MONDAY, MARCH 14, 1966. OFFICE OF AUDIT WITNESSES JAMES F. KELLY, DEPARTMENT COMPTROLLER 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 organiza 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 approach 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 development 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 As you know, Mr. Chairman, the legislation enacted by the 88th and 89th Congresses has drastically increased the number of Department programs and 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 Department 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 Department'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 implemented, 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 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. 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. |