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Financial Agency IGs Say Bill Threatens Independence

By Ed O'Keefe
Washington Post Staff Writer
Monday, July 6, 2009

Inspectors general at five financial regulatory agencies are objecting to legislation that would elevate their positions to the presidential-appointment level, arguing that the move would compromise their ability to conduct independent investigations.

The bill would elevate the five officials at the Federal Reserve Board of Governors, the Commodity Futures Trading Commission, the National Credit Union Administration, the Securities and Exchange Commission, and the Pension Benefit Guaranty Corp.

Supporters of the measure say the five IGs need greater flexibility and more distance between their work and possible interference from agency leadership, especially amid the economic meltdown. But opponents fear that the politics and length of time associated with the appointment process would delay investigations.

The bill, passed last month by the House and awaiting Senate consideration, comes amid a period of increased tension for the government watchdog community, which has seen the departure or dismissal of three inspectors general in recent weeks.

Last month, the International Trade Commission dismissed its inspector general and President Obama fired Gerald Walpin, inspector general at the Corporation for National and Community Service. Also, Amtrak's inspector general retired suddenly after delivering to leadership of the federally backed corporation an independent audit alleging interference with his probes. Amtrak said retirement arrangements had been made before the analysis was delivered.

Federal watchdogs and their investigative and auditing staffs are tasked with rooting out government corruption or investigating sensitive personnel matters. According to the Government Accountability Office, there are at least 69 inspector general offices across the federal government, with new ones established as the need arises. The president appoints approximately 30 IGs, while the remainder are appointed directly by agency leadership. Rules and reporting structures vary.

"It is more important than ever that there is continuity of the operations and oversight activities currently undertaken by inspectors general of financial regulatory agencies," H. David Kotz, the SEC's inspector general, said at a hearing this year.

"It is more important to ensure that the best qualified individuals are selected to serve," CFTC Inspector General A. Roy Lavik told lawmakers, suggesting that elevation was unnecessary because the original inspector general act codified his independence.

NCUA Inspector General William A. DeSarno told lawmakers his office's independence has never been challenged despite his appointment by the agency's board.

Colleagues have expressed similar concerns, and independent observers are also skeptical.

"We remain unconvinced that a presidentially appointed IG is more independent than one that reports to a bipartisan board," said Danielle Brian, executive director of the Project on Government Oversight, which tracks government watchdogs.

"I think you can be more independent reporting to a bipartisan board than being at the mercy of the president's good graces," she said.

"It is not surprising that some inspectors general would be critical of a piece of legislation that will hold them to a higher standard and demand more from them," said Emily Barocas, spokeswoman for Rep. John B. Larson (D-Conn.), the bill's lead sponsor. "This bill gives them more resources and more independence, but it also requires them to do their jobs and be accountable."

Debate over the bill speaks to the balancing act required of inspectors general who must perform investigations while maintaining cordial lines of communication with agency leadership or the White House. Several approached about the issue declined to speak publicly about their roles.

Though the bill passed the House, its fate in the Senate is uncertain. Both chambers continue to probe the Amtrak and ITC situations and an allegation of possible interference with inspector general investigations at the Library of Congress.

Walpin's dismissal drew the most attention, however. Obama dismissed him after the agency's bipartisan board of directors contacted the White House counsel's office about his behavior at a May board meeting. In an initial letter to lawmakers, Obama stated that he had lost confidence in Walpin. Several lawmakers objected, and the White House provided documents outlining its reasons.

Several lawmakers of both parties have since stated their agreement with Obama's decision, while Walpin maintains the firing was unjustified.

Some observers say the firestorm could have been avoided if Congress had adopted an even stronger version of legislation passed last year to bolster the 1978 Inspector General Act. The original law codified the existence of federal watchdogs.

Last fall's amendments require the president to inform lawmakers in writing of a decision to terminate an inspector general 30 days before removal. The initial bill required the president to list specific reasons for any removal, but the Bush administration objected to the provisions, arguing they challenged executive authority.

For its part, the current White House notes that then-Sen. Obama cosponsored and voted for last year's legislation and that most of the recent incidents involved agency leaders and watchdogs appointed by the previous administration. Aides also note that most of the current IG investigations involve watchdogs not at the presidential appointment level.

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