responsibilities include auditing the administrative function in addition to the financial functions of the entire House, not just the offices of the House, and also the joint entities. This includes the major additional responsibility of auditing House Information Systems. Our audits will place particular emphasis on ensuring that these entities have sound internal controls to promote efficiency, reduce risks, and to help ensure the reliability of these operations and compliance with laws and regulations. DEVELOPMENT OF AUDIT UNIVERSE Our highest priority this past year was the development of an OIG audit universe through the identification of the entities subject to our audits. For each entity, we developed profiles consisting of background information on the entities, and we interviewed the managers in these activities concerning the actual operational functioning of the units. Once these profiles were completed, we conducted a risk assessment of these areas. Next, we prioritized our audits based on this risk assessment and developed an Annual Audit Plan, a Perpetual Audit Inventory. These were transmitted to the Subcommittee on Administrative Oversight of the Committee on House Administration in July of 1994 and shortly thereafter we initiated our first audits. On October the 6th, 1994, we issued our first formal product, a management advisory memorandum entitled "Office Furnishings: Alternatives for Further Strengthening the Internal Control Environment." Our primary objective in all of our audits is to work with management to improve the economy, efficiency and effectiveness of operations while ensuring a sound system of internal controls. FY 1996 BUDGET REQUEST-INSPECTOR GENERAL The OIG's fiscal year 1996 budget request, as we submitted it to the 103rd Congress, reflected my first budget submission since identifying our audit workload, and therefore contained increased resource requirements for meeting that workload. That request called for total funding of $7,168,000. However, based on the permanent staff increase granted on the opening day, and our experience in competing for contract audit services, I am currently able to reduce that request to $4,954,000. This funding will allow us to maintain the current permanent staff level of 18. And one final point before I conclude, in hearing Robin Carle's request that the Official Reporters of Debates and Committees be reviewed for economy, efficiency, effectiveness, I will accept that challenge and will take that on as well as the planned audits in this coming year. In conclusion, I just wish to thank the subcommittee for this opportunity to present my budget. At this time would be willing to answer any questions you might have. [The information follows:] Statement of John W. Lainhart IV, Inspector General U.S. House of Representatives Before the Subcommittee on Legislative Appropriations Mr. Chairman and Members of the Subcommittee, I am pleased and honored to appear before you today in my capacity as Inspector General for the U.S. House of Representatives. I would like to take this opportunity to thank the Speaker, Majority Leader, and Minority Leader for the confidence they have shown in me by reappointing me to this position. Also, I would like to extend my gratitude to both the Chairman and the Ranking Minority Member of the Committee on House Oversight for their invaluable efforts in helping to energize and empower the Office of Inspector General (OIG). By increasing my office from three permanent positions to the 18 positions currently authorized and by approving our contracting with the internationally recognized independent accounting firm of Price Waterhouse, LLP to perform the first ever comprehensive audit of the House addressing both financial and operational activities of the House the OIG is poised to provide the full-range of auditing services as envisioned by the One Hundred Fourth Congress in the passage of House Rule VI. I very much look forward to the challenges ahead in performing my greatly expanded responsibilities as contained in House Rule VI. As you are aware, with the One Hundred Third Congress, I was only responsible for conducting periodic audits of the financial functions under the Officers of the House; whereas with the One Hundred Forth Congress, I am responsible for "conducting periodic audits of the financial and administrative functions of the House and joint entities." Thus, my additional responsibilities include auditing the administrative functions (in addition to the financial functions) of the House (not just the Officers of the House) and the joint entities; and this includes the major additional responsibility of auditing House Information Systems. Our audits will place particular emphasis on ensuring that these financial and administrative functions contain sound internal controls to promote efficiency, reduce risks of asset loss, and help ensure the reliability of these operations and compliance with laws and regulations. Our highest priority this past year was the development of the OIG Audit Universe, through the identification of all entities subject to our audits. For each entity, we developed profiles, consisting of background information on each of the entities' functions, and conducted interviews of key management officials, concerning their actual operating environment. The resultant information was used to establish permanent workpaper files for each audit entity. Once these profiles were completed, we conducted risk assessments of each function. Next we prioritized audits based on these risk assessments and developed our draft Annual Audit Plan and Perpetual Audit Inventory. This draft audit plan and perpetual inventory were transmitted to the Subcommittee on Administrative Oversight of the Committee on House Administration in late July 1994 and shortly thereafter, initiated the first audits identified in the plan. On October 6, 1994, we issued our first formal product a management advisory memorandum entitled "Office Furnishings: Alternatives for Further Strengthening the Internal Control Environment." Our primary objective in all of our audits is to work with management to improve the economy, efficiency, and effectiveness of operations, while ensuring a system of sound internal controls. we The OIG's Fiscal Year (FY) 1996 budget request, as submitted to the One Hundred Third Congress, reflected my first budget submission since identifying our audit workload, and therefore contained increased resource requirements for meeting that workload. That request called for total funding of $7.168 million. However, based on the permanent staff increase granted on the opening day of the One Hundred Fourth Congress and our experience in competing for contract audit services for performing the comprehensive audit of the House, I am able to reduce this request to $4.954 million. This funding will allow us to maintain the current permanent staffing level of 18. Mr. Chairman, I wish to thank you and the Subcommittee for this opportunity to present my FY 1996 budget. At this time, I would be happy to answer any questions that you or the Members of the Subcommittee may have. SCOPE AND PURPOSE OF NEW AUDIT Mr. PACKARD. Thank you very much, Mr. Lainhart. You are the first Inspector General of the House. You have served for how long? Mr. LAINHART. I was appointed in November of 1993. Mr. PACKARD. So this will be the second term in which we have had the Inspector General's office. We are grateful to have you. You are responsible to account for the citizens' money we spend here in the House. I don't wish to ask you to disclose anything that is not yet ready for public record, but would you explain, give us a brief description of the scope and the purpose of the new audit that you have been requested to make, and how you plan to proceed with it? Mr. LAINHART. Yes, sir. Last Friday we briefed the Chairman and Ranking Minority Member of the House Oversight Committee of our selection of Price Waterhouse as the independent public accounting firm to perform the audit. That was approved, and I had my first meeting with them yesterday. They are starting by holding an opening conference on Friday with the Chief Administrative Officer. This audit will look at both the financial operations and operational operations of the House. We will be preparing a financial statement as of the end of this past calendar year that will go back to October 1st of 1993, look at the financial operations of the House and identify where we stand financially as of the end of this past calendar year. In addition, we will be doing performance audits of certain operational areas such as the finance operations, sales, inventory, the new accounting system that is being proposed by House Information Systems, computer security, performing a major audit of House Information Systems, and a few other activities—a total of 11 different audits related to where we stand right now. In addition, there is one other audit-a survey. We are going to be looking at the Architect of the Capitol's operations, the joint entities, to identify areas that we might look at there in the future. [A question of Chairman Packard and response follows:] Question. Have you made some comparisons between the expected cost and scope of these audits and comparable ones done in the public and private sector? (For the record, include the details of the comparisons.) Response. A comprehensive audit of the House of Representatives, consisting of both a financial statement audit and operational audits of various House functions (including House Information Systems), has never been performed. Therefore, any comparisons between these audits and ones done in the public and private sector is, for all intents and purposes, virtually impossible. This is also due to a lack of prior audit coverage; unavailability of prepared financial statements; incomplete accounting for assets, liabilities, and equity; etc. However, the hourly cost of the current audit effort is $71, which compares favorably to the current billing rates of most public accounting firms including the average cost of the unsuccessful bidders on the current audit ($86 per hour). Finally, although the General Accounting Office similarly could not provide us a comparable hourly rate, they stated that their hourly rate would be competitive with any of the six major public accounting firms of which the selected firm is one. Mr. PACKARD. When do you think you ought to be complete? Mr. PACKARD. By midyear. Mr. LAINHART. Yes, sir. Mr. PACKARD. And will that include recommendations for a restructuring and changes in some of these areas that are going to be audited? Mr. LAINHART. Yes, sir, I am sure it will. Mr. PACKARD. Mr. Fazio, do you have questions? REPROGRAMMING OF FUNDS FOR AUDIT Mr. FAZIO. Mr. Chairman, I just want to say I have been very pleased with the work that Mr. Lainhart has brought to the Oversight Committee, and has brought to us today. I think it is confidence-building, the way he is proceeding based on decisions made in the prior Congress, and we look forward, of course, to some time later this year determining the new direction. I think he has given us some indication of some of the ideas he has. It was a very impressive proposal made by Price Waterhouse; obviously a great deal of interest in doing the work for the institution, and I might say that I have been using most of my time with my colleagues on the democratic side to instill within them the belief that this is going to be a very useful exercise, very positive for the institution, and in no way politicized. And I believe at the moment that my comments are accurate or I wouldn't make them as confidently as I do. I gather a reprogramming will be required in order to make funds available. Mr. PACKARD. With that in mind, if you would yield, I received a copy of it, and you referred to it, I believe, Mr. Fazio, a request from Mr. Faulkner to reprogram funding to the Inspector General to conduct the audit. And I am perfectly willing to approve it if you are. Mr. FAZIO. I certainly would want to offer my support and urge you to do so. [A question from Chairman Packard and response follows:] Question. For the record, please provide a summary of all reprogrammings to date of House accounts, including copies of requests and subcommittee disposition. Response. The summary, as well as requests and subcommittee disposition, follows. |