Lau's involvement has prompted a rare congressional inquiry into a department's inspector general, an official whose normal duties are policing the conduct of others and guarding against waste, fraud and abuse.
Documents obtained by The Associated Press show that Lau wrote a Treasury contracting office on Dec. 11, 1994, to select auditor Frank Sato to conduct a management review study of her office. Sato had proposed the study only the day before.
Lau asked that the contract be a "sole source procurement," not to be competitively bid because of an "unusual and compelling urgency" for the review, the documents state.
Treasury quickly approved a $113,000 contract for Sato & Associates. The firm ultimately was paid $90,776, the documents show.
A year earlier, Sato had written the White House personnel office to recommend Lau "very highly" for an inspector general's job, saying he had known her since 1980 and found her to be "a uniquely qualified person with high integrity and character."
Treasury officials say Sato was chosen for the contract because he was a former federal inspector general "uniquely qualified" to review Lau's office and make recommendations to make it more efficient.
The disclosure marks the second time in a week that Lau's conduct has come under scrutiny. Last Thursday, she admitted she gave inaccurate testimony to Congress but blamed the error on bad information from her staff.
Congressional investigators are reviewing the Sato contract.
"At best, in this case, there is an appearance of impropriety that undermines the public confidence in this IG. This watchdog needs to be watched," said Sen. Charles Grassley (R-Iowa), chair of one of the Senate's investigative subcommittees.
Lau refused to be interviewed. But in written answers to Congress, she acknowledged she developed "professional acquaintances" with Sato and another partner in his firm over the years as they served as government auditors.
She did not mention Sato's letter of recommendation to the White House. Treasury spokesperson Howard Schloss said Lau was aware of the letter but had not solicited it.
Federal ethics regulations advise employees to avoid actions that "give rise to an appearance of ... giving preferential treatment" to someone with whom they have an outside relationship.
Lau told Congress she chose Sato's firm because she knew he and his associate had "unique qualifications" as former inspectors general to provide "expertise in the area of audit, investigations and managing" her office.
Treasury officials could not immediately answer whether Lau consulted a third party, disclosed her outside relationship with Sato or reviewed the ethics rules before proceeding with the contract.
Sato worked for almost a decade as an inspector general at two different federal departments, then as an auditor at the Deloitte & Touche accounting firm before starting his own business. He did not return a message left at his home Friday.
In his May, 1993 letter recommending Lau, he told the White House he had known Lau since 1980 and worked with her "on both professional accounting/financial management and Asian American issues."
"I have found her to not only be a top professional, but a kind of person you enjoy working with," he wrote.
Lau, a former congressional auditor, was appointed the following year to Treasury inspector general, among positions Sato recommended to presidential personnel.