What is one way Congress can exercise oversight over federal agencies?

Congress can exercise oversight over federal agencies primarily through the power of appropriations and funding. This mechanism is significant because it allows Congress to influence agency priorities and activities by determining the budgetary resources that agencies have at their disposal. When Congress limits appropriations, it can effectively restrict the actions that federal agencies can take, thereby ensuring that agencies remain accountable to the legislative branch. This financial oversight can drive agencies to align their operations with legislative intent and priorities, compelling them to justify their requests for funding based on their performance and goals.

The other options, while relevant in the context of agency operations, do not embody the most direct or traditional means of Congressional oversight. For instance, creating new agencies or appointing heads of local agencies involves actions that may reflect Congress's role in establishing an organizational framework but do not inherently provide a mechanism for monitoring or controlling the existing agencies’ functions. Controlling internal operations of agencies is typically within the purview of the executive branch rather than Congress. Thus, limiting appropriations and funding stands out as the primary method of exerting oversight.