Dynamic Duo

ast fall, when Health Care Financing Administration staffers sat down to write regulations reflecting major legislative changes to the Medicare program, sitting at the table was someone many would consider an unlikely partner: a representative of the Health and Human Services inspector general. HHS Secretary Donna Shalala had insisted Inspector General June Gibbs Brown be kept abreast of the rule-drafting to help agency staff avoid creating costly loopholes in the $200-billion-a-year program.

This consulting role has become a hallmark of Brown's tenure at HHS. Her staff still does the audit and investigation work traditionally associated with IGs, but they also delve into department management systems and policy plans in an effort to prevent-rather than just detect-fraud, waste and abuse. "Secretary Shalala wants us included in all the meetings so that we can offer our experience and advice and help people reach some kind of logical policy decision," Brown says.

That doesn't mean department and IG staff always agree, Shalala notes, but they respect each other's input. On both sides, "it's an absolute commitment to a zero tolerance for fraud," she says.

At the Department of Housing and Urban Development, there's a similar commitment to fighting fraud, but far less cooperation between HUD Secretary Andrew Cuomo and Inspector General Susan Gaffney. Relations between the two have been tense for some time, with a "he says, she says" scenario playing out over the last year largely surrounding Cuomo's HUD 2020 Management Reform Plan.

Finalized last August, the plan seeks to cut HUD's staff from 10,500 to 7,500 by 2002 and significantly reorganize the department. Gaffney shares the plan's efficiency goals but considers the underlying analysis inadequate, as does the General Accounting Office. She also fears that staffing levels are being reduced without necessary organizational changes in place, and she believes the agency may be shifting too many responsibilities to contractors without enough HUD staff to monitor them. Her office was not included in the plan's development process until all substantive decisions had been made, Gaffney says.

HUD officials, meanwhile, insist that they solicited Gaffney's participation from the very beginning and that she dropped out of her own accord. "The IG was invited to every one of those [planning] meetings," a senior agency official says. "Why would an agency want to move ahead on a major reorganization without the IG's blessing? It wouldn't." Cuomo declined to be interviewed for this story.

IG Evolution

When President Carter signed the Inspector General Act in October 1978, no one could have predicted that the IG-agency relationship would develop so differently across agencies. If, as many observers believe, the HHS and HUD situations represent the two extremes of what that relationship has become, other agencies occupy spots across the spectrum. As Paul Light, director of the public policy program at the Pew Charitable Trusts and author of a book on inspectors general, puts it, "If you've seen one IG, you've seen one IG."

There is general consensus within policy circles that the IGs have been worthwhile additions to federal government and represent an investment that at the very least has paid for itself. During fiscal 1996, the 57 inspectors general, who collectively employ about 10,000 people and command a budget of $1.1 billion, recovered more than $1 billion owed to the federal government. Their audits and investigations led to the successful prosecution of more than 12,500 cases. And based on IG recommendations, agencies redirected $15.1 billion in spending to "better use," according to the President's Council on Integrity and Efficiency, an umbrella group for inspectors general residing in the Office of Management and Budget.

Still, there's also consensus that the system may need some tweaking. Congress is using the law's 20th anniversary to reassess the appropriate role of IGs. As was made clear during an April hearing before the House Subcommittee on Government Management, Information and Technology, Congress still wants IGs to ferret out fraud, but in the era of reinvented government, lawmakers also want to see more prevention-focused cooperation like that at HHS.

Oversight Origins

Civilian agency inspectors general trace their roots to a 1950 law that required federal agencies to have internal audit functions to track how money was being spent. In the mid-1970s, GAO reviews found that federal agencies hardly used their internal auditors. "When they did, no action was taken on the auditors' recommendations," according to David Clark, director of audit oversight and liaison in GAO's accounting and information management division.

GAO also found that the audit groups were underfunded, understaffed and lacked the independence critical for credible audits. The result was "widespread and serious internal control weaknesses that resulted in the waste of government money through fraud and mismanagement," Clark told Rep. Steve Horn, R-Calif., chairman of the government management subcommittee, at the April hearing.

There were some attempts to investigate alleged program abuses-agencies such as the Agriculture Department and HUD, for example, created their own IGs-but the investigations suffered from inadequate resources and an almost complete lack of coordination within and across agencies. So in 1976, after two Senate investigations uncovered $1.8 billion in inappropriate Medicaid charges and a 10-year backlog of uninvestigated cases at the Department of Health, Education and Welfare, Congress passed a law creating the first statutory inspector general. HEW's IG was to be appointed by the President, be confirmed by the Senate and operate independently from the department. The next year, legislation establishing the Energy Department also provided for an IG.

Congress used the HEW law as a model for the 1978 Inspector General Act, which expanded the concept to 12 other major agencies. All of them, along with OMB and the Justice Department, opposed the bill, insisting the IGs would infringe too heavily on the executive branch. But the law sailed through the House and Senate, with only six lawmakers opposed.

Over the next decade, a series of other expansions passed. The largest of these, the 1988 amendments, created IGs at five major agencies and 33 smaller ones such as the National Endowment for the Arts and the Peace Corps. At the small agencies, inspectors general are appointed and removed by the agency head, rather than the President, and they generally have significantly smaller staffs. But they share the common IG mandate: Conduct audits and investigations to uncover fraud and mismanagement, and recommend policies to promote economy, efficiency and effectiveness.

By law, inspectors general are to be appointed "without regard to political affiliation, solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, public administration or investigations." Once in office, they occupy a position unique in government. They report both to Congress and the agency chief, and so must forever engage in a delicate balancing act that former State Department Inspector General Sherman Funk once described as "straddling a barbed-wire fence."

The 'Gotcha' Mentality

From the beginning, many IGs have focused more on the detection duty than on prevention. "They are great auditors . . . and great investigators," but relatively few have proactively sought to advise against unwise legislation or regulations, Light says.

President Reagan's war against government waste encouraged what has become known as the "gotcha" mentality. He made it clear that compliance monitoring was his priority, with financial recoveries and convictions serving as critical measures of IG performance. Reagan fortified the IGs-his "mean junkyard dogs"-with increased funding while slashing agency budgets.

He also created the President's Council on Integrity and Efficiency within OMB to serve as a unifying force for inspectors general. Reagan met regularly with his IGs, giving them a level of visibility within the executive branch and Congress that remains unmatched. "Those were the heydays of the IGs," one investigator recalls.

They were anything but heydays for agency staff, however. Many believed Reagan's compliance focus created overzealous inspectors general who to this day exaggerate agency management problems and focus on nitpicky issues such as expense reports not completed exactly according to regulation.

In a recent issue of Foreign Service Journal, published by the American Foreign Service Association, which represents State Department employees in union negotiations, several Foreign Service officers sounded off against the State IG. One administrative officer claims to have been under investigation for seven years for "misappropriating or misusing approximately $35 worth of U.S. government resources." According to the officer, one charge relates to allowing a government driver to diverge two blocks from the most direct route to drop off a foreign national State employee.

Responding to these criticisms in the same magazine, former State Department IG Funk acknowledges some shortcomings of the IG shop, such as the fact that investigations take too long. But he defends most investigations. Noting his familiarity with some cases mentioned in the magazine, he writes that "by flatly denying the existence of any real problem on their part [the authors] are either breathtakingly naive or are simply ignoring plain facts."

Reinventing IGs

The Clinton administration early on urged IGs to adjust their priorities. By concentrating primarily on finding mistakes, IGs have developed adversarial relationships with the agencies they are supposed to help, the administration notes in a September 1993 reinvention report called "Creating a Government That Works Better and Costs Less."

Along with compliance monitoring, IGs should "help improve systems to prevent waste, fraud and abuse and ensure efficient, effective service," says the report, which cites the IG at HHS as having effectively done this.

Shortly after the report's release, the IG council adopted a new vision statement declaring that inspectors general "are agents of positive change striving for continuous improvement in our agencies' management and program operations and in our own offices."

Congress clearly intended IGs to have a preventive function. As the Senate Governmental Affairs Committee Report that accompanied the 1978 law says: "The Inspector and Auditor General should not simply investigate fraud and waste after they have occurred. Rather, his preventive and deterrent function-including the development of front-end controls when designing benefit programs-should be crucial." It doesn't make sense for an IG and agency head to work against each other, notes a Senate staffer, saying, "The IG and the Secretary of a department really have the same mission."

Some within the IG community are concerned that too much cooperation may compromise their objectivity. "Once you become involved in designing a program, it's very hard to come back later and criticize it," says a veteran investigator. Proponents of IG-agency partnerships don't buy that argument. "Nobody is requiring the IG to administer a program, just to tell an agency if they see something going wrong before it happens," Light says. "IGs are in a unique position to speak truth to power."

A Model IG

HHS' Brown is by no means the only prevention-minded inspector general, but she is widely considered a model of what all IGs should be. "That OIG knows how to strike the balance between prevention and compliance, between service to the department Secretary and to the American taxpayer," Light told Horn's subcommittee. "It is one of the most professional units I have ever encountered in government."

Brown certainly hasn't shied away from criticizing wasteful department practices. Recent audit reports, for example, concluded that Medicare overpaid about $20 billion in fiscal 1997 to some health care providers. Another report found Medicare had paid $500 million more than necessary for prescription drugs in fiscal 1996. In their formal responses, HHS staffers generally agree with Brown's findings and commit to working with the inspector general to correct the problems.

Beyond the audits and investigations, though, Brown's staff has advised on such things as regulations for the new Medicare Choice and children's health programs created by last year's Balanced Budget Act. They also conduct research to aid policy-makers. Her office is assessing customer satisfaction with the Medicare program via surveys, as well as doing studies on children's access to cigarette machines. HHS could do the research itself, Brown acknowledges, but because of the IG's independence, "you're assured that it isn't information that's been screened in order to meet an administration objective."

Brown's team tactics reach outside the department to the health care industry. After noting that many hospitals were paying consultants $100,000 or more to create often ineffective self-regulating compliance programs, her office worked with Justice and the industry to develop a generic compliance guide. "They were throwing this money out in a desperate attempt to do the right thing," Brown says. "We tried to publish for the first time what it is we look for when we're making judgments" to exclude providers from Medicare, Medicaid and other programs because of fraudulent behavior or professional misconduct. The HHS inspector general is developing similar compliance guides for other sectors of the health care industry.

Upon request and for a fee to cover attorney and administrative costs, Brown also issues advisory opinions to health care entities that want to merge or create new business alliances but are unsure whether their plans meet federal regulations. In addition, her office releases "fraud alerts" when patterns of illegal behavior emerge within health programs to warn both patients and providers.

Brown's efforts have been well received by the industry. "She's brought order to a system that's been out of control," says Dick Davidson, president of the American Hospital Association. "She's been very evenhanded."

Preventive Partnership

How did Brown and Shalala manage to build such a productive relationship? For one thing, the two Cleveland natives happen to get along personally, which is something not all agency chiefs and IGs can say. But each insists more important factors are at play-their government and management experience, for example.

Brown was a member of the first cadre of inspectors general, joining the Interior Department as IG in 1978. Since then, she's served as IG at NASA, the Defense Department, the Social Security Administration and the Pacific Fleet, and also has worked in the private sector. She is a certified public accountant with a master's degree in business administration and a law degree. Her resume, as one House staffer puts it, makes her the "prototype IG."

Shalala knew Brown's record and actively recruited her, after having stood firm against White House personnel office recommendations for the IG slot. "I was not going to take an inexperienced person," Shalala recalls. "It's too sensitive a position."

What clinched Brown's acceptance of the job was the fact that Shalala understood the IG concept. "She was so enthusiastic about using the office in a very positive way and having an effective IG office that it aroused a great deal of enthusiasm in me," Brown recalls. "She was accustomed to working with the IG and having the IG make a very positive contribution."

Indeed, Shalala had learned the ropes from former HUD IG Chuck Dempsey when she served as assistant secretary for policy development and research during the Carter administration. "I know what the IG's role is," Shalala says. "I know how tricky it is because they have a degree of independence." She also knows the inspector general can help her do a better job running the department. "I promised June she would be part of the senior management team, while I would protect and enhance her independence."

Shalala did more than protect her IG's independence. She also spent three years fighting for extra funding, eventually persuading the administration and Congress in 1996 to create the Health Care Fraud and Abuse Control Program, through which the inspector general gets significantly more resources to fight fraud in cooperation with the Justice Department. Congress authorized the program, which is financed by its own recoveries that are deposited in the Medicare Trust Fund, after noting that in 1995 the HHS IG recovered more than $100 for every dollar spent to combat health care fraud.

For its part of the new program, Brown's office received $70 million in fiscal 1997. That represents a 62 percent increase over funding of IG health care fraud work the previous year. Under a statutory formula, the amount will gradually increase, topping out in fiscal 2003 at $160 million. Last year, the program recovered more than $1 billion-about the same amount IGs as a group recovered in fiscal 1996-and prohibited about 2,700 health care providers from doing business with federal health care programs.

How have HHS staffers responded to the IG-agency alliance? Shalala admits that she's had to "coach" some senior political appointees who were not familiar with the IG concept. But overall, staff members have been receptive, she says. Brown says she hasn't sensed any discontent. "Everybody [in the department] knows the work we produce is treated with respect. If they resent it, I don't know it. They consider us part of the process."

Some observers attribute the amicable relations between Shalala and Brown partly to the fact that most HHS inspector general audits and investigations look outward from the department to the health care industry. "I wonder if the relationship would change if Brown investigated one of Shalala's senior advisers," says a House staffer. Shalala maintains that her IG is equally tough on internal problems. "She has not been reluctant to look inside the agency, nor would I signal her in any way" against doing so, she says.

Relations aside, Brown believes the key to doing her job well is being accurate. Staff must gather all the facts, do scientifically valid analyses and present results in a fair, balanced fashion, she says. "The most important thing of all is to be sure all work is credible. Just a few bad products could certainly put a lot of doubt into a situation."

Tension at HUD

For Gaffney and Cuomo, in contrast, things couldn't have unfolded more differently. Strained relations between the inspector general and agency leaders are nothing new for HUD, whose programs over the years have been easy prey for corrupt agency officials and contractors. But many observers agree that the situation today is tenser than it's ever been, creating what Light calls "the worst relationship in government."

The fact that HUD has seen extensive turnover of agency officials in recent years certainly hasn't helped cement good relations with the inspector general. Some observers believe there is more at play, though, including a Secretary with political ambitions who doesn't want to see his record tarnished by negative IG reports. As one senior administration official sees it, Cuomo at times has seemed more interested in making a name for himself by launching innovative, but unproven, programs than in ensuring institutional integrity at the agency.

As this story was going to press, the latest exchanges pitting the Secretary against his inspector general were over an internal review by the IG's office of its own operations and of a $10-million-a-year crime-prevention program called Operation Safe Home that it runs. The report notes problems such as violations of payroll procedures, as well as deficient supporting documentation and no uniform internal controls across field offices for some financial transactions. However, the review declares an error rate in salary and expense spending of less than 0.1 percent, and Operation Safe Home expenditure errors of less than 2 percent, conclusions Gaffney considers good news.

Still, HUD officials quickly latched on to the review's negative findings, privately sharing five pages of "highlights" with reporters. By HUD's reading of the review, a "lack of management controls has led to widespread waste and abuse in the Office of the Inspector General."

The HUD document also reiterates the Senate Banking Committee's skepticism that the IG can run a program like Operation Safe Home and objectively monitor it.

Different Opinions

Before becoming HUD IG in 1993, Gaffney had been part of the inspector general community for years. She held positions in the IG offices at the General Services Administration and the Agency for International Development and headed OMB's management integrity branch, which includes the IG council.

Cuomo began his political career leading his father's gubernatorial campaign and later practiced law and headed New York City's Commission on the Homeless. He served four years as HUD's assistant secretary for community planning and development before taking the Secretary's post in January 1997.

According to staff, Gaffney and Cuomo get along well enough on a personal level. But officially, their disagreements date back to 1995, when Gaffney issued a report criticizing methods the then-assistant secretary used to award some urban renewal grants. Her criticisms of Cuomo's 2020 Management Reform Plan-which she believes is based on inadequate analysis and has led to ill-thought-out staffing cuts and outsourcing without necessary organizational changes-seemed to bring their differences of opinion to a whole new level. Last year HUD officials even filed a formal complaint against Gaffney with the IG council, charging that she leaked confidential information to the press. Gaffney denied the allegations, and HUD later withdrew the complaint.

Since then, Cuomo has actively tried to defuse Gaffney's criticism. In March, HUD released an agency-financed review of Cuomo's 2020 plan conducted by consulting group Booz-Allen and Hamilton Inc. The report says the plan "lays out a solid framework for a sweeping reinvention of HUD and proposes a number of reforms that should help HUD restore the public trust in the Agency."

Another evaluation released in May seemed aimed at discrediting the IG's opinion. Conducted by management expert David Osborne, president of the Public Strategies Group Inc., in conjunction with Booz-Allen, the review declared 2020 a "sound, well-thought-out" strategy that can't be appreciated by the inspector general mentality. Because "bold, strategic reinvention plans are so different from the traditional audit mindset of most Inspectors General, IGs are rarely the most valuable sources for evaluations of management reform plans," the report says. Osborne met with Cuomo once early in his term to discuss government reinvention ideas, according to an agency official.

Disagreement also has erupted around an IG audit of HUD contracting. "Auditors found problems in virtually every contract they reviewed," Gaffney testified before the House Committee on Government Reform and Oversight's Human Resources Subcommittee in June. She commended the agency for some changes, such as creating a chief procurement officer position that reports to the highest management level, but noted lingering problems. "The Department has committed itself to prospective corrective actions, but has not embraced the opportunity to right past wrongs and exact accountability for them," she said. GAO also has found flaws in HUD contracting.

Agency officials acknowledge contracting problems but insist their reform efforts get too little recognition from Gaffney. They also question the relevance of a study that looked at contracts dating from 1992 through 1996, before major reforms started.

'A Lonely Job'

For her part, Gaffney agrees that IGs and agency managers should work cooperatively. But as she told Horn's subcommittee, "that doesn't happen." Part of the problem is that political appointees often arrive without adequate understanding of the IG's statutory independence, leaving inspectors general with the uncomfortable task of educating them, she said. "Keep in mind what alien creatures IGs are. Being an IG is not easy. It's a lonely job, and we need some help." She has urged Congress and the President "to make sure that top political appointees understand the IG Act and that they are expected to support it."

Some people within the agency believe it's too late for cooperation between Gaffney and Cuomo. Agency staffers have come to view the IG's office as a special prosecutor always out to find fault rather than to offer guidance, a senior agency official says. "At HUD, the agency flies blind with no input from the IG, knowing that we haven't done everything we could to avoid a bad outcome."

Gaffney sees it differently. With 2020, "the Secretary has truly supported [the IG's] agenda in a way it has never been supported before," she says. "He is attempting to address all the criticisms that have ever been [leveled] against HUD. I give him credit for that." But its very possible that HUD has bitten off more than it can chew in the allotted time frame. Gaffney considers it her job to help HUD and Congress focus on the plan's most critical elements to make sure that they, at least, get implemented.

Disagreements along the way don't matter as long as HUD comes through the reform process stronger and more effective than ever, she says. "In the end, the really important thing is what happens to HUD."