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. DENTON. 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 60-627-66-pt. 2- -101 so as to provide for maximum utilization of audits performed by State agencies' audit staffs or public accounting firms. 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 proven 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 receiving 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 employ 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. 2. Annualization of 66 new positions authorized in 1966_- $3,493, 000 510, 000 188,000 4, 191, 000 4,477, 000 678, 000 5, 155, 000 +964, 000 75,000 325, 625 Subtotal, mandatory increases__. 400, 625 Program: 1. Increase in audit workload resulting from existing pro- 148, 605 2. Increase in audit workload resulting from new or ex- 363, 490 3. Services of other agencies-Defense Contract Audit 132, 000 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 the additional construction audit workload created by six new programs enacted by the 88th Congress. Current estimates are that these new programs will increase our workload by audits of 851 such projects in fiscal year 1967. 2. New or expanded programs Thirty-six positions are required to initiate, develop work programs, and perform audits of State agencies, institutions of higher education, nonprofit organizations, and other entities receiving Federal funds under the provisions of three major new programs enacted by the 89th Congress. (a) Appalachian regional development: Audits of approximately 25 grants for con- (c) Social Security Amendments of 1965: 16 positions are requested to perform audits (d) Higher Education Act: Audits will be made of grants to 55 State agencies and approximately 1,500 College work study: 3 additional positions are requested to provide for the Total.... 3. Services of other agencies-Defense Contract Audit Agency A continuation of the agreement with the Defense Contract Audit Agency is requested, in the extension of their present audit to include the audit of HEW contracts at locations where they presently perform audits. Funding of this item was formerly included in the budget of the National Institutes of Health. Explanation of transfers JUSTIFICATION I. REORGANIZATION During July 1965, the Department reorganized its audit efforts so as to keep this vital activity in pace with the needs of the many and complex programs charged to its administration. This reorganization 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 an established internal audit program, and for all external audits of Department operations administered by and through its various grantees and contractors. The Office of Audit is comprised of a staff of auditors and supporting administrative personnel under the supervision of a Director who is responsible to the Comptroller. Organizationally, the Office consists of a headquarters staff located in Washington and nine regional audit offices located in and having the same geographical boundaries as the Department's nine regional offices. The chart on page 1609 reflects the responsibilities of each of the several segments of the Office of Audit. Prior to establishment of the Office of Audit, the Department's audit activities were conducted by a number of audit organizations located at both the Department and agency levels. Separate audit staffs were maintained for audits of grants to States, grants to universities and other nonprofit organizations, contract audits, and internal audits of agency operations. This fragmentation of audit responsibility contributed to a lack of uniform direction, outmoded audit concepts, and a sizable audit backlog. Reorganization of the Department's audit efforts established one central audit organizaiton with responsibility for determining audit programs, including scope, depth, and frequency, which are necessary to provide adequate protection to operating agencies and Department officials and the public interest. From an operational standpoint, it brings together in one common staff greater resources in terms of special skill and manpower which permits greater flexibilty in meeting peak workloads and providing a timely and responsive staff service. This, in turn, lessens the impact on grantees and contractors by having one audit group review all Department programs while at the same time conserves substantial time and travel costs. II. PROGRAM FOR FISCAL YEAR 1966 During fiscal year 1966, the first year of operation for the Office of Audit, emphasis is being devoted to making this organization one that is fully capable of providing a timely and responsive service to the needs and interest of management; one that will assist them in the discharge of their responsibilities. Related to this effort is the undertaking of such major tasks as: gathering meaningful workload data; determining realistic audit frequency cycles; the adoption and implementation of modern-day audit techniques; and revising existing audit guides and developing audit guides for newly enacted programs. Also, considerable emphasis is being devoted to training of our audit staff. At the time the Office of Audit was established, it was staffed with about 250 auditors. Of this number, many had received training in audits of but one category, i.e., audits of grants to States. It is contemplated that by the end of fiscal year 1966, we will have approximately 350 auditors. Plans have been developed whereby all auditors will receive training and experience in all Department programs. (a) Audit workload.-Basically, the Department's audit workload can be divided into the following three general categories: internal audits of Department and agency operations, external audits of grants to State and local governments, and external audits of grants to universities and other nonprofit organizations. In terms of number, as of July 1, 1965, this represented approximately 545 State agencies, 10,000 local units of government, 4,000 universities and other nonprofit organizations, and 2,300 construction contracts. Involved also is a continuing internal review of the Department's many and diversified activities and operations. At the time of reorganization, an audit backlog existed in the two external audit categories. This sizable audit backlog coupled with the need to gear up to handle audits of the Department's new and expanding programs requires the implementation of bold and imaginative audit techniques which, who fully implemented, will provide a maximum of audit coverage at a minim |