How to Get Action on Audit Recommendations GAO/OP-9.2 · PDF fileeffect. In addition, ... GAO...

United States General Accounting Office

GAO

July 1991

How to Get Action onAudit Recommendations

GAO/OP-9.2.1

Preface

Through their recommendations, government auditorganizations regularly disclose a wide variety ofways to improve government programs andoperations. For example, audit recommendations mayshow the cognizant agency how government servicescan be more responsive to citizen needs—at less costto taxpayers.

The benefit from audit work is not in therecommendations made, but in their effectiveimplementation. Important measures of an auditorganization’s effectiveness are the type of issues ittackles and the changes/improvements it is able toeffect. In addition, one of an auditor’s basic objectivesis to have his or her work make a difference.

When a recommendation is made to an agency, itsmanagement is basically responsible forimplementing it. But auditors can do a great deal toimprove the likelihood that a recommendation will beappropriately implemented. The purpose of this guideis to help auditors get more action and better resultsfrom their audit work through the following means:

• Quality recommendations: Whether audit results areachieved depends on the quality of therecommendation. A recommendation that is notconvincing won’t be implemented. A recommendationthat does not correct the basic cause of a deficiencymay not achieve the intended result.

• Commitment: When the auditor is committed to theneed for action on a recommendation, he/she will dowhat needs to be done to get it implemented. Withoutthat commitment, a recommendation may not achievethe desired action.

• Aggressive monitoring and followup: Acceptance of arecommendation does not ensure results; effectiveimplementation does. Continued attention is requireduntil results are achieved.

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Preface

• Special attention to key recommendations: While allrecommendations require followup, some deal withparticularly serious or flagrant matters. They shouldreceive special attention.

For further assistance, please call (202) 275-6172.

Werner GrosshansAssistant Comptroller General for Policy

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Contents

Preface 1

Chapter 1 Overview ofRequirements forGetting theBenefits of AuditWork

6The Objective: Beneficial Results 6Professional and Legal Requirements 6Aggressive Followup Needed 7Basic Principles to Ensure the Benefits of

Audit Work8

Chapter 2 Action-Oriented,EffectiveRecommendations

10Quality Recommendations: Key to Action 10Action-Oriented Recommendations 10Effective Recommendations 12Matters for Consideration by Legislative

Bodies14

Chapter 3 Commitment toResults

15Commitment—Making Improvements

Happen15

Staff Commitment 15Organizational Commitment 16

Chapter 4 Monitoring andFollowupSystems

19Ensuring Improvements: Aggressive

Monitoring and Followup19

Basic Elements of Monitoring and FollowupSystems

19

Firm Basis for Monitoring and FollowupActions

19

Active Status Monitoring 20Determining the Adequacy of Actions Taken

on Recommendations22

Closing Recommendations 23Accomplishment Reporting 24Recognizing the Basic Responsibility of

Auditees25

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Contents

Chapter 5 Special Attentionto KeyRecommendations

26Giving Maximum Attention to Key

Recommendations26

Identifying Key Recommendations 26Early and Continuing Emphasis 27Examples of Ways to Highlight Key

Recommendations28

Appendixes Appendix I: A Checklist forRecommendation Monitoring and Followup

32

Appendix II: Case Study: GAO’S Monitoringand Followup System

36

Appendix III: Case Study: the HUD InspectorGeneral Monitoring and Followup System

53

Appendix IV: Case Study: the LegislativeAuditor, State of Nevada, Monitoring andFollowup System

61

Appendix V: Laws and Regulations RequiringFederal Agencies to Followup and Reportthe Status of Audit Recommendations

74

Abbreviations

CFTC Commodity Futures Trading CommissionGAO General Accounting OfficeHUD Department of Housing and Urban

DevelopmentOMB Office of Management and BudgetRTC Resolution Trust CorporationSEC Securities and Exchange Commission

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Chapter 1

Overview of Requirements for Gettingthe Benefits of Audit Work

The Objective:Beneficial Results

Reducing cost and improving the effectiveness ofgovernment are major goals of each auditorganization. To achieve those goals, auditorganizations must make high-qualityrecommendations and must work with those who willimplement them to realize intended benefits.

Agency managers are responsible for resolving andimplementing recommendations promptly andeffectively. At the same time, auditors are responsiblefor following up to see that action is taken and thatintended results are realized.

The purpose of this booklet is to provide thenecessary guidance to evaluators and auditors1 tohelp them meet the auditing standards andexpectations in audit resolution and followup onrecommendations.

Professional andLegalRequirements

GAO’s Government Auditing Standards (commonlyreferred to as the Yellow Book) include standards toguide auditors so that others can rely on their work asfair, objective, reliable, and useful assessments ofgovernment performance. The Yellow Bookestablishes followup as an integral part of dueprofessional care, as follows:

“Management of the audited entity is primarily responsible fordirecting action and followup on recommendations . . . .

“Government auditors should have a process that enables them totrack the status of management’s actions on significant or materialfindings and recommendations from their prior audits . . . .

“Due professional care also includes follow-up on known findingsand recommendations from previous audits that could have an

1The term “auditor” is used generically throughout this guide.

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Chapter 1

Overview of Requirements for Getting

the Benefits of Audit Work

effect on the current audit objectives to determine whether promptand appropriate corrective actions have been taken.”2

Agency management responsibility3 for resolving andimplementing audit recommendations stems from theAccounting and Auditing Act of 1950, which setrequirements for effective internal control systems.Renewed focus on the need to strengthen internalcontrols was provided by the Federal Managers’Financial Integrity Act of 1982. Standards for promptresolution of audit recommendations were includedin GAO’s Standards for Internal Controls in theFederal Government. Additional requirements areincluded in “Office of Management and Budget (OMB)Circular A-50, Audit Followup;” the Inspector GeneralAct of 1978, as amended in 1988; and 31 U.S.C. \ 720.

AggressiveFollowup Needed

Saving tax dollars, improving programs andoperations, and providing better service to the publicare bottom lines of audit work. Recommendations arethe vehicles by which these objectives are sought.

But it is action on recommendations—not therecommendations themselves—that helps thegovernment work better at less cost. Effectivefollowup is essential to get the full benefits of auditwork. In large measure, the benefits achieved fromrecommendations determine audit effectiveness.

2Audit planning should also consider the status ofrecommendations made by another audit organization to the extentthat they are available and affect current audit objectives. Forexample, a state audit group should not ignore relevant andmaterial findings and recommendations of a federal auditorganization.

3The primary responsibility for improving operations, where theneed to do so was demonstrated by audit work, rests with agencymanagement. The auditor has key responsibilities to makeconstructive recommendations and to follow up on suchrecommendations to assess whether the intended results wereachieved.

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Getting action on audit recommendations has been apersistent problem—one that, over the years, haslimited the effectiveness of audit organizations. GAOaudit reports continue to highlight significant auditfollowup problems. They establish the need for betteraudit oversight of agency followup systems and forauditors to give increased attention torecommendation implementation.

Recent management problems in government, such asthe Department of Housing and Urban Development(HUD) scandal and the savings and loan crisis,demonstrate anew the need for timely and effectivecommunication of relevant, significant, and usefulrecommendations to those in a position to act onthem. It is equally important to ensure thatrecommendations are appropriately considered,effectively implemented, and yield intended results.

Basic Principlesto Ensure theBenefits of AuditWork

Ensuring the benefits of audit work requires

• action-oriented, effective recommendations;• commitment to achieving intended results;• careful application of sound monitoring and followup

systems; and• special attention to key recommendations.

Each of these is highlighted below.

• Quality recommendations: Basic to effective auditwork are recommendations that, when adequatelyimplemented, accomplish a defined and worthwhileresult. They must state a clear, convincing, andworkable basis for implementation. Their utility andcontinued relevance should be reevaluated asfollowup actions progress. (For more information, seech. 2.)

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• Commitment: Auditors and audit organizations mustbe committed to identifying and bringing aboutneeded change. The auditor’s commitment should bepersonal and professional. The audit organizationshould be supportive and reinforce the commitmentto its staff. (For more information, see ch. 3.)

• Monitoring and followup system: The auditorganization should have a system that provides thestructure and discipline needed to promote action onaudit recommendations. It should ensure thatrecommendations are aggressively pursued until theyhave been resolved and successfully implemented.Also, auditors should assess whether the agenciesthey audit have a followup system that adequatelymeets their basic responsibility for resolving andimplementing audit recommendations. (For moreinformation, see ch. 4.)

• Special attention to key recommendations: Auditorsshould ensure that key recommendations are fairlyconsidered when effective use of the first threeprinciples has not done so. They should reassessstrategies to get positive action on thoserecommendations. Outside intervention should beconsidered when it would help to get necessaryaction on key recommendations of great significance.(For more information, see ch. 5.)

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Action-Oriented, EffectiveRecommendations

QualityRecommendations:Key to Action

Recommendations state what an audit organizationbelieves should be done to accomplish beneficialresults. They do not direct what must be done butseek to convince others of what needs to be done.

Recommendations should be action-oriented,convincing, well-supported, and effective. Whenappropriately implemented, they should get thedesired beneficial results.

Action-OrientedRecommendations

To achieve the desired action, recommendations musthave the following characteristics:

• Properly directed: Recommendations should bedirected to those who have responsibility andauthority to act on them. They must be clear aboutwho the action person is. For example, “Werecommend that the Director, Defense LogisticsAgency, . . . .”

At times, recommendations are directed to peoplewho have a number of roles. The recommendationshould state the role that applies, e.g., “The Secretaryof Commerce, as head of the lead agency guiding andcoordinating the federal metric transition, should . . ..”

• Hard-hitting: There should be no doubt that arecommendation has been made. Recommendationsshould be clearly labeled as such, not hidden, orobscured by text. They should be readily identifiableand stand out in the report.

Vague language should be avoided. For example, “Thefederal government should have an interest in thequality of food in general” does little more than implythe possibility that a recommendation has been made.

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Action-Oriented, Effective

Recommendations

Soft language, such as “consideration should be givento,” does not suggest significance or conviction thataction is required.

• Specific: Recommendations should state asspecifically as possible just what action should betaken. This is a matter of degree. Auditrecommendations do not tell how to develop asystem, but they should be specific about the systemthat needs improvement and the objectives thatshould be achieved by the change. For example, “Werecommend that the Commissioner of InternalRevenue begin collecting the kinds of managementinformation needed to assess the effectiveness of itsalien compliance efforts. That information shouldinclude . . . .”

Recommendations for additional studies should bemade only in rare cases and for very good reasons.When such a recommendation is made, it should beworded in a way that demonstrates the need foradditional work without calling into question thevalue of the audit work being reported.

• Convincing: Recommendations should bewell-supported by facts and should flow logicallyfrom these facts. This connection can be made byplacing the recommendation close to the finding or byinserting language in the recommendation, such as“To help reduce the number of costly and lengthyautomatic data processing acquisition programs, theSecretary of the Air Force should . . . .”

In addition, recognizing actions that have beencompleted or are underway to correct an identifiedproblem adds balance to a report and makes it moreconvincing.

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Recommendations

• Significant: A decision on a recommendation isinfluenced by the significance of the deficiency that itwould correct. The finding and the recommendationmust clearly demonstrate that acting on therecommendation will improve operations, safeguardassets, or bring the situation in compliance with lawsand regulations.

• Positive in tone and content: Positive, constructivestatements are more likely to get action than negativeones.

EffectiveRecommendations

To be effective, recommendations must identify acourse of action that will correct an identifiedproblem or cause significant improvements. Theattributes of effective recommendations are discussedbelow:

Deal WithUnderlying Causes

Recommendations should recognize and countersystemic problems. For example, audit work maydisclose that an agency’s policy is being circumventedwith demonstrated adverse effects. But if the policyincludes requirements that cannot be reasonably met,a recommendation to comply with it will not beeffective. A better recommendation would be tosimplify the policy so that its requirements would beless cumbersome and costly to administer while stillaccomplishing its objectives.

Be Feasible Recommendations must take into account legal andpractical constraints that would make theirimplementation impossible or unlikely. For example,if contract overpricing is found, a recommendationasserting a legal basis for recovering the overpaymentcan be made only after it has been determined thatthere is a contractual or other legal basis for recovery.Legal counsel may be required for that determination.

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Recommendations

Or if significant error or fraud in an expenditureprogram is established, a recommendation to usecomputer-matching approaches, information fromprotected sources, or the like must fully considerprivacy rights and requirements of legislation, such asthe Computer Matching and Privacy Protection Act of1988.

Recommendations must also consider the realisticlimitations that agencies face, such as financialconstraints. In addition, auditees may be constrainedby a range of other factors, including managerial time,attention, and talent. An effective recommendationmust recognize and deal with all such constraints toacting on a recommendation.

Be Cost-Effective Recommendations should be made only after thecosts of acting on them have been considered.Offsetting costs should be considered. Favorableconsideration of a recommendation is more likely ifthe report makes it apparent that therecommendation was made with knowledge ofoffsetting costs.

Recommendations to comply with laws andregulations should seek the least costly basis foreffective compliance. However, recommendationsdealing with compliance with laws and regulationsshould be made even though their implementationmay cost more.

ConsiderAlternatives

At times, more than one course of action wouldcorrect an identified deficiency. When one is clearlybetter than the others, it should be recommended.When there is no clear basis for selecting one courseof action over the others, all should be included alongwith the pros and cons of each. This approach may be

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Recommendations

particularly appropriate to work involving policyanalysis.

Recommendations that would require an increase in aprogram’s funding should be made only afterconsidering other alternatives and determining thatsuch a recommendation is clearly appropriate andfeasible. (Under the Budget Enforcement Act,discretionary resources can be increased for oneprogram only by reducing those of another.)

Matters forConsideration byLegislative Bodies

At times, a significant program improvement mayrequire action by the cognizant legislative bodies. Thelikelihood of actionby the Congress or by state orlocal legislative bodies is greatest when reports aresubmitted directly to them and to their committees intime to meet their timetable. Recommendations for aspecific course of action and information analyzingvarious options are most useful when they areavailable for appropriation, authorization, oversight,and other legislative deliberations.

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Commitment to Results

Commitment—MakingImprovementsHappen

A commitment to results is perhaps the mostimportant, but least tangible, requirement forensuring that the benefits of audit work are realized.Getting action on recommendations depends, to agreat extent, on such commitment; that is, on theindividual and organizational mind set, emphasis, andpriority given to recommendation followup.

Individual auditors should realize that their personalcommitment gets action on audit recommendations.Audit organizations need to reinforce the importanceof such commitment and reward accordingly.

Policy statements, supervisory communications, staffconversations, and day-to-day behavior shouldemphasize the benefits from audit work. For bothindividual auditors and audit organizations,accomplishments should be a significant objective.The key question should be were improvementsmade, and did they achieve desired results?

StaffCommitment

Commitment to results means that audit staffconsider action on recommendations as thefundamental objective of their work. Characteristicsof commitment are discussed below.

• Believing in their recommendations: Auditors must beconvinced that their recommendations are of thehighest quality and, if acted on, will bring about thedesired improvements. Without this conviction, auditstaff are unlikely to devote the extra effort sometimesneeded to get recommendations implemented.

• Promoting action: This includes selecting thecommunication product that is most likely to beeffective, determining how findings andrecommendations can best be presented to promoteacceptance, and considering briefings or otherface-to-face approaches where they would be helpful.

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More fundamentally, it involves willingness to useimagination and initiative to get beneficial resultsduring work on all assignment phases. Getting resultsshould be the central focus of an audit job. It shouldbe considered in assignment design, datacollection/analysis, and product preparation, as wellas in recommendation followup.

• Understanding the agency (or congressionalcommittee) environment: Preconceptions andconstraints that would inhibit acceptance of arecommendation should be recognized. When suchdifficulties are understood, getting around them maybe possible without sacrificing the goals being sought.

• Cooperating and helping: Recommendations are morelikely to be accepted when agency managers (orcommittee members and staff, where applicable)believe that auditors are constructively looking forimprovements and have demonstrated a willingnessto cooperate in making them. When arecommendation as originally made is not accepted,rapport and mutual respect may make it possible tofind acceptable alternative solutions.

• Believing in the need for change: Implementingrecommendations can take considerable time, as longas 3 years for some key recommendations. Duringthat time, other work occupies “center stage” foraudit staff. Determination is needed to keep track ofimplementation status, reassert the need for action,and reevaluate ways to get recommendationsimplemented.

OrganizationalCommitment

Audit organizations should provide an environmentthat fosters and reinforces staff commitment toresults. This can be done through systems andbehavior.

Job ManagementSystems

Job management systems should emphasize factorsthat are likely to produce good recommendations and

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should promote action to get recommendationsaccepted and implemented.

For example, the systems should require reasonableassurance, before an audit assignment is authorized,that it will have a significant beneficial impact. In rarecases, an audit organization may be required to dowork from which only a minimal contribution islikely. Even then, the available contribution should beaggressively pursued, but with an application of staffresources commensurate with the potential benefits.

In addition, job management systems should

• ensure continued management attention as the auditprogresses to determine whether planned results arebeing achieved;

• encourage prompt modification or termination ofassignments, possibly through go/no-go decisions atsignificant milestones, and when fulfillment ofplanned objectives is not reasonably attainable; and

• ensure that planning for results and how they will beattained is a part of the job from beginning to end andthat such planning includes approaches to promoteacceptance and implementation of recommendations.

ManagementSystems

Management systems should track accomplishmentsand should relate them to specific recommendations.Doing so helps audit staff identify with resultsachieved. Highlighting tangible benefits—dollarsavings and management improvements—throughoutthe organization helps focus attention on resultsrather than on reports. Relating awards and bonusesto individual and team efforts that producedsignificant benefits can help demonstrate what theorganization values most.

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Resource Allocationand StaffingDecisions

Resource allocation and staffing decisions shouldrecognize and provide the time required forrecommendation followup. Generally, followupshould be a continuing responsibility of the staff thatdid the audit work. In some cases, a followup staffmay be designated.

Regardless of how followup is done, it should be clearthat audit followup is a significant and valuedresponsibility. Staff should not be made to believethat followup time must be borrowed from otherresponsibilities considered more significant.

Training Programs Training programs should have a strong resultsorientation. Training should stress the professionalproficiency required for solid and significantrecommendations. It should also include motivationaland other factors that encourage staff to planrecommendations and actions needed to get themaccepted.

PerformanceReward Systems

Performance reward systems should specificallyrecognize and reward individual contributions thathelp make the results of audit work effective.Personnel appraisals, for example, should highlightproactive, innovative, and creative approaches usedto get action on recommendations.

Appraisal systems and the way they operate inpractice should cause staff to believe that theircontributions to getting action on the results of auditwork are a significant factor in appraisals, awards,promotions, and other salary decisions.

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Monitoring and Followup Systems

EnsuringImprovements:AggressiveMonitoring andFollowup

An important objective of audit work is the actionthat results from it. To determine if that objective wasachieved, audit staff need to answer two questions:

• What improvements were made as a result of auditwork?

• Did those improvements achieve the desired result?

An effective recommendation monitoring andfollowup system should make it possible to get thoseanswers. Appendix I is a checklist of questions to beconsidered in recommendation monitoring andfollowup. Appendixes II through IV include casestudies of monitoring and followup systems beingapplied in audit organizations at the federal and statelevels.

Basic Elements ofMonitoring andFollowupSystems

Monitoring and followup systems can besophisticated or rather simple. Which should be useddepends on a number of factors,including the size andcomplexity of the audit organization. Regardless ofthe type chosen, each system should include thefollowing basic elements:

• A firm basis for monitoring and followup actions.• Active status monitoring.• A determination of the results of actions taken on

recommendations.

These elements are discussed in the followingsections.

Firm Basis forMonitoring andFollowup Actions

To provide a basis for staff to monitor and followupon actions taken on audit recommendations, thefollowup system should be properly designed, asoutlined below.

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• It should be firmly rooted in policy. The auditorganization’s commitment to getting action onrecommendations should be clear. Characteristics oforganizational and staff commitment are discussed inchapter 3.

• It should define individual responsibilities. Generally,staff responsible for the audit work are responsiblefor followup. While individual staff members go on toother assignments, there should be no doubt aboutwho has continuing followup responsibility and whatthat responsibility is.

• It should include basic ground rules for followup,leaving plenty of room for staff initiative. The systemshould describe minimum required actions,documentation requirements, and the like. But itshould recognize that effective followup needs to betailored to particular recommendations and theresults they seek. This tailoring can be promoted by asystem that requires development of a followup planfor each assignment.

• It should ensure that all recommendations arefollowed up. For example, cognizant agenciesperforming audits under the Single Audit Act of 1984are responsible for following up on recommendationsthat affect more than one federal agency (i.e.,cross-cutting issues) as well as those that involvetheir own agency programs.

• It should identify what each recommendation isexpected to accomplish, including an estimate ofpotential monetary benefits. This information helpsjudge the adequacy of implementation actions.

Active StatusMonitoring

Before recommendations are made, discussions withagency managers—particularly during the exitconference—should establish that corrective action isneeded. Also, the audit report should document astrong case for the recommended course of action.Yet, even when these guidelines are followed,

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implementation may drag for a variety of reasons.Therefore, the status of recommendationimplementation must be actively monitored.

Status monitoring and followup involves(1) determining progress being made to implementrecommendations and (2) taking actions that help toget effective implementation when progress is notadequate.

DeterminingProgress

To determine progress, the followup system shouldmonitor the status of action on all recommendationsuntil they have been implemented.

The Inspector General Act of 1978, as amended; 31U.S.C. \ 720; and “OMB Circular A-50” include specificrequirements for agency heads to report to designatedcongressional committees and to OMB on actiontaken or planned for certain audit recommendations.(See app. V for a description of reportingrequirements.) Those reports and agency followupsystems can give useful status information.

The progress that can be expected depends on thetype of recommendation. Some recommendations forcongressional action and those that seek to solvecomplex problems can take years to implement.GAO’s experience is that action on recommendationsusually occurs in the first 3 years after therecommendation is made.

Recommendation monitoring is an ongoingresponsibility and the status of all openrecommendations should be determined on aregularly scheduled basis. For example, GAOdetermines and documents the status of all openrecommendations twice each year. This helps to

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ensure that no recommendation will be permitted toremain dormant.

Take AdditionalSteps to GetRecommendationsImplemented

Another important part of followup is assessingoptions and strategies that can help to get effectiveimplementation when progress is determined to beinadequate.

When status monitoring identifies dormantrecommendations, followup should determine whyaction is not being taken. It may then be possible totake additional steps to counter objections orimplementation difficulties. It may also be possible todevelop agreeable alternatives that will meet theobjectives to which the recommendation wasdirected. Alternatively, it may become apparent thatthe environment has changed such that the problemno longer exists or the recommendation is no longerrelevant or feasible.

Determining theAdequacy ofActions Taken onRecommendations

Were the actions that were agreed to actually taken?Did the actions that were taken have the intendedresults? Answering those questions could include avariety of approaches. Few auditors would accept,without verification, a statement by the auditee thatcertain actions would be taken and that those actionswould correct the problems to which therecommendation was directed.

But how far should audit staff go in verifying thataction was taken and in determining whether itachieved desired results? How long shouldrecommendations be held open pending thosedeterminations? The answer depends on such factorsas the significance of the recommendation and thetime required for its implementation.

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As a minimum, implementation plans and time framesshould be reviewed for consistency withrecommended actions. Documentation to carry outplanned actions should be examined. Auditeeestimates of dollar savings or other benefits should bereviewed, and the reasons for significant differencesfrom audit estimates should be explored.

For more significant recommendations,implementation actions should be tested. For key orcritical recommendations that have not beenimplemented within a reasonable time, another auditor strategy may be warranted. If a followon audit isplanned, it should use additional strategies tomaximize the likelihood of achieving intended results.

ClosingRecommendations

The followup system should give guidance on whenrecommendations should be closed.1 Successfulimplementation should be the primary reason. Whentesting satisfies the auditor that objectives are beingachieved, the recommendation should be promptlyclosed. As discussed above, some recommendationsare so significant that a followon effort may benecessary to give the required degree of assurancethat intended objectives are being achieved. If actionis satisfactory, the recommendation should be closed.

But successful implementation is not the only reasonfor closing recommendations. At times,recommendation monitoring discloses thatcircumstances have changed and therecommendation is no longer valid.Recommendations should be closed when they are no

1In some agencies, under federal inspector general legislation,inspectors general are responsible for monitoring the followupsystem. In others, it is the responsibility of agency management.Inspectors general have a specific responsibility to inform theCongress through the semiannual report of any significantmanagement decision with which they disagree.

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longer valid, when additional information becomesavailable that establishes that the recommendationshould not be pursued, or when it is decided thatfurther action does not have a reasonable likelihoodof success. When nothing more can reasonably bedone to get implementation, including actionsdiscussed in chapter 5 for key recommendations,leaving recommendations on the books does not help.

AccomplishmentReporting

Accomplishment reporting is an important part of aneffective followup system. It makes visible and bringstogether the results of audit work as established byrecommendation monitoring and followup.Accomplishment reporting promotes staffcommitment to results by associatingaccomplishments with the work of individuals. It alsoprovides a useful way to gauge the auditorganization’s success.

The criteria for determining accomplishments shouldrequire that

• the recommended action or an acceptable alternativewas actually taken and

• the recommendation’s implementation caused orsignificantly influenced the benefits achieved.

Accomplishments that should be reported includequantifiable benefits, such as those for which agencyreporting is required under the Inspector General Actof 1978, as amended. (See app. V for moreinformation.)

But not all benefits are quantifiable. Theaccomplishment reporting system should alsohighlight financial benefits that cannot be determinedor reliably estimated and other actions that improvegovernment operations but yield no quantifiable

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benefit. Nonquantifiable benefits can be extremelysignificant—including those that improve the qualityof life as well as those that preserve life itself.

Perhaps the most important aspect ofaccomplishment reporting is that it be credible. Careshould be taken to ensure the system’s integrity.

Recognizing theBasicResponsibility ofAuditees

The basic responsibility for taking action on auditrecommendations rests with the agency to which therecommendations were made.

Auditors should assure themselves that the agencyhas an effective system in place for resolving,following up, and implementing auditrecommendations. Determining how effective agencysystems are and recommending improvements wherenecessary can go a long way to ensuring thatindividual audit recommendations accomplish theirobjectives.

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Special Attention to KeyRecommendations

Giving MaximumAttention to KeyRecommendations

While all audit recommendations should beaggressively pursued, some recommendations are sosignificant that added steps are needed to get themimplemented.

For example, what should be done when, despiteaggressive followup, a key recommendation has beenrejected or ignored, and there is no reason to believethat the passage of time will improve prospects ofgetting beneficial action? And what course should befollowed if the recommendation may eventually beimplemented, but the matter is too significant to letcurrent conditions continue? This chapter suggestsadditional approaches that should be considered insuch cases. (Also, see apps. II-IV for ways in whichspecial attention is given to key recommendations atthe federal and state levels.)

Identifying KeyRecommendations

The significance of a recommendation depends on thesubject matter and the specific situation.

Frequently, significance can be assessed in terms ofdollars. For example, assume that implementation ofan audit recommendation would correct inadequateinternal controls in an area where very significantamounts of money are subject to theft ormanipulation. The inadequate controls are readilyrecognizable as a significant deficiency. Arecommendation to strengthen the internal controlsin an area of such significance and susceptibilitywould be key and worthy of special emphasis.

However, dollars are only one measure ofsignificance, not necessarily the most important one.For example, the need to ensure implementation ofrecommendations to provide safe operation of anuclear plant can hardly be overemphasized.Implementing such a recommendation could prevent

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Special Attention to Key

Recommendations

the loss of life, substantial bodily injury, orenvironmental contamination.

There is a vast difference between recommendationsdealing with conditions that are imminently lifethreatening and those that are just significant enoughto be reportable. Likewise, a wide range of actionscan be taken to get recommendations implemented.But, for those relatively few, criticalrecommendations, a maximum effort should beapplied.

Early andContinuingEmphasis

The significance of a finding and a recommendationshould be known to the auditor and communicated tothe auditee early during an assignment. The fact that arecommendation is considered to be a key one shouldnot come as a surprise to the agency being audited. Itshould have been made apparent during earlydiscussions with agency officials and certainly at theexit conference.

Emphasis on key recommendations should becontinued as the findings and recommendations arereported. Key recommendations should be identifiedand highlighted in reports in a context that makestheir significance apparent. Executive summaries andtransmittal memorandums can be used to furtherestablish and emphasize the significance of keyrecommendations.

If monitoring and followup disclose that action on akey recommendation is not progressing, additionalsteps should be promptly considered. Followupshould be elevated to progressively higher levels ofagency management. Department or agencymanagement at the highest levels should be madeaware of the significance of the recommendation andthe need for prompt action.

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Recommendations

When the head of the audit agency gives personalattention to getting action on a recommendation, ahigh level of significance is clearly demonstrated.When the top person invests time, effort, and personalcommitment, the subject matter is established asspecial. It will be accepted as such, and the chance offavorable action on the recommendation will begreatly increased. But that level of attention can begiven to only the most significant matters.

Examples ofWays to HighlightKeyRecommendations

Examples of legal and regulatory steps that theGeneral Accounting Office, the inspectors general,and the state audit agencies can take to get action onkey recommendations are presented below.

The GeneralAccounting Office

Congressional interest in making sure that GAO’srecommendations are carefully considered byexecutive agencies is emphasized by 31 U.S.C. \ 720.That law requires that an agency head to whom GAOmakes a recommendation submit a statement todesignated congressional committees describingactions taken on the recommendation.

GAO’s location in the legislative branch ofgovernment gives it access to congressionaldecisionmakers. That access provides an additionalmeasure of influence that GAO can use to get thenecessary focus on significant matters. Someexamples follow:

• When GAO reports to the Congress or tocongressional committees having jurisdiction over asubject matter, it helps focus congressional attentionon matters that GAO believes to be significant.

• By invitation of congressional committees, GAOofficials frequently have the opportunity to testify onmatters currently before the Congress. In their

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testimony, the Comptroller General and other topGAO managers highlight key findings andrecommendations at a time when congressionalaction or the use of its influence is most feasible.

• GAO fosters acceptance of key recommendations byproviding material to oversight committees and toappropriations and authorization committees asdecisions are made on agency programs.

For example, many of GAO’s recommendationsinvolve significant financial savings. When GAOprovides appropriations committees with informationon recommendations that have significant budgetaryimpact, the benefits of the recommendations can berealized through the budget process. Implementationof other GAO recommendations would correctproblems that are significantly impeding the successof programs. Providing authorization and oversightcommittees with timely information on thoserecommendations can help to reinforce the need forcorrective action.

• Each year, GAO provides a report to the House andSenate Appropriations Committees, and to otherinterested committees, on the status of all open GAOrecommendations. The report includes summariesidentifying key open recommendations that, in GAO’sjudgment, need priority attention.

Inspectors General The Inspector General Act of 1978, as amended,requires inspectors general to highlight significantfindings and recommendations to the Congress. Thatact includes the following reporting requirements:

• Inspectors general are required to submit semiannualreports to heads of agencies, who transmit the reportsto the Congress. In those reports, the inspectorsgeneral are to include problems, abuses, and

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deficiencies that they believe are significant. Thereports should also include recommendations forcorrective action and significant recommendationsincluded in prior reports for which action has notbeen completed.

• Inspectors general are required to immediately reportparticularly serious or flagrant problems, abuses, ordeficiencies to the head of the agency involved. Theagency head is then required to send the report,together with statistical tables showing actions takenon the inspector general’s recommendations, to theappropriate committees or subcommittees of theCongress within 7 calendar days. Any additionalcomments the agency head considers appropriatemay be included.

The 7-day report can focus congressional attention onkey matters for which action is considered essential.This reporting device should be used judiciously toensure that matters reported will continue to receiveextraordinary attention.

State AuditOrganizations

Audit organizations at the state level have a range ofapproaches for ensuring action on recommendations.

For example, the Nevada legislature oversees actiontaken on recommendations made by the LegislativeAuditor. The Nevada Revised Statutes include specificrequirements for state agencies to plan action onaudit recommendations and to report the status ofimplementation. In extreme cases, the statutesprovide that money may be withheld from an agencyto enforce compliance with implementation planningrequirements.

When the Legislative Auditor is concerned about thestatus of action on recommendations, he/she informsthe Legislative Commission of the state legislature.

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Agency officials are questioned about those concernsat the next commission meeting.

When the legislature is in session, the LegislativeAuditor’s concerns about the implementation ofcritical recommendations are brought to the attentionof the Assembly Ways and Means and Senate FinanceCommittees. State agencies often must explain tothose committees why the recommendations have notbeen implemented.

These statutory requirements provide the NevadaLegislative Auditor with a ready means to highlightrecommendations for legislative action.

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Appendix I

A Checklist for RecommendationMonitoring and Followup

This appendix includes some questions that auditorsshould consider as they monitor and followup auditrecommendations. The questions are grouped into thefollowing stages:

• When monitoring and followup actions are beingplanned.

• As the auditee is considering the recommendationsand planning and implementing those it accepts.

• When recommendations are rejected, inadequatelyimplemented, or inordinately deferred.

Planning forFollowup

The first step is planning how best to get therecommendation accepted and implemented in a waythat accomplishes its objectives. The followingquestions can help guide development of a monitoringand followup plan:

• Has what you expect to happen in implementing therecommendation been spelled out? Do you have afirm basis for judging the adequacy of the agency’simplementation plan?

• Have you identified and evaluated alternatives? Isthere a viable and effective fallback position?

• Do you know the benefits that can be expected fromimplementation? Have you identified and consideredoffsetting costs?

• Have you identified expected benefits by thecategories included in the Inspector General Act of1978, as amended? If that legislation does not apply,are there similar legal or regulatory requirements thatshould be considered?

• When can you expect a substantive decision on therecommendation?

• When can implementation reasonably be expected tobegin?

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A Checklist for Recommendation

Monitoring and Followup

• When can completion of implementation beexpected? Are there implementation milestones thatshould be completed in a particular time frame?

• Is there a time-critical point by which therecommendation should be fully implemented?

• When can you expect benefits to be realized?• What must happen before you can cease followup

action because a recommendation has beeneffectively implemented?

• Have agency reactions during work on theassignment, at the exit conference, or on the draftreport suggested objections or roadblocks toimplementation? Have such objections beeneffectively countered in the report? Are there actionsthat can be taken during followup or monitoring tocounter the obstacles?

• What will you do to test implementation? When willyou do the testing?

• What will you do to monitor action on therecommendation? When and how frequently willparticular monitoring actions be performed?

• Have you developed a followup plan that includesmatters such as the above and that defines followupresponsibilities?

Applying the Plan The following questions should be considered duringmonitoring and followup:

• Have you reviewed agency reports required by law orregulation, such as “OMB Circular A-50?”

• Is the recommendation being aggressively followedup by the agency through its followup system?

• Do you know the current status of acceptance and/orimplementation of the recommendation? Is itadequate?

• Have you reviewed the agency’s writtenimplementation plan? (A written implementation plan

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Appendix I



is required by “OMB Circular A-50.”) Is the planadequate? How will you resolve any inadequacy?

• Do you and the agency agree on the benefits ofimplementing the recommendation? If not, have youagreed to a basis for resolving the difference?

• If the agency has closed the recommendation in itsfollowup system, do you agree that doing so wasappropriate?

• Have you complied with all the followupdocumentation and status reporting requirements inyour organization’s monitoring and followup system?

• Have you taken all the monitoring and followupactions established by your followup plan?

Taking AdditionalSteps WhenNecessary

Answers to the following questions should beconsidered when a recommendation is rejected,inadequately implemented, or inordinately deferred:

• In your opinion, is the recommendation still valid? Ifit is, are agency reasons for not implementing therecommendation reasonable?

• Were the recommendation’s objectives substantiallymet by an alternative approach?

• Is there anything more you should do to get therecommendation implemented? What?

• Should you close the present recommendation andconsider scheduling additional audit work at a laterdate when you can better demonstrate adverse effectsor when timing will make its acceptance more likely?

• Is the recommendation a key one? Is it significantenough to refer to a higher authority for action, e.g.,inclusion in a 7-day letter (federal inspectors general),to solicit outside intervention, or to get theinvolvement of the audit organization’s topmanagement? What additional actions do you believeare appropriate?

• Was there anything about the recommendation thatcould have made it difficult to accept and implement?

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Is there anything that can be learned to make futurerecommendations more readily acceptable?

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Appendix II

Case Study: GAO’S Monitoring andFollowup System

System Highlights • Monitoring and followup are done by staff membersresponsible for, and knowledgeable about, therecommendation. Under the direction of an AssistantComptroller General, staff members oversee theeffectiveness of the followup system. (See p. 34.)

• Each recommendation is followed up on an ongoingbasis—with at least semiannual updates. Anindividual recommendation followup plan isdeveloped for each assignment. (See p. 34.)

• Results intended by each recommendation and thebenefits expected from its implementation aredefined as a basis for determining the adequacy ofimplementation. (See p. 35.)

• GAO staff monitor action on recommendations usingagency reports to the Congress and information fromthe GAO followup system. GAO staff do work on theirown to ensure that action was, in fact, taken. Theextent of the verification depends on therecommendation’s significance. (See p. 36.)

• Recommendations are closed only for specificallydefined reasons. Implementation satisfactory to GAOis the predominant reason. (See p. 36.)

• Accomplishments from recommendations are trackedand identified by assignment and by individual staffmembers. (See p. 37.)

• GAO’s ready access to the Congress and itscommittees is used to achieve an additional measureof influence when implementation of significantrecommendations is inadequate or inordinatelydelayed. (See p. 37.)

• GAO Form 66, which documents followup actions, isincluded beginning on page 39 and illustrativematerial from the Comptroller General’s report to theCongress on the status of open recommendations isincluded beginning on page 43.

Overview GAO is a nonpartisan legislative branch agency whichassists the Congress, its committees, and Members in

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Case Study: GAO’S Monitoring and

Followup System

their legislative and oversight work. GAO makesaudits and evaluations of federal agencies,contractors, and grantees at the request ofcommittees and Members. It also carries out auditingactivities assigned by the Congress under variousstatutes. Through this work, GAO makesrecommendations for more efficient and effectivegovernment operations.

GAO recommendations deal with complex problems,and legislation is frequently required to implementthem. At any one time, GAO monitors and follows upactions to implement over 2,000 recommendations.

Responsibilities Recommendation followup is an ongoing systematicprocess. GAO staff actively (1) monitorrecommendations to ensure that they are promptlyimplemented and (2) assess the effectiveness of thecorrective actions taken by the Congress or agenciesin response to GAO recommendations.

Monitoring and followup are done by staff membersresponsible for the audit work. Each recommendationmust be followed up at least semiannually. Morefrequent actions may be taken depending on suchfactors as the recommendation’s significance and theapparent reluctance to accept and implement it.Additional actions to foster implementation of arecommendation are documented in arecommendation followup plan. This plan is stronglyrecommended for all GAO assignments.

GAO’s Office of Policy is responsible for monitoringthe process, providing overall guidance and direction,and preparing related management and status reports.

ImplementationMonitoring

Although recommendation followup is an ongoingresponsibility, all open recommendations are

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Followup System

reviewed and information concerning them is updatedsemiannually. This update is based on aninformation/update report (GAO Form 66) preparedby a centralized computer facility. Information on allGAO communication products and recommendationsis entered in the computerized data base as they areissued. An illustrative GAO Form 66 is included onpage 41.

In the spring and fall of each year, a GAO Form 66 foreach product having open recommendations isprepared from the computerized data base and isprovided to the staff member responsible forfollowing it up. That form includes pertinent dataabout the product and about each recommendation,as follows:

• What the recommendation says.• To whom it was directed.• The results intended by the recommendation.• The expected benefits of implementation.• The most recent status of acceptance and

implementation.

Status information includes:

• The reasons for inaction if action has not beeninitiated.

• What is being done and estimated completion dates ifaction is in process.

• The action taken and the results achieved, comparedwith those that were intended, if action is completed.

• A description of the shortfall and future actionplanned if an alternative action was taken but was notfully responsive.

• The reasons why the recommendation is no longervalid if that is the case.

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Sources ofUpdateInformation

Monitoring and followup information may come froma variety of sources. 31 U.S.C. \ 720 and “OMBCircular A-50” require agencies to report to certaincongressional committees and to OMB the actionstaken or planned on GAO recommendations. (App. Vdescribes those reporting requirements.) Each agencyhas its own followup system. Many agency systemsare centralized and automated.

In agency reports to the Congress and OMB and fromagency followup systems. But before informationfrom any of these sources is accepted, GAO staff dosome work of their own. They need to ensure thataction was, in fact, taken and that implementationproduced the desired result. The extent of work thatGAO staff must do depends on the recommendation’ssignificance. At a minimum, staff discuss the status ofthe recommendation with agency program officialsand/or obtain copies of documents to show theactions taken and the results achieved. For the mostsignificant recommendations, staff determineadditional strategies to promote effectiveimplementation.

ClosingRecommendations

Trend analysis indicates that action on GAO’srecommendations usually occurs in the first 3 years.After that time, few recommendations areimplemented. If a recommendation remains openafter 3 years, a special analysis is conducted todetermine whether implementation can be expected.The analysis includes alternative strategies to getaction on the recommendation, including workingwith congressional committees. The use ofGAO-provided questions and summary data at keyoversight, authorization, and appropriations hearingsfrequently motivates agency action onrecommendations that were previously consideredunacceptable.

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GAO recommendations are closed only for one of thefollowing reasons:

• The recommendation was effectively implemented.• An alternative action was taken that achieved the

intended results.• Circumstances have so changed that the

recommendation is no longer valid.• The recommendation was not implemented despite

the use of all feasible strategies. When arecommendation is closed for this reason, a judgmentis made on whether the objectives are significantenough to be pursued at a later date in anotherassignment.

Reporting

AccomplishmentReporting

When a recommendation achieves its intendedresults, an accomplishment report is generallyprepared. That report provides an opportunity forGAO and for responsible staff members to berecognized for their part in an action and the benefitsresulting from it. The accomplishment reportdocuments both quantifiable and nonquantifiablebenefits that result from or were significantlyinfluenced by a GAO recommendation.

Reports to theCongress on OpenGAORecommendations

Each year, GAO provides a report to the House andSenate Appropriations Committees on the status ofopen recommendations. The report is intended foruse by congressional oversight and authorizationcommittees, as well as the AppropriationsCommittees, in preparing for hearings and budgetdeliberations. The report

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• includes background and findings information oneach GAO product;

• describes the most recent actions on openrecommendations, including congressional actions;and

• identifies the impact of GAO’s work in an area andkey open recommendations that, based on GAO’swork and judgment, need priority attention fromcongressional Members and staff as well as agencyofficials.1

The preface to GAO’s January 1991 report on theStatus of Open Recommendations is included onpages 43 and 44. Also, the report’s keyrecommendations concerning financial institutionsand markets are included on pages 45 to 48.

1This information is sent separately to other interestedcongressional committees.

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Preface to GAO’SJanuary 1991Report to theChair, House andSenateCommittees onAppropriations,on the Status ofOpenRecommendations

This report provides information on the status of GAOrecommendations which have not been fullyimplemented. The report is intended to helpcongressional and agency leaders determine theactions necessary to implement the openrecommendations so that desired improvements togovernment operations can be achieved.

This year, significant changes have been made toimprove the report’s usefulness. The more importantchanges include the following.

• The report is being issued earlier than in past years sothat sufficient time will be available for congressionalleaders to use the report in preparing for upcomingappropriations and oversight activities.

• In the report, GAO products with openrecommendations are arranged by issue area withinbudget function category, as indicated in the table ofcontents. The addition of issue areas to this year’sreport is intended to make it easier for oversightcommittees, federal departments and agencies, andother interested parties to locate summaryinformation and key open recommendation highlightswithin their areas of jurisdiction. For example, toobtain information on defense issues, users of thereport would locate pertinent information by findingthe budget category entitled “National Defense.”Within that category, seven relevant GAO issue areaswould be included that would highlight summaryinformation and report descriptions for variousdefense matters.

• The report contains two indexes. The “Committees ofJurisdiction” index can be used to identify GAOfindings and recommendations made to agencies forwhich committees have appropriation and oversightresponsibility. The “Recommendation Addressee”index can be used to identify the same information byagencies to whom recommendations are addressed.

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• Each GAO product also includes the name andtelephone number of a GAO manager who can becontacted for further information or assistance.

• The back cover of the report includes a “thumbindex” that identifies page numbers where budgetfunction categories and the two indexes are locatedso that users of the report can easily find neededinformation.

We believe the changes to this year’s report willenhance its usefulness as a reference document. Anyinformation or questions not specifically related to aprior product or recommendation should be referredto GAO’s Office of Congressional Relations,(202) 275-5739. Comments, questions, or suggestionsfor improving the report can be directed to AnneHilleary, Office of Policy, (202) 275-1970.

Charles A. BowsherComptroller Generalof the United States

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Illustrative KeyRecommendationsin GAO’S January1991 Report onthe Status ofOpenRecommendations

Issue AreaSummary: FinancialInstitutions andMarkets

Impact of GAO’s Work Through our financial institutions and markets work,we identify defects in laws, regulations, and practicesof banks, thrifts, securities firms, insurancecompanies, and other financial market participants.Such defects, when left uncorrected, could lead todisruptions in the nation’s financial services or loss ofconfidence by users. Our work to identify and correctsuch defects has included work to report on thefinancial condition of various segments of theindustry, such as banks, thrifts, insurance companies,credit unions, and government-sponsored enterprises;examine vulnerabilities of the financial servicessystems, such as risks involved in automated systems;report on the effectiveness of regulatory programs;analyze the implications of federal policies thatprescribe the legal authorities for various segments ofthe financial services industry; and understand theimplications of the increasing internationalization ofthe industry.

Some of our recommendations are beingimplemented to resolve the thrift crisis. In particular,

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a new regulatory structure has been established,regulators’ authorities have been strengthened, andthe capital and accounting rules have beentoughened. In the area of securities and futuresmarkets, regulators are implementing ourrecommendations to promote market competitionand to ensure smooth processing of trading in timesof high volume.

Our work on consumer protection has resulted inactions being taken by regulators to improvedetection of trade practice abuses of the type found inChicago futures exchanges.

We also identified difficulties certain recipients had incashing government checks and recommendedalternative delivery systems, such as plastic cards andelectronic funds transfer. More and more programsare experimenting with delivering their benefits usingsuch technology.

In our work on modernizing the financial servicesindustry, we have reported on issues relating to safetyand consumer protection and on reform for thenation’s deposit insurance system.

The financial markets continue to increase theirdependence on automation. Our work andrecommendations on automation have resulted in(1) actions taken by the Securities and ExchangeCommission (SEC) and the Commodity FuturesTrading Commission (CFTC) to increase theirtechnical capabilities to oversee exchanges’ systems;(2) improvements in major stock market systems;(3) decisions by futures exchanges to use automatedsystems to better detect trade practice abuses; and(4) commitments by operators of major electronicfunds transfer systems to reduce their systems’security and capacity weaknesses.

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Followup System

Key OpenRecommendations

Among the most important recommendations thathave not been implemented are those explained in thefollowing paragraphs.

In one of our reports concerning the repeal of theGlass-Steagall Act, we recommended that theCongress gradually allow some transactions betweenaffiliated banking and securities firms as long as theywere conducted on an arms-length basis. We alsorecommended that the Congress increase theregulatory oversight of companies engaged in bothbanking and securities activities because, when theseactivities are combined in a single firm, issues ofsafety, soundness, and consumer protectionarise—issues that do not arise in single-functionfirms. These recommendations have not been actedon by the Congress. (GAO/GGD-88-37, see p. 235.)

In another report on securities trading, werecommended that SEC reconsider the currentrestriction on after-hours trading. While SEC hasagreed that after-hours trading rules may needmodification, it disagreed that other restrictions needreview. We remain concerned that anticompetitiveresults may develop when trading practices becomeoutdated and continue to believe that SEC shouldperiodically review the appropriateness of suchrestrictions. (GAO/GGD-90-52, see p. 244.)

Our report on oversight of investment advisersshowed the Congress that regulation of investmentadvisers was very weak. We recommended that theCongress clarify its regulatory intent for theinvestment advisers program by either strengtheningthe program to meet some minimal standard orrepealing requirements for federal regulation ofinvestment advisers. No action has yet been taken.(GAO/GGD-90-83, see p. 248.)

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Our report on oversight of futures markets tradingpractices recommended that CFTC direct theexchanges to independently, precisely, andcompletely time each trade. Improved trade timingrequirements are written into the CFTCreauthorization bill pending before the Congress.(GAO/GGD-89-120, see. p. 241.)

In our report on transaction information and investorprotection needs regarding U.S. governmentsecurities, we recommended that the Congress(1) extend the Department of the Treasury’srulemaking authority over the government securitiesmarket, subject to a sunset provision; (2) authorizeTreasury to adopt rules as needed over the salespractices of government securities brokers anddealers; and (3) require all government securitiesscreen brokers to make transaction informationavailable to market participants on a real-time basis.We also recommended that the Congress extendSecurities Investor Protection Corporation insurancecoverage to customer accounts in specializedgovernment securities dealers. (GAO/GGD-90-114, seep. 251.)

Our report on computer security for financial marketsrecommended that the Chair of SEC obtain thetechnical expertise needed to adequately overseeexchanges’ systems. (GAO/IMTEC-90-15, see p. 243.)We made a similar recommendation to the Chair ofCFTC in our report that discussed how theautomation of futures markets could enhancedetection of trade abuses, but also highlighted hownew risks associated with automation need to beconsidered. (GAO/IMTEC-89-68, see p. 240.) Bothcommissions have committed to implement ourrecommendations, but have not yet done so.

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One of our reports dealt with the need for strongerinformation technology leadership in the ResolutionTrust Corporation (RTC). This report recommendedthat RTC’s Oversight Board oversee RTC’s plans tostrengthen its information management leadership,develop an information resources management plan,and develop a systems architecture defining theappropriate information technology to meet RTC’sinformation needs. RTC has begun to implement ourrecommendations. (GAO/IMTEC-90-76, see. p. 250.)

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Appendix III

Case Study: the HUD Inspector GeneralMonitoring and Followup System

System Highlights • Recommendations are tracked by an automatedsystem monitored by the Office of the InspectorGeneral. The system accumulates information on thestatus of recommendations from the time they aremade until they are closed. (See p. 52.)

• Management decisions on recommendations arerequired within 6 months from report issuance. Statusreports are made at intervals to ensure that thisrequirement is met. (See p. 52.)

• The Office of the Inspector General reviews the basisfor management decisions on recommendations andevaluates corrective action plans. (See pp. 52-53.)

• The Office of the Inspector General reviews thesupport for actions taken on recommendations. Whenthe adequacy of corrective action on significantrecommendations cannot be established by reviewingthe documentation, a site review is performed. (See p.53.)

• When the Inspector General disagrees with action ona recommendation, he/she attempts to resolve thematter with top-level headquarters officials. If thematter is not satisfactorily resolved, the InspectorGeneral submits the disagreement to the DeputySecretary. (See p. 55.)

• The Inspector General submits semiannual reports tothe HUD Secretary, who describes the status of actionon recommendations and transmits the reports to theCongress. Semiannual reports include information onany significant management decision with which theInspector General disagrees. (See p. 55.)

Overview The Department of Housing and Urban Development(HUD) is the principal federal agency responsible forprograms concerned with the nation’s housing needs,fair housing opportunities, and improvement anddevelopment of the nation’s communities.

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Appendix III

Case Study: the HUD Inspector General

Monitoring and Followup System

In early 1989, reports of mismanagement, fraud, andinfluence peddling at HUD were daily mediadisclosures. For a number of years, the HUDInspector General had made recommendations tocorrect internal control weaknesses in the programswracked by scandal. But little or no corrective actionhad been taken.

In June 1989, the newly appointed Deputy Secretaryexpressed concern about the lack of followup onaudit recommendations. He stated that the failure toaddress audit recommendations led to the kinds ofscandal that HUD had recently witnessed.

Under the leadership of the Secretary, top HUDmanagement then took several steps to promoteeffective action on audit recommendations. This casestudy outlines the current monitoring and followupprocedures described by HUD officials.

HUD’s Office ofInspector General

HUD’s Inspector General conducts independentaudits and investigations of departmental activities.The Inspector General, appointed by the President,reports to the Congress and to the Secretary of HUDin accordance with the Inspector General Act, asamended. That act also specifies the Secretary’sresponsibilities for reporting to the Congress onactions taken on Inspector Generalrecommendations.

Key ReportingResponsibility

The Inspector General is responsible for keeping theSecretary and the Congress fully and currentlyinformed about problems and deficiencies relating toHUD’s programs and operations and the necessity forand progress of corrective action.

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Semiannual Reports In April and October, the Inspector Generalsummarizes the activities of his/her Office to theSecretary of HUD. The Secretary transmits to theCongress the Inspector General’s report, along withthe status of action on recommendations. Thesereports keep the Congress informed of significantInspector General recommendations, actions takenon them, and any significant actions or decisions withwhich the Inspector General disagrees. Informationincluded in these reports is described in appendix V.

ImmediateReporting of Seriousor Flagrant Matters

The Inspector General reports to the HUD Secretaryimmediately when he/she becomes aware ofparticularly serious or flagrant problems, abuses, ordeficiencies. Within 7 days, the HUD Secretarytransmits to the appropriate congressionalcommittees and subcommittees the InspectorGeneral’s report, along with his/her response.

Key Monitoringand FollowupResponsibilities

The Deputy Secretary has principal responsibility fortimely decisions and actions on auditrecommendations. The Deputy Secretary makes thefinal decisions on disagreements between HUDmanagement officials and the Inspector General.

Action officials are responsible for decisions andsubstantive action on recommendations in theirprogram areas.

Audit liaison officers (ALO) at field, regional, andheadquarters offices ensure that their offices’ actionsmeet required time frames. A departmental ALO, inthe Office of the Chief Financial Officer, promotesdepartmentwide compliance with the monitoringsystem.

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The Inspector General monitors the recommendationmonitoring process, evaluates the reasonableness ofdecisions on recommendations and the adequacy ofcorrective actions, refers disagreements to the DeputySecretary, and complies with reporting requirementsof the Inspector General Act of 1978, as amended.

RecommendationTracking

The Audits Management System is HUD’s overallsystem for monitoring action on auditrecommendations.

An Automated Audits Management System (AAMS)accumulates information on the status ofrecommendations from the time they are made untilthey are closed. HUD management officials and theOffice of the Inspector General have definedresponsibilities for entering recommendation statusdata in AAMS. These data are then used in theInspector General’s semiannual reports to theCongress and in the Secretary’s related managementreports.

The major recommendation tracking milestones are(1) the management decision and (2) the completionof final action.

ManagementDecision

A management decision is the point at whichmanagement determines what, if any, action to takeon a recommendation. Consistent with the InspectorGeneral Act, as amended, a management decision isrequired on all audit recommendations within 6months after the report is issued. To ensure that thisdeadline is met, management reports the status ofdecisions on recommendations at the 60- and 110-daypoints. The Office of the Inspector General monitorsthis reporting requirement.

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Management decisions are made by the action officialin writing and are supported by documentation. Adecision disagreeing with a recommendation includesthe reasons for the disagreement. A decisionaccepting a recommendation includes a written,time-phased corrective action plan.

Management decisions are discussed with and givento the Office of the Inspector General. That Officereviews the support for the decision, evaluates thecorrective action plan for accepted recommendations,and notifies the action official in writing ofconcurrence or nonconcurrence. The basis fornonconcurrence is described.

A management decision is made only after the Officeof the Inspector General has concurred in it or theDeputy Secretary has made a decision ondisagreements between the Office of the InspectorGeneral and the action official.

Completion of FinalAction

When management decides to accept arecommendation, the action official monitors thesteps to implement it. When the official determinesthat the implementing actions were satisfactory andwere documented in accordance with the correctiveaction plan, the Office of the Inspector General isnotified.

The Office of the Inspector General then reviews thedocumentation and, if it agrees with what has beendone, closes the recommendation. But if the Office ofthe Inspector General disagrees with the adequacy ofimplementing actions, the action official is notifiedand required to take additional actions. If the actionofficial disagrees, the matter may be referred to theDeputy Secretary. When a desk review cannot readilydetermine whether a significant recommendation was

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implemented, a site review (corrective actionverification) is made.

Corrective ActionVerification

The Office of the Inspector General makes acorrective action verification (CAV) of the moresignificant recommendations for which documentaryevidence of implementation is not available for a deskreview. For example, a desk review can establish thatdisallowed costs have been collected. But a sitereview, using the CAV process, would likely berequired for a recommendation that called fordeveloping and implementing new procedures.

In selecting recommendations for a CAV, theInspector General uses several criteria. For example,a CAV would be warranted if not implementing therecommended actions causes the continuation of anyof the following conditions:

• Large dollar losses to the program and/or thegovernment.

• Nonrealization of potential substantial income.• Widespread prevalence of unsatisfactory conditions

at HUD or the auditee that could adversely affect theaccomplishment of program objectives.

• Health or safety violations that endanger theoccupants of structures subsidized by or financedthrough a HUD program.

• Problems that could become the subject of adversenational or statewide press attention.

• Internal control problems that could permit fraud,theft, or embezzlement to remain undetected.

In addition, a CAV could be warranted by:

• Previous White House, congressional, or secretarialinterest in the matter, which initiated the audit.

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• Recommendations to correct program violations,legal violations, etc., that were reported to theCongress.

• Conditions and related finding(s)/recommendation(s)that were included in the Office of the InspectorGeneral’s semiannual report to the Congress.

• Special cases as determined by the Inspector General,the Assistant Inspector General for Audits, or theRegional Inspector General for Audits.

A recommendation may be reopened, followingcompletion of the CAV process, if the Office of theInspector General determines that actions taken wereinadequate. The matter may be referred to the DeputySecretary for decision if there is disagreement withthe action official.

Referral ofDisagreements tothe DeputySecretary

If the Office of the Inspector General disagrees withan action official’s decision to reject arecommendation or with the adequacy of correctiveaction taken on accepted recommendations, it mayrefer the matter to the Deputy Secretary. As soon asthe Office decides to refer the disagreement, it sendsan alert memorandum to the responsible assistantsecretary. The Office of the Inspector General thenworks with headquarters staff to settle the matterwithout referral. If agreement cannot be reached in 30days, a referral package is sent to the DeputySecretary. The referral package includes a summaryof the disagreement and supporting documents.

The Deputy Secretary reviews the positions of theInspector General and of the action official. TheDeputy Secretary’s decision is final.

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Appendix III



DisagreementsReported to theCongress

The Inspector General is required by the InspectorGeneral Act, as amended, to include in thesemiannual reports to the Congress information onany significant management decision with whichhe/she disagrees.

The 7-day report, in which the Inspector General mayreport serious or flagrant matters through theSecretary to the Congress, provides a basis forescalating disagreements on matters of gravesignificance.

These reports can provide an extra measure ofinfluence in those cases where the Inspector Generalbelieves that key recommendations have not beenappropriately carried out.

ContinuingManagementResponsibility

The CAV process does not replace management’sresponsibility to ensure that final management actionis completed.

After final action has been completed on arecommendation and it has been closed, managementreviews the adequacy of actions taken. These reviewsdocument the scope, material reviewed, andconclusions reached. If a review indicates that actionswere not adequate, management notifies the Office ofthe Inspector General. The recommendation is thenreopened, and additional corrective actions aretracked in the AAMS.

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Appendix IV

Case Study: the Legislative Auditor,State of Nevada, Monitoring andFollowup System

System Highlights • Recommendations are specific and action-oriented,and each recommendation’s implementation status isstated in the audit report (see p. 62) and is updated inthe next audit report on the agency.

• Compliance with the requirement to submit acorrective action plan for each recommendationwithin 60 days is enforced. Legislation even permitswithholding money if such a plan is not provided oraddressed. (See p. 59.)

• An executive branch agency, other than the auditee,oversees and reports on the status ofrecommendation implementation. (See p. 59.)

• A legislative committee reviews actions taken onrecommendations, with input from the LegislativeAuditor as well as the auditee. (See p. 60.)

• The Legislative Auditor has ready access to thelegislature’s money committees to bring to theirattention significant recommendations that may notbe fully implemented. (See p. 60.)

Overview The Nevada Legislative Auditor is a part of thelegislative branch of the state government. He/she ishead of the Audit Division and reports to theLegislative Commission through the AuditSubcommittee.

The Legislative Commission consists of six senatorsand six assemblypersons designated by resolution ateach regular session of the legislature. Membership inthe Audit Subcommittee is appointed by the Chair ofthe Legislative Commission.

The Legislative Auditor is responsible for

• making postaudits of state agencies to furnish thelegislature with information necessary to thedischarge of its constitutional duties and

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Appendix IV

Case Study: the Legislative Auditor,

State of Nevada, Monitoring and

Followup System

• recommending to the legislature the enactment oramendment of statutes based on the results ofpostaudit.

Postaudits are required by legislation to be inaccordance with generally accepted standards forgovernmental and other audits.

Reporting theResults of AuditWork

When audit work is completed, the LegislativeAuditor’s draft report is sent to the head of theauditee agency and an exit conference is scheduled. Ifthat conference establishes, by persuasive evidence,that changes should be made to the draft report, thechanges are provided to the agency as they will beincluded in the final report.

The agency then has 10 days to respond to the auditreport in writing. In its response, the agency alsoindicates the status of its decision on eachrecommendation. The agency’s response is includedin the Legislative Auditor’s final report. (An exampleof recommendation status is included on p. 62.)

If the agency response disagrees with any of thereport’s findings or recommendations, the LegislativeAuditor’s comments on the agency reply are alsoincluded in the final report. (See p. 64.)

When the audit report is completed, it is submitted tothe Legislative Commission through its AuditSubcommittee. The subcommittee

• reviews the report,• may conduct hearings to examine any justification for

failing to carry out the Legislative Auditor’srecommendations, and

• reports its findings to the Legislative Commission.

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Followup System

ImplementingAuditRecommendations

When the Legislative Commission has accepted thereport, the Chair notifies the auditee agency of itsreporting responsibilities under the Nevada RevisedStatutes. Those responsibilities include submitting,within 60 days, a corrective action plan. The plan issubmitted to the Director of the Department ofAdministration6 , with a copy to the LegislativeAuditor.

If the agency fails to submit a corrective action planwithin the 60-day time limit, the Legislative Auditornotifies the Legislative Commission. In addition, theDirector of the Department of Administration mayorder the withholding of money appropriated to theagency for the failure to submit a corrective actionplan or to carry out such a plan. (Such withholding ofmoney has not yet been necessary.)

The agency’s corrective action plan outlines specificsteps that have been or will be taken to implement theaudit recommendations. (An illustrative plan isincluded on p. 66.)

The Legislative Auditor analyzes the plan todetermine if its implementation will meet the intent ofthe recommendations. If not, the Legislative Auditorworks with the agency to develop a course of actionthat will achieve desired results.

ReviewingImplementingActions

The Nevada Revised Statutes require the Director ofthe Department of Administration to submit a reportto the Legislative Auditor that specifies the extent towhich recommendations have been carried out andthe reasons for any failure to do so. The report is duewithin 6 months after submission of the 60-daycorrective action plan. (See p. 68.)

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Followup System

Several months after the agency submits its correctiveaction plan, the Department of Administrationdetermines the status of implementation. Thedetermination is based on inquiries, examination ofwritten procedures, and other means.

The Legislative Auditor then reviews the report andprepares a summary for presentation before the nextmeeting of the Audit Subcommittee. When thelegislature is in session, a copy of the 6-month reportis provided to each member of the Senate Financeand the Assembly Ways and Means Committees.

Review by the AuditSubcommittee

Before the Audit Subcommittee meeting, theLegislative Auditor notifies the head of the agencyand the Director of the Department of Administrationthat its report will be reviewed. If further informationon a recommendation’s status is needed, the agencyand the Department of Administration are requestedto attend the meeting. The Legislative Auditorprepares additional information to be used bymembers of the Audit Subcommittee. The informationusually addresses recommendations not fullyimplemented or those needing further clarification. Ifsignificant recommendations have not beenimplemented, the Audit Subcommittee may requestcontinuing updates from the agency.

Review byLegislative MoneyCommittees

During the next regular session of the legislature, theLegislative Auditor meets with subcommittees fromthe Senate Finance and Assembly Ways and MeansCommittees to review audit recommendations. Themeetings are held before the agency’s budgethearings. Their purpose is to bring to the attention ofthe subcommittees any significant recommendationsthat may not be fully implemented. The Legislative

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Appendix IV



Followup System

Auditor provides each subcommittee member with asummary of significant audit findings from the prioraudit and identifies concerns that can be addressed toagency officials during the budget hearings. Theconcerns usually deal with how auditrecommendations have been carried out or when arecommendation will be implemented.

SubsequentFollowup

When an audit report generates significant legislativeinterest, the Audit Subcommittee, the LegislativeCommission, the Senate Finance Committee, or theAssembly Ways and Means Committee may requestthe agency to report back on the progress of auditrecommendations on an ongoing basis.

During the subsequent audit of each agency, theLegislative Auditor verifies the implementation statusof recommendations made in the prior audit. Thestatus of each prior recommendation is included inthe back of each current audit report. This completesthe cycle of audit followup.

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Followup System

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Followup System

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Followup System

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Followup System

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Followup System

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Followup System

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Followup System

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Followup System

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Appendix V

Laws and Regulations RequiringFederal Agencies to Followup andReport the Status of AuditRecommendations

Laws and regulations requiring federal agencies tofollowup and report the status of actions taken inresolving and implementing audit recommendationsare referred to in various chapters of this guide. Thisappendix gives additional information on

• 31 U.S.C. \ 720;• the Inspector General Act of 1978, as amended;• the Federal Managers’ Financial Integrity Act; and• “OMB Circular A-50.”

Not all provisions are included here, and the languageis paraphrased unless it is shown in quotation marks.

31 U.S.C. \ 720 GAO’s general duties and powers are included inchapter 7, subchapter II, of title 31, beginning atsection 711. Section 719 provides for reports to besubmitted by the Comptroller General. Section 720requires the following reporting by agency heads:

(a) This section, which is not quoted, defines“agency.”

“(b) When the Comptroller General makes a reportthat includes a recommendation to the head of anagency, the head of the agency shall submit a writtenstatement on action taken on the recommendation bythe head of the agency. The statement shall besubmitted to—“(1) the Committee on GovernmentalAffairs of the Senate and the Committee onGovernment Operations of the House ofRepresentatives before the 61st day after the date ofthe report; and

“(2) the Committees on Appropriations of bothHouses of Congress in the first request for

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Appendix V

Laws and Regulations Requiring

Federal Agencies to Followup and

Report the Status of Audit

Recommendations

appropriations submitted more than 60 days after thedate of the report.”

(“OMB Circular A-50” requires agencies to submitcopies of this report to GAO and to OMB.)

Inspector GeneralAct of 1978, asAmended

The Inspector General Act of 1978, as amended,established the Offices of the Inspector General. Twoof its stated purposes are to keep the agency headscovered by the act and the Congress fully andcurrently informed about problems and deficiencies,including fraud and abuse, and to report on progressin implementing corrective actions. To achieve thosepurposes, the act included the requirementssummarized below.

Semiannual Reportof the InspectorGeneral

“Section 5(a). Each Inspector General shall, not laterthan April 30 and October 31 of each year, preparesemiannual reports summarizing the activities of theOffice during the immediately preceding six-monthperiods ending March 31 and September 30.”

Inspectors general are required to include thefollowing information in their semiannual reports:

• A summary of significant matters (1) disclosed duringthe reporting period together with recommendedcorrective actions and (2) disclosed in prior reports ifcorrective action has not been completed.

• Referrals to prosecutive authorities and the results ofthe referrals.

• Unreasonable refusal or failure to provideinformation.

• The dollar value of both questioned costs andrecommendations that funds be put to better use foreach applicable audit report issued during the period.

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Recommendations

• A summary of each particularly significant report.• Statistical tables showing the number of reports and

the dollar value of questioned costs for (1) reports forwhich no management decision had been made at thebeginning of the period; (2) reports for whichmanagement decisions were made during the period,including the dollar value of costs that weredisallowed and those that were allowed; and(3) reports for which no management decision hadbeen made by the end of the period.

• Statistical tables, similar to those for questionedcosts, that show the number of reports and the dollarvalue of recommendations to put funds to better use.

• A summary of each report issued before the reportingperiod for which no management decision had beenmade by the end of the period, including anexplanation of why a decision was not made and adesired timetable for getting the managementdecision.

• A description and explanation of the reasons forsignificant management decisions that were revisedduring the period.

• Information concerning any significant managementdecision with which the inspector general disagrees.

InformationRequired From theAgency Head

Section 5(b) builds upon the inspector general reportsby requiring the agency head to report semiannuallyon the status of final actions on inspector generalrecommendations for which management decisionshave been made. Management is to submit to theCongress, along with the inspector general’s report,statistical tables showing these actions concerningdisallowed costs and better use of funds. Managementalso is to include statements on auditrecommendations for which decisions have beenmade, but final actions are still incomplete after 1year.

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Recommendations

Public Availability Section 5(c) provides for copies to be made availableto the public.

ImmediateReporting of Seriousor Flagrant Matters

Section 5(d) states that each:

“Inspector General shall report immediately to thehead of the establishment involved whenever theInspector General becomes aware of particularlyserious or flagrant problems, abuses, or deficienciesrelating to the administration of programs andoperations of such establishment. The head of theestablishment shall transmit any such report to theappropriate committees or subcommittees ofCongress within seven calendar days, together with areport by the head of the establishment containingany comments such head deems appropriate.”

Restrictions onPublic Disclosure

Section 5(e) deals with restrictions on publicdisclosure.

Definitions of TermsUsed in ReportingRequirements

Section 5(f) defines the following terms:

• Questioned cost.• Unsupported cost.• Disallowed cost.• Recommendation that funds be put to better use.• Management decision.• Final action.

FederalManagers’FinancialIntegrity Act

The Federal Managers’ Financial Integrity Actrequires the head of each executive agency toestablish internal accounting and administrativecontrols in accordance with standards prescribed bythe Comptroller General. It states that “Standards theComptroller General prescribes . . . shall include

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Recommendations

standards to ensure the prompt resolution of all auditfindings.”

ComptrollerGeneralStandards

Standards for Internal Controls in the FederalGovernment, published by the Comptroller General in1983, state:

“Managers are to (1) promptly evaluate findings andrecommendations reported by auditors, (2) determineproper actions in response to audit findings andrecommendations, and (3) complete, withinestablished time frames, all actions that correct orotherwise resolve the matters brought tomanagement’s attention.”

The 1988 revision of Yellow Book standardsemphasized agency management’s primaryresponsibility for directing action and followup onaudit recommendations. (See p. 3.)

Office ofManagement andBudget CircularA-50

“OMB Circular A-50,” which sets requirements forexecutive agencies in connection with audit reports,states that:

“Agency heads are responsible for:

“(1) Designating a top management official to overseeaudit followup, including resolution and correctiveaction.

“(2) Assuring that management officials throughoutthe agency understand the value of the audit processand are responsive to audit recommendations.”

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Appendix V




Recommendations

A-50 Requirementsfor Agency FollowupSystems

With respect to agency followup systems, “OMBCircular A-50” states:

“a. Followup Systems. Agencies shall assign highpriority to the resolution of audit recommendationsand to corrective action. Systems for resolution andcorrective action must meet the following standards:

“(1) Provide for appointment of a top level auditfollowup official.

“(2) Require prompt resolution and corrective actionson audit recommendations. Resolution shall be madewithin a maximum of six months after issuance of afinal report or, in the case of audits performed bynon-federal auditors, six months after receipt of thereport by the Federal Government. Corrective actionshould proceed as rapidly as possible.

“(3) Specify criteria for proper resolution andcorrective action on audit recommendations, whetherresolution is in favor of the auditor or an auditee.These criteria should provide for written plans forcorrective action with specified action dates, whereappropriate.

“(4) Maintain accurate records of the status of auditreports or recommendations through the entireprocess of resolution and corrective action. Suchrecords shall include appropriate accounting andcollection controls over amounts determined to bedue the Government.

“(5) Provide a means to assure timely responses toaudit reports and to resolve major disagreementsbetween the audit organization and agencymanagement or contracting officials. The process

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Recommendations

should provide sufficient time to permit resolution totake place within the six month limit.

“(6) Assure that resolution actions are consistent withlaw, regulation, and Administration policy and includewritten justification containing, when applicable, thelegal basis for decisions not agreeing with the auditrecommendation.

“(7) Provide for coordinating resolution andcorrective action on recommendations involvingmore than one program, agency, or level ofGovernment.

“(8) Provide semi-annual reports to the agency headon the status of all unresolved audit reports over sixmonths old, the reasons therefor, and a timetable fortheir resolution; the number of reports orrecommendations resolved during the period; theamount of disallowed costs; and collections, offsets,write-offs, demands for payment, and other monetarybenefits resulting from audits. These reports shouldinclude an update on the status of previously reportedunresolved audits.

“(9) Provide for periodic analysis of auditrecommendations, resolution, and corrective actionto determine trends and system-wide problems and torecommend solutions.

“(10) Assure that performance appraisals ofappropriate officials reflect effectiveness in resolvingand implementing audit recommendations.

“(11) Provide for an evaluation of whether the auditfollowup system results in efficient, prompt, andproper resolution and corrective action on auditrecommendations. The first evaluation will be made

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Appendix V




Recommendations

within one year of the date of this Circular, andevaluations will be made periodically thereafter.”

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Appendix V




Recommendations

SpecialRequirements forGAO Reports

“OMB Circular A-50” requires agencies to provideOMB with a statement on certain GAO reports,including those with a recommendation to an agencyhead. The statement

“should inform the OMB of the agency views on thefindings and recommendations made by the GAO. Itshould also identify any action taken, or planned, inresponse to each significant finding orrecommendation . . . When corrective action isincomplete, still under study, or planned, the agencywill include a statement of when it expects action tobe completed, and will report on corrective actionafter it is completed.”

“OMB Circular A-50” also requires that a statement bemade to certain congressional committees on actiontaken or planned on GAO recommendations to anagency head.

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