be lifted and they would not have to do it in the future. Certainly, they were dragging their heels for the first go-around.

On the other hand, concerning the compliance to date, I just got some figures yesterday that I will share with you. In terms of the Office of Revenue Sharing statistics, 10,946 governments are required to be audited. As of March 21, the Office of Revenue Sharing had received approximately 6,400 of the reports.

Of those remaining, the Office of Revenue Sharing has sent out reminders that the audit reports are required and that if the Office of Revenue Sharing does not receive either the audit report or a specific plan for when they will be submitting the audit to ORS, the revenuesharing funds will be temporarily suspended.

Of those outstanding, 3,200 submitted plans and only about 1,000 governments have not responded to the request to date. I have been informed through my contacts with representatives of ORS that the governments will be reminded once again.

The current feeling in Treasury is that the revenue-sharing payments will be withheld. Whether or not that materializes, I think only time will tell. This is the tactic that the Office of Revenue Sharing is using at the present time, and we applaud that effort.

Mr. FOUNTAIN. Dr. Goldberg?

Dr. GOLDBERG. Mr. Staats, what is your opinion as to whether or not the subcommittee should modify the existing auditing requirements to specifically mandate the withholding of funds if a government does not obtain the audit? Further, if it is your advice that language of this kind should be included, should the suspension be a temporary or a permanent loss of money if local governments do not comply?

Mr. STAATS. I will give you my reaction to that. With respect to the loss of funds, I would think it would be temporary until such time as the problem had been corrected.

I believe that all we are suggesting here in our testimony is that the Treasury be given some flexibility where a locality has made a good faith effort to comply, but for reasons which might be pursuasive to the Treasury, has not been able to succeed. We recommend that they be given that flexibility, but conditioned upon-and we would suggest that it be written in-a plan with timetables which would be acceptable to the Treasury as a condition for granting the discretion.

I would think that along with that, if there is a suspension of funds, it should be temporary until the problem has been corrected.

Mr. FOUNTAIN. I am in sympathy with some of the smaller units of government which have limited personnel and a limited tax base, in view of the cost of getting work done. I wonder if many of the States are in a position to assist the smaller units of government.

I imagine that is what many of them are: smaller units of government

Mr. STAATS. I think it is a lot easier now than it would have been a few years ago, Mr. Chairman. We have developed guidelines for audit which have been accepted by the State government organizations and by the public accounting firms.

We also have developed a standard audit guide which should make it possible, whether the audit is conducted by the State or by a CPA firm, to do it much more easily, faster, and with less cost. It is almost

a self-audit arrangement. It is important that it be done in a uniform way. They will all be audited according to the same set of facts.

Mr. FOUNTAIN. You recommended a change in the act to require that the auditing requirements of both OMB Circular A-102 and for revenue sharing be met by a single audit. This raises two questions in my mind.

First: Can a single audit be designed to satisfy both the performance type audit required by some agencies to assure compliance with their program requirements and the financial audit required for revenue-sharing purposes?

Second: Could the objectives of a single audit for each Federal grantee be accomplished by an Executive order instead of amending the Revenue Sharing Act?

Mr. STAATS. It could be done by Executive order. I am not sure whether or not we would have to have any change in the law. I just have to look at that point. I had not focused on it.

Mr. FOUNTAIN. I wish you would submit that for the record. [The material follows:]

Upon further reflection, a legislative requirement implementing the single audit concept would be preferable. Federal agencies and grant recipients have not adhered to audit frequency and coordination requirements contained in OMB circulars. As a result, there are major gaps and duplications in audits of Federal grants. A legislative requirement for a single audit would clearly and unequivocally signify to all involved the importance of the single audit concept and, in our opinion, would have greater influence in achieving implementation of needed audit coverage of Federal grants than an executive order.

The Revenue Sharing Act is a logical vehicle to implement the single audit concept for State and local goverments. The act already requires comprehensive financial audits of recipients' entire financial operations. The law could be expanded to require the use of a standard financial and compliance audit guide that would satisfy both the revenue sharing and the OMB Circular 102 audit requirements.

Mr. STAATS. The other point that you are making is more difficult to answer. The standard audit guide that we have prepared relates to financial audit and compliance, for example, equal opportunity. All the rules and regulations applicable to that grant plus the financial audit is encompassed in the standard audit guide.

It does not include the kind of performance audit or program evaluation, whatever you want to call that, type of review which goes to the effectiveness of the program or whether the program is being carried out with the greatest economy and efficiency. There is no way that we know of that you can have that job done except either by the GAO or by the auditors in the program agency that has responsibility for that grant.

Most of the audits we are talking about are either financial or compliance. In the revenue-sharing area I think it is entirely that.

Mr. JARMAN. I would also like to point out, Mr. Chairman, that the audit requirement found in OMB Circular A-102 is a requirement that will affect all Federal grantees, both State and local governments, as well as private organizations.

I will address my comments only to the State and local levels, if I may. The idea here is to have an audit of the entity rather than have an audit with blinders on and just look at one grant program. It is to look at how the entire system works within that government, how much

control the government has over not just the one program but all programs. The idea is to have it single, to do it once, and to eliminate the disruption in the recipient's operation.

In some cases you have a revolving door of Federal auditors coming in to a government to take a look at its books. You have HEW coming in 1 week with its blinders on. You have the Department of Labor coming in the next week. It is very disruptive.

On the other hand, there are a lot of gaps in auditing. Unfortunately, the gaps are much greater than we would like. In one study, we took a look at-I think it was-73 recipients that handled about $3.7 billion in Federal funds. Rather than finding mostly the duplication that I have just referred to, we found a lot of gaps. In fact, it was to the tune of 80 percent. Those funds had been unaudited from a Federal standpoint.

The idea of the OMB circular is to eliminate both the duplication and the gaps. The question that comes to our minds is: Perhaps we might have some duplication built in when you have a revenue-sharing audit that requires a financial audit of that recipient's entire financial operation. What we are saying is: Let us merge the two requirements together so that it can be only one audit.

Mr. FOUNTAIN. Dr. Goldberg, do you have a followup question? Mr. STAATS. We found in some cases some of the categorical grant programs had never been audited. Others had been audited to death.

Dr. GOLDBERG. For some historical perspective, as Mr. Staats is well aware, a similar situation prevailed with respect to Federal agency auditing of universities until roughly 1965, when a unified audit procedure was adopted. The work has since been shared by the HEW audit agency and DCAA.

The department which has the predominant amount of funds in the institution is designated to conduct the audit. Prior to that time, the colleges and universities were being inundated with repetitive audits of each agency's grants. Now things have been worked out so that either HEW or DCAA does the audit for all Government agencies involved. They make both a systems audit and a compliance type audit.

This does not mean all the problems have disappeared. As a matter of fact, we held subcommittee hearings on this very subject last year, and there are a lot of problems remaining. However, concerning the tidiness of the system and the lack of duplication and waste of resources. I think it is fair to say that the problem has been licked. It appears that the government sector is far behind what has been accomplished with respect to educational institutions.

Mr. STAATS. I think the principle we are talking about here is exactly the same principle that you allude to. We had HEW and DCAA audit the universities. It is the same principle exactly.

Mr. FOUNTAIN. I noted, with respect to enforcement of the nondiscrimination provisions. that ORS has made little progress in establishing and implementing cooperative agreements with State and other Federal agencies. Where such agreements have been made, has GAO evaluated how well those cooperative agreements are working? Mr. CORREIRA. Yes. Mr. Chairman. The only one that was in effect was the agreement with Massachusetts. The others all indicated to us that although they were technically in effect, they were not in operation. About the only extent of cooperation that was taking place was

that with some States, the investigators from ORS would contact the State agency investigators to determine whether an investigation had been done on any complaint that ORS had currently received.

We think that ORS should place a higher priority on trying to work out with the State agencies what could be done in terms of monitoring corrective activities of the local governments. For instance, one of the problems that ORS has had is that once they have resolved a complaint and the local government has agreed to take certain actions, they were not following up on the complaints. We think that the State agency could assist them there.

It appears that ORS just has not pursued the agreement as a viable alternative. The same thing is true of the Federal agreements.

Mr. FOUNTAIN. We will take this up with the Treasury when they testify.

The subcommittee has received an advance copy of the GAO report entitled, "Compliance with the Requirements to Hold Public Hearings on Use of Revenue Sharing Funds." In that report GAO found that about 30 percent of small communities did not hold the first hearing on revenue-sharing funds, as required by the act.

Has this finding been brought to the attention of the Office of Revenue Sharing?

Mr. THURMAN. Yes, sir. It has.

Mr. FOUNTAIN. Do you know what they have done?

Mr. CORREIRA. We gave them a list of the communities that have not held hearings. They were going to notify them.

In fairness to ORS, they do remind the local governments that they are required to hold the hearings. In the last 13 letters that they sent out, on a quarterly basis, 8 of the letters did contain references to holding the hearings.

Mr. FOUNTAIN. I realize that some of these funds are going to areas where the population is sparce. They probably have not had anyone show up for some of the hearings and probably do not see the necessity for it. It is like voting. We do not have a lot of people turn out to vote, but they still have the privilege of voting.

I think for a public official, either elected or appointed, to know that somebody may be sitting in, observing, and taking notes, and taking a look at how he is purporting to spend money, is a salutary thing. I think it makes our public officials more cautious about how they spend

money.

Then, too, I notice you said that few people were showing up at the hearings, and therefore it might be unnecessary to have them. However, it does not take much time for the appropriate official to call a hearing, whether it is for 30 minutes or 1 hour, whatever it is, and give people a chance to show up.

I think there is a tendency in this country, since we have so many demonstrations with big crowds, to think nobody is interested if we do not see a lot of people at a meeting. A single person may be representing a group and that person may go back and engage in a discussion as to whether or not they want to come back and make some recommendations.

I am aware of instances at the local level where special interest groups were prepared to make suggestions to governing bodies but, when they saw how the funds were being allocated, they were inclined

to agree that the local officials were doing a good job of spending the money.

Do you care to comment on that?

Mr. STAATS. This provision had our strong support at the time it was included in the legislation. I think the principle you are talking about is fundamental. It is a little like the audit requirement. Perhaps it takes something like revenue sharing to cause a community to do something which they should have been doing all along.

I recall, when I first went to the GAO, we were looking at some of the problems of communities. At that time the city of Pittsburgh did not even have a printed budget. There had been no opportunity for any comment. That has been corrected, of course.

If the citizens are as concerned about taxes as I believe they are— there is something missing that would explain why they would not show up for a hearing when the locality is discussing not only how they are going to spend the money but how much they are going to spend.

It may be that the local government is not giving enough publicity to these hearings and doing what it can do to encourage people to attend, just like a community can encourage people to get out and vote. It will not force people to get out, but it will at least give them enough publicity and enough encouragement to cause people to take another look and try to arrange their schedules.

Mr. FOUNTAIN. When we considered this legislation last time, we found that in some instances the requirements of publishing a notice in the newspaper and hearings might take just about all the funds some small communities would get. The amounts that some of them were going to get was very small. Do we not have about 17,000 townships that are receiving funds? Of course, $200 is the minimum.

Mr. STAATS. I do think there might be a question here of whether you need two hearings or one. We have suggested maybe one would be enough, when they are looking at the total budget including revenue sharing, but I would think you would still want to identify how much of that is from revenue-sharing funds.

Mr. FOUNTAIN. There was a general feeling in 1976 that one hearing would probably be adequate if it were a good, thorough airing. But there were some subcommittee members who felt strongly that one was not enough.

You raise an extremely important point. The important point is to get the job done, to spend the money properly, and to have local people make an input so that local public officials will know that there are some other needs within the community and other areas where they might need to spend money, even though in truth and in fact, as I think ought to be, they are the final arbiters. They determine where the money is going to be spent.

We had a cross-section panel in our 1975 hearings which included a number of social action groups, labor, the League of Women Voters and the National Association of Manufacturers. I asked this question: Assuming that you have differences of opinion about the purposes for which this money should be spent, is there anyone who feels that a private group ought to make the decision, or is it the responsibility of the elected public officials to make the final decision as to how the funds are going to be spent?