOGARTY. Mr. Shriver.
Mr. SHRIVER. I have no questions.
Mr. FOGARTY. Mr. Flood.

IMPACT OF PROUTY AMENDMENT ON WORKLOAD

Mr. Flood. I would ask the same question Mr. Shriver asked before, with reference to this new compromise Prouty amendment. There is nothing in this budget to give you an audit staff to meet the impact of that compromise program.

Mr. KELLY. The Prouty amendment is going to have the effect of putting an additional 300,000 people on the social security rolls, and there are now 20 million people that receive a check every month from Social Security. The responsibility of the audit agency in this connection is in internal audit, and this internal audit would not be substantially increased because of this.

USE OF STATE AGENCY AUDITS

Mr. Flood. In your statement you speak about the relationships with States, and you say that you are revising your audit program so as to provide for maximum utilization of audits performed by State agencies' audit staffs or public accounting firms.

60-627-66-pt. 2

-101

Mr. KELLY. Yes.
Mr. FLOOD. What does that mean?

Mr. KELLY. A number of States have been developing much-improved and much-strengthened audit programs.

Mr. Flood. They have?
Mr. KELLY. They have, indeed.
Mr. FLOOD. I am amazed.

Mr. KELLY. I think two particularly classic examples are California and Iowa, where most of the State and local expenditures are subject to an audit by a State professional audit organization. It is our purpose to advise the State audit agencies of the kind of coverage that we want and the kind of information we need. When we make an audit we will test check their work, and, to the extent it is proren reliable, we will use it and not repeat the same work they have already done.

PUBLIC ACCOUNTING FIRMS Mr. Flood. Public accounting firms. How do they get into this act?

Mr. KELLY. We have 1,400 colleges and universities that are receis. ing Federal funds that we have a responsibility to audit to see that those funds are being used for the purpose for which they are made available. Over 95 percent of all the colleges and universities emplos a public accounting organization to audit their activities and to prepare financial statements, and we are trying to get them to do the same thing we are trying to get the State auditors to do.

Mr. Flood. That is all, Mr. Chairman.
Mr. FOGARTY. Thank you very much.
Mr. KELLY. Thank you.

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Increases :
Mandatory :

1. Increased pay costs--
2. Annualization of 66 new positions authorized in 1966.---

75, 000 325, 625

Subtotal, mandatory increases.

400, 625

148, 605

Program:
1. Increase in audit workload resulting from existing pro

grams (15 positions).
2. Increase in audit workload resulting from new or ex-

panded programs (36 positions)--
3. Services of other agencies—Defense Contract Audit

Agency--

363, 490

132, 000

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1. Existing programs

Audits of construction project costs must be given audit priority, as final payment to grantees cannot be made until the audit of final costs has been made upon completion of construction. Fifteen positions and $148,605 are requested to meet

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