A. AUDITS

During the reporting period, 11 reports were issued dealing with programs, grants and grantees. Other ongoing reviews are in their final stages. The division of OIG resources results in audit work being performed by a combination of permanent and contractor's staff. Emphasis will continue to be placed on surveys of ARC operations and programs, completion of grant audits, audit resolution and followup, and physician compliance with J-1 Visa Waiver program requirements.

Our report on the Alabama Mentoring Entrepreneurial Network Project at Auburn University at Montgomery (OIG Report 04-18 Grant No. AL-13495,) had 8 findings and $128,133 in questioned costs of the $142,370 grant, with the difference to be deobligated. The questioned costs are mainly a result of the grantee's lack of oversight of their subcontractor; ineligible participants; unauthorized changes in the scope of work and budget; and internal control issues. The grantee has stated that they have begun revising their policy and procedures. Follow-up and oversight by ARC should result in full resolution of many of the issues raised in the report and negotiations are ongoing.

A performance audit of the Appalachian Development Highway System (ADHS) was completed. The ADHS project is to generate economic development, supplement and connect Appalachia to the interstate system, and provide access to areas within the region. Total ADHS funding has averaged $583 million a year over the past five years. Six recommendations were made regarding oversight and improvement in their policy and procedures. The report is currently undergoing review by the Federal Highway Administration and the U. S. Department of Transportation Office of Inspector General as well as the ARC. The coordination among the various entities involved in the process should result in more effective follow-up and oversight of the program. The major recommendation is for increased oversight of the funds by either the Department of Transportation OIG or the ARC OIG or a combination of the two.

B. INVESTIGATIONS

The Inspector General Act of 1978, as amended, provides that the IG may receive and investigate complaints or information concerning the possible existence of an activity constituting a violation of law, rules, or regulations; mismanagement; gross waste of funds; or abuse of authority. The OIG does not employ criminal investigators. When the need has arisen, the matter would be referred to the Federal Bureau of Investigation or assistance would be contracted with another Federal OIG. Also, the results of investigations may be referred to the appropriate Federal, State, or local prosecutive authorities for action.

The OIG currently has two investigations ongoing with the support of OIG criminal investigators from the Tennessee Valley Authority and the Department of Education. Further, the OIG is monitoring two other investigations being conducted by state law enforcement or ethics organizations that relate to ARC programs. In one instance the case was referred to the state by the OIG. One investigation has resulted in the federal indictment and arrest of two grantees. A jury trial is scheduled for January 2005. As is the policy of the office, no information will be given while the case is ongoing.