Is the IG who looks at your agency objective?

Stephen M. Ryan

The convergence of public-policy streams often creates unexpected waves that threaten to swamp some of the government's small boats. Such is the case when audit standards created by the private audit community'a community dominated by big accounting firms'threaten to severely affect the viability of inspectors general who are not appointed by the president.

Because information technology and program managers live day in and day out with IG audit personnel, this convergence dispute is worth watching to see whether the IGs retain their formidable clout or are rolled on policy issues, as many think they were during procurement reform.

The players include the American Institute of Certified Public Accountants and the Office of the Comptroller General. AICPA has promulgated an updated code of conduct for its members. The code includes standards for independence from clients. These standards are likely to be transferred into the General Accounting Office's Yellow Book of audit standards. The Inspector General Act requires IGs to follow these standards.

The 1988 amendments to the act created dozens of new IG offices in 27 non-Cabinet agencies and other federal entities such as the Postal Service. This group of IGs is not appointed by the president but is selected by top agency managers.

By some interpretations, the new AICPA standards, if flowed into the Yellow Book, would mean IGs in the 27 agencies would lack sufficient independence because of how they are appointed. If that were true, every audit report they drafted would be required to contain language indicating it was written by an auditor who lacked the necessary independence from management.

Therefore, programs or procurements covered by their reports could be questionable.

The possibility that such language would have to be included in each audit report has the affected IG offices up in arms.'The IGs believe they are independent and that it is heresy to require them to declare their own lack of independence.

Ultimately, big money might be at stake as well. Pursuant to the Chief Financial Officers Act, agencies must be able to provide audited financial statements. Does the possible inability of the 27 agencies to audit without a disclaimer on independence create a more lucrative market for outsourcing audit services?

The Comptroller General's Office and the Government Auditing Standards Advisory Council now face an unpleasant choice. They can amend the Yellow Book to follow AICPA and thereby dis the IGs. Or they can carve out some government independence but have the Yellow Book depart from commercial standards. Note that there's already some institutional rivalry between GAO and the IGs. Just how this friendly rivalry factors in is difficult to say.

Also lurking nearby is the question of separation of powers because GAO is in the legislative branch. Whether a legislative branch agency should make rules for executive branch agencies might be of significant concern to Justice Department lawyers.

Meanwhile, the big-company audit community is also taking on the private bar in new and interesting ways. Government contract and procurement lawyers welcome teaming up with their accounting counterparts in the private CPA community so that clients receive good combined legal and audit advice.

Five alive

But some of the big five have increasingly demonstrated an interest in providing legal services from inside the accounting firm through in-house lawyers or from associated law firms. One company has even funded a start-up law firm to work solely with the accounting side of the house.

This matter only indirectly affects government IT and programs practices, but you ought to know corporate identity of those auditing your agency and giving it legal advice. In some cases, accounting firms have management and IT consulting arms pursuing government business.

Put your money on the big accounting firms continuing to grow at the current astronomical rate. Lawyers will continue looking over their shoulders, and so should agency managers.

Stephen M. Ryan is a partner in the Washington law firm of Manatt, Phelps and Phillips. He has long experience in federal information technology issues. E-mail him at [email protected].


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