Full opinion text
OPINION ROSENBERG, District Judge. 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”. The respondent in its answer contended that the administrative subpoena issued by the IG should not be enforced because (1) the subpoena fails to identify the investigation or inquiry to which it relates; (2) the subpoena was issued for the unlawful and improper purpose of obtaining information for another agency, the DCAA, which does not have subpoena power to coerce a settlement of a collateral contract dispute (as to whether the DCAA has a right to examine the respondent’s internal audit reports, an issue which is presently before the Armed Services Board of Contract Appeals for decision); (3) the documents sought are not related to DOD programs nor necessary to the performance of the IG’s statutory functions; and (4) the production would be unduly burdensome. AMICUS CURIAE 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. DISCOVERY 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 concilliation 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. THE CASE 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. When Sherick first came into office he assumed total control and attempted eventually to perform in accordance with the promises made to the Committee in the Part 2 Hearing, infra. 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 15,000 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-l, admitted February 26, 1985). Curry stated that the primary function of any audit is to determine “the adequacy of the internal controls of the activity that’s being subject to audit”. (Document 18, page 26). The purpose for the request of the internal audit reports of a contractor would be to evaluate the efficiency of their internal systems and controls. Therefore, as a preliminary consideration prior to a DCAA audit “the first thing they have to know is the adequacy of the internal controls” (Document 18, page 20). 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 subpoenae. 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. On August 14, DCAA requested the IG to issue a subpoena to respondent for immediate access to all internal audit reports relating to any of their organizational elements which allocate costs to DOD contracts. On August 16, DCAA sent a second detailed letter to the IG requesting the issuance of a subpoena, for all documents generated by the Westinghouse international audit department and stated that the internal audit reports were needed “in order to reach an internal opinion on the reasonableness and allocability of internal audit costs incurred and allocated to government contracts by WEC”. 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 118 to 114). 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 IG repeatedly demonstrated his belief and practice that all of the various audit and investigatory divisions within the DOD were under his immediate control. For example, the IG used the DCAA in his massive spare parts investigation which uncovered lavishly expensive Allen wrenches and hammers (Document 18, page 172). Furthermore, it was not unusual for the IG to not only employ the DCAA in his investigations, but to receive information from the DCAA that would lead to an investigation or other action by the IG (Document 18, page 184). Therefore, it is apparent that the audit and investigatory functions within the DOD are not regimented in a static order, but that all these resources are in a state of flux and can be assembled and reassembled according to the will of the IG. 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. MENS LEGISLATORS 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. The 1978 Act stated: “It shall be the duty and responsibility of each Inspector General ... To recommend policies for, and to conduct, supervise, or coordinate relationships between such establishment and other Federal agencies; State and local governmental agencies, and nongovernmental entities with respect to (A) all matters relating to the promotion of economy and efficiency in the administration of, or, the prevention and detection of fraud and abuse in, programs and operations administered or financed by such establishment, or (B) the identification and prosecution of participants in such fraud or abuse.” 5 U.S.C.Appe. § 4(a)(4). 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, 103 S.Ct. 1587, 1591, 75 L.Ed.2d 580 (1983) (quoting cases). The case of Train v. Colorado Pub. Int. Research Group, 426 U.S. 1, 96 S.Ct. 1938, 48 L.Ed.2d 434 (1976) re-enforced what was stated in United States v. American Trucking Assns., 310 U.S. 534, 543-44, 60 S.Ct. 1059, 1063-64, 84 L.Ed. 1345 (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 ‘[w]hen 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, 100 S.Ct. 774, 63 L.Ed.2d 1 (1980), at page 536, 100 S.Ct. at page 780, “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. [183] at 194 [15 L.Ed. 595]. 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 [91 S.Ct. 995, 997, n. 4, 28 L.Ed.2d 251] (1971). See also United States v. Culbert, 435 U.S. 371, 374, n. 4 [98 S.Ct. 1112, 1114, n. 4, 55 L.Ed.2d 349] (1978); Train v. Colorado Public Interest Research Group, 426 U.S. 1, 9-10 [96 S.Ct. 1938, 1942-43, 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. Mr. Chief Justice Burger cited Brown v. Duchesne, 19 How. 194, at 197: “ ‘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 [444 U.S. 527], at page 545 [100 S.Ct. 774 at page 785, 63 L.Ed.2d 1 (1980) ]’.” 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, 456 U.S. 512, 522, 102 S.Ct. 1912, 1918, 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) At page 2677, the Report summarizes the legislation and indicates that H.R. 8588, as amended by the Committee, requires the appointment of an Inspector General in each of the 13 affected executive departments and agencies; that each requires appointment by the President with the advice and consent of Congress without regard to political affiliation, solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, managements analysis, public administration or investigation. It also details the duties and responsibilities of the Inspector General. 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.” And it follows through at page 2682, with the Inspector, the head of the agency or department, would not be under the supervision of any other official in the agency, and even the agency head would have no authority to “prevent the Inspector ... from initiating the completing audits and investigations he believes necessary”. 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. Excerpts follow: Page 3: “I am particularly concerned about the lack of centralized audit and investigative responsibilities in the Defense Department. Audit resources are so dispersed in D.C.D. that it is almost like straining tea through an ocean fishing net: too many pieces of tea leaf are getting through. Just to use one example, there are over 18,000 employees in D.C.D. performing audit and investigative functions and some $500 million is spent annually to support their activities. Yet these personnel are spread over at least 18 different agencies with D.C.D. and until recently there were some eleven coordinating committees to ensure cooperation among the various audit organizations in D.C.D. Clearly, there is no ‘rapid deployment force’ when it comes to controlling waste and fraud in D.C.D. but rather a mixed jumble of, in many eases, uncoordinated agencies and programs. We must have a strong, statutory Inspector General in place in D.C.D. as soon as possible. We can’t accept fraud in D.C.D. programs, like that which may have resulted in over 80 percent cost overruns for the overhaul of Navy ships, recently, without establishing better mechanisms for controlling fraud. We cannot tolerate bad management practices and effective service coordination without creating an inspector general to systematically review inter-service management and push for improvements”. And Senator Bentsen said at page 8: “Everyone, in other words, knew that there was waste in that huge appropriation, but we didn’t know where to find it. With an independent inspector general at DOD, we’ll all be in a better position to monitor how the hundreds of billions of dollars we appropriate every year for defense are being spent.” (Emphasis supplied). When the dissatisfaction of certain Senators became more manifest and a new amending bill to create an IG for the DOD became more realistic, it appears that the Secretary of Defense also presented a bill which, according to the Senators, would merely have continued on an IG as an employee of the Secretary of Defense. This the Senators did not accept. At the second hearing the Senators practically accused the Defense Secretary of being antagnostic to the bill which would have created an independent IG, primarily because the Secretary wanted to have control over the IG. The Senators on the Committee argued that if the Secretary had control over the IG and could tell him what to do or what he should not do, then he would not be independent. They stated that they would not stand for that. They wanted an independent IG. Deputy Secretary of Defense, Frank Carlueci, argued that the Secretary of Defense should have the power of veto over any matter which the IG would want to process, because of certain problems which would affect the welfare and security of the United States. Senator Prior voiced his fear and stated that he didn’t think that speaks of independence. Senator Eagleton and others voiced their apprehensions to Mr. Carlucci’s testimony, and that if the amendment as requested was approved, it would be merely a “cosmetic” approach. When the amending statute of 1982 was finally enacted, Congress yielded in part to the Secretary of Defense by permitting him a veto power only of such matters as dealt with security in defense but not otherwise. But even in the veto power the Secretary was required to report the facts of the case to Congress within thirty days. THE DEFENSE CONTRACT AUDIT AGENCY (DCAA) RULE Did the Senators in the hearing before the Committee on Governmental Affairs in the United States Senate Second Session, Part 2, on March 25, 1982, contemplate that the DCAA would under the new IG Amendment be an unrelated agency in the Defense Department family of agencies without any obligations to the IG to be? Did the Senators of the Committee at the Part 2 hearing intend that the IG should have no relationship with, or use of the facilities and resources and personnel of the DCAA as with all other component agency parts of the DOD? Inasmuch as the respondent imputes a lack of cohesiveness of the DCAA within the entire family of defense agencies, it is noteworthy that the Senators discussed DCAA’s significance in the 1978 Report. On page 2694, it is stated: “... DCAA does have significant auditing responsibilities, and in the past there has been no systematic cooperation between DCAA and DAS. For example, if DCAA discovers that a contractor is pursuing a course of action which amounts to fraud against DOD, DCAA will share that information with the contracting officer but ordinarily no contact is made with DAS which has the primary responsibility for internal audit of the Department of Defense.” Thereafter the report discusses internal strife and a lack of communication. The Committee said (at page 2696): “But the deficiencies which exist intensify the committee’s belief that the Secretary of Defense, and Congress, need a strong and independent auditing and investigative capability at the OSD level”. Since the GAO reported important improvements by the service itself “to upgrade the placement of auditing in the service and to remove all restrictions on the functioning of the service audit agencies”, the Committee recommended that no “organizational changes be made in the service audit and inspection functions”. Then, at the 1982 Act Amendment hearings, this problem was blared out loud. The respondent objects to the action of the IG’s subpoena of the respondent’s internal audit reports on the theory that it is a device which furthers the ulterior purpose of the DCAA. Accordingly, we should better understand the complex parts of the DOD, and particularly the DCAA. In a conversation between Sherick and Senator Eagleton, the Senator said (Report, page 27): “... there are some 18,000 individuals in the Department of Defense that in one form or another have something to do with auditing, investigating, accounting and the like”; that “there are about 4,000 support people”; that this “included the Defense Contract Audit Agency”; that “[tjhere is an inspector general for each of the services”; and that each of the following have inspector generals: the Army, Navy, Air Force, Marine Corps, Defense Communications Agency, Defense Intelligence Agency, Defense Logistics Agency, Defense Mapping Agency and Defense Nuclear Agency. A summary sheet was prepared for the Committee which is reflected in the Report, page 29. In total the figure for auditors was 13,389 professionals; 4,426 support people; and 2078 augmentees. All were under the command and control of the Secretary. The Senators discussed the DCAA thoroughly at the hearings as is reflected from pages 30 through 39. The Committee was told by Sherick who was then the Assistant to the Secretary of Defense for Review and Oversight that these were experienced auditors and “[t]heir expertise is generally across the board in the evaluation of proposals and the post-award audit of the contract that eventually comes out of that proposal”. (Report, page 32). Senator Eagleton asked Sherick whether his statement would be a fair conclusion and he was told that it would. The statement reads as follows: “... In short, the large part of DCAA’s responsibility is pre-award work. They are not necessarily looking at whether fraud or waste has been committed after a contract has been entered into. They are advisers and not necessarily skeptical critics of the contracting officers, and the contracting processes”. (Report, page 32). Sherick supplemented this with “they are critics in the sense that they disallow and question costs on contracts. That is their job. They do not review the contracting process; that is the function of the internal audit agencies”. As relates to privileged communications, the matter was discussed before the Committee (Report, page 35), and the answer to Senator Eagleton by Sherick was “I think there may be privileged contractor data. DCAA is looking at the contractor’s proposal, and looking at important information that is competitive in nature and shouldn’t be revealed. Beyond that I think all the proposals are open to audit”. Senator Eagleton said he understood and summarized his concerns as follows* (Hearing, Part 1, page 38): First, that an office which performs in certain ways “is destined to be a weak office without adequate resources and without a substantial mandate in the very important area of defense contract and procurement ...”; Second, that the DCAA should not be regarded as sacrosanct; Third, that the DCAA lends a very valuable service in the advisory role to negotiating contract officers who need such auditors at their sides with “a tough auditing capacity”; and Fourth, that . We still need, once you get beyond the advisory role, a tough auditing capacity ...” and that most auditing “is not auditing at all; it is financial negotiating advice that is given to the negotiating team”. Sherick then made the comment (Hearing, Part 1, page 38), that “They (DCAA) have a reputation for being very professional people”. In the Hearing, Part 1, page 40, in one of the written questions of Senator Roth to Deputy Secretary Carlucci, part of the question asked was “... what is being planned to make the DCAA more effective and what role could the proposed Inspector General plan in making this office more effective?” A part of the answer was “... The proposed Inspector General is charged with evaluating and monitoring contract audits and should thereby be able to assist in improving DCAA’s effectiveness”. In a written question by Senator Roth to Deputy Secretary Carlucci, who was insisting that the DCAA belonged with the advisory staff of negotiators for the DOD, even he agreed that if the DCAA was not included in the transfer of offices, the Senate could not be assured that the contract audit principles would be effectively managed and reviewed by the IG. At page 34 of the Hearing, Part 1, it was stated that DCAA audit reports were not always acted upon. And when Senator Eagleton, talking about the performance of DCAA with regard to the report of the GAO, asked in effect of Sherick, the contemplated IG, what would you do to eliminate the problem of the DCAA auditors having too close a relationship with the contractors and not being as vigilant as it should be in its auditing and examining of the records, Sherick said, “I have oversight and evaluation over DCAA and I will look into that matter”. (Hearing, Part 1, page 35). Sherick further answered (Hearing, Part 1, page 34), “That is one of the things I will look into to find out why price negotiating memoranda are not being written and why are they not addressing the auditors’ problems and recommendations. He owes it to the auditor to say why he did not take that advice”. Senator Eagleton then responded, “I hope you will use your influence, Mr. Sherick, to see that it is rectified. It has been a continuing problem ...”. At the Hearing, Part 1, page 37, Senator Eagleton pointed out that the DCAA and also the negotiating contractors and the government contract auditors had limited their own access to some important information, and that “Contrary to both DOD policy and regulations and public law, contract auditors are not always provided with the information necessary to review contractor pricing proposal or contractor cost. Contractor auditors may have compounded the problem by entering into agreements which have limited their own access to contractor data”. All the other Senators echoed this concern that DCAA was not getting all the information to execute its proper functions. The IG Amendment of 1982 did not come by quickly or by unanimous thinking. Various versions in both the Senate and House were argued, mulled over and amended. But the Senate also had some versions backed by the DOD which resisted an independent IG. At the bottom of these versions the main concern was whether the IG was to remain as a DOD employee under the control of the Secretary, or whether a presidentially appointed IG was to be created as an independent official working in that Department with the Secretary. The second and lesser amount of argument related to the DCAA. There were those who argued that DCAA should continue as in the past and those, who eventually prevailed and who backed the idea that the DCAA should be as it is, an agency in the DOD belonging with the other agencies in the Department and under the guidance and direction of an independent IG. THE INSPECTOR GENERAL AMENDMENT OF 1982 The mood and thinking of the Senators who favored a powerful and, independent IG for the DOD during the Part 2 Hearing especially and eventually permeated Congress and it enacted the Amendment of 1982 as it presently exists. It is significant that while the 1982 Amendment creates inspector generals for the Department of Justice, Treasury and Defense, it provided that the first two remain exactly in the same category as all other inspector generals created by the Act of 1978. But it is noteworthy that it made significant changes found in § 8 for the DOD. That reads as follows: “4. ... (c) In Addition to the other duties and responsibilities specified in this Act, the Inspector General of the Department of Defense shall— (1) be the principal adviser to the Secretary of Defense for matters relating to the prevention and detection of fraud, waste and abuse in the programs and operations of the Department; (2) initiate, conduct and supervise such audits and investigations in the Department of Defense (including the military departments) as the Inspector General considers appropriate; (3) provide policy direction for audits and investigations relating to fraud, waste, and abuse and program effectiveness; (4) investigate fraud, waste, and abuse uncovered as a result of other contract and internal audits, as the Inspector General considers appropriate; (5) develop policy, monitor and evaluate program performance, and provide guidance with respect to all Department activities relating to criminal investigation programs; (6) monitor and evaluate the adherence of Department auditors to internal audit, contract audit and internal review principles, policies and procedures; (7) develop policy, evaluate program performance, and monitor actions taken by all components of the Department in response to contract audits, internal audits, internal review reports and audits conducted by the Comptroller General of the United States; (8) request assistance as needed from other audit, inspection and investigative units of the Department of Defense (including military departments); ...” (Emphasis supplied). A proper understanding must be had of the difference between § 8 of the Inspector General Act of 1978 and that in the Amendment of 1982. The Act of 1978 did not create an inspector general for the DOD. All it did was to authorize the Secretary of Defense to provide his own inspector general. This had come about because of the opposition of the Defense Department to the creation of an IG equal to those of other departments. In order to take care of the situation Congress in the 1978 Act then gave special instructions to the Secretary of Defense. Primarily, it required the Secretary to submit to Congress semi-annual reports summarizing the activities of the auditing and investigative units of the department, which Congress, numerically and alphabetically detailed, and § 8(5)(c)(l) authorized the establishment of a task force “to study the operation of the audit, investigative, and inspection components in the Department of Defense which engage in the prevention and detection of fraud, waste, and abuse ...” It provided further of the rights and powers of the task force and regulated its functioning. It provided also that the task force submit a final report to the Secretary of Defense and the Director of the Office of Management and Budget, who may in the form of addenda, provide additional information, which the Secretary shall submit to Congress. Section 8 of the Amending Act of 1982 deals exclusively with IG of the DOD, and while it turned over to the new IG the functions of task force, it prescribed detailedly what the powers were that had been granted to the IG. It is noticeable that the IG of the DOD was given, when requested as needed, assistance “from other audit inspection and investigative units of the Department (including the military departments)”. The DCAA not being excluded was thus included within the whole family of agencies in the DOD. By including the DCAA we see the working of Congress to enable the IG to do that which he was intended to do. Sherick promised Senator Eagleton that “I have oversight and evaluation over DCAA ...”, (Hearing Part 1, page 35), and as the IG of the DOD he has proceeded to effectuate full control and guidance over the DCAA. RESPONDENT’S CONTENTIONS The many contentions of the respondent in its defense resisting the issuance of the IG’s subpoena revolve in the main about two objections. First, that the pronouncement of the Supreme Court in the Merck case, infra, is the law of this case; and second, that Congress pronounced such action as being practiced by the IG now for the benefit of the DCAA to be improper. Several other contentions are also argued. The Merck Case. The respondent and Amici rely heavily on Bowsher v. Merck & Co., Inc., 460 U.S. 824, 103 S.Ct. 1587, 75 L.Ed.2d 580 (1983), to the effect that the Supreme Court said that the Comptroller General could not have access to indirect costs of a contract. The Merck case had three fixed-price negotiated contracts with the Defense Supply Agency and the Veterans Administration for the sale of pharmaceutical products. The prices were based on those in Merck’s catalog. The contracts were negotiated rather than awarded after formal advertising. A negotiated contract is the method authorized by the statute for use in situations in which formal advertising and bidding is deemed impractical or unnecessary (See footnote, page 827, 103 S.Ct. page 1590). Each contract contained a standard access-to-records clause granting the Comptroller General the right to examine directly pertinent records involving transactions relating to the contract. In reliance upon these, the Comptroller General issued a formal demand to Merck for access to a series of documents and records directly pertinent to the contracts. The district court, after the Comptroller General sought enforcement, rejected Merck’s argument that the costs records were not directly pertinent to the fixed-price contracts. Merck also expressed concern in participating with the Comptroller General’s demand without adequate assurance of the confidentiality of the cost data which it was requested to supply. The Supreme Court held that the statutory language “directly pertinent” as authority to the Comptroller General had a restrictive meaning in which Congress intended to prevent “snooping” of private businesses, as was reflected in the Congressional Report. So far as the instant case is concerned, it is to be noted that the Supreme Court was not unmindful that Congress sought in granting the GAO access authority to equip that agency with a tool to detect fraud, waste, inefficiency and extravagance in Government contracting generally. Justice O’Connor handed down the opinion and said (at page 834, 103 S.Ct. at page 1593). “Obviously, broad access to cost records would enhance the GAO’s ability to evaluate the reasonableness of the price charged the Government and to identify areas of waste and inefficiency in procurement”. But because the congressional intent was to protect the privacy of contractor’s records involving non-governmental transactions, the government was precluded from inspecting records of indirect costs. Indirect costs were said to be costs incurred in the area of research and development, marketing and promotion, distribution, and administration, which are not directly attributable to a particular product (at page 826, 103 S.Ct. at page 1590). The court determined finally that (at pages 844-45,103 S.Ct. at pages 1599-1600): “Because of the GAO’s mandate to detect fraud, waste, inefficiency and extravagance through full audits of Government contracts, we cannot accept Merck’s view that the only records directly pertinent to the four fixed-price contracts at issue are those necessary to verify that Merck actually had an established catalog price for the item procured, that it sold the items in substantial quantities to the general public at the catalog price, that it delivered the product specified, and that it received from the Government no more than the amount due under the contract. On the other hand, given the policy of protecting the privacy of the contractors’ business records also expressed in the statutory language and legislative history, neither can we accept the Government’s contention that it must be permitted access to all of Merck’s cost records”. (Emphasis supplied). The present situation is different. The statutes creating the Inspector Generals and their specific powers, especially that of Inspector General of the Department of Defense, contain no limited or restrictive power such as was imposed upon the Comptroller General. There is only a specific veto power imposed on the Inspector General for Defense as it relates to matters of national security when the Secretary may veto the action of the Inspector General and report fully to Congress within 30 days of the circumstances involved and his reasons for the veto. Otherwise, the statute creating the Inspector General of Defense is lavishly concerned with the extraordinary independent, capability and potency of the Inspector General. The Secretary did not veto the instant action of the IG. The Subpoena is Improper. The respondent maintains that the IG may not use the subpoena power in behalf of any other component of the DOD agencies and that includes the DCAA. On this basis it cites the Congressional Senate Report 95-1071, at pages 2676, 2709 of the enactment of the 1978 Inspector General Act. That reads as follows: “The Committee intends, of course, that the Inspector and Auditor General will use this subpoena power in the performance of his statutory functions. The use of subpoena power to obtain information for another agency component which does not have such power would clearly be improper”. Congress had its reasons for omitting the power of inspector generals of the various agencies created under the Act of 1978, in an effort to control, limit and restrict each inspector general within that particular department to not interfere with any other department through any of its agencies. Under the Act of 1982, the IG was given overall power within the DOD of all agencies which composed it. It would seem that the respondent would put the DCAA in the category of an independent functionary over which the IG could have no authority. In the wording of the Defense IG’s authority in § 8 we see that the IG is given power to “initiate, conduct and supervise such audits and investigations ...”; and to “monitor actions taken by all components of the Department in response to contract audits, internal audits, internal review reports”; to “request assistance as needed from other audits, inspection and investigative units of the Department of Defense (including the military departments)”, (Emphasis supplied), as he considers “appropriate”. And thus while the respondent argues that the DCAA is an independent component of the DOD, it is completely available for use when called upon by the IG both as a source of information and to carry our investigative delegations and assignments. Additional provisions in the 1982 Amendment give the IG powers in all agencies of the DOD, including the “military”. While Congress did not intend that any IG created by the 1978 Act would act as a rubber stamp, automatically approving and issuing subpoenas for the use of other departments, it also did not intend to restrict the IG’s own investigations, intra-departmentally no matter how they were commenced but the DOD had no IG as of that time. There is no similar Congressional expression for this intra-agency prohibition of lending