<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:62468.wais]
SINGLE AUDIT ACT AMENDMENTS OF 1996
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 13, 1999
__________
Serial No. 106-81
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
62-468 CC WASHINGTON : 2000
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois JIM TURNER, Texas
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon MAJOR R. OWENS, New York
DOUG OSE, California PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Bonnie Heald, Director of Communications/Professional Staff Member
Mason Alinger, Clerk
Faith Weiss, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on May 13, 1999..................................... 1
Statement of:
Lee, Diedre A., Acting Deputy Director for Management, Office
of Management and Budget; David L. Clark, Director, Audit
Oversight and Liaison, General Accounting Office; and
Auston G. Johnson, State auditor of Utah and chairman,
single audit committee, National State Auditors Association 3
Letters, statements, et cetera, submitted for the record by:
Clark, David L., Director, Audit Oversight and Liaison,
General Accounting Office, prepared statement of........... 16
Horn, Hon. Stephen, a Representative in Congress from the
State of California, prepared statement of................. 2
Johnson, Auston G., State auditor of Utah and chairman,
single audit committee, National State Auditors
Association:
Advirosy circular of FAA................................. 61
Prepared statement of.................................... 34
Lee, Diedre A., Acting Deputy Director for Management, Office
of Management and Budget, prepared statement of............ 6
Sonntag, Brian, Washington State auditor, prepared statement
of......................................................... 41
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 12
SINGLE AUDIT ACT AMENDMENTS OF 1996
----------
THURSDAY, MAY 13, 1999
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2247, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn and Turner.
Staff present: J. Russell George, staff director and chief
counsel; Randy Kaplan, counsel; Matthew Ebert, policy advisor;
Bonnie Heald, director of communications; Mason Alinger, clerk;
Faith Weiss, minority counsel; Mark Stephenson, minority
professional staff member; Ellen Rayner, minority chief clerk;
and Earley Green, minority staff assistant.
Mr. Horn. The Subcommittee on Government Management,
Information, and Technology will come to order. Today we will
discuss the status of the implementation of the Single Audit
Act Amendments of 1996.
The Single Audit Act of 1984 replaced a desperate and
unmanageable approach to audits of State and local programs
that receive Federal funding. Prior to its passage, there
existed a system of multiple grant-by-grant audits. This
created a scenario in which an organization that received
Federal funds from more than one Federal agency could find
itself spending vast amounts of time and resources managing
several different Federal audits.
In the early 1990's, three separate studies were conducted
to determine the effectiveness of the act. These studies
conducted by the General Accounting Office, and the President's
Council on Integrity and Efficiency, and the National State
Auditors Association prompted legislation to amend the Single
Audit Act. Early in 1996, that legislation was moved by this
subcommittee. In June 1996, Congress passed the Single Audit
Act Amendments of 1996, which was subsequently signed into law
on July 5, 1996.
Today, we will explore how well the Federal, State, and
local governments and their auditors are doing in implementing
those amendments, and whether Congress needs to consider any
further changes in the Single Audit Act.
I welcome our distinguished panel, and I look forward to
your testimony.
[The prepared statement of Hon. Stephen Horn follows:]
[GRAPHIC] [TIFF OMITTED]62468.001
Mr. Horn. Our witnesses today will be Ms. Deidre A. Lee,
Acting Deputy Director for Management, Office of Management and
Budget; Mr. David L. Clark, Director, Audit Oversight and
Liaison, General Accounting Office; Mr. Auston G. Johnson,
State Auditor of Utah, and chairman of the Single Audit
Committee of the National State Auditors Association.
Some of you know the routine here. Let me just repeat it
for some of the newcomers. We are a subcommittee of the full
Committee on Government Reform. All our witnesses are sworn
witnesses in terms of their testimony. When we call on you, it
will be generally in line with what the agenda states there.
Your full statement will be in the record. We would like you to
summarize the statement. With three witnesses, we don't have to
rush ourselves today. So, if you want to go through more than a
summary, that's fine.
What we like to do, however, is have a dialog between the
members of the subcommittee once all three witnesses have
spoken. And, you are certainly welcome when another witness has
said something you don't agree with or you do agree with, feel
free to comment on that. This isn't strictly one-way dialog,
not just a train where cars pop off into the siding and we
never see them again.
So, if you will all three stand, raise your right hands.
[Witnesses sworn.]
Mr. Horn. We will start with Ms. Deidre Lee, the Acting
Deputy Director for Management of the Office of Management and
Budget, known to all as OMB.
STATEMENTS OF DIEDRE A. LEE, ACTING DEPUTY DIRECTOR FOR
MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; DAVID L. CLARK,
DIRECTOR, AUDIT OVERSIGHT AND LIAISON, GENERAL ACCOUNTING
OFFICE; AND AUSTON G. JOHNSON, STATE AUDITOR OF UTAH AND
CHAIRMAN, SINGLE AUDIT COMMITTEE, NATIONAL STATE AUDITORS
ASSOCIATION
Ms. Lee. Good morning, Chairman Horn. I appear before you
today to discuss the Single Audit Act Amendments of 1996, and I
would like to thank you, Mr. Chairman and members of the
subcommittee, for your continued efforts to improve financial
management throughout the Federal Government.
The Single Audit Act of 1996 is one of several laws this
subcommittee has used to promote financial accountability in
government. The key financial management legislation of recent
years, the Chief Financial Officers Act of 1990, the CFO Act,
and the Government Management and Reform Act of 1994, which we
refer to as GMRA, together require the Federal Government to
prepare and have audited agency and governmentwide financial
statements. These have received important support from the
subcommittee.
The interrelationship of these legislative initiatives
becomes more apparent as the government gains experience in
preparing audited financial statements. To make the CFO Act and
the GMRA financial statement process work, the government
relies on a single audit process to provide assurance over more
than $300 billion in Federal funds which are expended annually
by States, local governments, and nonprofit organizations.
You very clearly outlined the background of this act and,
of course, the history of the single audit amendment process.
As you mentioned, one of the reasons behind this was to have
some uniform audit requirements to reduce the burden on the
governments and those that participated in the audits and also
to have a more effective use of audit resources.
Key features of the 1996 amendment included extending the
coverage to all nonprofits as well as State and local
governments which administer Federal programs; raising the
threshold for the audit to $300,000; and authorizing a risk-
based approach in selecting programs for testing. We also
accelerated the time period through which a single audit was
due after the close of the entity's fiscal year and increased
some administrative flexibility, primarily through use of pilot
projects, and an increase in the threshold when it was
appropriate.
So what has been done so far in the last 3 years? Certainly
we have now--and I have it here--another update of A-133. We
have the A-133 compliance document, which is a very
collaborative process that we worked on to provide guidance for
single audit processes. It identifies compliance requirements
as well as specific program guidance, and there are some 120
programs that it addresses, which are about 90 percent of the
dollars expended by these entities. Additionally, we've
developed a governmentwide single audit data base, and we have
the clearinghouse so we can look across and get, in fact, more
consistent information on single audits. That is a work in
process. I'll mention later some things that we are still
working on.
And additionally, one of the very fine things about this
act has been the professional approach. We have worked with the
American Institute of CPAs, the GAO, the grantmaking agencies
themselves, the PCIE, the President's Council involving the
IGs, and they are providing training for the State auditors and
the entities that are involved in this as well as preparing
guidelines which will be ready in July 1999. So a lot has been
done.
Additional future work including compliance updates: One of
the things that the amendments mentioned is that the compliance
supplements need to be kept current to provide people the
guidance they need. As new programs or changes to the grants
occur, we need to ensure they're picked up in the compliance
supplement so the auditors can use them appropriately, and we
are doing that.
Also, we're trying to improve the clearinghouse with on-
line forms that will aid in self-editing so we can assure that
people can easily respond to the requirements of the act.
Additionally, we're coordinating with GAO in ensuring that
additional audit requirements don't burden the single audit
process, and I know that Mr. Clark will talk about that a
little bit further. And we're working with the IGs, the PCIE,
to ensure that we have some quality assurance procedures for
these audits.
We also just last week, with concurrence of the Congress,
authorized a pilot program for the State of Washington where
they're going to look across the State at statewide education
programs at approximately 200 local education entities. They
think that this pilot program is going to help the State to be
able to look at the effectiveness of their programs and find
out what the single audit tells us about the actual results of
that education program. And we're working with the Department
of Education on that.
So certainly significant progress has been made.
Implementation continues, and we look forward to furthering
this process. And I thank the members of the subcommittee for
their interest in financial management.
Mr. Horn. Well, we thank you.
[The prepared statement of Ms. Lee follows:]
[GRAPHIC] [TIFF OMITTED]62468.002
[GRAPHIC] [TIFF OMITTED]62468.003
[GRAPHIC] [TIFF OMITTED]62468.004
[GRAPHIC] [TIFF OMITTED]62468.005
[GRAPHIC] [TIFF OMITTED]62468.006
Mr. Horn. Mr. Turner, the ranking minority member, has
joined us. Mr. Turner, would you like to submit your statement
or read your statement? We have plenty of time this morning.
Mr. Turner. I'll submit it for the record. Thank you, Mr.
Chairman.
Mr. Horn. Without objection, please submit Mr. Turner's
prepared statement and put it in as if read. Thank you.
[The prepared statement of Hon. Jim Turner follows:]
[GRAPHIC] [TIFF OMITTED]62468.007
[GRAPHIC] [TIFF OMITTED]62468.008
Mr. Horn. We now go to Mr. Clark, the Director of Audit
Oversight and Liaison for the General Accounting Office. Mr.
Clark.
Mr. Clark. Thank you, Mr. Chairman. I'm pleased to be here
this morning to discuss the refinements to the single audit
process called for in the Single Audit Act Amendments of 1996.
The refinements along with OMB's implementing guidance, such as
the compliance supplement, provide the underpinnings to improve
the auditing for the more than $300 billion annually of Federal
financial assistance provided to non-Federal entities. The
refinements were developed through the collaborative efforts of
the many stakeholders in the single audit process, including,
for example, OMB and State auditors, the AICPA, and us.
This subcommittee has played an important role in
supporting the refinements. This hearing should help to keep
attention on the refinements and ensure that the momentum
achieved thus far in implementing them continues.
This morning I would like to briefly highlight seven of the
refinements and some of the actions taken to date to implement
them. First, the refinements expand the act to cover all
recipients of Federal financial assistance. Previously the act
covered State and local governments, but not colleges,
universities, hospitals, or other nonprofit organizations. OMB
has helped implement this refinement by issuing one circular.
Before we had two. That now provides consistent audit
requirements for all recipients.
Second, the refinements raise the threshold for which
recipients must obtain a single audit. Previously, many small
recipients were required to obtain single audits, even though
collectively they accounted for a very small percentage of
overall Federal financial assistance. The new threshold
eliminates single audit requirements for many small recipients
while still maintaining audit coverage for at least 95 percent
of all Federal financial assistance. In Pennsylvania, for
example, the new threshold eliminates single audit requirements
for approximately 1,200 smaller entities.
Third, the refinements allow auditors to use a broader
risk-based approach for determining which programs to test in
detail in their audits. Previously, dollar size drove the
determination of programs to be tested. That resulted in the
same programs being tested every year and other programs never
being tested. Today, other factors, such as a program's
inherent risk or vulnerability to fraud or other problems, also
help to drive the determination of what programs are selected
for detailed testing. This results in a better mix of testing.
Fourth, the refinements reduce the timeframes for single
audits to be completed and submitted to the Federal Government.
Program managers and others had identified this refinement as
critical to being able to use single audit reports effectively.
The timeframe is now 9 months, or will be 9 months when it is
phased in, and it is our hope that single audits in the future
can be completed even faster than that.
Fifth, and my personal favorite, the refinements call for
auditors to provide a summary of their single audit results,
thereby allowing readers to focus on the message and critical
information resulting from the audits. Both OMB and the public
accounting profession have now issued guidance to auditors on
how to better summarize the reports. Today, I believe, the
reports are much easier to follow.
Six, the refinements spurred the creation of a Federal
automated data base of all single audit results. The Bureau of
Census, which was designated by OMB as the Federal
clearinghouse for all single audit reports, has made great
progress in developing an automated data base. When fully up
and running, the data base will greatly enhance users' ability
to quickly and accurately analyze single audit results and
should help to better focus other Federal monitoring and
oversight efforts.
And seventh, the refinements provide the opportunity for
pilot projects to test ways to further streamline the single
audit process and to make single audit reports more useful. The
Washington State auditor, in his written comments provided for
this hearing, discusses a pilot project which we believe has
great potential to improve the single audit process and lead to
greater accountability.
Mr. Chairman, because of the phased-in effective dates in
the law and OMB's implementing guidance, it's too early to
fully assess the effectiveness of all the refinements.
Nevertheless it's important to underscore the significant steps
that have already been taken and, as I mentioned, the
importance of ensuring that the momentum achieved thus far
continues.
I want to note that GAO is committed to overseeing the
continued successful implementation of refinements, including
assurances that there are no future conflicts with the Single
Audit Act. We intend to work closely with all stakeholders as
we have over the last few years in the single audit process to
identify any implementation issues that may arise, to help
develop and propose solutions, and to keep this subcommittee
and the Congress fully informed on those actions and the
progress being made. This concludes my summary.
Mr. Horn. We thank you for that very helpful testimony.
[The prepared statement of Mr. Clark follows:]
[GRAPHIC] [TIFF OMITTED]62468.009
[GRAPHIC] [TIFF OMITTED]62468.010
[GRAPHIC] [TIFF OMITTED]62468.011
[GRAPHIC] [TIFF OMITTED]62468.012
[GRAPHIC] [TIFF OMITTED]62468.013
[GRAPHIC] [TIFF OMITTED]62468.014
[GRAPHIC] [TIFF OMITTED]62468.015
[GRAPHIC] [TIFF OMITTED]62468.016
[GRAPHIC] [TIFF OMITTED]62468.017
[GRAPHIC] [TIFF OMITTED]62468.018
[GRAPHIC] [TIFF OMITTED]62468.019
[GRAPHIC] [TIFF OMITTED]62468.020
[GRAPHIC] [TIFF OMITTED]62468.021
[GRAPHIC] [TIFF OMITTED]62468.022
[GRAPHIC] [TIFF OMITTED]62468.023
[GRAPHIC] [TIFF OMITTED]62468.024
Mr. Horn. Our last witness will be Mr. Auston G. Johnson,
the State Auditor of Utah. He is also the chairman of the
Single Audit Committee of the National State Auditors
Association. Besides his remarks going into the record at this
point, we will also attach with them the statement from Brian
Sonntag, the Washington State auditor. It's roughly 12 or 13
pages, and that will go following Mr. Johnson's testimony.
Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today and to address this subcommittee.
The State audit community is basically where all of the
theories and philosophies of the Single Audit Act come
together. It's where the rubber hits the road, I guess you'd
say. We are the ones who try to implement all of the provisions
that have been delineated in the different documents, and try
to make the Single Audit Act work.
In the broadest terms, the Single Audit Act has been a
tremendous success. The act of 1984 was great in moving forward
the overall auditing of Federal programs, and the refinements
that came about in the 1996 amendments went a long way to
taking care of some of the problems. Mainly the problem with
auditing of the major programs is that we were auditing the
same programs over and over every year because we were only
auditing the largest programs. With the risk-based approach, we
were able to look at problems that we were able to identify
from a lot of work we had done at States that had a greater
risk than some of the larger programs that had been audited for
10 years at that time.
We have had some concerns with the Single Audit Act, the
implementation, but those concerns are in the written statement
that I've submitted, and in actuality they seem a lot worse in
writing than they really are. Whenever you have a new program
in its implementation process, you're going to have problems,
and this one has created problems. I think there's been some
Federal departments that have jumped the gun a little bit and
have put some pressure on us to do things that would have been
better left a couple of years until we could get a better
handle on this, but those things are being worked out through
cooperative efforts with the State auditors, the GAO, OMB,
mainly through the intergovernmental audit forums where we can
meet with the Inspectors General of the various departments and
work through these issues, and we have solved a lot of the
issues that have come up, and I think we will continue to solve
the issues.
There is one situation that I think is beyond what we can
do through the forums, and that is going to take a legal or a
legislative action, and that would be access to records. And
quite frankly, some of this is outside the realm of a single
audit, but I think as State auditors we see the expenditure of
all tax dollars, whether they be State or Federal, as our
responsibility. And in doing single audits, we have access to a
lot of records that we would like to check against other
records, and with computers available to us, we can do that,
but there are different privacy acts that are in place,
confidentiality acts, department by department, that don't
allow us to cross-match records from one Federal department to
another. And we think that there could be some benefit gained
by being able to do that, but like I say, in some cases it is
outside the realm of the Single Audit Act, but we would like to
pursue that, and it might take some clarifications in the law
that would allow us access to those records. Actually, we do
have access to the records. We just don't have the ability to
use them in auditing other programs.
Mr. Horn. You make an excellent point, and I think when we
discuss the privacy bill a few months from now, maybe that's
where we could tuck it in, because you're absolutely correct.
You ought to have that cross-reference.
Mr. Johnson. I think we could do some great things. It may
make some people nervous, but I think we could do some great
things in being able to do that.
Some of the things that need to take place are, first of
all, we need to have continued support of the intergovernmental
audit forums, the ability to sit down and openly and clearly,
honestly discuss issues and bring them to a conclusion that's
mutually beneficial to everyone.
The compliance supplement needs to continue to be updated
annually. When the compliance supplement was first put
together--I think we got it in August, June, or August--it was
way too late for us to use. We're up to the point now where
it's dated May 1. The efforts of OMB, I think, have been
tremendous in being able to get that document out in the
timeframe that's beneficial to State audits. Most States have a
fiscal year end of June 30, and in order for us to really make
use of that document, we need it in March in order to assist in
our planning, and I think it's getting closer. That will
continue to improve. I think there's over 100 programs, 118
programs, I think, now in the current supplement. There can't
be that many more programs that are significant, so I think
we've hit the point where it will be easier to update that
thing each year, and the problem of timeliness will go away.
And we need GAO to continue to review legislation so that
individual audit requirements don't creep into legislation for
specific departments that would conflict with the Single Audit
Act without a real open public debate between State auditors,
GAO, OMB, and the department on why that has to be. And that,
Mr. Chairman, would conclude my remarks.
Mr. Horn. Well, thank you very much.
[The prepared statements of Mr. Johnson and Mr. Sonntag
follow:]
[GRAPHIC] [TIFF OMITTED]62468.025
[GRAPHIC] [TIFF OMITTED]62468.026
[GRAPHIC] [TIFF OMITTED]62468.027
[GRAPHIC] [TIFF OMITTED]62468.028
[GRAPHIC] [TIFF OMITTED]62468.029
[GRAPHIC] [TIFF OMITTED]62468.030
[GRAPHIC] [TIFF OMITTED]62468.031
[GRAPHIC] [TIFF OMITTED]62468.032
[GRAPHIC] [TIFF OMITTED]62468.033
[GRAPHIC] [TIFF OMITTED]62468.034
[GRAPHIC] [TIFF OMITTED]62468.035
[GRAPHIC] [TIFF OMITTED]62468.036
[GRAPHIC] [TIFF OMITTED]62468.037
[GRAPHIC] [TIFF OMITTED]62468.038
[GRAPHIC] [TIFF OMITTED]62468.039
[GRAPHIC] [TIFF OMITTED]62468.040
[GRAPHIC] [TIFF OMITTED]62468.041
[GRAPHIC] [TIFF OMITTED]62468.042
[GRAPHIC] [TIFF OMITTED]62468.043
Mr. Horn. Mr. Turner, do you wish to start the questioning?
Mr. Turner. No, you can go ahead, Mr. Chairman.
Mr. Horn. Mr. Johnson, in your written testimony, you
stated there were initial problems with the submission of the
data collection form. You stated that some reports indicated
that more than 90 percent were rejected, and that this was
caused in large part because of the rush to get something on
the street even though we appreciate what OMB did when we're
talking about the guidelines. So, would you first describe for
us the purpose of the data collection form?
Mr. Johnson. Yes. The data collection form, in all the time
we've been doing single audits, we've never actually
accumulated data on what was happening, what programs were
being audited, what was the extent of coverage of Federal
dollars out there. And the data collection form allowed--will
allow the collection of data that will be beneficial in setting
parameters for future single audits or amendments to single
audits again.
The form is just a way for the auditee and the auditor to
put down information, findings that were issued, question costs
that were a result of the audit, the programs that were
audited, the type of opinion that was given, that type of
information.
I think the reason we had problems with submission is that
the form was being formulated and put together at the same time
that the compliance supplement was being put together, and we
were running up against deadlines to submit reports, and
something had to be put out, and it came out. And I think it
was very confusing because it asked questions that auditors and
auditees never had to answer before. It showed that there was
some gaps in knowledge out there about oversight agencies and
cognizant agencies and different fine points of the Single
Audit Act, and because of that--and I think also it was because
of the way the clearinghouse was tasked in entering the data.
They were not doing desk reviews. They weren't correcting
anything. If there was the slightest error at all, it was
rejected and sent back for resubmission. I think that's why it
added to the large number of problems there, the rejections in
the first go-around, but I understand it's getting better, and
I think it will continue to get better as people become aware
of how that form is supposed to work.
Mr. Horn. So you're optimistic about it.
Mr. Johnson. Oh, yes.
Mr. Horn. Ms. Lee, do you have any comments on that? Do you
agree with that?
Ms. Lee. The group is working together. This is a very
collegial group. One of the things they're trying to do is make
the form electronic, which in itself will have some self-edit.
The person trying to enter it, if they try to enter it
incomplete--or with wrong data, they will immediately know that
they need to make some changes. There won't be this frustration
of, ``I sent in and I get it back.'' So I think that's an
improvement that's going to work.
Mr. Horn. Mr. Clark, do you have any comment on that?
Mr. Clark. I want to underscore the importance of it, and I
think what we're seeing is a product of the recognition that
the data collection form and the creation of the data base
really has a lot of potential, and I'm glad that we're dealing
with the problems now. I think it's worth the investment, and
the progress, I think, is fine. The first year there were
problems, but again, going back to the audit forum process,
those problems were identified immediately. The right
stakeholders got together and worked on it. I think it's been
solved fairly fast.
Mr. Horn. Just as a general question, is there anything now
that you've had some experience with the single audit that you
feel we should add to the law, or can it all be done by
regulation, and if so, what are the things--now that you've
experienced this, we missed?
Mr. Johnson. I think the one that I brought up about
access.
Mr. Horn. That's a good point.
Mr. Johnson. Information, the ability to cross-test would
be nice. If it was in the Single Audit Act, I think it would
clarify the issue if that was able to supersede some of the
privacy acts. And we understand as State auditors that we would
be subject to the same confidentiality, but we handle
confidential records all the time, so it's not an issue, I
don't believe. Otherwise I think the Single Audit Act pretty
well covers everything we need. I think everything else can be
handled through regulation working with GAO and OMB on this.
Mr. Horn. Mr. Clark, do you have any suggestions on this
after you sort of lived reviewing this?
Mr. Clark. I have lived most of my life doing this. If we
go back to the 1996 amendments, that was a product of a 6-year
effort. Every stakeholder was involved. The State auditors had
done a study of the single audit. The Inspectors General had
done a study of the single audit. We took our time, and we did
it right. I think when the amendments passed, we had more than
consensus. I think we almost had unanimity on what needed to be
done.
We have this phase-in approach, as I mentioned. We're going
to be beginning some studies. We're going to be looking to see
how this is working; whether, in fact, everything everybody
wanted is being achieved.
The act provides a lot more flexibility--the amendments
provide a lot more flexibility to the act than it did before,
things like the pilot program. OMB has some authority to raise
the threshold. I would like to keep that current.
There may be a point a few years down the road where, based
on reviews that we may have done or issues identified by the
people, that a consensus will begin to emerge, or maybe
something will need to be done. But at this point I'm not aware
of anybody coming to the table and saying there's something
about the act, or about the amendments or, about OMB's role
that needs to be addressed.
Mr. Horn. Ms. Lee, do you have anything after you have gone
through this comma by comma or semicolon?
Ms. Lee. Just again, on the threshold, I anticipate we need
a couple of years, 2 years, before we will look at that
threshold and say is that still the appropriate threshold. I
think, again, the collection of data and the clearinghouse is
going to give us a lot of information to show us what programs
were looked at to what level, to what degree, and from there
then we probably will get back congenially and say, OK, are we
about right on the threshold? Is there more time? Where should
we be? But we've got that flexibility in the act.
Mr. Horn. Well, let's get back a minute to the sensitive
bit and the crosstabs and all the rest.
To what degree do State auditors generally transfer their
responsibility on an audit of an agency or a Federal grant
program to that agency with a public accounting firm rather
than with their own State personnel, and would that be a
problem? I will ask all three of you in terms of, say, a
contract for an audit with a private firm as opposed to
government auditors of State, Federal Government, local,
regional, special district, whatever. How do you feel about
that? Is there a problem there?
Mr. Johnson. I don't believe there would be, the reason
being in the early stages of the single audit, we almost had to
fight with some CPA firms to get them to release records to the
Federal Government. I think that there is that client/auditor
relationship that requires confidentiality on their part the
same as it would on anyone handling those records. If there
was, it would be a matter of putting it in contract and making
sure that they understood their responsibilities.
We have never had a problem in access to, as I said, State
records of any kind and Federal records as long as we used them
in testing that Federal program. The issue we had specifically
was that we wanted to look at unemployment records and student
records at the universities. We wanted to run a test to see how
many students were full-time students and collecting
unemployment. As long as we used student records to test
student programs, there was no problem with access. We had
everything we needed. As soon as we wanted to take it outside
of higher ed programs, that was where the problem came up.
Mr. Horn. The clientele, let's say, of a social service
agency, is that what we're thinking of?
Mr. Johnson. Right. For instance, you have USDA that runs
commodity programs and food stamp programs and those types of
things, and HHS runs several other social assistance programs.
It would be nice to be able to cross-match some of those
records to see if eligibility income limits for people
receiving different programs were reported the same. It would
be nice to run Social Security Administration records against
welfare records to see if we're paying dead people, those types
of things.
Mr. Horn. You're not even near Chicago. I think you make a
very good point. When L.A. County welfare went to pictures,
photographs, an identification card, 1,000 people dropped off
the welfare rolls voluntarily. But I think you're right on
that.
The gentleman from Texas, Mr. Turner. Please proceed.
Mr. Turner. In terms of questions, let me followup, Mr.
Chairman, on this privacy issue. Perhaps Ms. Lee is the right
one to ask to kind of get an administration perspective.
It seems to me in terms of the privacy issue, maybe where
it ought to be dealt with is on the front end. If someone
applies for a government benefit, I assume that under existing
law, they don't sign any form or any waiver of any privacy
rights, but perhaps they should. That is to say when a person
receives a benefit from the Federal Government, whether it's a
student loan or welfare benefit, perhaps it should be incumbent
upon them at the same time to waive access to certain other
records so that it can be verified that they're eligible.
Do we do that now, and if not, do you think we should be
doing it? Would that be a more appropriate way to deal with the
privacy issue than simply on the back end to give auditors the
authority to look into it when the recipient hadn't had any
role in that process at all?
Ms. Lee. Mr. Turner, as you're so familiar, the whole issue
of privacy--confidentiality of records and access to records,
who has access to them and what their uses are is a large issue
that we're working together on. We want to try to figure out
what the best solutions are. I believe you're correct in saying
that currently there's an issue now if an individual says,
``You're going to use my data for this and only this.'' We
cannot use it for other purposes, so we need to get all those
issues straightened out and determine whether or not it's
appropriate to tell the recipient up front what the uses are or
whether we can make a determination that that's appropriate.
It's privacy, confidentiality, and it's a pretty sticky wicket
right now, but I know you're working on issues.
Mr. Turner. Do you think it makes sense to try to catalog
the types of information that an auditor would need to verify
that an individual is, in fact, eligible for certain government
programs and then to put in the statute a provision that says
when a person applies for that particular benefit, they sign a
waiver allowing certain auditors to have access to that
information for that specific purpose?
Ms. Lee. I think that's a possible solution. The data issue
goes beyond just auditing. I think it goes into eligibility for
some programs. It cross-cuts many of the programs. Right now
we're discussing what records you can access to determine if a
person is eligible for particular programs, in particular your
tax records.
Mr. Turner. I guess the thing that concerns me about it if
we simply say in law that auditors, State auditors, can have
access to certain information, once you get the information and
you determine there's some perhaps fraud involved, it seems
like then you're obligated to do something with that
information, and that's when it seems to me to become a more
significant problem for the recipient, and it just might be
better if we required recipients of government loans and
benefits up front acknowledge that certain people will have
access to certain records of theirs relating to their receipt
of that benefit and really kind of pin it down so everybody
knows up front what they're getting into, and it might have a
deterring effect to ensure that there's not fraud on the front
end by an applicant for a government benefit. Are there any
problems with that?
Ms. Lee. I think there's certainly an option. Right off the
top of my head, I can't tell you how many programs that would
mean and whether or not we want to do that only for the States;
or whether there are other programs that we need to look at
beyond just the State auditing, Federal programs, or other
local programs. I think we need to look at the whole package.
Mr. Turner. Mr. Johnson, do you have any comment on that?
Mr. Johnson. Just on your initial question are there
releases on the forms now. From personal experience I have a
son that just qualified for SSI and Medicaid, and there's a
statement on that form that says, don't worry, this will be
kept confidential and not released to anybody else for any
reason. So it's just the opposite, at least on those programs.
Mr. Turner. There may be legitimate reasons for that person
to not want that information to be released. It just seems to
me addressing it on the front end--and I didn't realize we are
doing exactly the opposite now, advising people that this is
confidential.
Mr. Johnson. And I don't know if that's true in all
programs, but it was on those.
Mr. Turner. That statement that you just referred to
appears to be sort of a blanket assurance that nobody is going
to get ahold of it for any reason, and it seems to me that
perhaps there are some legitimate reasons for making certain
information available that may be--if it were specifically set
forth, then the recipient signs, acknowledges they understand
up front that particular entity will be able to get that
information about them.
Mr. Johnson. I think it's certainly something to look at to
see if that would work.
Mr. Turner. Mr. Clark, is my idea off base here?
Mr. Clark. This is an issue that I personally have not
looked at. I don't know whether GAO has a position on it.
I would like to make a comment, though, with respect to the
single audit process and whether you all want to look at this
issue as part of the Single Audit Act or in another vehicle.
Single audit is not designed to be an absolute thorough
determination of the actual extent of compliance with any
particular program. That's not its purpose. We like to say
there's not enough audit resources to go around. We need to
allocate those resources.
The single audit sets up a foundation or a starting point.
I'll try to use a simple example here one that I always use. If
I'm a program person, and I have $100, and I send $1 to each of
100 recipients, I, of course, would like to know the absolute
extent to which each of those recipients spent my dollar and
all the bells and whistles and requirements that come with it,
but that's very costly. So I would like to be a little smarter
and maybe a little more rational.
So single audit comes back and says to me as a program
person, if done right through an automated data base, we're
going to tell you, Mr. Clark, as a program person which of your
recipients appear to have good financial management, which one
of them appear to have good controls, which ones appear to be
struggling, which ones can't put statements together, which
ones have system problems. We're going to give you a sense of
which recipients are experiencing compliance problems. And I
may get the single audit reports back, and I may say, OK, looks
like I have a success story with 80, but with 20 there's a
problem.
Single audit becomes the foundation for me as a program
person to begin targeting all the tools that I may have,
including this very sensitive, powerful issue of computers and
matching and the like. I think then we might have a better
determination of the extent to which we want to give these
powers to the Federal Government, State auditors, the public
accounting profession, and put in the necessary safeguards.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Horn. OK. Let me, Mr. Johnson, pursue in just a little
more detail--for the record. It's in your statement, but you
noted there's a couple of examples of additional audit
requirements, and one was the Environmental Protection Agency.
Another was the Federal Aviation Administration. Could you sort
of spell out now what was your concern on those?
Mr. Johnson. With the Environmental Protection Agency, they
came out with a statement that basically said, we will not
accept the single audit. It doesn't meet our needs. We want
separate audits done of the clean water funds and now the
drinking water funds in States, and that will be separate
financial statements for those programs with an auditor's
opinion on them done on an annual basis.
Mr. Horn. So separate statements are for the water program?
Mr. Johnson. Yes. The clean water----
Mr. Horn. Clean Water Act.
Mr. Johnson. And also the Drinking Water Act. So there are
actually two programs now that require separate audits.
In the act itself and also in the circular it says that if
the single audit doesn't meet the needs of an agency, they can
request additional auditing that they would have to pay for the
add-on auditing. That is the loophole that EPA has gone
through, although I don't know why at this point they need
separate financial statements on their programs with separate
opinions.
When this came out, that position--where they said you must
do that, they modified that slightly and said that where States
won't do it, we will come in and do it, and I'm not sure of the
numbers though, but I think there are roughly 12 to 14 States
who do not audit the programs where EPA sends their own
auditors in to audit that program on an annual basis.
Even though--an example, our State, the State revolving
fund is a major program, and it has been audited on an annual
basis. We do look at compliance. They come in and do a separate
audit, issue separate financial statements with a separate
opinion on them. It seems like a real duplication of effort in
that.
We need to sit down, put a work group together with State
auditors, OMB, GAO, EPA, find out why they can't accept the
single audit and what type of adjustments need to be in the
regulations so that they can accept it.
Mr. Horn. How can we deal with that, Ms. Lee? Do you get
them all in around your desk?
Ms. Lee. Well, I agree we need to put a group together and
find out what the issues are. We have authority in the act to
make changes as appropriate, or even use a pilot program if
there's a need.
Also, from an OMB standpoint, we have a way of encouraging
the agencies through the President's Management Council. So as
we identify these kinds of issues, we can take it to that group
and say, here are some issues.
Part of what Mr. Clark mentioned for this act, we had a
fairly good consensus and the agencies agreed that the Single
Audit Act would work for them. We have to find out why it is
and then take appropriate action.
Mr. Horn. You'll followup on this?
Ms. Lee. Yes, sir.
Mr. Horn. Then we'll know that it is in good hands.
Mr. Johnson, that State revolving fund is also related to
the Clean Water Act, is it?
Mr. Johnson. There are two separate programs, but I think
they address basically the same----
Mr. Horn. It will get bigger and bigger, and I sit on that
subcommittee also. I will be watching for it when it comes
through to see what, if anything, can be put in that language.
Mr. Johnson. Mr. Chairman, it may very well be that they do
need a separate audit, but given the fact that the amendments
just passed in 1996, and immediately this requirement came out,
the concern is that the act wasn't given a chance. One of the
major ideas behind the amendments in 1996 were that we would go
to risk-based auditing and that we would look at programs that
have demonstrated a risk, whether that be designated by Federal
Government or through audit experience. When any department
comes through and automatically declares a separate audit, or
designates a major program under any circumstances, it takes
away from that very basic idea of what we're trying to
accomplish, and I think from the State audit community, we
would have liked to have gone through some of these situations
before they were mandated to us.
Mr. Horn. Do we know if EPA had their own staff of
auditors? And, this would sort of put them out of business if
the State audited it and they didn't?
Mr. Johnson. I don't think any department's auditors would
be out of business. One of the ideas behind the single audit is
that, as Mr. Clark pointed out, the single audit identifies
broad problems, or it can question costs, findings that are
there, weaknesses in internal controls where the Federal
departments can then come in and find out the extent of the
problem and deal with it specifically and resolve the problem
with the auditee.
There's no way that the single audit will ferret out all
the problems or get to the root cause of all the problems. I
don't think there's a danger of losing auditors in any
departments.
Mr. Horn. Ms. Lee is going to solve that one.
How about the Federal Aviation Administration? What's that
situation?
Mr. Johnson. Federal Aviation Administration--and this was
or may have been just a timing issue here because their
advisory came out in 1996, but it says that they had concerns
about diversion of funds within airports, and that whenever
their program was audited as a major program as part of the
Single Audit Act, there had to be a separate review of the
diversion of funds and an opinion given on that review.
Mr. Horn. Could this be under the trust fund, the Aviation
Improvement Act? Is the adding of a runway or improving the
infrastructure at a particular airport the type of thing we're
thinking of from them, or is there a separate pot of money
somewhere for something else?
Mr. Johnson. Mr. Chairman, I have never audited an airport.
We don't have those. This came to me as a----
Mr. Horn. You simply ski in Utah?
Mr. Johnson. That's right.
Mr. Horn. I watched those planes going into Salt Lake City.
You've got a great skiing----
Mr. Johnson. That's Salt Lake City, and Salt Lake City
audits that, so I've never dealt with this problem. It came to
me as a request to add it into the testimony from another
State, so I really can't comment on exactly what the program is
or exactly what the problem is. I hope somebody else here could
specify on it, but it was an add-on problem.
Mr. Horn. Apparently some of your colleagues have had that
problem. Could we sort of get a document we can put in the
record at this point if you can phone up a few of your State
counterparts and say, hey, what were the questions, what was
the problem?
Mr. Johnson. I will do that.
Mr. Horn. We'd just sort of like to round it out here if
you wouldn't mind.
Mr. Johnson. Yes, I will do that.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED]62468.044
[GRAPHIC] [TIFF OMITTED]62468.045
[GRAPHIC] [TIFF OMITTED]62468.046
[GRAPHIC] [TIFF OMITTED]62468.047
Mr. Horn. Now, Mr. Clark, the General Accounting Office has
the responsibility to review provisions requiring financial
audits of non-Federal entities; is that correct?
Mr. Clark. That is correct.
Mr. Horn. Do you agree that the EPA requirements
contradicted the intent of the Single Audit Act?
Mr. Clark. If I could back up and then answer that
question. First, to be fair here, I do want to say that the EPA
issue and the FAA issue were a problem. And I think the timing
was horrible, close to when the amendments were passed. We had
two Federal agencies who, by the way, were not evil. They
honestly wanted accountability over their funds. They're in a
hurry. They were getting a lot of pressure, and they wanted to
get going, and sometimes they want everything audited, and so
they went ahead.
And I think from the State auditors perspective--and again,
if I were a State auditor, I'd have the same concern--State
auditors, I think, may, if I can speak for you, Auston, look at
the Federal Government as one and count on OMB, GAO and the IGs
working together to communicate. When an agency on its own,
like EPA or FAA, goes out with an action like this without it
being announced, without it being floated through the audit
forums, and all the other mechanisms we had to do that, there's
perhaps a sense of distrust.
It is important to look at the EPA and the FAA issues. I
would like to say, though, these are exceptions. I think the
norm is that we do a very good job. We monitor. We are required
under the law to monitor all legislation. Technically the
amendments tell us to identify legislation as reported out of a
committee, and then we have some requirements to notify. We
actually get involved now much earlier in the process. We try
to identify any bill that's introduced, and with 5,000, 10,000
bills being introduced every Congress, this is an enormous
effort. We're trying to involve everybody in the process here,
and, before we get to the point where we have legislation and
we have a conflict, we can look at what everybody's purpose is,
what they're tying to accomplish.
We've had a lot of success stories here of sitting down
with program people, with IGs, with the State auditors,
listening to what is needed and fashioning a solution that is
less than the legislative issue. Once the FAA issue was put on
the table, I think we struck a compromise from that point
forward, struck an excellent compromise, and still stayed
within the constraints of the Single Audit Act.
Again, as I said in my statement, we're going to continue
to do this monitoring effort. It is taxing, it is tedious, but
it is rewarding, because I think in the end we have everybody
on the same page.
Mr. Horn. Let me go back a minute to the attachment I put
in the record that Mr. Johnson had from his colleague in the
State of Washington, Mr. Brian Sonntag, the State auditor, the
State of Washington. Unfortunately, he couldn't be here. He was
able to submit a statement, and I think as Ms. Lee pointed out
in her testimony, the State of Washington has submitted a
proposal for a pilot project under the act, and the amendments
of 1996 give OMB that authority to authorize pilot projects.
Have you received any other proposals besides Mr.
Sonntag's?
Ms. Lee. Not that I'm aware of.
Mr. Horn. Is there anything that OMB or Federal agencies
could be doing to promote more interest in pilot projects?
Ms. Lee. I think that we should continue to work in the
groups and as people identify potential pilots, to encourage
them. There's also a lot of people looking to this pilot
program in Washington and saying, ``OK, what happens here.'' I
think we'll have some further requests or further ideas from
this very pilot program.
Mr. Horn. Mr. Johnson, do you have any thoughts on why
there have not been more pilot projects from the State auditor
community in particular?
Mr. Johnson. I think the newness of the program. We've been
busy just getting our arms around what we have to do, not
looking at ways to improve. I do think the State of Georgia was
looking at a very similar project to what Washington was, and I
think they're just waiting to see what happens with the one in
Washington. But they had the same issue on auditing school
districts on a statewide basis.
Mr. Horn. What's the sort of feeling, Ms. Lee, that you
have in OMB on what type of projects we are looking for?
Ms. Lee. I think we're just looking for anything that will
meet the needs of the act: the reduced burden, more
accountability, good insight. One of the pieces of the act that
hasn't really been exercised yet, but I think is going to come
into fruition, is the program accountability. You know, right
now we're doing the consistency audits and the financial
background, but now there's still another piece of the act
which is going to evolve, which is actual programmability. This
is going to tell us something about the programs themselves.
Mr. Horn. Is there any movement to have, say,
simplification of what might have been a very complex approach
to something?
Ms. Lee. Just as it evolves from these groups from their
ideas on that, and from working with the circular, and from
this particular test program. But as far as a big rush to
further simplify, it's not there yet.
Mr. Horn. You're very good with that demonstrative pile.
Ms. Lee. I'd love to leave this with you, sir.
Mr. Horn. No, I want you to stay awake at night and use it
for curing insomnia, but, that looks frightening to say the
least.
Mr. Johnson. Mr. Chairman, if I might, there have been big
advances in that document from when it started. There's been
some matrixes added, some clarifications. OMB has done a great
job in getting rid of--I hesitate to use the word ridiculous,
but unnecessary audit requirements that some departments
wanted. It has been simplified and has been streamlined a great
deal, and it's a much more useful document than when we first
started.
Ms. Lee. And we're putting it on the Internet now so
everybody can access it easily.
Mr. Horn. Given that proposal in front of you, is OMB
committed to reviewing proposals in a timely way?
Ms. Lee. Yes, sir. In fact, I'm interested in trying to
move it up a month so it is more useful.
Mr. Horn. Mr. Turner doesn't have any more questions. I
don't have any more questions. And I must say this is about the
most civilized group I've ever had in a hearing. One, we're
getting out of here in 51 minutes; and No. 2, everybody is so
nice to everybody else. Nobody is shouting and saying, that's
the craziest idea I've ever heard.
So, we thank you all three for coming, and obviously you
have all the knowledge in your brains. We don't. But we welcome
you to work together as you have been and keep this thing
moving, because I think it's in all of our interest to do that
as long as we can catch fraud, waste, and abuse in the process.
So no more questions. We adjourn this hearing, and we thank you
all for coming.
I want to thank the staff in particular that put this
together. Mr. George is over there with the phone in his ear.
That's because he's from New York, and everybody has a phone in
their ear in New York. He's staff director and general counsel.
Bonnie Heald is in the back of the room probably, the
director of communications.
And I regret to say that the gentleman to my left and your
right, Larry Malenich, is from the General Accounting Office,
and he will be leaving us after this assignment. And we thank
him for all that he's done. He and other GAO people have just
done a terrific job for the Congress.
And I thank Mason Alinger, our faithful clerk here; and
Faith Weiss, the minority counsel; and Earley Green, the
minority staff assistant. And the court reporters this morning
are Julia Thomas and Laurie Harris, and we thank you all.
With that we are adjourned.
[Whereupon, at 10:53 p.m., the subcommittee was adjourned.]
-