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Watching the watchdogs; are they barking up the wrong tree?


It was a watchdog's dream. The largest coal sale in American history had been botched: sensitive data leaked by Interior Department employees to coal company officials had driven down the price of the coal, costing the government $46 million. Congress knew the agency had bungled the sale. The press had written about it. There were plenty of leads. All Richard Mulberry, the inspector general (IG) at Interior, had to do was tie the loose ends together. Heads would roll.

None did. The leak was discovered in May 1982, but Mulberry didn't open an investigation until April 1983. It lasted 16 days. Despite evidence to the contrary--evidence that, ironically, was included in the appendix of the IG's report--Mulberry concluded there had been no leak. The brevity of the investigation was no co-incidence: the whitewash was released on the morning then-Secretary of Interior James Watt was scheduled to defend his department before a congressional committee.

It isn't supposed to work this way. Inspectors general are supposed to hold the line against waste and fraud: if a department is flabby, the red tape messy, or if the boss has a hand in the till, then it's time for the inspectors general to enter--slashing. At least that was what Congress had in mind when, in 1978, it mandated that most major departments establish an IG office. Unfortunately, the reform has not always lived up to its promise. As the Mulberry example shows, it is difficult to legislate diligence.

Diligence is especially important now. The Reagan administration is resorting to extreme measures to keep unpleasant information from becoming public. The president has imposed lie-detector tests on hundreds of thousands of government employees. Two government employees have been fired for squealing. A former naval intelligence analyst has been convicted of giving spy satellite photographs to a magazine. While the government must aggressively prosecute those who divulge information that compromises our national interest, this crackdown is likely to squelch information about corruption and mismanagement as well. If those leaks are plugged, then Congress, the press, and the public will be forced to get their information from those charged with identifying the problems. In most government agencies, those charged with that task are the inspectors general.

The crook who brought us IGs

Fraud and waste have always been a part of government, but inspectors general have not. The person we have to thank for the billions of dollars the IGs have saved since they were mandated by Congress is small-town Texan and big-time swindler Billy Sol Estes. From 1951 to 1962, Estes built an empire by cheating on a number of government programs including cotton allotments, surplus housing sales, and the construction of farm storage facilities. According to a 1965 report of the Committee on Government Operations, the main reason Estes was able to swindle the government for so long was because of the uncoordinated manner the federal government went about investigating him. During the 1950s, Estes was investigated by the Departments of Justice and Agriculture, by the FBI, and by a number of private investigators. The committee concluded there was "a serious lack of effective coordination' among government auditors. The first recommendation made in the committee's 437-page final report was that the "President authorize and direct a comprehensive review of Federal audits and investigative activities.' The upshot of the report was modest: an inspector general office was set up in the Department of Agriculture. The office was not carved in statute, however, and in 1974, without giving any reason in particular, then-Secretary Earl Butz abolished the office.

At that time every auditor and investigator in the federal government operated under equally tenuous terms. Without statutory protection, watchdogs served at the mercy of the department secretary; if they submitted just one unpleasant report too many, they could be fired. The result was that few substantive investigations were undertaken. At the Commerce Department, for example, before there was an IG, auditors looked only at outside grants and contracts. "These were insignificant compared to other in-house programs,' says Jill Gross, who works in the Department's IG office. "But no one wanted to look at those because of what their bosses might do.'

Butz's action coincided with a tip received by a Government Operations Committee staff member that not a single HEW program was being properly monitored. The committee, which among other things evaluates the need for watchdogs, mobilized: in 1975 it opened an investigation into the audit and investigative divisions operating within HEW. What the committee found was a government that was much larger and more complex than it had been a decade earlier. Lyndon Johnson's Great Society had woven the federal government into the fabric of every city and county in America. When the committee began to examine that fabric, it found the thread of oversight to be woefully inadequate. HEW had more than 129,000 employees and a budget of more than $100 billion, but it had only ten investigators and a ten-year backlog of univestigated cases. An investigation two years later found that the Department of Transportation had only six investigators to detect fraud and abuse in its $6 billion highway program.

This appalling lack of oversight was no coin-cidence: agency administrators did whatever they could to keep auditors out. A General Accounting Office (GAO) study found that audit organizations had little success in obtaining added resources. Between 1973 and 1978, 21 audit organizations requested a total of 3,084 additional staff members. Their agencies approved only 1,242-- about 40 percent. More than half the remaining slots--638--were lopped off by budget cutters at the Office of Management and Budget.

Congress started to peck away at this problem in 1976. An inspector general office was started at HEW. In its first report, the IG office concluded that the department wasted at least $6 billion every year. That was all Congress needed to know: the Inspector General Act of 1978 made IGs mandatory in 12 major departments. Congress wanted independent IGs. They became presidential appointees. No longer could a department secretary, upset with unpleasant information, fire the IG and disband the office. Even the president is checked. Before firing an IG the president must explain to Congress the reasons for his action.

The legislation was fought by every department. None welcomed a watchdog. A number of major departments, including Justice and Treasury, were exempted. The Defense Department was not forced to have an IG until 1982. Despite such opposition, there are now 19 statutory inspectors general.* More than 23,000 auditors and investigators work for the IGs, and their budget this year is $342,828,000. In 1984, the last year for which statistics are available, the inspectors general conducted 20,339 investigations and 40,748 audits. A sampling of report titles includes: Budget Officer Diverts Government Funds for Personal Use; Major Welfare Scam Uncovered in California; Bid Rigging Convictions Result in Civil Recoveries. It is not idle copy: in the last five years the IGs have ferreted out more than $55 billion in waste and corruption.

Chauffering the lap dogs

Obviously, most inspectors general are not as pliable as Interior's Richard Mulberry. Many go toe-to-toe with the department secretary. The first two actions Sherman Funk took as IG for the Commerce Department were to cut back on waste in the executive dining room and to tell the secretary, Malcolm Baldrige, not to charter private planes for recruiting trips. These actions probably didn't save the department much money, but they sent an important signal: the boss is a target of the IG, and so is everyone else.

* The agencies and departments with statutory IGs are: Agriculture, the Agency for International Development, Commerce, Defense, Education, Energy, the Environmental Protection Agency, the General Services Administration, Housing and Urban Development, Health and Human Services, interior, Labor, NASA, the Office of Personnel Management, the Small Business Administration, State, Transportation, Treasury and the Veterans Administration.

Unfortunately, this signal is transmitted less often than it should be. Consider the State Department IG. Started in 1980, it is just the kind of office Congress wanted to avoid. Half the auditors and investigators in the IG office are rotating foreign service officers. They spend only two years in the IG office. As a result, practically all decisions concerning their promotion and future assignments will be made by people they are expected to audit during their brief two-year tenure with the IG. Foreign service officers readily admit this arrangement it awkward: eight out of nine auditors who rotated through State's IG office told the GAO they could not be independent. "The name of the game in the IG office is to make contacts and get a good assignment when you leave,' said one. Asking tough questions, he said, is like "shooting yourself in the foot.'

Most State IG investigations aren't even conducted by the IG office. The department's Office of Security handles the bulk of the load, and the security officers doing the investigating-- most of which concern problems in embassies and consulates--are answerable to the chief of mission and receive performance appraisals from senior post officials. A few years ago, a security officer was asked to investigate the deputy chief of mission and the ambassador at his post. According to the GAO, he was subjected to "verbal and cryptic' threats from officials implicated in the investigation. He was told that he was going to pay for his involvement in the investigation and that his career with the department was dead. The harassment was so bad, the officer had to transfer to another post.

Another security officer had his confidential memos concerning an investigation stolen and distributed to those implicated in the investigation. Still another was told by his superiors that he could not cable headquarters with his findings because they did not want their "dirty laundry' seen by everyone. "President Reagan says he wants his IGs to be as tough as junkyard dogs,' said Christopher Manion, a staff member for the Senate Foreign Relations Committee. "But at State they've been more like lap dogs than junkyard dogs.'

Last July, Congress passed a law that was supposed to change all that. It mandated that a second IG office be set up at State with a permanent staff that would conduct its own investigations. It has been a year now and nothing has changed. The State Department is embarking on a potentially waste-filled $4.4 billion program to fortify U.S. embassies. (One example: the granite used to fortify the embassy in Oman must come from Vermont.) One would hope that with such a huge program being started that officials would want to monitor closely how the money is spent. Not so. After Congress made it clear that it wanted a more independent IG, Secretary of State George Shultz wrote lawmakers that due to budget constraints imposed on him by the Gramm-Rudman-Hollings Deficit Reduction Act, any change in the IG structure is out of the question. But according to the Office of Management and Budget, a dollar spent on IGs is $40 saved by the federal government. Apparently Shultz hasn't read the report.

In certain departments, the inspectors general can be blood hounds and they still won't be effective because they're forced to rely on suspect data. For instance, of the 19,400 auditors working for the Defense Department, only 900 work for the IG. The vast majority work for various internal review groups, none of which enjoy the statutory independence of an IG, who has the ability (in theory) to investigate any project and to report findings directly to Congress.

One group that the IGs at both Defense and NASA rely on for information is the Defense Contract Audit Agency (DCAA). With 4,000 auditors, the DCAA is supposed to be leading the charge against procurement fraud in the departments. In practice, the DCAA does nothing of the sort. When the DCAA attempted an unannounced check of Avondale Shipyards Inc., for instance, the defense contractor objected. According to testimony given before the Senate Governmental Affairs Committee last year by the DCAA, it agreed to adjust the conditions of the inspection: the company was given 24 hours notice and the right to approve the agency's questions. No government auditor was allowed to talk with employees. Even if the DCAA was more demanding, it probably wouldn't matter: its recommendations can be overturned by Pentagon contract officers who oversee military production.

Another reason the IGs are not sufficiently independent is because the auditors and investigators who work for the IGs are career civil servants. When the offices were set up in 1978, they were staffed with people drawn from the various audit and investigative agencies that preceded the IGs. These were the people who for years protected themselves by tailoring their work to please their bosses. Congress tried to legislate around this problem, but it is intractable. Career civil servants have a stake in the well-being of the agencies they work for. This sets up a paradox: the more waste the auditors and investigators turn up, the more likely it is that Congress will scrutinize their department the next time it comes to trimming the budget. This is fine for the IGs; their careers are not tied to the future of the department. Richard Kusserow, for instance, points with pride to cuts in the Department of Health and Human Services (HHS) Congress has made based on findings he has uncovered as IG. But for the career employees, departmental cuts are much more frightening. One swing of its budget ax and Congress can wipe out an auditor's career. The more vigilant the auditor, the harder Congress is likely to swing.

There is another way the budget can be used to rein in IGs. Consider the problem Sherman Funk faced when putting together his budget for this year. Funk felt his staff and budget were insufficient for him to properly monitor the operation and acquisition of computer systems that at the time were costing the Commerce Department more than $200 million annually. There were more than 900 such systems within the department at the time and Funk felt he needed more manpower in order to make sure the money was well spent and that computers were not sitting in boxes in some hall closet. He noted this in his budget request, and indicated that to be thorough, he would need 12 more auditors and a budget increase of $700,000. Funk sent his request to the department's budget office. It was approved and, according to procedure, sent on to the department's assistant secretary for administration who is in charge of, among other things, the computer systems. More money for Funk meant more scrutiny for the assistant secretary. Sherman Funk didn't get the money.

Did the assistant secretary have something to protect? Apparently he did. Devoting as much manpower as his limited budget allowed, Funk uncovered tens of millions of dollars of waste in the way the department was acquiring its computer systems. One example: on February 16, Funk reported that despite identical needs, the National Weather Service and the Federal Aviation Administration were in the process of purchasing two completely separate computer systems. By purchasing one system, the department could have saved as much as $70 million.

When Anne Burford ran the Environmental Protection Agency, she too manipulated the IG by using her budget authority. She demanded that 90 percent of the work done by the inspector general's audit division focus on construction grants. "All our money came from the top,' says Charles Dempsey, who was brought in as acting IG at EPA after Burford got into trouble. "Burford could call the shots because she had the leverage.' The result: the EPA's IG failed to investigate the controversial allegations of sweetheart deals with industry, political manipulation of funds, and gutted regulatory procedures that were at the heart of the EPA scandals four years ago. In one six-month period during that tumultuous time, the EPA's IG conducted 843 audits. Ninety two percent-- 776--focused on grants and contracts. Only 3 percent examined internal management problems. "They were unimpressive,' recalls one staff member of the Government Operations subcommittee that investigated Burford. "They weren't keen to investigate because of the political pressure.' Another reason: Mathew Novick, Dempsey's predecessor as EPA IG, had a unique view of what constituted waste, fraud, and abuse. A GAO investigation found that Novick broke the law on a number of occasions by using his government car and driver to chauffer him to and from work. On at least one occasion, he had his secretary type his son's term paper.

The Black Hole of Justice

Whistle-blowers should be an inspector general's best friend. The incredulous bureaucrat, the honest man willing to risk all for what he believes is right; these are the people government watchdogs should champion.

They don't.

When a Pentagon auditor named George Spanton told the Defense Department IG in 1982 that Pratt & Whitney's government products division in West Palm Beach, Florida, was charging the government excessive travel and entertainment expenses and paying its executives too much, no action was taken. "I told them I could document many millions of dollars of waste,' says Spanton. "The [Defense Department] IG told me to keep it inside.'

Spanton refused. He broke his story to the press, and congressional hearings soon followed. Rather than investigate his allegations, Spanton says the inspector general investigated him for possible security violations.

This gambit is not limited to the Defense Department. In 1983, John Hnatio, a security specialist with the Department of Energy, briefed a congressional investigator on the status of security at U.S. nuclear weapons facilities. Hnatio had already told his superiors all that he discussed with the investigator. No matter. When he told his bosses what he had done, they hit the ceiling. Hnatio was given an official reprimand and threatened with the loss of his security clearance which, considering his position, would have devastated his career. Hnatio asked the department IG to investigate. He was cleared on every count but one: the IG refused to determine whether Hnatio had committed a breach of security. According to Pentagon whistle-blower A. Ernest Fitzgerald, this is a clever way to control Hnatio in the future. "The typical way that information of this sort is handled by the vengeful bureaucracy,' Fitzgerald told the congressional committee investigating the Hnatio affair, "is to quietly go . . . to friendly members of Congress, people in the White House, future employers, and say, "There is a security problem.'

The reason inspectors general do not champion whistle-blowers is simple: bureaucracies place a premium on conformity. Success is based on playing

ball. This is a lesson learned every day-- in memos, in how people dress and talk, in who gets promoted. Despite their statutory independence, IGs operate within the bureaucracy in many ways; they work in the same building, for instance, and eat in the same cafeteria. The pull in conform is hard to resist. "As far as I'm concerned,' says Spanton, "they're all one big happy family.'

Even without these pressures to conform the IGs task is formidable. Every year the federal government spends nearly one trillion dollars. Even with an annual budget of more than $342 million, the inspectors general can monitor only a fraction of Uncle Sam's portfolio. It would take 10 years for the IG at EPA to audit every program in his department. The audit cycle at NASA is 15 years; at Commerce, 36 years.

Of course, not every program needs to be audited regularly. The mark of a good IG is knowing what to audit and when. The consensus among a number of current and former IGs is that it is most important to monitor efficiencies, not illegalities. The Department of Energy recently found that by segregating transuranic waste it could save more than $2 million a year in waste disposal costs. Unfortunately, audits on transuranic waste segregation don't generate headlines. The pressure to get on page one forces conformity of another sort. "There is an expectation that [the findings] should be somewhat jazzy,' says Allan Reynolds, the Veterans Administration IG under President Jimmy Carter. "It is easier to say, "I caught a guy stealing $100,000,' than, "I found a system abuse where no one did anything illegal and saved $100 million.''

The best IGs do that and more. They not only examine abuses of the system, they examine the system itself. At HHS, Richard Kusserow reviews every proposed rule or policy change involving his department. When he disapproves, proposals are often altered to meet his approval. Before the Medicaid system of reimbursements was changed in 1983, Kusserow held up adoption of the regulations until he was satisfied that the system could work.

This appears to be rare. Read through any number of IG reports: the system is rarely questioned. A recent report from the IG at Agriculture notes that as a result of an IG investigation a North Carolina farmer was indicted for cheating on the government's tobacco price support program. This is typical. Read a stack of IG reports from Agriculture and you will get a Who's Who of cheaters. What you will not get are answers to the more important questions-- do we, for instance, need a tobaco price support program?

Even when the inspectors general do solid work it is often wasted. Consider NASA. From the time the space shuttle program began to the time Challenger exploded in January, NASA's inspector general published hundreds of audits documenting the fact that more than half a billion dollars in safety spending had been delayed. The IG documented coverups by contractors concerning defective welds on Challenger, and quality inspection reports that were routinely falsified. Hundreds of audits-- thousands of pages long --were sent to the chief of NASA, sent to Congress, and made available to the press; nobody touched them. Defective welds on the Challenger are sexy now; they weren't before January 28.

Even if there had been interest, the reports may not have been read. That's because there were so few people responsible for acting on them. Before the explosion, the Office of Management and Budget, on which the White House relies for information, had four examiners to cover science and technology. The Senate subcommittee on space, science and technology had a staff of three. On the House side, the subcommittee on space, science and applications had a staff of six. "I seldom if ever see an IG report,' says one member of the space, science and technology subcommittee. "From time to time a semi-annual [IG] report will float by. But I'm inundated by a mountain of paperwork, so I rarely get into them.'

Another reason a lot of work done by the inspectors general goes nowhere is because of the Justice Department. When an IG completes an investigation, the results are turned over to the Justice Department for prosecution. "Justice is like a black hole when it comes to prosecuting our cases,' says a former IG, echoing a common sentiment. "We never see them once we send them there.'

One of the most infamous black holes at Justice is the Defense Procurement Fraud Unit. When he established the unit in 1982, then-Attorney General William French Smith said it would "deter fraud by conducting nationally significant procurement fraud and corruption investigations and prosecutions.' Over the next three years. Defense Department IG Joseph Sherick says he referred more than 400 cases to the Procurement Fraud Unit. Only 11 were prosecuted. Why so little vigilance? One explanation may be that the head of the Procurement Fraud Unit, Richard Sauber, did not want to upset lawyers representing defense contractors. In May 1984, Sauber co-chaired an American Bar Association conference on defending government contractors from investigation and prosecution. He must have done a good job: in October 1984, Sauber left the Justice Department for Fried, Frank. Harris, Shriver and Kampelman, a prestigious Washington, D.C. law firm that represents numerous defense contractors.

Cheeseburger, Cheeseburger

When the GAO asked Interior Department IG Richard Mulberry why it took him nearly a year to investigate the leak that cost the government $46 million, he said "I can't remember.'

We must not tolerate inspectors general who can't remember. Especially other outlets, Congress, Administration blocks other outlets, Congress, the press and the public will become more reliant on the IGs. We need aggressive watchdogs, willing to go public with his or her findings unless remedial action is taken. June Brown, who left NASA last October, gets uniform praise for the investigations she conducted as IG. What she did not do is demand results: when NASA failed to act, she did not rush to Capitol Hill demanding an investigation; she did not call a press conference.

One reason we may not get responsive action is the current appointment system. Inspectors general are appointed by the president. They serve with no fixed term and can be fired at the president's discretion. On the day he was inaugurated, Reagan fired all the IGs. It was four months before Reagan submitted any names to the Senate for confirmation, six months before any IGs were confirmed. Nearly a year had passed before all the IGs were in place. This is not a peculiarly Republican action. After Carter's IG at HEW resigned in 1979, Carter did not name a replacement for 11 months. When his IG at the Labor Department left in early 1980, Carter left the position open the rest of his term.

We don't expect other watchdogs to operate on equally tenuous terms. Imagine if the president could fire the head of the General Accounting Office or the director of the FBI anytime either conducted an investigation that got too hot? It can't happen: Charles Bowsher and William Webster serve 15- and 10-year terms, respectively. Inspectors general need set terms as well.

And not only the IGs: all the auditors and investigators working in the IG system should have set terms. Having career employees in those positions can only deter IG vigilance. Investigators from police departments, the FBI and other law enforcement agencies could rotate through; auditors from private firms could do the same. A young investigator out to make a name for himself will dig deeper than a 20-year man worried about jeopardizing his career.

Is this insider stuff that doesn't affect the public? Hardly. Last November, the IG at the Department of Agriculture reported that officials destroyed documents that showed widespread contamination of meat products in California. The destroyed documents contained examples of confirmed, probable or potential meat contamination in 127 meat packing plants across the state. Contaminated meat contributed to a tripling last year in California in reported cases of salmonella poisoning, One official at Agriculture told the IG that disclosure of this "gross violation would have caused utter chaos for both the agency and the meat industry.' The IG report was ignored. Think about that the next time you bite into a cheeseburger.
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Title Annotation:frauds in the Interior Department's inspector general investigations
Author:Eisendrath, John
Publication:Washington Monthly
Date:Jul 1, 1986
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