Federal accountability and performance requirements are rooted in a series of foundational laws that guide the management, monitoring, and auditing of government programs. Understanding these statutes enables auditors to interpret program responsibilities and apply the relevant standards during engagements.
This lesson is a preview from Graduate School USA's Basic Governmental Auditing Course.
Major Federal Legislation
Key legislation has shaped the development of accounting and auditing in the federal government over the last century. This legislation and the regulations they fostered have directed and influenced the management of government at the state and local level, as well as the auditing of government programs and activities.
The following are several laws that have had significant implications for management accountability and for ensuring economy, efficiency, and effectiveness of government operations, and for affecting or influencing the role of the government auditor.
Legislation Directed Primarily to Auditing
- Budget and Accounting Act (1921)
- Inspector General Act (1978, 2008, and 2016)
- Single Audit Act (1984) (for audits of grants)
- 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2014)
Legislation Directed Primarily to Management
- Budget and Accounting Procedures Act (1950)
- Federal Managers’ Financial Integrity Act (1982)
- Chief Financial Officers Act (1990)
- Government Performance and Results Act (1993)
- Government Performance and Results Modernization Act (2010)
- Federal Financial Management Improvement Act (1996)
- Federal Information Security Management Act (2002)
Legislation Directed Primarily to Auditing
Budget and Accounting Act of 1921
The act authorized the President to submit an annual budget and created a Budget Office (now OMB) in the executive branch and created the General Accounting Office (now Government Accountability Office, GAO) in the legislative branch.
Inspector General Act (1978)
Amended by the Inspector General Reform Act of 2008.
The IG Act of 1978, as amended, requires that the statutorily appointed federal inspectors general comply with GAGAS for audits of federal establishments, organizations, programs, activities, and functions. The act further states that the inspectors general shall take appropriate steps to ensure that any work performed by nonfederal auditors complies with GAGAS.
The mission of the OIGs, as spelled out in the Act, is to
- Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
- Promote economy, efficiency, and effectiveness within the agency.
- Prevent and detect fraud, waste, and abuse in agency programs and operations.
- Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
- Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.
To ensure objectivity, the IG Act empowers IGs with
- Independence to determine what reviews to perform.
- Access to all information necessary for reviews.
- Authority to publish findings and recommendations based on reviews.
- Requirement to post audit reports to the Web.
Inspector General Act (Amended 2016)
(Sec. 2) This bill amends the Inspector General Act of 1978 to exempt inspectors general (when they are conducting an authorized audit, investigation, inspection, evaluation, or review) from: (1) information privacy protections that require agreements between agencies for computerized comparisons of automated federal records systems under the Computer Matching and Privacy Protection Act of 1988, and (2) procedural requirements for information collections under the Paperwork Reduction Act.
(Sec. 3) The Council of the Inspectors General on Integrity and Efficiency (CIGIE) must submit to Congress an annual report that it currently submits only to the President.
CIGIE must mediate disputes regarding an audit, investigation, inspection, evaluation, or project that involves the jurisdiction of more than one office of inspector general, except for matters coordinated by intelligence community inspectors general.
The membership structure of CIGIE’s Integrity Committee is modified to eliminate: (1) the Director of the Federal Bureau of Investigation as chairperson of the committee, and (2) the Special Counsel of the Office of Special Counsel (OSC) as a committee member. The committee must elect one of the inspectors general on the committee as chairperson to serve for a term of two years.
Within seven days after the committee receives an allegation of wrongdoing against an inspector general or a staff member of an inspector general’s office, the committee must refer such allegation to: (1) the Department of Justice (DOJ) or the OSC for investigation, or (2) the committee for review. If an allegation of wrongdoing is referred to the committee, the committee must decide within 30 days whether to refer the allegation to the chairperson to initiate an investigation. The 30-day period may be extended if the committee notifies Congress.
The bill revises procedures for investigations of allegations of wrongdoing to: (1) require the committee chairperson to complete the investigation of referred allegations within 150 days after the committee’s referral; (2) allow concurrent investigations by the committee, DOJ, and the OSC; and (3) require the committee’s investigation reports and recommendations to be made available to Congress. The committee may also receive, review, and refer allegations of wrongdoing against the Special Counsel or Deputy Special Counsel (officials appointed to investigate prohibited personnel practices and government waste and abuse).
(Sec. 4) The Government Accountability Office must report on prolonged vacancies in inspectors general's offices. CIGIE must report on its analysis of critical issues that involve the jurisdiction of more than one office of inspector general to identify best practices and issues for increased coordination among inspector general offices. The semiannual reports that inspectors general submit to their agencies and Congress must include:
- A summary of audit, inspection, and evaluation reports for which an inspector general’s agency did not return a comment and for which there are outstanding unimplemented recommendations, including the aggregate potential cost savings of those recommendations;
- Statistical tables and metrics showing the total number of issued investigative reports, referrals to prosecuting authorities for criminal prosecution, and indictments from prior referrals;
- A report on each investigation involving a senior government employee where allegations of misconduct were substantiated;
- Descriptions of any whistle-blower retaliation, investigations that were closed and were not disclosed to the public, or attempts by an agency to interfere with inspector general independence, including through budget constraints, resistance to oversight, or delayed information access.
Inspectors general are prohibited from providing Congress or the public with any information through such semiannual reports that would reveal the personally identifiable information of a whistle-blower without the whistle-blower’s consent.
Inspectors general must submit their recommendations for corrective action to: (1) the head of their agency, (2) the congressional committees of jurisdiction, and (3) any individual or entity requesting the corrective action if the recommendation was initiated by request. The document making the recommendation must also be posted on the inspector general’s website.
(Sec. 5) The bill sets forth standards regarding inspectors general's access to agency records, the timeliness of their access, and procedures for their requests for access to federal grand jury materials.
An inspector general may access federal grand jury materials that are protected from disclosure under the Federal Rules of Criminal Procedure by submitting a request to the head of his or her establishment, who must then transmit the request to the DOJ. DOJ must grant such a request unless access to the grand jury materials would: (1) interfere with an ongoing criminal investigation, prosecution, or undercover operation; (2) identify a confidential source or protected witness; (3) pose a serious threat to national security; or (4) significantly impair the trade or economic interests of the United States. If DOJ denies such a request, it must submit a statement to Congress explaining the reason for the denial. The DOJ Inspector General is exempt from these request procedures and shall automatically have access to information available to DOJ regarding grand jury materials.
(Sec. 6) The Attorney General or the Secretaries of Defense, the Treasury, Homeland Security, or Energy may prohibit inspectors general from accessing certain sensitive or national security information.
Single Audit Act (1984) (for audits of grants)
Requires a “Single Audit” of entities receiving federal funds in excess of a dollar threshold. Auditors are to: (1) determine whether the financial statements are presented fairly, (2) determine if the entity has complied with relevant laws, regulations, grant requirements, etc., that have a direct and material effect on each program subject to audit, and (3) assess controls pertaining to those programs and report weaknesses.
Five major purposes:
- Promote financial management, including effective internal controls with respect to federal awards
- Establish uniform requirements for audits of awards
- Promote efficient and effective use of audit resources
- Reduce the burden of numerous audits by different audit organizations.
- Ensure reliance upon and use of this audit work
CFR 2 Uniform Guidance Part 200 Section F on Audit Requirements (2014)
- §200.501 Audit Requirements: Raises the Single Audit threshold from $500,000 to $750,000 in Federal awards per year.
- §200.512 Report Submission: Requires publication of Single Audit Report Submission online with safeguards for protected personally identifiable information and an exception for Indian tribes in order to reduce the administrative burden on non-Federal entities associated with transmitting these reports to all interested parties.
- §200.513 Responsibilities: Responsibilities require federal awarding agencies to designate a Senior Accountable Official who will be responsible for overseeing the effective use of the Single Audit tool and implementing metrics to evaluate audit follow-up. A non-Federal entity spending more than $50M a year in federal awards must have a cognizant agency for audit.
- §200.521 Management Decision: Includes language to require auditees to initiate corrective action as rapidly as possible, and not wait until audit reports are submitted.
Legislation Directed Primarily to Management
Budget and Accounting Procedures Act (1950)
The act authorized the Comptroller General (head of GAO) to prescribe accounting standards for executive agencies and to audit financial transactions.
It assigned general responsibility for accounting and internal control systems to federal managers, but was not specific regarding internal controls. It also required agency heads to consider internal control systems, but it did not address specific standards for internal control systems, nor require systematic evaluation and reporting on controls.
The Budget and Accounting Procedures Act cites the objectives of a satisfactory control system as one that:
- Promotes efficiency and economy of operations.
- Restricts obligations and costs, consistent with efficiently and effectively carrying out the purposes for which the agency exists, within the limits of congressional appropriations and other authorizations and restrictions.
- Safeguards assets against waste, loss, or improper or unwarranted use.
- Ensures that all revenues applicable to agency assets or operations are collected or properly accounted for.
- Assures the accuracy and reliability of financial, statistical, and other reports.
Federal Managers’ Financial Integrity Act (1982)
The act requires ongoing evaluations and reports on the adequacy of federal control systems. The Executive Branch implemented this Act with OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control. Also, GAO issued Standards for Internal Control in the Federal Government, a.k.a. Green Book. Executive agencies are required to
- Periodically evaluate internal accounting and administrative controls in accordance with OMB guidelines.
- Prepare an annual statement of assurance.
- Identify, track, and correct material weaknesses.
- Report on whether the agency’s accounting system conforms to the principles and standards of the Comptroller General.
Chief Financial Officers Act (1990)
The Chief Financial Officers Act of 1990, as expanded by the Government Management Reform Act of 1994 requires that GAGAS be followed in audits of executive branch departments’ and agencies’ financial statements. The Accountability of Tax Dollars Act of 2002 generally extends this requirement to most executive agencies not subject to the Chief Financial Officers Act unless they are exempted for a given year by the Office of Management and Budget (OMB). Key objectives are to
- Establish a leadership structure
- Provide for long-range planning
- Require audited financial statements
- Strengthen accountability reporting
Government Performance and Results Act (1993)
GPRA focuses the government on enhancing accountability, measuring performance, and improving programs based on results. Its stated goals are to:
- Focus government on managing for results.
- Enhance accountability over government programs.
- Provide greater managerial flexibility.
- Require strategic planning and goal setting.
- Require performance measurement.
GPRA requires federal agencies to:
- Develop strategic plans;
- Prepare annual performance budget and plans setting performance goals;
- Report annually on actual performance compared to goals.
The GPR Modernization Act of 2010 aligns strategic planning with presidential terms, requires agencies to periodically consult authorizing, appropriations, and oversight committees when preparing strategic plans, requires quarterly performance reviews, and legislatively creates (1) chief operating officers, (2) program improvement officers, (3) a governmentwide performance improvement council, and (4) a governmentwide performance website.
Federal Financial Management Improvement Act (1996)
The Federal Financial Management Improvement Act (FFMIA) requires all federal agencies to prepare annual financial statements. It intends to help ensure that agency financial management systems routinely provide reliable, useful, and timely financial information to agency managers and decision makers.
Federal Information Security Management Act (2002)
The FISMA provides that agencies are required to have “...a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets...” Agency heads are required to annually report on the effectiveness of the agencies’ security programs. Significant deficiencies found under FISMA must also be reported as material weaknesses under FMFIA.
Numerous federal laws have been enacted to establish a strong framework for accountability across government agencies, ensuring that managers uphold fiscal responsibility and promote the economy and effectiveness of public programs. These statutes form the foundation of modern oversight and directly influence how government activities are audited. Several key laws have also expanded and strengthened the auditing function itself, most notably the Budget and Accounting Act of 1921, which established the GAO; the Inspector General Act of 1978, later amended to reinforce independent oversight within federal agencies; and the Single Audit Act of 1984, which standardized compliance audits for entities receiving federal funds. Together, this legislation supports a transparent, reliable system of government auditing and performance evaluation.