WASHINGTON, Aug 18 (Reuters) - An investment strategy adopted by the U.S. agency that insures retirement benefits for about 44 million people is likely riskier than acknowledged and needs stronger oversight, according to congressional auditors.

The Government Accountability Office said in a report issued on Monday that the Pension Benefit Guaranty Corp strategy aims to reduce its $14 billion liability shortfall by investing its $68 billion in assets in investments with a greater expected return.

"We found that the new allocation will likely also carry more risk than acknowledged by the PBGC's analysis," GAO said.

The pension agency's board earlier this year approved investing in a broader range of instruments, including more international equities and forays into other areas such as private equity, real estate and emerging market debt.

GAO said the PBGC's investment policy had changed in a short period from optimizing returns, to limiting exposure to interest rate risk, and now back to emphasizing returns again.

"While the board formally approved each policy, it has not taken an active and engaged role in ensuring that its own policy objectives are met," the GAO said.

In response, the PBGC said its new investment policy was consistent with the best practices of other large institutional investors.

"The current Board and its representatives have been deeply involved in the crafting of our new investment policy, and will continue to oversee its implementation," it said.

The PBGC insures traditional "defined benefit" pensions for about 44 million workers and retirees in over 30,000 private-sector plans. Companies pay premiums to the PBGC which steps in when pension plans become insolvent.

The PBGC said its investment policy addressed the greatest risk of all: "The risk that the Corporation could some day fail in its commitment to the 1.3 million Americans who depend on it for retirement income." (Reporting by Tim Dobbyn, editing by Phil Berlowitz)