Senator CHILES. Our next witness will be Mr. Goldstock, the Deputy Inspector General of the Department of Labor. Would you and your compatriots raise your right hands? Do you swear the testimony you are about to give before the committee will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. GOLDSTOCK. I do.

Mr. STEPNICK. I do.

Mr. DEARDORFF. I do.

Mr. GOLDSTOCK. I would like to introduce my associates. This is Ed Stepnick, the Assistant Inspector General in charge of audits, and one of our staff auditors, Mr. Wayne Deardorff.

Senator CHILES. Your statement will be inserted in the record in full following your testimony.

Senator CHILES. You have heard from some of the earlier comments that we had that we are concerned that Labor has not filed a report.

We now received a copy of a draft, but today I guess GSA has not received it. The task force, therefore, didn't know this morning what was going on in Labor. Can you tell us why the report didn't get into GSA?

TESTIMONY OF RONALD GOLDSTOCK, DEPUTY INSPECTOR GENERAL, U.S. DEPARTMENT OF LABOR, ACCOMPANIED BY EDWARD STEPNICK, ASSISTANT INSPECTOR GENERAL FOR AUDITS, AND WAYNE DEARDORFF, SUPERVISORY AUDITOR Mr. GOLDSTOCK. Yes. The deadline that GSA gave us was February 15. I have noted in the statement that we had a draft report prepared by February 15. That draft report was submitted to the agencies for their comments. It was our determination that was the appropriate way to proceed, and that a draft report without agency comments ought not be distributed prior to the time that it was in final form.

Senator CHILES. Is that the agreement that auditor Inspectors General made when they sat down and went together in this task force? The February 15 date had been extended for a month, was it not? That was a month's extension?

Mr. GOLDSTOCK. I am not sure there was a specific agreement as to whether or not draft reports or final reports were to be submitted by that date.

Senator PRYOR. I would like to note that February 13 was on a Friday also, which indicates that you are running pretty late. Mr. GOLDSTOCK. I have seen the GSA report. There is a list in the appendix which indicates the dates on which the draft reports from other agencies were submitted; they were all about February 15. What I am saying is that our draft report was finished about the same time as everybody else's draft report was completed.

Senator CHILES. That didn't do much good if it didn't get to GSA. It didn't do us much good for this hearing, although we got a copy of your draft report which you brought over to us yesterday.

Mr. GOLDSTOCK. That is true. The question is whether or not the draft report would have done much good. It was our determination. that the draft report would not have; that for the report to have some meaning so that you and the committee could act upon it and so that GSA could act upon it, it ought to have agency comments.

Senator CHILES. This committee is standing ready to act today, and we are going to take some action today. We wanted some of these reports to confirm what our action should be.

How many people did you all have working on this?

Mr. GOLDSTOCK. As you probably know from the statement, there were two different reports. One report, which was a report of the departmental property management system was begun based on a contract signed in April of 1979, and that included I think about 14 auditors, and 6 additional employees from the Department of Labor.

There was also this report, supervised by one auditor from the Inspector General Office along with four program persons.

Senator CHILES. It appears to me that the 15 CPA's that were reporting on your property control problem and how to get them properly stored in the computer, that it is evident from the language of their report that they never saw the task force audit guide because they certainly never answered any of the questions in that, so they were off doing their thing and they continued doing that.

Mr. GOLDSTOCK. That's right. They were working in a related area but not preparing the specific report that had been requested by GSA. It is clear, however, that the person who was supervising a DPMS audit within the Department of Labor had developed a great deal of expertise based upon the work being done and we believe that, therefore, the commitment of that single auditor to the GSA project was sufficient.

In fact, I think the conclusion was right because our draft report was completed at the same time as all other draft reports were completed. It was not a question of the appropriate number of people or the appropriate amount of resources. It was a question as to whether or not the draft report should have been released. Senator CHILES. Well, I notice that in the draft report that you now submitted to us it says our review disclosed the agencies are not providing sufficient justification to support new furniture acquisitions. That is a pretty clear statement.

Mr. GOLDSTOCK. I think you will note, you have also received a response from the agency, and the agency responded to that particular matter. I think they agreed with us with respect to a certain part of it. They indicated that our figures, by their accounting methods, were off and our final report will have to reconcile their response with our work.

I would suggest that the report, though, would be a better product for your purposes-you would be on much firmer foundation in determining what the appropriate legislative response ought to be-with the final report encompassing the agency's responses. Senator CHILES. How many auditors do you all have?

Mr. GOLDSTOCK. We are in the process of recruitment, but at the time the audit was initiated I think there were about 150.

Mr. STEPNICK. Our authorized strength is about 220, and we have about 30 vacancies-about 190.

Senator CHILES. You have about 190 auditors. I read your statement to say that our review disclosed the agencies are not having sufficient justifications to support new furniture, and then I look at

the computer printout and see that the Department of Labor has revalidated 10 pages of furniture orders.

It appears that your report has not become final yet because somebody is still revalidating orders.

Mr. GOLDSTOCK. There was a response to that by the agency. There was in fact, a new memorandum issued based upon our critique and I think you have a copy of that. It was dated December 4, 1979, by the Acting Director of Administrative Programs and Services instructing all other agencies within the Department about the regulations and ordering compliance with them.

Senator PRYOR. You did retain a CPA firm for the purpose of this audit, is that correct?

Mr. GOLDSTOCK. There were two audits. One audit was begun prior to the problem which originated with Agriculture. That audit was performed by a CPA firm, Camper and Henderson & Co., which began its work based upon a contract signed in April of 1979.

Senator PRYOR. Excuse me just a moment. What was the fee paid to this CPA firm?

Mr. GOLDSTOCK. $154,350.00.

Senator PRYOR. Now continue, please.

Mr. GOLDSTOCK. There was a second audit effort begun as part of the GSA audit of all agencies, and that is reflected in the draft report which you have received a copy of.

Senator PRYOR. That was done by another firm?

Mr. GOLDSTOCK. That was done internally.
Senator PRYOR. Only one firm was hired?

Mr. GOLDSTOCK. That is correct.

Senator PRYOR. Were any consulting firms hired for this project?
Mr. GOLDSTOCK. For the second, no.

Senator PRYOR. For any part of this mandated requirement.
Mr. GOLDSTOCK. By GSA, no.

Senator PRYOR. Is there not in-house capability to perform audits like this without going outside and hiring CPA firms?

Mr. GOLDSTOCK. The Department of Labor's Audit Division within the Office of Inspector General has a very limited number of auditors. We do, however, have contract funds which enable us to perform audits of some of the matters that we are responsible for. To a great extent because of a lack of auditors within the agency, we are compelled to contract out a lot of our work. The specific answer is that we have auditors capable of doing the work but we don't have a sufficient number of them. As a result, a great deal of our audit work is contracted out. That has been traditional within the Department of Labor.

Senator PRYOR. During 1979 you obligated about $991,000 for new furniture.

Mr. GOLDSTOCK. Yes, sir.

Senator PRYOR. The review that you have submitted, shows no justification for about $339,000 of these purchases, is that correct? Mr. GOLDSTOCK. That is correct.

Senator PRYOR. How was this other $339,000 expended? I'm not clear on that.

Mr. GOLDSTOCK. According to our audit findings it was expended without adequate justification. There is a response from the De

partment on that point, setting forth their reasons and their findings with respect to the amount of money and the number of requisitions that OIG auditors found not to have sufficient justification.

That is why I suggest that the final report will be a great deal more beneficial to you than a draft report without their responses. Senator PRYOR. It is sort of after the fact, isn't it, the final report? It is not going to do us any good to recover this $339,000 that was expended without justification, is it? What good is the final report going to do us?

Mr. GOLDSTOCK. That's right. I'm not sure. I can't say at this time whether or not the $339,000 was wasted. That is, there was no adequate justification within the records. It is not clear that had they abided by the regulations they could not have supplied adequate justification.

Senator PRYOR. I wonder how many new employees the Department of Labor had.

Mr. GOLDSTOCK. Within 1979?

Senator PRYOR. Yes.

Mr. GOLDSTOCK. About a thousand.

Senator PRYOR. So that would be about almost $1,000 per employee for furniture?

Mr. GOLDSTOCK. That is correct. I am not quite sure of whether or not that is an excessive amount. It would depend, of course, on what kind of needs the new employees had for furniture.

Senator CHILES. You have told us how many new employees. How many of those were replacements of existing employees?

Mr. GOLDSTOCK. That was a new ceiling. In fact, the year before that there were 5,000 or 6,000 additional employees due to a transfer of MSHA from Interior to Labor. Since their furniture came with them, we did not even count that as a meaningful increase for these purposes.

Senator PRYOR. Do you have any breakdown of how this was used by employees? Did each one of them get a new desk or say a $800 desk and a $200 chair or do you have any breakdown?

Mr. GOLDSTOCK. I don't.

Mr. STEPNICK. The problem was that the records just didn't give us enough information to be able to do that, sir.

Mr. GOLDSTOCK. There is with respect to the $334,000, justification given by the agency in their response to us. I believe you have a copy of that.

Senator PRYOR. Was a lot of this money used to purchase systems furniture?

Mr. STEPNICK. Yes, sir.

Senator PRYOR. Is it being used today or still stored in boxes? Mr. GOLDSTOCK. My understanding is that it is being installed and is being used. I am not an expert, of course, on systems furniture. I would say, though, that the new Department of Labor built for open space planning, may have a greater need for it than other agencies have. We have not reached a determination yet as to what the final recommendations would be with respect to systems furniture, but there is documentation in the agency's responses as to why they purchased systems furniture and how it was cleared.

Senator PRYOR. Right now we have no current listing of the furniture which the Department of Labor has stored in any warehouse, is this correct?

Mr. GOLDSTOCK. I believe we do. I think that you will have some of that in the draft report. There is not a dollar value, but there was a physical inventory taken.

Senator PRYOR. That's all the questions I have. Thank you.
Senator CHILES. Thank you very much.

Mr. GOLDSTOCK. Thank you.

[The prepared statement of Mr. Goldstock follows:]

STATEMENT OF RONALD GOLDSTOCK, DEPUTY INSPECTOR GENERAL

Mr. Chairman and members of the subcommittee; you requested that we appear before you today to explain our effort with respect to the interagency review of property management under the leadership of the Inspector General of the General Services Administration. I want to dispel at the very outset your impression that we may not have dealt with property management concerns in a vigorous and timely fashion.

At the time GSA requested us to review the planning, acquisition, and control of office furniture acquired by the Department of Labor during fiscal year 1979, we had underway an audit of the entire Departmental Property Management System. This audit-being performed under contract by a CPA firm-covered the National Office and nine of the Department's ten regional offices and had as its major objectives the following:

1. To determine whether laws, regulations, and procedures applicable to property management are complied with;

2. to determine whether access to the computerized system is adequately safeguarded to prevent unauthorized use; and

3. to determine the adequacy of controls associated with the computerized property system.

Fourteen CPA staff members were involved in the property audit. Our Office of Inspector General's auditor who had been monitoring the CPA property audit was immediately assigned to the interagency furniture review and, because of the expertise our auditor had acquired and the part-time assistance given to our auditor of up to five property program assistants, we deemed the resource level for the furniture review to be reasonable and adequate.

About mid-February, draft reports on both the CPA audit and the interagency furniture review were submitted to Departmental management officials for review and comment in accordance with our usual practice and GAO audit standards. We were in a position at that time to provide GSA with either or both draft reports, but it was our understanding that final reports-incorporating management's responses-were required since we were unaware of any reason why there should be a deviation from prescribed audit reporting standards.

The principal findings in the CPA draft report on the property management system-submitted for management review on February 21 with a response date of April 7-involve the following:

PROPERTY MANAGEMENT CONTROLS

1. Failure to adequately control and prepare input documents;

2. Lack of annual certified physical inventories;

3. Failure to properly tag property items;

4. Inadequate Accountable Property Officers training;

5. Inaccuracies in inventory listing.

AUTOMATED DATA PROCESSING CONTROLS

1. Failure to adequately control and prepare input/output documents;

2. Lack of adequate safeguards to prevent unauthorized use or access to computerized system;

3. Lack of appropriate separation of functions between property management and automatic data processing function;

4. Inadequate operational level documentation, i.e., no operator run books; and 5. Lack of separation of functions between programming and operations duties. The draft report contains 37 recommendations for improvements in these and other areas.

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