To manage this expanded  role, the State Department’s budget has increased over fiscal years 2001  through 2006 from $13.7 billion to about $24 billion, an increase of about  75 percent (55 percent in constant dollars adjusted for inflation). For example, from 2001 to  2006, the State IG’s budget for oversight has increased from $29 million to  $31 million, which when considered relative to inflation, is a budget  decrease of approximately 6 percent over 6 years in constant dollars. Of the 318 authorized staff in the State IG’s fiscal year 2006 budget,  the actual onboard staff averaged 182, or about 57 percent of the  authorized level. #1.) Independence is one of the most important elements of an effective IG  function. The IG Act requires IGs to perform audits in compliance with Government  Auditing Standards. In addition, much of the act provides specific  protections to IG independence for all the work of the IGs. Continuing Concerns regarding the State IG’s Independence

Two continuing areas of concern that we have with the independence of  the office of the State IG involve (1) the appointment of management  officials to head the State IG in an acting capacity for extended periods of  time and (2) the use of Foreign Service staff to lead State IG inspections. The 1986 amendment requires the State IG continue to perform  inspections of the department’s bureaus and posts, but also prohibits a  career member of the Foreign Service from being appointed as the State  IG. To address these concerns about the independence of the State IG Office,  we recommended in our March 2007 report that the IG work with the  Secretary of State to develop a succession planning policy that would  prohibit career Foreign Service officers and other department managers  from heading the State IG office in an acting capacity and to develop  options to ensure that State IG inspections are not led by career Foreign  Service officials or other staff who rotate to assignments within State  Department management. Consequently, the State IG relies on inspections  rather than audits to provide the primary oversight of the State  Department. As a comparison, in fiscal year 2005, the statutory IGs issued  a total of 443 inspection reports compared to 4,354 audit reports, a ratio of  inspections to audits of about 1 to 10. A troubling outcome of the State IG’s heavy emphasis on inspections is the  resulting gaps in audit coverage for high-risk areas we have identified and  the management challenges reported annually by the State IG in the  department’s performance and accountability reports. Also, auditing standards require independent external  quality reviews of audits, or peer reviews, on a 3-year cycle, while  inspection standards do not call for any such external quality reviews. We found that the inspectors  relied heavily on questionnaires completed by management at each bureau  or post that was inspected, official department documents,  correspondence and electronic mail, internal department memorandums,  interviews, and the inspection review summaries. Our March report provides examples of formal written agreements  between (1) the U.S. Concluding Observations

The mission of the State IG is critical to providing independent and  objective oversight of the State Department and identifying any  mismanagement of scarce taxpayer dollars. However, the effectiveness of  the IG’s oversight is limited by the lack of resources, the lack of an  appearance of independence, gaps in audit coverage of high-risk areas,  and the lack of assurance that investigations of internal department  operations are performed by independent IG investigators.
Why GAO Did This Study

GAO was asked to provide testimony about the effectiveness and reliability of the State Department's Office of Inspector General (State IG). We focused on the independence of the State IG, the use of inspections instead of audits to provide oversight of the department, and the effectiveness of the IG's investigative function. The testimony is based primarily on our March 2007 report, Inspectors General: Activities of the Department of State Office of Inspector General (GAO-07-138).

What GAO Found

The effectiveness of the oversight provided by the State IG is limited by (1) a lack of resources, (2) structural independence issues, (3) gaps in audit coverage, and (4) the lack of assurance that the department obtains independent IG investigations. These limitations serve to reduce the credibility and oversight provided by the State IG. From fiscal years 2001 through 2006, the State Department's budgets have increased from $13.7 billion to about $24 billion, an increase of almost 75 percent (or 55 percent in constant dollars adjusted for inflation) in order to manage an expanding role in the global war on terrorism. During this same period, the State IG's budget increased from $29 million to $31 million, which when adjusted for inflation is a decrease of about 6 percent in constant dollars. In addition, of the 318 authorized staff in the State IG's fiscal year 2006 budget, the actual onboard staff averaged 182, or about 57 percent of the authorized level and about 20 percent less than in fiscal year 2001. We continue to identify concerns regarding the independence of the State IG that are similar to concerns we reported almost three decades ago. Independence is critical to the quality and credibility of all the work of the State IG and is one of the most important elements of the overall effectiveness of the IG function. Our concerns include (1) the appointment of line management officials to head the State IG in an acting capacity for extended periods, and (2) the use of ambassador-level Foreign Service staff to lead inspections of the department's bureaus and posts even though they may have conflicts of interest resulting from their roles in the Foreign Service. In addition, because the State IG provides oversight coverage of high-risk areas and management challenges primarily through inspections rather than audits, the department has significant gaps in audit oversight. Compared to audits, oversight provided by inspections is fundamentally limited. To illustrate, the Inspector General Act requires the State IG to follow Government Auditing Standards, while use of inspection standards are voluntary. In addition, unlike auditing standards, inspection standards do not require an external peer review of quality. The State IG's ratio of inspections to audits in fiscal year 2005 was 2 to 1 while the ratio for the statutory federal IG community was about 1 to 10. We reviewed 10 of the State IG's inspections performed over fiscal years 2004 and 2005 and found that they relied heavily on questionnaires completed by management at each bureau or post being inspected without verification or testing for accuracy. We also found that investigations of the State Department lack a formal written agreement between the State IG and DS. Such an agreement is critical to help ensure that investigations of internal department operations are performed by the IG and not by bureau investigators who report to department management.