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House Fails Part of 2009 Financial Audit

The House partially failed an audit of its 2009 finances and will likely fail again for 2010, according to Congressional testimony Thursday, shedding new light on why former Chief Administrative Officer Dan Beard abruptly quit last summer.

The embattled former House officer resigned July 1, one day after an independent auditor informed members of the House Administration Committee that the chamber would fail the internal controls part of its financial audit for the first time in more than a decade.

The fiscal 2009 finances themselves were clean, but the auditors found “mismanagement and disengagement and at times obstruction” at the top rungs of the Office of the Chief Administrative Officer, which dragged the audit out for 14 months, resulting in increased contractor costs, House Inspector General Theresa Grafenstine said in her testimony.

“The CAO did not have effective controls over financial reporting,” causing “greater risk of not detecting an error in financial statements,” Grafenstine said. The auditing process “takes a whole lot longer because you can’t rely on the internal controls.”

Told for years that he needed to implement an internal oversight program over the financial reports, Beard neither listened not cooperated, according to the audit.

“I listened, but I have no comment,” Beard said, when reached by telephone.

Paired with a 2010 IG report that found low morale, miscommunication and turnover in the CAO’s Office of Payroll and Benefits and Office of Financial Counseling, as well as appropriators’ move to withhold $20 million from Beard’s budget last year, the new report paints the clearest picture of how tensions between Beard and Congress climaxed and resulted in his departure.

“The financial audit wasn’t a stand-alone issue,” said CAO Dan Strodel, Beard’s replacement, who at the time of the audit was a House Administration Committee staffer. “There were others that were percolating that came to a head at the time.”

Cotton & Co., an independent accounting firm, audits the House books each year. For several years, the firm had told Beard that he needed to implement bureaucratic controls similar to Office of Management and Budget methods.

By the time of the 2009 audit, however, the firm found Beard had made no move toward installing such a system, though he had said he would.

In January 2010, they told Grafenstine that the CAO did not have adequate management-level oversight over its financial records. Grafenstine called an emergency meeting, followed by several weekly sessions with CAO staff. Beard, however, refused to participate in any of the sessions, Grafenstine said.

In March 2010, the IG told Members that the House would likely fail the internal controls portion of the audit, House Administration Subcommittee on Oversight ranking member Zoe Lofgren (D-Calif.) said at the hearing.

That month, Beard met with the committee staff director and assured him that he understood the seriousness of the problem. But months later, he had still taken no action.

On June 30, the auditor handed down a poor report on the chamber’s finances, Lofgren said. Beard met with committee members July 1 and resigned the same day.

Lofgren, the only Member to attend Thursday’s hearing who was also on the committee last year, called “troublesome” the “lack of cooperation and misleading information coming from the former CAO and other senior CAO staff towards the auditor, the IG’s office and even this committee.”

Less than two weeks after Beard resigned, Strodel was appointed his successor.

The new CAO has installed a new management team, replacing as many as 10 top employees since Beard’s departure, Strodel said. “My reputation is on the line at this point,” he added.

“The primary driver to the situation that evolved was the tone at the top of the organization,” Strodel said in his testimony. “This is the long-term focus I have to make, to begin to put in place the structures that are going to help the organization evolve and transform it into a high-performing organization again.”

Grafenstine said there has been a reversal in tone since Strodel took the helm.

“It was night and day,” she said, “the complete sweeping changes that occurred since last summer.”

But because Strodel took over toward the end of fiscal 2010, his office was not able to implement the necessary controls in time for that year’s audit. As a result, the House will likely fail the internal control part of the audit for the second time in as many years.

But Strodel and Grafenstine said the CAO is on track to right the organization by this year’s audit.

Rep. Aaron Schock (R-Ill.), who joined the House Administration Committee this Congress, questioned at the hearing why it took months to dispose of Beard.

Grafenstine assured him that the committee took decisive action when it became necessary.

“It seemed that they were providing constructive feedback and trying to get him on board. It just didn’t seem to have a lasting effect,” she said. “As soon as it became clear that we had reached the point of no return, it was swift.”

Oversight Subcommittee Chairman Phil Gingrey was satisfied with that assessment.

“I would like to commend the former majority for having the … insight to make a quick change,” the Georgia Republican said.

Clarification: May 26, 2011

Although the Chief Administrative Office failed the internal controls portion of its audit, the finances themselves received a clean opinion by the auditor.

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