The opinion of the court was delivered by: ROSENBERG
This matter is before me after the filing by the Inspector General (IG) of the Department of Defense (DOD) for the United States of America on December 27, 1984, of a Petition For Enforcement of Administrative Subpoena by the Government, pursuant to the Inspector General Act of 1978, as amended 5 U.S.C. Appendix § 6(a)(4) and 28 U.S.C. § 1345, against Westinghouse Electric Corporation (Westinghouse) (respondent). The subpoena was served upon the respondent Westinghouse on September 28, 1984, and after Westinghouse refused compliance, this action followed.
Joseph H. Sherick, the Inspector General, on September 27, 1984 issued the subpoena duces tecum to an official of the respondent, commanding his appearance before Mr. Newton H. Davis, Branch Manager, Defense Contract Audit Agency (DCAA), Pittsburgh, Pennsylvania, or his designees, at 1000 Liberty Avenue, Room 2112, on October 11, 1984, at 9:00 o'clock a.m., and to bring "the following information, documents, reports, answers, records, accounts, papers, and other data and documentary evidence pertaining to internal audits for the period January 1, 1982 through October 1, 1984, for which costs have been incurred by Westinghouse Electric Corporation and any of its segments and allocated to contracts awarded by the Department of Defense or to any subcontractors under the Department of Defense prime contracts to include the items listed in Appendix A which are necessary in the performance of the responsibility of the Inspector General under the Inspector General Act to produce and supervise audits and investigations relating to, and to promote economy, efficiency, and effectiveness in the administration of, and to prevent and detect fraud and abuse in, the programs and operations of the Department of Defense."
After the respondent filed an answer, the Chamber of Commerce of the United States (Amicus) averring it was the largest federation of business and professional organizations in the United States and that it represented the interests of its members in matters before the court, filed a motion for leave to present a brief amicus curiae on March 4, 1985. In its brief it attempted to support the position of the respondent by arguing that internal audit departments of corporations must be independent and confidential in order to be effective. On May 10, 1985, the Institute of Internal Auditors (Amicus) averred it is an international organization comprised of internal auditors in both government and private sectors, and filed a Motion to Submit Brief Amicus Curiae. It also practically reiterated the position of the Chamber of Commerce, adding that allowing the government "unrestricted access" to internal audit reports would ultimately discourage detection of fraud, waste and abuse by the internal auditors. These motions were granted.
Initially, the respondent requested discovery in the proceeding of the depositions of Joseph H. Sherick, the Inspector General of the Department of Defense, James H. Curry, Assistant Inspector General for Audit Policy and Oversight of the Department of Defense, Derrick Vander Schaaf, Deputy Inspector General of the DOD; Charles O. Starrett, Director, Defense Contract Audit Agency, and Newton H. Davis, Pittsburgh Branch Manager of the DCAA.
After conferences among counsel, the documents sought by the respondent were: a DCAA memorandum request for a subpoena directed to the IG, dated August 14, 1984; a DCAA memorandum request for a subpoena directed to the IG, dated August 16, 1984; guidelines for the issuance of IG subpoenas dated October 7, 1983; Working Draft, Report on Oversight Review of DCAA Access to Contractor Records, dated January 11, 1983; and the Access to Records Summary of Twenty-three Field Offices with a handwritten tabulation of this summary, all of which were submitted to me for in camera examination.
Pursuant to agreement of counsel, a court-supervised deposition of Sherick and Curry was conducted on February 26, 1985. Subsequently, after frequent consultations and after judicial conciliation between counsel, both parties agreed that the government's production of all the previously listed documents requested by Westinghouse, except for the field office summary, along with the additional court-supervised depositions of Starrett and Davis, would satisfy the respondent's Motion For Leave to Take Discovery. After a date was scheduled for those two depositions, both parties filed a stipulation on May 2, 1985, which obviated the need for an in-court examination. Thereafter discovery was closed. A final argument was had on May 15th, at which time the stipulation and exhibits were admitted into evidence.
Joseph H. Sherick, the incumbent Inspector General for the Department of Defense had been in government service for over 40 years. He was previously selected and appointed by the Secretary of Defense to be the Assistant to the Secretary for Review and Oversight. After the enactment of the 1982 Amendment to the Inspector General Act of 1978, President Reagan, obviously impressed with his career and service as anticipated, appointed him as the Inspector General for the DOD by authority of the 1982 Amendment. He was accepted by the Senate with approval and took office in April, 1983.
The IG stated that he has oversight responsibility for all Department of Defense programs and activities, and to carry out this vast responsibility he is authorized to utilize and coordinate all of the audit, investigative and inspection organizations and resources of the DOD. Although he has an organization of approximately 1,000 people "to promote economy and efficiency as well as to prevent and detect fraud and abuse in a Department of 3 million", the IG must rely upon the resources of the 19,000 auditors and investigators of various accounting agencies in the DOD. It is the interrelation between these agencies which has become the focal point for the refusal by Westinghouse to comply with the subpoena.
The IG has all encompassing oversight responsibility for DOD programs and activities. To carry out this assignment, part of his duties include an evaluation of the "quality and breadth" of each organization that is guided and supervised by the IG. Pursuant to these oversight activities, when the IG uncovers "weaknesses and vulnerabilities" in the practices of the office of the IG or any other DOD auditing agency, the IG is then required to take measures to "reduce these vulnerabilities". (Sherick Affidavit, Document 1, page 1).
In June and July, 1983, the IG initiated a review of certain activities of the DCAA, the largest auditing agency in the DOD. He was thereafter periodically advised as to its progress by review of James H. Curry, the Assistant Inspector General for Audit Policy and Oversight. One area which was covered was the question of the availability to DCAA of certain records by DOD contractors. The records under question included: Board of Director meeting minutes; certain communications between a company and its outside public accounting firm; certain "audit trail" documents, and the reports of the internal audit staff of the contractors.
In each year between at least 1976 and 1983, Westinghouse presented information to the DCAA relating to the costs incurred by its internal audit activity involving defense contracts. A certain proportion of these costs were charged to the government and it approved the payment of these costs. For example, in 1983 the government was billed for and paid the sum of $554,000 as its allocated portion of internal audit costs. Following review and discussion of the allowability and allocability of such costs, the DCAA, each year, recommended approval of those costs for payment by the government until August, 1984. Prior to August, 1984 the audit costs of the respondent were approved on the basis of records other than internal audit reports and without DCAA's access to those reports (Stipulation, Document 31 and the Muhlberg Affidavit).
The evidence in the instant case, consisting of affidavits, exhibits and testimony is primarily concerned with: the IG's review and recommendations of June and July, 1983 regarding DOD auditors' access to contractor records; the request by DCAA through two August 1984 memoranda for the issuance of a subpoena; and the motivation for the issuance by the IG of the September, 1984 subpoena directed to the respondent for the production of internal audit report documents from January 1, 1982 through October 1, 1984 of DOD contracts of the corporation.
Curry testified that the purpose of the IG's July, 1983 review of DCAA audit procedures was in response to allegations about certain areas of weakness therein, such as the access by DCAA to records, the handling of suspected fraud, the reporting procedures on savings and the relationship between the investigators and auditors. The final report concerning this review was issued on March 4, 1984 (Exhibit C-1, admitted February 26, 1985).
In connection with the preparation of the DCAA report concerning their access to contractors' records, the DCAA personnel visited 28 field offices and determined to what types of documents the government auditors had access. Of 23 major defense contractor locations, where there was internal audit department functions, 6 of the contractors' locations were not providing DCAA with "complete access", which included the reports from their internal audit departments (Document 18, pages 23 and 29).
Subsequent to the compilation of this report, 4 of the contractors agreed to provide access to their internal audit reports, so as of the time of his deposition Curry stated that 21 out of 23 of the defense contractor locations investigated were providing DCAA with access to their internal audit reports.
Of the corporations providing DCAA access to internal audit reports, some of them may not have provided all of their internal audit reports to the DCAA. However, Curry testified that he knew of no instance where an internal audit report requested by the DCAA was denied by any of the 21 contractor locations providing access. In addition, a survey on July 20, 1984 of over 200 contractor locations indicated that the DCAA was obtaining access to internal audit reports at all except 16 of them (Document 18, page 44).
The IG issued a Memorandum on September 19, 1983 providing that the DOD audit and investigative agencies which are under his control may request the issuance of an IG subpoena in support of audits and investigations conducted by them, where that audit or investigation is in furtherance of a statutory function of the IG and within the scope of the IG's statutory power. This memorandum was issued by the IG to all relevant auditing segments of the DOD, the "effective organization" of the IG, including the Army Auditing Agency, Navy Audit Agency, Air Force Audit Agency, DCAA, and the Criminal Investigative Divisions of the Army, Navy and Air Force. The memorandum was admitted as respondent's Exhibit S-2 and it outlined the policy of the office of the IG with regard to audits, investigations and the issuance of subpoenas. In explaining the policy the IG testified:
"I'm not in the business of issuing subpoenas. What I am in the business is of investigating and auditing and inspecting. And if I feel that an inspection that they have under way is of vital interest to the Department of Defense, and comes within my function, and is one in which I should give it priority, I will pick up that investigation and incorporate it as part of my function and responsibility. I will designate it as such and carry it out, using one of those service organizations, if they're already involved in that subject . . . ." (Sherick testimony, Tr. page 131)
In February, 1984, DCAA advised Westinghouse that it wished to conduct what it called an "inter-operational audit" of the Westinghouse internal audit functions. On June 11, the branch manager of DCAA, Pittsburgh office, set forth the DCAA rationale for requesting both the operational audit and the internal audit reports. DCAA indicated that its purpose was to obtain support for its contract auditing function. Westinghouse declined to comply with the DCAA request because these it said were internal audit reports or management documents which do not reflect incurrence and allocation costs.
The two August memoranda of DCAA (Stipulation Exhibits 1 and 2) stated that the internal audit reports "are needed for audit reviews which include in their objectives and the promotion of economy and efficiency and the prevention of fraud and abuse . . ." In addition, both memoranda set forth the background of the Westinghouse audit, and the circumstances surrounding the refusal by Westinghouse to produce the documents.
After receiving the DCAA memoranda and their request for the issuance of a subpoena, the IG and his staff carefully examined this situation because, as the IG said, "I was really concerned, very much concerned, because the first thing I had to do was determine that if - if this was an indication to me that there was a potential for fraud, waste or mismanagement of Government resources and Government assets at the Westinghouse Plant" (Document 18, page 124).
After the IG received the first memorandum from the DCAA which indicated that there was a problem with access to certain records of the respondent, the IG stated that he was "concerned about that". He further asserted that this memorandum (of August 14, 1984) provoked him to ask ". . . why one of our major contractors would be uncooperative . . . what the background of the whole problem was . . . and how long this situation had gone on . . ." (Document 18, pages 114 to 118).
After receiving the second memorandum from the DCAA, the IG testified that ". . . I was appalled that one of our major contractors would fail to cooperate with us. My sentiment was how could this contractor be so insensitive? Here, we are in the Department of Justice being criticized up and down, day and night, for not being concerned about utilization of taxpayers' resources and he's a part of the defense industry. And yet, when we ask him for reports that are routine parts of his internal control system, he refused to cooperate with us, denies us these reports. And then when I looked at the history, it showed that he had been denying them for a long time" (Document 18, page 115).
The two August memoranda contained the first request for a subpoena that the IG had ever received. The IG stated that the subpoena was not "automatically" issued, but instead the request for these documents was taken over by the IG and became his own audit (Document 18, pages 149-153).
After receiving the two memoranda from DCAA in August, 1984, the oversight responsibility for the case of respondent's refusal to produce the internal audits became that of the IG. Sherick testified that at that point ". . . I made it my responsibility . . ." and that ". . . It was mine and no one else's . . ." even though he used the auditors and staff of the DCAA who were then acting under his direction (Document 18, page 142). The IG emphatically stated "I did not ever think that my subpoena was a tool of DCAA. It is not a tool of anybody's but me". (Document 18, page 137).
Westinghouse is the thirteenth largest contractor with whom the DOD deals. Each year it has approximately nine billion dollars of open contracts with the DOD and two million dollars of direct contracts. At any one time, the respondent has approximately two hundred million dollars of government-owned material and property in its plants and facilities. Therefore, according to the IG, it is important for the government to know about any embezzlement
or fraud since it can be assumed there would be some "impact" on the government from any of these activities (Document 18, pages 97-98).
Sherick testified that he believed it was necessary to examine the internal audit reports of contractors in order to evaluate the control systems of a company which would insure that costs were being properly allocated to government contracts. Sherick agreed with Curry that a sampling procedure involved in internal audits could be duplicated by the government, but that it was more cost effective to have the actual reports of the contractor, and that such reports would be useful in evaluating the actions taken by a contractor after uncovering fraud or embezzlement (Document 18, pages 96 and 98).
The IG stated that there were a number of considerations and questions he had when he evaluated the August requests of the DCAA. The IG wanted to know: whether the accounting records and data systems of the respondent were inaccurate or unreliable; whether the work of the internal audit staff was "effective in policing itself against possible fraud, waste and mismanagement"; whether the respondent was equally diligent in searching for waste or abuse in government contracts as compared to commercial contracts; whether the act of refusal of respondent in producing the documents was itself an indication of possible frustration by Westinghouse of the efforts of its own internal audit staff with regard to possible unremedied practices of the corporation, possible nonadjustment of identified accounting errors, or perhaps failure to investigate suspicions of misconduct (Sherick Affidavit, pages 4, 5). Finally, Sherick stated that he wanted to see the actual internal audit reports which were being paid for by the government, and "to see if the government could save money by reducing its audit efforts by relying on the work already performed by the internal auditors" (Sherick Affidavit, page 5).
The IG testified that the DCAA independently continued to administratively process the demand for the internal audit reports of the respondent by withholding payments to Westinghouse and by filing certain forms. However, the IG did not "adopt" or attempt to enforce the demand of the DCAA but instead the IG made his "own demand", motivated in part by Sherick's desire to learn what was behind the respondent's refusal, and because he ". . . had a suspicion that there's something there that they don't want us to have". (Document 18, pages 144, 145).
The IG had no intention to "sublet" any of his powers to the DCAA, but he chose DCAA to initially receive the information requested by the subpoena because they were familiar with the situation; they had their auditors already at the location of the respondent's headquarters in Pittsburgh; they knew what records were involved and they had long experience in reporting back to the IG for direction. The IG considered using some of the limited number of auditors in his own staff; but at that time his auditors were "tied up in my spare parts reviews". In addition, using the DCAA auditors would save the government travel expenses and the expenses involved in new auditors learning the contractor's system. (Document 18, page 198).
The IG stated that his office "will actively involve ourself in the analysis of the material . . ." produced by the subpoena (Document 17, page 208). As the audit of the subpoenaed documents proceeds, the IG will personally be informed of the findings through Mr. Eberhardt, of the IG's office. The IG assured the court that his office routinely handles the most secret and sensitive matters, and that he considers protecting the confidentiality of the Westinghouse records to be a "solemn trust" (Document 18, page 177, 210).
The DOD contract business with the respondent is in the billions of dollars each year for all kinds of contracts. Some are cost reimbursement type, incentive, time and materials, labor hour, price redeterminable, or any combination thereof. There is no indication upon what basis the more than two billion dollars of work in progress and facilities and material in their plant is being used for defense contracts. It would be a matter of logic to ascertain how the government funds have been accounted for by the respondent as to contract prices, repairs, losses or guarantees.
Although the respondent has raised no constitutional questions here, and since it does question the legal and functional capacity and power of the IG to issue this specific subpoena duces tecum for the particular documents which he requested, and has also asserted a lack of intention on the part of Congress to grant power to the IG to subpoena the particular internal audit documents of the respondent, it becomes necessary that we examine both the original Inspector General Act of 1978, 5 U.S.C. Appendix 3, and the Amendment of 1982, 5 U.S.C. Appendix 3, § 8, as well as the Congressional Report of 1978 and the history and hearings in the Senate in connection with the amending Act of 1982, before the Committee on Governmental Affairs, United States Senate, Ninety-seventh Congress, First Session, Part 1, June 18, 1981 and Part 2, March 25, 1982. These include Senatorial hearings conducted by the Senate as they relate to the contemplated Act of 1982.
The Inspector General Act of 1978 (1978 Act) established the office of Inspector General in seven executive departments and six executive agencies and consolidated existing auditing and investigative resources to more effectively combat fraud, waste and mismanagement in the programs and operations of those departments, and agencies (1978 U.S. Code, Cong. & Ad. News, page 2676).
Congress provided in the 1978 Act that each IG would be an independent official and appointed by the President of the United States and confirmed by the Senate. It provided for their purposes and duties and gave each the mandate "to consolidate existing auditing and investigative resources to more effectively combat fraud, abuse, waste and mismanagement in the programs and operations of those departments and agencies". It stated rules and regulations by which he was to be governed and by which he would be accountable, particularly, to the Congress.
We must remember here that the Inspector General Act of 1978 did not create an IG for the DOD, as we shall presently see and understand; however the 1978 Act became the foundation for the changed enactment of 1982 which did create the IG of the DOD.
"It shall be the duty and responsibility of each Inspector General . . .
To effectuate this broad mandate over "all matters" relating to economy and efficiency of an agency, Congress empowered each IG:
". . . (4) to require by subpena (sic) the production of all information, documents, reports, answers, records, accounts, papers, and other data and documentary evidence necessary in the performance of the functions assigned by this Act . . . ."
Therefore, in examining only the language of the 1978 Act (which was later made applicable to the IG of the DOD), for the subpoena in the instant case to be enforceable, the internal audit reports sought must be "necessary" for the IG's oversight responsibilities with regard to "all matters" relating to economy and efficiency of the DOD.
Both the 1978 Inspector General Act and the Amendment of 1982 are not only unambiguous, but they speak clearly and distinctly for the purpose of preventing and detecting ". . . fraud and abuse in, programs and operations administered or financed by . . ." the specific departments. However, because the respondent in raising the contentions as it does, seems to have confused a comment in the Congressional Report for the 1978 Act and has disregarded the specifics in both Acts, but particularly in the Amendment of 1982, and when Congress has spoken as vehemently as it did here, it is appropriate, while not necessary, that these be pointed out to add further forcefulness to the statutory text.
In analyzing an issue of statutory construction we "'must begin with the language of the statute itself'". Bowsher v. Merck, 460 U.S. 824, 830, 75 L. Ed. 2d 580, 103 S. Ct. 1587 (1983) (quoting cases).
The case of Train v. Colorado Pub. Int. Research Group, 426 U.S. 1, 48 L. Ed. 2d 434, 96 S. Ct. 1938 (1976) re-enforced what was stated in United States v. American Trucking Assns., 310 U.S. 534, 543-44, 84 L. Ed. 1345, 60 S. Ct. 1059 (1940). "To the extent that the Court of Appeals excluded reference to FWPCA's legislative history in discerning the meaning of the statute, the court was in error, for 'when aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no 'rule of law' which forbids its use, however clear the words may appear on 'superficial examination.'"
It was stated in Stafford v. Briggs, 444 U.S. 527, 63 L. Ed. 2d 1, 100 S. Ct. 774 (1980), at page 536,
"Our analysis does not stop with the language of the statute; we must look to 'the objects and policy of the law.' Brown v. Duchesne, 19 How. at 194. In order to 'give [the Act] such a construction as will carry into execution the will of the Legislature . . . according to its true intent and meaning,' ibid, we turn to the legislative history. Schlanger v. Seamans, 401 U.S. 487, 490, n. 4 [28 L. Ed. 2d 251, 91 S. Ct. 995, n.4] (1971). See also United States v. Culbert, 435 U.S. 371, 374, n.4 [55 L. Ed. 2d 349, 98 S. Ct. 1112, n.4] (1978); Train v. Colorado Public Interest Research Group, 426 U.S. 1, 9-10, 96 S. Ct. 1938, 48 L. Ed. 2d 434 (1976).
The respondent insists that the clause in the Congressional Report of the Inspector General Act of 1978, at page 2709, that "The use of the subpoena power to obtain information for another agency component which does not have such power would clearly be improper", be translated in its strict literal sense. This would be unreasonable, particularly in light of what remedies Congress was attempting to effect by means of the creation of IGs in all departments, except in the DOD, and in light of the fact that it took another amending statute, after three years of concerned study, to create the IG for the DOD with special, additional statutory provisions.
"'We think these laws ought to be construed in the spirit in which they were made - that is, as founded in justice - and should not be strained by technical constructions to reach cases which Congress evidently could not have contemplated, without departing from the principle upon which they were legislating, and going far beyond the object they intended to accomplish. Stafford v. Briggs, supra, at page 545 '."
In order to determine if Congress intended to limit this expansive language, I have thoroughly examined the legislative history and surrounding statutory circumstances of both the 1978 Inspector General Act and the 1982 Amendment. See North Haven Board of Education v. Bell, 465 U.S. 512, 522, 102 S. Ct. 1912, 72 L. Ed. 2d 299 (1982).
Congress outlined the tremendous scope of the problem indicating that fraud, abuse and waste in the operations of Federal departments and agencies and in federally funded programs were reaching "epidemic proportions". The problem was not new, but the evidence indicated that waste and mismanagement was now of an "extraordinary magnitude". The "cardinal principle" that had been violated in the previous auditing structure was that the auditors and investigators were under the supervision of the officials of the programs which they were attempting to audit and investigate. (1978 U.S. Code Cong. & Ad. News, 2679-2681), Congressional Report).
Congress finally made a big step forward. It enacted the Inspector General Act of 1978. By this statute it created numerous inspector generals, one for each department or agency.
They had the power of subpoena to inspect all documents necessary for the ascertainment of fraud, abuse, waste and mismanagement in government contracts.
While the 1978 Act did not give the IG powers to administer or to prosecute where the facts of the case might be such as would require these matters to be done, it did give him the power to report to the proper department and agency for such action and in order to permit the IG to investigate and ascertain the factual matters required for his duties, it gave him the power "to subpena (sic) such materials as he deems necessary to carry out his duties and responsibilities . . ." (§ 6(a)(4), page 2708).
Oddly enough, while the legislators were considering the adoption of this statute and its particular wording, it spoke very insistently of the need of the IG of the DOD, but in the adoption of the Statute, the DOD was disregarded.
At its inception, the Congressional Report
at page 2676 states:
"The purpose of this legislation is to create Offices of Inspector Auditor
General in seven executive departments and six executive agencies to consolidate existing auditing and investigative resources to more effectively combat fraud, abuse, waste and mismanagement in the programs and operations of those departments and agencies." (footnote added)
Congress stated at page 2682:
". . . it is a fact of life that agency managers and supervisors in the executive branch do not always identify or come forward with evidence of failings in the programs they administer."
On page 2702, under Section 4, "Duties and Responsibilities", the Report specifies the functions of the Inspector General, Subsection (a)(1), to provide supervision and coordinate policy direction and conduct, supervise audits and investigations relating to programs and operations of his establishment; under Subsection (a)(2) to make recommendations to his agency head and the Congress; Subsection (2)(3) to recommend policies for and to supervise or coordinate activities carried out by such agency or financed by such agency for the purpose of promoting economy and efficiency and detecting fraud and abuse in its programs and operations.
The Congressional Report, however, bespoke itself when it stated at page 2678:
"The committee has decided that the legislation should also cover the Department of Defense. The legislation contains several provisions necessary to meet the unique needs of the Defense Department". (Emphasis added).
And yet, when Congress enacted the final version, the IG for the DOD was omitted. The explanation is eventually supplied by the Senators at the two hearings held on June 18, 1981 and March 25, 1982.
In the meantime, the Secretary of Defense supplied his own employees as various inspector generals in the defense agencies. But the Secretary also appointed one whom he titled the Assistant to the Secretary of Defense for Review and Oversight (Tr. page 86), and whom he used as were the other statutorily appointed inspector generals in accordance with the provisions of the Inspector General Act of 1978. This did not meet with the approval of the Senators and they expressed themselves openly in the hearings held for the purpose of providing an Inspector General for the Department of Defense and two other departments, the Department of Justice and the Department of Treasury.
At the hearing before the Committee on Governmental Affairs in the United States Senate, Part 2, on March 25, 1982
for Inspector General Legislation, Chairman Senator William V. Roth, Jr., amongst others made clarifying remarks regarding the purpose and intention of the legislation which was to be considered by the Congress.