To review the IG’s audit and inspection oversight coverage of the State  Department, we compared the contents of the audits and inspections  completed by the State IG in fiscal years 2004 and 2005 with the high-risk  areas designated by GAO and with the management and performance  challenges identified by the State IG. State IG Organization, Budgets, and Reported Accomplishments

The State IG currently provides oversight of the Department of State, the  Broadcasting Board of Governors, and the foreign affairs community  through audits, inspections, and investigations. From fiscal year 2001 through 2005, the State IG’s overall budget authority  went from $29 million to $32 million, which, when expressed in constant  dollars, is an increase of approximately 1 percent. Also, while the State IG’s inspections obtain financial information  at the department’s bureaus and posts, the high-risk areas and  management challenges of financial management are covered almost  exclusively by the State IG’s financial audits. Fundamental Differences between Audits and Inspections

There are fundamental differences between inspections and audits. Audits performed under Government  Auditing Standards, by design, are subject to more depth in the  requirements for levels of evidence and documentation supporting the  findings than inspections performed under the inspection standards. State IG Quality Assurance Process, Including Assurance over Independence

The State IG has quality assurance processes that cover its three main  lines of work: (1) audits, (2) investigations, and (3) inspections. Inspections. Two areas of continuing concern regarding independence are (1) the  temporary appointment of management personnel with various titles such  as Deputy IG, Acting IG, or Acting Deputy IG, to head the State IG office;  and (2) the use of Foreign Service staff to lead State IG inspections. Both the State IG and DS pursue allegations of passport and visa fraud by  State Department employees. Areas such as human  resources, counterterrorism, public diplomacy, and information security,  are almost exclusively covered through inspections. Due to the risk and  significance of the high-risk areas being covered largely by inspections, the  State IG would benefit from reassessing risk and its heavy reliance on  inspections in those areas to determine whether the current mix of audits  and inspections provides the amount and type of oversight coverage  needed. Finally, there is a need for a formal agreement between the State IG and  the State Department Bureau of Diplomatic Security to coordinate their  investigative activities to help ensure the independence of investigations  of the State Department’s management staff and to prevent duplication. To provide for more complete internal quality reviews of inspections we  recommend that the State IG include inspections performed by the State  IG’s Office of Information Technology in its internal quality review  process. To help ensure the independence of the IG office, we recommend that the  State IG work with the Secretary of State to take the following actions:    Develop a succession planning policy for the appointment of individuals to  head the State IG office in an acting IG capacity that is consistent with the  IG Act regarding State IG appointment and provides for independent  coverage in the event of delays between IG appointments. Such an agreement would, for example, address the  coordination of investigative activities to help ensure the independence of  internal departmental investigations and preclude the duplication of  efforts.
Why GAO Did This Study

GAO was asked to review the Department of State Office of Inspector General (State IG) including its (1) organization, budget levels, and accomplishments; (2) audit and inspection coverage of the department; (3) role of inspections in the oversight of the department; (4) quality assurance process including assurance of independence; and (5) coordination of State IG investigations with the State Department's Bureau of Diplomatic Security. GAO obtained information from State IG reports, interviews, and documentation for a sample of inspections.

What GAO Found

The State IG provides oversight of the State Department, the Broadcasting Board of Governors, and the foreign affairs community, including the approximately 260 bureaus and posts around the world, through financial and performance audits, inspections, and investigations. Over fiscal years 2001 through 2005, in terms of constant dollars, the State IG's budget has increased by 1 percent while the State Department's overall budget has increased by 50 percent. This represents a relative decrease when comparing State IG with other agencies' ratios of IG budget to total agency budget. The State IG provides oversight coverage of the areas designated as high-risk by GAO and management challenges identified by the IG, with a heavy emphasis on inspections. The State IG covers the high-risk areas of human resources, counterterrorism, public diplomacy, and information security, almost exclusively through inspections. In fiscal year 2005, the State IG's ratio of inspections to audits was over two to one, while the federal statutory IGs had a combined ratio of one inspection to every ten audits. There are fundamental differences between inspections and audits. By design, audits performed under Government Auditing Standards are subject to more in-depth requirements for the levels of evidence and the documentation supporting the findings than are inspections performed under inspection standards. Due to the significance of the high-risk areas covered largely by inspections, the State IG would benefit by reassessing the mix of audit and inspection coverage of those areas. The State IG's audit and investigative functions both had recent peer reviews of quality assurance that resulted in "clean opinions." There is no requirement for a peer review of inspections; however, during our audit the State IG began an internal quality review process for inspections but did not include reviews of information technology inspections. Independence is critical to the quality and credibility of all the work of the State IG. Two areas of continuing concern that we have with the independence of the State IG involve (1) the temporary appointment of State Department management personnel to head the State IG office in an acting IG capacity and who subsequently return to management positions, and (2) the rotation of Foreign Service staff to lead IG inspections, including many who, along with other IG staff, move to positions in department management offices. Such staffing arrangements represent potential impairments to independence and the appearance of independence under professional standards applicable to the IGs. Both the State IG and the State Department's Bureau of Diplomatic Security pursue allegations of fraud by department employees. There is no functional written agreement in place to help ensure the independence of internal departmental investigations and preclude the duplication of efforts.