	Overview of the Creation of IG Offices

The IG Act originally established IGs appointed by the President and  confirmed by the Senate in 12 major departments and agencies of the  government in 1978. The Inspector General Act  Amendments of 1988 established IGs appointed by their respective entity  heads in designated federal entities (DFE) identified by the act with duties  and responsibilities similar to those of IGs appointed by the President. DFEs are generally smaller agencies established in various statutes as  commissions, boards, authorities, corporations, endowments,  foundations, institutions, agencies, and administrations. Prior to the 1988 amendments, both GAO and the President’s Council on  Integrity and Efficiency, which preceded the Council of Inspectors  General on Integrity and Efficiency (CIGIE), had found that the internal  audit offices of small federal agencies lacked independence and provided  inadequate coverage of important programs that could benefit from  independent oversight by an IG. Additional criteria used by the Congress to determine where to establish these new IG offices included a budget  threshold of at least $100 million for the DFEs. However, other  agencies below this budget threshold were also included for specific  reasons. IG Oversight of Small Agencies

GAO has long supported the creation of independent IG offices in  appropriate federal departments, agencies, and entities, and we continue  to believe that significant federal programs and entities should be subject  to oversight by independent IGs. At the same time, we have reported  some concerns about creating and maintaining small IG offices with  limited resources, where an IG might not have the ability to obtain the  technical skills and expertise needed to provide adequate and cost- effective oversight. As a result, we believe there are alternative approaches that  the Congress may wish to consider to achieve IG oversight that is  appropriate for federal agencies with relatively small budgets and  resources. For example, we have recommended, on a case-by-case  basis, that specific small agencies could benefit by obtaining IG oversight  from another agency’s IG office where the missions of the two agencies  are somewhat similar. The alternatives we provided for IG oversight of the  Export-Import Bank included (1) establishing a new IG office through  an amendment to the IG Act with an IG appointed by either the  President or by the Export-Import Bank Chairman of the Board of  Directors; (2) designating through legislation an existing IG office to  provide oversight, such as the Agency for International Development  IG; and (3) implementing a memorandum of understanding, which  acts like a contract for outside IG services and would not require an  amendment to the IG Act or other legislation. IG Independence and Budgetary Resources

Independence is the cornerstone of professional auditing and one of the  most important elements of an effective IG function. The IG Act provides  specific protections to IG independence that are unprecedented for an  audit and investigative function located within the organization being  reviewed. The Congress passed the IG Reform Act of 2008 (Reform Act) to further  enhance IG independence and accountability. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection  Act (Dodd-Frank Act) amended the IG Act with provisions to enhance the  independence of IGs in DFEs with boards or commissions. If the DFE has a board or commission, the IG  Act now requires each of these IGs to report organizationally to the entire  board or commission as the head of the DFE rather than an individual  chairman. In addition, the IG Act requires the written concurrence of a  two-thirds majority of the board or commission to remove an IG.
Why GAO Did This Study

The IGs play a key role in federal agency oversight by enhancing government accountability and protecting the government's resources. This includes a strong leadership role in making recommendations to improve the effectiveness and efficiency of government offices and programs at a time when they are needed most.
This testimony focuses on (1) the creation of independent IG offices, (2) IG oversight of small agencies, and (3) IG independence and budgetary resources.
This testimony provides updates of current IG responsibilities; provisions of the IG Act, as amended; and draws on prior GAO reports and testimonies conducted in accordance with GAO's Quality Assurance Framework.
GAO has made numerous observations and provided matters for the Congress to consider in prior reports when addressing IG oversight at small federal agencies and IG independence.

What GAO Found

The Inspector General Act of 1978, as amended (IG Act), originally established inspectors general (IG) appointed by the President and confirmed by the Senate in 12 major departments and agencies of the government to conduct and supervise independent audits and investigations; recommend policies to promote economy, efficiency, and effectiveness; and prevent and detect fraud and abuse in their departments' and agencies' programs and operations. Based in part on GAO's findings that the internal audit offices of small federal agencies lacked independence and provided inadequate coverage of important programs, the Congress passed the IG Act Amendments of 1988 to establish IGs in designated federal entities (DFE), which are generally smaller agencies established in various statutes as commissions, boards, authorities, corporations, endowments, foundations, institutions, agencies, and administrations identified by the act. The DFE IGs are appointed by their respective entity heads with duties and responsibilities similar to those of IGs appointed by the President. The Congress used a budget threshold of $100 million to help determine which DFEs should have IGs. However, additional DFEs below this threshold were also included for specific reasons.
Significant federal programs and agencies should be subject to oversight by independent IGs; however, small IG offices with limited resources might not have the ability to obtain the technical skills and expertise needed to provide adequate, cost-effective oversight. GAO has previously found that alternative approaches exist to achieve IG oversight that may be appropriate for federal agencies with small budgets and few resources. For example, GAO has recommended on a case-by-case basis that specific small agencies could benefit by obtaining IG oversight from another agency's IG office where the missions of the two agencies are somewhat similar.
Independence is one of the most important elements of an effective IG function. The IG Act, as amended, provides specific protections to IG independence. The IG Reform Act of 2008 further enhanced the IGs' independence by providing specified pay levels, IG legal counsel, a process for handling allegations of IG wrong-doing, and required notification to the Congress before an IG is removed or transferred. The IG Reform Act also requires the IGs' budget requests to be visible in the budget of the U.S. government submitted by the President to the Congress. Additional provisions to enhance the independence of IGs in DFEs with boards or commissions were included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Specifically, these IGs are to report organizationally to the entire board or commission rather than a single chairperson. In addition, the IG Act requires a two-thirds majority of the board or commission to remove the IG.