MONDAY, MARCH 14, 1966. OFFICE OF AUDIT WITNESSES JAMES F. KELLY, DEPARTMENT COMPTROLLER JAMES L. THOMPSON, JR., DIRECTOR, OFFICE OF AUDIT Mr. FOGARTY. We will put your statement in the record. (The statment follows:) STATEMENT BY COMPTROLLER ON "SALARIES AND EXPENSES, OFFICE OF AUDIT" INTRODUCTION Mr. Chairman, I appreciate the opportunity to come here today and discuss the appropriation for the Department's Office of Audit. With me here today are Mr. James L. Thompson, Jr., the Director of the Office of Audit and Mr. John Mallen, the Office's Deputy Director. ORGANIZATION AND MISSION You may recall, Mr. Chairman, when I appeared last year before this committee on behalf of the Office of Audit, I advised you that after careful deliberation and study, the Department had taken the steps necessary to reorganize and strengthen its audit activities. This reorganization, effective July 1, 1965, resulted in establishment of the Office of Audit in the Office of the Secretary. The Office of Audit is responsible for conducting comprehensive internal audits for all Department activities except headquarters activities of the Public Health Service and the Social Security Administration which have established internal audit programs, and for all external audits of Department operations administered by and through its various grantees and contractors. Prior to this reorganization, the Department's audit activities were conducted by a number of audit organizations located at both the Department and agency levels. The reorganization centralized this activity in one central audit organization with responsibility for developing and implementing the audit measures necessary to provide adequate protection to operating agencies, Department officials, and the public interest. ACCOMPLISHMENTS AND FUTURE PLANS During fiscal year 1966, the first year of operation for the Office of Audit, we have directed much of our effort toward accomplishing the organizational and internal operating procedures necessary to properly carry out our assigned role in the Department. Considerable emphasis is being devoted to devising and implementing techniques and concepts that will provide an audit service that will be both timely and responsive to management needs, provide the greatest assistance to the Department's various grantees and contractors, and minimize disruptive and duplicate visits. I am pleased to report that we have made significant strides in achieving these objectives. In this regard, we are Developing a series of training programs designed to orient our professional audit staff in the new concepts, philosophies, and operating procedures of the Office of Audit; Taking steps to assign our field staff throughout the country so as to better serve the needs of the Department's grantees and contractors while at the same time providing the Department with an economical and effective audit service; Improving the quality of our audits by the issuance of uniform audit and reporting guides so as to insure a uniformity and adequacy in audit scope, coverage, and reporting; Initiating a "total audit" concept whereby our auditors perform an audit of all Department grants and contracts at an institution thereby permitting an evaluation of total management operations as they affect Department funds while at the same time, lessening audit impact on the institution; Working with the Department's agencies, to develop an audit priority system for the scheduling of audits designed to assure that potential and identified problem areas receive timely and adequate audit coverage; and Maintaining close working relationships with other Federal, State, and private audit organizations. In this respect we are: 1. Negotiating with the Defense Contract Audit Agency for that Agency to extend its audits at those universities and nonprofit organize tions where it has audit cognizance to include audits of this Department's grants. 2. Revising our audit programs so as to provide for maximum utilization of audits performed by State agency audit staffs or public accounting firms. This is not to say, Mr. Chairman, that we are completely satisfied with our progress to date. Although the above-cited measures are indicative of our ap proach to the problems facing us, much still remains to be accomplished. It is anticipated, however, that the continued aggressive implementation of these measures along with maximum effort in recruiting, training, and developmer.t of our professional staff will soon place us on a realistic frequency cycle; one that is fully responsive to management's needs and interests. AUDIT WORKLOAD th As you know, Mr. Chairman, the legislation enacted by the 88th and Congresses has drastically increased the number of Department programs ari operations. This increase in programs has substantially increased our audit workload in virtually all areas. In terms of numbers, as of July 1966 the Office of Audit's workload involved internal reviews of approximately 21 major De partment headquarters activities and 691 field installations, and external audits of about 545 State agencies, 10,000 units of local government, 2,300 construction contracts, and 4,000 universities and other nonprofit organizations. As the De partment's existing and new programs are expanded and implemented, the Office of Audit's workload will grow accordingly. This sizable audit workload coupled with the need to gear up to handle the Department's new and expanding programs requires the thoughtful application of the most progressive audit techniques. These techniques, when fully imple mented, will provide a maximum of audit coverage at a minimum of audit effort and at the same time, include the appropriate audit steps necessary to provide adequate assurance that Government funds are judiciously and properly expended. THE 1967 REQUEST In our budget submission for 1967 we are requesting obligational author.tx 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. BUDGET REQUEST Mr. FOGARTY. The adjusted appropriation for 1966 is $4,191,000 and the request for 1967 is $5,155,000, an increase of $964,000 and 51 positions. EFFECT OF ADDITIONAL POSITIONS ON BACKLOGS Last year Congress gave you funds for 25 additional auditors, 15 more than you requested. How are these new positions being applied? Either you or Mr. Thompson can answer these questions. Mr. KELLY. We have used the 15 positions to help us reduce the backlog and pursue the responsibilities that have been assigned to us. As you know, audits are generally made by an audit agency 1 to 2 years after new program expansions have occurred. In fiscal years 1966 and 1967 we are seeing a very huge expenditure increase that has been the result of the actions of the Congress during the past several years. These 15 positions will diminish the amount of backlog we would otherwise have to carry. 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 staff 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 staff. AUDIT OF FOREIGN GRANTS Mr. FOGARTY. I notice in your workload statistics, on page 45, are 600 foreign grants. Do your auditors go overseas to audit such grants! 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 staffs located 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 publie assistance program every year. Mr. DENTON. I see what you mean. But you don't make any audit of the actual payments? Mr. KELLY. As to the eligibility of the individuals themselves, no, sir. We do determine there has been a payment made to individuals 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 Congress asked us to make an evaluation of the national program to determine the extent to which there were ineligibles on public assistance rolls. As a result 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 they continued to be eligible, either every 6 months or every year, as required. |