THE COMMITTEE CHAIRMAN'S OPENING STATEMENT SUMMARIZED THE FINDINGS OF A GENERAL ACCOUNTING OFFICE (GAO) REVIEW THAT AUDITING OF FEDERAL GRANTS WAS SO INEFFECTIVE THAT MISUSE OF FUNDS CANNOT BE PREVENTED. THE FEDERAL AGENCY POLICY OF AUDITING INDIVIDUAL GRANTS RATHER THAN THE TOTAL GRANT FUNDS OF A RECIPIENT ALSO PROHIBITS ANY ONE AUDITOR FROM OBTAINING AN OVERVIEW OF GRANTEES' PRACTICES. THE COMPTROLLER GENERAL OF THE UNITED STATES DESCRIBED THE GAO REPORT AND ITS RECOMMENDATIONS, STATING THAT FROM 1974 THROUGH 1977, 80 PERCENT OF $3.7 BILLION IN FEDERAL GRANT FUNDS WAS NOT AUDITED BY FEDERAL AGENCIES. HIS SUGGESTIONS INCLUDED LEGISLATION TO ESTABLISH STANDARDIZED AUDITING REQUIREMENTS FOR ALL FEDERAL GRANTS AND SINGLE AUDITS OF MULTIFUNDED RECIPIENTS. TESTIMONY GIVEN BY AN OMB OFFICIAL CITED A LACK OF COORDINATION BY FEDERAL AGENCIES IN THEIR APPROACHES TO GRANT AUDITING AS A MAJOR PROBLEM AND DISCUSSED OMB'S EFFORTS TO IMPROVE THE SITUATION BY DEVELOPING A STANDARD AUDIT GUIDE AND REVISING OTHER DIRECTIVES. OMB'S TIME SCHEDULE FOR IMPLEMENTING THE GAO RECOMMENDATIONS WAS SUBMITTED. ON THE SECOND DAY OF HEARINGS, OFFICIALS FROM THE DEPARTMENTS OF HEALTH, EDUCATION, AND WELFARE (HEW), LABOR, AND THE ENVIRONMENTAL PROTECTION AGENCY (EPA) COMMENTED ON THE GAO REPORT AND THEIR PARTICULAR AUDITING PROBLEMS. HEW AND LABOR AGREED WITH THE SINGLE AUDIT APPROACH, BUT EPA FELT THAT THIS HAD VERY LIMITED APPLICABILITY TO THEIR LARGE CONSTRUCTION GRANTS PROGRAM. HEW AND LABOR REPRESENTATIVES STATED THAT INADEQUATE PERSONNEL RESOURCES LIMITED THEIR AUDITING CAPABILITIES. TESTIMONY FROM REPRESENTATIVES OF THE NATIONAL STATE AUDITORS ASSOCIATION AND THE NATIONAL ASSOCIATION OF STATE AUDITORS, COMPTROLLERS, AND TREASURERS CONCLUDED THE HEARING. BOTH DISCUSSED THE ROLE OF STATE AND LOCAL GOVERNMENT AUDITORS IN AUDITING GRANTS AND CRITICIZED THE FEDERAL GOVERNMENT FOR NOT PROVIDING ADEQUATE GUIDELINES FOR THESE AUDITORS AND NOT MANDATING THE SINGLE AUDIT CONCEPT. THE APPENDIXES CONTAIN ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD BY THE ASSOCIATION OF GOVERNMENT ACCOUNTANTS AND AUDITORS FROM SAN DIEGO AND WASHINGTON STATE.