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grants, contracts, and funds appropriated to it by the Congress. The source of funds does not change the nature of the Institution nor does it relieve the Board of Regents of its responsibility to set policy and oversee the management of Smithsonian activities. Furthermore, the source of funds does not change the basic responsibility of the Board of Regents to be accountable for the proper use of such funds. Accountability to the Congress for that responsibility is most fully manifested in the annual reporting requirement (20 U.S.C. 57) imposed on the Board of Regents in the original statute.

To provide an on-going mechanism to ensure accountability the Board of Regents has established a seven-member Audit and Review Committee that meets at least three times each year. Serving on it are five members of the Board of Regents, among which are three of the Board's Congressional members and two former members of the United States Senate. The Committee actively oversees audit activities at the Smithsonian. It receives reports from the internal Office of Audits and Investigations and from Coopers and Lybrand, the outside accounting firm which annually audits both the Federal and non-Federal accounts of the Institution and reports directly to the Audit and Review Committee.

With this as background you will understand the dismay of the Regents at finding that the Smithsonian has been included in Section 5 of S.908 as a "designated Federal entity" and that the Secretary, who is also Secretary to the Board of Regents, would have to report to the Congress semi-annually as if he were the head of an executive department or major agency with an Inspector General. The primary concern is that this substitution of a reporting scheme from the Secretary directly to the Congress would bypass the audit procedures outlines above which are the responsibility of the Board of Regents.

In addition, the Regents are concerned by the provision in the same section that would extend the authorities of sections 4 through 7 of the Inspector General Act of 1978 to the Smithsonian's internal Office of Audits and Investigations and require the Institution to list all audit reports and make them available to the public upon request. The Regents believe these requirements will discourage the internal process of openness and cooperation. In 1977 the same concern prompted the Board of Regents to approve a resolution aimed at protecting the integrity, independence, and confidentiality of the internal audit process; a copy of that resolution is attached.

With respect to the formal audit process at the Smithsonian, which, it should be pointed out, has operated very successfully, the Office of Audits was established in April, 1970. In June, 1985 its functions were enhanced to include investigations to disclose criminal activity involving fraud, waste, and abuse and its name accordingly was changed to the Office of Audits and Investigations.