WASHINGTON - May 18, 2010 - An amendment offered by Senator Chuck Grassley and cosponsored by Senator Claire McCaskill would make changes to the pending Senate financial regulation bill to strengthen the independence and accountability of all agency-appointed inspectors general, including those at five key financial agencies.

"Taxpayers and Congress count on these watchdogs to go after waste, fraud and mismanagement in the federal bureaucracy, and Congress ought to focus on additional steps to strengthen the role of inspectors general, rather than take away from their important work for accountability," Grassley said.

Grassley said he offered his amendment because language in the financial regulation bill to make five of these positions presidentially appointed could introduce politics into what traditionally have been career, non-political positions.  "A change like this works against independence because these five positions run relatively small offices and don't have the professional staffs that contribute to independent work in the biggest agencies in the federal government," Grassley said.

Grassley said his amendment would strike the problematic provision and replace it with a system designed to establish maximum independence and accountability.  Grassley's language would make these five inspectors general, and a number of other agency appointed inspectors general, report to the bipartisan board or commission heading the agency.  It also ensures that an inspector general could be removed only by a two-thirds majority vote of the bipartisan board or commission.  Grassley said his amendment also would hold inspectors general accountable by requiring that they disclose the results of all their peer reviews in agency semi-annual reports to Congress.  Each inspector general is frequently reviewed by other inspectors general but the reviews are rarely made public.  Grassley's requirement would change that.

"Above all, the framework for inspectors general needs to promote independence and accountability," Grassley said.  "It only makes sense to take action with this financial regulation bill to strengthen the work of the inspectors general who oversee the federal regulators in charge of safeguarding the marketplace.  There's no doubt that a lack of accountability contributed to the financial crisis of 2008."

Grassley has been a consistent advocate for the work of inspectors general.  He has worked successfully both to empower independent inspector general work and to hold inspectors general accountable when responsibilities are neglected.  The amendment has been endorsed by the non-partisan Project on Government Oversight, or POGO.

Floor Statement of Senator Chuck Grassley

Restoring American Financial Stability Act of 2010: Grassley/McCaskill Amendment #4072

Designated Federal Entity Inspectors General Independence

Mr. President, I ask that the pending amendment be set aside and I call up the Grassley-McCaskill amendment number 4072.

I understand there is an objection, but I ask consent for Senator McCaskill and me to speak on our amendment.

Our amendment, would correct serious problems in section 989B of the Dodd-Lincoln substitute.  This section of the bill would change the way that five Inspectors General are hired and fired.

Currently, these five inspectors general are hired and fired by the agency that they oversee, but section 989B would put the President in charge of hiring and firing them.  This provision was included because the sponsors of the legislation believe that making inspectors general presidentially appointed will make them more independent.

However, rather than strengthening oversight over our financial institutions with more independent watchdogs, section 989B could introduce politics into what have traditionally been career, non-political positions.

Under the Inspector General Act of 1978, there are two types of Inspectors General, Presidentially Appointed IGs and Designated Federal Entity IGs (DFE IGs).  Both types of Inspectors General are tasked with hunting down waste, fraud, and abuse at federal agencies.  However, there are some major differences in how they are appointed and removed from office and how they operate.

DFE IGs are appointed by the agency rather than the President.  The Inspector General Act created 30 of them, not just the five addressed in this bill.  The agency-appointed IGs typically run smaller offices than Presidential appointees, often with just a handful of employees.  Almost all of them oversee agencies that are headed by a bi-partisan board or commission.

By contrast, Presidentially-appointed IG's generally run much larger offices and employ dozens or hundreds of employees to oversee Departments such as the Department of Defense, the Department of Justice, Health and Human Services, and so on.  They are nominated by the President and confirmed by the Senate.  They are subject to removal at any time by the President.  However, the President must provide Congress 30 days notice and a written list of reasons for dismissing the inspector general.

Agency-appointed IGs have a similar protection requiring that the agency notify Congress in advance of the reasons for any removal.

The sponsors of section 989B argue that because agency-appointed IGs are hired and fired by the agency they oversee, they might be tempted to pull their punches more than someone who could only be fired by the President.  I actually agree that this is a potential problem.  However, the solution in this bill misses the mark.

Unfortunately, Section 989B only attempts to address this independence issue at five of the 30 agency-appointed IGs.  In my view, this fix is too narrow.  In addition, it attempts to ensure independence by replacing these five IGs with Presidential appointees.

There is no evidence that a Presidential appointees will be more independent than their predecessors.  There have been problems in the past with Presidential appointees being too cozy with the agency they are supposed to oversee or pulling punches for political reasons.

There is strong evidence that agency-appointed IGs can be fiercely independent despite the possibility of being removed by the agency head.  It all depends on the quality of the appointment.

For example, David Kotz, the Securities and Exchange Commission Inspector General has exposed the SEC's failures in the Madoff and Stanford cases, and is currently looking into the timing of the government suit against Goldman Sachs. Similarly, the Pension Benefit Guarantee Corporation's (PBGC) Inspector General aggressively investigated the former head of the agency, Charles Millard, and has challenged the acting director about providing inaccurate information to Congress.  Despite the potential risks of being replaced, these IGs have not been timid about challenging their agencies to improve.

Because of the way section 989B is currently drafted, these IGs could be summarily dismissed soon after the bill is signed into law.  Under this provision, each IG could continue to serve but only until the President nominates a replacement.  Once the President makes a nomination the IGs would no longer enjoy legal protections for their independence and would become instant lame ducks.  In fact, SEC Inspector General Kotz recently stated that if this provision becomes law it will effectively end some of the ongoing investigations his office has at the SEC.

There is a practical problem with Presidential appointments as well.  This administration does not have a great track record in filling vacancies in an expeditious manner.  Having no watchdog on duty is a concern for all Americans.

There are over a dozen IG positions where there is a vacancy, an acting, or an interim IG.  The administration waited 18 months to appoint an IG at the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae. That's 18 months without strong leadership able to direct audits, investigations, or examinations of agency policy.  That's 18 months without a cop on the beat.  Maybe that's the way the administration likes it.  I'm sure the bureaucrats at these agencies would enjoy life more without an Inspector General asking questions. Imagine if the SEC were not held accountable for their failures in stopping the Madoff or Sanford ponzi schemes.

This bill would create five lame ducks in the IG community and the potential for more extended vacancies unless we fix it.  There would be far less oversight during the lengthy transition process under the current bill with no guarantee of vigorous oversight by the new appointees.  Essentially, this provision could politicize the positions that have historically been filled by career public servants.

I know the goal of this provision is to enhance IG independence, but there are better ways to protect the independence of these IGs than by replacing them with Presidential appointees.

We should do it more effectively and make sure that all agency-appointed IGs are more independent, not just the five singled out in the bill.  That's why I'm offering this amendment.  The Grassley-McCaskill amendment simply applies the same sort of protections that have worked for one of the 30 agency appointed IGs to the other 29 agency-appointed IGs.  The Postal Service Inspector General enjoys enhanced protections and my amendment would extend those protections more broadly.

Our amendment would strike section 989B of the bill and replace it with a system that will bring true reform, independence, and accountability.

It would make the IGs report to the entire bi-partisan board or commission heading their agency, and the IG could only be removed for cause by a 2/3 majority vote of the bi-partisan board or commission.  This would ensure that should an agency make a political attempt to remove an IG, there would be the possibility of dissent among the board or commission members.

These are serious protections from political interference currently enjoyed by the Postal Service IG, but it also allows an IG to be held accountable when necessary.  These same provisions have worked for the Postal Service Inspector General and it is time to extend them to the all the agency-appointed IGs.

It also holds IG's accountable by requiring that they disclose the results of all their peer reviews in the semi-annual reports to Congress, thereby making them public.

This amendment strikes the right balance, improving both independence and accountability of all DFE-IGs.  In fact, even the White House has gone on the record telling the Center for Public Integrity, "the administration does not support in any way politicizing the function of the Inspector General and we have not proposed these changes" in the Dodd/Lincoln substitute.

The amendment is supported by the non-partisan Project on Government Oversight and has bi-partisan support from members on the Committee with jurisdiction over the IG Act.  This important amendment deserves an up-or-down vote at the appropriate time.

I yield to Senator McCaskill.