Financial Reform Bill Would Have White House Name Inspectors General at Financial Agencies

May 11, 2010— -- A provision inserted in the Democrats' financial regulatory bill would make the positions of five inspectors general at financial agencies into political appointees.

Inspectors general are the government's in-house watchdogs, the ones with power to find and stop wrongdoing within their agencies.

The proposal to have them picked by the White House comes at a time when many inspectors general jobs remain unfilled, according to a review by the Center for Public Integrity. The financial bill, which includes the change, is being debated by the Senate.

The inspectors general who would be subject to the new proposal would include those at the Federal Reserve, the Commodity Futures Trading Commission, National Credit Union Administration, Pension Benefit Guaranty Corporation and the Securities and Exchange Commission. These watchdogs are currently hired by the head of each agency and report to the Board of Directors. They are not subject to the Senate confirmation process.

Supporters of the provision say a presidentially-appointed inspector general would be more independent, but the proposal has "raised a red flag," said Center for Public Integrity reporter John Solomon, who first raised the issue in a report last week.

Thirty-three of 73 total inspectors general are appointed by the president, including at the CIA and State Department. But more than half are independent, including the one for the SEC, and making them political appointees could compromise the credibility of their findings, Solomon said.

For example, SEC inspector general David Kotz is investigating whether the Obama White House and Democratic lawmakers may have put undue pressure on SEC regulators to delay the announcement of major regulatory action against Goldman Sachs.

If Kotz becomes a political appointee as a result of this provision, many people may find his investigation less trustworthy.

"He [Kotz] said to me very frankly, I'm going to become a lame duck, and won't be able to pursue what has become a very politically-charged investigation," Solomon said.

The other concern is the length of time it would take to appoint the inspectors general. At least 15 of the 73 inspectors general, chief auditors or whistleblower protection jobs across government are vacant or are being covered by acting officials, according to a Center for Public Integrity review.

If it has taken so long to appoint people to all these posts, adding five more to the list would just add to the backlog, critics say.

The provision came from an inspector general oversight and accountability bill drafted by Rep. John Larson, D-Conn. Larson's office says the proposal was put forth well before Kotz began his Goldman investigation, and it is designed to make the watchdogs more independent and take them out from underneath the jurisdiction of the agency they are supposed to investigate.

In the Senate bill, Sen. Chuck Grassley, R-Iowa, has proposed an amendment to the rule that aims to change the reporting structure of all 73 inspectors general.

Under Grassley's amendment, inspectors general who are not political appointees would be required to report to the entire Board of Directors, rather than just the head or the commissioner. Additionally, it would take two-thirds of the board to remove the inspector general.

By reporting to the entire board, Grassley said, the dissent in opinion would be on the record and it would make an inspector general more independent. Grassley also argues that if Congress is going to change the inspector general structure, it should be throughout the agencies instead of just targeting five.

When asked about the provision, a White House administration official said: "The administration does not support in any way politicizing the function of the Inspector General and we have not proposed these changes."

The amendment is expected to come up for a vote this week, although the exact timing remains unclear.

Key Watchdog Positions Remain Unfilled

A year into the Obama administration, key watchdog posts remain unfilled. Many of the agency watchdogs -- such as President Obama's pick for the Federal Housing Finance Agency -- have been waiting for Senate confirmation for as long as a year.

There are a variety of reasons, Solomon said, including delays by the White House in naming nominees, and delays by Congress in approving them.

Many of these "jobs simply weren't on the radar," Solomon said. They "haven't risen to the priority of appointing a cabinet secretary or Supreme Court justice."

That may be justifiably so, but even though watchdog positions may not be as high-profile, they serve an important purpose. Watchdogs have been responsible for key investigations in recent years, Solomon said, including passport snooping, catching spies and investigating the destruction of CIA tapes showing harsh interrogation techniques like waterboarding. The consequences of inaction, then, are relatively high.

"If nobody is watching the candy shop, the chances of candy going out the door are much higher," Solomon said.

Among the higher-profile agencies, the State Department has had no inspector general since 2007. The CIA's inspector general retired in March of last year, and the agency has yet to have a permanent head.

It's not just presidentially appointed positions that are missing. The House of Representatives is looking for a new inspector general after the person who held that post resigned in December, according to the Center for Public Integrity report.

The position of the comptroller of the Government Accountability Office has been overseen by acting comptroller General Gene L. Dodaro for more than two years.

The Obama administration has also run into controversy with several of its inspectors general.

Gerald Walpin, the inspector general for the Corporation for National and Community Service, filed a lawsuit for unlawful removal against the administration. He was fired by Obama in June for his handling of an investigation into the use of AmeriCorps funds by a community group called St. Hope Academy.