Twenty years ago, in the face of opposition from nearly every federal agency, Congress approved the Inspector General Act and created the first dozen IGs.

Their numbers have grown to nearly 60 today, with mandates to uncover waste, fraud and abuse at Cabinet departments and major agencies. The inspectors general are arguably unique creatures in the executive branch: They report to both agency heads and Congress, they can be fired only by the president, and they have broad discretion on where to aim their auditing and investigatory powers.

But the case of embattled Treasury Department IG Valerie Lau, who told the president Friday she would resign in March, has focused attention on the question of who watches the watchdogs.

Lau was accused by a Senate subcommittee of breaking federal contracting rules and giving contradictory testimony to Congress. Her resignation letter focused on her accomplishments and did not acknowledge the questions that were raised about her ethical conduct in office. She did not return telephone calls seeking comment.

The first allegations against Lau surfaced nearly a year ago, and Sen. Charles E. Grassley (R-Iowa) and other congressional critics have contended that the government's apparatus for resolving complaints against IGs moved too slowly in Lau's case. Lau's resignation letter came before a little-known executive branch organization that investigates complaints against IGs could prepare a report and possibly offer recommendations to Lau's superiors, Senate aides said.

That organization, the President's Council on Integrity and Efficiency (PCIE), is made up of IGs from the largest federal agencies. The council operates an Integrity Committee, chaired by an FBI official, to weigh allegations of wrongdoing lodged against IGs and their senior staff.

In speeches last year, Grassley faulted the PCIE for "bureaucratic delay." He said the council is "known as a do-nothing organization. IGs have rarely, if ever, been disciplined for wrongdoing by PCIE."

The Office of Management and Budget, which coordinates the council's activities, declined to comment on Grassley's criticism.

Neil J. Gallagher, the acting assistant director of the FBI's criminal investigation division and chairman of the Integrity Committee, said he could not discuss the Lau case, but he emphasized he was "extremely comfortable" with the pace and procedures used in any inquiry.

"The Integrity Committee is under no influence to either go too fast or to slow up," Gallagher said.

For much of the last decade, the committee has been an evolving creature within the IG community. In 1982, the PCIE set up a clearinghouse for allegations, then created an allegations review subcommittee in 1990. That panel became the Integrity Committee in 1995. President Clinton enhanced its status in a March 1996 executive order that sketched out the committee's mission and membership. The committee did not publish its policies and procedures until April of last year.

By vesting authority to conduct "integrity" investigations with the FBI, the administration set up a fact-finding body that it hoped would be insulated from politics. The Integrity Committee is chaired by an FBI representative and includes the head of the Office of Special Counsel, an independent agency that investigates whistleblower complaints by federal employees; the director of the Office of Government Ethics, which sets out conduct rules for political appointees and others; and three IGs. The panel operates with a four-person staff, headed by program manager Thomas K. Kimmel, a 25-year FBI veteran.

Gallagher praised IGs for working to improve the committee, calling it "a very competent and effective process of allowing for an independent review of allegations."

Because of the secretive nature of its work, the Integrity Committee has received little scrutiny from outsiders. One review, in 1996 by the General Accounting Office, the congressional auditing agency, looked at PCIE operations between 1990 and 1995 and concluded that the PCIE and the committee "were generally an effective mechanism for the review of allegations."

When the PCIE receives an allegation against an IG, the matter is referred to the Justice Department's Public Integrity Section, Gallagher said.

If the department decides the allegation against an IG or senior staff member warrants a criminal investigation, the FBI begins a probe as part of its normal procedures. If the allegation does not meet the criteria used to start criminal probes, Justice refers it back to the Integrity Committee to handle as an administrative issue.

When the committee reviews the allegation, it can recommend dropping the case for lack of merit or it can decide to create an investigative team, drawn from the FBI and IG staffs across the government, to gather evidence.

The team reports its findings to the Integrity Committee, which then transmits findings and any recommendations to the chairman of the PCIE, a deputy director at the Office of Management and Budget. That official, currently G. Edward DeSeve, sends them on to the head of an agency. The agency head has 90 days to reach a decision and notify the PCIE of any action.

The Integrity Committee has no enforcement powers.

About 25 to 30 cases involving allegations against IGs or their senior staff are sent to the committee for administrative review each year, Gallagher said. The majority of the cases are dropped because they do not provide enough information to support the complaint or because they involve federal whistleblowers, who do not come under the jurisdiction of the committee.

The most common allegations against IGs involve complaints that they lacked independence and succumbed to political influence, misused government staff and money, failed to act after an investigation or conducted an inappropriate investigation.

In the Lau case, GOP Senate aides said, the Integrity Committee met last April and decided to appoint an investigative team to conduct a noncriminal inquiry. But when the committee learned that a Senate subcommittee and the GAO were reviewing the same allegations, the Integrity Committee pulled back to avoid "bumping into others," Gallagher said.

The GAO concluded that Lau violated federal contracting rules last October, and some GOP Senate aides think the PCIE and Integrity Committee should have moved faster since then to resolve the complaints against Lau.

Contending that Lau's conduct had undermined the credibility of her office, Sen. Susan Collins (R-Maine), chairwoman of the Governmental Affairs investigations subcommittee that investigated Lau, said, "The inspector general must be above reproach, someone who sets an example for other government managers to follow, and Valerie Lau has fallen short of that mark."

During the Senate hearings, Lau said she had acted in good faith and defended her handling of contract awards.

Almost every IG, at one time or another, encounters stiff criticism. In recent months, the IG at the Department of Housing and Urban Development was caught up in a battle with HUD leaders over her authority. The Commerce Department IG retired earlier this month after a series of battles with department officials, who complained that he had overstepped his turf by pushing policy objectives.

But longtime congressional aides could not recall cases similar to Lau's, where allegations against an IG ended up being the topic of Senate hearings.

Her case, and how quickly allegations against IGs should be handled, will likely set the stage for upcoming hearings on the 1978 Inspector General Act.

House Government Reform and Oversight Committee Chairman Dan Burton (R-Ind.) has asked the GAO to conduct a 20th anniversary "comprehensive review" of the law. A Government Reform subcommittee plans hearings, tentatively scheduled for March, to explore ideas on possible improvements to the IG law. CAPTION: Allegations against Treasury Inspector General Valerie Lau, who will resign in March, surfaced nearly a year ago.