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Established under the Social Security Amendments of 1965, Medicare is a two-part program: (1) "hospital insurance," or part A, which covers inpatient hospital services and skilled nursing facility, hospice, and home health care services, and (2) "supplementary medical insurance," or part B, which covers physician and outpatient hospital services, diagnostic tests, and ambulance and other medical services and supplies. In fiscal year 1997, part A will have covered an estimated 38.1 million aged and disabled beneficiaries, including those with chronic kidney disease. Total outlays for parts A and B are estimated at $212 billion for fiscal year 1997. In Medicare's fee-for-service program, which is used by almost 90 percent of the program's beneficiaries, physicians, hospitals, and other providers submit claims for services rendered to Medicare beneficiaries. HCFA administers the fee-for-service program largely through claims processing contractors. Insurance companies--like Blue Cross and Blue Shield plans, Mutual of Omaha, and CIGNA--process and pay Medicare claims, which totaled an estimated 900 million in fiscal year 1997. As Medicare contractors, these companies use federal funds to pay health care providers and beneficiaries and are reimbursed for the administrative expenses incurred in performing the Medicare work. Over the years, HCFA has consolidated some of Medicare's operations, and the number of contractors has fallen from a peak of about 130 to about 65 in 1997. Generally, intermediaries are the contractors that handle claims submitted by "institutional providers" (hospitals, skilled nursing facilities, hospices, and home health agencies); carriers generally handle claims submitted by physicians, laboratories, equipment suppliers, and other practitioners. HCFA has guarded against inappropriate payments largely through contractor-managed operations, leaving the intermediaries and carriers broad discretion over how to protect Medicare program dollars. As a result, contractors' implementation of Medicare payment safeguard policies varies significantly. Medicare's managed care program covers a growing number of beneficiaries--more than 5 million as of September 1997--who have chosen to enroll in a prepaid health plan rather than purchase medical services from individual providers. The managed care program, which is funded from both the part A and part B trust funds, consists mostly of risk contract HMOs that enrolled nearly 5 million Medicare beneficiaries as of September 1997. Medicare pays these HMOs a monthly amount, fixed in advance, for each beneficiary enrolled. In this sense, the HMO has a "risk" contract because regardless of what it spends for each enrollee's care, the HMO assumes the financial risk of providing health care in return for the payments received. An HMO profits if its cost of providing services is lower than the predetermined payment but loses if its cost is higher than the payment. The Congress provided important new resources and tools to fight health care fraud and abuse when it enacted HIPAA and BBA. To address problems in traditional fee-for-service Medicare, various provisions require HCFA to change outmoded payment methods, largely by establishing new prospective payment systems and by imposing fee caps, reductions, and updates to contain unnecessary expenditures. Certain provisions offer the potential to improve claims reviews--mandating specific increases in reviews and providing HCFA new contracting authority to acquire technical expertise. Enactment of the legislation represents an important first step toward the realization of program integrity goals. As we have noted in previous testimony, the legislation process sets forth the broad concepts while the administering agencies implement the legislation through planning, design, and execution. In the case of HIPAA, now more than a year old, HCFA and the HHS Inspector General have been developing plans on many fronts, but actual implementation is just beginning. In the case of BBA, less than 3 months old, the "to-do" list is long. Three examples relating to both acts illustrate the situation. First, HIPAA, enacted over a year ago, grants HCFA the authority to use contractors other than the insurers serving as Medicare intermediaries and carriers to conduct medical and utilization review, audit cost reports, and carry out other program safeguard activities. The purpose is to enhance HCFA's oversight of claims payment operations by increasing contractor accountability, enhancing data analysis capabilities, and avoiding potential contractor conflicts of interest. HCFA's target date for awarding the first program safeguard contract is in fiscal year 1999, more than a year from now. HCFA officials are preparing for public comment a notice of proposed rulemaking that would ultimately govern the selection of contractors to perform safeguard functions, but they are not able to specify when the contract award rules will be final. experiences with database development, it could be several years before the system can be fully operational. Distinct from its predecessor system, the National Provider Data Bank, this data collection program is expected to maintain information on civil judgments, criminal convictions, licensing and certification actions on suppliers and providers, exclusions, and other adjudicated adverse actions--involving the collection of data from state and local governments. The program must also be self-supporting, requiring market research to assess the needs and preferences of potential users. Finally, because existing federal and state statutes and regulations may impede the collection and dissemination of the information required, new federal regulations may be necessary, requiring the publication of proposed rules, a 60-day period for receipt of public comments, and an indeterminate period for making the regulations final. Third, BBA requires the implementation of several prospective payment systems to replace cost-based reimbursement methods. Depending on their design, prospective payment systems can remove the incentive to provide services unnecessarily. For example, prospective payment for skilled nursing facilities (SNF) should make it more difficult to increase payments by manipulating Medicare's billing rules for ancillary services provided to beneficiaries in these facilities, an issue often raised in our reports and testimonies. However, a considerable amount of work will be involved. Establishing rates that will enable efficient providers to furnish adequate services without overcompensating them will require (1) accounting for the varying needs of patients for routine and ancillary services and (2) collecting reliable cost and utilization data to compute the rates and the needed health status adjustment factors. Earlier this year in testimony before this Committee on prospective payment proposals, we suggested that HCFA use the results of audits of a projectable sample of SNF cost reports when setting base rates to avoid incorporating the inflated costs found in the HHS Inspector General's reviews of SNF cost reports. We also discussed the need for systems to adequately monitor prospective payments to help ensure that providers do not skimp on services to increase profits at the expense of quality care. public comment, and issuing final regulations. For example, it took HCFA 4 years--from the time a task force was established in 1993--to issue proposed salary guideline regulations for rehabilitation therapy services. To meet the requirements of BBA, HCFA will have to develop, concurrently, separate prospective payment systems for services delivered through inpatient rehabilitation facilities, home health agencies, skilled nursing facilities, and hospital outpatient departments. Developing prospective payment systems, moreover, represents only a fraction of the design and implementation work that HIPAA and BBA require. Conducting demonstration projects and reporting to the Congress constitute another portion of work mandated by the legislation. Among the more challenging of BBA's provisions to implement are those establishing the Medicare+Choice program, which expands beneficiaries' private plan options to include preferred provider organizations (PPO), provider sponsored organizations (PSO), and private fee-for-service plans. It also makes medical savings accounts (MSA) available to a limited number of beneficiaries under a demonstration program. The reforms the Congress embodied in these provisions are major, helping Medicare adapt to and capitalize on changes in the health care market. However, each of these options will have to be carefully monitored to identify and correct vulnerabilities. Our observations of HCFA's oversight of Medicare's risk contract HMOs, which have been the chief alternative to traditional fee-for-service Medicare, raise concerns. In our 1997 High-Risk Series report, we noted that HCFA's monitoring of HMOs has been historically weak. HCFA has allowed some plans with a history of abusive sales practices, delays in processing beneficiaries' appeals of HMO decisions to deny coverage, and patterns of poor-quality care to receive little more than a slap on the wrist. We also noted that HCFA had done little to inform beneficiaries of HMO performance and did not publish available data on such satisfaction indicators as rapid disenrollment rates compared across Medicare HMOs within a given market. plan's inpatient and outpatient services and the adequacy of the plan's response to written complaints about poor-quality care. These and other mandates should help improve oversight. The act also requires HHS to disseminate to all beneficiaries within a market area consumer information on the area's Medicare+Choice plans, including, for example, disenrollment rates, health outcomes, and compliance with program requirements. Collectively, these consumer information requirements enlist market forces to help improve HMO performance. We remain concerned that HCFA will have to be attentive to new issues raised by expanded choice for beneficiaries. The implementation challenge for HCFA will be to strike a judicious balance between encouraging plan growth and development and adequately protecting beneficiaries' quality of care. For example, under BBA, requirements for minimum enrollment levels--aimed at achieving an adequate spreading of risk to ensure a plan's financial solvency--can be waived for new Choice plans in their first 3 years of operation. In addition, the recent authorization of higher HMO rates in rural areas may well increase the total number of risk contract HMOs. If the number of Medicare managed care organizations grows, HCFA may not be equipped to make site visits at the current rate of every other year. Finally, all the Medicare+Choice plans, including PPOs, PSOs, and private fee-for-service plans, will have to submit new marketing materials for HHS approval; with an escalating workload, however, these materials could be approved without adequate scrutiny. Under the law, marketing materials are approved automatically if HHS does not disapprove them within 45 days of their submission to the Department. system for collecting payment and other information related to risk contract HMOs, but the MTS contract has been terminated. HCFA is in the process of consolidating its nine separate systems into one part A claims system and one part B claims system. While having a single system for each part should allow better claims editing, it would not provide all the benefits that had been expected from MTS, including the ability to ensure routinely, before payments are made, that an item or service billed to part A has not also been billed to part B and vice versa. Other anti-fraud-and-abuse software development discussed in our High-Risk report--namely, algorithms under development by the Los Alamos National Laboratory for generating prepayment claims screens and commercial off-the-shelf software controls being tested at one contractor--are years away from implementation nationwide. Aware of the need for agencywide coordination and planning to implement BBA's multiple provisions, HCFA has established an infrastructure to track and monitor the tasks associated with BBA mandates. Staff organized into functional teams will be led by a project management team tasked with reporting to agency executives, including the HCFA Administrator. According to a HCFA official, the agency has plans to keep Department officials and the Congress routinely informed of the agency's progress. With the enactment of HIPAA and BBA, the Congress has provided significant opportunities to strengthen several of Medicare's areas of vulnerability. How HHS and HCFA will use the authority of HIPAA and BBA to improve its vigilance over Medicare benefit dollars remains to be seen. The outcome largely depends on how promptly and effectively HCFA implements the various provisions. HCFA's past efforts to implement regulations, oversee Medicare managed care plans, and acquire a major information system have often been slow or ineffective. Now that many more requirements have been placed on HCFA, we are concerned that the promise of the new legislation to combat health care fraud and abuse could at best be delayed or not be realized at all without sustained efforts at implementation. Mr. Chairman, this concludes my statement. I will be happy to answer your questions. Medicare Automated Systems: Weaknesses in Managing Information Technology Hinder Fight Against Fraud and Abuse (GAO/T-AIMD-97-176, Sept. 29, 1997). Medicare Home Health Agencies: Certification Process Is Ineffective in Excluding Problem Agencies (GAO/T-HEHS-97-180, July 28, 1997). Medicare: Control Over Fraud and Abuse Remains Elusive (GAO/T-HEHS-97-165, June 26, 1997}. Medicare: Need to Hold Home Health Agencies More Accountable for Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997). Medicare Transaction System: Success Depends Upon Correcting Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16, 1997). Nursing Homes: Too Early to Assess New Efforts to Control Fraud and Abuse (GAO/T-HEHS-97-114, Apr. 16, 1997). Medicare Post-Acute Care: Cost Growth and Proposals to Manage It Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106, Apr. 9, 1997). Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded Providers From Federal Health Programs (GAO/HEHS-97-63, Mar. 31, 1997). High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997). Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance (GAO/HEHS-97-23, Oct. 22, 1996). Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996). Medicare Transaction System: Strengthened Management and Sound Development Approach Critical to Success (GAO/T-AIMD-96-12, Nov. 16, 1995). Medicare: Commercial Technology Could Save Billions Lost to Billing Abuse (GAO/AIMD-95-135, May 5, 1995). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO discussed recent legislative efforts to address fraud and abuse in the Medicare program. GAO noted that: (1) both the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Balanced Budget Act of 1997 (BBA) directly address Medicare fraud and abuse and provide opportunities to improve program management; (2) both acts offer civil and criminal penalties; (3) they also introduce opportunities to deploy new program safeguards; (4) for example, on the fee-for-service side of the program, BBA introduces prospective payment methods for skilled nursing facility and home health services, in part to halt opportunists from overbilling Medicare; (5) these are among Medicare's fastest-growing components: from 1989 to 1996, spending for home health care and skilled nursing facility care averaged, respectively, a 33-percent and 22-percent annual rise; (6) HIPAA also ensures a stable source of funding for anti-fraud-and-abuse activities, authorizes the Health Care Financing Administration (HCFA) to contract for improved claims reviews, enhances law enforcement coordination, and calls for data collection improvements; (7) on the managed care side, BBA's Medicare+Choice program, which broadens beyond health maintenance organizations (HMO) the private health plans available to Medicare beneficiaries, includes several provisions addressing the marketing, enrollment, and quality of care issues raised in GAO's reports and those of the Inspector General; (8) as always, however, the success of any reform legislation is contingent on its implementation; (9) the Congress has provided the Department of Health and Human Resources (HHS) and HCFA, the Department's administrator of the Medicare program, with many new statutory requirements governing traditional fee-for-service Medicare; some require little effort to carry out, whereas others, such as prospective payment system development, will require extensive time and resources to implement effectively; (10) in addition, the Medicare+Choice program will add considerably to HCFA's private plan monitoring workload; (11) the project to modernize Medicare's claims processing systems, which are at the core of many fraud and abuse detection efforts, has recently been halted; (12) this brings into question the ability of HCFA and its contractors to perform expeditiously the data-intensive analyses needed to spot and counteract abusive billing schemes; and (13) HCFA agrees that the tasks associated with implementing HIPAA and BBA mandates are considerable and plans to report routinely to HHS officials and to the Congress on HCFA's progress implementing the legislation.
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Since we designated the implementation and transformation of DHS as high risk in 2003, DHS has made progress addressing management challenges and senior department officials have demonstrated commitment and top leadership support for addressing the department's management challenges. However, the department has significant work ahead to achieve positive outcomes in resolving high-risk issues. For example, DHS faces challenges in modernizing its financial systems, implementing acquisition management controls, and improving employee satisfaction survey results, among other things. As DHS continues to mature as an organization, it will be important for the department to continue to strengthen its management functions, since the effectiveness of these functions affects its ability to fulfill its homeland security and other missions. Financial management. DHS has made progress in addressing its financial management and internal controls weaknesses, but has been unable to obtain an unqualified audit opinion on its financial statements since the department's creation and faces challenges in modernizing its financial management systems. DHS has, among other things, reduced the number of material weaknesses in internal controls from 18 in 2003 to 5 in fiscal year 2011; achieved its goal of receiving a qualified audit opinion on its fiscal year 2011 consolidated balance sheet and statement of custodial activity for the first time since the department's creation; established a goal of obtaining an audit opinion on all of its fiscal year 2012 financial statements; and expanded the scope of the annual financial audit to the complete set of fiscal year 2012 financial statements, which DHS believes will help it to obtain an unqualified opinion for fiscal year 2013. However, DHS continues to face challenges in financial management. For example, DHS anticipates difficulties in providing its auditors transaction- level detail to support balances reported in its fiscal year 2012 financial statements in order to obtain an opinion on its financial statements. This is due to, among other things, components not retaining original acquisition documentation or enforcing policies related to recording purchases and making payments. DHS also anticipates its auditors issuing a disclaimer in their fiscal year 2012 report on internal controls over financial reporting due to material weaknesses in internal controls, such as lack of effective controls over the recording of financial transactions related to property, plant, and equipment. In addition, in December 2011, DHS reported that the Federal Emergency Management Agency (FEMA), U.S. Coast Guard (USCG), and U.S. Immigration and Customs Enforcement (ICE) have an essential business need to replace their financial management systems, but DHS has not fully developed its plans for upgrading existing or implementing new financial systems at these agencies. According to DHS's June 2012 version of its Integrated Strategy for High Risk Management, the department plans to extend the useful life of FEMA's current system by about 3 years, while FEMA proceeds with a new financial management system solution, and is in the process of identifying the specific approach, necessary resources, and time frames for upgrading existing or implementing new financial systems at USCG and ICE. Without sound processes, controls, and systems, DHS faces long-term challenges in obtaining and sustaining an unqualified opinion on both its financial statements and internal controls over financial reporting, and ensuring its financial management systems generate reliable, useful, timely information for day-to-day decision making. We currently have ongoing work related to DHS's efforts to improve its financial reporting that we expect to report on in the spring of 2013. Acquisition management. DHS has made progress in the acquisition management area by enhancing the department's ability to oversee major acquisition programs. For example: DHS has established eight Centers of Excellence for cost estimating, systems engineering, and other disciplines to bring together program managers, senior leadership staff, and subject matter experts to promote best practices, provide expert counsel, technical guidance, and acquisition management tools; and each DHS component has established a Component Acquisition Executive (CAE) to provide oversight and support to programs within the component's portfolio. According to DHS, as of June 2012, 75 percent of the core CAE support positions were filled. In March 2012, DHS completed the development of a Procurement Staffing Model to determine optimal numbers of personnel to properly award and administer contracts. In June 2012, DHS reported that it is taking steps to implement the staffing model throughout headquarters and the components. DHS included a new initiative (strategic sourcing) in its December 2011 Integrated Strategy for High Risk Management to increase savings and improve acquisition efficiency by consolidating contracts departmentwide for the same kinds of products and services. The Office of Management and Budget's Office of Federal Procurement Policy has cited DHS's efforts among best practices for implementing federal strategic sourcing initiatives. Earlier this month, we reported that the department has implemented 42 strategically sourced efforts since the department's inception. According to DHS data, the department's spending through strategic sourcing contract vehicles has increased steadily from $1.8 billion in fiscal year 2008 to almost $3 billion in fiscal year 2011, representing about 20 percent of DHS's procurement spending for that year. However, DHS continues to face significant challenges in managing its acquisitions. For example: Earlier this week, we reported that 68 of the 71 program offices we surveyed from January through March 2012 responded that they experienced funding instability, workforce shortfalls, and/or changes to their planned capabilities over the programs' duration. We have previously reported that these challenges increase the likelihood acquisition programs will cost more and take longer to deliver capabilities than expected. Our recent review of DHS acquisition management also identified that while DHS's acquisition policy reflects many key program management practices that could help mitigate risks and increase the chances for successful outcomes, it does not fully reflect several key portfolio management practices, such as allocating resources strategically. DHS plans to develop stronger portfolio management policies and processes, but until it does so, DHS programs are more likely to experience additional funding instability, which will increase the risk of further cost growth and schedule slips. We recommended that DHS take a number of actions to help mitigate the risk of poor acquisition outcomes and strengthen the department's investment management activities. DHS concurred with all of our recommendations and noted actions it had taken or planned to address them. Human capital management. DHS has taken a number of actions to strengthen its human capital management. For example: DHS issued human capital-related plans, guidance, and tools to address its human capital challenges, including a Workforce Strategy for 2011-2016; a revised Workforce Planning Guide, issued in March 2011, to help the department plan for its workforce needs; and a Balanced Workforce Strategy tool, which some components have begun using to help achieve the appropriate mix of federal and contractor skills. The department implemented two programs to address senior leadership recruitment and hiring, as we reported in February 2012. While DHS's senior leadership vacancy rate was as high as 25 percent in fiscal year 2006, it varied between 2006 and 2011 and declined overall to 10 percent at the end of fiscal year 2011. DHS developed outreach plans to appeal to veterans and other underrepresented groups. While these initiatives are promising, DHS continues to face challenges in human capital management. For example: As we reported in March 2012, based on our preliminary observations of DHS's efforts to improve employee morale, federal surveys have consistently found that DHS employees are less satisfied with their jobs than the government-wide average. DHS has taken steps to identify where it has the most significant employee satisfaction problems and developed plans to address those problems, such as establishing a departmentwide Employee Engagement Executive Steering Committee, but has not yet improved employee satisfaction survey results. We plan to issue a final report on our findings later this month. As we reported in April 2012, changes in FEMA's workforce, workload, and composition have created challenges in FEMA's ability to meet the agency's varied responsibilities and train its staff appropriately. For example, FEMA has not developed processes to systematically collect and analyze agencywide workforce and training data that could be used to better inform its decision making. We recommended that FEMA, among other things, identify long-term quantifiable mission-critical goals, establish lines of authority for agencywide workforce planning and training efforts, and develop systematic processes to collect and analyze workforce and training data. DHS concurred with our recommendations and reported actions underway to address them. Information technology management. DHS has made progress in strengthening its IT management, but the department has much more work to do to fully address its IT management weaknesses. Among other accomplishments, DHS has: strengthened its enterprise architecture; defined and begun to implement a vision for a tiered governance structure intended to improve program and portfolio management, as we reported in July 2012; established a formal IT Program Management Development Track and staffed Centers of Excellence with subject matter experts to assist major and non-major programs. Based on preliminary observations from our review of DHS's major at-risk IT acquisitions we are performing for the committee, these improvements may be having a positive effect. Specifically, as of March 2012, approximately two-thirds of the department's major IT investments we reviewed (47 of 68) were meeting current cost and schedule commitments (i.e. goals). DHS has made progress, but the department has much more work to do to fully address its IT management weaknesses. For example, the department needs to: finalize the policies and procedures associated with its new tiered governance structure and continue to implement this structure, as we recommended in our July 2012 report; continue to implement its IT human capital plan, which DHS believed would take 18 months to fully implement as of June 2012; and continue its efforts to enhance IT security by, among other things, effectively addressing material weaknesses in financial systems security, developing a plan to track and promptly respond to known vulnerabilities, and implementing key security controls and activities. Management integration. DHS has made progress in integrating its individual management functions across the department and its component agencies. For example, DHS has put into place common policies, procedures, and systems within individual management functions, such as human capital, that help to integrate its component agencies, as we reported in September 2011. To strengthen this effort, in May 2012, the Secretary of Homeland Security modified the delegations of authority between the Management Directorate and their counterparts at the component level. According to DHS, this action will provide increased standardization of operating guidelines, policies, structures, and oversight of programs. Additionally, DHS has taken steps to standardize key data elements for the management areas across the department to enhance its decision-making. For example, in April 2012, the Under Secretary for Management appointed an executive steering committee and tasked this committee with creating a "Data Mart" to integrate data from disparate sources and allow the dissemination of timely and reliable information by March 2013. Further, consistent with our prior recommendations, DHS has implemented mechanisms to promote accountability for management integration among department and component management chiefs by, among other things, having the department chiefs develop written objectives that explicitly reflect priorities and milestones for that management function. Although these actions are important, DHS needs to continue to demonstrate sustainable progress in integrating its management functions within and across the department and its components and take additional actions to further and more effectively integrate the department. For example, DHS recognizes the need to better integrate its lines of business. The Integrated Investment Life Cycle Model (IILCM), which the department is establishing to manage investments across the department's components and management functions, is an attempt at doing that. DHS identified the IILCM as one of its most significant management integration initiatives in January 2011. However, the June 2012 update reported that this initiative is in its early planning stages, will be phased in over multiple budget cycles, and requires additional resources to fully operationalize. In September 2012, DHS reported that it has developed draft policy and procedural guidance to support implementation of the IILCM and now plans to begin using aspects of this new approach to develop portions of the department's fiscal years 2015 through 2019 budget. DHS strategy for addressing GAO's high-risk designation. In January 2011, DHS issued an agencywide management integration strategy--the Integrated Strategy for High Risk Management--as we recommended in our March 2005 report on DHS's management integration efforts. DHS's most recent version of the strategy, issued in June 2012, greatly improved upon prior versions and addressed feedback we previously provided by, for example, identifying key measures and progress ratings for the 18 initiatives included in the strategy and the 31 outcomes.believe the June 2012 strategy, if implemented and sustained, provides a path for DHS to address our high-risk designation. DHS can further strengthen or clarify its Integrated Strategy for High Risk Management to better enable DHS, Congress, and GAO to assess the department's progress in implementing its management initiatives by, among other things: determining the resource needs for all of the corrective actions in the strategy; communicating to senior leadership critical resource gaps across all initiatives; and identifying program and project risks in a supporting risk mitigation plan for all initiatives. Going forward, DHS needs to continue implementing its Integrated Strategy for High Risk Management and show measurable, sustainable progress in implementing its key management initiatives and corrective actions and achieving outcomes. We will continue to monitor, assess, and provide feedback on DHS's implementation and transformation efforts through our ongoing and planned work, including the 2013 high-risk update that we expect to issue in January 2013. Chairman King, Ranking Member Thompson, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have. For questions about this statement, please contact David C. Maurer at (202) 512-9627 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Maria Strudwick, Assistant Director; Victoria Miller, Analyst-in- Charge; and Chloe Brown. Other contributors include: David Alexander, Michael LaForge, Tom Lombardi, Anjalique Lawrence, Gary Mountjoy, Sabine Paul, and Katherine Trimble. Key contributors for the previous work that this testimony is based on are listed within each individual product. Homeland Security: DHS Requires More Disciplined Investment Management to Help Meet Mission Needs. GAO-12-833. Washington, D.C.: September 18, 2012. Department of Homeland Security: Oversight and Coordination of Research and Development Should Be Strengthened. GAO-12-837. Washington, D.C.: September 12, 2012. Homeland Security: DHS Has Enhanced Procurement Oversight Efforts, but Needs to Update Guidance. GAO-12-947. Washington, D.C.: September 10, 2012. Information Technology: DHS Needs to Further Define and Implement Its New Governance Process. GAO-12-818. Washington, D.C.: July 25, 2012. Federal Emergency Management Agency: Workforce Planning and Training Could Be Enhanced by Incorporating Strategic Management Principles. GAO-12-487. Washington, D.C.: April 26, 2012. Department of Homeland Security: Preliminary Observations on DHS's Efforts to Improve Employee Morale. GAO-12-509T. Washington, D.C.: March 22, 2012. Department of Homeland Security: Continued Progress Made Improving and Integrating Management Areas, but More Work Remains. GAO-12-365T. Washington, D.C.: March 1, 2012. Information Technology: Departments of Defense and Energy Need to Address Potentially Duplicative Investments. GAO-12-241. Washington D.C.: February 17, 2012. DHS Human Capital: Senior Leadership Vacancy Rates Generally Declined, but Components' Rates Varied. GAO-12-264. Washington, D.C.: February 10, 2012. Department of Homeland Security: Additional Actions Needed to Strengthen Strategic Planning and Management Functions. GAO-12-382T. Washington D.C.: February 3, 2012. Department of Homeland Security: Progress Made and Work Remaining in Implementing Homeland Security Missions 10 Years after 9/11. GAO-11-881. Washington D.C.: September 7, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Information Security: Federal Agencies Have Taken Steps to Secure Wireless Networks, but Further Actions Can Mitigate Risk. GAO-11-43. Washington, D.C.: November 30, 2010. Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010. Information Security: Agencies Need to Implement Federal Desktop Core Configuration Requirements. GAO-10-202. Washington, D.C.: March 12, 2010. Financial Management Systems: DHS Faces Challenges to Successfully Consolidating Its Existing Disparate Systems. GAO-10-76. Washington, D.C.: December 4, 2009. Department of Homeland Security: Actions Taken Toward Management Integration, but a Comprehensive Strategy Is Still Needed. GAO-10-131. Washington, D.C.: November 20, 2009. Homeland Security: Despite Progress, DHS Continues to Be Challenged in Managing Its Multi-Billion Dollar Annual Investment in Large-Scale Information Technology Systems. GAO-09-1002T. Washington, D.C.: September 15, 2009. Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008. Department of Homeland Security: Better Planning and Assessment Needed to Improve Outcomes for Complex Service Acquisitions. GAO-08-263. Washington, D.C.: April 22, 2008. Homeland Security: Departmentwide Integrated Financial Management Systems Remain a Challenge. GAO-07-536. Washington, D.C.: June 21, 2007. Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity, version 1.1. GAO-04-394G. Washington, D.C.: March 2004. High-Risk Series: Strategic Human Capital Management. GAO-03-120. Washington, D.C.: January 2003. Determining Performance and Accountability Challenges and High Risks. GAO-01-159SP. Washington, D.C.: November 2000. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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This testimony discusses the Department of Homeland Security's (DHS) efforts to strengthen and integrate its management functions. DHS now has more than 200,000 employees and an annual budget of almost $60 billion, and its transformation is critical to achieving its homeland security and other missions. Since 2003, GAO has designated the implementation and transformation of DHS as high risk because DHS had to combine 22 agencies--several with major management challenges--into one department, and failure to effectively address DHS's management and mission risks could have serious consequences for our national and economic security. This high-risk area includes challenges in strengthening DHS's management functions--financial management, acquisition management, human capital, and information technology (IT)--the effect of those challenges on DHS's mission implementation, and challenges in integrating management functions within and across the department and its components. In November 2000, we published our criteria for removing areas from the high-risk list. This high-risk area includes challenges in strengthening DHS's management functions--financial management, acquisition management, human capital, and information technology (IT)--the effect of those challenges on DHS's mission implementation, and challenges in integrating management functions within and across the department and its components. Specifically, agencies must have (1) a demonstrated strong commitment and top leadership support to address the risks; (2) the capacity (that is, the people and other resources) to resolve the risks; (3) a corrective action plan that identifies the root causes, identifies effective solutions, and provides for substantially completing corrective measures in the near term, including but not limited to steps necessary to implement solutions we recommended; (4) a program instituted to monitor and independently validate the effectiveness and sustainability of corrective measures; and (5) the ability to demonstrate progress in implementing corrective measures. On the basis of our prior work, in a September 2010 letter to DHS, we identified, and DHS agreed to achieve, 31 actions and outcomes that are critical to addressing the challenges within the department's management areas and in integrating those functions across the department to address the high-risk designation. These key actions and outcomes include, among others, obtaining and then sustaining unqualified audit opinions for at least 2 consecutive years on the departmentwide financial statements; validating required acquisition documents in accordance with a department-approved, knowledge-based acquisition process; and demonstrating measurable progress in implementing its IT human capital plan and accomplishing defined outcomes. In January 2011, DHS issued its initial Integrated Strategy for High Risk Management, which included key management initiatives (e.g., financial management controls, IT program governance, and procurement staffing model) to address challenges and the outcomes we identified for each management area. DHS provided updates of its progress in implementing these initiatives in later versions of the strategy--June 2011, December 2011, and June 2012. Achieving and sustaining progress in these management areas would demonstrate the department's ability and ongoing commitment to addressing our five criteria for removing issues from the high-risk list. As requested, this testimony will discuss our observations, based on prior and ongoing work, on DHS's progress in achieving outcomes critical to addressing its high-risk designation for the implementation and transformation of the department. Since we designated the implementation and transformation of DHS as high risk in 2003, DHS has made progress addressing management challenges and senior department officials have demonstrated commitment and top leadership support for addressing the department's management challenges. However, the department has significant work ahead to achieve positive outcomes in resolving high-risk issues. For example, DHS faces challenges in modernizing its financial systems, implementing acquisition management controls, and improving employee satisfaction survey results, among other things. As DHS continues to mature as an organization, it will be important for the department to continue to strengthen its management functions, since the effectiveness of these functions affects its ability to fulfill its homeland security and other missions.
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The Army's vision for the 21st century mandates a land force that can operate in joint, combined, and multinational formations to perform a variety of missions, ranging from humanitarian assistance and disaster relief to major theater wars. The Army's vision also requires that it be capable of putting a combat force anywhere in the world within 96 hours. To meet these objectives, the Army states that it must transform into a more deployable and strategically responsive force. This transformation process also dictates that the Army reengineers its logistics processes to increase responsiveness to its combat units and to provide the spare parts needed to maintain equipment readiness. In recent years, Congress has provided increased operations and maintenance funding for DOD to enable military units to purchase spare parts from the supply system as needed. For example, during fiscal years 1999-2002, Congress provided supplemental funding totaling $1.5 billion, of which the Army received $170 million in 1999, $25 million in 2001, and $200 million in 2002 to address spare parts shortages that were adversely affecting readiness. The Army now projects that it will spend over $7 billion during fiscal years 2003-05 to purchase spare parts for its combat and support systems. The Army Chief of Staff's list of programs that need more funding indicates that the Army needs an additional $415 million to sustain the forces in fiscal year 2003 and $263 million to sustain them in fiscal year 2004 and according to an Army official, to support operations Enduring Freedom and Iraqi Freedom. A portion of these amounts would be used to purchase spare parts, but the Army did not provide a breakout of how the funds will be allocated. In July 2001, we reported that spare parts shortages in the Army were adversely affecting operations, maintenance, and personnel. For example, we reported that safety concerns and the lack of spare parts in 1999 prevented the Chinook and Apache helicopters from meeting their mission-capable goals. To compensate for the lack of spare parts, maintenance personnel used parts cannibalized from other equipment, an inefficient practice that doubles the time needed for a single maintenance effort. We also reported that the Army had major initiatives under way to improve the availability of spare parts as part of an overall strategy to revolutionize its logistics processes. The initiatives included improving demand forecasts for spare parts, increasing the visibility and access to spare parts Armywide, and reducing the time it takes to receive parts after they have been ordered. At that time, we did not assess the extent to which the initiatives might mitigate spare parts shortages. DOD is also concerned about the adverse impact that spare parts shortages have on the readiness of weapon systems. In an August 2002 report on its inventory management practices, DOD stated a desire to improve supply management accountability by linking investments in spare parts to readiness results in order to ensure that resources are focused on optimal readiness gains. DOD noted that the models it uses to determine inventory purchases are generally biased toward the purchase of low-cost items with high demands instead of the items that would improve readiness the most. The report recommended that the services improve their ability to make inventory investment decisions based on weapon system readiness. It also recommended that the services' requests for funds to increase inventory investments be justified based on the corresponding increase in weapon system readiness. The Army's current strategic plan provides strategic goals, objectives, milestones, and performance measures for force transformation efforts. However, it does not address how the service expects to mitigate critical spare parts shortages that degrade equipment readiness. As shown in figure 1, the Army published two plans during 2000 that were subsumed into a single plan in April 2001. These plans provided guidance for transforming the Army's logistics to support forces that will be more agile and responsive. The Army's Strategic Logistics Plan, published in May 2000, was designed to implement the guidance in the Army Chief of Staff's vision for its forces in the 21st century. This plan outlined the major logistical requirements for achieving a joint, combined, or multinational force that can be used for a variety of missions, ranging from humanitarian assistance to major theater wars. For example, a major goal of the plan was to achieve total asset visibility, which was intended to give inventory managers information on the location, quantity, condition, and movement of parts worldwide. Total asset visibility would therefore allow managers to access and redistribute parts in the Army's inventory to meet immediate spare parts requirements. In March 2000, DOD issued the Defense Reform Initiative 54, which required each military service to submit an annual logistics transformation plan. The Army's effort was published in July 2000 as the Army Logistics Transformation Plan. The purpose of this plan was to document, on an annual basis, the planned actions and related resources for implementing the Army Strategic Logistics Plan. Generally, the logistics transformation plan outlined the interrelated activities necessary to support DOD's four intermediate objectives: (1) establish customer wait time as a supply performance measure; (2) adopt a priority system that provides assets to the commander by the required delivery date; (3) achieve accurate total asset visibility of existing spare parts; and (4) field a Web-based system that provides seamless, interoperable, real-time logistics information. In April 2001, the Army published its Transformation Campaign Plan, an all-encompassing document that serves as a mechanism for integrating and synchronizing the necessary actions to move the Army from its present posture to a future force that will be more strategically deployable and responsive. The plan contains specific goals and objectives to provide logistical support to deploy and sustain its forces across a full spectrum of operations, and it incorporates the criteria for an effective strategy contained in GPRA. Furthermore, according to Army officials, the Army monitors the progress of its efforts to ensure that logistics decisions, goals, and milestones complement and support the entire transformation progress. For example, one strategic goal contained in the plan requires the Army to be able to deploy a combat brigade in 96 hours. The plan dictates that the Army measures its ability to deploy combat brigades by employing major decision points at which senior leaders will evaluate progress and decide whether adjustments need to be made to the original combat brigade deployment strategy. However, there are no such strategic goals, objectives, or performance measures in this Army plan relating to monitoring and resolving critical spare parts shortages. As shown in table 1, the plan contains 14 lines of operation--or broad responsibilities--that describe closely related activities designed to meet specific transformation objectives by established milestones. Logistics requirements are addressed by line 9 in the plan, "Deploying and Sustaining the Force." Specifically, this line of operation addresses how to transform Army support elements to make the service more strategically responsive and reduce the cost for logistics without reducing war-fighting capability. The Army's key logistics initiatives were designed to improve internal business processes, but not specifically mitigate critical spare parts shortages. Its ongoing six servicewide initiatives are primarily focused on improving logistics business processes in the areas of (1) procurement and repair of spare parts, (2) inventory management, and (3) supply operations thereby improving supply availability. However, we could not determine the extent to which they have reduced critical spare parts shortages. The Army recently started a separate, non-Armywide readiness enhancement initiative that includes an effort to mitigate critical spare parts shortages. The Army's six major initiatives are expected to improve overall logistical support for its units by focusing on improving logistics processes in order to be more responsive and effective in meeting customer needs. Table 2 summarizes the Army's initiatives by focus area along with the expected improvements to logistics operations. The Army's Partnership, Recapitalization, and National Maintenance Program initiatives are intended to improve the parts supply process, reduce demand through modernization of major weapon systems, and provide uniform repair standards. The expected improvements are being measured in a variety of ways, but none measure or track increases in supply availability and readiness rates. Without such measures, we could not determine the extent to which the initiatives have significantly reduced critical spare parts shortages. The Army is forming partnerships with manufacturers to provide spare parts and technical assistance directly to the applicable maintenance depot in order to improve depot-level repair of selected weapon systems and to improve the depot's performance in supplying repaired parts. The Army has formed partnership agreements with General Electric Aircraft Engines, Sikorsky Aircraft Corporation, Boeing, Parker-Hannifin, Honeywell, Rolls Royce, and Bell Helicopters. Some of these companies have agreed to provide spare parts and technical assistance directly to the Corpus Christi Army Depot, where depot-level repair is performed for the Apache and Chinook helicopters. According to an Army official, these agreements are beneficial for the Army as well as the industry partners. The Army improves repair operations and saves money by obtaining hard-to-get, sole-source parts and technical assistance for a negotiated cost, and the industry partner is able to keep production lines open by relying on steady demands from the Army. The Army official said that the partnership initiatives have resulted in significant improvements to its depot repair operation. For example, the average elapsed time before the engine in the Apache and Blackhawk helicopters would fail has improved from about 400 hours to about 1,140 hours. Moreover, the repair-cycle time for components in the partnership program has decreased from 360 to 95 days, thereby decreasing the demand for spare parts by providing units with more reliable equipment and achieving more efficient supply performance. The Army's Recapitalization Program is expected to return 17 selected legacy weapon systems to like-new condition by rebuilding and upgrading them at maintenance depots over time as funds become available. Specifically, the Recapitalization Program is intended to (1) extend the service life of the equipment; (2) reduce operating and support costs; (3) improve reliability, maintainability, safety, and efficiency; and (4) enhance capabilities. The Army began recapitalizing a limited number of the weapon systems in fiscal year 2002, with full-scale operation beginning in fiscal year 2003 (see app. I for a list of systems). In fiscal year 2003, the Army fully funded the initial spare parts requirements of the Recapitalization Program, investing at least $419.7 million of its operations and maintenance funding to run the program. An Army official said that about $200 million was taken from the Recapitalization Program to help with the Iraq war, but the program will be reimbursed from the supplemental appropriation. According to Army officials, recapitalizing Army weapon systems will initially increase the demand for spare parts because new parts will be used for equipment that is cycled through the rebuilding and upgrading process. However, in the long term, the like-new equipment should be more reliable and the demand for spare parts should decrease. The National Maintenance Program is expected to establish, by fiscal year 2005, a single national standard for the repair of equipment components and spare parts. The program's overhaul standard is generally higher than the variety of standards held by individual repair units, and consists of restoring components and spare parts to a nearly like-new condition. This condition includes the restoration of the part's original appearance, performance, and life expectancy. The National Maintenance Program is intended to help sustain the weapon systems that have undergone overhauls and rebuilds through the Army's Recapitalization Program. In fiscal years 2001 and 2002, the Army obligated $70 million and $16 million, respectively, for the development of maintenance standards and program support. The Army has completed overhaul standards for 521 items and is expected to complete standards for the remaining 272 items by fiscal year 2005. The expected benefit of the National Maintenance Program is that a single higher repair standard for components and spare parts will enhance weapon system readiness and reduce the demand for spare parts. The Army is improving inventory management through its Single Stock Fund and Logistics Modernization Program initiatives, which are intended to provide better visibility over spare parts in the inventory, improved spare parts requirements determination, and an enhanced inventory distribution process. Like the procurement and repair initiatives discussed above, these initiatives do not measure progress in reducing critical spare parts shortages that impact readiness. In response to a recommendation in our 1990 report, the Army approved a business process reengineering initiative called the Single Stock Fund in November 1997. The Single Stock Fund is aimed at improving inventory management by (1) providing worldwide visibility and access to spare parts down to the installation level, (2) consolidating separate national and installation level inventories into a single system, and (3) integrating logistics automated information systems and financial automated information systems. The Single Stock Fund streamlines and where needed, eliminates multiple financial transactions that have previously caused numerous inefficiencies in duplicate automated legacy systems. The visibility of worldwide supply items allows managers to calculate worldwide spare parts requirements and increases the volume of inventory that is available for redistribution to meet priority readiness requirements. For example, the Secretary of the Army testified in 2003 before the Senate Armed Services Committee that from May 2000 through November 2002, the Single Stock Fund made it possible to redistribute inventory valued at $758 million. He further stated that the Single Stock Fund reduced customer wait time by an average of 18.5 percent. The Logistics Modernization Program is aimed at improving inventory management by modernizing the Army's 30-year-old national and retail logistics automated business processes and practices. The Logistics Modernization Program is intended to provide an automated system with real-time capabilities for managing wholesale and retail inventories by modernizing and integrating about 30 legacy logistics databases. The program includes about 47 new forecasting methodologies to enable managers to better forecast demands for spare parts. The Logistics Modernization Program's integrated automated systems should reduce supply-cycle time and provide managers with the ability to better support customers by tracking spare parts requisitions from the time the requisition is submitted until the customer receives the part. Moreover, the program is to work in tandem with the Single Stock Fund to provide worldwide visibility of supply assets in real time. The Army Materiel Command plans to roll out the Logistics Modernization Program over the next several years, with the first phase of implementation scheduled in early 2003. The program's measures of success include reducing supply-cycle time, but not supply availability and equipment readiness. The Army is also trying to improve its supply operations and reduce the time it takes to deliver spare parts to customers through the Distribution Management initiative. Distribution Management is an Armywide initiative established in 1995 to improve supply operations by developing a faster, more flexible, and efficient logistics pipeline. The initiative's overall goal is to eliminate the unnecessary steps in the logistics pipeline that delay the flow of parts through the supply system. Distribution Management currently uses two teams--the Distribution Process Improvement Team and the Repair Cycle Process Improvement Team--to monitor progress and spearhead continuous improvements within their respective areas of responsibility. However, the extent to which supply availability has been improved is not clear because neither team tracks this as measures of success. The Distribution Process Improvement Team promotes initiatives to improve the Army's inventory distribution processes, including customer response, inventory planning, warehouse management, transportation, and supply. For example, the team initiated dollar-cost banding, a new stock determination algorithm that has improved inventory performance. Traditionally, Army units have used a "one-size-fits-all" approach for determining whether or not to stock a particular spare part. Consequently, an item not currently stocked would need nine requests in the prior year to be stocked on the shelf, regardless of its criticality to equipment readiness. This criterion was applied equally to a 10-cent screw and to a $500,000 tank engine. The dollar-cost banding approach, however, allowed inventory managers to stock a mission-critical item with only three requests, rather than nine. The Army has credited this concept with decreasing customer wait time and increasing equipment readiness. The Repair Cycle Process Improvement Team strives to improve the Army's maintenance processes through such initiatives as the equipment downtime analyzer, a computer system that links supply and maintenance performance to equipment readiness. The analyzer examines equipment maintenance operations and the supply system to identify problem areas as well as the functions that are working well in the maintenance process. This capability enables managers to quickly diagnose the root of the problems and to develop solutions to help maximize the future effectiveness of the maintenance process. For example, in one case, the apparent reason for a tank not being mission ready for 18 days was that the maintenance personnel were waiting for the supply system to provide a part. The equipment downtime analyzer revealed the following: (1) because the supply system initially provided the wrong part, a second part had to be ordered; (2) because maintenance personnel did not initially realize that the part was needed, a third part was ordered late; and (3) maintenance personnel finally decided, on day 18, to stop waiting for the part to be delivered by the supply system and took action to obtain it from another tank that was not mission ready in order to complete the maintenance process. Although the Army is generally meeting or exceeding it overall supply performance goal of having parts available 85 percent of the time when they are requested, the Army continues to experience critical spare parts shortages that affect equipment readiness. For example, in a July 2001 report on Army spare parts shortages, we identified 90 components or assemblies for the Apache, Blackhawk, and Chinook helicopters for which the Army was experiencing critical spare parts shortages. The Army began a new initiative, separate and apart of the Armywide initiatives, to take management action on individual critical spare parts shortages. However, because it is not a part of the Armywide initiatives, it is not clear how it will be effectively integrated with them to maximize mitigating critical spare parts shortages and improve readiness. The new Army initiative to address spare parts shortages that are most essential to equipment readiness, entitled the "Top 25 Readiness Drivers," began in October 2002. For each of its 18 major combat systems, the Army, on an ongoing basis, has been identifying the top 25 components or spare parts that are key to the systems' readiness. Of the total 450 spare parts, the Army had identified as critical to equipment readiness in February 2003, 291 or 65 percent of the parts were stocked below the required level. Twenty-nine percent or 132 of these parts were in the Army's lowest inventory category--those for which there is less than 1 1/2 month supply. Major commands report the inventory status of these spare parts to the Army Materiel Command, who in turn presents a consolidated report to the Army Deputy Chief of Staff for Logistics every 2 weeks. A review group headed by the Deputy Chief of Staff for Logistics initiates possible actions that can be taken to mitigate the most severe spare parts shortages among the top spare parts or components. This new Army initiative is a movement in the right direction to address critical spare parts shortages; however, it remains unclear the extent to which this initiative will mitigate critical spare parts shortages and improve equipment readiness. The initiative's effectiveness may be limited because its efforts and results are not linked to or coordinated with the goals and metrics of the Army's other initiatives as part of an overall approach to mitigating critical spare parts shortages in the future. While the Army has the means to link funding to a corresponding level of readiness and reports this information in budget justification documents (see app. II), it does not report how additional funding requests for spare parts might impact readiness to decisionmakers such as Congress. The Office of the Secretary of Defense has recommended that the services provide such information when requesting additional funds in the future. The Army has reported that its models correlate the impact of investments in spare parts on supply availability. However, because of various other factors such as maintenance capacity and training requirements that affect equipment status, the models can only estimate the impact of the additional investment on weapon system readiness. The Army Materiel Systems Analysis Activity uses the Supply Performance Analyzer Model and the Selected Essential-Item Stockage for Availability Method Model to determine the investment needed to reach a weapon system's desired supply availability rate. Information from these models has been supplied to individual units to assist in inventory investment decisions. In addition, the Army used an outside consultant to analyze the impact additional investment in spare parts would have on readiness. For example, to support a briefing to the Army Vice Chief of Staff in March 2001, the Logistics Management Institute completed an analysis for the Army showing that an additional $331 million for spare parts would increase the mission-capable rate for the Apache and Blackhawk helicopters by 2.6 percent. According to Army officials, the correlation between additional investments in spare parts and readiness is not exact because other factors such as maintenance capacity and training requirements impact readiness. Despite having the means to determine how additional funding might affect readiness, the Army does not provide such analyses to Congress as part of its funding requests. For example, in the justification for the fiscal year 2002 budget, the Army requested and received $250 million to purchase additional spare parts. Moreover, the Army sent correspondence to the House Committee on Armed Services showing that an additional $675 million was needed for spare parts during fiscal year 2002. However, in neither case did the Army provide analysis to Congress showing how the additional funding might affect readiness. The June 2002 Financial Management Regulations provided a template for reporting the funds to be spent on spare parts by weapon system as part of the budget submission. The benefit of reporting such a link was cited in an August 2002 Office of the Secretary of Defense study that recommended that future requests for additional funds to increase spare parts inventories be justified in budget documents submitted to Congress based on the corresponding increase in weapon systems readiness. The Army's Transformation Campaign Plan serves as a mechanism to transform the Army's forces from its present posture to a more strategically deployable and responsive force. The plan prescribes specific goals and milestones to support this transformation process, but it lacks specific focus on mitigating spare parts shortages. In addition, the Armywide initiatives to improve the procurement and repair of spare parts, inventory management, and supply operations do not focus on mitigating critical spare parts shortages. Without a strategy or Armywide initiatives focused on the mitigation of critical spare parts shortages and their impacts on equipment readiness, the Army cannot ensure that it has appropriately addressed shortages in those parts that would give them the greatest readiness return. Furthermore, while some of the Army's logistics initiatives might increase the availability of spare parts in general, the lack of specific and effective measures of performance will limit the Army's ability to ascertain progress in mitigating spare parts shortages that are critical to equipment readiness. Finally, the Army has the means to determine how funding might impact parts availability and equipment readiness as part of its stewardship and accountability for funds, but has not provided this information to Congress when it requests additional funding. Without such information that links additional spare parts funding to readiness and provides assurance that investments are based on the greatest readiness returns, Congress cannot determine how best to prioritize and allocate future funding. We recommend that the Secretary of Defense direct the Secretary of the Army to modify or supplement the Transformation Campaign Plan, or the Armywide logistics initiatives to include a focus on mitigating critical spare parts shortages with goals, objectives, milestones, and quantifiable performance measures, such as supply availability and readiness related outcomes and implement the Office of Secretary of Defense recommendation to report, as part of budget requests, the impact of additional spare parts funding on equipment readiness with specific milestones for completion. In written comments on a draft of this report, DOD generally concurred with the intent of both recommendations, but not the specific actions we recommended. DOD's written comments are reprinted in their entirety in appendix III. In concurring with the intent of our first recommendation, DOD expressed concern that because spare parts shortages are a symptom of imperfect supply management processes, its improvement plans must focus on improving these processes rather than on the symptoms. According to DOD, the Army's Transformation Campaign Plan correctly focuses on transforming the Army's forces and equipment from its present posture to a more strategically deployable and responsive objective force. Furthermore, DOD also stated that the Armywide logistics initiatives correctly focus on improving procurement, repair of spare parts, inventory management, and supply operations. DOD also noted it has/is taking several actions. The "Top 25 Readiness Drivers" initiative, which addresses specific stock numbers that affect its major weapon systems, has been added to the metrics in the Army's Strategic Readiness System. Milestones for logistics initiatives would be added to the Army's Transformation Campaign Plan. Also, spares shortages will be tracked in the Strategic Readiness Systems and logistics initiatives will be tracked in the Transformation Campaign Plan. Therefore, DOD does not agree that the Army needs to modify its Transformation Campaign Plan or the Armywide logistics initiatives to focus on spare parts shortages. We do not believe that these actions alone are sufficient to meet our recommendation. We endorse the Army's efforts to add related metrics to its Strategic Readiness System and milestones for its logistics initiatives to the Transformation Campaign Plan. Further, our report recognizes that the Army's plan focuses on improving the Army's force transformation efforts and that improving logistics processes is part of the solution to mitigating spare parts shortages. However, the intent of our recommendation was for the Army to include in its Transformation Campaign Plan or servicewide initiatives a focus on mitigating critical spare parts shortages. As our report clearly points out, without a focus on mitigating critical spare parts shortages with goals, objectives, and milestones included in the strategic plan or Armywide initiatives, we believe there is increased likelihood that the Army's progress will be limited because it efforts may be ineffective or duplicative in mitigating spare parts shortages that are critical to equipment readiness. Therefore, we believe implementation of our recommended actions is necessary to ensure improved readiness for legacy and future weapon systems. In concurring with the intent of our second recommendation, DOD stated that the Army would begin implementing the recommendation by providing mission-capable rates during the upcoming mid-year budget review consistent with the June 2002 updated budget exhibit in the Financial Management Regulation. DOD also states that the Army will fully comply with the August 2002 inventory management study reporting recommendation when the required data becomes available. We support the Army's effort to report mission-capable rates for its weapon systems. However, we are concerned that the Army has not set a deadline for fully implementing the recommendation. Providing this valuable information to Congress in a timely manner is an important step in placing a priority on efforts needed to mitigate spare parts shortages as part of the Army's overall stewardship of funds and accountability for making spare parts investment decisions that provide a good readiness return. We have therefore modified our second recommendation to include a provision that the Army establish milestones for fully implementing the recommendation from the August 2002 inventory management report. To determine whether the Army's strategic plans address mitigating spare parts shortages, we obtained and analyzed Army planning documents that pertained to spare parts or logistics. We focused our analysis on whether these strategic plans addressed spare parts shortages and included the performance plan guidelines identified in GPRA. We interviewed officials in the Office of the Army Deputy Chief of Staff for Logistics, and the Army Transformation Office to clarify the content and linkage of the various strategic plans. To determine the likelihood that Army initiatives will achieve their intended results and contribute to the mitigation of spare parts shortages to improve readiness, we obtained and analyzed service documentation and prior GAO reports on major management challenges and program risks and on the Army's major initiatives that relate to spare parts or supply support. We focused our analysis on whether the initiatives addressed spare parts shortages and the need for quantifiable and measurable performance targets as identified in GPRA. We also interviewed officials in the Supply Policy Division, Army Deputy Chief of Staff for Logistics; Army Materiel Command; Army Aviation and Missile Command; Army Tank and Automotive Command; and Combined Arms Support Command. We obtained and analyzed Army data pertaining to spare parts availability, spare parts back ordered, and specific spare parts that are affecting equipment readiness. To determine the extent to which the Army identifies how additional investments in spare parts affect supply support and readiness, we obtained and analyzed documentation on the Army's needs for additional funding to purchase spare parts. We analyzed the Army's budget justification for the funding needed for spare parts for the years 2004 and 2005. We obtained the results of prior analyses showing how additional funding might affect readiness. However, we did not independently validate or verify the accuracy of the Army's models that show the relationship between funding, supply performance, and readiness. We also visited and interviewed officials at the Army Materiel Systems Analysis Activity and considered DOD's recommendations in its August 2002 Inventory Management Report. We performed our review from August 2002 through March 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense, the Secretary of the Army, and other interested congressional committees and parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me on (202) 512-8365 if you or your staff has any questions concerning this report. Major contributors to this report are included in appendix IV. In addition to those named above, Robert L. Coleman, Alfonso Q. Garcia, Susan K. Woodward, Robert K. Wild, Cheryl A. Weissman, Barry L. Shillito, and Charles W. Perdue also made significant contributions to this report.
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Prior reports and studies have identified major risks in the Department of Defense's (DOD) management, funding, and reporting of spare parts spending programs. Spare parts shortages adversely affect the U.S. Army's operations and can compromise the readiness of weapon systems. To address these issues, Congress has fully funded DOD's requests for spare parts spending and in some instances increased funding for additional spare parts. Yet, the Army continues to experience spare parts shortages. Congress requested that GAO evaluate (1) the Army's strategic plans for reducing spare parts shortages, (2) the likelihood that key initiatives will reduce such shortages, and (3) the Army's capability to identify the impact on readiness of increased investments for spare parts. The Army's logistics strategic plan provides strategic goals, objectives, and milestones for force transformation efforts, but does not specifically address the mitigation of critical spare parts shortages. The Army's Transformation Campaign Plan, published in April 2001, serves as a mechanism to move the Army from its present posture to a more strategically deployable and responsive force. The plan prescribes specific goals and milestones to support the transformation process. However, it lacks objectives and performance measures it could use to show progress in mitigating critical spare parts shortages. The Army's six servicewide logistics initiatives are aimed at enhancing readiness by improving internal business processes that would increase supply availability. However, they were not designed to mitigate spare parts shortages. These processes include those that acquire, repair, and distribute spare parts. Recognizing that the Armywide initiatives were not designed to specifically focus on mitigating critical shortages, the Army recently started a new initiative to address individual spare parts shortages that affect key weapon systems readiness. However, this initiative is not part of the Armywide logistics improvement efforts, and therefore it is not coordinated with other initiatives and its results are not linked with the overall goals and performance measures. Absent this coordination and linkage, any systemic problems that the initiatives identifies may not be elevated to the Armywide initiatives for resolution and its benefit may be limited to improving the availability of only a few parts. The Army has the means to link funding to weapon system readiness, and reports this in its budget justification documents, but it does not report to Congress how additional investments in spare parts would increase readiness. The Army Materiel Systems Analysis Activity can use models to indicate the investment needed to reach a desired level of supply availability, along with the possible corresponding increase in readiness, and it has provided such information to Army units. Additionally, the Army has used consultants to project the impact of additional funding on the readiness of specific weapon systems and provided this to the Army Vice Chief of Staff. For example, the Logistics Management Institute projected that anadditional investment of $331 million for additional spare parts would increase the overall readiness of the Apache and Blackhawk helicopters by approximately 2.6 percent.
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FTA's primary source of funding for new fixed-guideway projects or extensions to existing fixed-guideway systems is the Capital Investment Grant program, which is a discretionary program funded from annual appropriations rather than the Highway Trust Fund. Over the past 10 fiscal years, FTA has provided states, cities, and other localities with almost $18 billion in federal funding to plan and build new projects through this program. Projects eligible to compete for federal funding under the Capital Investment Grant program include: Commuter rail--systems that operate along electric or diesel- propelled railways and provide train service for local, short distance trips between a central city and adjacent suburbs. Heavy rail--systems that operate on electric railways with high- volume traffic capacity and are characterized by separated right-of- way, sophisticated signaling, high platform loading, and high-speed, rapid-acceleration rail cars operating singly or in multi-car trains on fixed rails. Light rail--systems that operate on electric railways with light-volume traffic capacity and are characterized by shared or exclusive rights-of- way, or low or high-platform-loading, single or double-car trains, and overhead electric lines that power rail vehicles. Streetcars--systems that are similar to light rail, but distinguishable because they are usually smaller and designed for shorter routes, more frequent stops, and lower travel speeds. Bus rapid transit--systems in which the majority operates in a separated right-of-way during peak periods and includes features that emulate the services provided by rail transit, such as defined stations, traffic signal priority, short headway bidirectional services for a substantial part of weekdays and weekend days, pre-board ticketing, platform-level boarding, and separate branding. Fixed-guideway bus rapid transit systems may include portions of service that are non- fixed guideway. In addition, bus rapid transit can also include corridor- based bus rapid transit projects, which have similar characteristics as fixed-guideway systems, but the majority of the project does not operate in a separated right-of-way dedicated for public transportation use during peak periods. Ferries--systems comprised of vessels that operate over a body of water and are generally steam or diesel powered. These projects are designed and implemented by project sponsors, which are usually local transit agencies, often in coordination with local metropolitan-planning organizations. Within the Capital Investment Grant program, project sponsors have typically applied for funding as either a New Starts or a Small Starts project. Under MAP-21, New Starts projects include new fixed-guideway projects, extensions to fixed- guideway projects, and fixed-guideway bus rapid transit projects that have a total capital cost of $250 million or greater or a Capital Investment Grant program contribution of $75 million or greater. Small Starts projects include new fixed-guideway projects, extensions to fixed-guideway projects, and both fixed-guideway and corridor-based bus rapid transit projects that have a total net capital cost less than $250 million and a Capital Investment Grant program contribution less than $75 million. Prior to the enactment of MAP-21, the Capital Investment Grant program was governed by statutory provisions put in place under SAFETEA-LU. MAP-21, which was enacted in July 2012, made numerous changes to the program. For example, MAP-21 reduced the number of phases in the process that projects must follow to be eligible for and receive federal funding. Under SAFETEA-LU, project sponsors were required to identify the transportation needs of a specific corridor and evaluate a range of alternatives to address locally identified problems in that corridor during what was called the alternatives analysis phase. To complete this phase, project sponsors selected a locally preferred alternative to be advanced for further development after costs, benefits, and impacts of each alternative were analyzed. However, under MAP-21 the process relies on the review of alternatives performed during the metropolitan transportation planning and the National Environmental Policy Act of 1969 (NEPA) environmental review processes. In addition, MAP-21 created a new category of eligible projects called Core Capacity Improvement projects, which are substantial corridor-based capital investments in existing fixed-guideway systems that increase the capacity of a corridor by at least 10 percent in a corridor that is at or above capacity today or is expected to be within 5 years. Core Capacity Improvement projects can include expanding system platforms, the acquisition of real property, rights-of-way, and rolling stock associated with increasing capacity, among other things, and cannot include elements to improve general station facilities, parking, or elements designed to maintain a state of good repair. Under MAP-21, any project that fits the definition of a new fixed-guideway project or an extension to an existing fixed-guideway system is eligible to compete for federal funding under the Capital Investment Grant program. Once a project sponsor decides to seek Capital Investment Grant program funding it submits an application to FTA consisting of information on the proposed project, such as a description of the transportation problem the project is seeking to address, among other requirements. If accepted into the program, the process that project sponsors must follow varies depending on whether the project is a New Starts, Small Starts, or Core Capacity Improvement project (see fig. 1). New Starts and Core Capacity Improvement projects. New Starts and Core Capacity Improvement projects must complete two phases in the development process to be eligible for a Construction grant agreement--Project Development and Engineering. During the Project Development phase, among other requirements, the Secretary must determine that the project has been selected as the locally preferred alternative at the end of the environmental review process. Under MAP-21 changes to the Capital Investment Grant program, New Starts and Core Capacity Improvement projects have 2 years after the day in which they enter into Project Development to complete the activities required to obtain a project rating by FTA, a process that is discussed further below. If approved to advance into the second phase of the development process--Engineering--project sponsors must, among other things, develop a firm and reliable cost, scope, and schedule for the project and obtain all non-Capital Investment Grant program funding commitments. Small Starts projects. Small Starts projects complete a similar but more streamlined process that requires project sponsors to complete only one phase--Project Development--to be eligible for a Construction grant agreement. During this phase, the Secretary must also determine that the project has been adopted as the locally preferred alternative and the project sponsor must complete the environmental review process. To complete Project Development, project sponsors must develop a firm and reliable cost, scope, and schedule for the project and obtain all non-Capital Investment Grant program funding commitments, among other things. Before FTA can recommend a project to Congress for funding, it is required by law to rate the project by using a number of criteria designed to provide important information about project merit. While New Starts and Small Starts project justification criteria have changed over time, there are currently six criteria: mobility improvements, environmental benefits, cost-effectiveness, economic development, land use, and congestion relief. In contrast, the project justification criteria for Core Capacity Improvement projects are: mobility improvements, environmental benefits, cost-effectiveness, economic development, congestion relief, and existing capacity needs of a corridor. FTA is also required to evaluate and rate the local financial commitment to the project and the project sponsor's ability to operate the project and continue to operate the existing transit system. FTA is also required to rate each individual criterion on a five point scale, from low, medium-low, medium, medium-high, and high. As we have previously reported, FTA prepares and combines a summary project justification, which is based on the ratings of the six criteria, and a summary local financial commitment rating to arrive at a project's overall rating, as shown in figure 2. To advance through the development process and be eligible for funding, proposed projects must score at least a medium overall project rating (which requires at least a medium rating for both the summary project justification and the summary local financial commitment). In order to recommend a project for a grant agreement in the President's budget, FTA considers the evaluation and rating of the project under the specified criteria, availability of Capital Investment Grant program funds, and the readiness of the proposed project. Projects that compete for Capital Investment Grant program funding are formally overseen by FTA with the help of contractors, who provide assistance to FTA with oversight of planning, construction, and financing of projects throughout the development process. FTA and its contractors evaluate each project's risk, scope, cost, schedule, financial plan, and project management plan, as well as the project sponsor's technical capacity and capability--before recommending a project for funding. Throughout the development process, project sponsors submit periodic updates to FTA on different aspects of their projects, such as on project cost, schedule, projected ridership, and the financing of the projects. FTA maintains its headquarters in Washington, D.C., with 10 regional offices throughout the continental United States, to assist with project oversight. As mentioned previously, this report focuses on the statutory, regulatory, and other FTA requirements applicable to the Capital Investment Grant program under MAP-21. In December 2015, the FAST Act was enacted. In addition to significantly altering or repealing some of the MAP-21 requirements, the FAST Act also made other changes to the Capital Investment Grant program's processes. According to FTA officials, some of those key changes include: (1) raising the dollar threshold for eligibility for New Starts and Small Starts projects, (2) increasing the number of projects eligible for funding by allowing joint public transportation and intercity passenger rail service and commuter rail projects to be eligible for funding, and (3) eliminating a requirement that corridor-based bus rapid transit projects must provide weekend service to be eligible for funding. We plan to examine FTA's implementation of the FAST Act in future work on the Capital Investment Grant program. FTA has made progress implementing most of the key changes MAP-21 made to the Capital Investment Grant program. As shown in table 1, FTA has issued policy guidance outlining the new review and evaluation process and criteria for New Starts, Small Starts, and Core Capacity Improvement projects and also provided project sponsors with instructions on how they can request to pre-qualify for a satisfactory rating based on the characteristics of their project, otherwise known as warrants. However, FTA has not completed the rulemaking required to fully implement the MAP-21 changes or fully addressed all requirements, such as the requirement to establish an evaluation and rating process for programs of interrelated projects, all of which we discuss below. FTA officials told us they are working toward addressing the remaining requirements. FTA has promulgated new rules for the Capital Investment Grant program but plans to initiate the rulemaking necessary to fully implement the changes MAP-21 made to the program in the future. Specifically, MAP-21 required FTA to issue rules establishing an evaluation and rating process for new fixed-guideway capital projects as well as Core Capacity Improvement projects. In January 2013, FTA issued a final rule establishing a new regulatory framework for the evaluation and rating of New Starts and Small Starts projects. FTA initiated this rulemaking--by issuing a Notice of Proposed Rulemaking--prior to the enactment of MAP-21, and FTA's final rule covers portions of the evaluation and rating requirements for New Starts and Small Starts projects that MAP-21 did not significantly change. According to FTA, future rulemaking will cover new items included in MAP-21 that have not yet been the subject of the rulemaking process, such as the evaluation and rating process for Core Capacity Improvement projects and the revised processes for New Starts and Small Starts projects. FTA officials told us they plan to address the remaining requirements of MAP-21 and now the Fast Act in future rulemaking. They noted that they still have to review the changes the FAST Act made to the Capital Investment Grant program and that factors outside of their control could delay their efforts. FTA provided project sponsors with updated policy guidance for the Capital Investment Grant program in both 2013 and 2015 and plans to update its policy guidance again in 2017. MAP-21 required FTA to issue policy guidance specifying the review and evaluation process and criteria for new fixed-guideway capital projects and Core Capacity Improvement projects and issue updated guidance each time FTA makes significant changes to the rating process and criteria, but not less frequently than once every 2 years. Concurrent with the January 2013 issuance of the final rule, FTA solicited public comment on its proposed policy guidance for New Starts and Small Starts projects and, in August 2013, issued policy guidance covering the evaluation and rating process for New Starts and Small Starts projects. In April 2015, FTA again solicited public comment on its proposed policy guidance for the evaluation and rating process for Core Capacity Improvement projects along with other topics not included in FTA's August 2013 guidance, such as the new congestion relief criterion and the ways in which projects can qualify for warrants. Subsequently, FTA issued updated policy guidance for the program in August 2015. FTA has stated its August 2015 guidance will serve as a guide for running the Capital Investment Grant program until it completes the rulemaking to fully implement the MAP-21 changes and now the requirements of the FAST Act. In addition to covering the evaluation and rating process for Core Capacity Improvement projects, FTA's August 2015 policy guidance also: Set a deadline for project development: MAP-21 specified that New Starts and Core Capacity Improvement projects have 2 years after the day in which they enter into Project Development to complete the activities required to obtain a project rating by FTA. In addressing this requirement, FTA's policy guidance encourages project sponsors to begin planning early, noting that project sponsors may wish to conduct early work, such as initiating the environmental review process, prior to requesting entry into Project Development. Implemented a new congestion relief criterion: MAP-21 added congestion relief as a project justification criterion for projects while removing operating efficiencies as a criterion, and under FTA's policy guidance, congestion relief is calculated based on the number of new weekday linked transit trips that are projected to result from a project's implementation. Utilized the new definition of bus rapid transit as set out in MAP-21: According to an FTA official, the new definition of bus rapid transit represented a significant change because it impacts funding eligibility. For example, the new definition required eligible bus rapid transit projects to have short headway bi-directional service for a substantial part of weekdays and weekend days, which was not the case under SAFETEA-LU. FTA, in turn, defined the interval of time required for service during peak periods and during other times of the day and made other related determinations. FTA officials told us they anticipated soliciting public comment on FTA's policy guidance again later this year or in 2017 in order to meet the MAP- 21 requirement that FTA issue new guidance no less than every 2 years. FTA plans to address the programs of interrelated project provisions of MAP-21 through future rulemaking and policy guidance updates. FTA officials told us that before they could begin working to address these provisions, they first needed to establish the evaluation and rating process for Core Capacity Improvement projects because a Core Capacity Improvement project could be one of the interrelated projects. FTA's August 2015 policy guidance covers the evaluation and rating process for Core Capacity Improvement projects; however, officials also said that some aspects of the law related to programs of interrelated projects were unclear and made it difficult to implement. For example, MAP-21 did not specify which evaluation criteria FTA should use to rate programs of interrelated projects that include more than one type of project. At the time of our review, FTA was working with Congress to address these issues and, in December 2015, the FAST Act was enacted, which officials told us provided the clarification they sought. FTA officials told us they plan to address these provisions in future rulemaking and policy guidance updates; however, they had no firm date for when these provisions would be implemented and noted it would take time. Figure 3 shows an illustrative example of a proposed program of interrelated projects consisting of two Core Capacity Improvement projects and one Small Starts project in Dallas, Texas. FTA is finalizing the development of a tool that will help officials determine the level of review required of project sponsors based on a number of risk factors, such as the total cost and complexity of a proposed project and the project sponsor's in-house technical capacity and capability. According to FTA officials, this tool, once complete, will address the MAP- 21 requirement that FTA use an expedited technical-capacity review process for project sponsors under certain circumstances. Specifically, the expedited review would be used for project sponsors that have recently and successfully completed a project that achieved budget, cost, and ridership outcomes consistent with or better than projections and that has demonstrated continued staff expertise and other resources necessary to implement a new project. FTA officials estimated that the development of this tool would be completed over the next few months. At the time of our review, FTA had provided project sponsors with instructions on how to request the use of warrants; however, it was too early to tell the extent to which FTA will be able to make greater use of warrants. Warrants are ways that proposed projects can pre-qualify for a satisfactory rating on a given criterion based on the characteristics of a project or the project corridor as long as the Capital Investment Grant program's share of the project does not exceed $100 million or 50 percent of the project's cost and the applicant certifies that its existing public- transportation system is in a state of good repair. For example, New Starts projects can qualify for an automatic rating of medium for some criteria as long as the total capital cost of the proposed project and the number of existing weekday transit trips in the corridor meet certain eligibility criteria, among other things. FTA's August 2015 policy guidance specified the parameters that FTA will use to determine if projects are eligible for warrants and provided project sponsors with instructions on how to request the use of warrants. FTA officials told us that for the most recent rating cycle--which is also the first rating cycle in which FTA allowed the use of expanded warrants--three project sponsors requested warrants and FTA determined two were eligible. According to FTA officials, it will take several rating cycles and feedback from project sponsors before the officials will have enough information to assess the effect of expanded warrants. The selected project sponsors we contacted were generally supportive of the changes MAP-21 made to the Capital Investment Grant program and of FTA's implementation of the changes. However, the project sponsors also told us they were concerned about the potential impact some of the changes--such as locking in funding at entry into Engineering and requiring New Starts and Core Capacity Improvement projects to complete Project Development within 2 years--might have on project sponsors. In addition, while the number of projects in the Capital Investment Grant program has increased by about 70 percent since 2012, project sponsors also told us it was too early to tell the extent to which the MAP-21 changes will help expedite projects through the program. A prevalent theme from our discussions with representatives from 13 project sponsors was that they generally support changes--such as: (1) streamlining the project development process, (2) establishing Core Capacity Improvement projects as a new category of eligible projects, (3) instituting a 2-year requirement for New Starts and Core Capacity Improvement projects to complete Project Development, and (4) revising the evaluation and rating process, that MAP-21 made to the Capital Investment Grant program. Representatives from 9 of the 13 project sponsors we interviewed told us that the changes streamlined the project development process by decreasing the number of time-consuming reviews FTA undertakes or by eliminating what these representatives considered to be burdensome requirements, such as the alternatives analysis requirement under SAFETEA-LU. According to the representatives we interviewed, streamlining should help expedite projects through the program because fewer FTA reviews decrease the amount of work project sponsors need to perform prior to submitting information to FTA for review. According to APTA representatives, the elimination of the alternatives analysis requirement was a particularly positive development for project sponsors because project sponsors devoted significant resources to analyzing alternatives prior to requesting entry into the Capital Investment Grant program. One of the MAP-21 changes that some project sponsors indicated they were supportive of is the addition of Core Capacity Improvement projects. Representatives from one project sponsor said the addition of these projects is a positive development because these projects give project sponsors options to increase the capacity of a system as ridership increases, while two others noted that the addition of Core Capacity Improvement projects expands project eligibility for projects that would likely not have rated favorably under New Starts criteria. According to representatives from one of these project sponsors, these projects expand eligibility because Core Capacity Improvement projects are designed to increase the capacity of existing corridors, not add extensions to an existing system. Figures 4 and 5 provide information on the two Core Capacity Improvement projects we visited for this review-- Dallas Area Rapid Transit's (DART) platform extensions project and Metropolitan Transportation Authority's (MTA) power improvements project in New York City. Representatives from 6 of 13 project sponsors also indicated that they were generally supportive of the MAP-21 requirement that New Starts and Core Capacity Improvement projects complete Project Development within 2 years. Representatives from two project sponsors told us that requiring project sponsors to complete more work, such as initiating the environmental review process, prior to entering Project Development should help expedite a project's progress through the program because completing this work decreases the amount of work project sponsors need to complete while in Project Development. Further, representatives from one project sponsor indicated that this change should also deter project sponsors that do not yet have defined projects from entering the program. However, as discussed below, most of the project sponsors also raised some concerns about the 2-year completion deadline. In addition, representatives from 12 of the 13 project sponsors told us that they were generally supportive of the changes MAP-21 made to the evaluation and rating process. Representatives from one project sponsor noted, for example, that the MAP-21 changes have greatly simplified and streamlined the review process and made it more transparent. Representatives from another project sponsor also noted that the changes required FTA to implement more evaluative measures that take into account improvements that benefit existing riders, such as measures designed to reduce travel time, rather than focusing solely on the addition of new riders. However, project sponsors also raised some concerns regarding certain aspects of the MAP-21 changes. Representatives from 11 of the 13 project sponsors told us that requiring New Starts and Core Capacity Improvement projects to complete Project Development activities within 2 years could pose a challenge for projects sponsors--for example, increasing project sponsors' costs because project sponsors may have to perform more work prior to entering Project Development. These representatives noted that such work is not eligible for pre-award authority under MAP-21. In FTA's August 2015 policy guidance, FTA acknowledged that it may be challenging for certain proposed projects to complete Project Development within 2 years. However, FTA also acknowledged that the intent of the MAP-21 changes was to help projects make quick progress and not linger in the program, and FTA encouraged project sponsors to perform whatever work they feel necessary prior to requesting entry into Project Development. Representatives from 5 of the 13 project sponsors indicated that locking in Capital Investment Grant program funding at entry into the Engineering phase could be too early in the development process and could pose a challenge because some projects may have yet to develop realistic cost and schedule estimates. According to these representatives, locking in funding at entry into Engineering increases the risk of escalating costs to project sponsors--costs which project sponsors would be responsible for--and is a change compared to under SAFETEA-LU where funding was locked in prior to a project being recommended for a grant agreement. APTA representatives told us that some projects may spend more time in Project Development as a result of this change, in order to help ensure that project sponsors develop more mature cost estimates before locking- in funding. According to FTA, project sponsors, not the federal government, should bear the risk of cost overruns once a project enters Engineering. FTA officials noted that the project sponsor determines when to proceed to Engineering and thus is responsible for ensuring that a project's cost estimates are supported by sufficient engineering and design work. Representatives from 10 of the 13 project sponsors voiced various concerns regarding some of the changes MAP-21 made to the evaluation and rating process. For example, representatives from 4 project sponsors told us that they thought the ridership measure of the new congestion relief criterion appeared biased toward more mature regions with legacy transit ridership compared to fast-growing regions with emerging transit ridership, or, according to representatives from one of these project sponsors, modes that transport a greater number of passengers, such as light rail projects. FTA has acknowledged limitations with the ridership measure and noted it intends to continue to refine the congestion relief measure over time with input from the transit industry and experience gained through its implementation of the MAP-21 changes. Representatives from 11 of 13 project sponsors indicated that they were generally satisfied with FTA's implementation of the MAP-21 changes. For example, representatives from four project sponsors said that FTA has made a good effort to listen to and incorporate many of the recommendations offered by project sponsors. APTA representatives similarly told us that FTA has done an excellent job engaging the transit industry in trying to streamline the Capital Investment Grant program. In addition, representatives from 11 of 13 project sponsors said that they were generally supportive of the policy guidance FTA has issued since the enactment of MAP-21. For example, representatives from five project sponsors said FTA's policy guidance has been comprehensive and useful in explaining how FTA will implement the MAP-21 changes and describing what FTA expects of project sponsors. Furthermore, representatives from all 13 project sponsors said that FTA has continued to provide support to project sponsors prior to entry into Project Development, such as during the application process, as well as throughout the program, as it has worked to implement the MAP-21 changes. For example, project sponsors noted that FTA continues to provide checklists, roadmaps, and technical assistance, in addition to its policy guidance updates and reporting instructions. FTA officials noted that they provide ongoing technical assistance on a routine basis during each of their conversations with project sponsors. Although project sponsors were generally satisfied with FTA's efforts thus far, they pointed out that not all MAP-21 changes, such as the programs of interrelated projects provisions, have been implemented yet. In addition, representatives from 9 of the 13 project sponsors told us they thought it took a long time for FTA to issue some of its policy guidance. FTA officials noted that by law they are required to issue new policy guidance for the Capital Investment Grant program no less than every 2 years and emphasized that by law they are also required to invite and respond to public comment on their guidance via the Federal Register-- requirements that are time-consuming to comply with. Representatives from 11 of the 13 project sponsors also offered various suggestions regarding how FTA could enhance the support it provides project sponsors, such as by providing checklists for different types of projects, such as design-build, operate-maintain, or public-private partnerships or by increasing the number of training opportunities it provides project sponsors. Since 2012, the total number of projects in the Capital Investment Grant program has increased by 70 percent, from 37 projects as of February 2012 to 63 projects as of February 2016, as shown in figure 6. FTA officials, selected project sponsors, and representatives from APTA largely attributed this growth to the fact that under MAP-21, FTA is no longer required to rate proposed projects prior to their entry into the Capital Investment Grant program. While FTA officials told us they view increased participation in the program as an opportunity to help improve public transit in communities across the country, they also said such growth presents challenges, noting that FTA's resources to review and evaluate projects have largely remained flat over the last several years. Further, they noted that participation in the program by Small Starts projects is increasing--since 2012, Small Starts projects, as a percentage of the total number of projects, increased from about 24 percent to more than 50 percent--and that Small Starts project sponsors typically have little experience constructing major capital projects. Consequently, FTA often provides those project sponsors with greater levels of technical assistance and support. FTA officials told us they have requested additional funding from Congress to address these challenges. They also noted that absent being given additional resources, they cannot spend as much time providing technical assistance or evaluating projects. While the number of projects in the Capital Investment Grant program has increased since the enactment of MAP-21, we found that limited data were available to assess whether projects were progressing through the program more quickly compared to under SAFETEA-LU. For example, at the time of our review only 4 projects had approached the 2-year deadline to complete Project Development. According to FTA officials, 3 of these projects completed the activities required to obtain a project rating from FTA before their 2-year deadlines passed while the third requested to postpone entry into Engineering to complete additional design work and address local funding issues. Representatives from 8 of the 13 project sponsors we spoke with and representatives from APTA also felt that it was is too early to tell the extent to which the MAP-21 changes will help expedite projects through the program. For example, among other things, representatives from these project sponsors told us that while MAP-21 consolidated the number of phases in the development process it was not yet apparent to them how this might affect their projects since they perceived they would still have to complete the same amount of work. In discussing this issue with FTA, officials emphasized that projects were not far enough along for FTA to determine whether the MAP-21 changes are expediting projects through the program. We provided a draft of this report to DOT for review and comment. In its comments, which we have reproduced in appendix II, DOT noted that it is committed to continuing its efforts to improve the Capital Investment Grant program while ensuring that project evaluations provide important information to decision makers. DOT also provided technical comments that we incorporated where appropriate. We are sending copies of this report to interested congressional committees and the Secretary of the Department of Transportation. In addition, this report will be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions or would like to discuss this work, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. This report discusses: (1) the Federal Transit Administration's (FTA) progress in implementing changes the Moving Ahead for Progress in the 21st Century Act (MAP-21) made to the Capital Investment Grant program and (2) how selected project sponsors view the MAP-21 changes and FTA's implementation of those changes. We focused our work on selected statutory requirements contained in MAP-21 that were not significantly altered or repealed by the Fixing America's Surface Transportation Act (FAST Act). To address our objectives, we reviewed the relevant provisions of MAP- 21, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), and the FAST Act. We also reviewed FTA's policy guidance; other pertinent FTA documents related to the program, such as FTA's annual reports to Congress; and our body of work on FTA's Capital Investment Grant program. In addition, we interviewed FTA officials, representatives of the American Public Transportation Association, and selected project sponsors. Specifically, we interviewed representatives from 13 project sponsors representing 17 of 52 projects participating in the program as of February 2015 and conducted a content analysis of the interviews with project sponsors to identify and summarize themes that emerged during our discussions. The information obtained from our interviews with project sponsors is not generalizable to all project sponsors but provides insight into project sponsors' views of the MAP-21 changes thus far. We also visited New York City and Dallas, Texas, to tour the sites of two proposed Core Capacity Improvement projects. The project sponsors we contacted and the locations we visited were selected based on a number of factors, the primary being previous project experience in FTA's Capital Investment Grant program under SAFETEA-LU, which provided a basis to compare changes made by MAP-21. These project sponsors represent 7 New Starts projects, 8 Small Starts projects, and 2 Core Capacity Improvement projects, as well as different rail modes (heavy rail, light rail, commuter rail) and both bus rapid transit and streetcar projects, as shown in table 2. We conducted this performance audit from July 2015 through April 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact above, key contributors to this report included Brandon Haller (Assistant Director), Andrew Burton, Geoffrey Hamilton, Wesley A. Johnson, Delwen Jones, Hannah Laufe, Malika Rice, and Andrew Stavisky. Public Transportation: Multiple Factors Influence Extent of Transit- Oriented Development. GAO-15-70. Washington, D.C.: November 18, 2014. Public Transit: Length of Development Process, Cost Estimates, and Ridership Forecasts for Capital-Investment Grant Projects. GAO-14-472. Washington, D.C.: May 30, 2014. Public Transit: Funding for New Starts and Small Starts Projects, October 2004 through June 2012. GAO-13-40. Washington, D.C.: November 14, 2012. Bus Rapid Transit: Projects Improve Transit Service and Can Contribute to Economic Development. GAO-12-811. Washington, D.C.: July 25, 2012. Public Transportation: Requirements for Smaller Capital Projects Generally Seen as Less Burdensome. GAO-11-778. Washington, D.C.: August 2, 2011. Public Transportation: Use of Contractors Is Generally Enhancing Transit Project Oversight, and FTA is Taking Actions to Address Some Stakeholder Concerns. GAO-10-909. Washington, D.C.: September 14, 2010. Public Transportation: Federal Project Approval Process Remains a Barrier to Greater Private Sector Role and DOT Could Enhance Efforts to Assist Project Sponsors. GAO-10-19. Washington, D.C.: October 29, 2009. Public Transportation: Better Data Needed to Assess Length of New Starts Process, and Options Exist to Expedite Project Development. GAO-09-784. Washington, D.C.: August 6, 2009. Public Transportation: New Starts Program Challenges and Preliminary Observations on Expediting Project Development. GAO-09-763T. Washington, D.C.: June 3, 2009. Public Transportation: Improvements Are Needed to More Fully Assess Predicted Impacts of New Starts Projects. GAO-08-844. Washington, D.C.: July 25, 2008. Public Transportation: Future Demand Is Likely for New Starts and Small Starts Programs, but Improvements Needed to the Small Starts Application Process. GAO-07-917. Washington, D.C.: July 27, 2007. Public Transportation: New Starts Program Is in a Period of Transition. GAO-06-819. Washington, D.C.: August 30, 2006. Public Transportation: Preliminary Information on FTA's Implementation of SAFETEA-LU Changes. GAO-06-910T. Washington, D.C.: June 27, 2006. Public Transportation: Opportunities Exist to Improve the Communication and Transparency of Changes Made to the New Starts Program. GAO-05-674. Washington, D.C.: June 28, 2005. Mass Transit: FTA Needs to Better Define and Assess Impact of Certain Policies on New Starts Program. GAO-04-748. Washington, D.C.: June 25, 2004. Mass Transit: FTA Needs to Provide Clear Information and Additional Guidance on the New Starts Ratings Process. GAO-03-701. Washington, D.C.: June 23, 2003. Mass Transit: FTA's New Starts Commitments for Fiscal Year 2003. GAO-02-603. Washington, D.C.: April 30, 2002. Mass Transit: FTA Could Relieve New Starts Program Funding Constraints. GAO-01-987. Washington, D.C.: August 15, 2001. Mass Transit: Implementation of FTA's New Starts Evaluation Process and FY 2001 Funding Proposals. GAO/RCED-00-149. Washington, D.C.: April 28, 2000.
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FTA's Capital Investment Grant program provides roughly $2 billion in appropriated funds each year to help states, cities, and localities plan and build new or extensions to existing fixed-guideway transit systems. Under this program, project sponsors--usually local transit agencies--have typically applied for their projects to receive federal funding as either a New Starts or a Small Starts project. In 2012, MAP-21 created a new category of eligible projects called Core Capacity Improvement projects and also revised the process proposed projects must follow to be eligible for and receive federal funding. MAP-21 included a provision for GAO to biennially review FTA's and the Department of Transportation's implementation of this program. This report discusses: (1) FTA's progress in implementing changes to the program required by MAP-21 and (2) how selected project sponsors view the MAP-21 changes and FTA's implementation of those changes. To conduct this review, GAO reviewed the relevant provisions of pertinent laws and FTA's policy guidance, interviewed FTA officials and representatives from 13 project sponsors representing 17 of 52 projects participating in the program, and visited the sites of two Core Capacity Improvement projects. Project sponsors and locations visited were selected based on previous experience in the program, among other things. In written comments, DOT emphasized its commitment to improve and streamline the Capital Investment Grant program. The Federal Transit Administration (FTA) has implemented most of the key changes the Moving Ahead for Progress in the 21st Act (MAP-21) made to the Capital Investment Grant program, which helps fund investments in new public transit systems or extensions to existing systems. Projects funded under this program fall into different categories, depending on the total project's cost and the amount of federal funding requested. For example, under MAP-21, New Starts projects had capital costs that were $250 million or greater while Small Starts projects had capital costs that were less than $250 million. As required by MAP-21, FTA has issued guidance outlining the new review and evaluation process for New Starts and Small Starts projects--as well as Core Capacity Improvement projects, which is a new category of eligible projects MAP-21 created and which are designed to increase the capacity of an existing system. In addition, FTA has informed project sponsors how they can pre-qualify for a satisfactory rating based on the characteristics of their projects. FTA officials said they plan to address the remaining requirements, such as completing the rulemaking to fully implement the MAP-21 provisions, over the next 2 years. The 13 project sponsors GAO contacted--representing 7 New Starts projects, 8 Small Starts projects, and 2 Core Capacity Improvement projects--were generally supportive of the changes MAP-21 made to the Capital Investment Grant program, as well as FTA's implementation of the changes. Representatives from 9 of 13 project sponsors indicated that the MAP-21 changes streamlined the Capital Investment Grant program's project development process, such as by reducing the number of time-consuming FTA reviews. Of the three project sponsors that indicated they had an opinion on the addition of Core Capacity Improvement projects as a new category of projects, all were supportive, with representatives from one noting, for example, that this change gives them options to increase the capacity of existing systems as ridership increases. Such projects could include lengthening rail platforms to accommodate additional train cars or to reduce platform overcrowding. Also, representatives from 11 of 13 project sponsors supported FTA's implementation efforts, noting, for example, that FTA has taken steps to listen to and incorporate many of the recommendations offered by project sponsors in implementing the MAP-21 changes. While project sponsors raised some concerns about the potential impact certain changes--such as limiting the amount of time New Starts and Core Capacity Improvement projects can spend in Project Development--might have on project sponsors in the future, they also acknowledged that not all the MAP-21 changes have been implemented yet. While participation in the program has increased substantially--by 70 percent--since the enactment of MAP-21, both project sponsors and FTA officials pointed out that it is too early to tell what impact the changes will ultimately have on the Capital Investment Grant program--including if the changes will help expedite projects through the program.
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DOD designed GPS to support military missions, such as military air, land, and sea navigation; missile guidance; search and rescue; mine placement; and precision surveying. GPS has space and ground components, as depicted in figure 1. The space component consists of a worldwide constellation of 24 satellites in six orbits at approximately 11,000 miles above the earth. These satellites are positioned so that a user will have at least four satellites in view at any given location. The satellites transmit radio signals that permit adequately equipped users to calculate the time as well as their speed and tridimensional position (latitude, longitude, and altitude) anywhere on or above the earth's surface and in any weather condition. The ground component includes a master control station, five monitoring stations, and three ground antennae located throughout the world. The master control station tracks and directs the GPS satellites through the monitoring stations and ground antennae, respectively. As mentioned earlier, because GPS was designed for military purposes, the system, by itself, cannot satisfy key safety-related civil air navigation requirements, such as those dictating that a sufficient number of the system's satellite signals be available virtually all of the time. Currently, GPS is used domestically as a supplemental means of navigation because on-board-the-aircraft augmentation systems--which use altimeters, gyroscopes, and other equipment to augment GPS--do not address all civil air navigation requirements, particularly those related to the system's availability. In accordance with the direction provided by the Department of Transportation (DOT), FAA is supporting the development of a wide area system and local area systems that will permit GPS to fulfill all civil air navigation requirements and become a primary means of navigation. This month, FAA plans to award a contract for developing the wide area system. The agency has not announced a date for awarding a contract to develop local area systems. (See app. I for a description of civil air navigation requirements and the wide and local area systems that FAA intends to implement.) FAA and the aviation industry expect that the augmented GPS will result in a navigation capability that will provide major benefits to the agency, civil aviation, and others because of its superiority over currently used navigation aids. For example, because FAA expects that the augmented GPS will be able to support runway approaches and landings in all weather conditions, the agency recently canceled its multibillion-dollar project to acquire microwave landing systems--a key element of the program to modernize the air traffic control system. Also, FAA foresees that the augmented GPS will permit the agency, after a transition period, to start decommissioning its ground network of navigation and landing aids. Moreover, airlines expect that the augmented GPS and its applications will result in major operational and economic benefits by reducing flying times and fuel consumption. In addition, DOT and FAA anticipate that the augmented GPS will benefit not only aviation users but also other federal agencies and land and sea users having a need for navigation information. Although FAA has met all milestones for GPS to date, the agency will face more complex and difficult tasks in achieving future milestones. We are concerned that the revised schedule for augmenting GPS will not give the agency enough time to develop and implement the wide area system by 1997, when civil aircraft are expected to use the augmented GPS domestically as a primary means of navigation. The schedule is tight, and potential problems could affect the system's development and implementation. In 1993, FAA met several milestones for GPS when the agency approved the use of the system as a supplemental means of navigation for oceanic and domestic air routes as well as nonprecision approaches. Also, in December 1994, FAA met one of two 1995 milestones ahead of schedule when the agency approved the use of GPS--augmented by on-board-the-aircraft systems--as a primary means of navigation over oceans and remote areas. In addition, FAA will likely meet the other 1995 milestone when the agency completes assessing the feasibility of using local area systems to support all types of precision approaches. Agency officials responsible for GPS activities see little chance for delays in meeting this milestone. Although FAA has been confident for some time that local area systems will be able to support all types of precision approaches, the agency is sponsoring research by various institutions to confirm the feasibility of these systems. For example, in June 1994, FAA awarded contracts to Wilcox Electric Inc. and E-Systems to develop and test two different local area systems for supporting precision approaches. According to FAA officials responsible for GPS activities, the preliminary testing of demonstration systems has been encouraging. These agency officials expect that the reports on the performance of these systems will be completed on schedule by the summer of 1995. FAA may not be able to meet its 1997 milestones for civil aircraft to use GPS domestically as a primary means of navigation. These milestones are based on the implementation of an initial wide area system by 1997. (See app. II for a depiction of FAA's milestones for GPS.) The schedule for implementing the initial system is tight, and potential problems could affect the system's development. This commitment is challenging because the system's schedule may not provide enough time for FAA to complete all necessary steps. Over a 28-month period, from May 1995 to September 1997, the FAA contractor must develop and implement the system, and the agency must accept and commission it. However, FAA estimates that the system's software development alone may take from 24 to 28 months, thereby leaving little time for the agency to accept and commission the system. Also, potential difficulties may be encountered during the system's development. These difficulties include the following: Software-related problems. Although FAA has taken measures such as strengthening its oversight capabilities, the contractor selected may face difficulties while attempting to develop, integrate, test, and certify the wide area system's software. The agency estimates that when measures to mitigate potential software development problems are considered, the software schedule has about a 60-percent probability of success. FAA has noted its concerns about potential software problems since it decided to adopt the accelerated schedule for developing and implementing the system. Satellite-related problems. The space component of the wide area system requires that three commercial communication satellites be in place by late 1997--an undertaking that is beyond FAA's control. However, enough satellites may not be in orbit on time because the International Maritime Satellite Organization (INMARSAT)--the only commercial entity that has publicly announced its intention to launch satellites capable of supporting this space component--could delay launches or could launch an insufficient number of satellites to fully support this component. INMARSAT recently delayed launching the first of these satellites from late 1995 to early 1996 because the rocket to launch the satellite would not be available on schedule. FAA recently estimated that its 1997 milestones may slip up to 18 months if potential problems are realized. However, the agency did not provide information on the likelihood of meeting the milestones within this period of time. In 1994, FAA took several actions to strengthen its capacity to manage its GPS-related efforts, including integrating GPS activities within the agency, securing additional funding to develop the wide area system, and issuing plans for developing and implementing the augmentation systems and a draft plan for transitioning to GPS. These actions are encouraging. However, the plans are not comprehensive because they exclude schedule and cost estimates for implementing augmentation systems and information on the likelihood of achieving these estimates. FAA recently took several management actions to better position itself for augmenting GPS. First, FAA integrated pertinent GPS research, development, and acquisition activities that had been fragmented across the agency. In October 1993, FAA named a Director of GPS/Communications, Navigation, and Surveillance (CNS) Systems, and in May 1994, it created the GPS/CNS Development and Implementation Service. In November 1994, FAA consolidated the Service with units responsible for current ground-based navigation aids, such as instrument landing systems. This new organization, headed by the former Director of the GPS/CNS Service, is called the Integrated Product Team for GPS and Navigation and is under the jurisdiction of the Associate Administrator for Research and Acquisitions. According to the head of this organization, the consolidation was intended to improve the integration and coordination of the agency's efforts to augment GPS. Second, after deciding to accelerate the implementation of the wide area system, FAA obtained $82.8 million for fiscal year 1995, an increase of $61.9 million over its appropriation for fiscal year 1994. This funding includes $67.9 million to develop and implement the wide area system. In fiscal year 1996, the administration is requesting $86.9 million to fund the system. Third, in mid-1994, FAA released plans for guiding the development, acquisition, and implementation of GPS' augmentations and drafted an agencywide plan for directing the transition to GPS. Although these actions are encouraging, they may not address potential problems that may affect the development of the wide area system. Some of these problems are beyond FAA's control, such as the difficulties that may be experienced during the launching of commercial communication satellites. Among other things, the GPS development and implementation plans and the draft of the transition plan (1) present information on FAA's planned efforts to augment GPS, including schedule information on the wide area system and related milestones for using GPS as a primary means of navigation; (2) identify requirements that GPS must satisfy; and (3) highlight benefits that GPS will provide the agency and aviation users. Also, after the wide and local area systems are implemented, the transition plan proposes tentative schedules for transitioning to GPS and for decommissioning navigation aids in current use. However, these plans provide insufficient information to decisionmakers in the administration and the Congress on the systems needed for augmenting GPS. The plans issued in 1994 do not provide a timetable for implementing local area systems that will be needed to support precision approaches. FAA recently canceled its microwave landing system project because it is confident that the local area systems will be able to support all types of precision approaches. Without a timetable, decisionmakers cannot evaluate the extent to which schedules being considered are timely and minimize the need to keep instrument landing systems operational. The GPS plans exclude information on the level of financial resources needed by FAA to implement the wide area system. Also, they do not present information on the funding required to implement the local area systems needed for supporting precision approaches. When plans do not identify financial resource needs, past experience shows that decisionmakers may not have a sound basis for assessing budget requests or considering alternative courses of action. For example, because FAA's 1992 GPS development plan did not include cost information, the Congress did not have the necessary information to evaluate the administration's budget request for funding FAA's GPS effort for fiscal year 1993. After we reported to the Congress that this budget request was less than half of what FAA needed to keep these efforts on schedule, the Congress had a basis to fully fund the agency's needs. The plans omit information on the likelihood that FAA will meet its milestone and cost estimates, given the effect of potential problems on the system's development and implementation. Identifying the probability (low, medium, and high) of successfully meeting the schedule and cost estimates would enable decisionmakers to understand the level of confidence that the agency has in these estimates. FAA has the above information for the wide area system. Also, according to agency officials responsible for GPS activities, FAA expects to complete the development of similar information on the local area systems by late 1995. FAA has been successful in meeting its GPS milestones to date. However, the agency faces more complex and difficult tasks in achieving future milestones. We are concerned that the revised schedule will not give the agency enough time to develop and implement the wide area system by 1997, when civil aviation is expected to use the augmented GPS as a primary means of navigation. To strengthen its ability to manage its GPS efforts, FAA recently took various actions, such as integrating GPS activities across the agency, securing additional funding for accelerating the development of the wide area system, issuing development and implementation plans, and drafting a transition plan. These actions are encouraging. However, the plans are not comprehensive enough to provide the administration and the Congress with a sound basis for making programmatic and budgetary decisions concerning GPS' augmentation systems. For example, the plans omit important schedule and cost information on these systems. A comprehensive plan--including (1) complete milestones for augmenting GPS and transitioning to it, (2) the financial resources needed to achieve those milestones, and (3) information on the likelihood that FAA will meet its milestone and cost estimates--would help FAA guide and coordinate its efforts, marshall its resources, and assess its progress. Also, this plan would help the administration and the Congress ascertain the scope of FAA's efforts, in terms of schedules and costs; assess whether the agency can meet milestones on time, given the level of resources requested; consider alternative courses of action; and monitor whether the agency's progress toward accomplishing these milestones and transitioning to GPS is on schedule and within budget. Finally, the plan would help aviation users map out their transition to GPS in terms of both equipping aircraft and training pilots. With the development of additional information on local area systems by late 1995, FAA will soon have the information needed to prepare a comprehensive GPS plan. We recommend that the Secretary of Transportation direct the FAA Administrator to prepare a comprehensive plan for augmenting GPS and transitioning to it and to update this plan regularly. The plan should include, among other things, schedule and cost estimates for developing and implementing the wide and local area augmentation systems as well as information on the probability that FAA will meet these estimates. We gave copies of the draft report to DOT and FAA officials, including FAA's Director of the Integrated Product Team for GPS and Navigation, the Manager of the Satellite Navigation Program, the Manager of the Wide Area Augmentation System Project, and the Manager of the Local Area Augmentation System Project. These officials generally agreed with the report's findings, conclusions, and recommendation and did not have concerns about its contents. The officials gave us information and suggestions to help us clarify and qualify the report. We incorporated their suggestions where appropriate. We obtained information on FAA's efforts to augment GPS from FAA officials responsible for pertinent GPS activities, including the Director of the Integrated Product Team for GPS and Navigation and the Manager of the Satellite Navigation Program. Also, we reviewed key documentation on civil air navigation requirements, reports on different augmentation systems being developed to augment GPS, plans and studies that identified various time frames for augmenting GPS, and schedule and cost information on FAA's efforts related to GPS. In addition, we attended various professional meetings sponsored by FAA and other aviation organizations at which GPS issues were discussed. Finally, we obtained information on satellite navigation technology through discussions with representatives from airlines, the Air Transport Association, the Aircraft Owners and Pilots Association, the GPS industry, the International Civil Aviation Organization (ICAO), and DOD, including the Executive Secretary of the U.S. GPS Industry Council; the Chairman of ICAO's Special Committee on Future Air Navigation Systems, Phase II; and the Senior Staff Specialist for Navigation and Air Traffic Control Systems in the Office of the Assistant Secretary of Defense. We conducted our work from August 1993 through April 1995 in accordance with generally accepted government auditing standards. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to interested congressional committees; the Secretary of Transportation; the Administrator, FAA; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. This work was performed under the direction of Allen Li, Associate Director, who may be reached at (202) 512-3600 if you or your staff have any questions. Major contributors to this report are listed in appendix III. The Global Positioning System (GPS), by itself, cannot fulfill civil air navigation requirements related to the various phases of flight. The Federal Aviation Administration (FAA) is working on two major systems for augmenting (enhancing) GPS so that it can meet these requirements and become a primary means of navigation. GPS does not satisfy civil air navigation requirements, including availability, integrity, and in the case of precision approaches (see fn. 2) accuracy requirements. The availability of a navigation aid is defined as the amount of time that the system is available for use. Availability requirements for the different phases of flight dictate for safety-related reasons that the system's signals be available more than 99.9 percent of the time. However, under the current GPS constellation of 21 operational satellites and 3 spares, satellites are available only 98 percent of the time. Through its augmentations to GPS, FAA plans to provide users with several satellite signals similar to those provided by GPS so that signals are available virtually all of the time. The integrity of a navigation aid is defined as its ability to provide timely warnings to users about the system's malfunctions. Integrity requirements for the different phases of flight dictate that warnings be provided to users within seconds of a system's malfunction. However, GPS' integrity warnings can take 15 minutes or longer. Through its enhancements to GPS, FAA intends to provide timely integrity warnings to users so that they know when GPS or its enhancements are malfunctioning. The accuracy of a navigation aid is defined as the difference between the true and measured position of an aircraft, the latter position as calculated by on-board-the-aircraft equipment. Accuracy requirements for precision approaches range from a few meters to under a meter. However, GPS, by itself, provides accuracies of about 100 meters. Through its augmentation to GPS, FAA plans to provide accuracy corrections to users so that the system can support all types of precision approaches. FAA is working to develop and implement wide and local area augmentation systems for augmenting GPS. FAA is working on the development and implementation of a satellite-based wide area system that will permit GPS to satisfy the integrity, availability, and accuracy requirements needed to make it a primary means of navigation for supporting all phases of flight, including precision approaches. FAA plans to use the wide area system to augment GPS in two phases. Under the first phase, FAA will use the system to enhance the availability and integrity of GPS. The system will transmit satellite signals similar to those provided by GPS, which will provide integrity warnings within 6 seconds of a malfunction. Under the second phase, FAA intends to enhance the accuracy of GPS for meeting the requirements of Category I precision approaches. FAA recently received authorization to implement this accuracy enhancement. The wide area system will have ground and space components for augmenting GPS. Figure I.1 depicts the wide area augmentation system. Legend WAAS = wide area augmentation system. Other communication satellites not shown. Other GPS satellites not shown. Other communication stations not shown. Other WAAS master stations not shown. Other WAAS reference stations not shown. The ground component will consist of a network of stations, including reference, master, and communication stations. Reference stations will, among other things, monitor the GPS satellite signals to generate integrity warnings and calculate corrections to improve the accuracy of the signals. Master stations will monitor the performance of the system, control reference stations, and process the integrity and accuracy information needed for augmenting GPS. Master stations, which will be located at several reference station sites, will send this information to communication stations. The latter will transmit the information to communication satellites--the space component--that in turn will broadcast the information to users with augmented signals similar to GPS signals. In addition to this operational wide area system, FAA plans to implement a smaller wide area system--called a functional verification system--to support related developmental, operational, and maintenance efforts. FAA's strategy is to implement an initial wide area system by September 1997. The initial system, through a series of enhancements, is expected to become a final system by 2001. The initial system will consist of 2 master stations, 24 reference stations, and 6 communication stations. These stations will be joined by ground telecommunications. The system will use three communication satellites to deliver augmented signals similar to those provided by GPS to users. FAA envisions that the final system will consist of about 4 master stations, up to 40 reference stations, and up to 16 communication stations. The final system may use up to eight communication satellites. The functional verification system will consist of two master stations, five reference stations, and one communication station. It will require one communication satellite. The initial system and the functional verification system will use the same software. This software will contain an estimated 150,000 lines of code. The final system's software may contain about 200,000 lines of code. This additional software code is intended to make the system capable of supporting Category I precision approaches and interfacing with other wide area augmentation systems implemented around the world. To limit risks during the integration of the system and ensure proper interfaces between the system's components, FAA plans to award a contract for the wide area system to a single contractor. The contract will be a cost-plus contract because uncertainties affecting, for example, the software's development and integration do not permit FAA to estimate costs with the accuracy required for using a fixed-price contract. The contract will include incentives for the contractor to meet technical and cost goals. FAA expects to award the contract in May 1995. The contract, including four options, could extend for up to 8 years and will be funded incrementally. FAA is working on the development of a ground-based local area system that will allow GPS to satisfy the integrity, accuracy, and availability requirements needed to make it a primary means of navigation for supporting precision approaches. This local system uses a ground component for augmenting GPS. Figure I.2 depicts one of the systems under development. The ground component has one or more GPS monitoring stations located at known locations for detecting malfunctions and calculating accuracy corrections near or at the airport. After processing this information, the stations transmit it with an augmented signal similar to those provided by GPS to users. Other GPS satellites not shown. Currently, FAA is sponsoring various efforts to develop local area systems to support all types of precision approaches. For example, in 1994, the agency awarded contracts to Wilcox Electric and E-Systems, at a cost of $1.67 million and $2 million, respectively, to develop and test demonstration systems using two different technologies. Figure II.1 shows the milestones in the schedule for enhancing GPS. Also, it displays the extent to which FAA has accelerated some milestones since they were introduced in 1992. Future milestones in the schedule depend on the implementation of a wide area system for augmenting GPS nationwide by 1997. A: GPS for multisystem navigation. Under this mode, a pilot uses the system in conjunction with one or more commissioned air navigation aids for obtaining reliable information on the aircraft's position. The aircraft must carry equipment for both GPS and the navigation aids, and the pilot must constantly cross-check the GPS-derived positioning information with the other systems' information. B: GPS augmented for supplemental navigation. Under this mode, the pilot uses the augmented GPS by itself for determining the aircraft's position. However, because the GPS signals may not be available during one of the phases of flight, the aircraft must carry equipment for a commissioned air navigation aid as a backup. C: GPS augmented for primary means navigation. Under this mode, the pilot uses the augmented GPS by itself. However, the aircraft does not have to carry equipment for a commissioned air navigation aid as a backup. B* and C*: Milestones based on the implementation of the wide area augmentation system. D: GPS augmented for special Category I precision approaches. Under this mode, a pilot uses GPS augmented by privately owned local area systems for flying this type of precision approach. E: Feasibility determination of GPS' augmentation for supporting Category II/III precision approaches. FAA determines whether GPS augmented by local area systems can support these types of precision approaches. Allen Li, Associate Director Robert E. Levin, Assistant Director Juan F. Tapia-Videla, Evaluator-in-Charge Stephanie K. Gupta, Staff Evaluator Gregory P. Carroll, Staff Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the Federal Aviation Administration's (FAA) augmentation of the Global Positioning System (GPS) for use in civil aviation navigation, focusing on whether FAA: (1) will have sufficient time under its new milestones to augment GPS; and (2) has taken appropriate actions to better manage its GPS-related efforts. GAO found that: (1) although FAA has met all of its milestones to date, its future milestones involve more complex and difficult tasks; (2) FAA may not have enough time to develop and implement its wide area system augmentation by 1997, although civil aircraft are expected to use the augmented GPS without relying on other navigation aids for backup; (3) FAA estimates that system software development alone may take 24 to 28 months; (4) implementation of the wide area system may be delayed by factors beyond FAA control, such as the launching of commercial satellites needed to support the system; (5) in 1994, FAA strengthened its GPS management by integrating its GPS activities, securing the necessary funding to accelerate the wide area system's development, and issuing plans for developing and implementing augmentation systems and transitioning to GPS; and (6) the FAA GPS plans are not comprehensive, since they omit a schedule for implementing the local area system, cost estimates for the local and wide area systems, and the probabilities of meeting schedule and cost estimates.
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Our body of work on interagency collaboration has identified several key areas that are essential for collaboration among U.S. federal agencies in addressing security challenges. Three are particularly important for SOUTHCOM and AFRICOM: (1) developing and implementing overarching strategies, (2) creating collaborative organizations, and (3) building a well- trained workforce. Underlying the success of these key areas is committed and effective leadership. Developing and implementing overarching strategies: Our prior work, as well as that by national security experts, has found that strategic direction is required as a foundation for collaboration on national security goals. The means to operate across multiple agencies and organizations--such as compatible policies and procedures that facilitate collaboration across agencies and mechanisms to share information frequently--enhances and sustains collaboration among federal agencies. Strategies can help agencies develop mutually reinforcing plans and determine activities, resources, processes, and performance measures for implementing those strategies. Moreover, a strategy defining organizational roles and responsibilities can help agencies clarify who will lead or participate in activities, help organize their joint and individual efforts, facilitate decision making, and address how conflicts would be resolved. Creating collaborative organizations: Given the differences among U.S. government agencies--such as differences in structure, planning processes, and funding sources--developing adequate coordination mechanisms is critical to achieving integrated approaches. U.S. government agencies, such as DOD, State, and USAID, among others, spend billions of dollars annually on various defense, diplomatic, and development missions in support of national security. Without coordination mechanisms, the results can be a patchwork of activities that waste scarce funds and limit the overall effectiveness of federal efforts. Developing a well-trained workforce: Collaborative approaches to national security require a well-trained workforce with the skills and experience to integrate the government's diverse capabilities and resources. A lack of understanding of other agencies' cultures, processes, and core capabilities can hamper U.S. national security partners' ability to work together effectively. However, training can help personnel develop the skills and understanding of other agencies' capabilities needed to facilitate interagency collaboration. Effective leadership is essential to achieving success in each of these areas. The 2010 Quadrennial Defense Review states that by integrating U.S. defense capabilities with other elements of national security-- including diplomacy, development, law enforcement, trade, and intelligence--the nation can ensure that the right mix of expertise is at hand to take advantage of emerging opportunities and to thwart potential threats. In addition, the 2010 National Security Strategy calls for a renewed emphasis on building a stronger leadership foundation for the long term to more effectively advance U.S. interests. Our work on SOUTHCOM and AFRICOM found that both commands have demonstrated some practices that will help enhance and sustain interagency collaboration, but areas for improvement remain. Moreover, our preliminary work on counterpiracy efforts in the Horn of Africa region suggests that U.S. agencies have made progress in leading and supporting international efforts to counter piracy, but implementation challenges exist. SOUTHCOM and AFRICOM have sought input from several federal agencies in developing overarching strategies and plans, but AFRICOM has not yet completed many specific plans to guide activities and ensure a U.S. government unity of effort in Africa. In addition, our preliminary work shows that a U.S. action plan has been developed which provides a framework for interagency collaboration, but the roles and responsibilities of the multiples agencies involved in countering piracy in the Horn of Africa region are not clearly assigned. In its Guidance for Employment of the Force, DOD required both SOUTHCOM and AFRICOM, as prototype test cases, to seek broader involvement from other departments in drafting their theater campaign and contingency plans. To meet this requirement, SOUTHCOM held a series of meetings with interagency officials that focused on involving and gathering input from interagency partners. In developing its 2009 theater campaign plan, which lays out command priorities and guides its resource allocations, SOUTHCOM coordinated with over 10 U.S. government departments and offices, including the Departments of State, Homeland Security, Justice, the Treasury, Commerce, and Transportation and the Office of the Director of National Intelligence (see fig. 1). According to both SOUTHCOM and interagency partners, this coordination helped SOUTHCOM understand the diverse missions of its interagency partners and better align activities and resources in the Americas and the Caribbean. As a result of this effort, SOUTHCOM's 2009 theater campaign plan includes 30 theater objectives, of which 22 are led by interagency partners with SOUTHCOM serving in a supporting role. SOUTHCOM also provides input into State's regional strategic plans. Both SOUTHCOM and interagency partners told us that this coordination has helped ensure that SOUTHCOM and interagency partner strategic goals were mutually reinforcing and has helped align activities and resources in achieving broad U.S. objectives. Similarly, AFRICOM met with representatives from many agencies to gain interagency input into its theater campaign plan. We spoke with officials from State, USAID, and the U.S. Coast Guard who stated that they provided input into several additional strategy documents, including DOD's Guidance for Employment of the Force and AFRICOM's posture statement, and participated in activity planning meetings. Federal agency officials also noted progress in AFRICOM's interagency coordination since its establishment. State officials said that AFRICOM had made improvements in taking their feedback and creating an environment that is conducive to cooperation across agencies. Similarly, USAID officials said that AFRICOM had improved its coordination with their agency at the USAID headquarters level. Notwithstanding this collaboration, AFRICOM officials told us that aligning strategies among partners can be difficult because of different planning horizons among agencies. For example, AFRICOM's theater campaign plan covers fiscal years 2010 through 2014, whereas the State/USAID strategic plan spans fiscal years 2007 through 2012. While AFRICOM has collaborated with partners on overarching strategies, it has not yet completed some plans, which hinders planning and implementation efforts with partners. AFRICOM currently lacks regional engagement and country work plans for Africa, which are called for in its theater campaign plan and would provide specific information on conducting activities. One key requirement for the country work plans, for example, is to align them with embassy strategic plans to ensure unity of effort. Figure 2 shows AFRICOM's plans in the context of national strategies, guidance, and other federal agencies' planning efforts. AFRICOM's Army component stated that perhaps the greatest challenge to creating positive conditions in Africa is ensuring that U.S. defense efforts remain synchronized; if plans are not coordinated, their efforts could have unintended consequences, such as the potential for Africans to perceive the U.S. military as trying to influence public opinion in a region sensitive to the military's presence. At the time we completed our audit work, AFRICOM's regional plans had not been approved by the command, and the country plans were still in the process of being developed. Therefore, we recommended that the Secretary of Defense direct AFRICOM to expedite the completion of its plans and to develop a process whereby plans are reviewed on a recurring basis to ensure that efforts across the command are complementary, comprehensive, and supportive of AFRICOM's mission. DOD agreed with our recommendation, stating that some of the plans are in the final stages of review and approval by AFRICOM's leadership. Our preliminary work on U.S. counterpiracy efforts off the Horn of Africa shows that the United States has an action plan that serves as an overarching strategy and provides a framework for interagency collaboration, but roles and responsibilities have not been clearly assigned. The action plan establishes three main lines of action for interagency stakeholders, in collaboration with industry and international partners, to take in countering piracy. These actions are (1) prevent pirate attacks by reducing the vulnerability of the maritime domain to piracy; (2) interrupt and terminate acts of piracy, consistent with international law and the rights and responsibilities of coastal and flag states; and (3) ensure that those who commit acts of piracy are held accountable for their actions by facilitating the prosecution of suspected pirates by flag, victim, and coastal states and, in appropriate cases, the United States. While piracy in the Horn of Africa region emanates primarily from Somalia, a country located within AFRICOM's area of responsibility, most attacks are carried out in waters within U.S. Central Command's jurisdiction. Outside DOD, many other stakeholders are involved in counterpiracy efforts. Specifically, the action plan states that, subject to the availability of resources, the Departments of State, Defense, Homeland Security, Justice, Transportation, and the Treasury and the Office of the Director of National Intelligence shall also contribute to, coordinate, and undertake initiatives. Our preliminary work indicates that the National Security Council, which authored the plan, has not assigned the majority of tasks outlined in the plan to specific agencies. As of July 2010, only one task, providing an interdiction-capable presence, had been assigned to the Navy and Coast Guard. Roles and responsibilities for other tasks--such as strategic communications, disrupting pirate revenue, and facilitating prosecution of suspected pirates--have not been clearly assigned. Without specific roles and responsibilities for essential tasks outlined in the action plan, the U.S. government cannot ensure that agencies' approaches are comprehensive, complementary, and effectively coordinated. SOUTHCOM and AFRICOM have developed organizational structures to facilitate interagency collaboration, but challenges include fully leveraging interagency personnel and maintaining the ability to organize quickly for large-scale military operations when necessary. Both commands have established key leadership positions for interagency officials within their organizational structures. In addition to a deputy military commander who oversees military operations, each command has a civilian deputy to the commander from State who oversees civil-military activities. At SOUTHCOM, the civilian deputy to the commander--a senior foreign service officer with the rank of Minister Counselor at State-- advises SOUTHCOM's commander on foreign policy issues and serves as the primary liaison with State and with U.S. embassies located in SOUTHCOM's area of responsibility. At AFRICOM, the civilian deputy to the commander directs AFRICOM's activities related to areas such as health, humanitarian assistance, disaster response, and peace support operations. Both commands have also embedded interagency officials throughout their organizations. As of June 2010, AFRICOM reported that it had embedded 27 interagency partners into its headquarters staff from several federal agencies (see table 1), and according to officials at AFRICOM and State, it plans to integrate five foreign policy advisors from State later this year. Moreover, DOD has signed memorandums of understanding with nine federal agencies to outline conditions for sending interagency partners to AFRICOM. As of July 2010, SOUTHCOM reported that it had 20 embedded interagency officials (see table 1), with several placed directly into key senior leadership positions. SOUTHCOM has also created a partnering directorate, which among its responsibilities, has the role of embedding interagency personnel into the command. Decisions to embed interagency officials at SOUTHCOM are made on a case-by-case basis, with most agencies sending a representative to SOUTHCOM on a short- term basis to discuss needs, roles, and responsibilities and to assess whether a full-time embedded official would be mutually beneficial. Both AFRICOM and SOUTHCOM have indicated that they currently do not have a specific requirement for the number of embedded interagency personnel at their commands but would benefit from additional personnel. However, limited resources at other federal agencies have prevented interagency personnel from participating in the numbers desired. In February 2009, we reported that AFRICOM initially expected to fill 52 positions with personnel from other government agencies. However, State officials told us that they would not likely be able to provide employees to fill the positions requested by AFRICOM because they were already facing a 25 percent shortfall in midlevel personnel. Similarly, SOUTHCOM has identified the need for around 40 interagency personnel, but had only filled 20 of those positions as of July 2010. According to SOUTHCOM officials, it has taken about 3 years to fill its interagency positions because of lack of funding at the command or the inability of partners to provide personnel. Because many agencies have limited personnel and resources, SOUTHCOM and its interagency partners have, on occasion, developed other means to gain stakeholder input and perspectives. For example, in lieu of embedding a Department of the Treasury (Treasury) official at the command, SOUTHCOM and Treas ury decided that providing a local Treasury representative with access to thecommand and establishing a memorandum of understanding would serve to improve communication and coordination among the organizations. While embedding interagency personnel into a DOD command can be an effective means of coordination, interagency personnel serving at AFRICOM may not be fully leveraged for their expertise within the organization. AFRICOM officials told us that it is a challenge to determine where in the command to include interagency personnel. For example, an embedded interagency staff member stated that AFRICOM initially placed him in a directorate unrelated to his skill set, and he initiated a transfer to another directorate that would better enable him to share his expertise. Moreover, several embedded interagency officials said that there is little incentive to take a position at AFRICOM because it will not enhance one's career position upon return to the original agency after the rotation. Difficulties with leveraging interagency personnel are not unique to AFRICOM. We have previously reported that personnel systems often do not recognize or reward interagency collaboration, which could diminish interest in serving in interagency efforts. AFRICOM officials said that it would be helpful to have additional interagency personnel at the command, but they understand that staffing limitations, resource imbalances, and lack of career progression incentives for embedded staff from other federal agencies may limit the number of personnel who can be brought in from these agencies. Despite challenges, AFRICOM has made some efforts that could improve interagency collaboration within the command, such as expanding its interagency orientation process. Last fall, the command conducted an assessment of the embedded interagency process to analyze successes and identify lessons learned, including recommendations on how to integrate interagency personnel into command planning and operations. In July 2010, AFRICOM stated that it had established an interagency collaborative forum to assess, prioritize, and implement the recommendations from the assessment. SOUTHCOM's recent experience in responding to the Haiti earthquake serves as a reminder that while interagency collaboration is important in addressing security challenges, DOD's commands must also be prepared to respond to a wide range of contingencies, including large-scale disaster relief operations. While our work found that SOUTHCOM has taken significant steps in building partnerships to enhance and sustain collaboration, the command faces challenges preparing for the divergent needs of its potential missions. SOUTHCOM must have an organizational structure that is prepared for military contingencies and that is also effective in supporting interagency partners in meeting challenges such as corruption, crime, and poverty. In 2008, SOUTHCOM developed an organizational structure to improve collaboration with interagency stakeholders, which included a civilian deputy to the vommander, interagency partners embedded into key leadership positions, and a directorate focused on sustaining partnerships. While SOUTHCOM's organizational structure was designed to facilitate interagency collaboration, the 2010 Haiti earthquake response revealed weaknesses in this structure that initially hindered its efforts to conduct a large-scale military operation. For example, the command's structure lacked a division to address planning for military operations occurring over 30 days to 1 year in duration. In addition, SOUTHCOM had suboptimized some core functions that were necessary to respond to large-scale contingencies. For example, SOUTHCOM's logistics function was suboptimized because it was placed under another directorate in the organizational structure rather than being its own core function. As a result, the command had difficulty planning for the required logistics support--including supply, maintenance, deployment distribution, health support, and engineering--during the large-scale Haiti relief effort, which SOUTHCOM reported peaked at more than 20,000 deployed military personnel, about 2 weeks after the earthquake occurred (see fig. 4). According to command officials, SOUTHCOM was able to integrate additional interagency and international partners into its headquarters as Haiti relief operations grew in scale; however, the command had not identified the military personnel augmentation required for a large contingency nor had it developed a plan to integrate military personnel into its headquarters structure. Ultimately, SOUTHCOM received 500 military augmentees to provide additional capabilities to its existing command staff of about 800, including an entire staff office from U.S. Northern Command, filling vital gaps in SOUTHCOM's ability to support operations in Haiti. However, augmented military personnel were not familiar with SOUTHCOM's organizational structure and did not initially understand where they could best contribute because many of the traditional joint staff functions were divided among SOUTHCOM's directorates. To address these challenges, SOUTHCOM's commander returned the command to a traditional joint staff structure while retaining elements from its 2008 reorganization and plans to retain this structure for the foreseeable future. Our report made recommendations aimed at improving SOUTHCOM's ability to conduct the full range of military missions that may be required in the region, while balancing its efforts to support interagency partners in enhancing regional security and cooperation. DOD acknowledged the challenges it had faced and agreed with our recommendations. In its response, the department noted that SOUTHCOM's ability to respond to the Haiti crisis quickly was in part a by-product of close, collaborative relationships developed with a range of U.S. government interagency partners over many years. AFRICOM, as a relatively new command engaged in capacity-building efforts, has emphasized the need to work closely with U.S. embassies to ensure that activities are consistent with U.S. foreign policy and to contribute to a unity of effort among interagency partners (see fig. 5). In addition, the command has designated cultural awareness as a core competency for its staff. However, we found that some AFRICOM staff have limited knowledge about working with U.S. embassies and about cultural issues in Africa, and the training or guidance available to augment personnel expertise in these areas is limited. While AFRICOM has efforts under way to strengthen staff expertise in these areas, the limited knowledge among some staff puts AFRICOM at risk of being unable to fully leverage resources with U.S. embassy personnel, build relationships with African nations, and effectively carry out activities. AFRICOM emphasizes the importance of collaborating with its interagency partners, but some personnel's limited knowledge of working with U.S. embassies can impose burdens on embassies' staff who may be taken away from their assigned duties to help AFRICOM. For example, a U.S. embassy official in Uganda stated that AFRICOM personnel arrived in country with the expectations that the embassy would take care of basic cultural and logistical issues for them. Also, AFRICOM's Horn of Africa task force personnel have, at times, approached the Djiboutian government ministries directly with concepts for activities rather than following the established procedure of having the U.S. embassy in Djibouti initiate the contact. Additionally, while cultural awareness is a core competency for AFRICOM, the limited knowledge of some personnel in the command and its military service components regarding Africa cultural issues has occasionally led to difficulties in building relationships with African nations--such as when AFRICOM's task force distributed used clothing to local Djibouti villagers during Ramadan, which offended the Muslim population, or proposed drilling a well without considering how its placement could affect local clan relationships. While AFRICOM personnel and forces deploying for activities receive some training on working with interagency partners and on African cultural awareness--and efforts are under way to increase training for some personnel--our review of training presentations indicated that they were insufficient to adequately build the skills of its staff. AFRICOM officials told us that training includes Web courses and seminars, and that there are other training requirements for personnel deploying to Africa such as medical and cultural awareness training. Officials said, however, that while training is encouraged, it is not required, and that the comm does not currently monitor the completion of training courses. Furthermore, officials from several AFRICOM components voiced a preference for more cultural training and capabilities. In our prior work on AFRICOM's Horn of Africa task force, we similarly was reported that the task force's training on working with U.S. embassies not shared with all staff, and cultural awareness training was limited. We recommended, and DOD agreed, that the Secretary of Defense dir AFRICOM to develop comprehensive training guidance or a program t augments assigned personnel's understanding of African cultural awareness and working with interagency partners. In addition, in our report on AFRICOM released today, we recommended that the Secretary of Defense direct AFRICOM, in consultation with State and USAID, to develop a comprehensive training program for staff and forces involved in AFRICOM activities that focuses on working with interagency partners and on cultural issues related to Africa. DOD agreed with the recommendation, describing some efforts that AFRICOM was taking and stating that the command will continue to develop and conduct trainin improve its ability to work with embassies and other agencies. While ou work on SOUTHCOM did not focus on workforce training, comm personnel have expressed the need for more opportunities to improve th eir understanding of working in an interagency environment. Mr. Chairman, this concludes my prepared remarks. I would be pleased to respond to any questions you or other Members of the Subcommittee may have at this time. For future information regarding this statement, please contact John H. Pendleton at (202) 512-3489 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement are listed in appendix I. In addition to the contact named above, Directors Stephen Caldwell and Jess Ford; Assistant Directors Patricia Lentini, Marie Mak, and Suzanne Wren; and Alissa Czyz, Richard Geiger, Dawn Hoff, Brandon Hunt, Farhanaz Kermalli, Arthur Lord, Tobin McMurdie, Jennifer Neer, Jodie Sandel, Leslie Sarapu, and Erin Smith made key contributions to this statement. Defense Management: Improved Planning, Training, and Interagency Collaboration Could Strengthen DOD's Efforts in Africa. GAO-10-794. Washington, D.C.: July 28, 2010. Defense Management: U.S. Southern Command Demonstrates Interagency Collaboration, but Its Haiti Disaster Response Revealed Challenges Conducting a Large Military Operation. GAO-10-801. Washington, D.C.: July 28, 2010. National Security: Key Challenges and Solutions to Strengthen Interagency Collaboration. GAO-10-822T. Washington, D.C.: June 9, 2010. Defense Management: DOD Needs to Determine the Future of Its Horn of Africa Task Force. GAO-10-504. Washington, D.C.: April 15, 2010. Homeland Defense: DOD Needs to Take Actions to Enhance Interagency Coordination for Its Homeland Defense and Civil Support Missions. GAO-10-364. Washington, D.C.: March 30, 2010. Interagency Collaboration: Key Issues for Congressional Oversight of National Security Strategies, Organizations, Workforce, and Information Sharing. GAO-09-904SP. Washington, D.C.: September 25, 2009. Military Training: DOD Needs a Strategic Plan and Better Inventory and Requirements Data to Guide Development of Language Skills and Regional Proficiency. GAO-09-568. Washington, D.C.: June 19, 2009. Influenza Pandemic: Continued Focus on the Nation's Planning and Preparedness Efforts Remains Essential. GAO-09-760T. Washington, D.C.: June 3, 2009. U.S. Public Diplomacy: Key Issues for Congressional Oversight. GAO-09-679SP. Washington, D.C.: May 27, 2009. Military Operations: Actions Needed to Improve Oversight and Interagency Coordination for the Commander's Emergency Response Program in Afghanistan. GAO-09-615. Washington, D.C.: May 18, 2009. Foreign Aid Reform: Comprehensive Strategy, Interagency Coordination, and Operational Improvements Would Bolster Current Efforts. GAO-09-192. Washington, D.C.: April 17, 2009. Iraq and Afghanistan: Security, Economic, and Governance Challenges to Rebuilding Efforts Should Be Addressed in U.S. Strategies. GAO-09-476T. Washington, D.C.: March 25, 2009. Drug Control: Better Coordination with the Department of Homeland Security and an Updated Accountability Framework Can Further Enhance DEA's Efforts to Meet Post-9/11 Responsibilities. GAO-09-63. Washington, D.C.: March 20, 2009. Defense Management: Actions Needed to Address Stakeholder Concerns, Improve Interagency Collaboration, and Determine Full Costs Associated with the U.S. Africa Command. GAO-09-181. Washington, D.C.: February 20, 2009. Combating Terrorism: Actions Needed to Enhance Implementation of Trans-Sahara Counterterrorism Partnership. GAO-08-860. Washington, D.C.: July 31, 2008. Information Sharing: Definition of the Results to Be Achieved in Terrorism-Related Information Sharing Is Needed to Guide Implementation and Assess Progress. GAO-08-637T. Washington, D.C.: July 23, 2008. Force Structure: Preliminary Observations on the Progress and Challenges Associated with Establishing the U.S. Africa Command. GAO-08-947T. Washington, D.C.: July 15, 2008. Highlights of a GAO Forum: Enhancing U.S. Partnerships in Countering Transnational Terrorism. GAO-08-887SP. Washington, D.C.: July 2008. Stabilization and Reconstruction: Actions Are Needed to Develop a Planning and Coordination Framework and Establish the Civilian Reserve Corps. GAO-08-39. Washington, D.C.: November 6, 2007. Homeland Security: Federal Efforts Are Helping to Alleviate Some Challenges Encountered by State and Local Information Fusion Centers. GAO-08-35. Washington, D.C.: October 30, 2007. Military Operations: Actions Needed to Improve DOD's Stability Operations Approach and Enhance Interagency Planning. GAO-07-549. Washington, D.C.: May 31, 2007. Combating Terrorism: Law Enforcement Agencies Lack Directives to Assist Foreign Nations to Identify, Disrupt, and Prosecute Terrorists. GAO-07-697. Washington, D.C.: May 25, 2007. Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, D.C.: October 21, 2005. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Recognizing the limits of military power in today's security environment, the Department of Defense (DOD) is collaborating with other U.S. federal agencies to achieve its missions around the world. DOD's combatant commands, such as U.S. Southern Command (SOUTHCOM) and U.S. Africa Command (AFRICOM), play key roles in this effort. Both aim to build partner nation capacity and perform humanitarian assistance, while standing ready to perform a variety of military operations. Among its missions, SOUTHCOM supports U.S. law enforcement and intelligence agencies in the Americas and Caribbean in disrupting illicit trafficking and narco-terrorism. As DOD's newest command, AFRICOM works with U.S. diplomacy and development agencies on activities such as maritime security and pandemic response efforts. Today GAO issued reports that the subcommittee requested on SOUTHCOM (GAO-10-801) and AFRICOM (GAO-10-794), which in part evaluated how each collaborates with U.S. interagency partners. This testimony summarizes that work and provides observations from ongoing work on U.S. counterpiracy efforts by focusing on 3 key areas essential for interagency collaboration. GAO's work has shown that developing overarching strategies, creating collaborative organizations, and building a workforce that understands how to fully engage partners are key areas where agencies can enhance interagency collaboration on national security issues. GAO found that DOD's SOUTHCOM and AFRICOM have demonstrated some practices that will help enhance and sustain collaboration, but areas for improvement remain. (1) Overarching strategies: SOUTHCOM and AFRICOM have sought input from several federal agencies in creating their theater campaign plans, which outline command priorities, and for other strategies and plans. However, AFRICOM has not completed plans that detail its activities by country and that align with embassy strategic plans to ensure U.S. government unity of effort in Africa. Also, GAO's preliminary work indicates that a U.S. action plan provides a framework for interagency collaboration to counter piracy in the Horn of Africa region, but the plan does not assign agencies their roles or responsibilities for the majority of tasks in the plan. (2) Collaborative organizations: Both commands have organizational structures that encourage interagency involvement in their missions. Each has a military deputy commander to oversee military operations and a civilian deputy to the commander from the State Department to oversee civil-military activities. Both commands also embed interagency officials within their organizations, but limited resources at other federal agencies have prevented interagency personnel from participating at the numbers desired. However, AFRICOM has struggled to fully leverage the expertise of embedded officials. Moreover, while SOUTHCOM's organizational structure was designed to facilitate interagency collaboration, the 2010 Haiti earthquake response revealed weaknesses in this structure that initially hindered its efforts to conduct a large-scale military operation. (3) Well-trained workforce: AFRICOM has emphasized the need to work closely with U.S. embassies to ensure that activities are consistent with U.S. foreign policy and to contribute to a unity of effort among interagency partners. In addition, the command has designated cultural awareness as a core competency for its staff. However, some AFRICOM staff have limited knowledge about working with U.S. embassies and about cultural issues in Africa, which has resulted in some cultural missteps. Further, limited training is available to enhance personnel expertise. While GAO's work on SOUTHCOM did not focus on training, personnel from the command also expressed the need for more opportunities to improve their understanding of working in an interagency environment. GAO made recommendations to the commands aimed at improving their capabilities to perform their missions through the development of plans and training. DOD agreed with the recommendations.
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Medicare's 25 supplier standards were introduced to deter individuals intent on committing fraud from entering the program and to safeguard Medicare beneficiaries by ensuring that suppliers were qualified. The 25 standards apply to a variety of business practices and establish certain requirements and prohibitions (see app. I for a list of the standards). For example, the standards require suppliers to have a physical facility on an appropriate site that is accessible to beneficiaries and to CMS, with stated business hours clearly posted. The following are the most pertinent standards for the purposes of this report: Standard 1: Operate business and furnish Medicare-covered items in compliance with all applicable federal and state licensure and regulatory requirements. Standard 4: Fill orders for equipment or supplies using its own inventory or by contracting with other companies. If the supplier contracts with other companies, it must provide copies of the contracts upon request. Standard 7: Maintain a physical facility that contains space for storing business records including the supplier's delivery, maintenance, and beneficiary communication records. Standard 8: Permit CMS to conduct on-site inspections. In addition, the supplier's location must be accessible during reasonable business hours to beneficiaries and to CMS, and must maintain a visible sign and posted hours of operation. Standard 9: Maintain a primary business telephone listed under the name of the business locally or toll-free for beneficiaries. Standard 10: Have a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier's place of business and all customers and employees of the supplier. Failure to maintain required insurance at all times will result in revocation of the supplier's billing privileges retroactive to the date the insurance lapsed. Standard 14: Must maintain and replace at no charge or repair directly, or through a service contract with another company, Medicare-covered items it has rented to beneficiaries. The item must function as required and intended after being repaired or replaced. NSC verifies compliance with the 25 standards, primarily during enrollment and reenrollment, through on-site inspections conducted by subcontractors, and desk reviews conducted by NSC analysts. NSC requires that site inspectors arrive unannounced for any inspection. Before the inspection, NSC provides the inspectors with briefing information on the supplier, including information on whether the supplier is enrolling or reenrolling and the type of state licenses to verify. While on site, inspectors are expected to take photographs of the supplier's sign with its business name, posted hours of operation, complete inventory in stock, and facility. NSC also expects site inspectors to obtain copies of relevant documents, such as state licenses, comprehensive liability insurance policies, contracts with companies for inventory, and contracts for the service and maintenance of DMEPOS supplies. NSC analysts are expected to check that the supplier has all the state licenses that it would need to provide the items it disclosed in its application. The NSC analyst is also expected to contact the insurance underwriter to ensure that the supplier's policy is valid and the post office to make sure the supplier's address is listed. NSC also has a procedure to match data from its supplier database with computerized lists maintained by the federal government to ensure that supply company owners are not prohibited from participating in federal health care programs or debarred from federal contracting. In addition, suppliers submitting an enrollment application to NSC on or after March 1, 2008, must also be accredited by an approved organization prior to submitting the application. These accrediting organizations are supposed to ensure that prospective DMEPOS suppliers meet quality standards related to financial and human resource management, consumer management, product safety, product delivery, and beneficiary training, among others. DMEPOS suppliers that enrolled for the first time between January 1, 2008, and February 29, 2008, must obtain accreditation by January 1, 2009. Suppliers that enrolled with Medicare before January 1. 2008, must obtain accreditation by September 30, 2009. Further, CMS is beginning to implement competitive bidding, which will change how suppliers obtain the right to participate in the program. Competitive bidding is a process in which suppliers of medical equipment and supplies compete for the right to provide their products on the basis of established criteria, such as quality and price. Competitive bidding provides CMS with the authority to select suppliers by screening their financial documents such as income statements and credit reports and other application materials. CMS has chosen suppliers to serve beneficiaries in 10 Metropolitan Statistical Areas and the program is scheduled to begin July 1, 2008. Apart from the competitive bidding program, as long as suppliers can demonstrate that they comply with all the standards and have not been excluded from participating in any federal health care program, NSC must enroll or reenroll them in Medicare. Enrolled suppliers are issued a Medicare billing number. If NSC discovers that a new applicant or enrolled supplier is not in compliance with any of the 25 standards, NSC can deny the application or, with CMS's approval, revoke the supplier's billing number. Suppliers whose applications have been denied or whose numbers have been revoked can submit a plan to NSC to correct the noncompliance, appeal the denial or revocation by requesting a hearing or both. In January 2008, CMS proposed creating five new standards and strengthening several of the existing standards. The new standards require most suppliers to be open to the public for at least 30 hours per week and prohibit them from sharing an office with another supplier. They will also be required to maintain ordering and referring documentation received from physicians for 7 years. Finally, suppliers that have a federal or state tax delinquency will be prohibited from obtaining or retaining billing privileges. With regard to strengthening the existing standards, CMS will, among other things, require that suppliers maintain an office to store business records and will limit the use of cell phones, beeper numbers, pagers, and answering services as the primary DMEPOS business telephone number during posted hours of operation. After establishing two fictitious DMEPOS storefronts with no inventory and no clients, our undercover investigators were able to successfully complete the Medicare enrollment process. Although CMS and NSC initially requested corrections to our paperwork and then denied our applications because we failed to comply with 2 of the 25 standards, they never detected the fact that our companies were fictitious. After submitting corrective action plans addressing the standards we failed, both companies were approved for Medicare billing privileges and provided with billing numbers. These numbers, in conjunction with billing passwords and software, allowed us to successfully complete Medicare's test billing process for our Virginia office. Based on a review of case studies we obtained from HHS IG, we believe that, had our operation continued successfully, we could have fraudulently billed Medicare for substantial sums--potentially reaching millions of dollars. Prior to submitting applications to CMS to become approved DMEPOS suppliers, investigators easily set up two fictitious durable medical equipment companies during April and May 2007 using undercover names and bank accounts. Although we did not actually obtain any inventory, we decided that both companies would be generic medical supply companies, providing, among other things, commodes, diabetic supplies, surgical dressings, urinals and bedpans, walkers and canes, and manual wheelchairs. To appear legitimate, we rented 100 square foot commercial offices in both Maryland and Virginia. Both rentals cost approximately $1,000 per month and came complete with Internet, phone and fax service, and a shared secretary. We also set up fictitious Web sites, created brochures and business cards, and purchased a few "props" to be prepared for on-site inspections, including a wheelchair and bed pan. Our investigators for the most part followed the general procedures that any legitimate business would use to begin DMEPOS operations. First, they paid online registration companies about $400 per supplier to obtain required state business licenses, such as sales tax licenses. In addition, for each company, investigators obtained employer identification numbers (EIN) from the Internal Revenue Service (IRS) and National Provider Identification (NPI) numbers from CMS. Investigators obtained both numbers for free online using basic information, such as the business name and address. To make sure that our companies would meet the requirements for DMEPOS suppliers as outlined in the 25 standards, we did the following. We created phony contracts with two fictitious DMEPOS wholesale suppliers to demonstrate that we had the capacity to supply equipment and supplies to clients. We also established phone numbers for each fictitious wholesale supplier. In reality, these phone numbers were unmanned extensions in the GAO building. We created signs for the office doors listing hours of operations and staffed the offices with undercover agents posing as sales representatives. We purchased approximately $3 million worth of general liability insurance covering, among other things, property damage and employee injury, at a cost of $550 annually. The approval process for both applications was similar and the site inspections were even conducted by the same individual, who identified several discrepancies related to our office paperwork. Even though we corrected these discrepancies and submitted all required documentation, both of our applications were initially denied due to lack of compliance with two of the standards. In particular, even though we had already submitted our contracts with phony wholesale suppliers, CMS said that we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to CMS, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. To comply with these two standards, we sent NSC corrective action plans that included repair policies and the same phony DMEPOS wholesale supplier contracts that we had previously submitted. CMS accepted this documentation as valid and approved both of our fictitious DMEPOS companies. In short, the subcontractors hired to review our applications ultimately focused on the technical and administrative completeness of our applications rather than attempting to determine whether we were running valid businesses. Maryland Application Review and Site Visits: The application review process for our fictitious Maryland DMEPOS company took approximately 9 months, from the end of May 2007 until February 2008, when we received an approval letter from CMS containing a Medicare billing number. As shown in figure 1 and described in the following narrative, although NSC and its subcontractors identified several administrative discrepancies, they never uncovered the fact that our DMEPOS company was a fraudulent business. As shown in the figure, we sent our application for review on May 22, 2007. On June 26, 2007, a representative from a contractor hired by NSC to conduct inspections visited the office. The representative explained to our undercover investigator, who was posing as a salesperson, that the visit would be used to gather information needed to verify compliance with CMS's standards. Using a checklist, the representative asked questions about the company's return policy, how the items were going to be delivered, and whether we had a warehouse or if we would have items drop-shipped from a supplier. He also asked if any member of our fictitious owner's family was in the medical supply business, if the owner had any business partners, and if there were any investors. The representative also asked for copies of our state licenses, insurance policy, and other documentation. Our investigator was deliberately vague in his responses to the representative and did not provide the inspector with any of the requested documentation, telling the representative that the "owner" had all that information. The representative also took pictures of the office to make sure that the building was accessible to persons with disabilities. He asked for our insurance documentation and noted that it was missing the company's physical address. Finally, he mentioned that the business needed a sign in the office window identifying its location and hours. We did not have the hours posted because the building where our office was located had a policy prohibiting postings on office windows; however, the investigator told the representative that he would speak to the building managers and ensure that the hours were posted. The representative then presented our investigator with a site visit acknowledgement form and checked off the following eight documents that needed to be provided to NSC as required by the standards: required licenses, including zoning, complaint log, complaint resolution protocol, rental/purchase option agreement, comprehensive liability insurance, credit agreements or invoices, proof of warranty coverage, and written instructions on beneficiary use. One day later, we sent NSC the information requested on the checklist. On July 17, 2007, NSC requested a full copy of the over 100 page insurance policy; we had sent an abbreviated version provided by our carrier after the site visit, but NSC wanted a complete copy. We immediately contacted the carrier and they agreed to send a complete copy directly to NSC. On August 15, 2007, NSC requested that we provide it with warranty information for DMEPOS rentals and we faxed the information on August 17. We had no further communication with NSC or the subcontractor who conducted the site visit until we called on October 3, 2007, requesting information about the status of our application. On October 8, we received a letter from CMS denying our application for a billing number because our company did not adhere to 2 of the 25 standards. Specifically, even though we had already submitted our contracts with phony wholesale suppliers, CMS said that we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to the letter, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. The letter also informed us that we could reopen our application by submitting a "corrective action plan" addressing our deficiencies within 90 days. As part of the corrective action plan, we sent NSC a repair policy and resubmitted our phony supplier contract on October 30, 2007. We also provided the contact numbers that we created for the wholesale suppliers and informed NSC that we had hired a full- time employee to take care of repair issues. On November 1, 2007, we closed down our physical office and switched to a "virtual office" in the same building, meaning that we no longer had designated office space but still had access to mail and fax services, the shared secretary, and meeting rooms. Although we were never questioned about our plan to correct our repair policy, NSC did call the undercover phone number we set up for our phony DMEPOS wholesale supplier in November and left a message requesting additional information. Posing as a representative for this wholesale supplier, an undercover investigator left a vague message in response but did not confirm the existence of a contract or a credit line. NSC never returned these calls or conducted any other followup. Over the next several months, we repeatedly called NSC and its subcontractors to determine the status of our application and corrective action plan. Each time, we were told that our application was still under review. Finally, on February 4, 2008, NSC requested a voided check or deposit slip to confirm our banking information so that we could be set up for electronic funds transfers. We provided the information the next day, and CMS approved our application and sent us a Medicare billing number in its approval letter dated February 13, 2008 (see fig. 2). Virginia Application Review and Site Visit: The application review process for our fictitious Virginia DMEPOS company took approximately 6 months, from the end of July 2007 until January 2008, when we received an approval letter retroactive to September 28, 2007, and a Medicare billing number. As shown in figure 3 and the following narrative, NSC's inspectors identified several discrepancies in our application and at our office but never uncovered the fact that our DMEPOS company was a fraudulent business. As shown in figure 3, we sent our application for review on July 24, 2007. Although we complied with most of the application instructions, we did make several errors on the application. Specifically, we failed to provide copies of certain state licenses and certifications and did not check either "yes" or "no" when asked if we had any previous legal actions filed against the company or its owners. NSC detected these errors and on August 15, 2007, we received a letter stating that our application was incomplete. In addition, NSC requested clarification about our office location and requested a voided check or deposit slip to confirm our bank account so that we could be set up for electronic funds transfers. We corrected all these discrepancies by August 30, 2007. NSC's representative, the same individual who inspected our Maryland office, inspected the site on September 18, 2007. As with the Maryland office, this individual used a simple checklist to conduct the inspection and asked for the same documentation, including licenses, insurance policy, complaint protocols, rental agreement, and instructions for beneficiary use of the supplies. This time, the undercover investigator immediately provided almost all the information requested. The representative provided a site acknowledgment form with just one missing item checked off: written instructions on beneficiary use/maintenance of supplies. We sent these instructions to NSC on September 20, 2007. On October 4, 2007, we received a letter from CMS denying our application for a billing number because our company did not adhere to 2 of the 25 standards--the same standards we had failed to comply with in Maryland. Specifically, we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to the letter, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. As in Maryland, we sent NSC our repair policy and resubmitted our phony wholesale supplier contract on December 11, 2007, as part of our corrective action plan to show compliance with the standards. Because our corrective action plans for the Maryland and Virginia offices were identical, we intentionally delayed sending our Virginia plan by several months so as not to arouse suspicion with NSC. We also provided the contact numbers that we created for the wholesale suppliers and informed NSC that we hired a full-time employee to take care of repair issues. To our knowledge, NSC did not do any further investigation and accepted the existence of the fictitious DMEPOS wholesale suppliers we created. On January 30, 2008, we received an approval letter and Medicare billing number. The letter stated that the effective date of the approval was retroactive to September 28, 2007--the date our application was initially denied. After requesting an electronic billing enrollment package and obtaining passwords from CMS, we were able to successfully complete Medicare's often confusing test billing process for our Virginia office; we did not complete test billing for our Maryland office because we did not receive the necessary passwords from CMS by the close of our investigation in June 2008. Had we been real fraudsters, we could have fraudulently billed Medicare for substantial sums, potentially reaching millions of dollars. Although the Medicare approval letters we received contained billing numbers, they contained no instructions for how to begin the electronic billing process. Consequently, we had to do our own research on CMS and NSC Web sites in order to figure out that we needed to download billing enrollment packets so that we could be approved to submit electronic claims. We sent completed enrollment packets for both companies to CMS's contractor by the beginning of March 2008. These packets included billing applications, completed Electronic Data Interchange (EDI) agreements and software order forms, contact information, NPIs, and EINs for our two companies. We did not receive any further information related to the Maryland DMEPOS company. On March 13, 2008, we received, among other things, an electronic billing submitter identification number and password for the Virginia office. There were no instructions accompanying this information and it was not clear to which systems each applied. Using billing software downloaded from the Web, we began processing claims by entering fictitious dates of service, our undercover beneficiary information, DMEPOS item codes and charges, generic diagnosis codes, our billing numbers, and physician identification numbers that we found on the Internet. It is important to note that we only used the latter to complete test billing; we did not compromise the provider status of any legitimate physicians by submitting fraudulent claims using their identification information. We then submitted several completed claims to CMS for acceptance, but our first few attempts were rejected. Our undercover investigator called CMS's help desk for assistance and found that we had to input our billing number on one of CMS's billing-related Web sites. There had been no instructions in the billing packet indicating that this was a required step. Once we provided our billing number at the site, CMS approved our initial claims. As required by the electronic enrollment application, DMEPOS suppliers must submit a single test file with at least 25 claims that are 95 percent error-free in order to complete test billing. On May 14, 2008, we successfully submitted a file with 27 claims for $6,876.34 with no errors. As shown by four closed cases from South Florida that we obtained from the HHS IG, criminals use similar techniques to establish fictitious DMEPOS suppliers and then employ billing schemes to obtain millions of dollars in Medicare funds from the government. Specifically, once criminals have created fraudulent DMEPOS companies, they typically steal or buy Medicare beneficiary numbers and physician identification numbers in order to repeatedly submit claims. Case Study 1: The owner of this fraudulent company admitted to HHS that she started her DMEPOS company after working as a secretary for another fraudulent company. She rented an office in the same location as this company and worked with her former employer to obtain all the required state licenses. She also purchased fake invoices for DMEPOS equipment from another company to make it seem as though she was obtaining legitimate supplies from a wholesaler. In February 2005, she received her Medicare provider number and then provided her former employer with kickbacks in order to have access to Medicare beneficiary numbers. From January 1, 2006, through April 30, 2007, she submitted about $1.5 million in claims to Medicare for supplies including urinary bags, tubing, canisters, and air mattresses. Ultimately, Medicare paid the company $372,286. The owner was indicted for health care fraud on September 11, 2007, and was convicted and sentenced on January 22, 2008, to 30 months imprisonment and 3 years supervised release, and ordered to pay $372,286 in restitution. Case Study 2: This case relates to three fraudulent companies with the same owner. In October 2006, the owner bought a DMEPOS company that had been incorporated in August 2006 and used the original owner's identity, billing number, and beneficiaries to submit claims in an attempt to avoid detection by CMS. The new company used an address in Coral Gables but did not have a real office and did not serve customers. The owner also stole the personal identification numbers of licensed physicians. According to the HHS IG, these physicians did not have any involvement with the company and did not provide care or prescriptions related to the submitted claims. During the course of its investigation, HHS discovered that the owner had opened another fraudulent DMEPOS company. This company used a utility closet as its address--HHS investigators found buckets of sand mix, road tar, and a large wrench in the room, but no medical files, office equipment, or telephone. This time, the owner used a fictitious physician name and identification number to submit claims to CMS; CMS confirmed that this number should not have passed the initial computer system edit for payment. Finally, while conducting a financial analysis of the second company's bank account records, investigators found that the owner operated yet another fraudulent DMEPOS company. In total, from October 2006 through March 2007, the owner submitted claims from these three companies in excess of $5.5 million and ultimately received about $77,000 from Medicare. In August 2007, the owner was sentenced to 37 months in prison for conspiracy to commit health care fraud, ordered to pay over $70,000 in restitution, and made to forfeit his Miami home and Rolls Royce. Case Study 3: This company billed Medicare for $4.4 million dollars worth of supplies and services that were never delivered. These claims were submitted between March and July 2006 using real beneficiary numbers that the DMEPOS company owner had purchased illegally. Ultimately, Medicare paid approximately half of these claims ($2.2 million). According to HHS IG records, the only employee not involved in the scheme was a secretary who told investigators that there was never any business activity in the office and that the owner rarely visited. She also stated that Medicare beneficiaries often called her to complain that they had received an explanation of benefits letter in the mail even though they did not receive any supplies or services. The Bank of America eventually filed a suspicious activity report as a result of the company's billing practices. The Federal Bureau of Investigation (FBI) and HHS IG subsequently determined that the owner stole the identities and physician identification numbers of practicing physicians to legitimize his fraudulent claims. The owner plead guilty to one count of health care fraud and on March 16, 2007, was sentenced to 4 years in prison and 3 years of probation, assessed a $100 fee, and ordered to pay $2.2 million in restitution. Case Study 4: The owner of this DMEPOS company operated a fictitious supply business out of an office connected to a real estate company and purchased real Medicare beneficiary numbers illegally for $45 each in order to submit claims. Through data mining, the HHS IG determined that the company displayed billing patterns that were highly consistent with known fraudulent practices. Specifically, the company owner used a small number of stolen physician identification numbers to submit numerous claims for expensive DMEPOS items that are typically used in fraudulent schemes, including motorized wheelchairs, wound therapy pumps, and infusion equipment. From July 2005 through October 2006, the DMEPOS company billed the Medicare program over $1 million and received over $500,000 in payments. On August 7, 2007, the owner was ordered to pay $702,186 in restitution to Medicare and was sentenced to 2 years in federal prison and 3 years of probation. On June 18, 2008, we informed representatives from CMS about the results of our investigation. In response, they stated that they are implementing new supplier requirements, including the accreditation process and the revisions and additions to the 25 standards that were proposed in January 2008. They also acknowledged that our covert testing illustrates gaps in oversight that still require improvement and stated that they would continue to work to strengthen the entire DMEPOS enrollment process. Although CMS took actions to address our prior recommendations, we found that the fraud prevention controls in place during our investigation were not effective in preventing our fictitious DMEPOS companies from obtaining legitimate Medicare billing numbers and completing test billing. As indicated, CMS is currently taking additional actions to strengthen both the 25 standards and its oversight of the DMEPOS supplier enrollment process; however, these actions will only be successful if those tasked with ensuring compliance exercise due diligence when conducting screenings and inspections. Our covert tests clearly demonstrate that a simple paperwork review is not sufficient. Unless CMS and its contractors scrutinize suppliers to ensure that they are responsible, legitimate businesses, DMEPOS fraud will continue to cost taxpayers billions of dollars each year. As agreed with your offices, unless you announce the contents of this report earlier, we will not distribute it until 30 days from its date. At that time, we will send copies to the Administrator of CMS and other interested parties. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-6722 or [email protected] if you have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors are listed in appendix II. Operates its business and furnishes Medicare-covered items in compliance with all applicable Federal and State licensure and regulatory requirements. Has not made, or caused to be made, any false statement or misrepresentation of a material fact on its application for billing privileges. (The supplier must provide complete and accurate information in response to questions on its application for billing privileges. The supplier must report to CMS any changes in information supplied on the application within 30 days of the change.) Must have the application for billing privileges signed by an individual whose signature binds a supplier. Fills orders, fabricates, or fits items from its own inventory or by contracting with other companies for the purchase of items necessary to fill the order. If it does, it must provide, upon request, copies of contracts or other documentation showing compliance with this standard. A supplier may not contract with any entity that is currently excluded from the Medicare program, any State health care programs, or from any other Federal Government Executive Branch procurement or nonprocurement program or activity. Advises beneficiaries that they may either rent or purchase inexpensive or routinely purchased durable medical equipment, and of the purchase option for capped rental durable medical equipment, as defined in SS 414.220(a) of this subchapter. (The supplier must provide, upon request, documentation that it has provided beneficiaries with this information, in the form of copies of letters, logs, or signed notices.) Honors all warranties expressed and implied under applicable State law. A supplier must not charge the beneficiary or the Medicare program for the repair or replacement of Medicare covered items or for services covered under warranty. This standard applies to all purchased and rented items, including capped rental items, as described in SS 414.229 of this subchapter. The supplier must provide, upon request, documentation that it has provided beneficiaries with information about Medicare covered items covered under warranty, in the form of copies of letters, logs, or signed notices. Maintains a physical facility on an appropriate site. The physical facility must contain space for storing business records including the supplier's delivery, maintenance, and beneficiary communication records. For purposes of this standard, a post office box or commercial mailbox is not considered a physical facility. In the case of a multi-site supplier, records may be maintained at a centralized location. Permits CMS, or its agents to conduct on-site inspections to ascertain supplier compliance with the requirements of this section. The supplier location must be accessible during reasonable business hours to beneficiaries and to CMS, and must maintain a visible sign and posted hours of operation. Maintains a primary business telephone listed under the name of the business locally or toll-free for beneficiaries. The supplier must furnish information to beneficiaries at the time of delivery of items on how the beneficiary can contact the supplier by telephone. The exclusive use of a beeper number, answering service, pager, facsimile machine, car phone, or an answering machine may not be used as the primary business telephone for purposes of this regulation. Has a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier's place of business and all customers and employees of the supplier. In the case of a supplier that manufactures its own items, this insurance must also cover product liability and completed operations. Failure to maintain required insurance at all times will result in revocation of the supplier's billing privileges retroactive to the date the insurance lapsed. Description of what a supplier must do Must agree not to contact a beneficiary by telephone when supplying a Medicare-covered item unless one of the following applies: (i) The individual has given written permission to the supplier to contact them by telephone concerning the furnishing of a Medicare-covered item that is to be rented or purchased. (ii) The supplier has furnished a Medicare-covered item to the individual and the supplier is contacting the individual to coordinate the delivery of the item. (iii) If the contact concerns the furnishing of a Medicare-covered item other than a covered item already furnished to the individual, the supplier has furnished at least one covered item to the individual during the 15-month period preceding the date on which the supplier makes such contact. Must be responsible for the delivery of Medicare covered items to beneficiaries and maintain proof of delivery. (The supplier must document that it or another qualified party has at an appropriate time, provided beneficiaries with necessary information and instructions on how to use Medicare-covered items safely and effectively.) Must answer questions and respond to complaints a beneficiary has about the Medicare-covered item that was sold or rented. A supplier must refer beneficiaries with Medicare questions to the appropriate carrier. A supplier must maintain documentation of contacts with beneficiaries regarding complaints or questions. Must maintain and replace at no charge or repair directly, or through a service contract with another company, Medicare-covered items it has rented to beneficiaries. The item must function as required and intended after being repaired or replaced. Must accept returns from beneficiaries of substandard (less than full quality for the particular item) or unsuitable items (inappropriate for the beneficiary at the time it was fitted and rented or sold) from beneficiaries. Must disclose these supplier standards to each beneficiary to whom it supplies a Medicare-covered item. Must comply with the disclosure provisions in SS 420.206 of this subchapter. Must not convey or reassign a supplier number. Must have a complaint resolution protocol to address beneficiary complaints that relate to supplier standards in paragraph (c) of this section and keep written complaints, related correspondence and any notes of actions taken in response to written and oral complaints. Failure to maintain such information may be considered evidence that supplier standards have not been met. (This information must be kept at its physical facility and made available to CMS, upon request.) Must maintain the following information on all written and oral beneficiary complaints, including telephone complaints, it receives: (i) The name, address, telephone number, and health insurance claim number of the beneficiary. (ii) A summary of the complaint; the date it was received; the name of the person receiving the complaint, and a summary of actions taken to resolve the complaint. (iii) If an investigation was not conducted, the name of the person making the decision and the reason for the decision. Provides to CMS, upon request, any information required by the Medicare statute and implementing regulations. All suppliers of DMEPOS and other items and services must be accredited by a CMS-approved accreditation organization in order to receive and retain a supplier billing number. The accreditation must indicate the specific products and services, for which the supplier is accredited, in order for the supplier to receive payment for those specific products and services. All DMEPOS suppliers must notify their accreditation organization when a new DMEPOS location is opened. The accreditation organization may accredit the new supplier location for three months after it is operational without requiring a new site visit. Description of what a supplier must do All DMEPOS supplier locations, whether owned or subcontracted, must meet the DMEPOS quality standards and be separately accredited in order to bill Medicare. An accredited supplier may be denied enrollment or their enrollment may be revoked, if CMS determines that they are not in compliance with the DMEPOS quality standards. All DMEPOS suppliers must disclose upon enrollment all products and services, including the addition of new product lines for which they are seeking accreditation. If a new product line is added after enrollment, the DMEPOS supplier will be responsible for notifying the accrediting body of the new product so that the DMEPOS supplier can be re-surveyed and accredited for these new products. In addition to the individual named above, Matthew Harris, Assistant Director; Erika Axelson; Gary Bianchi; Valerie Blyther; Norman Burrell; Ray Bush; Shafee Carnegie; Jennifer Costello; Paul Desaulniers; Dennis Fauber; Craig Fischer; Janice Friedeborn; Jessica Gray; Ken Hill; Christine Hodakievic; Jason Kelly; Barbara Lewis; Christopher Madar; Jeffrey McDermott; Andrew McIntosh; Keith Steck; and Viny Talwar made key contributions to this report.
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According to the Department of Health and Human Services (HHS), schemes to defraud the Medicare program have grown more elaborate in recent years. In particular, HHS has acknowledged Centers for Medicare & Medicaid Service's (CMS) oversight of suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) is inadequate to prevent fraud and abuse. Specifically, weaknesses in the DMEPOS enrollment and inspection process have allowed sham companies to fraudulently bill Medicare for unnecessary or nonexistent supplies. From April 2006 through March 2007, CMS estimated that Medicare improperly paid $1 billion for DMEPOS supplies--in part due to fraud by suppliers. Due to the committee's concern about vulnerabilities in the enrollment process, GAO used publicly available guidance to attempt to create DMEPOS suppliers, obtain Medicare billing numbers, and complete electronic test billing. GAO also reported on closed cases provided by the HHS Inspector General (IG) to illustrate the techniques used by criminals to fraudulently bill Medicare. On June 18, 2008, we briefed CMS representatives on the results of our investigation. In response, they acknowledged that our covert tests illustrate gaps in oversight that still require improvement and stated that they would continue to work to strengthen the entire DMEPOS enrollment process. Investigators easily set up two fictitious DMEPOS companies using undercover names and bank accounts. GAO's fictitious companies were approved for Medicare billing privileges despite having no clients and no inventory. CMS initially denied GAO's applications in part because of this lack of inventory, but undercover GAO investigators fabricated contracts with nonexistent wholesale suppliers to convince CMS and its contractor, the National Supplier Clearinghouse (NSC), that the companies had access to DMEPOS items. The contact number GAO gave for these phony contracts rang on an unmanned undercover telephone in the GAO building. When NSC left a message looking for further information related to the contracts, a GAO investigator left a vague message in return pretending to be the wholesale supplier. As a result of such simple methods of deception, both fictitious DMEPOS companies obtained Medicare billing numbers. After requesting an electronic billing enrollment package and obtaining passwords from CMS, GAO investigators were then able to successfully complete Medicare's test billing process for the Virginia office. GAO could not complete test billing for the Maryland office because CMS has not sent the necessary passwords. However, if real fraudsters had been in charge of the fictitious companies, they would have been clear to bill Medicare from the Virginia office for potentially millions of dollars worth of nonexistent supplies. Once criminals have similarly created fictitious DMEPOS companies, they typically steal or illegally buy Medicare beneficiary numbers and physician identification numbers and use them to repeatedly submit claims. In one case from HHS IG, a company received $2.2 million in payments from Medicare for supplies and services that were never delivered. The owner submitted these fraudulent claims from March 2006 through July 2006 using real beneficiary numbers and physician identification numbers that he had purchased illegally. The only employee not involved in the scheme was a secretary, who told HHS IG that there was no business activity in the office and that the owner was rarely there. Another case related to an individual who stole beneficiary numbers and physician identification numbers and submitted $5.5 million in claims for three fraudulent offices from October 2006 through March 2007. He operated one of these offices out of a utility closet containing buckets of sand mix, road tar, and a large wrench, but no medical files, office equipment, or telephone.
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The Health Center Program is governed by section 330 of the Public Health Service Act. By law, grantees with community health center funding must operate health center sites that serve, in whole or in part, an MUA or MUP; provide comprehensive primary care services as well as enabling services, such as translation and transportation, that facilitate access to health care; are available to all residents of the health center service area, with fees on a sliding scale based on patients' ability to pay; are governed by a community board of which at least 51 percent of the members are patients of the health center; and meet performance and accountability requirements regarding administrative, clinical, and financial operations. HRSA may designate a geographic area--such as a group of contiguous counties, a single county, or a portion of a county--as an MUA based on the agency's index of medical underservice, composed of a weighted sum of the area's infant mortality rate, percentage of population below the federal poverty level, ratio of population to the number of primary care physicians, and percentage of population aged 65 and over. In previous reports, we identified problems with HRSA's methodology for designating MUAs, including the agency's lack of timeliness in updating its designation criteria. HRSA published a notice of proposed rule making in 1998 to revise the MUA designation system, but it was withdrawn because of a number of issues raised in over 800 public comments. In February 2008, HRSA published a revised proposal and the period for pubic comment closed in June 2008. HRSA uses a competitive process to award Health Center Program grants. There are four types of health center grants available through the Health Center Program, but only new access point grants are used to establish new health center sites. Since 2005, HRSA has evaluated applications for new access point grants using eight criteria for which an application can receive a maximum of 100 points (see table 1). Grant applications are evaluated by an objective review committee--a panel of independent experts, selected by HRSA, who have health center- related experience. The objective review committee scores the applications by awarding up to the maximum number of points allowed for each criterion and prepares summary statements that detail an application's strengths and weaknesses in each evaluative criterion. The summary statements also contain the committee's recommended funding amounts and advisory comments for HRSA's internal use; for example, the committee may recommend that HRSA consider whether the applicant's budgeted amount for physician salaries is appropriate. The committee develops a rank order list--a list of all evaluated applications in descending order by score. HRSA uses the internal comments-- recommended funding amounts and advisory comments--from the summary statements and the rank order list when making final funding decisions. In addition, HRSA is required to take into account the urban/rural distribution of grants, the distribution of funds to different types of health centers, and whether a health center site is located in a sparsely populated rural area. HRSA also considers the geographic distribution of health center sites--to determine if overlap exists in the areas served by the sites--as well as the financial viability of grantees. After the funding decisions are made, HRSA officials review the summary statements for accuracy, remove the recommended funding amounts and any advisory comments, and send the summary statements to unsuccessful applicants as feedback. For fiscal year 2007, HRSA funded 60 training and TA cooperative agreements with various national, regional, and state organizations to support the Health Center Program, in part, by providing training and technical assistance to health center grant applicants. Cooperative agreements are a type of federal assistance that entails substantial involvement between the government agency--in this case, HRSA--and the funding recipient--that is, the national, regional, and state organizations. HRSA relies on these training and TA cooperative agreement recipients to identify underserved areas and populations across the country in order to assist the agency in increasing access to primary care services for underserved people. In addition, these cooperative agreement recipients serve as HRSA's primary form of outreach to potential applicants for health center grants. For each cooperative agreement recipient, HRSA assigns a project officer who serves as a recipient's main point of contact with the agency. The duration of a cooperative agreement, known as the project period, is generally 2 or 3 years, with each year known as a budget period. As a condition of the cooperative agreements, HRSA project officers and the organizations jointly develop work plans detailing the specific training and technical assistance activities to be conducted during each budget period. Activities targeted to new access point applicants can include assistance with assessing community needs, disseminating information in underserved communities regarding health center program requirements, and developing and writing grant applications. After cooperative agreement recipients secure funding through a competitive process, they reapply for annual funding through what is known as a noncompeting continuation application each budget period until the end of their project period. These continuation applications typically include a work plan and budget for the upcoming budget period and progress report on the organization's current activities. HRSA policy states that cooperative agreement recipients will undergo a comprehensive on-site review by agency officials once every 3 to 5 years. During these comprehensive on-site reviews, HRSA evaluates the cooperative agreement recipients using selected performance measures-- developed in collaboration with the organizations--and requires recipients to develop action plans to improve operations if necessary. The purpose of these reviews is for the agency to evaluate the overall operations of all its funding recipients and improve the performance of its programs. Almost half of MUAs nationwide lacked a health center site in 2006. The percentage of MUAs that lacked a health center site varied widely across census regions and states. We could not determine the types of primary care services provided by health center sites in MUAs because HRSA does not maintain data on the types of services offered at each site. Because of this, the extent to which individuals in MUAs have access to the full range of comprehensive primary care services provided by health center sites is unknown. Based on our analysis of HRSA data, we found that 47 percent of MUAs nationwide--1,600 of 3,421--lacked a health center site in 2006. We found wide variation among census regions--Northeast, Midwest, South, and West--and across states in the percentage of MUAs that lacked health center sites. (See fig. 1.) The Midwest census region had the most MUAs that lacked a health center site (62 percent) while the West census region had the fewest MUAs that lacked a health center site (32 percent). More than three-quarters of the MUAs in 4 states--Nebraska (91 percent), Iowa (82 percent), Minnesota (77 percent), and Montana (77 percent)-- lacked a health center site; in contrast, fewer than one-quarter of the MUAs in 13 states--including Colorado (21 percent), California (20 percent), Mississippi (20 percent), and West Virginia (19 percent)-- lacked a health center site. (See app. I for more detail on the percentage of MUAs in each state and the U.S. territories that lacked a health center site in 2006.) In 2006, among all MUAs, 32 percent contained more than one health center site; among MUAs with at least one health center site, 60 percent contained multiple health center sites. Almost half of all MUAs in the West census region contained more than one health center site while less than one-quarter of MUAs in the Midwest contained multiple health center sites. The states with three-quarters or more of their MUAs containing more than one health center site were Alaska, Connecticut, the District of Columbia, Hawaii, New Hampshire, and Rhode Island. In contrast, Nebraska, Iowa, and North Dakota were the states where less than 10 percent of MUAs contained multiple sites. We could not determine the types of primary care services provided at each health center site because HRSA does not collect and maintain readily available data on the types of services provided at individual health center sites. While HRSA requests information from applicants in their grant applications on the services each site provides, in order for HRSA to access and analyze individual health center site information on the services provided, HRSA would have to retrieve this information from the grant applications manually. HRSA separately collects data through the UDS from each grantee on the types of services it provides across all of its health center sites, but it does not collect data on services provided at each site. Although each grantee with community health center funding is required to provide the full range of comprehensive primary care services, it is not required to provide all services at each health center site it operates. HRSA officials told us that some sites provide limited services-- such as dental or mental health services. Because HRSA lacks readily available data on the types of services provided at individual sites, it cannot determine the extent to which individuals in MUAs have access to the full range of comprehensive primary care services provided by health center sites. This lack of basic information can limit HRSA's ability to assess the full range of primary care services available in needy areas when considering the placement of new access points and limit the agency's ability to evaluate service area overlap in MUAs. Our analysis of new access point grants awarded in 2007 found that these awards reduced the number of MUAs that lacked a health center site by about 7 percent. Specifically, 113 fewer MUAs in 2007--or 1,487 MUAs in all--lacked a health center site when compared with the 1,600 MUAs that lacked a health center site in 2006. As a result, 43 percent of MUAs nationwide lacked a health center site in 2007. Despite the overall reduction in the percentage of MUAs nationwide that lacked health center sites in 2007, regional variation remained. The West and Midwest census regions continued to show the lowest and highest percentages of MUAs that lacked health center sites, respectively. (See fig. 2.) Three of the census regions showed a 1 or 2 percentage point change since 2006, while the South census region showed a 5 percentage point change. The minimal impact of the 2007 awards on regional variation is due, in large part, to the fact that more than two-thirds of the nationwide decline in the number of MUAs that lacked a health center site--77 out of the 113 MUAs--occurred in the South census region. (See table 2.) In contrast, only 24 of the 113 MUAs were located in the Midwest census region, even though the Midwest had nearly as many MUAs that lacked a health center site in 2006 as the South census region. Overall, while the South census region experienced a decline of 12 percent in the number of MUAs that lacked a health center site, the other census regions experienced declines of approximately 4 percent. The South census region experienced the greatest decline in the number of MUAs lacking a health center site in 2007 compared to other census regions, in large part, because it was awarded more new access point grants that year than any other region. (See table 3.) Specifically, half of all new access point awards made in 2007--from two separate new access point competitions--went to applicants from the South census region. When we examined the High Poverty County new access point competition, in which 200 counties were targeted by HRSA for new health center sites, we found that 69 percent of those awards were granted to applicants from the South census region. (See fig. 3.) The greater number of awards made to the South census region for this competition may be explained by the fact that nearly two-thirds of the 200 counties targeted were located in the South census region. (For detail on the High Poverty County new access point competition by census region and state, see app. II.) When we examined the open new access point competition, which did not target specific areas, we found that the South census region also received a greater number of awards than any other region under that competition. Specifically, the South census region was granted nearly 40 percent of awards; in contrast, the Midwest received only 17 percent of awards. (See table 4.) HRSA oversees cooperative agreement recipients, but the agency's oversight is limited because it does not have standardized performance measures to assess the performance of the cooperative agreement recipients in assisting new access point applicants and the agency is unlikely to meet its policy timeline for conducting comprehensive on-site reviews. Although HRSA officials told us that they were developing standardized performance measures, they provided no details on the specific measures that may be implemented. Moreover, more than a third of the summary statements sent to unsuccessful applicants for new access point competitions held in fiscal years 2005 and 2007 contained unclear feedback. HRSA oversees the activities of its cooperative agreement recipients using a number of methods. HRSA officials told us that over the course of a budget period, project officers use regular telephone and electronic communications to discuss cooperative agreement recipients' activities as specified in work plans, review the status of these activities, and help set priorities. According to HRSA officials, there is no standard protocol for these communications, and their frequency, duration, and content vary over the course of a budget period and by recipient. HRSA staff also reviews annual noncompeting continuation applications to determine whether the cooperative agreement recipients provided an update on their progress, described their activities and challenges, and developed a suitable work plan and budget for the upcoming budget period. The progress reports submitted by cooperative agreement recipients in these annual applications serve as HRSA's primary form of documentation on the status of cooperative agreement recipients' activities. HRSA's oversight of training and TA cooperative agreement recipients is based on performance measures tailored to the individual organization rather than performance measures that are standardized across all recipients. Specifically, HRSA uses individualized performance measures in cooperative agreement recipients' work plans and comprehensive on- site reviews to assess recipients' performance. For cooperative agreement recipients' work plans, recipients propose training and technical assistance activities in response to HRSA's cooperative agreement application guidance, in which the agency provides general guidelines and goals for the provision of training and technical assistance to health center grant applicants. The guidance requires recipients to develop performance measures for each activity in their work plans. When we analyzed the work plans of the 8 national organizations and 10 PCAs with training and TA cooperative agreements, we found that these measures varied by cooperative agreement recipient. For example, we found that for national organizations, performance measures varied from (1) documenting that the organization's marketing materials were sent to PCAs to (2) recording the number of specific technical assistance requests the organization received to (3) producing monthly reports for HRSA detailing information about potential applicants. For state PCAs, measures varied from (1) the PCA providing application review as requested to (2) holding specific training opportunities--such as community development or board development--to (3) identifying a specific number of applicants the PCA would assist during the budget period. Because these performance measures vary for cooperative agreement recipients' activities, HRSA does not have comparable measures to evaluate the performance of these activities across recipients. HRSA's oversight of cooperative agreement recipients is limited in some key respects. One limitation is that the agency does not have standardized measures for its assessment of recipients' performance of training and technical assistance activities. Without standardized performance measures, HRSA cannot effectively assess the performance of its cooperative agreement recipients with respect to the training and technical assistance they provide to support Health Center Program goals. For example, HRSA does not require that all training and TA cooperative agreement recipients be held to a performance measure that would report the number of successful applicants each cooperative agreement recipient helped develop in underserved communities, including MUAs. Standardized performance measures could help HRSA identify how to better focus its resources to help strengthen the performance of cooperative agreement recipients. HRSA officials told us that they are developing performance measures for the agency's cooperative agreement recipients, which they plan to implement beginning with the next competitive funding announcement, scheduled for fiscal year 2009. However, HRSA officials did not provide details on the particular measures that it will implement, so it is unclear to what extent the proposed measures will allow HRSA to assess the performance of cooperative agreement recipients in supporting Health Center Program goals through such efforts as developing successful new access point grant applicants. HRSA's oversight is also limited because the agency's comprehensive on- site reviews of cooperative agreement recipients do not occur as frequently as HRSA policy states. According to HRSA's stated policy, the agency will conduct these reviews for each cooperative agreement recipient every 3 to 5 years. The reviews are intended to assess--and thereby potentially improve--the performance of the cooperative agreement recipients in supporting the overall goals of the Health Center Program. This support can include helping potential applicants apply for health center grants, identifying underserved areas and populations across the country, and helping HRSA increase access to primary care services for underserved populations. As part of the comprehensive on-site reviews, HRSA officials consult with the relevant project officer, examine the scope of the activities cooperative agreement recipients have described in their work plans and reported in their progress reports, and develop performance measures in collaboration with the recipient. Similar to the performance measures in cooperative agreement recipients' work plans, the performance measures used during comprehensive on-site reviews are also individually tailored and vary by recipient. For example, during these reviews, some recipients are assessed using performance measures that include the number of training and technical assistance hours the recipients provided; other recipients are assessed using measures that include the number of applicants that were funded after receiving technical assistance from the recipient or the percentage of the state's uninsured population that is served by health center sites in the Health Center Program. After an assessment, HRSA asks the recipient to develop an action plan. In these action plans, the reviewing HRSA officials may recommend additional activities to improve the performance of the specific measures they had identified during the review. For example, if the agency concludes that a cooperative agreement recipient needs to increase the percentage of the state's uninsured population served by health center sites in the Health Center Program, it may recommend that the recipient pursue strategies to develop a statewide health professional recruitment program and identify other funding sources to improve its ability to increase access to primary care for underserved people. Although HRSA's stated policy is to conduct on-site comprehensive reviews of cooperative agreement recipients every 3 to 5 years, HRSA is unlikely to meet this goal for its training and TA cooperative recipients that target assistance to new access point applicants. In the 4 years since HRSA implemented its policy for these reviews in 2004, the agency has evaluated only about 20 percent of cooperative agreement recipients that provide training and technical assistance to grant applicants. HRSA officials told us that they have limited resources each year with which to fund the reviews. However, without these reviews, HRSA does not have a means of obtaining comprehensive information on the performance of cooperative agreement recipients in supporting the Health Center Program, including information on ways the recipients could improve the assistance they provide to new access point applicants. More than a third of summary statements sent to unsuccessful applicants from new access point grant competitions held in fiscal years 2005 and 2007 contained unclear feedback. Based on our analysis of 69 summary statements, we found that 38 percent contained unclear feedback associated with at least one of the eight evaluative criteria, while 13 percent contained unclear feedback in more than one criterion. We defined feedback as unclear when, in regard to a particular criterion, a characteristic of the application was noted as both a strength and a weakness without a detailed explanation supporting each conclusion. We found that 26 summary statements contained unclear feedback. We found 41 distinct examples of unclear feedback in the summary statements. (See table 5.) HRSA's stated purpose in providing summary statements to unsuccessful applicants is to improve the quality of future grant applications. However, if the feedback HRSA provides in these statements is unclear, it may undermine the usefulness of the feedback for applicants and their ability to successfully compete for new access point grants. Based on our analysis, the largest number of examples of unclear feedback was found in the need criterion, in which applications are evaluated on the description of the service area, communities, target population--including the number served, encounter information, and barriers---and the health care environment. For example, one summary statement indicated that the application clearly demonstrated and provided a compelling case for the significant health access problems for the underserved target population. However, the summary statement also noted that the application was insufficiently detailed and brief in its description of the target population. Seven of the examples of unclear feedback were found in the response criterion, in which applications are evaluated on the applicant's proposal to respond the target population's need. One summary statement indicated that the application detailed a comprehensive plan for health care services to be provided directly by the applicant or through its established linkages with other providers, including a description of procedures for follow-up on referrals or services with external providers. The summary statement also indicated that the application did not provide a clear plan of health service delivery, including accountability among and between all subcontractors. Awarding new access point grants is central to HRSA's ongoing efforts to increase access to primary health care services in MUAs. From 2006 to 2007, HRSA's recent new access point awards achieved modest success in reducing the percentage of MUAs nationwide that lacked a health center site. However, in 2007, 43 percent of MUAs continue to lack a health center site, and the new access point awards made in 2007 had little impact on the wide variation among census regions and states in the percentage of MUAs lacking a health center site. The relatively small effect of the 2007 awards on geographic variation may be explained, in part, because the South census region received a greater number of awards than other regions, even though the South was not the region with the highest percentage of MUAs lacking a health center site in 2006. HRSA awards new access point grants to open new health center sites, thus increasing access to primary health care services for underserved populations in needy areas, including MUAs. However, HRSA's ability to target these awards and place new health center sites in locations where they are most needed is limited because HRSA does not collect and maintain readily available information on the services provided at individual health center sites. Having readily available information on the services provided at each site is important for HRSA's effective consideration of need when distributing federal resources for new health center sites because each health center site may not provide the full range of comprehensive primary care services. This information can also help HRSA assess any potential overlap of services provided by health center sites in MUAs. HRSA could improve the number and quality of grant applications it receives--and thereby broaden its potential pool of applicants--by better monitoring the performance of cooperative agreement recipients that assist applicants and by ensuring that the feedback unsuccessful applicants receive is clear. However, limitations in HRSA's oversight of the training and TA cooperative agreement recipients hamper the agency's ability to identify recipients most in need of assistance. Because HRSA does not have standardized performance measures for these recipients-- either for their work plan activities or for the comprehensive on-site reviews--the agency cannot assess recipients' performance using comparable measures and determine the extent to which they support the overall goals of the Health Center Program. One standardized performance measure that could help HRSA evaluate the success of cooperative agreement recipients that assist new access point applicants is the number of successful grant applicants each cooperative agreement recipient develops; this standardized performance measure could assist HRSA in determining where to focus its resources to strengthen the performance of cooperative agreement recipients. HRSA's allocation of available resources has made it unlikely that it will meet its goal of conducting comprehensive on-site reviews of each cooperative agreement recipient every 3 to 5 years. Without these reviews, HRSA does not have comprehensive information on the effectiveness of training and TA cooperative agreement recipients in supporting the Health Center Program, including ways in which they could improve their efforts to help grant applicants. Given the agency's concern regarding available resources for its comprehensive on-site reviews, developing and implementing standardized performance measures for training and TA cooperative agreement recipients could assist HRSA in determining the cost-effectiveness of its current comprehensive on-site review policy and where to focus its limited resources. HRSA could potentially improve its pool of future applicants by increasing the extent to which it provides clear feedback to unsuccessful applicants on the strengths and weaknesses of their applications. HRSA intends for these summary statements to be used by applicants to improve the quality of future grant applications. However, the unclear feedback HRSA has provided to some unsuccessful applicants in fiscal years 2005 and 2007 does not provide those applicants with clear information that could help them improve their future applications. This could limit HRSA's ability to award new access point grants to locations where such grants are needed most. We recommend that the Administrator of HRSA take the following four actions to improve the Health Center Program: Collect and maintain readily available data on the types of services provided at each health center site to improve the agency's ability to measure access to comprehensive primary care services in MUAs. Develop and implement standardized performance measures for training and TA cooperative recipients that assist applicants to improve HRSA's ability to evaluate the performance of its training and TA cooperative agreements. These standardized performance measures should include a measure of the number of successful applicants a recipient assisted. Reevaluate its policy of requiring comprehensive on-site reviews of Health Center Program training and TA cooperative agreement recipients every 3 to 5 years and consider targeting its available resources at comprehensive on-site reviews for cooperative agreement recipients that would benefit most from such oversight. Identify and take appropriate action to ensure that the discussion of an applicant's strengths and weaknesses in all summary statements is clear. In commenting on a draft of this report, HHS raised concerns regarding the scope of the report and one of our recommendations and concurred with the other three recommendations. (HHS's comments are reprinted in app. III.) HHS also provided technical comments, which we incorporated as appropriate. HHS said its most significant concern was with our focus on MUAs and the exclusion of MUPs from the scope of our report. In our analysis, we included the health center sites of 90 percent of all Health Center Program grantees. We excluded from our review sites that were associated with the remaining 10 percent of grantees that received HRSA funding to serve specific MUPs only because they are not required to serve all residents of the service area. Given our research objective to determine the location of health center sites that provide services to residents of an MUA, we excluded these specific MUPs and informed HRSA of our focus on health center sites and MUAs. We agree with HHS's comment that it could be beneficial to have information on the number of grants awarded to programs serving both MUAs and MUPs generally to fully assess the coverage of health center sites. HHS also commented that our methodology did not account for the proximity of potential health center sites located outside the boundary of an MUA. While we did not explicitly account for the proximity of potential health center sites located outside an MUA, we did include the entire area of all zip codes associated with an MUA. As a result, the geographic boundary of an MUA in our analysis may be larger than that defined by HRSA, so our methodology erred on the side of overestimating the number of MUAs that contained a health center site. With regard to our reporting on the percentage of MUAs that lacked a health center site, HHS stated that this indicator may be of limited utility, because not all programs serving MUAs and MUPs are comparable to each other due to differences in size, geographic location, and specific demographic characteristics. Specifically, HHS commented that our analysis presumed that the presence of one health center site was sufficient to serve an MUA. In our work, we did not examine whether MUAs were sufficiently served because this was beyond the scope of our work. Moreover, since HRSA does not maintain site-specific information on services provided and each site does not provide the same services, we could not assess whether an MUA was sufficiently served. HHS also noted that a health center site may not be the appropriate solution for some small population MUAs; however, we believe it is reasonable to expect that residents of an MUA--regardless of its size, geographic location, and specific demographic characteristics--have access to the full range of primary care services. With regard to our first recommendation that HRSA collect and maintain site-specific data on the services provided at each health center site, HHS acknowledged that site-specific information would be helpful for many purposes, but it said collecting this information would place a significant burden on grantees and raise the program's administrative expenses. We believe that having site-specific information on services provided would help HRSA better measure access to comprehensive primary health care services in MUAs when considering the placement of new health center sites and facilitate the agency's ability to evaluate service area overlap in MUAs. HHS concurred with our three other recommendations. With regard to our second recommendation, HHS stated that HRSA will include standardized performance measures with its fiscal year 2009 competitive application cycle for state PCAs and that HRSA plans to develop such measures for the national training and TA cooperative agreement recipients in future funding opportunities. With regard to our third recommendation, HHS commented that HRSA has developed a 5-year schedule for reviewing all state PCA grantees. HHS also stated that HRSA is examining ways to better target onsite reviews for national training and TA cooperative agreement recipients that would most benefit from such a review. Finally, HHS agreed with our fourth recommendation and stated that HRSA is continuously identifying ways to improve the review of applications. As arranged with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days after its issue date. At that time, we will send copies of this report to the Secretary of HHS, the Administrator of HRSA, appropriate congressional committees, and other interested parties. We will also make copies of this report available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http:///www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff members who made major contributions to this report are listed in appendix IV. In addition to the contact named above, Nancy Edwards, Assistant Director; Stella Chiang; Krister Friday; Karen Howard; Daniel Ries; Jessica Cobert Smith; Laurie F. Thurber; Jennifer Whitworth; Rachael Wojnowicz; and Suzanne Worth made key contributions to this report.
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Health centers funded through grants under the Health Center Program--managed by the Health Resources and Services Administration (HRSA), an agency in the U.S. Department of Health and Human Services (HHS)--provide comprehensive primary care services for the medically underserved. HRSA provides funding for training and technical assistance (TA) cooperative agreement recipients to assist grant applicants. GAO was asked to examine (1) to what extent medically underserved areas (MUA) lacked health center sites in 2006 and 2007 and (2) HRSA's oversight of training and TA cooperative agreement recipients' assistance to grant applicants and its provision of written feedback provided to unsuccessful applicants. To do this, GAO obtained and analyzed HRSA data, grant applications, and the written feedback provided to unsuccessful grant applicants and interviewed HRSA officials. Grant awards for new health center sites in 2007 reduced the overall percentage of MUAs lacking a health center site from 47 percent in 2006 to 43 percent in 2007. In addition, GAO found wide geographic variation in the percentage of MUAs that lacked a health center site in both years. Most of the 2007 nationwide decline in the number of MUAs that lacked a site occurred in the South census region, in large part, because half of all awards made in 2007 for new health center sites were granted to the South census region. GAO also found that HRSA lacks readily available data on the services provided at individual health center sites. HRSA oversees training and TA cooperative agreement recipients, but its oversight is limited in key respects and it does not always provide clear feedback to unsuccessful grant applicants. HRSA oversees recipients using a number of methods, including regular communications, review of cooperative agreement applications, and comprehensive on-site reviews. However, the agency's oversight is limited because it lacks standardized performance measures to assess the performance of the cooperative agreement recipients and it is unlikely to meet its policy goal of conducting comprehensive on-site reviews of these recipients every 3 to 5 years. The lack of standardized performance measures limits HRSA's ability to effectively evaluate cooperative agreement recipients' activities that support the Health Center Program's goals with comparable measures. In addition, without timely comprehensive on-site reviews, HRSA does not have up-to-date comprehensive information on the performance of these recipients in supporting the Health Center Program. HRSA officials stated that they are in the process of developing standardized performance measures. Moreover, more than a third of the written feedback HRSA sent to unsuccessful Health Center Program grant applicants in fiscal years 2005 and 2007 contained unclear statements. The lack of clarity in this written feedback may undermine its usefulness rather than enhance the ability of applicants to successfully compete for grants in the future.
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Registered nurses are responsible for a large portion of the health care provided in this country. RNs make up the largest group of health care providers, and are 77 percent of the nurse workforce. Historically, RNs have worked predominantly in hospitals; in 2000, 59.1 percent of RNs worked in hospitals. A smaller number of RNs work in other settings, such as ambulatory care, home health care, and nursing homes. Their responsibilities may include providing direct patient care in a hospital or home health care setting, managing and directing complex nursing care in an intensive care unit, or supervising the provision of long-term care in a nursing home. In 1999 licensed practical nurses (LPN) composed 23 percent of the nurse workforce. LPNs provide patient care under the direction of physicians and registered nurses, with 32 percent working in hospitals, 28 percent working in nursing homes, and the rest working for doctors' offices, home health agencies, residential care facilities, schools, temporary help agencies, and government agencies. Individuals usually select one of three ways to become an RN--through a 2-year associate degree, 3-year diploma, or 4-year baccalaureate degree program. As of 2000, 40.3 percent of nurses had received their training through an associate program, while 29.6 percent and 29.3 percent had received their training in a diploma or baccalaureate degree program, respectively. LPN programs are 12 to 18 months in length and generally focus on basic nursing skills such as monitoring patient or resident condition and administering treatments and medications. Once they have completed their education, RNs and LPNs must meet the licensing requirements of their state to be allowed to practice. The U.S. health care system has changed significantly over the past two decades, affecting the environment in which nurses provide patient care. Advances in technology and greater emphasis on cost effectiveness have led to changes in the structure, organization, and delivery of health care services. While hospitals traditionally were the primary providers of acute care, advances in technology, along with cost controls, shifted some care from traditional inpatient settings to ambulatory, community-based, nursing facility, or home health care settings. The transfer of less acute patients to nursing homes and community-based care settings created additional job opportunities and increased demand for nurses in these settings. This change in service settings has also resulted in decreased lengths of patient stay in hospitals and a decline in the numbers of beds staffed. At the same time, the acuity of patients increased as those patients remaining in hospitals were those too medically complex to be cared for in another setting. In an additional effort to contain costs in the early 1990s, acute care facilities restructured and redesigned staffing patterns, introducing more non-RN caregivers and reducing the number of RNs on staff. Recent studies have identified a relationship between the level of nurse staffing and the quality of patient care. A recent Health Resources and Services Administration (HRSA) study found a relationship between higher RN staffing levels and the reduction of certain negative hospital inpatient outcomes, such as urinary tract infection and pneumonia.Furthermore, a Health Care Financing Administration (HCFA) report to the Congress last year found a direct relationship between nurse staffing levels in nursing homes and the quality of resident care. Current evidence suggests emerging shortages of nurses available or willing to fill some vacant positions in hospital, nursing home, and home health care settings. National data are not adequate to describe the full nature and extent of nurse workforce shortages, nor are data sufficiently sensitive or current to allow a comparison of the degree of nurse workforce shortages across states, specialties, or provider types. The nationwide unemployment rate for RNs, which has been low for many years, has recently declined further from 1.5 percent in 1997 to 1.0 percent in 2000, the lowest level in more than a decade. Rising vacancy rates reported by providers provide another indicator of possible excess demand. A survey recently conducted by the Association of Maryland Hospitals and Health Systems reported a statewide average RN vacancy rate for hospitals of 14.7 percent in 2000, up from 3.3 percent in 1997. The Association reported that the last time vacancy rates were at this level was during the late 1980s, during the last reported nurse shortage. As of a June 2001 American Hospital Association survey, 17 state hospital associations reported statewide RN vacancy rate data for 2000 or 2001, and 11 of these states reported vacancy rates of 10 percent or higher. For 2000, California reported an average RN vacancy rate of 20 percent, while in 2001 Florida and Delaware reported nearly 16 percent, and Alabama and Nevada reported an average rate of 13 percent. Other surveys indicate that the difficulty recruiting RNs appears to be affecting a variety of provider types. California reported an RN vacancy rate of 8.5 percent for all employers in 1997, with hospitals reporting a rate of 9.6 percent, nursing homes 6.9 percent, and home health care 6.4 percent. A 2000 survey of providers in Vermont found that nursing homes and home health care agencies had RN vacancy rates of 15.9 percent and 9.8 percent, respectively, while hospitals had an RN vacancy rate of 4.8 percent (up from 1.2 percent in 1996). Job dissatisfaction is reported to be high among nurses. Nurses report unhappiness with a variety of issues, including staffing, respect and recognition, and wages, and this dissatisfaction is affecting their decision to work in nursing. Furthermore, the nurse workforce is aging and fewer new nurses are entering the profession to replace those who are retiring or leaving. Job dissatisfaction may play a significant role in both current and future recruitment and retention problems. A recent Federation of Nurses and Health Professionals (FNHP) survey found that half of the currently employed RNs who were surveyed had considered leaving the patient-care field for reasons other than retirement over the past 2 years. Over one- fourth (28 percent) of RNs in a 1999 study by The Nursing Executive Center described themselves as somewhat or very dissatisfied with their job, and about half (51 percent) were much less satisfied with their job than they were 2 years ago. In that same survey, 32 percent of general medical/surgical RNs, who constitute the bulk of hospital RNs, indicated that they were dissatisfied with their current job. According to a survey conducted by the American Nurses Association (ANA), 54.8 percent of RNs and LPNs responding would not recommend the nursing profession as a career for their children or friends, while 23 percent would actively discourage someone close to them from entering the profession. Almost half (49 percent) of current RNs surveyed in another study said that if they were younger and just starting out, they would pursue a different career, rather than becoming a registered nurse. Inadequate staffing, heavy workloads, and the use of overtime to address staffing shortages are frequently cited as key areas of job dissatisfaction among nurses. Seventy-nine percent of nurses responding to the FHNP survey said they had seen a rise in acuity of patients. When adjusted to reflect the rise in acuity levels, the number of hospital employees on staff for each patient discharged, including nurses, declined by more than 13 percent between 1990 and 1999. This increases the work intensity for individual nurses. According to one survey, of those RNs responding who had considered leaving the patient-care field for reasons other than retirement, 56 percent indicated that they wanted a less stressful and physically demanding job and 22 percent said they were concerned about schedules and hours. The same survey found that 55 percent of current RNs were either just somewhat or not satisfied by their facility's staffing levels, while 43 percent of current RNs surveyed indicated that increased staffing would do the most to improve their job. Another survey found that 36 percent of RNs in their current job more than one year were very or somewhat dissatisfied with the intensity of their work. Officials of unions representing nurses told us the issues of staffing and overtime have been important for their nursing members during recent negotiations. State legislators have also indicated concern--in the first half of 2001 alone, legislation designed to limit mandatory overtime or protect nurses who refuse to work additional hours has been introduced in 10 states. Registered nurses have also cited the lack of respect and recognition given them, along with their perceived lack of authority, as areas of dissatisfaction. In a survey conducted by The Nursing Executive Center, 48 percent of RNs surveyed who had held their current job more than one year indicated that they were very or somewhat dissatisfied with the recognition they receive, while 35 percent were dissatisfied with their level of participation in decision-making. Over half (53 percent) of RNs responding to a survey from the FNHP were either just somewhat or not satisfied by the degree to which they had a voice in decisions, while 47 percent were either just somewhat or not satisfied by the support and respect they received from management. While surveys indicate that increased wages might encourage registered nurses to stay at their jobs, money is not always cited as the primary reason for job dissatisfaction. According to the FNHP survey, of those RNs responding who had considered leaving the patient-care field for reasons other than retirement, 18 percent wanted more money, versus 56 percent who were concerned about the stress and physical demands of the job.However, the same study reported that 27 percent of current RNs responding cited higher wages or better health care benefits as a way of improving their job. Another study indicated that 39 percent of RNs who had been in their current job for more than 1 year were dissatisfied with their total compensation, but 48 percent were dissatisfied with the level of recognition they received from their employer. The American Hospital Association (AHA) recently reported on a survey that found that 57 percent of responding RNs said their salaries were adequate, compared to 33.4 percent who thought their facility was adequately staffed and 29.1 percent who said that their hospital administration listened and responded to their concerns. Nurses have also expressed dissatisfaction with a decrease in the amount of support staff available to them over the past few years. Fewer than half the RNs responding to the recent study by the AHA agreed that their hospital provided adequate support services. Nurses responding to a survey by the ANA also pointed to a decrease of needed support services. Current nurse workforce issues are part of a larger health care workforce shortage that includes a shortage of nurse aides. Nurse aides support nurses and assist patients with activities of daily living such as dressing, feeding, and bathing. Several state and local-level studies cite nurse aide recruitment and retention as a problem for many providers. The shortage among nurse aides may be linked to difficult work conditions as well as dissatisfaction with wages and benefits. Studies have cited low wages and few benefits as factors contributing to nurse aide turnover. Our recent analysis of national data from the Bureau of Labor Statistics indicated that, on average, nurse aides receive lower wages and fewer benefits than workers generally; this is particularly true for those working in nursing homes and home health care. In 1999, the national average hourly wage for nurse aides working in nursing homes was $8.29, compared to $9.22 for service workers and $15.29 for all workers. For nurse aides working in home health care agencies, the average hourly wage was $8.67, and for nurse aides working in hospitals, $8.94. Our analysis indicated that many nurse aides have sufficiently low earnings and family incomes to qualify for public benefits such as food stamps and Medicaid. Studies have also identified the physical demands of nurse aide work and other aspects of the workplace environment as contributing to retention problems. Nurse aide jobs are physically demanding, and have one of the highest rates of workplace injury, 13 per 100 employees in 1999, compared to the construction industry rate of 8 per 100 employees. Additional factors that affect turnover include workloads and staffing levels, respect from administrators, organizational recognition, and participation in decision-making--all very similar to areas of dissatisfaction identified by nurses. While job dissatisfaction is a primary reason cited for nurse retention problems, demographic changes are also a contributing factor. As shown in figure 1, there has been a dramatic shift upward in the age distribution of registered nurses in the past 10 years. The average age of the RN population in 2000 was 45, almost 1 year older than the average in 1996. Over half (52 percent) of all RNs were reported to be under the age of 40 in 1980; by 2000 fewer than 1 in 3 were younger than 40. While the current nurse population continues to age, fewer young people are choosing nursing as a profession. Over the past 25 years, career opportunities available to women have expanded significantly, and there has been a corresponding decline of interest by women in nursing as a career. A recent study reported that women graduating from high school in the 1990s were 35 percent less likely to become RNs than women who graduated in the 1970s. The decline in nursing program enrollments in recent years reflects this development. According to a 1999 Nursing Executive Center Report, enrollment in diploma programs dropped 42 percent between 1993 and 1996, and enrollment in associate degree programs declined 11 percent. Furthermore, between 1995 and 1998, enrollment in both baccalaureate and master's programs also dropped. In addition to the reduced number of students entering nursing programs, there is concern about a pending shortage of nurse educators. The average age of professors in nursing programs is 52 years old, and 49 years old for associate professors. The average age of new doctoral recipients in nursing is 45, compared with 34 in all fields. From 1995 to 1999, enrollments in doctoral nursing programs were relatively stagnant. Both Arkansas and California have reported that qualified applicants have been turned away from basic RN education because of a lack of institutional resources, including faculty and facilities. Growth in the number of new RNs has slowed in recent years. The number of new RNs passing the licensing examination declined steadily from 1996 to 2000; in 2000 it was 23 percent lower than in 1996, falling from 96,679 to 74,787. Although the total number of licensed RNs increased 5.4 percent between 1996 and 2000, to a total of 2,696,540--this was the lowest increase ever reported in HRSA's periodic survey of RNs. In contrast, the highest increase in the RN population occurred between 1992 and 1996, when the total number of RNs increased by an estimated 14.2 percent, from 2,239,816 to 2,558,874. A serious nurse shortage is expected in the future, as pressures are exerted on both demand and supply. The future demand for nurses is expected to increase dramatically when the baby boomers reach their 60s, 70s, and beyond. The population age 65 years and older will double from 2000 to 2030. During that same time period the number of women between 25 and 54 years of age, who have traditionally formed the core of the nursing workforce, is expected to remain relatively unchanged. This potential mismatch between future supply and demand for caregivers is illustrated by the change in the expected ratio of potential care providers to potential care recipients. As shown in figure 2, the ratio of the working age population, age 18 to 64, to the population over age 85 will decline from 39.5 workers for each person 85 and older in 2000, to 22.1 in 2030, and 14.8 in 2040. The ratio of women age 20 to 54 to the population age 85 and older will decline even more dramatically, from 16.1 in 2000, to 8.5 in 2030, and 5.7 in 2040.
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Health care providers' difficulties in recruiting and retaining nurses may worsen as the demand for nurses rises with the aging of the population. Demographic changes are widening the gap between the numbers of people needing care and available caregivers. Moreover, the current high levels of job dissatisfaction among nurses because of management decisions to restructure health care delivery and staffing may play a crucial role in the extent of future nurse shortages. Efforts to improve the workplace environment may reduce the likelihood that nurses will leave or consider leaving the profession. More data on the exact scope and nature of the problem are needed to help plan and target corrective measures. Providers, states, and the federal government have the opportunity to collect and analyze critical information on changes in the supply of and demand for nurses.
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TEA-21 authorized the Job Access program, through which DOT's FTA provides grants to "qualified entities"--local agencies, nonprofit organizations, transit authorities, and others--to improve the mobility of welfare recipients and low-income individuals seeking employment.DOT's two major goals for the program are to (1) provide transportation services in urban, suburban, and rural areas to assist welfare recipients and low-income individuals to gain access to employment opportunities and (2) increase collaboration among such parties as transportation providers, human service agencies, employers, metropolitan planning organizations, states, and communities in providing access to employment. TEA-21 requires DOT to conduct a nationwide solicitation for Job Access grant applications and to select grantees on a competitive basis. TEA-21 also identifies factors for DOT to consider in awarding Job Access grants. These include the percentage of the population in the area to be served by a grant applicant who are welfare recipients, the need for additional services in the area to be served, the extent to which the proposed services would meet that need, and the extent to which an applicant identifies long-term financing strategies to support the services. In fiscal year 1999, FTA established a competitive selection process involving the evaluation of grant applications against published criteria, as well as the scoring and ranking of applications against each other on the basis of those evaluations. FTA selected and funded the highest ranked projects. FTA selects program grantees on an annual basis and makes no commitment for funding for more than 1 year. As a result, FTA undertakes a new selection process every year. Under TEA-21, Job Access grants are subject to the terms and conditions applicable to recipients of urbanized area formula grants, as well as other terms and conditions established by DOT. After selecting projects for funding, FTA requires the applicants to provide assurances and documentation of compliance with these standard grant requirements, such as those concerning drug and alcohol testing, federal procurement standards, and state and regional transportation planning. TEA-21 authorized up to $750 million for the program from fiscal year 1999 through fiscal year 2003. It also required DOT to allocate 60 percent of the program's funds each year to projects in urban areas with populations of at least 200,000; 20 percent of the funds to projects in urban areas with populations of less than 200,000; and 20 percent of the funds to projects in nonurban areas. Job Access grantees are required to provide at least 50 percent matching funds from other sources, including other federal funds available for transportation services--for example, funds from the Temporary Assistance for Needy Families program. In response to funding designations contained in the conference reports accompanying DOT's appropriations acts for fiscal years 2000 and 2001, FTA changed its selection process and adopted a two-track process for the selection of Job Access projects. Specifically, FTA adopted a noncompetitive process for the entities designated in the conference reports or applicants selected by those entities. FTA set aside funding for the designated entities and selected them without scoring and ranking their applications--that is, comparing them to those submitted by other applicants. FTA continued to implement its existing competitive process for other applicants. In fiscal years 2000 and 2001, FTA selected 199 projects for grants totaling $125 million on the basis of their designations in conference reports, rather than on the basis of its competitive review. According to FTA officials, the agency had determined that these projects met the program's basic requirements and its selection criteria for competitively awarded grants. These 199 projects comprised about 61 percent of the 327 projects selected for grants during those 2 years and about 71 percent of the $175 million that was made available for the program during those 2 years. The Department of Transportation and Related Agencies Appropriations Act for fiscal year 2000 provided $75 million for the Job Access program, and the conference report accompanying the appropriations act designated a total of $49.6 million in specified amounts for grants to identified states, localities, and other organizations. FTA's March 2000 request for project proposals provided detailed information to prospective grantees, including requirements for eligibility and guidelines for preparing grant applications. It also set forth selection processes for entities identified in the conference report and other applicants, stating that Congress had allocated $49.6 million for specific states and localities and that the remaining $25.4 million, along with about $4 million in unobligated fiscal year 1999 funds, was available for competitive award. FTA instructed entities identified in the conference report, or applicants selected by those entities, to submit applications responding to the same program selection criteria, including conformity with program requirements, as applicants for competitive awards. In addition, it advised applicants for "competitive grants" that--as in 1999--it would evaluate and score eligible applications according to four factors: (1) the degree of local coordination exhibited when a project was designed, (2) the demonstrated need for additional transportation services, (3) the extent to which proposed services would meet the need, and (4) the ability of an applicant to obtain resources to continue a project without grant funds. The notice indicated that, along with such factors as the time frame for implementation and the geographic distribution of project funding, these award criteria would provide the basis for project selections. The Department of Transportation and Related Agencies Appropriations Act for fiscal year 2001 provided $100 million for the Job Access program, and the accompanying conference report designated about $75 million for identified states, localities, and other organizations. As in 2000, FTA proposed to allocate amounts to entities identified in the conference report for projects meeting basic program requirements, stating that it would "honor those allocated projects that meet the statutory intent of the program." However, it did not solicit new proposals for competitive award; rather, it decided to make remaining selections from among proposals submitted in fiscal year 2000 that were not funded or only partially funded due to funding limitations in that year. According to FTA, applicants for projects designated in the conference reports were notified by letter from the FTA regional administrators, as well as through its published notices, and instructed to submit project proposals addressing the criteria used for competitive awards, as well as standard FTA grant requirements. FTA officials noted that only those applications meeting the basic eligibility criteria for the Job Access program were awarded grants, explaining that FTA's practice is to work with entities identified in the conference reports and include them in the program consistent with the underlying statutory requirements. During fiscal years 2000 and 2001, FTA's two-track process for the selection of Job Access grantees decreased opportunities to fund projects that could have been identified as meritorious through the competitive evaluation process. Also, some projects selected in fiscal year 1999 were not selected for funding in fiscal years 2000 or 2001. As a result, according to grantee officials, some of these projects needed to reduce their services or ceased to operate. In response to TEA-21, FTA designed a competitive process consistent with the factors identified in the statute to help ensure that the projects selected for funding would improve the access of low-income individuals to employment and employment-related services through coordinated efforts of transportation providers, human service agencies, and others. In fiscal year 1999, FTA allocated all of the program funds--$75 million--for projects that it had competitively selected by evaluating, scoring, and ranking them against each other. However, for fiscal years 2000 and 2001, FTA allocated $125 million out of the $175 million available to entities identified in the conference reports, or applicants selected by those entities, and only $50 million to competitively selected entities that were not identified in the conference reports. According to the Coordinator of the Job Access program and other program officials, as a result of funding projects designated in the conference reports, many other worthy projects could not be funded. In fiscal year 2001, FTA did not solicit new proposals. Instead, it selected projects from among project proposals submitted for fiscal year 2000 that, according to FTA, were "meritorious" but had not been funded or had been only partially funded because of funding limitations. This change foreclosed opportunities for FTA to consider projects in fiscal year 2001 that may have been more promising than those actually selected in that year. In addition, FTA decreased the minimally acceptable score for project selection from 76.5 ranking points to 54.5 points. As a result, in fiscal year 2001, FTA selected some projects that it had evaluated and ranked in fiscal year 1999 or 2000 but had not found suitable for award in those years. According to FTA program officials and grantees, the decrease in funding for competitively selected projects during fiscal years 2000 and 2001 meant that about one-fifth of the fiscal year 1999 Job Access projects did not receive continued funding. To explore the impact of the reduction in funding available for competitive grants, we sent a questionnaire to 186 fiscal year 1999 grantees. About 83 percent of these grantees--or 155-- responded to our questionnaire. These respondents generally indicated they were satisfied or very satisfied with the Job Access program. Eighty- five percent said that they were satisfied with how the Job Access program has enabled their organization to help people get to work. However, 19 percent of the respondents--or 30 of them--faced reduced or discontinued funding during fiscal years 2000 and 2001. Furthermore, eight grantees reported that funding interruptions caused them to decrease the scope of service of their projects. For example, the Chesapeake Bay Agency on Aging (Urbanna, VA) reported that funding disruptions, accompanied by an inability to secure funding from alternative sources, resulted in some route cancellations and cutbacks in the number of riders served and the lengths of some routes. The Chesapeake Bay Agency on Aging and the Richmond (VA) Transit Authority stated that these service disruptions caused a loss of credibility with their clientele and cost some passengers their jobs. Three grantees that reported funding lapses said that, after their services were interrupted, they could not obtain alternative sources of funding, and their Job Access projects were permanently discontinued. In fiscal years 2000 and 2001, FTA selected 199 projects (about 61 percent of the 327 Job Access projects selected in those years) noncompetitively, based on language in the conference reports that accompanied the fiscal year 2000 and 2001 appropriations acts. This language designated specific dollar amounts for grants to states, localities, and organizations. FTA officials said that in administering the program, FTA complied with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views as expressed in this report language. Section 3037 of TEA-21, which established the Job Access program, authorizes the Secretary of Transportation to make grants to assist qualified entities with financing eligible projects. It directs the Secretary to conduct a national solicitation for grant applications, and it requires that grantees be selected on a competitive basis. Although the statute does not define the phrase "competitive basis," it does identify several factors for the Secretary to consider in awarding grants, including the percentage of welfare recipients in the population of the area to be served, the need for additional services, and the degree of coordination with existing transportation service providers. In implementing TEA-21, FTA combined the statutory factors into the four essential elements referenced in its March 2000 request for grant applications and assigned points to each, on the basis of relative importance. In December 2000, we concluded that FTA's program guidance and practices of evaluating and comparing program applicants were appropriate for helping to ensure that grantees would be competitively selected on a consistent basis. The fiscal year 2000 and 2001 appropriations acts for the Department of Transportation and Related Agencies made specified amounts available for the award of Job Access grants under section 3037. Although the conference reports accompanying those acts contained language designating entities for project funding, the designations were not carried over into the appropriations acts. It is well established that conference report language and other legislative history, indicating how funds should be spent, do not impose legally binding requirements; nor does legislative history supersede or repeal existing statutory requirements. Accordingly, FTA had no authority to use a noncompetitive process for the selection of Job Access grantees, including those designated in the conference reports. In response to our inquiries concerning FTA's legal justification for its practices in fiscal years 2000 and 2001, FTA officials emphasized that-- notwithstanding the designations in the conference reports--only those applications meeting the eligibility criteria in section 3037 were awarded grants and that projects of questionable eligibility were specifically reviewed by the Office of Chief Counsel to ensure eligibility. FTA officials also said that the selection of Job Access projects reflected the requirement of section 3037 to allocate 60 percent of the available funds to large urban areas, 20 percent to mid-sized urban areas, and 20 percent to rural areas. According to Job Access program officials, including the Coordinator, FTA determined how many of the projects from entities identified in the conference reports fell into each funding category. FTA set aside funds for these projects in anticipation of awarding them grants. FTA then awarded grants with the remaining funds in each funding category to projects selected under the competitive process. FTA acknowledged that it did not undertake any effort to compare applications from entities identified in the conference reports to other applications for Job Access funds. While TEA-21 does not define "competitive basis," competition necessarily requires the evaluation and comparison of applications for limited funding against other applications before making selections. We have not assessed individual projects selected for Job Access grants in fiscal years 2000 and 2001 for compliance with program eligibility requirements or FTA's processes for compliance with overall funding limitations. Thus, while we have determined that FTA's two-track process for the award of Job Access grants did not conform to the statutory requirement to select grantees on a competitive basis, we have no basis to conclude that any specific grants, including those made as a result of conference report language, failed to satisfy the basic eligibility criteria or were otherwise not worthy of funding. In this respect, FTA has acknowledged the importance of ensuring that all grants, including grants to entities designated in conference reports, meet the requirements of the Job Access program. In response to language in conference reports that accompanied DOT's fiscal year 2000 and fiscal year 2001 appropriations acts, FTA implemented a noncompetitive selection process for entities designated in those reports, or applicants selected by those entities. At the same time, FTA sought to satisfy the requirements of TEA-21 by continuing to use a competitive process for grant applicants not designated in the conference reports. The noncompetitive process implemented by FTA did not satisfy the requirements of section 3037 of TEA-21. In addition, FTA's manner of implementing the program in fiscal years 2000 and 2001 decreased its opportunities to select projects that were potentially more promising. We recommend that, in the absence of statutory authority to select Job Access grantees on a noncompetitive basis, the Secretary of Transportation ensure that future grants to entities designated in conference reports, including grants to applicants selected by those entities, be made on a competitive basis. We provided copies of the draft report to the Department of Transportation for review and comment. DOT officials, including the Coordinator of the Job Access program and representatives from FTA's Chief Counsel's office provided verbal comments regarding our draft report. Overall, DOT officials stated that in implementing the program, FTA complied with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views as expressed in appropriations report language. According to DOT officials, TEA-21 requires DOT to (1) conduct a nationwide solicitation for Job Access grant applications, and (2) select grantees on a competitive basis. According to DOT officials, FTA solicited applications through a broad agency announcement published in the Federal Register, and letters addressed to entities identified in appropriations report language. DOT agrees that report language and other legislative history indicating how funds should be spent do not impose legally binding requirements, nor supersede or repeal statutory requirements. However, it also emphasizes that the statutory language does not define the term "competitive selection," leaving that to agency discretion. According to DOT officials, the agency employed separate competitive selection processes in fiscal years 2000 and 2001 for evaluating applications received in response to the different solicitation methods. DOT indicated that both pools of applicants were required to meet all statutory criteria for award. DOT maintains that both selection methods were competitive and represent a reasonable exercise of agency discretion in complying with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views, as expressed in appropriations report language. DOT also stated that the draft report could benefit by more fully discussing the results of GAO's survey. For example, DOT noted that 85 percent (132 of 155 respondents) were satisfied with the program, while 12 percent (19 of 155) had no opinion, and only 3 percent (4 of 155) were dissatisfied. DOT maintains that this high level of satisfaction among its partners clearly demonstrates FTA's effective implementation of this very important program. We agree that Congress left the determination of exactly how to implement the requirement of TEA-21 to select grantees "on a competitive basis" to FTA's discretion. However, we do not agree that FTA employed competitive methods in selecting all Job Access grantees during this period or that the two-track approach it adopted in implementing the Job Access program represented a reasonable exercise of agency discretion. As noted in this report, the competitive selection of grantees necessarily requires a comparison of applications for available funding against each other, rather than a mere determination that they meet the criteria for award. Although DOT asserted that FTA used a competitive selection process for entities identified in the conference reports accompanying the fiscal year 2000 and 2001 appropriations acts, DOT officials also stated that FTA did not compare applications from entities designated in these conference reports, either to each other or to applications from entities that were not so designated. Applications from entities designated in the conference reports were neither scored nor ranked but were selected on the basis of the conference report language. FTA's public notices support this characterization of FTA's approach. These notices did not describe FTA's process for those entities identified in the conference reports as "competitive"; rather, they distinguished between funds "reserved for specific projects" and funds "available for competitive award." Importantly, FTA's description of its Job Access formula proposal clearly stated with reference to the fiscal year 2000 and 2001 conference reports that "earmarking of funds does not allow for projects to emerge from a competitive process." Therefore, DOT has not provided us with any basis to agree with its view that projects for entities identified in conference reports were competitively selected or to change our recommendation. Regarding DOT's comments concerning the results of our survey of fiscal year 1999 Job Access grantees, we have incorporated additional information about the survey in our report. However, the survey does not show whether FTA implemented the program effectively. Our survey's respondents made no statement about FTA's overall effectiveness in implementing the program. Instead, respondents generally indicated they were satisfied or very satisfied with how the program enabled them to help people get to work. As indicated in appendix III, respondents identified areas for improvement in the program's implementation. TEA-21 requires us to report on DOT's implementation of the Job Access program. As discussed in appendix I, we have issued four reports addressing various aspects of the program since May 1998. In connection with our last two reviews, we met with FTA officials, grantees, and others who suggested that funding designations contained in the conference reports accompanying the Department of Transportation and Related Agencies Appropriations Acts for fiscal years 2000 and 2001 had a significant impact on the operation of the program. In addition, in proposing the allocation of Job Access funds by formula, FTA stated that the funding designations resulted in many highly worthy applicants not receiving funding and pointed out that such designations did not allow some projects to emerge successfully from a competitive process. Accordingly, this report examines the Job Access program in fiscal years 2000 and 2001. Specifically, this report addresses (1) how DOT implemented the program in fiscal years 2000 and 2001, including its response to funding designations contained in conference reports in those fiscal years; (2) the impact on the program of DOT's response to the funding designations; and (3) whether the manner in which DOT interpreted and applied the conference report funding designations in fiscal years 2000 and 2001 was consistent with applicable statutory requirements. To address the first and second objectives, we interviewed FTA officials, examined Job Access program documentation, and conducted a mail survey of all of the fiscal year 1999 Job Access program grantees (see app. III). The rate of response to our survey was about 83 percent. A detailed description of our scope and methodology appears in appendix II. We also reviewed the strategic plans and reports that DOT filed under the Government Performance and Results Act of 1993. To address the third objective we reviewed the requirements of TEA-21, the appropriations acts for fiscal years 2000 and 2001, and applicable case law. We also sent a letter of inquiry to FTA to obtain its explanation of the actions taken in response to the designations in the conference reports that accompanied DOT's appropriations acts for fiscal years 2000 and 2001. Our review focused on FTA's processes for implementing the Job Access program. Our objectives did not include reviewing individual grants made in fiscal years 1999, 2000, or 2001 and the associated projects, or individual grant applications under the Job Access program. We conducted our review from July 2001 through November 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the cognizant congressional committees; the Secretary of Transportation; the Administrator, Federal Transit Administration; and other interested parties. We will make copies available to others on request. If you have any questions about this report, please call me at (202) 512-2834 or E-mail me at [email protected]. Key contributors to this report are listed in appendix IV. Without adequate transportation, welfare recipients face significant barriers in moving from welfare to work. In 1998, Congress found that three-fourths of welfare recipients lived in central cities or rural areas, but two-thirds of new, entry-level jobs were located in the suburbs. Public transportation facilities, such as buses or subways, often offer limited or no access to many of these jobs. Although the jobs can be reached by car, many welfare recipients do not have cars. To address this mismatch, the Transportation Equity Act for the 21st Century (TEA-21) authorized up to $750 million for fiscal years 1999 through 2003 to implement the Job Access and Reverse Commute (Job Access) program. The program authorizes the Department of Transportation (DOT) to provide grants to local agencies, nonprofit organizations, transit authorities, and others to improve transportation to employment. Within DOT, the Federal Transit Administration (FTA) is responsible for implementing the program. From fiscal year 1999 through 2001, FTA selected Job Access projects for grants totaling $247 million for 368 Job Access projects. To date, we have issued four reports on the program: in May 1998--before the program was established--as well as in November 1999, December 2000, and August 2001. In May 1998, we reported that the proposed Job Access program would support reform of the nation's welfare system by, among other things, providing additional resources to transport welfare recipients to work. We recommended that DOT (1) establish specific objectives, performance criteria, and goals for measuring the program's progress; (2) require grantees to coordinate transportation strategies with local job placement and other social service agencies; and (3) work with other federal agencies to coordinate welfare-to-work activities. TEA-21 reflected these recommendations and required appropriate action by DOT. In November 1999, we reported on the implementation of the program in fiscal year 1999--its first year. We found that DOT had implemented our second and third recommendations in carrying out TEA-21. DOT had also taken preliminary steps to implement our recommendation that it establish specific objectives, performance criteria, and goals for measuring the program's progress. However, we also found that DOT's process for selecting Job Access grant proposals was not consistent in fiscal year 1999, and the basis for some selections was unclear. Our December 2000 report examined DOT's implementation of the program in fiscal year 2000. We found that DOT had taken steps to improve its process for selecting Job Access proposals. For example, to promote greater consistency in the evaluation and selection of grantees, DOT developed a standard format for reviewing Job Access proposals and provided more detailed guidance to its reviewers. Almost 90 percent of the fiscal year 1999 Job Access grantees that responded to a GAO survey were satisfied with the goals and intent of the program. However, 51 percent said that satisfying various standard FTA grant requirements took too long--about 9 months, on average. As a result, about one-third of respondents reported experiencing problems in obtaining matching funds. Also, seven projects were withdrawn (about 4 percent of Job Access projects) for varied reasons, including, in one case, the loss of matching funds. Also, DOT implemented our recommendation that it develop specific objectives, performance criteria, and measurable goals for the Job Access program by developing an evaluation plan and by requesting specific data from the grantees. DOT developed a goal to increase new employment sites by 4,050 in fiscal year 2000 and 8,050 in fiscal year 2001. Our August 2001 report provided our preliminary observations on (1) DOT's proposal to use a formula for allocating grant funds to the states, (2) the status of obligations for the Job Access program, and (3) DOT's plans for reporting on the program to the Congress. At the time of our report, DOT had proposed a change to the Job Access program, beginning in fiscal year 2002, under which it would allocate funding to the states via a formula, instead of to individual grantees. DOT proposed this change in response to language in the conference reports accompanying DOT's appropriations acts for fiscal years 2000 and 2001 that designated Job Access funding for specific states, localities, and organizations. Second, as of August 7, 2001, DOT had obligated 94 percent of the funds for fiscal year 1999, 67 percent of the funds for fiscal year 2000, and 20 percent of the funds for fiscal year 2001. Third, DOT had missed its June 2000 deadline for a status report to the Congress but expected to report instead in September 2001. However, as of November 26, 2001, DOT had not sent the report to Congress. TEA-21 requires us to report on FTA's implementation of the Job Access program. This report examines (1) how DOT implemented the Job Access program in fiscal years 2000 and 2001, including its response to funding designations in conference reports in those fiscal years; (2) the impact on the program of DOT's response to the funding designations; and (3) whether the manner in which DOT interpreted and applied the conference report funding designations in fiscal years 2000 and 2001 was consistent with applicable statutory requirements. To describe FTA's continued implementation of the Job Access program in fiscal years 2000 and 2001, we obtained and analyzed documents and interviewed FTA officials about the agency's solicitation, selection, and award procedures and how these were implemented. We also asked agency management to explain any changes made in the implementation of the program for projects selected in fiscal years 2000 and 2001. We examined the consequences of changes in the manner in which FTA selected Job Access proposals by obtaining and analyzing FTA's records regarding projects selected for award during fiscal years 1999 through 2001, including the operating status of the associated projects during those years and those projects that were withdrawn. In addition, we conducted a mail survey of the fiscal year 1999 grantees. (See app. III for the questionnaire and the results.) FTA identified 186 Job Access projects for fiscal year 1999. We mailed questionnaires to each of these grantees and received responses from 155 of them--a response rate of 83 percent as of September 30, 2001. To examine the legality of FTA's approach to the solicitation and selection of grantees in fiscal years 2000 and 2001, we reviewed TEA-21, the appropriations acts for fiscal years 2000 and 2001, and applicable case law. We also obtained the views of cognizant agency officials. Specifically, we asked FTA about its legal justification for its approach to implementing the Job Access program regarding entities identified in the conference reports accompanying recent DOT appropriations acts. Our examination was limited to FTA's processes and did not include a review of awards designated to particular states, local governments, or organizations. In addition, Sam Abbas, Alan Belkin, Helen Desaulniers, Ernie Hazera, Alex Lawrence, Bonnie Pignatiello Leer, Sara Ann Moessbauer, LuAnn Moy, and Frank Taliaferro made key contributions to this report.
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In 1998, three-fourths of welfare recipients lived in central cities or rural areas, but two-thirds of new, entry-level jobs were in the suburbs. Public transportation, such as buses or subways, often offer little or no access to these jobs, and many welfare recipients do not have cars. To address this mismatch, the Transportation Equity Act for the 21st Century authorized up to $750 million through fiscal year 2003 for the Job Access and Reverse Commute (Job Access) program. Under the program, the Department of Transportation (DOT) can provide grants to improve transportation to employment sites. DOT must conduct a nationwide solicitation for grant applications and select grantees on a competitive basis. DOT adopted a two-track process for the selection of grantees. A noncompetitive process set aside funds for entities identified in conference reports, or applicants selected by those entities, and they were chosen without scoring or ranking their applications. The previously established competitive process for other applicants was continued. This two-track process for selecting Job Access grantees decreased opportunities to fund projects identified as "meritorious" through the competitive selection process. Although grantees must be chosen on a competitive basis, the allocation of program funds on a noncompetitive basis to entities designated in conference reports, or applicants selected by those entities, was not consistent. Furthermore, the conference reports did not impose legally binding requirements and did not provide a legal basis to deviate from the act's requirements. Therefore, the use of a noncompetitive process for the selection of program grantees in fiscal years 2000 and 2001 was not authorized.
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The GAO Act contains several distinct and critical components. A number of provisions are designed to benefit our employees and to provide a means to continue to attract, retain, and reward a top-flight workforce, while other provisions are aimed at helping us improve our operations and increase administrative efficiencies. We ask for your support of these measures and have outlined each of them below. Permit the GS-15 statutory cap to rise to the Executive Level III Our pay surveys indicated that certain higher-level economists, attorneys, management positions, and specialists would warrant salaries above GS- 15, step 10. This authority would enable GAO to compensate these skilled professionals and managers up to Executive Level III when justified, thus aiding GAO in its recruitment and retention efforts. This authority is similar to flexibilities exercised by other agencies. For example, the Federal Deposit Insurance Corporation and other agencies concerned with financial matters are not subject to the GS-15 cap. The Departments of Defense and Homeland Security likewise have the ability to pay their staff more than this limit. If this authority is granted, GAO would use its increased pay flexibility only when justified by pay surveys or other compensation data. Allow GAO to incur recruiting expenses for meals and related expenses GAO's work requires skilled professionals for whom GAO must compete with leading private sector and public organizations. GAO would like the ability to incur recruiting expenditures for meals and related expenses. This small, but important, step would enhance GAO's effort to attract top talent. At this time, both the Department of Defense for recruiting military members (10 U.S.C SS520c) and the Coast Guard (14 U.S.C. SS468) have similar provisions. We would use this authority frugally. Achieve equal footing regarding voluntary separation incentive payments (VSIP) The law authorizing GAO to provide VSIPs requires GAO to make a substantial payment to the retirement fund--no less than 45 percent of an employee's final basic pay--which renders the flexibility virtually unusable. This contrasts with the flexibility given to the executive branch for VSIPs. While the Department of Defense has agency-specific VSIP authority, and executive branch agencies--with Office of Personnel Management (OPM) approval--have general VSIP authority, in both instances the statutory authority for these programs does not require any payments to the retirement fund for the granting of a VSIP. Removing this requirement would put GAO on an equal footing with other agencies, make VSIPs more practical, and provide an important flexibility to help GAO reshape its workforce should such authority become necessary. Include performance-based bonuses in calculating non-Senior Executive Service and non-Senior Level employees' "high-three" average salary for retirement purposes GAO's performance-based compensation system provides a nonpermanent bonus component for some of our employees. As our employees have pointed out, under current law, they do not get credit for these bonuses when OPM calculates their "high-three" average salary for retirement purposes. The GAO Act would remedy the situation by directing that bonuses be included in the "high-three" calculation. This provision does not apply to Senior Executive Service (SES) and Senior Level employees. Before turning to provisions in the GAO Act related to operational improvements and administrative efficiencies, let me address two important proposals related to employee compensation that--while not included in H.R. 3268--have been under discussion as well. Adopting a "floor guarantee" for future annual pay adjustments We support the adoption of a "floor guarantee" provision for future annual pay adjustments. We first raised a similar concept with Members of the Subcommittee last May. Just last month, our negotiating team introduced the idea to the GAO Employees Organization, IFPTE, which agreed to adopt a floor guarantee as part of the agreement governing 2008 pay adjustments. We were pleased to reach a prompt agreement and believe the floor guarantee reasonably balances our commitment to performance- based pay with an appropriate degree of predictability and equity for all GAO employees. A statutorily based floor guarantee would provide GAO employees with greater certainty about future salary increases and ensure at least pay parity with the executive branch. We support the floor guarantee approach because we believe it will preserve the incentives and rewards of GAO's performance-based compensation system, while ensuring--subject to the conditions explained below--that GAO employees receive an annual increase in their permanent pay that is at least equal to GS across-the- board increase for each locality area. The floor guarantee would ensure that all employees performing at the "meets expectations" level or better would receive an annual adjustment to their basic rate that is at least equal to the total annual increase under the General Schedule (GS) system for the employees' geographic area. The only exceptions would be employees (1) receiving ratings below the "meets expectations" level, (2) participating in development programs under which they receive performance reviews and permanent merit pay increases more than once a year, (3) occupying positions covered by the Federal Wage System, or (4) occupying SES or Senior Level positions. The floor guarantee would be implemented in the following manner. We would continue to apply the system we implemented in 2006, as authorized by GAO's 2004 legislation. Thus, we first would determine for each employee the amount of GAO's annual adjustment and performance- based compensation, which includes both permanent merit pay adjustments and any nonpermanent bonuses. Then, if the sum of the employee's annual adjustment and permanent merit pay is less than the increase the employee would have received under the annual adjustment to the GS in the employee's geographic area, we would increase the employee's permanent pay to equal the increase that would have been received under the annual adjustment to the GS system that year. If an employee receives an additional adjustment as a result of the floor guarantee, the additional amount would be deducted from any bonus an employee would have received. We understand that consideration has been given to including a legislative provision that would compensate GAO employees who did not receive the full base pay increases of 2.6 percent in 2006 and 2.4 percent in 2007. At the invitation of subcommittee staff, we have engaged in fruitful discussions about a reasonable and practical approach should the Congress decide to accomplish this objective legislatively. We appreciate the subcommittee's willingness to consider providing GAO with the necessary legal and funding authorities to address this issue. Resolution of this matter would be helpful and would permit us to move forward on other important human capital initiatives. The GAO Act also contains a number of provisions to promote operational improvements and efficiencies. These include establishing a statutory Inspector General at GAO, providing the Congress with more information on the level of executive branch cooperation received by GAO in the conduct of our work, authorizing reimbursement for certain financial audits, allowing GAO more flexibility in administering oaths, receiving gifts that do not impair our independence, and clarifying financial disclosure requirements. Establish a statutory inspector general The GAO Act would replace our current inspector general (IG) position with a statutory position. GAO supports the IG concept and administratively has created an IG who performs many of the roles of the statutory IGs. GAO's statutory IG would be similar to the statutory IGs in the other legislative branch agencies. Although appointed by the heads of their respective agencies (or by the Capitol Police Board, in the case of the Capitol Police IG), these statutory IGs are provided with independence and autonomy from the heads of their agencies. They conduct and supervise audits and investigations, and they endeavor to prevent and detect fraud and abuse in their agencies' programs and operations. This is the model followed in H.R. 3268 for GAO's statutory IG. Report on executive branch cooperation Although the Comptroller General has certain statutory mechanisms available to aid in conducting GAO audits and investigations, voluntary cooperation of agency officers and employees of audited agencies is essential to the efficiency of GAO's work. The GAO Act includes two new reporting requirements to provide more transparency related to the level of cooperation GAO is receiving from audited agencies. The first would require an annual report card on the overall cooperation of federal agencies in all aspects of GAO's work, including any unreasonable delays in making personnel available for interviews, providing written answers to questions, granting access to records, providing timely comments on draft reports, and responding appropriately to report recommendations. The second reporting requirement would require that the Comptroller General inform the Congress as soon as practicable regarding specific impediments, such as when an agency or other entity does not make personnel available for interviews or does not provide written answers to questions. Obtain reimbursement of certain financial audit costs The GAO Act also includes a provision to enable GAO to be reimbursed for the financial audits it performs that, in the first instance, are the specific responsibility of an executive branch agency. Since 1997, the Comptroller General has elected to exercise his statutory discretion to audit the financial statements of the Internal Revenue Service and the Schedule of Federal Debt, issued by the Bureau of the Public Debt, in lieu of the Treasury IG or an independent Certified Public Accountant hired by the IG. As a result, the Department of the Treasury has received these audit services at no cost and without reimbursing GAO. This legislation would require, beginning in fiscal year 2009, any executive branch agency covered by the Chief Financial Officers Act (CFO Act) and Accountability for Tax Dollars Act for which GAO elects to audit financial statements or related schedules to reimburse the Comptroller General for the cost of performing such audits. Such payment would be consistent with the principle that agencies should pay for financial statement audit services, as they otherwise must when the audit is conducted by their IGs or independent contracted auditors. This principle already has been applied to reimbursements made to GAO by the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, as well as other government corporations for financial statement audits conducted by GAO under separate legal authorities. Provide GAO with greater flexibilities in administering oaths Currently, the Comptroller General is authorized to administer oaths to witnesses when auditing and settling accounts. Although in 1921, when the Congress established GAO, auditing and settling accounts represented the bulk of our work, that is not the case today. The Comptroller General has been called upon to perform many other audit, investigative, and adjudicative roles for the Congress. These roles periodically raise situations involving, for example, potential criminal or ethical violations, or conflicting testimony or assertions of material and sensitive subjects. In such situations, the ability to administer oaths would be a useful and important tool for the Comptroller General to accomplish his work for the Congress. The new authority is not expected to be widely used or to have broad impact. Give GAO the same gift authority as other agencies Under the GAO Act, the Comptroller General would receive the same authority presently available to many agency heads to aid them in accomplishing their mission. Specifically, the Comptroller General would be authorized to accept and dispose of gifts given for the purpose of aiding and facilitating the work of the office. To implement this authority, we would promulgate regulations to ensure that no conflict or appearance of a conflict would arise when accepting any gifts. GAO is seeking a revision to the law regarding the financial disclosure requirements of its employees to address an unintended result of GAO's revised pay system that vastly increased the number of employees who must file a public financial disclosure report. Under GAO's new pay system, GAO employees no longer receive severable locality pay adjustments, as compensation differences in local markets are already taken into account in setting the pay ranges for GAO's various locations. The inability to exclude amounts formerly attributable to locality pay has roughly doubled the number of GAO employees who must file a public disclosure report. This amendment would remedy this situation by deducting these amounts from employees' annual rate of pay for purposes of determining who must file a public financial disclosure report. This would substantially reduce administrative burden while assuring that GAO's senior employees remain required to file a public financial disclosure report. The employees who no longer would be required to file a public report would still be required to file a confidential financial disclosure report for review within GAO under GAO's ethics rules. In the draft bill that we transmitted to the committee last July, there were a number of provisions related to the Office of the Comptroller General and the positions of Comptroller General and Deputy Comptroller General. These provisions are also contained in the GAO Act, as introduced by Chairman Waxman. While we recognize the prerogative of the Congress to address these issues, we believe they should now be placed in abeyance pending confirmation of a new Comptroller General. As you know, on September 19, 2007, our Band I and Band II Analysts, Auditors, Specialists, and Investigators voted to be represented by the International Federation of Professional and Technical Engineers (IFPTE) for the purpose of bargaining with GAO management on various terms and conditions of employment. GAO management is committed to working constructively with employee union representatives to forge a positive labor-management relationship. Since September, GAO management has taken a variety of steps to ensure it is following applicable labor relations laws and has the resources in place to work effectively and productively in this new union environment. Our efforts have involved: postponing work on several initiatives regarding our current performance delivering specialized labor-management relations training to our Band III, Band III-equivalent, SES, and Senior Level staff; establishing a new Workforce Relations Center within our Human Capital Office that is responsible for providing employee relations and labor relations advice and services to GAO management and leadership; hiring a Workforce Relations Center director, who also serves as our chief negotiator in collective bargaining deliberations. In addition, we routinely notify union representatives of meetings that may qualify as formal discussions, so that a representative of the GAO Employees Organization, IFPTE, can attend the meeting. We also regularly provide the GAO Employees Organization, IFPTE, with information about projects involving changes to terms and conditions of employment over which the union has the right to bargain. As mentioned earlier, we were pleased that GAO and the GAO Employees Organization, IFPTE, reached a prompt agreement on 2008 pay adjustments. The agreement was overwhelmingly ratified by bargaining unit members on February 14, 2008, and we have applied the agreed-upon approach to the 2008 adjustments to all GAO staff, with the exception of the SES and Senior-Level staff, regardless of whether they are represented by the union. The agreement embodies the floor guarantee described earlier in this statement. Recruiting, rewarding, and retaining a high-performing diverse workforce is critical if GAO is to successfully carry out its mission in support of the Congress. As you know, an effective GAO requires a first-rate workforce that is representative of our society and steeped in a wide variety of disciplines that can gather the facts and develop innovative solutions to both old and new problems challenging the federal government. Meeting these challenges requires top leadership commitment, sustained effort, and a focus on continuous improvement. For example, we enhanced our professional development programs for entry level staff; initiated a formal agencywide mentoring program; and continue our strong support for flexible work schedules and teleworking to help GAO employees balance the demands of work and home. GAO's two most recent testimonies before this subcommittee outlined many other support measures and safeguards in place to help ensure fair and equitable treatment of all employees. As circumstances warrant, we also are committed to studying areas in depth where we have reason to believe that actions and improvements are needed. One such example is GAO's decision in August 2007 to contract with the Ivy Planning Group (Ivy) for an independent assessment of differences in the averages of African-American Analysts' performance compared with white Analysts and to provide the Ivy team with complete access to relevant data and staff. Shortly after the contract award, we provided Ivy with all requested data on appraisals; employee demographics; employee education and skills; and information on GAO's performance management, pay, development, and recruitment programs. Further, in response to additional Ivy requests after they conducted employee and management interviews and focus groups, we provided information related to hires and separations, employee feedback scores, and exit survey results. We tasked Ivy with reviewing African-American and white Analysts' performance appraisal data from 2002 through 2006--which was the data available at the time Ivy's study began. In addition, we charged Ivy with assessing and comparing the skills, assignments, engagement roles, training, educational attainment, and recruiting practices at GAO for African-American and white Analysts, as well as with identifying best practices internally and externally that might enhance GAO's performance management systems and assist us in reducing any gaps. Ivy has been asked to recommend further steps that GAO can take to ensure fair, consistent, and nondiscriminatory application of GAO's performance management system. Ivy has not yet finished its analysis and is not scheduled to issue a final report until April 2008. We are looking forward to receiving the final report and its recommendations. We will keep this subcommittee and other interested parties informed as we address the recommendations contained in this final report. As we implement necessary improvements to address this issue, as well as others, we are fortunate to have a solid foundation upon which to build. For example, while we missed a few of the targets we established, our employee feedback survey scores, as shown in appendix I, for our "people" measures on staff development, staff utilization, leadership, and organizational climate have remained relatively stable even in a period of significant change. Further, we are proud that GAO was named second among large agencies across the federal government in the 2007 ranking of best places to work, which was issued by the Partnership for Public Service and the Institute for the Study of Public Policy Implementation at American University. In addition, when results were analyzed by demographic groups, GAO ranked second among female, African- American, and Hispanic employees. This overall positive work environment is one of many reasons GAO's dedicated and talented workforce is able to effectively serve the Congress and produce solid results for the American people. Last fiscal year, our work contributed to hundreds of improvements in government operations and benefits, as well as $45.9 billion in financial benefits or a $94 return for every dollar the Congress invested in us. We also contributed to over 270 congressional hearings and provided hundreds of valuable products to assist the Congress on topics as wide ranging as food safety, border patrol, and tax compliance. In closing, I want to reiterate our appreciation for the subcommittee's consideration of these legislative proposals to strengthen GAO. We look forward to continuing our constructive dialogue with the subcommittee on these and other issues in the future. Thank you for the opportunity to share our views. Mr. Chairman, I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. Since fiscal year 2004, we have collected data from our client feedback survey on the quality and timeliness of our products, and in fiscal year 2006, we began to use the independent feedback from this survey as a basis for determining our timeliness. CN/A indicates that the data are not applicable because we did not collect it from our client feedback survey this period. Our employee feedback survey asks staff how often the following occurred in the last 12 months: (1)my job made good use of my skills, (2) GAO provided me with opportunities to do challenging work, and (3) in general, I was utilized effectively. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Today's testimony discusses several important topics: (1) provisions of H.R. 3268, the GAO Act, that would bolster our ability to attract and retain a highly skilled and diverse workforce needed to serve the Congress and provide for operational improvements and administrative efficiencies; (2) steps we are taking to establish and maintain a constructive working relationship with the GAO Employees Organization, International Federation of Professional and Technical Engineers (IFPTE); and (3) my commitment to ensure fair and equitable treatment for all segments of our diverse workforce, as reinforced by our commissioning of a study of various performance assessment issues related to African-American Analysts at GAO. The GAO Act contains several distinct and critical components. A number of provisions are designed to benefit our employees and to provide a means to continue to attract, retain, and reward a top-flight workforce, while other provisions are aimed at helping us improve our operations and increase administrative efficiencies. We ask for Congressional support of these measures and have outlined each of them below. On September 19, 2007, our Band I and Band II Analysts, Auditors, Specialists, and Investigators voted to be represented by the International Federation of Professional and Technical Engineers (IFPTE) for the purpose of bargaining with GAO management on various terms and conditions of employment. GAO management is committed to working constructively with employee union representatives to forge a positive labor-management relationship. Since September, GAO management has taken a variety of steps to ensure it is following applicable labor relations laws and has the resources in place to work effectively and productively in this new union environment. Our efforts have involved: (1) postponing work on several initiatives regarding our current performance and pay programs; (2) delivering specialized labor-management relations training to our Band III, Band III-equivalent, SES, and Senior Level staff; (3) establishing a new Workforce Relations Center within our Human Capital Office that is responsible for providing employee relations and labor relations advice and services to GAO management and leadership; (4) hiring a Workforce Relations Center director, who also serves as our chief negotiator in collective bargaining deliberations. In addition, we routinely notify union representatives of meetings that may qualify as formal discussions, so that a representative of the GAO Employees Organization, IFPTE, can attend the meeting. We also regularly provide the GAO Employees Organization, IFPTE, with information about projects involving changes to terms and conditions of employment over which the union has the right to bargain. We are pleased that GAO and the GAO Employees Organization, IFPTE, reached a prompt agreement on 2008 pay adjustments. The agreement was overwhelmingly ratified by bargaining unit members on February 14, 2008, and we have applied the agreed-upon approach to the 2008 adjustments to all GAO staff, with the exception of the SES and Senior-Level staff, regardless of whether they are represented by the union. Recruiting, rewarding, and retaining a high-performing diverse workforce is critical if GAO is to successfully carry out its mission in support of the Congress. An effective GAO requires a first-rate workforce that is representative of our society and steeped in a wide variety of disciplines that can gather the facts and develop innovative solutions to both old and new problems challenging the federal government. This overall positive work environment is one of many reasons GAO's dedicated and talented workforce is able to effectively serve the Congress and produce solid results for the American people. Last fiscal year, our work contributed to hundreds of improvements in government operations and benefits, as well as $45.9 billion in financial benefits or a $94 return for every dollar the Congress invested in us. We also contributed to over 270 congressional hearings and provided hundreds of valuable products to assist the Congress on topics as wide ranging as food safety, border patrol, and tax compliance.
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Since the first public 2-year college opened more than 100 years ago, community colleges have experienced considerable change in their purpose and mission. They have expanded beyond their original academic or vocational focus to meet a wide variety of educational, economic, and social needs. Community colleges have kept their "transfer function," preparing students for 4-year institutions, while assuming a role in occupational skills training and adult basic education. With open admissions and low tuition policies, community colleges serve the needs of a diverse student body, ranging from people without any type of educational credential to those with advanced academic degrees. Between 1980 and 2000, the number of community colleges grew about 14 percent with enrollments increasing about 32 percent; enrollments are projected to increase about 14 percent from 2001 to 2013. According to data compiled by NCES, community college students are more likely than 4-year college students to be 24 years of age or older, not enroll directly after high school, attend part-time and work full-time while enrolled, be financially independent for federal financial aid purposes, have dependents, be a single parent, or not have a high school diploma. Community colleges and technical schools have a wide variety of program types from which to draw. The programs include traditional academic courses for students intending to obtain an associate degree or transfer to a baccalaureate-granting institution as well as remedial education to bring students to college-level proficiency and basic skills training for people who want to improve their employability or pass the General Educational Development examination. Separate from these program types, other programs offer credit and noncredit occupational, professional, and technical training leading to degrees, certificates, licenses, or diplomas for new and existing workers; training developed for specific employers; and other programs to meet the personal and professional interests of the local community. Such training can range from a 2-year program that prepares students to take a certification test to single, short-term introductory courses in a subject such as introduction to the Internet. Community colleges and technical schools offered a mix of credit and noncredit education and training programs that served to help students transition from high schools to postsecondary institutions, prepare people for college-level learning, and provide new and existing workers with new or upgraded job skills. While the education and training options are many, the primary focus of schools and students remains academic credit programs that may lead to a degree, credential, or transfer to a 4-year institution. Noncredit training is substantial at some schools, however, and most colleges and schools offer contract training that can be customized for employers seeking new or upgraded skills for their employees. The majority of community colleges and technical schools responding to our survey reported offering a wide range of academic and training programs in addition to their college credit curriculum. Nearly all schools reported offering two types of credit programs--those that lead either to a 2-year degree or transfer to a baccalaureate-granting institution (93 percent), and those that lead to an occupational, professional, or technical credential (96 percent). Each of the four types of noncredit programs was offered by at least 61 percent of the schools that responded to our survey. These programs provided skill proficiency ranging from better academic preparation to training that leads to an occupational license or certificate (see fig. 1). Some officials we talked with during site visits indicated that states and colleges consider occupation projections when establishing training programs. Two states we visited had strategies to help guide schools in establishing programs that address the needs of local businesses and the workforce. Florida, for example, created a targeted occupations list to guide program offerings at community colleges. Colleges may offer programs from the list without obtaining special permission or review from the state. In Washington State, community college officials said that colleges proposing new professional or technical programs must show that the estimated output of the proposed program along with similar programs statewide does not exceed the projected employment need. Our survey data show many schools offer programs in occupations with projected growth. Schools reported that the most frequently offered fields of study, whether offered for credit or noncredit, were in the areas of health, business, and computer/information technology. According to Department of Labor projections, these three fields should experience high growth in employment. Credit programs were the most likely programs to be offered by the 758 community colleges and technical schools that responded to our survey and they were also the program areas with the greatest median number of enrolled students. While students were often enrolled in more than one type of program, the median percent of students enrolled in academic credit programs was 49 percent, and the median percent of students enrolled in occupational, professional, or technical training programs for credit was 33 percent. The median percent of students enrolled in five noncredit programs ranged from 1 to 14 percent. (See fig. 2.) Most community colleges and technical schools made their credit curriculums available to high school students through transition programs that link secondary and postsecondary academic and vocational education. Among schools responding to our survey almost all community colleges and technical schools were involved in at least one of three such programs: Over 90 percent of schools participated in dual or concurrent enrollment programs that allowed high school students to attend college-level classes and earn both high school and college credit. Nearly 75 percent of schools had "Tech-Prep" programs that consist of 2 years of high school and 2 years of higher education or an apprenticeship program leading to a credential in specific career fields such as welding or accounting. Slightly less than half of schools participated in school-to-career programs that link the high school with the business community to improve student transitions to work. At the schools we visited, the demand for these programs could be seen in the size of the enrollments. Concurrent enrollment at one community college in Texas, for example, included more than 1,400 high school students in spring 2002 and was expected to exceed 1,800 the next fall. These students could earn up to 1 year of college credit prior to high school graduation. A community college in Washington State with a total headcount enrollment of 39,020 was serving 816 high school students under a dual credit program in the 2002-03 academic year. While schools reported higher student enrollment in credit courses overall, at some schools large proportions of students were enrolled in noncredit programs. Figure 3 shows the relative number of students enrolled in four types of credit and noncredit programs in the fall term of 2002, as reported by the surveyed schools. Noncredit programs offer various benefits to schools and employers. School administrators have found that noncredit courses allow them to address shifts in local labor markets, often in a short time. They can develop and deliver noncredit courses more quickly than credit courses because noncredit courses have a less complicated review and approval process. Schools may use noncredit courses as a transition to adding or deleting programs from the curriculum. In Florida, for example, a community college official said the college collaborated with a local hospital to develop a course for interpretive services that train intermediaries to work between English speaking staff and foreign language patients. The college started the course as noncredit with the view of later converting the course to credit if interest and enrollment grew. In contrast, declining numbers of students in a real estate program led the college to change it from credit to noncredit. Benefits to students enrolled in noncredit programs often include low or no tuition and fees, simpler enrollment procedures, less formal classroom settings, and more flexible class schedules. Noncredit education helps students wanting to upgrade skills, retrain for a new career, prepare for a licensing exam, or pursue vocational interests. An administrator at a North Carolina community college noted that many noncredit courses are intended for students who do not want or need a degree--or another degree. For some people, completion of a few short-term noncredit courses serves as a transition to the credit academic or occupational pathway that leads to a degree or certificate. Perhaps one of the biggest benefits of noncredit programs is to provide transitional education for people who leave high school unprepared for college-level programs. Community colleges, with their open admissions policies, are a prime source of instruction for the great number of students needing remediation. Overall, more than a dozen states estimated that half of students entering community colleges required some type of remedial education, according to a state survey conducted by the Education Commission of the States in 2001. The remaining 14 states providing such data estimated the proportion of entering students needing remediation ranged from a low of 10 to a high of 49 percent. States report continuing demand for remedial education. Washington State, for example, reported in 2004 that about half of students entering community colleges and technical schools within 3 years of high school take at least one remedial course, most often in math. One other type of noncredit program--contract training--is treated separately here because many colleges administer their contract training separately from other college programs, and less may be known about it. Contract training programs typically offer flexibility and responsiveness in meeting the needs and schedules of trainees and their employers. In consultation with the business or organization, the school may provide an existing or specially created course, hold the training at the worksite or on campus, and use existing faculty or hire instructors. Training may focus on management, computer, language, customer service, or any other subject that an employer considers important to improving its workforce. More than three-quarters of schools responding to our survey offered contract training in the 2002-03 academic year. Schools responding to our survey reported serving a total of over 1 million trainees through contract training during the 2002-03 academic year, with a median of 982 trainees per school. More than half of the reported contracts were with private companies, but schools also contracted with government and nonprofit agencies. (See fig. 4.) Contract training was provided to employers with 100 or fewer employees about one-quarter of the time. (See fig. 5.) A workforce development expert we spoke with said that larger employers are more likely to provide the minimum class size that community colleges need to make customized training financially viable. Community colleges and technical schools have pursued contract training for such reasons as the following: to meet the training needs of local employers, to cultivate potential employers for their students, and to develop an additional revenue source. However, contract training presents an entrepreneurial challenge to community colleges and technical schools since employers are free to choose other training sources, including in- house instructors, private contractors or consultants, 4-year colleges, or other community colleges. This competition provides an incentive for community colleges to develop networks among local employers and market their training services. For example, a community college administrator in Florida stressed the importance of partnerships with local businesses and chambers of commerce in identifying potential clients. States have historically contributed the largest share of funding for public community colleges compared with other public and private funding sources. State funding policies generally differ among programs, however, in that states often provide less funding to support schools' noncredit education and training programs. Overall the share of federal funding to public community colleges has been stable, but comparatively small. The level of federal funding each school receives generally depends on participation in a number of grant programs and may flow directly to schools or indirectly through grants to states or other entities. State funding has been a major source of revenue for public community colleges for years. Data collected by the National Center for Education Statistics show that the share of their revenue from state governments has remained relatively stable between 40 and 45 percent of all revenue from 1992-93 through 2000-01, the latest year that published NCES data are available. As figure 6 shows, states provide about double the amounts received from student tuition and fees and local governments, which are the next two largest revenue sources. Every public community college system in the country receives some level of state support. Survey results reported by the Education Commission of the States in 2000 showed that 29 states used funding formulas to determine the amount to be appropriated for community colleges as a whole, the amount to be distributed to each college, or both. The primary elements used in the state formulas were enrollment, space utilization, and comparison with peer institutions. Community colleges receive less funding for noncredit academic and occupational training programs than for credit programs for two main reasons. First, less than half of all states, according to national surveys conducted by the Education Commission of the States and the National Council for Continuing Education and Training, fund noncredit programs at community colleges. Second, most of those states that do provide funding for noncredit programs based on numbers of full-time equivalent students provide funding at a lower rate-generally 50 to 75 percent of the rate provided for credit programs. Our survey responses indicated that states often provided lower levels of funding for courses offered without college credit in three areas--basic skills; noncredit occupational, professional, and technical training; and contract training. Nearly 40 percent of schools responding to our survey reported receiving less state funding for basic skills courses (Adult Basic Education, English as a Second Language, and General Educational Development) compared with funding received for credit courses (see fig. 7). A somewhat lower percentage of schools reported receiving about the same or higher level of state funding for these courses. Schools often rely heavily on state and federal funding sources to support their basic skills programs, as these developmental courses are often offered at little or no cost to students in order to increase accessibility to all populations. However, increased demand for such services has created challenges for schools in states such as Texas, where state funding for adult education and literacy has been insufficient to meet current and growing demand for these services, according to a 2003 state report. Nearly two-thirds of community colleges and technical schools responding to our survey reported receiving state funds for noncredit occupational, professional, or technical training courses, while nearly one-fifth reported that they were not permitted to use state funds to support these training courses. As shown in figure 8, of the schools that did receive direct state funding, over half reported receiving lesser amounts for these noncredit training courses than courses offered for credit. About one-third of schools received the same level of state support for credit and noncredit occupational programs. Lower levels of state funding for noncredit training courses provided both challenges and benefits to schools, according to college officials. An official from the North Carolina Community College System said that because the state funds noncredit occupational programs at 75 percent of credit programs, schools face challenges in operating training programs in areas (such as biotechnology) that have high demand among local employers but also higher operating costs in terms of teacher salaries and equipment. On the other hand, a representative from a community college in North Carolina said that lower state funding for noncredit programs encouraged the school to charge tuition at a level that would make the program self-supporting, providing an additional revenue stream as schools in this state are allowed to keep tuition received instead of returning it to the state. Nearly two-thirds of community colleges and technical schools responding to our survey reported receiving state funds to defray costs of delivering employee training under contract to businesses, government entities, or other employers, as shown in figure 9. For the majority of schools (54 percent), the state funded only a portion (about half or less) of their contract training costs, while a few (11 percent) received state funds covering all or most of their costs in providing contract services to customers. States we visited funded contract training at community colleges differently from their other academic and training programs. Some states had established separate grant programs for this purpose. Florida, for example, funds contract training primarily through two state grant programs. The first of these--the Quick Response Training Program--is designed to retain and attract businesses creating new high-quality jobs. A representative from one Florida community college said that the college used a Quick Response Training grant to prepare a labor pool as an incentive for DHL, an express shipping company, to relocate to the county. The second program--the Incumbent Worker Training Program--is targeted to maintain the competitiveness of existing businesses by upgrading employee skills. Since their inception in 1993 and 1999, respectively, these programs have funded training for over 100,000 employees across the state. In North Carolina, the state funds contract training at community colleges for companies creating 12 or more new jobs in a 1-year period through the New and Expanding Industry Training Program, first established in 1958. During fiscal year 2001-02, this state-funded program served nearly 15,000 trainees. In addition, the state's Focused Industrial Training program allows industries related to manufacturing, computers, and telecommunications to upgrade employees' technological skills. State funding under this program allowed community colleges throughout the state to train more than 10,000 employees of over 750 companies during fiscal year 2001-02. The federal share of public community college funding has been fairly stable over time, but relatively small compared with other funding sources. Excluding federal student financial aid, federal funding provided about 5 percent of total public community college revenue between 1992-93 and 2000-01 as previously shown in figure 6. These revenues are provided through a number of federal programs operated by various agencies, including the Departments of Education and Labor. However, information on the extent that community colleges receive federal funds through each of these programs is limited at the federal level. While some funds-such as those available under Title III of the Higher Education Act---are provided directly from federal agencies to schools, other funds--such as those under the Workforce Investment Act--are provided to states that subsequently determine whether community colleges or other entities will receive funding. There are no clear federal requirements to report this information back to the federal agency--the Department of Labor-- distributing these state-based grants. We surveyed community colleges and technical schools to determine the level of federal support through each of nine different programs. Our results, however, are not comprehensive because only 71 percent of schools responded to our survey, and of those schools--between 22 and 41 percent of respondents--did not provide data for individual federal funding sources. What our survey results did show was that these nine programs provided a minimum of nearly $700 million, or about 4 percent of total revenues, to the schools that reported receiving funds. As shown in table 2, less than 30 percent of federal funds from these 9 programs were provided directly to community colleges; the rest was provided indirectly through the states. Community colleges and technical schools that responded to our survey, on average, each received funds from three of these nine federal sources. Community colleges and technical schools reported considerable differences in the amounts received under each of the nine different federal programs. Colleges and schools reported receiving the least amount of median funding from the Vocational Rehabilitation program (median of about $40,000) and the most median funding from programs under Title III of the Higher Education Act (median of over $350,000). Overall, seven of the nine programs provided a median of under $200,000 to the one-third or less of colleges and schools responding to our survey that reported receiving revenue from these programs. Most community colleges and technical schools responding to our survey have systems in place to measure education and employment outcomes for students enrolled in at least some programs, but differences in how these schools and states measure and report such data preclude using them to report nationally on the proportion of community college and technical school students who graduate, transfer to 4-year institutions, pass licensing examinations, or gain employment. Likewise, while several federal programs each have a methodology to collect outcomes such as graduation rates from schools, this methodology is often applied to relatively few students and, therefore, the results may not represent outcomes for students nationwide. The best national outcome data, which stem from studies conducted by the National Center for Education Statistics, show that between half and two-thirds of community college students seeking an academic credential were successful in doing so or in transferring to a 4-year institution within 6 to 8 years of enrolling in community college programs. Almost all community colleges and technical schools responding to our survey developed some type of student education or employment outcome measures for their students, but they most frequently collected such data for students enrolled in for-credit academic and occupational, professional, or technical training programs. For example, as shown in table 3, over half of community college and technical schools responding to our survey tracked both education and employment outcomes for both types of for-credit programs, but only about a sixth of community colleges and technical schools tracked these data for noncredit occupational, professional, or technical training programs. To some extent, the difference in community colleges' and technical schools' data collection for credit and noncredit programs reflects the extent to which such data are needed to meet federal and state reporting requirements. For example, a community college official in Oregon said that his community college collects and reports student completion and graduation rates for credit courses to meet eligibility requirements for participation in federal student aid programs, but the school is less likely to collect such information for noncredit courses. In the absence of specific federal requirements to collect and report outcome data, some states have developed outcome measures for noncredit programs, but these outcome measures may differ from those used to measure credit programs. Community college officials from North Carolina, for example, said that most student outcome measures, including those required by the state, are focused on credit courses, and the success of noncredit programs is measured by conducting satisfaction surveys of businesses whose employees have attended classes. While less than half of community colleges and technical schools measured outcomes for noncredit occupational, professional, or technical training programs, they were much more likely to measure outcomes for students enrolled in noncredit remedial courses (such as mathematics, English, or reading) or basic skills courses (such as English as a Second Language). As table 4 shows, community colleges and technical schools were more likely to report education outcomes for students, such as enrollment in college-level programs and degree attainment, than outcomes related to employment and wages. Community colleges and technical schools used several different methods to collect education and employment data for students who had been enrolled in academic and occupational, professional, or technical training programs but, as table 5 shows, relied most heavily on student self- reported data obtained through follow-up surveys for each type of program. Many community colleges and technical schools supplemented this data source for education and employment outcomes by obtaining data from institutions students had transferred to and, to a much lesser extent, tracking unemployment insurance wage data. While many community colleges and technical schools reported measuring both education and employment outcomes through student surveys, one study showed that the specific performance measures that individual states require their schools to report on differed substantially from each other. The Education Commission of the States reported in November 2000 that 27 states required community colleges to report on performance measures and indicated that each state required schools to use a different set of measures. While 19 states had no performance measures in use or under development, others used more than 30. The most common performance measures (rates for graduation, certificates and degrees awarded, transfer to 4-year institutions, and job placement) were required in only 16 or 17 states. While methodological differences preclude aggregating performance data for national use, 6 states we visited or contacted required community colleges to report on specific performance measures. The Texas Higher Education Coordinating Board, for example, collected information on student pass rates from agencies and professional organizations responsible for administering 45 licensure/certification examinations, including aircraft mechanic, court reporter, and nuclear medicine technician. These licensing examination pass rates were used as part of the Board's overall assessment of the effectiveness of vocational education programs at community and technical colleges in the state. Similarly, for 15 years the North Carolina Community College System has annually published school performance measures for purposes of accountability and performance funding and for use in evaluating the College System's strategic plan. In February 1999, the North Carolina Board of Community Colleges adopted 12 performance measures for accountability, including pass rates on licensure and certification examinations, employment status of graduates, pass rates of students in developmental courses, as well as employer satisfaction with graduates. The federal government has some reporting requirements for measuring education and employment outcomes across schools and states, but these requirements sometimes pertain only to participants in a federal program and results may not be nationally representative of all community college students and schools. For example: Postsecondary institutions eligible for federal student aid are required to disclose completion or graduation rates and transfer rates of first-time, certificate- or degree-seeking, full-time students who begin their studies in the fall term. These data are collected annually by the National Center for Education Statistics through its Integrated Postsecondary Education Data System. Outcome data from community colleges and technical schools that do participate in this annual survey are not representative of student outcomes as a whole because most students do not fall under the reporting requirement. For example, in the 1999-2000 school year, only about a third of community college and technical school students attended school full-time. A community college in Washington, for example, estimated that less than 20 percent of students who entered school in fall, 1996, were included in the IPEDS reporting requirements. The Carl D. Perkins Vocational and Technical Education Act provide grants to states to help provide vocational-technical education programs and services to youths and adults at the secondary and postsecondary level. Under the Perkins Act, states are required to develop measures of student performance such as competency attainment, job or work-skill attainment, and retention in school or placement in a school, job, or the military. Our survey showed that less than three-fourths of community colleges and technical schools reported receiving vocational education funds and would, therefore, be required to report such outcomes. Further, while several states have created data links between unemployment insurance earnings information and community college administrative records to collect earnings data, each state varies in its ability to collect such data because state laws, reporting procedures and higher education agency organizations differ by state. Job training programs under Title I of the Workforce Investment Act require states and localities to track participant performance. The performance measures gauge program results in areas of job placement, employment retention and earnings changes, as well as skill attainment and customer satisfaction. Our survey results, however, showed that only 27, 62, and 63 percent of community colleges and technical schools reported participating in WIA Youth, Adult Education and Dislocated Worker programs, respectively, and are thus subject to these reporting requirements. In addition, as we previously reported, these data are not comparable across states for a variety of reasons. Given the differences in outcome data collection efforts by schools, states, and federal programs, the most reliable data on community college student outcomes flow from national studies conducted by the National Center for Education Statistics. National data are unavailable showing education and employment outcomes for students enrolled in noncredit occupational programs. However, NCES has conducted several studies that provide some insight on the extent to which community college students who are enrolled in accredited academic and occupational programs meet their educational or employment goals. An NCES report issued in June 2003 draws upon three earlier studies to provide data on student outcomes based on representative samples or cohorts of students that attended community colleges. The findings of this report suggest that the national success rate for community college students, as measured by transfer to a 4-year institution or completion of a degree or certificate, is between half and two-thirds of students who enroll with intentions to transfer or earn a credential. For example: Results from one study showed that 51 percent of community college students seeking some type of academic credential either received a degree or certificate (39 percent) or transferred to a 4-year institution (12 percent) within 6 years of initiating their studies. A second study found that for a group of 1992 high school graduates that enrolled in public 2-year institutions by December 1994, 63 percent of students seeking an academic credential either received a degree, certificate, or license (50 percent) or had attended a 4-year institution (13 percent) as of 2000. Both studies asked students who did and did not achieve their goals to assess the impact of their postsecondary education on a variety of labor market outcomes. Results showed that students who completed a degree or certificate were more likely to say that their postsecondary education increased their employment prospects (job opportunities, job responsibilities, or salary) than those who left without obtaining a credential. In 1995, NCES conducted a survey on remedial education in higher education institutions and found that about two-thirds or more of community college students successfully completed remedial courses taken in reading (72 percent), writing (71 percent), and mathematics (66 percent). Our recent survey of community colleges and technical schools found similar results, as shown in table 6, for both remedial and three types of basic skills courses. Community colleges and technical schools are playing an important role in helping to build and sustain the U.S. workforce. In the coming decade, this role may take on greater importance as both the demand for educated and trained workers and the number of Americans needing additional education and training to escape poverty continue to increase. These institutions can adapt quickly to changing local economic needs, in part, through noncredit programs and contract training that offer both individuals and employers an array of education and vocational experiences needed to support shifting workforce demands. At the same time, these schools are maintaining their position as a critical vehicle for students seeking 2-year degrees or moving on to 4-year institutions. National studies conducted by the Department of Education provide some information about community college student outcomes for those enrolled in these degree programs. However, much less is known about the outcomes of contract and noncredit training initiatives--and because many of these efforts are customized to meet specific local employer needs, national studies may not be the most appropriate methodology. Rigorous, localized research studies may provide information about the extent to which these efforts are addressing the needs of local economies and the employers and workers in them. We provided a draft of this report to the Departments of Education, Health and Human Services, and Labor for their review and comment. The Departments of Education and Labor had no comments on the report. The Department of Health and Human Services provided technical comments, which we incorporated as appropriate. We will send copies of this report to the Secretaries of Education, Health and Human Services, and Labor; to appropriate congressional committees; and to other interested parties. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions or wish to discuss this material, please call me at (415) 904-2272 or Cindy Ayers at (206) 654-5591. In conducting our work, we administered a Web-based survey to all public, regionally accredited, less than 4-year institutions throughout the country; conducted telephone interviews of community college experts and relevant associations; visited 3 states; and interviewed representatives from a fourth state by telephone. We also interviewed officials at the Departments of Education, Health and Human Services, and Labor, and reviewed existing data and literature to gather what is known about community colleges and technical schools, their outcomes and the policies and funding sources that support academic preparation and workforce development at these schools. We relied on the findings of national outcomes studies regarded to be authoritative by researchers and other experts in the field. A social science analyst examined each study to assess the validity and reliability of selected results for use as evidence in this report. We examined descriptive information from the National Center for Education Statistics, including the Beginning Postsecondary Students Longitudinal Study and the Digest of Education Statistics. The American Association of Community Colleges and the Association for Career and Technical Education provided letters of support for our national survey. We conducted our work from May 2003 to August 2004 in accordance with generally accepted government auditing standards. To document the academic preparation and workforce training programs offered by public community colleges and technical schools, the students they serve, the education and employment outcomes of former students in these programs and efforts to measure outcomes, as well as to obtain information on the state policies and federal funds that support schools' workforce development activities, we conducted a Web-based survey of all public, regionally accredited, less than 4-year institutions throughout the country and received a 71 percent response rate. We sent the survey to keyholders of the Integrated Postsecondary Education Data System, and asked them to coordinate responses with school officials most knowledgeable about particular issues raised in the survey. While we did not independently verify the accuracy of the self-reported information provided by these schools, we took a series of steps, from survey design through data analysis and interpretation, to minimize potential errors and problems. We analyzed the survey data by calculating descriptive statistics of community colleges and technical schools. We used 2000-01 data from the Department of Education's Integrated Postsecondary Education Data System to identify the study population. Education administers IPEDS surveys to collect data from all primary providers of postsecondary education. In order to identify our study population of 2-year public community colleges and technical schools from this list, we systematically eliminated the records of institutions that were inactive, that were private, that offered 4-year degrees, and that were not regionally accredited. There were 1,070 institutions that met these criteria and that became our study population. We assessed the reliability of the IPEDS database through a review of related documentation and by conducting electronic checks, and we found it to be sufficient for the purpose of identifying the study population. To identify potential questions, we spoke with numerous researchers as well as officials at organizations relevant to community colleges and technical schools, including the American Association of Community Colleges, Association for Career and Technical Education, Community College Research Center, League for Innovation in the Community College, National Governors Association, National Association of Manufacturers, and the US Chamber of Commerce, among others. During these discussions, we focused on (1) the general categories of programs offered by community colleges and technical schools; (2) various measurements of the extent of a school's offerings in a given program category; and (3) limitations of existing data on community colleges and technical schools and areas for further exploration. We received formal endorsement for our survey from the American Association of Community Colleges and the Association for Career and Technical Education through letters of support to their member institutions encouraging participation in our forthcoming survey. In addition, throughout our survey design, we sought feedback on the questionnaire from community colleges and technical schools themselves, many of which participated in various survey pretests and a full-scale pilot survey test sent to a small random sample of 12 community colleges and technical schools that represented different sizes and levels of state support in November 2003. We conducted the survey between February and May 2004 via the World Wide Web. We sent a link to the survey via e-mail to the IPEDS keyholder at each of the schools. IPEDS keyholders are responsible for responding to the IPEDS surveys. We obtained the e-mail addresses of these keyholders from the IPEDS database. The practical difficulties of conducting any survey can result in nonsampling errors. For example, measurement errors can be introduced if respondents have difficulty interpreting a particular question, if they do not have access to information necessary to answer a particular question, or if they make errors in navigating a Web-based questionnaire. In order to minimize these errors, we conducted in-depth pre-testing of the questionnaire with IPEDS keyholders and their designees. During these pretests, we assessed the extent to which questions and response categories were interpreted in a consistent manner, the length of time needed to complete the survey, and the extent to which respondents had information available to answer our survey questions. In addition to conducting pretests, we performed computer analyses of completed questionnaires in order to identify obvious errors and internal inconsistencies among responses. Depending upon the extent of a particular error, we either corrected responses or deleted responses altogether. Finally, all computer syntax used to both identify inaccurate responses and to calculate summary statistics presented in this report was verified by independent programmers to ensure that it was written and executed correctly. We took several steps to maximize response rates. We sent our study population two follow-up email messages, one on February 26, 2004, and the other on March 8, 2004. Each of these messages contained instructions for completing the survey and contact information to submit questions. We extended the initial deadline from March 12, 2004, to May 7, 2004, in order to allow additional institutions to submit completed questionnaires. Finally, we hired contractors to telephone institutions that had not yet responded between April 6, 2004, and April 13, 2004, to remind them to complete the questionnaire. Of the 1,070 questionnaires sent to our study population, we received 758, for a total response rate of 71 percent. In spite of this overall response rate, many of the questionnaires were incomplete with item response rates ranging from 51 to 100 percent. Because we found evidence of pre-existing differences between respondents and nonrespondents and excessive missing data on some questions, we did not use the survey data to generalize to the entire study population. Rather, our conclusions reflect the responses of those who participated in the survey and provided substantive answers to our questions. We noted in the report the number of responses to any questions with item response rates less than 90 percent. We supplemented our survey data with in-depth information from state officials and community colleges and technical schools in Florida, North Carolina, Texas, and Washington. We chose these states based on recommendations that considered factors such as credit and noncredit course funding, outcome tracking, workforce development efforts, and geographic location. We interviewed a variety of officials from state education and labor agencies in order to understand the unique interplay between community colleges and technical schools and workforce development programs and policies at the state and local levels. We also examined two or more schools in each state, except for Texas where we visited one, basing our decisions on recommendations from community college, technical school, and workforce experts; school enrollment; and locale. In addition, we visited community colleges in four other states-- California, Maryland, Oregon and Virginia--to pretest the survey. In all, we pretested the survey at 14 schools in 6 states across the country, which included a mix of community colleges and technical schools, and an adult education center. Cindy Ayers (206) 654-5591 ([email protected]) Robert Miller (206) 287-4812 ([email protected]) In addition to the individuals named above, Carolyn Boyce, Mark Braza, Ellen Chu, Susan Lawless, Avani Locke, Brittni Milam, John Mingus, Charles Novak, and Stanley G. Stenersen made key contributions to this report.
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The goal of most American workers--a well-paying job--will be increasingly linked to adequate training in the coming years. Such training will be key to competing for the 21 million new jobs the Department of Labor projects will be created in the 2002 to 2012 period. People already in, or seeking to enter, the workforce often turn to the nation's more than 1,100 public community colleges and technical schools to obtain needed skills. Nearly 6 million students were enrolled in for-credit courses in the fall term 2000 and millions more participated in noncredit courses at these schools. GAO was asked to examine: (1) the extent to which community colleges and technical schools are involved in remedial education and workforce training efforts as well as academic preparation activities; (2) how state and federal funding support these academic and training efforts; and (3) what is known about schools' efforts to measure outcomes, including the rates at which students graduate, transfer to 4-year institutions, pass occupational licensing exams, and gain employment. The scope of our review included a Web-based survey of 1,070 public community colleges and technical schools, 758 (71 percent) of which completed the survey. The majority of community colleges and technical schools are offering a broad spectrum of academic and training programs--everything from traditional courses for degree-seeking students to remedial education and contract training customized for individual employers. In addition, 61 percent of schools offer noncredit occupational, professional, or technical training. States have long provided the greatest share of funding for public community colleges between 40 and 45 percent of schools' total revenue, while federal funding, exclusive of student financial assistance, has been much smaller about 5 percent. Most states provide more funding for credit programs than noncredit programs. Most community colleges and technical schools track some education and employment outcomes for their students, but differences in state reporting requirements preclude aggregating these outcomes nationally. However, national studies of representative samples or cohorts of students conducted by the National Center for Education Statistics show that between half and two-thirds of community college students seeking some type of academic or occupational credential succeed in transferring to a 4-year institution or earning a degree, license, certificate, or diploma within 6 to 8 years of initiating studies. GAO's survey indicated that more than half of students enrolled in remedial and 3 types of basic skills courses completed them successfully.
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Almost all Americans have sought the services of SSA at some point in their lives, and for many, their first experience is applying for a Social Security number (SSN). SSA offers a range of services, which includes providing financial assistance to eligible individuals through the following three major benefit programs: Old-Age and Survivors Insurance (OASI) provides benefits to retired workers and their families and to survivors of deceased workers; Disability Insurance (DI) provides benefits to eligible workers who have qualifying disabilities, and their eligible family members; and Supplemental Security Income (SSI) provides income for aged, blind, or disabled individuals with limited income and resources. In fiscal year 2007, these three benefit programs provided a combined total of approximately $613 billion to about 54 million beneficiaries. SSA projects that the benefit payments and number of beneficiaries for the three programs will increase in fiscal years 2008 and 2009 (see tables 1 and 2). Besides paying benefits through these three programs, SSA issues Social Security cards, maintains earnings records, and performs various other functions through a network of field office and headquarters operations using an administrative budget of over $10 billion. SSA's field operations consist of field offices, which serve as the agency's primary points for face-to-face contact, perform a full range of services, including making eligibility determinations for Social Security benefits; Social Security Card Centers, which issue SSNs; Teleservice Centers, which offer national toll-free telephone service; and Program Service Centers, which make entitlement decisions for benefits, as well as assist in answering toll-free calls. Table 3 shows the type of work that is performed by various SSA field components. Field offices, which served approximately 42 million customers in fiscal year 2007, are a vital component for delivering SSA services to the public. Field offices are located in communities across the United States, the Virgin Islands, Puerto Rico, and Guam, and deliver services through face- to-face contact, over the phone, and through the mail. Field offices range in size from large urban offices with 50 or more employees to very small offices in remote areas called resident stations. In August 2007, there were approximately 1,271 field offices and 37 resident stations. Resident stations have more limited services and are staffed by one or two individuals in their homes or in a separate office (other than an SSA field office). Field offices also offer services to the public through about 1,200 contact stations. These stations provide very limited functions and are staffed with one SSA field office employee who travels to certain locations, such as a hospital, once a month. Additionally, SSA has begun using video conferencing to take claims and provide other services to customers in remote locations in North Dakota, Wyoming, and South Dakota. SSA is planning to expand the video network to provide additional sites and services. While SSA field offices take applications and determine if claimants meet basic, nonmedical eligibility requirements for DI and SSI disability claims, state Disability Determination Services (DDS) that are under contract with SSA make medical eligibility determinations for these claims. SSA's Hearing Offices and Appeals Council make decisions on appeals of these determinations. Appendix II describes the functions of each of these entities in the medical disability determination process for DI and SSI claims. DDSs also conduct continuing disability reviews for DI and SSI beneficiaries to ensure that they are still medically eligible for payments. In addition to field offices, SSA offers customers a variety of other options for conducting their business. Individuals may call SSA's toll-free helpline to file for benefits or to obtain general information. They may also use the Internet to file for benefits or visit a Social Security Card Center to request a Social Security card. Figure 1 shows the various options by which customers may conduct their business with SSA. Despite operating with fewer staff from fiscal year 2005 to 2007 and an increased demand for services, field offices largely met work demands; however, staffing reductions may have contributed to some adverse effects. SSA and its field offices used various strategies to manage work demands, such as sharing work among offices, redirecting staff to serve critical needs outside of their usual responsibilities, encouraging customer use of the internet and telephone services, and deferring certain work. Despite these efforts, many field office managers and staff stated that they cannot keep up with their work. Reduced field office staffing may have contributed to customers waiting longer to be served, and customer calls to field offices are not always being answered. These factors may have contributed to a 4 percent drop in SSA's customer satisfaction rating between fiscal years 2005 and 2007. In addition, staff are experiencing high stress levels, lacking sufficient time for training, and facing other adverse effects according to field office managers and staff. Despite a 7.1 percent staffing decline during fiscal years 2005 to 2007, the amount of work that field offices produced decreased by only 2.5 percent. As a result, the average amount of work produced by field office staff increased by 4.9 percent between fiscal years 2005 and 2007 (see table 4). The field office staffing reduction comprised nearly 60 percent of SSA's overall reduction (from 65,112 to 61,594 between fiscal years 2005 and 2007). SSA officials attribute the staffing reductions to inadequate appropriations and are concerned about growth in work required for other federal agencies. Table 5 shows the Commissioner's and the President's budget requests and SSA's final appropriations for fiscal years 2002 to 2008. The table also shows the recent staffing decline. The table does note that SSA received a $500 million budget increase in 2005 to manage the implementation of the Medicare Prescription Drug program and hire associated staff. In addition, other work that SSA conducts on behalf of other federal agencies has grown. For example, new state laws requiring federal government verification of work authorization are resulting in additional work and field office visits associated with the Department of Homeland Security's E-Verify program. Despite the staffing reductions, field offices served are serving a growing volume of visitors. Comparing the first 3 months of calendar years 2006 to 2008, visitor volume increased by almost 450,000 (about 4 percent). SSA field managers and staff told us that they also expect visitor volume to increase with the retirement of the baby boomers. As figure 2 shows, from fiscal years 2005 to 2007, SSA processed more OASI claims; post- entitlement actions (other than for continuing eligibility reviews); enumerations; and Medicare actions. During the same time period, SSA processed fewer DI and SSI claims (nonmedical determinations only); continuing disability reviews; and SSI redeterminations. SSA attributes the high volume of post-entitlement actions to the growth in beneficiary populations. SSA is shifting work among field offices based on their workloads in an effort to increase overall efficiency. If a field office has work demands that it cannot immediately cover, that office can request that some work be transferred to another office. Offices that have a particular expertise in a certain type of work make themselves available, as they can process it more quickly. Field managers told us, however, that sometimes they are reluctant to share work because the office that receives and processes the work receives numerical credit, which helps an office justify a greater staff level for the future. Managers are also using claims processing personnel to fill in as necessary to perform the duties typically done by lower-graded employees, and in some cases, even office managers take on the duties of their employees. Such duties include answering the telephone, providing initial services to arriving customers, processing requests for new or replacement Social Security cards, and conducting some administrative duties. While all field office personnel recognize the need to serve visitors, many also told us that such work is taking away from time spent processing claims and managing the office. SSA is encouraging customers to use automated services to help field offices accomplish their work. However, many field staff said that real gains in the use of automated services will only likely be achieved by future generations of customers. SSA's vision for its "eService" program is that the public, businesses, and government agencies will be able to conduct all business through secure, electronic channels--thereby increasing the efficiency with which the agency can serve the public. SSA reported that in 2007 the public performed 2.9 million electronic transactions, such as applying for disability benefits or requesting a change of address. SSA's electronic services are available to the public over the Internet and by telephone, using the voice recognition capabilities of SSA's toll-free number. While field office staff and managers welcome automated tools that the public can use, some added that relatively few customers use them, and that due to erroneous or missing information in online forms, field staff can lose time having to contact the customers for clarification or more information. While they believe that automated tools should continue to be developed, many managers and staff told us that these tools are not a sufficient to compensate for reduced staffing levels. Finally, with fewer staff available, SSA focused on field office work it considered essential to its "core workloads," such as processing new claims for Social Security benefits and issuing Social Security cards, but deferred other types of work. Field office managers and staff told us that certain post entitlement actions are typically delayed or deferred, when an office is under stress, including changes of address, changes to direct deposit information, and reviews to determine beneficiaries' continuing eligibility for DI and SSI benefits. Reviews of continuing eligibility, however, are key activities in ensuring payment accuracy. SSA estimates that continuing disability reviews yield a lifetime program savings of $10 for every dollar invested, and SSI redeterminations yield a lifetime program savings of $7 for every dollar invested. In recent years, SSA has not been able to conduct as many reviews as it had planned, citing budget limitations and an increase in core work (see fig. 3). When reviews of benefits are delayed, some beneficiaries may continue to receive benefits when they no longer qualify. While delays in these reviews relieve work pressure, some field managers and staff told us that such delays cause future challenges when staff attempt to obtain necessary documentation over multiple years, and overpayments accrue to the point that beneficiaries have difficulty repaying benefits for which they were not eligible. Despite SSA's efforts to manage work with reduced staff, managers responding to a survey conducted in February and March 2007 by the National Council of Social Security Management Associations (NCSSMA) stated that many of them are finding it increasingly difficult to keep up with the work. On average, the managers responding to the survey estimated that they would need a staffing increase of 16.7 percent to provide adequate public service. In the offices we visited, most of the managers also told us that they did not have an adequate number of staff. According to SSA officials, staffing imbalances resulted in a buildup of 1,000 workyears, for work that SSA was not able to complete by the end of fiscal year 2007. SSA projects that the buildup will grow to 4,800 workyears by the end of fiscal year 2009; however, officials said that they are re-evaluating this figure in light of increases in productivity and overtime. Staff reductions may have also led to longer customer waiting times. Between fiscal years 2002 and 2006, the average waiting time to first contact for all customers increased by 40 percent from 15 to 21 minutes (see fig. 4). Nationally, 8 percent of customers--about 3 million people-- waited more than 1 hour, which included 420,000 customers who waited more than 2 hours for service in fiscal year 2007 (see table 6). We also found significant variation in waiting times among field offices for customers without appointments. For example, for customers without appointments, more than 300 offices had average waiting times of less than 10 minutes, while 23 offices had average waiting times that exceeded 1 hour in fiscal year 2007. Further, customers without appointments during that period waited more than 1 hour on average at four of the offices we visited. In contrast, customers at the office in Devils Lake, North Dakota, waited on average for less than 1 minute (see table 9). We found that customers with appointments waited significantly less time than those without appointments. For example, SSA reported that 1,214 offices had waiting times of less than 10 minutes for customers with appointments, while only two had waiting times of more than 1 hour. Insufficient staffing may have also been a factor in poor office phone coverage and other adverse effects on customer service. SSA's 2006 Field Office Caller Survey found that 51 percent of customer calls to 48 randomly selected field offices went unanswered. Because SSA based its results only on customers who were ultimately able to get through to the field offices, the actual percentage of calls that went unanswered may have been higher. In addition, staff at 13 of the 21 offices we visited characterized their phone service as inadequate, while 2 of these offices did not answer their offices' phones at all. Employees we interviewed also cited inadequate telephone service as a common customer complaint at 15 offices. In 2007, officials told us they initiated a pilot program called "Forward on Busy" in 25 field offices to address these deficiencies. Under the pilot, calls receiving a busy signal at field offices are automatically forwarded to a Teleservice Center. SSA plans to expand the pilot to a total of 100 field offices. In addition to poor phone service, staff at some of the offices we visited indicated that they now have less time to spend with customers. This limited time potentially could lead to mistakes and limit the ability of staff to ensure that customers fully understand their options and benefits. These factors may have contributed to a 4 percent drop in SSA's customer satisfaction rating between fiscal years 2005 and 2007. SSA has not established performance standards for customer waiting times and field office telephone service, nor does the agency measure customer service at individual field offices. Without such standards and measures, SSA has no systematic way of evaluating field office performance, or identifying offices that need improvement. While SSA provides field offices with customer comment cards, at 10 of the 21 offices we visited, officials told us they did not use them, and where the cards were available, the results were not always systematically tabulated. Work demands and staffing reductions have increased the pressure placed on the field office staff, resulting in higher stress and lower morale, according to field office staff. We asked 153 SSA employees at the 21 offices we visited to rate the stress that they experienced in attempting to complete their work in a timely manner, and 65 percent of those surveyed reported feeling stress to a "great" or "very great" extent on a daily basis. The stress of expanding workloads and staffing constraints was felt most acutely by the office managers, 74 percent of whom described high levels of stress. At many offices, staff indicated that mounting workload pressures have led to cutbacks in the amount of time allocated for training and mentoring new staff. In addition, managers and staff told us that they often do not have time to take their breaks, including lunch. Some staff told us they feel they are letting down their colleagues and feel guilty about taking time off, regardless of whether they use credit hours or annual leave. While these responses may not be indicative of the opinions of the overall field office workforce, they do suggest that increasing demands placed on SSA staff may be diminishing their job satisfaction, potentially with long-term implications for employee retention. SSA officials acknowledged that growing workloads have seriously compromised agency morale and that they have tried to ease the stress on staff by authorizing the use of overtime. Retirement and disability filings by the nation's approximately 80 million baby boomers are projected to significantly increase SSA's workload, providing additional stress on the field office workforce. SSA estimates a 13 percent rise in claims filed among its three major claims types over the next 10 years, rising from 9.4 million in fiscal year 2008 to 10.7 million in fiscal year 2017 (see fig. 5). A growth of 22 percent in the number of beneficiaries, from about 49.6 million in calendar year 2007 to about 60.5 million in calendar year 2015, is also projected. By 2050, there will be an estimated total of 95.6 million OASI and DI beneficiaries (see fig. 6). SSA's ability to meet its growing workload challenges will be more difficult with the anticipated retirements of many of the agency's most experienced field office workers. Today, 25 percent of all SSA employees are eligible to retire, and that figure will grow to 39 percent in the next 5 years. Based on the agency's projections, 44 percent of today's SSA workforce will retire by 2016. The peak of these retirements began in 2007 and is expected continue into 2009, before starting to decline gradually (see fig. 7). SSA's projections suggest that the ranks of SSA's supervisors will be most affected, with 71 percent eligible to retire in the next 10 years. These will be the agency's most experienced staff, which will mean a loss of decades of institutional knowledge. For 2008 in particular, SSA estimates that it will lose about 2,000 staff to full or early-out retirements. Field office managers and staff at many of the locations we visited stated that it typically takes 2 to 3 years for new employees to become fully proficient. Therefore, staff hired now may not reach full proficiency before the peak of the retirement wave. Also, new hires would benefit from being mentored by veteran employees before the latter retire. As a result of the approximately $150 million that SSA was appropriated above its request in the President's budget for fiscal year 2008, SSA will hire an additional 3,900 staff for operations. This will include 2,350 new hires for regional and field office operations, almost all of whom will go to field offices. SSA officials stated that the increase in staffing will put the agency back at its fiscal year 2005 staffing level. SSA has used a variety of strategies to maintain adequate staffing. SSA offers recruitment, relocation, and retention bonuses to individuals with needed skills and considers employees' private sector experience when computing annual leave. SSA also offers workplace flexibilities to assist workers in balancing work and family. Additionally, SSA uses dual compensation (salary offset) waivers from the Office of Personnel Management (OPM) to respond to emergency conditions and to hire for certain hard-to-fill positions. For example, SSA was granted a waiver to re- employ federal annuitants who retired under an early-out authority to provide relief in areas affected by Hurricanes Katrina and Rita. Further, SSA has developed recruiting efforts that reach out to a broader pool of candidates. For example, SSA began recruiting retired military and disabled veterans in 2002 because of its commitment to helping veterans. SSA currently lacks a plan to address the mounting service delivery challenges that it faces, though officials told us that they are currently working to finalize the agency's Annual Strategic Plan, which is expected to address these issues. We recommended, as early as 1993 and most recently in 2000, that the agency develop a plan to meet its responsibilities in the context of resource constraints and other challenges. At that time, we suggested that the plan take into account changing customer needs and expectations; the views of oversight bodies and interest groups; and other future challenges, such as growing workloads. We also specified that the plan should spell out, for the future, who will be providing what type of services and where these services will be made available. In the absence of this kind of overarching strategy, SSA may be unable to effectively marshal its key resources to meet the challenges described above. Recent staffing declines may have been a factor in reducing field offices' ability to complete all of their work while providing quality customer service. In managing staffing reductions, customers are waiting longer to be served, their calls to field offices frequently go unanswered, certain stewardship activities are being deferred, and staff are stressed. Projected increases in claims for benefits from the nation's approximately 80 million baby boomers and a large retirement wave among SSA's most experienced staff will place additional pressure on field offices, and SSA may find it increasingly difficult to manage without a clear plan for addressing these challenges. SSA is currently working to finalize its Fiscal Year 2008 Annual Strategic Plan. Strategic planning for service delivery and staffing before SSA's workload grows beyond available resources is essential. In a time of budgetary constraints, thinking creatively about service delivery and how best to operate efficiently and effectively will be important aspects of SSA's planning effort. The time for SSA to prepare itself for the future is running out and without a clear direction SSA will not be prepared to meet its service delivery challenges. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the committee may have at this time. For further information regarding this testimony, please contact Barbara D. Bovbjerg at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Blake Ainsworth (Assistant Director), Mary A. Crenshaw, Paul Wright, Matthew Lee, and Charlie Willson. We provided SSA with a draft of our testimony for their comment. In their response, SSA said that the testimony understated the connection between the stress that field offices are under from increased work demands and the agency's funding shortfalls. SSA stated that its current business model is non-sustainable and that past underfunding has forced the agency to shift resources from less visible--though vital--areas to process the most critical workloads. SSA also said that it is using its current strategic plan and operational plan to meet its many challenges. In order for its plans to succeed, SSA stated that it must be properly and timely funded on a sustained basis. In response, we acknowledge the service delivery challenges that SSA faces, and believe that we have fairly characterized field office staffing declines as a significant factor in meeting work demands and the resulting adverse effects. Ensuring that SSA has the resources to meet future service deliver challenges is essential. However, we continue to believe that SSA must employ a more strategic and creative approach to meet these challenges. Social Security Disability: Better Planning, Management, and Evaluation Could Help Address Backlogs (GAO-08-40, Dec. 7, 2007). Social Security Administration: Additional Actions Needed in Ongoing Efforts to Improve 800-Number Service (GAO-05-735, Aug. 8, 2005). SSA Customer Service: Broad Service Delivery Plan Needed to Address Future Challenges (GAO/T-HEHS/AIMD-00-75, Feb. 10, 2000). SSA's Management Challenges: Strong Leadership Needed to Turn Plans Into Timely, Meaningful Action (GAO/T-HEHS-98-113, Mar. 12, 1998). Social Security Administration: Significant Challenges Await New Commissioner (GAO/HEHS-97-53, Feb. 20, 1997). Social Security Administration: Effective Leadership Needed to Meet Daunting Challenges (GAO/HEHS-96-196, Sept. 12, 1996). Social Security: Sustained Effort Needed to Improve Management and Prepare for the Future (GAO/HRD-94-22, Oct. 27, 1993). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Millions of people rely on the services of Social Security Administration (SSA) field offices. In fiscal year 2007, SSA's approximately 1,300 field offices provided service to about 42 million customers. People use these offices to apply for Social Security cards, apply for retirement and disability benefits, establish direct deposit, and a host of other services. While customers may conduct their business using SSA's online, telephone, or other service options, many prefer the personalized contact provided in field offices. Over the last several years, staffing reductions have challenged field offices' ability to manage work, while continuing to deliver quality customer service. To assess how field offices are managing these challenges, GAO was asked to determine (1) the effect that reduced staffing levels may be having on field office operations and (2) the challenges that SSA faces in meeting future service delivery needs. This statement is drawn from GAO's ongoing study on field offices for the committee, which is expected to be issued later this year. To conduct this work, GAO interviewed SSA officials in headquarters, and other components, and analyzed various data on SSA's workloads and other data. In commenting on a draft of this testimony, SSA said that GAO understated the connection between staffing stresses from increased work demands and the agency's funding shortfalls. SSA field offices largely met work demands between fiscal years 2005 and 2007 despite operating with fewer staff and an increased demand for services, but staffing reductions may have had some adverse effects. Field offices were able to minimize the impact of staffing reductions on work because staff productivity increased by 4.9 percent. SSA and its field offices used various strategies to manage its work with fewer staff. Field offices shared work among offices and redirected staff to meet critical needs. SSA also encouraged customers to make greater use of Internet and other electronic services. Additionally, SSA deferred work that it deemed a relatively low priority, such as conducting reviews of beneficiaries' continuing eligibility. Deferring these reviews, means that beneficiaries who no longer qualify for benefits may still receive payments--which may decrease SSA's chances of recovering the erroneous payments. Despite SSA efforts to manage the staffing reductions, customers experienced longer waiting times and more unanswered calls to field offices, according to SSA data. Also, staff reported experiencing high stress levels and insufficient time for training. Growth in claims from the nation's baby boomers and a retirement wave of its most experienced staff may pose serious challenges for SSA if the agency does not have a clear plan. The first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and SSA estimates that retirement and disability filings will increase the agency's work by approximately 1 million annual claims by 2017. To further compound this challenge, SSA projects that 44 percent of its workforce will retire by 2016. Because retirements will occur among the agency's most experienced staff, this will have a serious impact on field offices' institutional knowledge. SSA is planning on hiring an additional 2,350 new employees this fiscal year for regional and field office operations, almost all of whom will go to the field offices. Agency officials stated, however, that it typically takes 2 to 3 years for staff to gain the experience they need to function independently. SSA is using various strategies to recruit new employees to fill knowledge gaps. SSA is finalizing its Annual Strategic Plan which will describe the agency's strategies for addressing these issues.
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SSA conducts periodic reviews called work continuing disability reviews (work CDRs) to determine if beneficiaries are still eligible or are working above the SGA level. While work CDRs can be prompted by several events, most are generated by SSA's Continuing Disability Review Enforcement Operation (enforcement operation). This process involves periodic data matches between SSA's Master Beneficiary Record database and IRS earnings data. The enforcement operation generates alerts for cases that exceed specified earnings thresholds, which are then forwarded to 1 of 8 processing centers for additional development by SSA staff. In fiscal year 2010, the enforcement operation flagged approximately 2 million records of which more than 531,000 were sent to SSA's processing centers and field offices for review. Medical and work-related overpayments in the DI program detected by SSA grew from about $860 million in fiscal year 2001 to about $1.4 billion in fiscal year 2010. Though the true extent of overpayments due to earnings is currently unknown, our review suggests that most of them are related to beneficiaries who work above SGA while receiving benefits. SSA officials estimate that from fiscal years 2005 through 2009, about 72 percent of all projected DI overpayments were work-related, or to beneficiaries who returned to work and were no longer eligible. SSA officials attribute increases in the percentage of overpayments that are work-related during this period to improved detection by its enforcement operation, and to changes in how the agency estimates the overpayment numbers. Agency officials also explained that the approximately half of the increase in overpayment dollars during the 10 year period may be due to the increase in DI program benefit levels. Beyond SSA's estimates, we found that detected overpayments could be even larger than SSA's data reflect because some overpayments have been accidentally removed from SSA records due to manual processing errors. In our current review of 60 work CDR cases, we found two manual processing errors which resulted in overpayments totaling $53,097 being removed from agency records. In one case, staff entered a code to correct an overpayment amount but instead deleted the overpayment entirely. As a result of our detection, SSA officials reentered the overpayment debts into the system and indicated they would proceed with debtor notification and recovery. Because the results of our case review are not generalizable, the incidence of such occurrences is currently unknown and thus the potential impact on total DI overpayments owed by ineligible beneficiaries is not clear. SSA officials said that they do not have a mechanism for detecting, or a process of supervisory review to catch, such errors. A beneficiary's total DI overpayment debt can also increase because of multiple periods of employment. DI beneficiaries may reenter and leave the workforce based on their ability to perform SGA. As a result, a beneficiary could be subject to multiple periods of DI overpayments if he or she does not report increased earnings to SSA in a timely manner, as regulations instruct. In 49 of the 60 cases we randomly selected for review, there was no indication in the file that the individual had reported his or her earnings to SSA, and in 15 of the 60, SSA had detected two or more separate periods of earnings which resulted in overpayments. In one of these cases, the ineligible beneficiary owed SSA a total of $69,976. SSA does not currently have formal, agency-wide performance goals for debt recovery. Specifically, the agency does not have goals for the percentage of DI overpayment debt recovered within the 36 month timeframe as required by its own policy. Under the Government Performance Results Act of 1993 (GPRA), federal agencies are required to establish performance goals to define level of performance and establish performance indicators to be used in measuring relevant outputs, service levels, and outcomes for each program activity. SSA's policy manual (POMS) requires staff to ask for full repayment within 36 months, but the agency has not made this time frame a performance goal. SSA officials said they are currently working to develop debt recovery goals. In the meantime, without agency-wide performance goals for debt recovery, SSA cannot adequately measure its performance or fully leverage and target its resources to recover overpayments from ineligible beneficiaries and reduce the total owed to SSA. Despite a substantial increase in DI debt collections--$340 million to $839 million from fiscal year 2001 through fiscal year 2010--outstanding DI debt grew from $2.5 billion to $5.4 billion during this time, including a $225 million increase in fiscal year 2010. (see fig. 2) Most overpayment debt is collected by SSA through offsets, or the withholding of future DI benefits for which a beneficiary is still eligible. SSA attributes 77 percent of the approximately $839 million of debt collected in fiscal year 2010 to withholding of DI benefits. The amount withheld from benefits to recoup previous overpayments may be negotiated with the debtor and based on a monthly amount the debtor can afford. The remainder of overpayment debt is collected in a variety of ways, including payments by the debtor and return of uncashed DI benefit checks; withholding of other SSA benefits, such as Supplemental Security Income (SSI); or through external collection including federal salary offset, administrative offset (other than against SSA benefits), tax refund offset, and administrative wage garnishment. SSA estimates that only about 11 percent of collections is through external means. Of the 60 cases, 5 were referred for external collection at the time of our review, for a total owed of $79,950, but just $2,478 had been recovered through these methods. SSA does not require supervisory review of repayment plans prior to approval, including those in which repayment periods exceed the recommended 36 months. The agency reported that in fiscal year 2010, the median time to collect a DI overpayment debt in full was 48 months. However, in our review of 60 cases, we found that SSA agreed to some initial repayment plans which will take many decades. We analyzed the initial payment plans established for individuals in these cases and found 42 of the 60 had a payment plan in place, with a median repayment time for all 42 of approximately 34 months. While SSA's POMS require that staff should seek full repayment within 36 months, SSA officials reported that no supervisory approval is needed to exceed the 36 months. Of the 42 cases with a payment plan, 19 had initial plans requiring more than 36 months for payment in full and 7 of these required 20 years or more. Repayment time frames for the 42 cases ranged from less than 1 year to nearly 223 years for a case with a 60-year-old debtor who was paying $10 a month on $26,715 owed. (See fig. 3.) SSA officials told us they are often unable to increase monthly payment amounts and thus shorten repayment time frames because of a debtor's limited income. For instance, in a case we reviewed with an initial repayment plan of 148 years for $44,465 in overpayments owed to SSA, SSA records show the individual earned less than $100 in 2010. In the course of analyzing repayment plans, we found that the ROAR system cannot capture and track overpayment debt scheduled to be collected beyond the year 2049. As a result, the overpayment debt on the agency's books, and reported to the Department of the Treasury for the federal government's consolidated financial statements, is understated to some unknown extent. This ROAR system limitation stems from a program modification used to address the change of the century (Y2K) computer issue, and which extended the debt recovery date in ROAR from "1999" to "2049". Under existing SSA policies and procedures, SSA staff manually remove from the ROAR system the portion of any debt that cannot be collected before the year 2050, and create a reminder in the system to recover that balance beginning in the year 2050. However, because this is a manual process, the intended recovery action could be potentially missed by staff. For example, 3 of the 60 cases we reviewed had a total of $43,285 in overpayments removed from ROAR system records because collection of these payments will occur after the year 2049. Because the results of our case review are not generalizable, we could not determine how many additional disability overpayment cases detected by SSA fell into this category. Unless corrected, more overpayments will likely to continue to be underreported as the years progress. Since bringing this issue to their attention, SSA officials told us that the agency has begun to study this ROAR system limitation and an agency working group will recommend a course of action to correct the problem. SSA officials also reported several initiatives either planned or under way that could improve the recovery of overpayment debt, including charging interest and penalties, offsetting state payments, and eliminating the 10-year limit on making referrals of some debts for external collection. SSA conducts periodic computer matches with wage data from the Internal Revenue Service to independently verify beneficiaries' earnings. However, earnings data provided through the IRS match are often more than a year old when SSA staff begin the work CDR prompted by the IRS data. Managers and staff at the four processing centers we visited cited this delay as a major obstacle to limiting the occurrence and size of overpayments. Our work shows that this has delayed processing of work CDRs. In the 60 cases we reviewed, the earnings data were already between 6 and 26 months old by the time they were available to SSA staff for performing work CDRs. (See fig. 4). While DI beneficiaries are responsible for notifying SSA when they return to work as a condition of receiving benefits, they sometimes fail to make such notifications. Our review of 60 cases found no indication in 49 that the individual had reported earnings to SSA as instructed by regulation. In the other 11 cases, beneficiaries had reported returning to work, including the name of their employer and the amount of their wages, at some point. Yet 6 of these cases resulted in about $78,000 in total overpayments, even though the beneficiary reported returning to work more than a year prior to initiation of the work CDR. In the remaining 5 cases, the beneficiary reported working only after the CDR was initiated. Earnings data from IRS or from beneficiaries may age further once received by SSA because staff sometimes do not begin a work CDR immediately. From the date of the initial IRS alert to the date staff begin work on the CDR, it is categorized as a case "pending development". In the 60 cases we reviewed, the median time cases were pending development was 205 days, or about 7 months, and ranged from 2 to 466 days, or more than 15 months. For example, in the 466-day case, the IRS alert came to SSA in September 2007, when earnings (for 2006) were already 15 months old, then aged an additional 15 months until SSA staff began developing the work CDR. SSA officials could not explain what caused the delay in initiating development of this case or of several others we reviewed. The delays that occur when staff do not act promptly to begin a work CDR, in combination with the initial delays in receiving beneficiary earnings data (either from the IRS enforcement operation, or beneficiaries' failure to self-report earnings), result in multiple DI overpayments which may continue to accrue for extended periods of time before they are addressed. For example, in the 60 cases we reviewed, delays which occurred after IRS alerts were delivered to SSA resulted in individual beneficiaries being overpaid for up to 38 months. Most received fewer than 12 months of overpayments, but 19 of the cases received 18 or more months of overpayments. According to an SSA official, staff shortages and the need to focus resources on competing workloads, such as initial DI claims and medical CDRs, are among the factors delaying development of work CDRs in SSA's processing centers once earnings information is received. (See fig. 5) In 2004, we recommended that SSA seek to use large scale batch matches with an alternative database of earnings, the National Directory of New Hires (NDNH), which was originally established to help states locate noncustodial parents for child support payments. The NDNH could provide SSA with quarterly wage information on existing employees within four months of the end of a calendar quarter. Several federal programs and agencies currently use the NDNH to verify program eligibility, detect and prevent potential fraud or abuse, and collect overpayments. SSA already has the authority to obtain NDNH earnings data on a case by case basis, but as we previously reported lacks the authority to match SSA and NDNH data on a large scale, or batch, basis. In 2009, SSA conducted a cost effectiveness study on use of the NDNH, but SSA officials told us the study showed such matches would generate a large number of alerts needing development that were not of high quality due to data reliability issues, or "false positives". They also said the study found return on investment of only about $1.40 in savings for each $1 spent. SSA provided GAO with a limited overview of the study but we were unable to independently verify its accuracy or completeness because the information provided lacked sufficient detail. However, the agency's experience with the NDNH in its SSI program suggests it may be more cost-effective than indicated by SSA's analysis. The NDNH provides SSA staff with access to more comprehensive and timely employment and wage information, according to SSA officials, and the match has resulted in an estimated $200 million in SSI overpayment preventions and recoveries per year. Moreover, even if the benefit-to-cost ratio of using the NDNH for identifying DI beneficaries' earnings is only 1.4 to 1.0, as reported by SSA, this still represents a 40 percent rate of return. SSA does not have agency-wide performance goals or a consistent approach for processing work CDRs across its processing centers. Specifically, the agency lacks performance goals for the number of cases that are pending development or for number of days taken to process a work CDR. While SSA has established an agency-wide goal for processing a certain number of medical CDRs in a fiscal year, and includes this goal in the agency's annual performance plan, SSA officials told us they have not established similar goals for work CDRs. Instead, they have established targets for the processing centers. For example, SSA has set targets for 95 percent of IRS alerts on earnings generated in 2008 or earlier to have a work CDR completed by September 24, 2010, and for processing centers to complete development of cases within 270 days. SSA officials said work CDRs completed were generally not tracked prior to fiscal year 2010. We also found that while SSA's policies establish steps for work CDR processing to be followed across all processing centers, processing times across the four centers we visited varied widely once development was initiated. More specifically, we found that processing times for the 60 cases we reviewed ranged from 82 to 992 days (with a median of 396 days) and resulted in combined overpayments totaling more than $1 million. We also found processing times varied depending on processing center. For example, while the median processing time for the cases we reviewed from three centers ranged from 307 to 397 days, median processing time at the fourth center, which processes about 50 percent of all work CDRs, was 626 days. (See fig. 6) Within the last year, SSA has started work on some new initiatives to identify CDR enforcement alerts that pose a greater likelihood of resulting in large overpayments. These include prioritizing IRS alerts with reported earnings that are greater than or equal to 12 times the current SGA level in an effort to better target cases for work CDRs, as well as working to update and streamline existing procedures regarding the initiation, follow- up timeframes, and overall completion of work continuing disability reviews for processing center personnel. While these and other recent initiatives represent promising steps, it is too early to assess what impact they may have on the prevalence and size of DI overpayments. Chairmen, Ranking Members, and Members of the Subcommittees, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the subcommittees may have at this time. Daniel Bertoni at (202) 512-7215 or [email protected] In addition to the contact mentioned above, Jeremy Cox, Assistant Director; Arthur T. Merriam Jr., Analyst-in-Charge; Susan Aschoff; James Bennett; David Forgosh; Monika Gomez; Angela Jacobs; Joel Marus; Sheila McCoy; Cady Panetta; Nyree Ryder Tee; Vanessa Taylor; Walter Vance; and Craig Winslow made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Social Security Administration's (SSA) Disability Insurance (DI) program paid almost $123 billion in benefits in fiscal year 2010 to more than 10 million workers and dependents. The program has grown rapidly in recent years and is poised to grow further as the baby boom generation ages. GAO examined (1) what is known about the extent SSA makes work-related overpayments to, and recovers overpayments from, DI beneficiaries, and (2) SSA's policies and procedures for work continuing disability reviews (work CDRs) and potential DI program vulnerabilities that may contribute to overpayments to beneficiaries who have returned to work. To answer these questions, GAO reviewed work CDR policies and procedures, interviewed SSA headquarters and processing center officials, and visited 4 of 8 processing centers. We reviewed a random nongeneralizable sample of 60 CDR case files across those 4 centers to ensure we had a wide range of cases for our review (15 cases from each). These 4 centers received almost 80 percent of all work CDRs from SSA's Internal Revenue Service enforcement data match in fiscal year 2009. Disability Insurance overpayments detected by SSA increased from about $860 million in fiscal year 2001 to about $1.4 billion in fiscal year 2010, though the full extent of overpayments to beneficiaries who have returned to work and are no longer eligible is unknown. Overpayments may also go to beneficiaries who are no longer eligible due to medical improvement, but SSA estimates about 72 percent of all projected DI overpayments were work related during fiscal years 2005 through 2009. While the agency collected, or recovered, $839 million in overpayments in fiscal year 2010, monies still owed by beneficiaries grew by $225 million that same year, and total DI overpayment debt reached $5.4 billion. SSA does not have agency-wide performance goals for debt collection, for example, the percent of outstanding debt collected annually. And while SSA does have a policy for full repayment within three years, 19 of the 60 continuing disability review (work CDR) cases we reviewed had repayment plans exceeding three years. SSA officials told us lengthy repayment plans are often the result of an individual's limited income, but SSA does not review or approve repayment plans which exceed agency policy. During the course of our review, we also found a limitation in SSA's Recovery of Overpayments, Accounting and Reporting (ROAR) system. Used to track overpayments and collections, ROAR does not reflect debt due SSA past year 2049 so the total balance due the program is unknown, and likely larger than the agency is reporting. SSA officials acknowledged this issue, but are unable to determine the extent of the problem at this time. They told us they have a work group which will recommend action to correct the problem. But until this issue is addressed, SSA officials told us the agency can only track and report on overpayments scheduled to be repaid through 2049. The amount owed after that year is unreflected in current totals even as it annually increases. SSA has numerous policies and processes in place to perform work CDRs, though two key weaknesses have hindered SSA's ability to identify and review beneficiary earnings, which affect eligibility for DI benefits. First, SSA lacks timely earnings data on beneficiaries who return to work. In 49 of the 60 CDR cases we reviewed, there was no evidence in the file that the beneficiary reported returning to work, as required by the program. To identify these unreported earnings, SSA primarily relies on data matching with the Internal Revenue Service (IRS), then sends these matches to staff for a work CDR. However, the IRS data may be more than a year old when received by SSA, and SSA says it is not cost effective to gain access to and use other sources of earnings information, such as the National Directory of New Hires database. In addition, we found cases may wait up to 15 additional months before SSA staff begin work on the CDR. Second, SSA lacks formal, agency-wide performance goals for work CDRs. While it targets 270 days to develop a case, actual processing time taken ranged from 82 to 992 days (with a median of 396 days) in the 60 cases we reviewed, and overpayments which accrued as a result topped $1 million total. SSA officials reported several initiatives to more effectively prioritize work CDR cases, for example, those with the largest potential overpayment amounts, but these efforts are in the early stages and we could not yet assess their effectiveness. GAO has ongoing work on this issue and has no recommendations at this time.
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The widespread use of U.S. currency abroad, together with the outdated security features of the currency, makes it a particularly vulnerable target for international counterfeiters. According to the Federal Reserve, the proportion of U.S. currency in circulation abroad has increased from 40 percent in 1970 to over 60 percent today. High foreign inflation rates and the relative stability of the dollar have contributed to the increasing use of U.S. currency outside the United States. And, in fact, the United States benefits from this international use. When U.S. currency remains in circulation, it essentially represents an interest-free loan to the U.S. government. The Federal Reserve has estimated that the U.S. currency held abroad reduces the need for the government to borrow by approximately $10 billion a year. Despite this benefit, its increasing international use has made U.S. currency a target for counterfeiting. Furthermore, with the exception of two changes introduced in 1990, the security features of the currency have not substantially changed since 1929, which has resulted in the U.S. dollar's becoming increasingly vulnerable to counterfeiting. (See fig. 1 for the existing security features of the currency.) Congressional groups and the media have continued to highlight their concerns that the counterfeiting of U.S. currency abroad is becoming an increasingly serious problem. Concerns about counterfeiting abroad were heightened in 1992 with the issuance of the first of two reports by the House Republican Research Committee's Task Force on Terrorism and Unconventional Warfare. These reports charged that a foreign government was producing a very high-quality counterfeit note, commonly referred to as the Superdollar, to support terrorist activities. In 1993, the House Appropriation Committee's Surveys and Investigations staff completed a report on the Secret Service's counterfeiting deterrence efforts and briefed the House Appropriations Committee. In the same year, a bill--the International Counterfeiting Deterrence Act--was introduced to address international counterfeiting and economic terrorism; however, it was not passed. The Secretary of the Treasury is responsible for issuing and protecting U.S. currency. Treasury, including the Secret Service and the Bureau of Engraving and Printing, and the Federal Reserve have primary responsibilities for combating the counterfeiting of U.S. currency. The Secret Service conducts investigations of counterfeiting activities and provides counterfeit-detection training. The Bureau of Engraving and Printing designs and prints U.S. currency, which includes the incorporation of security features into the currency. The Federal Reserve's role is to distribute and ensure the physical integrity of U.S. currency. It receives currency from financial institutions around the world and uses specialized counting and verification machines to substantiate the authenticity of all U.S. currency received. The various counterfeiting deterrence efforts are coordinated through the Advanced Counterfeit Deterrence Steering Committee, which was formed in 1982. The Secret Service is the U.S. agency responsible for anticounterfeiting efforts abroad. At the time of our work, the Secret Service primarily used its six overseas offices, three task forces, two temporary operations, and resources from six domestic offices to conduct this task. (See app. I for a description of Secret Service offices responsible for locations abroad.) Secret Service offices outside the United States typically are staffed by one to six agents. Agents working abroad are involved in the same issues as their domestic counterparts, such as detecting counterfeits, investigating financial crimes, and protecting dignitaries. However, the majority of a typical agent's time abroad is spent on counterfeiting deterrence efforts. In pursuing these efforts, agents must rely on the cooperation of foreign law enforcement agencies and sometimes are allowed to provide only investigative support. This situation is different from that in the United States, where agents have direct investigative authority. The Secret Service also provides other staff to support international counterfeiting deterrence activities. For example, the Secret Service has assigned two Counterfeit Division staff to work with the Four Nations Group and three agents to work with Interpol--the International Criminal Police Organization. To obtain information on the nature and extent of counterfeiting of U.S. currency abroad, as well as U.S. efforts to combat this activity, we obtained views and material from (1) U.S. government agencies in the United States and abroad; (2) foreign law enforcement and financial organization officials in seven European countries, as referred to us by U.S. embassy officials; (3) Interpol officials in the United States and abroad; and (4) individuals researching the Superdollar case, including the author of the House Republican Task Force on Terrorism and Unconventional Warfare reports on the Superdollar. We performed our review in the United States, England, France, Italy, Germany, Hungary, Poland, and Switzerland. Interpol, State Department, and Secret Service officials recommended these countries for our review on the basis of their knowledge of counterfeiting abroad. To obtain U.S. government perspectives on the nature and extent of counterfeiting as well as on efforts to deter this activity, we interviewed and obtained documentation from senior Treasury officials in Washington, D.C.; Secret Service officials in Washington, D.C.; New York, New York; San Francisco, California; England; France; Italy; and Germany; and Bureau of Engraving and Printing officials in Washington, D.C. We also interviewed Federal Reserve Board officials in Washington, D.C.; Federal Reserve Bank officials in San Francisco and New York; and State Department officials in Washington, D.C., and abroad. To secure information on the extent of the problem of counterfeit U.S. currency abroad, we obtained Secret Service data on domestic and international counterfeit detections. We then reviewed the Secret Service's counterfeit-detection data for fiscal year 1987 through fiscal year 1994. We also reviewed Interpol's 1991 to 1993 annual reports on international counterfeiting activity. We did not independently verify the accuracy of the data that the Secret Service and Interpol provided. To gain perspective on both counterfeiting and deterrence efforts abroad, we obtained input from foreign law enforcement and financial organization officials in the countries we visited. (See app. II for a listing of foreign agencies and organizations we contacted while abroad.) In conducting our interviews, we did not pose the same questions to all officials. Thus, the responses we obtained cannot be generalized. The scope of our work was limited by a number of factors related to national security and investigative concerns. First, due to the criminal nature of counterfeiting, the actual extent of counterfeiting abroad cannot be determined. Second, since current known counterfeiting activities involved ongoing investigations, we were not able to fully explore and discuss these investigations with law enforcement and intelligence officials. Third, due to the sensitive nature of the ongoing investigation of the so-called Superdollar, we were unable to fully explore this extremely high-quality, allegedly foreign government-sponsored, counterfeiting operation. As a result of these limitations, this report is not evaluative, and it thus contains no conclusions or recommendations. This report was prepared using unclassified sources of information. The draft report underwent a security classification review by the appropriate agencies, including Treasury and the Secret Service, and was released as an unclassified report. Although they initially stated that some of the information was or should have been classified, Treasury and the Secret Service later rescinded this statement after they performed a full security classification review and we reached agreement with them on a minor revision to appendix VII. (See app. VIII, pages 66 and 67, for Treasury and Secret Service statements that the report is unclassified.) We conducted our review from September 1994 to May 1995 in accordance with generally accepted government auditing standards. In June and then again in November 1995, we updated our work on Secret Service staffing abroad. We obtained written agency comments on a draft of this report from the Departments of the Treasury and State and from the Federal Reserve. These comments are discussed at the end of this report and presented in appendixes VIII through X. The nature of counterfeiting of U.S. currency abroad is diverse, including various types of perpetrators, uses, and methods. The relative sophistication of the counterfeiter and method used results in counterfeit notes of differing quality. According to a National Research Council report requested by Treasury, the counterfeiting problem will increase as technologies improve and are made more accessible to the public. Already, the Secret Service has been troubled by some very high-quality counterfeits of U.S. currency identified as originating abroad. Perpetrators include both the casual and the professional counterfeiter. The casual counterfeiter is a person who commits the crime because it is convenient or easy to do. For example, an office worker may use a copying machine to counterfeit U.S. currency. The number of casual counterfeiters is expected to increase with the greater accessibility of and improvements to modern photographic and printing devices, according to the National Research Council report. Conversely, the professional counterfeiter may be a member of a gang, criminal organization, or terrorist group. Foreign law enforcement and Secret Service officials that we interviewed told us of suspected links between counterfeiting and organized crime. Counterfeit U.S. currency is used for economic gain and is sometimes linked to other crimes. According to foreign law enforcement and Secret Service officials, counterfeit U.S. currency is sometimes distributed in conjunction with drug trafficking, illicit arms deals, and other criminal and/or terrorist activities. Moreover, Secret Service and foreign law enforcement officials told us that counterfeit U.S. currency is now sometimes produced by counterfeiters in one country for export to another country. For example, in Milan, Italy, counterfeiting has become an industry in which counterfeit U.S. currency is produced for export, according to Italian law enforcement officials. They added that the counterfeits typically were exported to the former Soviet Union and Eastern Europe. The methods used by counterfeiters of U.S. currency abroad are the same as those used within the United States, according to Secret Service officials. Common techniques include using black and white, monochromatic, or color photocopiers; cutting and taping or gluing numerals from high denomination notes to the corners of a note of lower denomination, also known as making "raised notes"; using sophisticated computers, scanners, and laser or ink jet printers; bleaching good notes and reprinting higher denominations on the genuine paper; and using photomechanical or "offset" methods to make a printing plate from a photographic negative of a genuine note. Depending upon the sophistication of the counterfeiter and the method used, the quality of counterfeit notes can vary a great deal. The Secret Service has found good, fair, and poor quality notes for each method used. For example, a good color copier-produced note could be better than a poor ink jet-produced note. However, the offset printing method generally results in the highest quality counterfeits, whether produced abroad or domestically. (See app. III for descriptions of common methods used and some examples of counterfeit notes.) Recently, very sophisticated counterfeiters have been producing very high-quality notes using the offset process. High-quality counterfeit notes are difficult for the general public to discern, but according to Federal Reserve officials, the notes can be detected by experienced bank tellers. (See app. IV for case examples of high-quality counterfeit notes produced in Canada, Colombia, and the Middle East.) The criminal nature of the activity precludes determination of the actual extent to which U.S. currency is being counterfeited abroad. The best data available to reflect actual counterfeiting are Secret Service counterfeit-detection data. However, these data have limitations and thus provide only a limited measure of the extent of counterfeiting activities. Use of these data should be qualified to reflect these limitations so that conclusions reached using the data do not mislead. Overall, detected counterfeits have represented a minuscule amount of the currency in circulation. According to Secret Service officials, the data that they gathered was supplemented by intelligence information and field experience to demonstrate an increase in counterfeiting activity abroad. However, our analysis of the same counterfeit-detection data proved inconclusive. Moreover, foreign officials' views about the seriousness of the problem of counterfeit U.S. currency were mixed. Foreign financial organization and law enforcement officials that we interviewed reported no significant numbers of chargebacks and few reported instances of U.S. currency not being accepted abroad. On the basis of the number of Secret Service counterfeit-detections, Treasury officials concluded that counterfeiting of U.S. currency was economically insignificant and thus did not pose a threat to the U.S. monetary system. According to Secret Service and Treasury officials, detected counterfeits represented a minuscule portion of U.S. currency in circulation. Secret Service and Federal Reserve data showed that, in fiscal year 1994, of the $380 billion in circulation, $208.7 million had been identified as counterfeit notes, a figure which represented less than one one-thousandth of the currency in circulation. However, while Treasury and Secret Service officials agreed that, overall, counterfeiting was not economically significant, they considered any counterfeiting to be a serious problem. The Secret Service reported that counterfeiting of U.S. currency abroad was increasing. It used counterfeit-detection data, supplemented with intelligence information and field experience, to support this claim. It also employed two counterfeit-detection data measures to illustrate the extent of counterfeiting abroad: (1) counterfeit-detections abroad and (2) domestic detections of counterfeits that were produced abroad. Counterfeits detected abroad are categorized as "appearing abroad," while counterfeits detected domestically are divided into two separate categories. Domestic detections of counterfeits not yet in circulation are called "seizures," and those counterfeits detected while in circulation are called "passes." The Secret Service has reported a significant recent increase in detections of counterfeit U.S. currency abroad. In one analysis, it reported that the amount of counterfeit currency detected abroad increased 300 percent, from $30 million in fiscal year 1992 to $121 million in fiscal year 1993, thereby surpassing domestic detections in the same period (see fig. 2). The Secret Service has also reported that, in recent years, a larger dollar amount of the notes detected as domestic passes has been produced outside the United States. Since 1991, the dollar amount of counterfeit U.S. notes detected while in circulation and produced abroad has exceeded the dollar amount of those produced domestically (see fig. 3). In fiscal year 1994, foreign-produced notes represented approximately 66 percent of total domestic passes detected. The true dimensions of the problem of counterfeiting of U.S. currency abroad could not be determined. Treasury and the Secret Service use Secret Service counterfeit-detection data to reflect the actual extent of counterfeiting. However, although these data are the best available, they have limitations. Specifically, they are incomplete and present only a partial picture of counterfeiting. If these limitations are not disclosed, the result may be misleading conclusions. First of all, the actual extent of counterfeiting could not be measured, primarily because of the criminal nature of this activity. Secret Service data record only those detections that are reported to the Secret Service; they do not measure actual counterfeiting. As a result, the data provide no information about the number of counterfeiters operating in any given year or the size and scope of their operations. More importantly, these data could not be used to estimate the volume of counterfeit currency in circulation at any point in time. In the case of counterfeit currency appearing abroad, reasons for this include the following: (1) the data do not distinguish between how much counterfeit currency was seized and how much was passed into circulation; (2) they could not provide information about how long passed counterfeits remained in circulation before detection; and (3), most critically, they provide no indication of how much counterfeit currency was passed into circulation and not detected. Second, counterfeit detection data may in part be a reflection of where the Secret Service focuses its efforts. Use of these data thus may not identify all countries with major counterfeiting activity, but simply countries where agents focused their data collection efforts. For example, in fiscal year 1994, almost 50 percent of detections abroad occurred in the six countries where the Secret Service was permanently located. In other countries, counterfeit-detection statistics tend to be more inconsistent. For example, in fiscal year 1994, certain African and Middle Eastern countries reported no counterfeiting activity to the Secret Service. This lack of reported detections, however, does not necessarily indicate that counterfeiting activity did not occur in these countries. Third, detection data for high-quality notes may be underreported. The Secret Service has said that, because so few Superdollars have been detected, this indicates that there are not many in circulation. However, according to the Task Force on Terrorism and Unconventional Warfare report, the majority of Superdollars are circulating outside the formal banking system and therefore would not be reported to the Treasury if detected. Also, as we discovered on our overseas visits, many foreign law enforcement and financial organization officials had inconsistent and incomplete information on how to detect the Superdollar. Thus, financial institutions abroad may be recirculating the Superdollars. Fourth, reported increases in counterfeiting abroad, as supported by Secret Service detection data, may be due to a number of factors other than increased counterfeiting activity. For example, in 1993, the Secret Service changed its reporting practices abroad to be more proactive in collecting counterfeit-detection data. Instead of relying solely on reports from foreign officials, agents abroad began to follow up on Interpol reports and intelligence information in order to collect additional data. Also, according to Treasury officials, foreign law enforcement officials have improved their ability to detect counterfeit U.S. currency and report it to the Secret Service. Furthermore, although domestic reporting and detection practices have been more consistent, the increase in domestic detections of counterfeits produced abroad is also subject to interpretation. For example, rather than foreign-produced notes increasing, it is possible that the Secret Service's ability to determine the source of counterfeit currency has simply improved over time. Fifth and finally, counterfeit-detection data fluctuate over time, and one large seizure can skew the data, particularly for detections abroad. For detections outside the United States, the Secret Service has relied heavily on information provided by foreign law enforcement organizations, and has obtained little information from financial organizations. Thus, counterfeit detections "appearing abroad" have primarily been seizures reported by foreign law enforcement organizations, and the size of these seizures can have a significant impact on detection data. For example, according to the Secret Service, several large seizures accounted for the jump from $14 million in counterfeit detections abroad in fiscal year 1988 to $88 million in fiscal year 1989. The following year, the data indicated a significant drop in detections (see fig. 2). Overseas law enforcement and financial organization officials' views on the extent of the problem of counterfeit U.S. currency varied. Foreign law enforcement officials tended to be more concerned about counterfeit U.S. currency than foreign financial organization officials. Financial organization officials we met with said that they had experienced minimal chargebacks, and most expressed confidence in the ability of their tellers to detect counterfeits. Furthermore, we heard few reports from foreign financial organization and foreign law enforcement officials about U.S. currency not being accepted overseas because of concerns about counterfeiting. Most foreign law enforcement officials we spoke with believed that the counterfeiting of U.S. currency was a problem, but their opinions on the severity of the problem differed. While the Swiss, Italian, and Hungarian law enforcement officials said that it was a very serious problem, French and English law enforcement officials said that the problem fluctuated in seriousness over time; German, French, and Polish officials said that the counterfeiting of U.S. currency was not as serious a problem as the counterfeiting of their own currencies. Some of these law enforcement officials expressed concern over increases in counterfeiting in Eastern Europe and the former Soviet Union. Some also expressed particular worry about their ability, and the ability of financial organizations in their countries, to detect the Superdollar. Conversely, most foreign financial organization officials we spoke with were not concerned about the counterfeiting of U.S. currency. Of the 34 organizations we visited in 7 countries, officials from 1 Swiss and 1 French banking association and 2 Hungarian banks viewed the counterfeiting of U.S. currency as a current or increasing problem. According to other foreign financial organization officials, they were not concerned about U.S. counterfeiting activity because it did not have a negative impact on their business. For example, none of the 16 financial organization officials with whom we discussed chargebacks told us that they had received substantial chargebacks due to counterfeit notes that they had failed to detect. In addition, some of these officials cited other types of financial fraud and the counterfeiting of their own currency as more significant concerns. For example, officials from one French banking association were more concerned with credit card fraud, and officials from two financial organizations in Germany and one financial organization in France said counterfeiting of their country's currency was a greater problem. Furthermore, foreign financial organization officials we spoke with were confident about their tellers' ability to detect counterfeits and, in some countries, tellers were held personally accountable for not detecting counterfeits. In most of the countries we visited, detection of counterfeit U.S. currency relied on the touch and sight of tellers, some of whom were aided by magnifying glasses or other simple detection devices, such as counterfeit detection pens. Other counterfeit-detection devices used abroad, like ultraviolet lights, did not work effectively on U.S. currency. While foreign financial organizations appeared confident of their tellers' ability to detect counterfeits, some of these organizations had incomplete information on how to detect counterfeit U.S. currency, particularly the Superdollar. Finally, foreign financial organization and law enforcement officials provided a few isolated cases in which U.S. currency was not accepted abroad. For example, when it first learned about the Superdollar, one U.S. financial organization in Switzerland initially stopped accepting U.S. $100 notes, although it later resumed accepting the U.S. notes from its regular customers. Also, Swiss police, Hungarian central bank, and French clearing house officials reported that some exchange houses and other banks were not accepting $100 notes. We were unable to confirm these reports. However, a State Department official commented that, because drug transactions tended to involve $100 notes, some foreigners were reluctant to accept this denomination, not because of counterfeiting concerns, but rather because of the notes' potential link to money laundering. The U.S. government, primarily through the Treasury Department and its Secret Service and the Federal Reserve, has been increasing its counterfeiting deterrence efforts. These recent efforts include redesigning U.S. currency; increasing exchanges of information abroad; augmenting the Secret Service presence abroad; and undertaking efforts to stop production and distribution of counterfeit currency, including the Superdollar. In an effort to combat counterfeiting both domestically and abroad, Treasury is redesigning U.S. currency to incorporate more security features intended to combat rapid advances in reprographic technology. This change, the most significant to the U.S. currency in over 50 years, is, according to some U.S. and foreign officials, a long overdue one. The redesigned currency is planned for introduction in 1996 starting with changes to the $100 note, with lower denominations to follow at 9- to 12-month intervals. According to Treasury officials, the currency redesign will continue, becoming an ongoing process, because no security features are counterfeit-proof over time. These officials also said that the old currency would not be recalled and would retain its full value. Moreover, Treasury is leading a worldwide publicity campaign to facilitate introduction of the redesigned currency, ensure awareness and use of the overt security features, and assure the public that the old currency will retain its full value. Through this campaign, the Federal Reserve hopes to encourage the public to turn in old currency for the redesigned notes. (See app. V for further information on the currency redesign.) In addition, the Secret Service, through its team visits abroad in company with Treasury Department and Federal Reserve officials, has both gathered further information on counterfeiting and provided counterfeit-detection training. As of May 1995, the team had met with law enforcement and financial organization officials in Buenos Aires, Argentina; Minsk, Belarus; London, England; Zurich, Switzerland; Hong Kong; and Singapore. According to Secret Service officials, their visits were successful because they were able to develop better contacts, obtain further information about foreign financial institutions' practices, learn more about tellers' ability to detect counterfeits, and provide counterfeit detection training seminars for both law enforcement and financial organization officials. Future trips were planned to Russia and possibly the Middle East. Further, the Secret Service has been attempting to increase its presence abroad, although it has encountered difficulties in obtaining approval. The Secret Service has over 2,000 agents stationed in the United States, but it has fewer than 20 permanent positions abroad. The Secret Service first requested additional staff in February 1994 for permanent posting abroad beginning in fiscal year 1996. However, due to uncertainties over the funding of the positions as well as to other priorities within the Treasury Department, as of June 21, 1995, the Secret Service had secured approval for only 6 of 28 requested positions abroad. Subsequent to our discussions with the Secret Service, Treasury, and State, on July 21, 1995, Treasury approved the remainder of the positions and passed them on for State's approval. As of November 30, 1995, the respective chiefs of mission had approved only 13 of the 28 positions, and only 1 agent had reported to his post abroad. (See app. VI for further information on increasing the Secret Service presence abroad.) Additionally, the U.S. government has undertaken special efforts to eradicate the highest quality counterfeit note--the Superdollar. These efforts include the use of task forces and diplomatic efforts among senior policy-level officials of the U.S. and certain foreign governments. Due to the sensitivity and ongoing nature of this investigation, we were made generally aware of these efforts but not provided with specific information. (See app. VII for further information on U.S. efforts to eradicate the Superdollar.) The Department of the Treasury, including the Secret Service, the Department of State, and the Federal Reserve provided written comments on a draft of this report. (See apps. VIII, IX, and X.) These comments included technical changes and/or factual updates that have been incorporated where appropriate. However, Treasury, including the Secret Service, also raised and later rescinded issues of security classification and sensitivity and did not fully agree with our characterization of the limitations of the Secret Service counterfeit currency detection data and other supporting methods for estimating trends in counterfeiting. In their comments, Treasury and the Secret Service made frequent reference to activities that they believed provided additional support for the conclusions they drew from the detection data. These activities included contacts with foreign law enforcement and financial organization officials, vault inspections of banks abroad, and analysis of Federal Reserve data. Although the Secret Service recognized the limitations of its counterfeit currency detection data, Treasury and Secret Service conclusions provided in hearings and reports have not always reflected these limitations. Thus, in this report, we discuss the data limitations and conclude that any use of the data should be qualified to recognize these limitations. Although the Secret Service has the best counterfeit-detection data available, this does not negate the potential for the limitations of this data to foster misleading conclusions. First, the actual extent of counterfeiting cannot be determined because of the criminal nature of this activity. Second, counterfeit-detection data may be a reflection of where the Secret Service focuses its efforts. Third, detection data for high-quality notes, which may more easily circumvent detection and reporting abroad, may be even less representative of the actual extent of the problem. Fourth, increases in counterfeiting detections abroad may be due to a number of factors other than increased counterfeiting, such as improved information gathering and reporting. Also, counterfeit-detection data fluctuate over time, and one large seizure abroad can skew the data. We acknowledge in this report that the Secret Service supplements its detection data with intelligence information and field experience. Even though we did not evaluate these specific methods, our work did yield some information on these activities. With regard to Treasury and Secret Service contacts with foreign law enforcement and financial organization officials, in our discussion of additional U.S. counterfeit currency deterrence efforts, we acknowledge that Treasury and Secret Service officials have recently increased their contacts with foreign financial organizations in preparation for the U.S. currency redesign effort. However, almost all of the foreign financial organization officials we met with in September 1994 had had little or no contact with Treasury and/or Secret Service officials before that time. Regarding vault inspections of banks abroad, Secret Service officials initially told us that they were conducting vault inspections during their joint team visits with Treasury and Federal Reserve officials. However, according to Federal Reserve officials, and as subsequently confirmed by Secret Service officials, vault inspections had been conducted in only one of the six locations visited during our review. Secret Service officials told us that the inspections had been conducted in Argentina but were then discontinued because of the limited results obtained there. The officials told us that the inspections might be reinstituted in other countries if it was subsequently decided that the effort was warranted. Finally, regarding the use of Federal Reserve data, the Secret Service and the Federal Reserve confirmed that the Federal Reserve data were actually a component of the Secret Service data, and thus were effectively addressed in our evaluation of the Secret Service data. As agreed with your office, unless you publicly announce the contents earlier, we plan no further distribution until 30 days from the date of this report. At that time, we will provide copies of the report to interested congressional committees, to the Departments of the Treasury and State, and to the Federal Reserve. We will also make copies available to others on request. Please contact me at (202) 512-8984 if you have any questions concerning this report. Other major contributors to this report are listed in appendix XI.
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Pursuant to a congressional request, GAO provided information on counterfeiting of U.S. currency abroad and U.S. efforts to deter these activities. GAO found that: (1) counterfeit U.S. currency is used for economic gain and illegal activities, such as drug trafficking, arms sales, and terrorist activity; (2) there are several techniques used to counterfeit U.S currency, including photocopying, the raised note technique, computer assisted printing, bleaching and reprinting, and photomechanics; (3) the offset printing method offers the highest quality of counterfeit notes and can only be detected by experienced bank tellers; (4) it is difficult to determine the extent of counterfeiting abroad because of the lack of accurate counterfeit detection data and foreign officials reluctance to view counterfeiting as a serious problem; (5) of the $380 billion in U.S. currency circulated in fiscal year 1994, $208.7 million was counterfeit, which represented less than one one-thousandth of U.S. currency in circulation at that time; and (6) the U.S. government is involved in various counterfeit deterrence activities, including redesigning U.S. currency, increasing the presence of the Secret Service and the exchange of information abroad, and seizing the production and distribution capabilities used in counterfeiting of U.S. currency.
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The Navy has 690,000 men and women in the Ready Reserve, the Standby Reserve, and the Retired Reserve. The Ready Reserve, which at the time of the zero-based review, consisted of 85,900 members in the Selected Reserve and 65,066 in the Individual Ready Reserve, is the primary manpower pool for the Navy Reserve. The Selected Reserve contains those units and manpower that are most essential to the wartime missions because it provides mission-capable units and individuals to augment the active Navy force when required. For example, the Selected Reserve consist of Naval aviation units, Naval coastal warfare groups, medical personnel, and submarine forces personnel. The Individual Ready Reserve consists of individuals who have received training in the active Navy force or Selected Reserve. Members of the Selected Reserve receive priority over other reservists for training and equipment and they generally are the first to be called to active duty by a presidential order. In August 2003, the Chief of Naval Operations directed the Commander of the Fleet Forces Command to validate the Navy Selected Reserve manpower requirements and determine the ability of the Navy Reserve to provide required capabilities to the Navy forces. To accomplish this, the Fleet Forces Command conducted a zero-based review over a 10-month period, from October 2003 to August 2004. Based on the review, the Command recommended reducing the size of the Selected Reserve from 85,900 authorized positions to about 70,000 by fiscal year 2011--a decrease of about 16,000 authorized positions. The Chief of Naval Operations approved the zero-based review results for implementation in August 2004. The zero-based review is a component of the Navy's ongoing active/reserve integration initiative. This initiative is an essential element of the Department of the Navy's Human Capital Strategy, which was announced in June 2004. According to the Assistant Secretary of the Navy as well as Navy and Marine Corps manpower officials, accelerating manpower costs, changes in the global military environment, and evolving military requirements prompted the Department of the Navy to develop this strategy. The overall goal of the strategy is to have the best people with the proper skills, training, and experience in the right jobs. The strategy serves as high-level guidance for the Navy and Marine Corps to use in developing their own implementation plans. As shown in figure 1, the strategy consists of three elements: civilian personnel transformation, naval military personnel transformation, and Navy active/reserve integration. Implementing the National Security Personnel System will facilitate the Department of Defense's civilian personnel transformation efforts, while the Navy military personnel transformation is driven by the implementation of the Navy's Sea Warrior Initiative. The active/reserve integration segment of the human capital strategy is aimed at ensuring the proper balance between the Navy's active and reserve forces. Although the Navy initiated the zero-based review prior to the announcement of the human capital strategy, the review is intended to satisfy a major tasking of the active/reserve integration element--validating the requirements for reserve manpower. The Navy's zero-based review process included specific criteria and guidance on how to evaluate the number of reservists needed and involved consistent reporting and documentation by Navy activities. The Navy's iterative review process allowed extensive communications between Navy activities, the Fleet Forces Command, and others to finalize proposals for reserve manpower requirements and validate the results. However, our analysis showed two review limitations. First, Navy activities identified capability gaps by comparing its current active force to mission requirements, but did not conduct analyses to determine the most cost effective mix of active and reserve manpower. Second, some activities used outdated mission documents which were critical for determining the manpower needed to perform missions. These limitations could have adversely impacted the results of the review. performing the zero-based review by providing detailed guidance and specific criteria to determine the reserve manpower needed to augment the active forces to perform current and future Navy missions. The guidance was provided to 37 active component activities, consisting of 664 functions. The criteria for assessing reserve manpower requirements included the importance of the reserve component to the mission, reserve component's warfighting capability, current status of the reserves' capability, and the reserves' warfighting capability role in the Sea Power 21 operational concept. In following the guidance and applying these criteria, the functions conducted a capability gap analysis by determining (1) the extent to which the active forces could meet the mission requirement and (2) how many reserve personnel would be required to fill any remaining gaps in the active forces' capability. The zero-based review guidance also required review results to be reported and documented in a standardized format. Our review of 10 of 37 activity packages submitted to the Fleet Forces Command confirmed that each of the 232 functions associated with the 10 activities completed a structured electronic spreadsheet containing pertinent information about mission capability requirement, current manpower authorizations, and proposed manpower changes to justify the reserve manpower needed to perform its assigned mission. Each function also cited that its mission linked to one of the pillars of Navy Sea Power 21. For example, all eight of the Naval Security Group activity's functions linked their missions to Sea Shield, the pillar that provides sea-based theater and strategic defense. The functions also considered the manpower needs of emerging mission requirements. For example, the Naval Coastal Warfare Groups from the Naval Surface Forces activity identified the need for an additional 1,028 reserve positions to support homeland defense by increasing port security and harbor defense at our port facilities in the United States and overseas. The zero-based review involved substantial interaction between Navy activities, the Fleet Forces Command, and outside subject matter experts to develop the final justification for reserve manpower and perform multilevel reviews of proposed reserve manpower changes. While the active component conducted the review, the Navy activities occasionally relied on the Navy Reserve Command for needed manpower data according to a command official. The Commander of the Navy Reserve Force also participated in the high-level review of the proposed reserve manpower changes. The process allowed multiple two-way communications to finalize proposals for reserve manpower requirements and validate the results. In instances where the Fleet Forces Command disagreed with an activity's initial proposal, the activity revised and resubmitted its proposal or provided additional justification until the disagreement was resolved. After the Fleet Forces Command made a decision about the number of authorized reserve positions, it notified the activities and allowed them to again officially request reconsideration by providing additional documentation and support. For example, the Naval Air Systems Command first submitted justification for 652 reserve positions. However, after reviewing the justification package, the Fleet Forces Command recommended eliminating all of the Naval Air Systems Command's reserve positions because they were not linked to mobilization requirements. The Naval Air Systems Command resubmitted justification for 226 reserve positions to provide special skills and support for contingency operations. The justification convinced the Fleet Forces Command to approve 226 reserve positions. Within the Fleet Forces Command, the activities' packages were first reviewed by analysts and an initial review board. A subject matter expert review board then reviewed the proposals before passing them on to an executive board of senior officers. After the executive board approved the results, they were given to the Commander of the Fleet Forces Command, who also reviewed and approved the results. The criteria the Fleet Forces Command used for validating the reserve manpower requirements included whether (1) the particular mission is suitable for the reserve component, (2) the position is required to be filled by a military person, (3) the position fills a gap in the active component's capabilities, and (4) the reserve component can perform the mission. The validation process included a mission risk assessment by the Fleet Forces Command of how important the reserve forces were to performing the mission. The Command then assigned a low, moderate, or high-risk designation as to whether the active component could perform the mission without the planned contribution from the reserve component. For example, the Fleet Forces Command assessed that there was a low risk that the Maritime Patrol Reconnaissance function could not perform the mission without the reserves' contribution. After the results were validated, they had to be approved by the Total Force Flag Steering Group, a group of senior officers, including the Commander of the Navy Reserve Force, charged with ensuring continued progress in the integration of Navy active and reserve forces. At the end of the review, the Fleet Forces Command recommended reserve manpower changes to the Chief of Naval Operations for his approval. The Navy's zero-based review had two limitations that could have changed the number of active and reserve manpower recommended to the Chief of Naval Operations. The Navy (1) did not assess the most cost-effective mix of active and reserve manpower to perform the mission and (2) used outdated critical mission documents as a baseline for manpower requirements. The Navy's zero-based review process focused on identifying the extent to which the active force could perform Navy missions and then determining whether reserve manpower could fill any remaining gaps, which may not have resulted in the most cost-effective mix of active and reserve forces. Given the Department of the Navy's affordability challenges and the Assistant Secretary of the Navy's concern about accelerating manpower costs, the service must find ways to ensure it is accomplishing its mission with the most cost-effective mix of active, reserve, and civilian forces. In his guidance for 2004, the Chief of Naval Operations stated his commitment to fully integrating the active, reserve, and civilian forces. However, he also noted the need to minimize the total number of personnel on payroll and stated, "but we do not want to spend one extra penny for manpower we do not need." Additionally, the Department of Defense's directive that covers manpower management states that missions should be accomplished using the least costly mix of manpower. We have shown that when the reserve force can successfully meet deployment and operational requirements, it can generally perform missions at a lower cost than the active force because active units have all full-time personnel assigned whereas reserve units have mostly part-time personnel assigned.By identifying capability gaps in the active force as the primary criterion for determining the required reserve manpower, the Navy failed to assess whether the lower cost reserve force could be used to meet capabilities currently provided by the active force. While the Fleet Forces Command's general guidance indicated that the manpower requirements review should consider cost in determining an adequate return on investment, it also stated that the return on investment should be based on commanders' judgment. However, the Command did not require the activities to perform cost analyses to determine the most cost-effective mix of active and reserve forces needed to perform assigned missions as a basis for proposing the future mix of active and reserve manpower. If the most cost-effective mix of active and reserve forces had been a major criterion in the review process, the results might have been different and the Navy may have been able to realize additional savings for some activities. For example, our current analysis of Navy data showed that the manpower costs for a reserve squadron of nine P-3 Maritime Patrol and Reconnaissance aircraft would be approximately $20 million annually--about $8 million or 29 percent less than the estimated manpower cost of $28 million for an active squadron. Outdated Mission Documents May Have Resulted in Inaccurate have resulted in inaccurate recommendations about the Navy reserve Manpower Recommendations manpower needed to perform missions in the future. According to the Navy's instruction, the documents that provide information about a unit's mission and the specific operating environment of the units are the most critical element for developing manpower requirements. Additionally, our prior work has shown that decisions about the manpower needed to perform government functions should be driven by valid and reliable data.However, in its briefing to the Chief of Naval Operations, the Fleet Forces Command acknowledged that many of these critical mission documents were outdated. Our analysis confirmed this shortcoming. For example, 25 of the 31 functions belonging to the five activities we visited did not have recently validated mission documents on which to base their manpower reviews. The Fleet Forces Command stated that the critical mission documents had not been updated because of the large amount and rapidity of change and the lack of sufficient manpower analysts to keep up with changes. According to a Command official, the activities' commanders generally applied their judgment to update the most recently approved mission documents before conducting their analyses to mitigate the risks. However, this official agreed that use of these outdated mission documents may have increased the likelihood that manning was not correct in the associated manpower documents. Without validated and accurate mission documents to serve as a baseline for manpower numbers, some of the zero based review's determinations about capabilities and manpower requirements may have been inaccurate. Implementation of the Navy's zero-based review's recommendations will change the mix of active and reserve forces by decreasing the number of reserve personnel and increasing the number of active and civilian personnel. Some cost savings are projected as a result of the recommended changes. The zero-based review's recommendations will also have the active force assume greater command and control responsibility over the reserve force. The Navy's zero-based review's recommendations will substantially decrease the number of reserve personnel and slightly increase the number of active and civilian personnel. As indicated in table 1, the Chief of Naval Operations approved a net reduction of over 16,000 reserve positions, a net increase of about 880 positions in the active force, and a net increase of 450 civilian personnel positions. At the activities we visited, we found that the reasons for these recommended changes in manpower varied. For example, the Bureau of Medicine and Surgery recommended cutting 2,198 reserve positions because it had reduced the requirement for the number of fleet hospitals from three to two and had rarely filled all of its specialized medical reserve positions in the past. By contrast, the Naval Security Group expected a net increase of 156 manpower positions because the National Security Agency had a need for two new capabilities (cryptologic linguists and signal intelligence analysts) totaling 200 new positions, while anticipated technology improvements would allow the Naval Security Group to eliminate 44 reserve positions. The Mine Warfare Command will make its airborne and surface mine countermeasure units an all active force by cutting 1,016 reserve positions from their airborne and surface mine countermeasures mission and converting 537 full-time reserve positions to active duty positions because the command could not recruit sufficient manpower to fill its reserve positions. With the additional active duty positions, the Command stated that the airborne and surface mine countermeasures missions could be fully accomplished without the reserve component's participation. The Navy's zero-based review results for the five activities that we visited are shown in appendix II. The Fleet Forces Command initially estimated that implementing the manpower changes recommended by the zero-based review would save approximately $283.5 million annually. However, these original estimated savings are changing. Some active component activities are reexamining their manpower requirements and submitting changes to their original proposals because of organizational changes and other ongoing refinements to manpower requirements. For example, the Naval Air Forces now plans to eliminate an additional 378 reserve positions because the Navy plans to retire additional P-3 Maritime Patrol and Reconnaissance aircraft due to airframe fatigue problems. In another case, subsequent to the zero-based review, the Navy established the Maritime Force Protection Command that assumed reserve functions that were previously within the Surface Forces and the Military Sealift Commands. However, upon its establishment, the Maritime Force Protection Command determined that 5,250 reserve positions would be needed versus the 5,840 positions the Fleet Forces Command originally approved. Although the Chief of Naval Operations approved the zero-based review results in August 2004, the changes were not included in the Department of the Navy's fiscal year 2005 budget. The Fleet Forces Command has required each Navy activity to complete a transition plan and the Navy has included the recommended manpower changes in the Future Years Defense Program beginning in fiscal year 2006. All changes resulting from the zero-based review are to be completed by 2011. The zero-based review prompted changes in the command and control relationships between the Navy active and reserve forces, whereby the active force will assume greater command and control over the reserve force. Under the recommended changes, the active force will assume responsibility for the training and readiness of the reserve force. For example, the Commander, Navy Reserve Force, will now report to the Commander, Fleet Forces Command, for the training and readiness of the reserve force. In addition, the Commander, Naval Air Force Reserve, has physically moved from New Orleans to San Diego to be colocated with the Commander, Naval Air Forces, to whom he reports for readiness and training of reserve aviation forces. This realignment of responsibility is consistent with the Chief of Naval Operations' objective to create a more integrated total force. The Navy's zero-based review was an important first step in its overall strategy to assess the role of the Navy reserve in the total Navy force. The review is also a critical element in helping the Navy achieve its desire to reduce manpower costs and move toward a more affordable total force. However, the Navy's approach of using capability gaps in the active force as the means to determine Navy reserve manpower requirements was too narrow. Without consideration of manpower cost-effectiveness as directed by Department of Defense guidance, this approach did not provide assurance that the Navy will have the most cost-effective mix of active and reserve forces in the future. Furthermore, using outdated mission documents as a baseline for determining manpower requirements substantially reduced assurance that the Navy activities started with the best data for making quality manpower assessments. As the Navy continues to update and review its manpower requirements and identify ways to reduce its manpower costs in order to make resources available for other investments, it is important that all future assessments consider the most cost-effective force mix and be based on current mission documents. Recommendations for To assist the Navy in meeting its human capital strategy goals and ensure Executive Action that ongoing and future Navy active and reserve manpower requirement assessments result in the most cost-effective force, we recommend that the Secretary of Defense direct the Secretary of the Navy to take the following two actions: develop and implement guidance to ensure that (1) ongoing and future workforce reviews include cost analyses to determine the most cost effective mix of active and reserve manpower and (2) the methodology for and results of cost analyses are documented and allocate the required resources to maintain current Navy mission documents that would provide a valid baseline for ongoing and future workforce reviews. Agency Comments and In written comments on a draft of this report, the Department of Defense Our Evaluation concurred with our recommendations. The department provided technical comments, which we incorporated as appropriate. The department's comments are reprinted in their entirety in appendix III. We are sending copies of this report to the Secretary of Defense, the Secretary of the Navy, and other interested congressional committees and parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4402 or [email protected] if you or your staff have any questions concerning this report. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV. To determine the criteria and process the Navy used to conduct its zero based review of reserve manpower requirements and the limitations that could affect the Navy's analyses and implementations plans, we obtained and analyzed the guidance and expectations the Chief of Naval Operations provided to the Fleet Forces Command concerning the zero-based review. We also obtained and analyzed detailed information about the guidance and instructions the Fleet Forces Command provided to Navy activities concerning (1) the criteria to use for determining the required reserve manpower, (2) how the activities should report their review results to the Fleet Forces Command, (3) the review and validation process for the results reached during the zero-based review, and (4) plans for implementing the zero-based review results. Additionally, we met with Fleet Forces Command officials, as well as officials from the five activities we visited, and analyzed 10 of 37 justification packages the activities submitted to the Fleet Forces Command to further understand how the zero-based review was conducted at the different command levels, identify the extent to which cost-effectiveness of manpower changes was considered, and assess the consistency with which the activities reported their review results. Moreover, we analyzed prior GAO reports and applicable Navy publications for criteria and best practices in conducting manpower requirement reviews. To determine how the recommendations from the zero-based review will affect the reserve's manpower, funding, and command and control relationships with the active force, we obtained and analyzed the justification packages submitted by the 10 Navy activities, the recommended changes in the number of required reserve manpower and the cost factors used to calculate manpower savings as well as the corresponding projected funding requirements for reserve manpower. We also obtained information about, and discussed how the Navy plans to implement the results from the zero-based review with officials at the Fleet Forces Command and the five activities we visited. Additionally, we reviewed communications from the Chief of Naval Operations and discussed how the zero-based review would change command and control relationships between the active and reserve forces with officials at the Fleet Forces Command and the Navy Reserve Command. We assessed the reliability of pertinent data about information supporting the activities' proposals for reserve manpower changes and projected manpower changes. We examined 10 activity justification packages for consistency in the Navy's validation and reserve manpower requirements reporting processes. We also verified the manpower budget programming factors the Navy used to calculate projected manpower savings and performed a sample calculation to test the reliability of the projections. Except for the problem with outdated mission documents we noted in the body of the report, we concluded that the data were sufficiently reliable for the purpose of this report. We performed our review from September 2004 through September 2005 in accordance with generally accepted government auditing standards. After performing substantial review work at Navy Headquarters and the Fleet Forces Command to obtain overall review results and general information about how the Navy conducted its zero-based review, we visited five Navy activities to obtain more detailed information: Headquarters, Naval Air Forces; Headquarters, Naval Submarine Forces; Bureau of Medicine and Surgery; Naval Security Group; and Headquarters, Mine Warfare Command. We selected these particular activities because of special interest from the professional staff of the Senate and House Armed Services Committees and because the zero-based review results involved major changes to reserve manpower requirements for these activities. The purpose of our visits was to understand in detail the review procedures at the activity level and assess the consistency with which the activities (1) followed the guidance and criteria provided by the Fleet Forces Command and (2) reported their review results. During our visits at these activities, we also discussed with officials the rationale for recommending major changes to their reserve manpower requirements. The information below summarizes the results of the zero-based review for each of the five activities we visited. These summaries are based on the activities' justification packages and our discussions with Fleet Forces Command and activity officials about the rationale for their changes to reserve manpower requirements. All Navy reserve positions have been approved by the Chief of Naval Operations (CNO) as of August 2004. Activity 1: Headquarters, Naval Air Forces, San Diego, management. As shown in table 2, the zero-based review recommended California almost a 25 percent reduction in naval aviation reserve manpower. Headquarters, Naval Air Forces provides combat-ready and sustainable naval air forces that are trained and equipped to operate in an environment that emphasizes safety, interoperability, and efficient resource Of the 2,742 total decrease in reserve positions in naval aviation forces, 2,242 (82 percent) are from the Maritime Patrol and Reconnaissance (P-3 aircraft), Helicopter, and Aviation Intermediate Maintenance Division communities. The decreases in these three communities were supported by different rationales. First, Naval Air Forces decided to cut 1,323 positions from the Maritime Patrol and Reconnaissance units because P-3 airframe fatigue problems caused the Navy to remove some aircraft from the active inventory. To provide the active force with additional aircraft, the activity decommissioned four reserve squadrons, totaling 24 aircraft, and formed three fleet response units, totaling 18 aircraft. As a result, the activity needed fewer personnel and 6 additional aircraft were provided to the active force. Additionally, the activity cut 491 positions from helicopter squadrons to better provide projected surge capability for the Fleet Response Plan. The activity combined five reserve helicopter squadrons of 36 aircraft into three fleet response units of 24 aircraft. As a result, the activity needed fewer personnel. Finally, the activity cut 428 positions from the aviation intermediate maintenance divisions. The Fleet Forces Command decided to eliminate all reserve positions from functions in which reserve personnel were not able to meet deployment requirements. The Naval Submarine Forces provide antisubmarine warfare, antisurface ship warfare, precision land strike, mine warfare, intelligence, surveillance and early warning, and special warfare capabilities to the U.S. Navy, and strategic deterrence capabilities to the U.S. Strategic Command. As shown in table 3, the zero-based review recommended more than a 41 percent reduction in naval submarine forces reserve manpower. Of the total 1,105 decrease in reserve positions in Naval Submarine Forces, 1,061 (96 percent) resulted from decommissioning a submarine tender (maintenance support ship) and decreasing reserve positions for logistics and administrative support operations. The activity cut 939 positions from an inactive submarine tender because the Fleet Forces Command decided that this mission was not essential and could be performed by a contractor. The activity also cut 122 positions from logistics and administrative support operations because, according to officials, the reservists' part-time duty status would not allow them to participate in submarine training deployments. The Bureau of Medicine and Surgery provides health care to about 700,000 active duty Navy and Marine Corps members and to 2.6 million family contingency, humanitarian, and joint operations around the world. As shown in table 4, the zero-based review recommended almost a 29 percent reduction in medical reserve manpower. Of the total 2,241 decrease in reserve positions for the Bureau of Medicine and Surgery, 2,198 (98 percent) are from cuts in medical treatment facilities and fleet hospitals. The activity cut 1,388 positions from medical treatment facilities because most of these positions were associated with special medical skills that were never filled. The activity also cut 810 positions due to a reduction in the number of fleet hospitals. The Navy reduced the number of fleet hospitals from three to two because it does not expect to need as many hospitals to meet mission requirements under new defense planning guidance. The Naval Security Group performs cryptologic and logistics support functions for the fleet. As shown in table 5, the zero-based review recommended more than a 16 percent increase in naval security reserve personnel. The activity had a net increase of 156 reserve positions, which was achieved through reductions of some positions and additions of other positions. The activity added 180 cryptologic linguists and 20 applied research and development positions. The number of positions for intelligence collection and analysis increased because the National Security Agency agreed to pay for the additional positions to meet its operational requirements. At the same time, the activity cut 44 information operations positions because anticipated technological advances in telephone and computer security allowed the activity to reduce the number of personnel. The Mine Warfare Command develops and evaluates mine warfare doctrine, tactics, and equipment to conduct offensive and defensive mine warfare operations throughout the world. It is responsible for removing all types of mine threats, providing intelligence on foreign mine capabilities, and developing tactics to counter other nations' mining capabilities. As shown in table 6, the zero-based review recommended more than a 90 percent decrease in mine warfare reserve manpower. Of the total 1,158 decrease in reserve positions for the Mine Warfare Command, 1,016 (88 percent) were taken from the Airborne and Surface Mine Countermeasures Units. This decrease was a result of converting reserve positions to active positions. The activity cut 541 Airborne Mine Countermeasures positions by reorganizing its two Airborne Mine Countermeasures squadrons, each of which consisted of six active aircraft and four reserve aircraft, into two squadrons of eight active aircraft each. The activity decided to man the two squadrons with only active manpower because the reserve functions could not recruit sufficient manpower needed in specific specialties. The activity also cut 475 Surface Mine Countermeasures positions. The activity decided to convert all reserve positions authorized for its 15 ships to active positions because it had experienced reduced operational effectiveness due to the inability to fill the reserve positions. Janet St. Laurent, (202) 512-4402 ([email protected]) Richard G. Payne, Assistant Director; George O. Morse; Willie J. Cheely, Jr.; Nicole L. Collier; Bethann E. Ritter; Renee S. Brown; Jonathan Clark; and Rebecca Shea also made significant contributions to this report.
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In 2004, the Navy completed a study of how many selected reserve personnel are needed to support the active force in meeting current and future mission requirements. The Ronald W. Reagan National Defense Authorization Act for 2005 mandated that GAO assess several aspects of the Navy's study. This report addresses (1) the criteria and process the Navy used to conduct the review and what limitations affected the Navy's analyses and implementation plan; and (2) how the recommendations from the review will affect the reserve's personnel, funding, and command and control relationship with the active force. In conducting its review of Selected Reserve personnel requirements, the Navy established criteria and followed a structured process, but GAO noted two limitations that could have potentially affected the quality of the results. The Navy did not analyze the most cost-effective mix of active and reserve personnel and in some cases used outdated mission documents as the baseline for analysis. The Department of Defense personnel directive states that missions should be accomplished using the least costly mix of personnel. In addition, GAO's prior work has shown that when reserve forces can successfully meet deployment and operational requirements, they can perform missions for less cost than active forces, and that decisions about the number of personnel needed to perform government functions should be driven by valid and reliable data. The 10 activities' justification packages GAO reviewed did not indicate if or how commanders evaluated the cost-effectiveness of using active or reserve personnel. A key reason why cost-effectiveness was not evaluated is that the Fleet Forces Command provided no guidance requiring that such an analysis be conducted or submitted as part of the activities' justification packages. Additionally, because the Navy had not devoted the resources to update some of its baseline mission documents prior to the start of the review, some of the activities' analyses did not start with the best possible data, which may have resulted in inaccuracies in their determinations about capabilities and personnel requirements. Including cost-effectiveness in the criteria for the zero-based review and documenting such analyses, as well as ensuring data accuracy, could have better demonstrated a sound basis for the recommended personnel changes and, in some cases, may have led to different recommendations. The review's recommendations will result in a change in the force mix, some cost savings, and the active force assuming greater command and control over reserve forces. The Chief of Naval Operations approved personnel changes that would result in a net reduction of over 16,000 reserve positions, a net increase of about 880 positions in the active force, and a net increase of about 450 civilian personnel positions. The reasons for these recommended changes varied by activity. The Fleet Forces Command also initially estimated that the Navy could save approximately $283.5 million annually by implementing the personnel recommendations, although this estimate is changing as some activities reexamine their personnel requirements using more recent data. In addition to total force personnel changes, the active force is assuming greater command and control responsibility for the reserve force. For example, the active force is now responsible for the training and readiness of the reserve forces and is receiving their status reports. This realignment of responsibility is consistent with the Chief of Naval Operation's expectations for creating a more integrated total force.
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The six selected federal programs have varying purposes and are designed to target different segments of the low-income population, according to information confirmed by the administering agencies (see table 1). For example, EITC targets working families, whereas SSI targets the elderly, blind, and disabled. Because potential participants must generally meet a test of financial need in order to be eligible for benefits, these programs are commonly referred to as "means-tested programs." Three of the programs--EITC, SSI, and TANF--provide direct cash assistance to recipients, while the other programs provide an in-kind benefit, meaning that the recipient receives a good or service rather than cash. The six programs serve millions of low-income people, ranging from nearly 69 million individuals a month for Medicaid to about 4 million individuals a month for TANF in fiscal year 2015, according to our analysis of agency data, as confirmed by the agencies. Medicaid is the largest program in terms of expenditures on benefits among the six selected programs, according to information provided by the administering agencies, totaling $329.73 billion in federal spending for the entire Medicaid population in fiscal year 2015 (see fig.1). Federal spending on benefits for the five other programs ranged from $4.16 billion for TANF cash assistance to $66.60 billion for SNAP in that year. In TANF and Medicaid, states and the federal government generally share in the cost of benefits, whereas benefits are entirely federally funded for EITC, SNAP, SSI, and Housing Choice Vouchers. Several federal departments and agencies or offices administer and oversee the six selected low-income programs (see table 2). The funding structure of these low-income programs differs, which to some extent may affect the number of program recipients. SNAP, EITC, SSI, and Medicaid are open-ended entitlement programs, which means that the government is legally required to make payments to individuals or families who meet the requirements established by law. As a result, all individuals or families who apply for these programs and are eligible are entitled to benefits. In contrast, the Housing Choice Voucher and TANF cash assistance programs are not entitlement programs, and the number of recipients may be limited, in part, by these programs' funding amounts. Programs also differ in their source of funding: some programs are entirely federally-funded, while in other programs, the states and the federal government each contribute some funding for benefits, program administration, or both. Partly because the programs have different purposes and to some extent target different populations, the six low-income programs vary in the extent of their reach. Figure 2 shows the number of program recipients, according to agency data, as a percentage of the total U.S. population. As a general comparison, in 2015, Medicaid served 22 percent of the population, or more than 1 in 5 people, while TANF served 1 percent of the total U.S. population in that year. Common basic elements exist in how the six low-income programs determine program eligibility. Figure 3 provides a conceptual overview of the types of elements typically considered when determining eligibility for these low-income programs. Generally, several factors are taken into consideration to assess applicant eligibility. For determining financial eligibility, the factors commonly considered include how much income the applicant has (both earned, such as wages, and unearned, such as income from other public benefit programs), as well as, for some programs, the applicant's assets. Further, certain nonfinancial factors may be taken into consideration to assess applicant eligibility, such as whether the applicant has a dependent child or a disability or is working. If an applicant is found to be eligible for a program, the benefit amount they are eligible for is then determined using the benefit rules for that particular program. In addition to having different program purposes, the six programs we reviewed target a range of low-income populations, including people with some earnings, people who are elderly or disabled, or families with dependent children, according to our analysis of agency documents, as confirmed by the agencies (see table 3). The programs' nonfinancial eligibility rules establish the specific characteristics an individual or household must have, if any, in order to be eligible for the program. For example, to qualify for TANF, families generally must have a dependent child, while for SSI, the applicant must be 65 years old or older, blind, or have a disability that meets certain requirements. Federal low-income programs sometimes have overlapping target populations, and program rules for some programs allow those who qualify for one program to be automatically eligible for another--also known as categorical eligibility--which, as we have previously reported, can both ease access to these programs as well as reduce administrative costs. For example, according to SSA, in most states SSI recipients are automatically eligible for Medicaid, and we have previously reported that some TANF recipients are automatically eligible for SNAP. Specifically, TANF cash assistance recipients are categorically eligible for SNAP, and some states have opted to extend categorical eligibility to households authorized to receive certain TANF or state maintenance of effort (MOE)- funded noncash services under broad-based categorical eligibility (BBCE) policies. Nonfinancial eligibility rules for some of the programs we reviewed also include requirements that participants must comply with as a condition of eligibility for benefits or services, such as participation in work or work- related activities in three of the programs (see table 4). For example, federal TANF rules require states to engage a certain percentage of families receiving cash assistance in specified work-related activities, such as job search and job readiness assistance, if there is an individual in the family who is generally required to work. EITC is unique in that its target population is working low-income people, and therefore, EITC rules require work for initial eligibility. Since EITC is administered through the tax system, it generally requires tax filers who claim the credit to have earned income--as its name suggests--unlike the other programs we reviewed. The six low-income programs we reviewed use different rules to determine the financial eligibility of program applicants, according to our analysis of agency documents, as confirmed by the agencies. These variations affect whose income is counted, what income is and is not counted, whether expenses are deducted from income, and how much income applicants may have and still be eligible. The six programs we reviewed differ not only in their definitions of who the benefit is provided to once eligibility is determined--which we refer to as the "applicant unit"--but also in how they count the income of different people when determining applicant eligibility. For some programs, such as SSI, the applicant unit is the individual, while for others, such as SNAP, the unit is the household (see table 5). Further, while programs may use similar terminology, there is no single definition of "family" or "household" used across these low-income programs--the same term may mean different things depending on the program. For purposes of counting income, for example, both TANF and the Housing Choice Voucher program count the income of individuals in a "family." However, in the case of the Housing Choice Voucher program, for example, a single person living alone or a group of persons living together is considered a "family," while for TANF cash assistance, states determine what constitutes a "family" and the family must generally include a dependent child. In addition, in some programs, the applicant unit differs from whose income is counted when determining financial eligibility. For example, in SSI, while the applicant is typically an individual, the income of the applicant's parent or spouse may be considered when determining eligibility, if that person is living in the applicant's household. The programs we reviewed also differ in how they treat an applicant's earned income--or income earned from working--for the purposes of eligibility determination, according to our analysis of agency documentation, as confirmed by the agencies, with some programs structuring their earned income rules to incentivize work, as we have previously reported (see table 6). For example, when determining income eligibility for SNAP, federal rules disregard 20 percent of the applicant household's earned income. In other words, if an applicant has $1,000 in monthly earned income, only $800 is considered when calculating the household's income eligibility for SNAP. For TANF, states determine earned income rules, and according to HHS, almost all states disregard some earned income, either as a percentage of earnings, a set dollar amount, or both, although the percentage or amount differs by state. The programs we reviewed also differ greatly in how they treat an applicant's unearned income--which may include benefits received from other federally-funded programs for low-income people--for the purposes of eligibility determination (see table 7). A low-income family is likely to be eligible for and may participate in more than one low-income program. However, not all of those eligible received a benefit. We have previously reported that families receiving TANF cash assistance generally also receive Medicaid and SNAP. However, because of differences in these programs' eligibility rules related to unearned income, TANF benefits are counted as income when determining SNAP eligibility but not counted as income when determining Medicaid eligibility, according to our analysis of agency documents, as confirmed by the agency. In contrast, the cash benefit received from the refunded portion of EITC is not counted as income when determining eligibility for any of the other selected programs. According to a 2015 CRS analysis, of those who received a benefit from one of nine major federally funded low-income programs, an estimated 41 percent received benefits from one program and an estimated 27 percent received benefits from two programs. The remaining families received benefits from three or more programs. According to CRS, 18 percent of families received benefits from three programs, 9 percent received benefits from four programs, and less than 5 percent received benefits from five or more programs. The nine low- income programs in CRS's analysis included five of the six we reviewed for this report. In calculating applicants' income levels to determine eligibility, some of the low-income programs we reviewed deduct certain types of expenses from income, such as those for child care, utilities, and shelter, according to our analysis of agency documentation and information provided by agencies, as confirmed by the agencies. Programs may allow the deduction of certain types of expenses when determining applicant eligibility to ensure that the applicants' financial circumstances and ability to meet certain basic needs are more fully captured. For example, Housing Choice Voucher and SNAP both deduct child care expenses when determining program eligibility, while EITC and Medicaid take these expenses into account in other ways (see table 8). (For additional deductions for selected other expenses, see appendix II.) A fundamental difference among the six programs we reviewed is the variation in the income limits used for determining applicants' program eligibility, according to our analysis of agency data and documentation, as confirmed by agencies. These programs differed in the ways they measure applicants' income, the standards and methods used to determine the maximum amount of income an applicant may have and still be eligible for the program, whether this amount is set nationwide or varies by state or locality, and the amount of the income limit itself. The various standards and methods used to set income limits by the selected programs include a fixed dollar amount, a percentage of the federal poverty guidelines (FPG) or Area Median Income (AMI), or Modified Adjusted Gross Income (MAGI)(see table 9). For two of the programs-- EITC and SSI--the maximum amount of income an applicant may have to be eligible is a federally-set dollar amount that applies nationwide; however, that amount differs by program. For the other four low-income programs we reviewed, the rules for determining the maximum amounts of income an applicant may have and still be eligible, the amounts themselves, and whether they are set nationwide or vary by state or locality, vary significantly, according to our analysis of agency data as confirmed by agencies. For Medicaid, TANF, and in states that have implemented SNAP BBCE policies, states or localities determine financial eligibility rules for applicants, generally within certain federal guidelines. For example, under SNAP BBCE policies, states have the flexibility to adopt policies that allow certain applicants with incomes up to 200 percent FPG to be eligible, whereas federal rules generally allow applicants with incomes up to 130 percent FPG to be eligible. In the case of TANF, states have flexibility in how they establish eligibility, including choosing both the type of measure and income level they use. For Medicaid and the Housing Choice Voucher program, there are also different income limits for different populations within the program. To illustrate the different income limits used for these programs, we analyzed maximum allowable income using a common metric--dollars per month--for programs that have nationally set income limits (see figure 4) and for programs with a range of maximum allowable income due to state variation (see figure 5). For the purposes of illustrating maximum allowable income across these programs, we use a family of three--a single mother with two children--living in their own household, because we have previously found this to be a common recipient unit in federal low-income programs, such as TANF. Although these are the maximum allowable amounts of income such families may have to be eligible for each program, these amounts are not fully comparable because the calculation of this amount differs for each program by the factors discussed earlier in this report, such as whose income is counted. Also as already discussed, for an applicant, having income below the relevant threshold is one of the multiple factors that may be assessed when determining eligibility for each program. (For a comparison of maximum monthly income for all six programs, see app. III.) In addition to having income tests, some programs set certain limits on the assets that an individual or family may hold in order to be eligible for the program, while others do not, according to our analysis of agency data and documentation, as confirmed by the agencies. Assets--referred to as "resources" by some programs--generally include financial resources--such as cash held in checking and savings accounts, individual retirement accounts, 401(k)s, and other accounts that can be readily transferred into cash--and nonfinancial resources, such as a home or car. Similar to income limits, three of the six selected programs--SSI, TANF, and SNAP under federal rules--have federally set limits on the amount or type of financial assets that an individual or family may have in order to be determined eligible for benefits. For example, to qualify for SSI, the limit for countable assets is $2,000 for an individual and $3,000 for a married couple. However, certain nonfinancial assets, such one vehicle, do not count toward this limit. For SNAP, under federal rules, there is a limit of $2,250 in countable resources or $3,250 in countable resources if at least one person is age 60 or older or is disabled, and since 2008, these limits have been adjusted annually and rounded to the nearest $250 based on changes to the Consumer Price Index (CPI). In recent years, some states have moved away from having asset limits for certain low-income programs. For example, as of August 2016, 34 states and the District of Columbia have adopted SNAP BBCE policies that removed asset limits from their financial eligibility determinations for those deemed eligible using BBCE. In TANF, asset limits are determined by the state, and as of August 2016, 8 states did not have asset limits, while 43 states had set varying limits on assets (see figure 6). Other low- income programs we reviewed--EITC, Housing Choice Vouchers, and Medicaid for non-elderly, non-disabled (MAGI) populations--have no restrictions on assets. However, financial assets that produce unearned income can be taken into account when determining applicant eligibility. For example, for EITC, applicants' income from any investments must be $3,400 or less per year. Asset tests are further complicated because of the differences in how the equity in vehicles is treated when determining assets. Vehicle asset rules exist in certain programs, and these rules vary, not only across programs, but across states as well. In one program, a vehicle used to access work may be disregarded; in another program, a certain portion of the value of the vehicle may be disregarded. In TANF, treatment of vehicles is at the state's discretion and most states disregard $4,650 or more of the value of one vehicle. For SNAP, certain vehicles are excluded in their entirety, or states may opt to substitute their TANF vehicle rules, according to USDA. Average benefits vary across the six selected programs due in part to differing benefit purposes and other factors, according to our analysis of agency documentation and information, as confirmed by the agencies. For the four programs that provide monthly benefits--Housing Choice Vouchers, SNAP, SSI, and TANF--average benefit levels ranged from $258 monthly for SNAP to $626 monthly for Housing Choice Vouchers in fiscal year 2015. These average benefit amounts--for Housing Choice Vouchers, SNAP, and TANF--are per household, while the SSI average benefit is per individual. The EITC provided a one-time annual benefit of more than $2,455 on average in 2016, based on tax returns filed for 2015, which, for comparison, converts to $205 per month. (See table 10). There is no average benefit amount for Medicaid since its benefits are provided in the form of health care services to individuals. These variations in average benefit amounts are due in part to differing program and benefit purposes and other factors, according to our analysis of agency documentation and other governmental reports. For example, the SNAP benefit amount is structured to make up the difference between the cost of purchasing a nutritionally adequate low-cost diet and 30 percent of net household income, because a household is expected to spend about 30 percent of its net income on food, according to FNS. Alternatively, the SSI benefit is meant to provide a basic level of income for those who are elderly, blind, and disabled. Four of the five programs that provide benefit amounts to recipients directly or indirectly adjust benefits for inflation, while one program varies by state. Whether or not benefits are adjusted for inflation affects the value of the benefit over time. EITC, SSI, and SNAP explicitly adjust benefits for inflation, while the amount of a Housing Choice Voucher is adjusted in response to changes in area rental costs. According to CRS, TANF benefits for families are not automatically adjusted for inflation by the states and have lost considerable value in terms of their purchasing power over time. We have previously estimated that annual aggregate cash benefits under 2005 TANF rules were 17 percent lower than they were under 1995 rules. More recently, CRS has found that between 1981 and 2013, the inflation-adjusted value of the maximum TANF cash assistance benefit for needy families in the median state declined by 45 percent. Legal, administrative, and financial constraints pose challenges to streamlining or better aligning varying eligibility rules for low-income programs, according to our previous work. The issue of streamlining, and its feasibility, has been a concern for decades. As we noted in our earlier work, the complexity and variability in programs' financial eligibility rules have had negative consequences for both program administration and family access to assistance, according to policy experts and researchers. For example, in 2002 we found that staff administering each program collected much of the same personal and financial information from applicants to determine program eligibility, leading to time-consuming and inefficient administrative processes that can contribute to overall costs. Further, people seeking aid from more than one low-income program often must visit multiple offices and provide the same information numerous times, according to our prior work. However, just as the advantages of simplifying financial eligibility rules have been acknowledged, there has also been a general recognition that achieving substantial improvements in this area is difficult. A key challenge to streamlining eligibility rules for these low-income programs is that the programs are authorized by different federal statutes, which establish many of the program rules. These different statutes were enacted--and amended--at different times in response to differing circumstances. The statutes originate with numerous congressional authorizing committees. For example, the House Energy and Commerce Committee and the Senate Finance Committee are the authorizing committees for Medicaid, while the House Financial Services Committee and Senate Banking, Housing, and Urban Affairs Committee are the authorizing committees for the Housing Choice Voucher program (see fig. 7). Other laws, such appropriations acts, can also have an impact on federal programs and their rules. Modifying eligibility rules to bring them more in line with each other would require changing many laws and coordination among a broad set of lawmakers, including multiple congressional committees. Another challenge to streamlining stems from the multiple government entities involved in administering and funding each program and the varied administrative relationships between the federal and state levels of government by program. To start with, a different federal agency or office administers each program we reviewed. For example, FNS administers SNAP, CMS administers Medicaid, and the Office of Public and Indian Housing within HUD administers the Housing Choice Voucher. These different federal agencies generally develop regulations separately for each program, which may affect program rules. Furthermore, as discussed earlier, state governments are also involved in administering and funding some of these programs. Specifically, for programs that allow state flexibility, state governments also establish some program rules, making it more difficult to streamline or align program rules within or across these programs at the federal level. For example, for TANF cash assistance, the development of eligibility and benefit rules is primarily delegated to state agencies administering the program, while for SNAP, state agencies have some flexibility in determining eligibility rules within federally-established parameters. Regarding program funding, while states may partially fund TANF cash assistance benefits, the federal government funds the full cost of SNAP benefits. As a result of these different roles, streamlining eligibility rules and benefits across multiple programs would entail, in part, modifying and realigning complex administrative relationships among a range of federal and state government entities. Finally, financial or program cost implications pose a major challenge to streamlining financial eligibility and benefit rules for low-income programs, according to our previous work. Modifying financial eligibility rules for purposes of simplifying them or making them more consistent across programs will likely result in changes to the number of people who are eligible for assistance, and may also affect the benefit amounts they receive, as well as overall program costs. Depending on the modification, and the current rules of each program affected, changes made to streamline rules will affect each program's recipients and costs differently. On the one hand, if such rule changes have the effect of raising a program's income eligibility limits, more people will be eligible for assistance and that program's costs may increase, particularly for entitlement programs. For example, according to our earlier work, SNAP program participation more than doubled and costs quadrupled over a 10- year period, largely due to the 2008 recession; however, a factor that contributed to both increases was that some states aligned their SNAP income eligibility limits with the higher limits used in other low-income programs under the BBCE policy option. On the other hand, if such rule changes have the effect of lowering a program's income eligibility level, some people will no longer be eligible for assistance from that program, thereby potentially lowering program costs. Despite these challenges, Congress, federal agencies, and states have taken some steps to streamline eligibility rules, according to our prior work. These include establishing automatic or categorical eligibility among programs, making greater use of technology and data-sharing among low-income programs, and aligning application and eligibility determination processes for multiple programs. Automatic or categorical eligibility: These policies--where allowed under federal law--can simplify the eligibility determination process for both applicants and caseworkers by increasing consistency in income and resource limits across programs. For example, in addition to SNAP BBCE policies already discussed (which make households that receive noncash services funded by TANF categorically eligible for SNAP in some states), SSI recipients in most states are automatically eligible for Medicaid health insurance, and if they live alone or in households in which all members receive SSI benefits, they are automatically eligible for SNAP. In another example, recipients of Medicaid, TANF, or SNAP are automatically deemed income-eligible for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)--a WIC policy known as adjunctive eligibility that is similar to categorical eligibility. Finally, under the federal school meals programs' direct certification policy, students who receive SNAP benefits are automatically certified as eligible for free school meals. According to our prior work, this policy not only eased access for eligible students but also improved program integrity, because of SNAP's more detailed certification process compared to the school meals programs. Overall, we found in our prior work that such policies can ease the administrative burden for participants as well as save resources, improve productivity, and allow staff to focus more time on performing essential program activities. Technology and data sharing: Computer systems can be used as a tool to carry out joint eligibility determination processes that streamline program administration for staff. Data-sharing arrangements, where permitted by federal law, allow programs to share client information that they otherwise would each collect and verify separately, thus reducing duplicative effort, saving money, and improving integrity, according to our earlier work. More specifically, with data sharing, staff may use existing data sources to prepopulate forms, thereby reducing the need for clients to provide the same information and documentation to multiple agencies. Staff may also use existing reliable data sources to automate the verification of information instead of conducting manual checks. For example, state agencies administering SNAP were able to determine SSI recipients' eligibility for SNAP benefits by receiving verified electronic data from SSA, without having to separately collect and verify applicant information, an arrangement that officials said saved administrative dollars and reduces duplicative effort across programs, according to our prior work. In contrast, we recently found that states are experiencing barriers to using data matches for certain other low-income programs. For example, in a 2016 report we found that state staff who administer both SNAP and Medicaid were not allowed to use benefits or earnings information from a federal data services hub created for Medicaid to determine SNAP eligibility; as a result, staff would need to conduct duplicative data matches to verify some of the same information for the same household. Flexibility to align application and eligibility determination processes: In addition to helping streamline the application process by making greater use of call centers and online applications in some programs, some states have also taken other steps to align application and eligibility determination processes, according to our prior work. Exercising such flexibilities, when available to states, can help ease access and streamline the process for both recipients and administrators. For example, some states reported that they integrated aspects of the SNAP eligibility process with those of other programs, such as through combined applications, common eligibility workers, or integrated or linked eligibility systems, according to our 2017 report. Overall, according to our state survey in this report, we found that SNAP eligibility processes were most commonly integrated with state TANF cash assistance programs (44 states), as well as with state Medicaid programs, although to a somewhat lesser degree. In another example, known as the Express Lane Eligibility option, states can choose to evaluate children's eligibility for Medicaid or CHIP by using findings--such as determinations regarding a family's income--made by other agencies, such as those administering SNAP or TANF. Further, while states administer the Medicaid program, SSI recipients' eligibility for Medicaid is sometimes determined by the Social Security Administration (SSA). We previously reported that as of May 2016, 33 states and the District of Columbia had agreements with SSA to determine SSI recipients' eligibility for Medicaid, according to SSA. In these states, the SSI application is also the Medicaid application. We provided a draft of this report to the Departments of Agriculture (USDA), Health and Human Services (HHS), Housing and Urban Development (HUD), and the Treasury; and the Social Security Administration (SSA). With the exception of HUD, which provided no comments, the agencies provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees; the Secretaries of the Department of Agriculture, HHS, HUD, and the Treasury; the Acting Commissioner of the SSA; and other interested parties. In addition, this report will be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. One measure of a program's reach is the program participation rate, or the percentage of those eligible who receive benefits from a program. According to a December 2015 Congressional Research Service (CRS) analysis of the latest data available for subsidized housing, Supplemental Security Income (SSI), the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), the estimated proportion of those eligible who received benefits in 2012 varied substantially, and not all of those eligible actually received benefits. (See fig. 8.) For the entitlement programs--those legally required to provide benefits to all those who apply and qualify (SNAP, EITC, and SSI)--the estimated proportion of eligible people who were enrolled ranged from 66.6 percent to 80 percent. In contrast, for the non- entitlement programs, the estimated proportion of eligible people who were enrolled was 18.2 percent for subsidized housing and 28.4 percent for TANF. The gap between those eligible for these programs and those receiving benefits may be explained by several factors, including program funding structure, the type of benefits provided, ease of access to the programs, and applicants' lack of awareness and misperceptions about the programs, among other things. The program's funding structure may contribute to a gap between the number of eligible people and the number of recipients. For example, for non-entitlement programs, such as TANF and Housing Choice Vouchers, funding amounts may limit the number of people served. Because of this, states and localities sometimes ration aid, using mechanisms such as waiting lists for housing. The type and amount of benefits can also affect program participation. In our earlier work, we reported that participation rates tended to be higher among subgroups of people eligible for larger benefits and among programs that provide cash benefits rather than direct services. Specifically, in our previous work, one of the reasons we found for the decline in TANF participation was a decline in the annual aggregate cash benefit amounts, which were 17 percent lower under 2005 program rules than they were under 1995 program rules. Factors that influence the ease with which potential participants can access a program--including office location and hours as well as the ease with which program participants can use their benefits--can also affect the participation rate. For example, a 2012 Congressional Budget Office report found that the increase in the rate at which eligible people received SNAP benefits between 2007 and 2011 was likely due in part to changes in the program's administration that made it easier for people to apply for and continue receiving benefits--such as greater use of online applications, mail-in renewals, and phone interviews--as well as to the poor economy, which reduced people's income and caused longer periods of need, prompting more people who were already eligible for the program to apply. In contrast, we found in our 2005 report that it was difficult for some participants to use Housing Choice Vouchers and Medicaid, as some service providers, such as landlords or health care providers, would not exchange their services for program benefits. Lack of awareness about program benefits on the part of the eligible population or misconceptions about eligibility can affect the overall number and characteristics of people who participate. In our 2005 work, we reported that several EITC, Medicaid, Food Stamp, and SSI studies indicated that one of the primary barriers to participation was that individuals did not know that they were eligible for these benefits. We further reported that for some individuals--like the elderly and non-English speakers--this unfamiliarity with program benefits was even more widespread, creating a larger barrier to participation and an under-representation of these individuals in the caseload. Finally, eligible families also choose whether to participate in a program in response to their personal feelings about government assistance programs and their individual circumstances. For example, according to our previous work, changes made to allow households to apply for SNAP online or by phone lowered the stigma associated with going to a public assistance office and may have contributed to an increase in SNAP participation. Also as we previously reported, the sharp declines in eligible families' participation in TANF cash assistance from 1995 to 2005 resulted from, among other things, the dynamics of family decision-making in response to TANF policies, such as mandatory participation in work activities. Specifically, we found that families eligible for TANF cash assistance often had characteristics that make employment difficult, such as poor health, low educational attainment, or limited English proficiency, which may affect their decisions to apply for TANF. There is no single maximum income amount an applicant may have to be eligible for the six federal low-income programs we reviewed, and the amount of allowable income varies significantly among the programs, according to data confirmed by the administering agencies. Figure 9 shows this variation by presenting the maximum income limits for EITC, SSI, and SNAP under federal rules, as well as the median amount (50th percentile) of the range of maximum income limits for the 48 contiguous states and Washington D.C. for the programs with varying income limits-- Housing Choice Vouchers, Medicaid, SNAP under state BBCE policies, and TANF. EITC has the highest maximum income allowed, and TANF, at well under the federal poverty guideline, has the lowest median maximum income allowed. In addition to the contact named above, Rachel Frisk (Assistant Director), Deborah A. Signer (Analyst-in-Charge), Kay E. Brown, Gale C. Harris, Kelly Snow, and Srinidhi Vijaykumar made key contributions to this report. Also contributing to this report were James Bennett, Sarah Cornetto, Kirsten Lauber, David Lin, Theresa Lo, Sheila McCoy, Jessica Orr, Jason Palmer, Gloria Proa, David Reed, Almeta Spencer, Rebecca Kuhlmann Taylor, and Max Sawicky.
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Various federal programs provide cash assistance, food, housing, and health care to millions of individuals, families, and households whose income falls below defined levels and who meet other eligibility requirements. As GAO previously reported, the numerous financial and nonfinancial rules for determining eligibility for such low-income programs can confuse applicants and increase program administration challenges. GAO was asked to examine eligibility rules for low-income programs. This report examines (1) the ways in which eligibility rules and benefits for selected federal low-income programs vary across the programs; and (2) what is known about challenges associated with efforts to streamline these rules. GAO reviewed relevant agency guidance and other information provided by agencies and analyzed financial eligibility rules and benefits across six low-income programs. GAO confirmed all information on program rules with the respective administering agencies. GAO selected these programs because they are among the largest of the federally funded programs addressing low-income people's basic needs and they illustrate variations in eligibility rules among low-income programs. GAO also reviewed previous GAO reports and selected reports from the Congressional Research Service and other knowledgeable research and policy organizations. Six key federally funded programs for low-income people vary significantly with regard to who is eligible, how income is counted and the maximum income applicants may have to be eligible, and the benefits provided. In fiscal year 2015, the most current data available, the federal government spent nearly $540 billion on benefits for these six programs--the Earned Income Tax Credit (EITC), Medicaid, the Housing Choice Voucher program, Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), and Temporary Assistance for Needy Families (TANF). The target population for each of these programs differs, for example, people who are elderly or disabled or who have dependent children. Further, some programs have conditions for continued eligibility, such as participation in work activities under TANF. The six programs also vary in what income is and is not counted when determining an applicant's eligibility. For example, certain programs, such as SNAP, disregard a portion of earned income, while others do not. The maximum amount of income an applicant may have and still be eligible for benefits, which is determined for some programs at the federal level and for others at the state or local level, also differs significantly. As of December 2016, this amount ranged from $5,359 per month for one state's Medicaid program to $0 per month in one state for TANF cash assistance, for a single parent with two children. Benefit levels also differed across the six selected programs, with average monthly benefits for these programs ranging in fiscal year 2015 from $258 for SNAP to $626 for Housing Choice Vouchers, and four of the six programs adjust benefits annually. Legal, administrative, and financial constraints pose challenges to efforts to streamline varying eligibility rules for federal low-income programs, according to GAO's current and previous work. A key challenge is that the programs are authorized by different federal statutes enacted at different times in response to differing circumstances. Other laws, such as appropriations laws, can also have an impact on federal programs and their rules. As a result, streamlining eligibility rules would require changing many laws and coordination among a broad set of lawmakers and congressional committees. A further challenge is that a different federal agency or office administers each program GAO reviewed. For some of these programs, such as TANF, state governments also establish some program rules, making it more difficult to streamline rules at the federal level within or across these programs. Finally, financial constraints may also affect efforts to streamline program rules. For example, if rule changes raise the income eligibility limit in a program, more people may become eligible and that program's costs may increase. Despite these challenges, Congress, federal agencies, and states have taken some steps to streamline program administration and rules, such as by making greater use of data-sharing where permitted by federal law and aligning programs' applications and eligibility determination processes. For example, SSI recipients in most states are automatically eligible for Medicaid, and GAO previously reported that some states have integrated the SNAP eligibility process with other low-income programs, such as through combined applications and common eligibility workers. GAO is not making recommendations in this report.
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When we refer to consumer advocacy groups, we are referring to groups that advocate on behalf of consumers and patients. its safety and effectiveness. Class I includes devices with the lowest risk (e.g., tongue depressors, reading glasses, forceps), while class III includes devices with the highest risk (e.g., breast implants, coronary stents). Almost all class I devices and some class II devices (e.g., mercury thermometers, certain adjustable hospital beds) are exempt from premarket notification requirements. Most class III device types are required to obtain FDA approval through the PMA process, the most stringent of FDA's medical device review processes. The remaining device types are required to obtain FDA clearance or approval through either the 510(k) or PMA processes. If eligible, a 510(k) is filed when a manufacturer seeks a determination that a new device is substantially equivalent to a legally marketed device known as a predicate device. In order to be deemed substantially equivalent (i.e., cleared by FDA for marketing), a new device must have the same technological characteristics and intended use as the predicate device, or have the same intended use and different technological characteristics but still be demonstrated to be as safe and effective as the predicate device without raising new questions of safety and effectiveness. Most device submissions filed each year are 510(k)s. For example, of the more than 13,600 device submissions received by FDA in FYs 2008 through 2010, 88 percent were 510(k)s. The medical device performance goals were phased in during the period covered by MDUFMA (the FYs 2003 through 2007 cohorts) and were updated for MDUFA. Under MDUFA, FDA's goal is to complete the review process for 90 percent of the 510(k)s in a cohort within 90 days of submission (known as the Tier 1 goal) and to complete the review process for 98 percent of the cohort within 150 days (the Tier 2 goal).(See table 1 for the 510(k) performance goals for the FYs 2003 through 2011 cohorts). FDA may take any of the following actions on a 510(k) after completing its review: issue an order declaring the device substantially equivalent; issue an order declaring the device not substantially equivalent; or advise the submitter that the 510(k) is not required (i.e., the product is not regulated as a device or the device is exempt from premarket notification requirements). Each of these actions ends the review process for a submission. A sponsor's withdrawal of a submission also ends the review process. Alternatively, FDA may "stop the clock" on a 510(k) review by sending a letter asking the sponsor to submit additional information (known as an AI letter). This completes a review cycle but does not end the review process. The clock will resume (and a new review cycle will begin) when FDA receives a response from the sponsor. As a result, FDA may meet its 510(k) performance goals even if the time to final decision (FDA review time plus time spent waiting for the sponsor to respond to FDA's requests for additional information) is longer than the time frame allotted for the performance goal. For example, a sponsor might have submitted a 510(k) on March 1, 2009, to start the review process. If FDA sent an AI letter on April 1, 2009 (after 31 days on the clock), the sponsor provided a response on June 1, 2009 (after an additional 61 days off the clock), and FDA issued a final decision on June 11, 2009 (10 more days on the clock), then the FDA review time counted toward the MDUFA performance goals would be 41 days (FDA's on-the-clock time). FDA would have met both the Tier 1 (90 day) and Tier 2 (150 day) time frames for that device even though the total number of calendar days (on- and off-the-clock) from beginning the review to a final decision was 102 days. (See table 2 for a comparison of FDA review time and time to final decision.) FDA tracks the time to final decision and reports on it in the agency's annual reports to Congress on the medical device user fee program. A PMA is filed when a device is not substantially equivalent to a predicate device or has been classified as a class III PMA device (when the risks associated with the device are considerable). The PMA review process is the most stringent type of medical device review process required by FDA, and user fees are much higher for PMAs than for 510(k)s. PMAs are designated as either original or expedited. FDA considers a device eligible for expedited review if it is intended to (a) treat or diagnose a life- threatening or irreversibly debilitating disease or condition and (b) address an unmet medical need.submissions to determine which are appropriate for expedited review, regardless of whether a company has identified its device as a potential candidate for this program. FDA assesses all medical device To meet the MDUFA goals, FDA must complete its review of 60 percent of the original PMAs in a cohort within 180 days of submission (Tier 1) and 90 percent within 295 days (Tier 2). For expedited PMAs, 50 percent of a cohort must be completed within 180 days (Tier 1) and 90 percent within 280 days (Tier 2). (See table 3 for the PMA performance goals for the FYs 2003 through 2011 cohorts.) The various actions FDA may take during its review of a PMA are the following: major deficiency letter; not approvable letter; and denial order. The major deficiency letter is the only one of these actions that does not end the review process for purposes of determining whether FDA met the MDUFA performance goal time frame for a given submission. As with the AI letter in a 510(k) review, FDA can stop the clock during the PMA review process by sending a major deficiency letter (ending a review cycle) and resume it later upon receiving a response from the manufacturer. In contrast, taking one of the other four actions permanently stops the clock, meaning any further review that occurs is excluded from the calculation of FDA review time. In addition, the approval order and denial order are also considered final decisions and end FDA's review of a PMA completely. A sponsor's withdrawal of a submission also ends the review process. FDA's review of medical device submissions has been discussed in recent congressional hearings, meetings between FDA and stakeholders about the medical device user fee program reauthorization, and published reports. In addition, in August 2010, FDA released reports which described the results of two internal assessments conducted by FDA of its medical device review programs. In January 2011, FDA released a plan of action that included 25 steps FDA intends to take to address the issues identified in these assessments. For FYs 2003 through 2010, FDA met all Tier 1 and Tier 2 performance goals for 510(k)s. In addition, FDA review time for 510(k)s decreased slightly during this period, but time to final decision increased substantially. The average number of review cycles and FDA's requests for additional information for 510(k) submissions also increased during this period. FDA met all Tier 1 performance goals for the completed 510(k) cohorts that had Tier 1 goals in place. The percentage of 510(k)s reviewed within 90 days (the current Tier 1 goal time frame) exceeded 90 percent for the FYs 2005 through 2010 cohorts (see fig. 1.) Although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA's data, FDA was exceeding the Tier 1 goal for those submissions on which it had taken action. FDA's performance varied for 510(k) cohorts prior to the years that the Tier 1 goals were in place but was always below the current 90 percent goal. FDA met the Tier 2 goals for all three of the completed cohorts that had Tier 2 goals in place. Specifically, FDA met the goal of reviewing 98 percent of submissions within 150 days for the FYs 2008, 2009, and 2010 cohorts (see fig. 2.) Additionally, although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA's data, FDA was exceeding the Tier 2 goal for those submissions on which it had taken action. FDA's performance for 510(k) cohorts prior to the years that the Tier 2 goals were in place was generally below the current 98 percent goal. While the average FDA review time for 510(k) submissions decreased slightly from the FY 2003 cohort to the FY 2010 cohort, the time to final decision increased substantially. Specifically, the average number of days FDA spent on the clock reviewing a 510(k) varied somewhat but overall showed a small decrease from 75 days for the FY 2003 cohort to 71 days for the FY 2010 cohort (see fig. 3). However, when we added off-the- clock time (where FDA waited for the sponsor to provide additional information) to FDA's on-the-clock review time, the resulting time to final decision decreased slightly from the FY 2003 cohort to the FY 2005 cohort before increasing 61 percent--from 100 days to 161 days--from the FY 2005 cohort through the FY 2010 cohort. FDA officials told us that the only alternative to requesting additional information is for FDA to reject the submission. The officials stated that as a result of affording sponsors this opportunity to respond, the time to final decision is longer but the application has the opportunity to be approved. Additionally, although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA's data, the average FDA review time and time to final decision were lower in FY 2011 for those submissions on which it had taken action. The average number of review cycles per 510(k) increased substantially (39 percent) from FYs 2003 through 2010, rising from 1.47 cycles for the FY 2003 cohort to 2.04 cycles for the FY 2010 cohort (see fig. 4). In addition, the percentage of 510(k)s receiving a first-cycle decision of substantially equivalent (i.e., cleared by FDA for marketing) decreased from 54 percent for the FY 2003 cohort to 20 percent for the FY 2010 cohort, while the percentage receiving first-cycle AI requests exhibited a corresponding increase. (See fig. 5.) The average number of 510(k) submissions per year remained generally steady during this period. Although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA's data, of the first-cycle reviews that had been completed, the percentage of submissions receiving a first-cycle decision of substantially equivalent was slightly higher than for the FY 2010 cohort (21.2 percent in FY 2011 compared with 20.0 percent in FY 2010). In addition, the percentage receiving a first-cycle AI request was lower (68.2 percent for FY 2011 compared with 77.0 for FY 2010). The percentage of 510(k)s that received a final decision of substantially equivalent also decreased in recent years--from a high of 87.9 percent for the FY 2005 cohort down to 75.1 percent for the FY 2010 cohort. The percentage of 510(k)s receiving a final decision of not substantially equivalent increased for each cohort from FYs 2003 through 2010, rising from just over 2.9 percent to 6.4 percent. (See fig. 6.) For FYs 2003 through 2010, FDA met most of the goals for original PMAs but fell short on most of the goals for expedited PMAs. In addition, FDA review time and time to final decision for both types of PMAs generally increased during this period. Finally, the average number of review cycles increased for certain PMAs while the percentage of PMAs approved after one review cycle generally decreased. Since FY 2003, FDA met the original PMA performance goals for four of the seven completed cohorts that had goals in place, but met the goals for only two of the seven expedited PMA cohorts with goals. Specifically, FDA met its Tier 1 performance goals for original PMAs for all three of the completed original PMA cohorts that had such goals in place, with the percentage increasing from 56.8 percent of the FY 2007 cohort to 80.0 percent of the FY 2009 cohort completed on time. (See fig. 7.) While the FY 2010 and 2011 cohorts are still incomplete, FDA is exceeding the goals for those submissions on which it has taken action. FDA's performance had declined steadily in the years immediately before implementation of these goals--from 67.1 percent of the FY 2000 cohort to 34.5 percent of the FY 2006 cohort completed within 180 days. FDA's performance in meeting the Tier 2 performance goals for original PMAs fell short of the goal for three of the four completed cohorts during the years that these goals were in place. FDA met the MDUFMA Tier 2 performance goal (320 days) for the FY 2006 original PMA cohort but not for the FY 2007 cohort, and did not meet the MDUFA Tier 2 performance goal (295 days) for either of the completed cohorts (FYs 2008 and 2009) to which the goal applied (see fig. 8). While the FYs 2010 and 2011 original PMA cohorts are still incomplete, FDA is exceeding the MDUFA FDA's Tier 2 goals for those submissions on which it has taken action.performance varied for original PMA cohorts prior to the years that the Tier 2 goals were in place but was always below the current goal to have 90 percent reviewed within 295 days. For expedited PMAs, FDA met the Tier 1 and Tier 2 performance goals for only two of the seven completed cohorts for which the goals were in effect. FDA met the Tier 1 (180-day) goal for only one of the two completed cohorts during the years the goal has been in place, meeting the goal for the FY 2009 cohort but missing it for the FY 2008 cohort (see fig. 9). FDA's performance varied for cohorts prior to the years that the Tier 1 expedited PMA goals were in place but was below the current goal of 50 percent in all but 1 year. FDA's performance in meeting the Tier 2 performance goals for expedited PMAs fell short of the goal for four of the five completed cohorts during the years that these goals were in place. FDA met the MDUFMA Tier 2 performance goal (300 days) for the FY 2005 cohort but not for the FY 2006 or 2007 cohorts, and did not meet the MDUFA Tier 2 performance goal (280 days) for either of the completed cohorts (FY 2008 and 2009) to which the goal applied (see fig. 10). FDA's performance varied for expedited PMA cohorts prior to the years that the Tier 2 goals were in place but always fell below the current goal to have 90 percent reviewed within 280 days. FDA review time for both original and expedited PMAs was highly variable but generally increased across our analysis period, while time to final decision also increased for original PMAs. Specifically, average FDA review time for original PMAs increased from 211 days in the FY 2003 cohort (the first year that user fees were in effect) to 264 days in the FY 2008 cohort, then fell in the FY 2009 cohort to 217 days (see fig. 11). When we added off-the-clock time (during which FDA waited for the sponsor to provide additional information or correct deficiencies in the submission), average time to final decision for the FYs 2003 through 2008 cohorts fluctuated from year to year but trended upward from 462 days for the FY 2003 cohort to 627 days for the FY 2008 cohort. The results for expedited PMAs fluctuated even more dramatically than for original PMAs--likely due to the small number of submissions (about 7 per year on average). Average FDA review time for expedited PMAs generally increased over the period that user fees have been in effect, from 241 days for the FY 2003 cohort to 356 days for the FY 2008 cohort, then fell to 245 days for the FY 2009 cohort (see fig. 12). The average time to final decision for expedited PMAs was highly variable but overall declined somewhat during this period, from 704 days for the FY 2003 cohort to 545 days for the FY 2009 cohort. The average number of review cycles per original PMA increased 27.5 percent from 1.82 in the FY 2003 cohort (the first year that user fees were in effect) to 2.32 cycles in the FY 2008 cohort. For expedited PMAs, the average number of review cycles per submission was fairly steady at approximately 2.5 cycles until the FY 2004 cohort, then peaked at 4.0 in the FY 2006 cohort before decreasing back to 2.5 cycles in the FY 2009 cohort. We found nearly identical trends when we examined the subsets of original and expedited PMAs that received a final FDA decision of approval. In addition, the percentage of original PMAs receiving a decision of approval at the end of the first review cycle fluctuated from FYs 2003 through 2009 but generally decreased--from 16 percent in the FY 2003 cohort to 9.8 percent in the FY 2009 cohort. Similarly, the percentage receiving a first-cycle approvable decision decreased from 12 percent in the FY 2003 cohort to 2.4 percent in the FY 2009 cohort. The percentage of expedited PMAs receiving first-cycle approval fluctuated from year to year, from 0 percent in 5 of the years we examined to a maximum of 25 percent in FY 2008. The percentage of original PMAs that ultimately received approval from FDA fluctuated from year to year but exhibited an overall decrease for the completed cohorts from FYs 2003 through 2008. Specifically, 74.0 percent of original PMAs in the FY 2003 cohort were ultimately approved, compared to 68.8 percent of the FY 2008 cohort. The percentage of expedited PMAs that were ultimately approved varied significantly from FYs 2003 through 2009, from a low of 0 percent in the FY 2007 cohort to a high of 100 percent in the FY 2006 cohort. The industry groups and consumer advocacy groups we interviewed noted a number of issues related to FDA's review of medical device submissions. The most commonly mentioned issue raised by industry and consumer advocacy stakeholder groups was insufficient communication between FDA and stakeholders throughout the review process. Industry stakeholders also noted a lack of predictability and consistency in reviews and an increase in time to final decision. Consumer advocacy group stakeholders noted issues related to inadequate assurance of the safety and effectiveness of approved or cleared devices. FDA is taking steps that may address many of these issues. Most of the three industry and four consumer advocacy group stakeholders that we interviewed told us that there is insufficient communication between FDA and stakeholders throughout the review process. For example, four stakeholders noted that FDA does not clearly communicate to stakeholders the regulatory standards that it uses to evaluate submissions. In particular, industry stakeholders noted problems with the regulatory guidance documents issued by FDA. These stakeholders noted that these guidance documents are often unclear, out of date, and not comprehensive. Stakeholders also noted that after sponsors submit their applications to FDA, insufficient communication from FDA prevents sponsors from learning about deficiencies in their submissions early in FDA's review. According to one of these stakeholders, if FDA communicated these deficiencies earlier in the process, sponsors would be able to correct them and would be less likely to receive a request for additional information. Two consumer advocacy group stakeholders also noted that FDA does not sufficiently seek patient input during reviews. One stakeholder noted that it is important for FDA to incorporate patient perspectives into its reviews of medical devices because patients might weigh the benefits and risks of a certain device differently than FDA reviewers. FDA has taken or plans to take several steps that may address issues with the frequency and quality of its communications with stakeholders, including issuing new guidance documents, improving the guidance development process, and enhancing interactions between FDA and stakeholders during reviews. For example, in December 2011, FDA released draft guidance about the regulatory framework, policies, and practices underlying FDA's 510(k) review in order to enhance the transparency of this program. In addition, FDA implemented a tracking system and released a standard operating procedure (SOP) for developing guidance documents for medical device reviews to provide greater clarity, predictability, and efficiency in this process. FDA also created a new staff position to oversee the guidance development process. Additionally, according to an overview of recent FDA actions to improve its device review programs, FDA is currently enhancing its interactive review process for medical device reviews by establishing performance goals for early and substantive interactions between FDA and sponsors during reviews. This overview also notes that FDA is currently working with a coalition of patient advocacy groups on establishing mechanisms for obtaining reliable information on patient perspectives during medical device reviews. The three industry stakeholders that we interviewed also told us that there is a lack of predictability and consistency in FDA's reviews of device submissions. For example, two stakeholders noted that review criteria sometimes change after a sponsor submits an application. In particular, one of these stakeholders noted that criteria sometimes change when the FDA reviewer assigned to the submission changes during the review. Additionally, stakeholders noted that there is sometimes inconsistent application of criteria across review divisions or across individual reviewers. Stakeholders noted that enhanced training for reviewers and enhanced supervisory oversight could help resolve inconsistencies in reviews and increase predictability for sponsors. In the two internal assessments of its device review programs that FDA released in August 2010, the agency found that insufficient predictability in its review programs was a significant problem. FDA has taken steps that may address issues with the predictability and consistency of its reviews of device submissions, including issuing new SOPs for reviews and enhancing training for FDA staff. For example, in June 2011, FDA issued an SOP to standardize the practice of quickly issuing written notices to sponsors to inform them about changes in FDA's regulatory expectations for medical device submissions. FDA also recently developed an SOP to assure greater consistency in the review of device submissions when review staff change during the review.April 2010, FDA began a reviewer certification program for new FDA Additionally, in reviewers designed to improve the consistency of reviews. According to the overview of recent FDA actions to improve its device review programs, FDA also plans to implement an experiential learning program for new reviewers to give them a better understanding of how medical devices are designed, manufactured, and used. The three industry stakeholders we interviewed told us that the time to final decision for device submissions has increased in recent years. This is consistent with our analysis, which showed that the average time to final decision has increased for completed 510(k) and original PMA cohorts since FY 2003. Additionally, stakeholders noted that FDA has increased the number of requests for additional information, which our analysis also shows. Stakeholders told us they believe the additional information being requested is not always critical for the review of the submission. Additional information requests increase the time to final decision but not necessarily the FDA review time because FDA stops the review clock when it requests additional information from sponsors. Two of the stakeholders stated that reviewers may be requesting additional information more often due to a culture of increased risk aversion at FDA or because they want to stop the review clock in order to meet performance goals. According to FDA, the most significant contributor to the increased number of requests for additional information--and therefore increased time to final decision--is the poor quality of submissions received from sponsors. In July 2011, FDA released an analysis it conducted of review According to FDA, in over 80 percent times under the 510(k) program.of the reviews studied for this analysis, reviewers asked for additional information from sponsors due to problems with the quality of the submission. FDA officials told us that sending a request for additional information is often the only option for reviewers besides issuing a negative decision to the sponsor. FDA's analysis also found that 8 percent of its requests for additional information during the first review cycle were inappropriate. Requests for additional information were deemed inappropriate if FDA requested additional information or data for a 510(k) that (1) were not justified, (2) were not permissible as a matter of federal law or FDA policy, or (3) were unnecessary to make a substantial equivalence determination. FDA has taken steps that may address issues with the number of inappropriate requests for additional information. For example, the overview of recent FDA actions indicates the agency is developing an SOP for requests for additional information that clarifies when these requests can be made for 510(k)s, the types of requests that can be made, and the management level at which the decision must be made. Three of the four consumer advocacy group stakeholders with whom we spoke stated that FDA is not adequately ensuring the safety and effectiveness of the devices it approves or clears for marketing. One of these stakeholders told us that FDA prioritizes review speed over safety and effectiveness. Two stakeholders also noted that the standards FDA uses to approve or clear devices are lower than the standards that FDA uses to approve drugs, particularly for the 510(k) program. Two stakeholders also expressed concern that devices reviewed under the 510(k) program are not always sufficiently similar to their predicates and that devices whose predicates are recalled due to safety concerns do not have to be reassessed to ensure that they are safe. Finally, three stakeholders told us that FDA does not gather enough data on long-term device safety and effectiveness through methods such as postmarket analysis and device tracking. These issues are similar to those raised elsewhere, such as a public meeting to discuss the reauthorization of the medical device user fee program, a congressional hearing, and an Institute of Medicine (IOM) report. For example, during a September 14, 2010, public meeting to discuss the reauthorization, consumer advocacy groups--including two of those we interviewed for our report--urged the inclusion of safety and effectiveness improvements in the reauthorization, including raising premarket review standards for devices and increasing postmarket surveillance. Additionally, during an April 13, 2011, congressional hearing, another consumer advocacy group expressed concerns about FDA's 510(k) review process and recalls of high-risk devices that were cleared through this process. Finally, in July 2011, IOM released a report summarizing the results of an independent evaluation of the 510(k) program. FDA had requested that IOM conduct this evaluation to determine whether the 510(k) program optimally protects patients and promotes innovation. IOM concluded that clearance of a 510(k) based on substantial equivalence to a predicate device is not a determination that the cleared device is safe or effective. FDA has taken or plans to take steps that may address issues with the safety and effectiveness of approved and cleared devices, including evaluating the 510(k) program and developing new data systems. For example, FDA analyzed the safety of 510(k) devices cleared on the basis of multiple predicates by investigating an apparent association between these devices and increased reports of adverse events. FDA concluded that no clear relationship exists. FDA also conducted a public meeting to discuss the recommendations proposed in the IOM report in September 2011. FDA is also developing a device identification system that will allow FDA to better track devices that are distributed to patients, as well as an electronic reporting system that will assist with tracking and analyzing adverse events in marketed devices. While FDA has met most of the goals for the time frames within which the agency was to review and take action on 510(k) and PMA device submissions, the time that elapses before a final decision has been increasing. This is particularly true for 510(k) submissions, which comprise the bulk of FDA device reviews. Stakeholders we spoke with point to a number of issues that the agency could consider in addressing the cause of these time increases. FDA tracks and reports the time to final decision in its annual reports to Congress on the medical device user fee program, and its own reports reveal the same pattern we found. In its July 2011 analysis of 510(k) submissions, FDA concluded that reviewers asked for additional information from sponsors--thus stopping the clock on FDA's review time while the total time to reach a final decision continued to elapse--mainly due to problems with the quality of the submission. FDA is taking steps that may address the increasing time to final decision. It is important for the agency to monitor the impact of those steps in ensuring that safe and effective medical devices are reaching the market in a timely manner. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix III. HHS generally agreed with our findings and noted that FDA has identified some of the same performance trends in its annual reports to Congress. HHS noted that because the total time to final decision includes the time industry incurs in responding to FDA's concerns, FDA and industry bear shared responsibility for the increase in this time and will need to work together to achieve improvement. HHS also noted that in January 2011, FDA announced 25 specific actions that the agency would take to improve the predictability, consistency, and transparency of its premarket medical device review programs. Since then, HHS stated, FDA has taken or is taking actions designed to create a culture change toward greater transparency, interaction, collaboration, and the appropriate balancing of benefits and risk; ensure predictable and consistent recommendations, decision making, and application of the least burdensome principle; and implement efficient processes and use of resources. HHS also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Commissioner of FDA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. 2002 (MDUFMA) (MDUFA) Cycles that were currently in progress at the time we received FDA's data were included in this analysis. The average number of review cycles for the FY 2011 cohort may increase as those reviews are completed but will not decrease. -- We treated PMA submissions as meeting the time frame for a given performance goal if they were reviewed within the goal time plus any extension to the goal time that may have been made. The only reason the goal time can be extended is if the sponsor submits a major amendment to the submission on its own initiative (i.e., unsolicited by FDA). The FYs 2010 and 2011 original PMA cohorts were considered still incomplete. Specifically, for 18.5 percent of the FY 2010 original PMA cohort and 48.8 percent of the FY 2011 cohort, FDA had not yet made a decision that would permanently stop the review clock for purposes of determining whether FDA met its performance goals (i.e., an approval, approvable, not approvable, withdrawal, or denial) at the time we received FDA's data; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA's data. The percentage of original PMAs reviewed within 180 days for the FY 2010 and FY 2011 cohorts may increase or decrease as those reviews are completed; the number reviewed within 180 days and the number and percentage reviewed within 320 days and within 295 days may decrease as those reviews are completed. Only original PMAs that had received a decision permanently stopping the review clock were used to determine the number and percentage of original PMAs reviewed within 180 days, within 320 days, and within 295 days. Cycles that were currently in progress at the time we received FDA's data were included in this analysis. The average number of review cycles for the incomplete cohorts may increase as those reviews are completed but will not decrease. This analysis includes only those original PMAs for which FDA or the sponsor had made a final decision; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. For this analysis, the FYs 2009 through 2011 original PMA cohorts were considered still incomplete. Specifically, 22 percent of the FY 2009 original PMA cohort, 46.3 percent of the FY 2010 cohort, and 65.1 percent of the FY 2011 cohort had not yet received a final decision. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA's data. The percentages of final decisions that were approval, denial, or withdrawal and the average time to final decision for original PMAs not meeting the 295-day time frame for the FYs 2009 through 2011 cohorts may increase or decrease as those reviews are completed. The average number of review cycles for the FYs 2009 through 2011 cohorts may increase as those reviews are completed but will not decrease. For the FYs 2010 through 2011 cohorts, there were no original PMAs that had received a final decision that did not meet the 295-day time frame. -- We treated PMA submissions as meeting the time frame for a given performance goal if they were reviewed within the goal time plus any extension to the goal time that may have been made. The only reason the goal time can be extended is if the sponsor submits a major amendment to the submission on its own initiative (i.e., unsolicited by FDA). The FYs 2010 and 2011 expedited PMA cohorts were considered still incomplete. Specifically, 33 percent of the FY 2010 expedited PMA cohort and 71.4 percent of the FY 2011 cohort had not yet received a final decision; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. Additionally, for 16.7 percent of the FY 2010 expedited PMA cohort and 71.4 percent of the FY 2011 cohort, FDA had not yet made a decision that would permanently stop the review clock for purposes of determining whether FDA met its performance goals (i.e., an approval, approvable, not approvable, withdrawal, or denial) at the time we received FDA's data. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA's data. The percentage of expedited PMAs reviewed within 180 days for the FY 2010 and FY 2011 cohorts may increase or decrease as those reviews are completed; the number reviewed within 180 days and the number and percentage reviewed within 300 days and within 280 days may decrease as those reviews are completed. The percentages of final decisions that were approval, denial, or withdrawal and the average time to final decision for the FYs 2010 through 2011 cohorts may increase or decrease as those reviews are completed. The average number of review cycles for the FYs 2010 through 2011 cohorts may increase as those reviews are completed but will not decrease. Fiscal years for which there was no corresponding expedited PMA performance goal are denoted with a dash (--). "n/a" denotes not applicable. In these years, there was no corresponding expedited PMA performance goal and therefore no determination of whether the goal was met. For the FYs 2010 through 2011 cohorts, there were no expedited PMAs that had received a final decision that did not meet the 280-day time frame. FDA centers and offices Center for Devices and Radiological Health (CDRH) Office of Management Operations (OSM/OMO) Office of Information Technology (OIT) Office of Science and Engineering Laboratories (OST/OSEL) Office of Communication Education and Radiation Programs (OHIP/OCER) Office of Surveillance and Biometrics (OSB) Office of In Vitro Diagnostics (OIVD) Committee Conference Management (CCM) Center for Biologics Evaluation and Research (CBER) Center Director's Office, Office of Management (OM), Office of Information Management (OIM), and Office of Communication, Outreach, and Development (OCOD) Office of Cellular, Tissue & Gene Therapies Office of Vaccines Research & Review Office of Therapeutics Research & Review Office of Biostatistics & Epidemiology Office of Compliance & Biologics Quality Office of Regulatory Affairs (ORA) Office of the Commissioner (OC) Shared Service (SS) OCD includes Medical Device Fellowship Program employees even though the Fellows were assigned to work throughout CDRH. OIT was included in the OMO FTE total prior to FY 2008. OIVD did not exist prior to FY 2004. Also, the Radiology Devices Branch was moved from ODE to OIVD between FY 2009 and FY 2010. CCM was included in the OMO FTE total prior to FY 2008. Shared Service FTE were not separated from the center FTE until FY 2004. In addition to the contact named above, Robert Copeland, Assistant Director; Carolyn Fitzgerald; Cathleen Hamann; Karen Howard; Hannah Marston Minter; Lisa Motley; Aubrey Naffis; Michael Rose; and Rachel Schulman made key contributions to this report.
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The Food and Drug Administration (FDA) within the Department of Health and Human Services (HHS) is responsible for overseeing the safety and effectiveness of medical devices sold in the United States. New devices are generally subject to FDA review via the 510(k) process, which determines if a device is substantially equivalent to another legally marketed device, or the more stringent premarket approval (PMA) process, which requires evidence providing reasonable assurance that the device is safe and effective. The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) authorized FDA to collect user fees from the medical device industry to support the process of reviewing device submissions. FDA also committed to performance goals that include time frames within which FDA is to take action on a proportion of medical device submissions. MDUFMA was reauthorized in 2007. Questions have been raised as to whether FDA is sufficiently meeting the performance goals and whether devices are reaching the market in a timely manner. In preparation for reauthorization, GAO was asked to (1) examine trends in FDA's 510(k) review performance from fiscal years (FY) 2003-2010, (2) examine trends in FDA's PMA review performance from FYs 2003-2010, and (3) describe stakeholder issues with FDA's review processes and steps FDA is taking that may address these issues. To do this work, GAO examined FDA medical device review data, reviewed FDA user fee data, interviewed FDA staff regarding the medical device review process and FDA data, and interviewed three industry groups and four consumer advocacy groups. Even though FDA met all medical device performance goals for 510(k)s, the elapsed time from submission to final decision has increased substantially in recent years. This time to final decision includes the days FDA spends reviewing a submission as well as the days FDA spends waiting for a device sponsor to submit additional information in response to a request by the agency. FDA review time excludes this waiting time, and FDA review time alone is used to determine whether the agency met its performance goals. Each fiscal year since FY 2005 (the first year that 510(k) performance goals were in place), FDA has reviewed over 90 percent of 510(k) submissions within 90 days, thus meeting the first of two 510(k) performance goals. FDA also met the second goal for all 3 fiscal years it was in place by reviewing at least 98 percent of 510(k) submissions within 150 days. Although FDA has not yet completed reviewing all of the FY 2011 submissions, the agency was exceeding both of these performance goals for those submissions on which it had taken action. Although FDA review time decreased slightly from FY 2003 through FY 2010, the time that elapsed before FDA's final decision increased substantially. Specifically, from FY 2005 through FY 2010, the average time to final decision for 510(k)s increased 61 percent, from 100 days to 161 days. FDA was inconsistent in meeting performance goals for PMA submissions. FDA designates PMAs as either original or expedited; those that FDA considers eligible for expedited review are devices intended to (a) treat or diagnose life-threatening or irreversibly debilitating conditions and (b) address an unmet medical need. While FDA met the performance goals for original PMA submissions for 4 out of 7 years the goals were in place, it met those goals for expedited PMA submissions only twice out of 7 years. FDA review time and time to final decision for both types of PMAs were highly variable but generally increased in recent years. For example, the average time to final decision for original PMAs increased from 462 days for FY 2003 to 627 days for FY 2008 (the most recent year for which complete data are available). The three industry groups and four consumer advocacy groups GAO interviewed noted a number of issues related to FDA's review of medical device submissions. The four issues most commonly raised by stakeholders included (1) insufficient communication between FDA and stakeholders throughout the review process, (2) a lack of predictability and consistency in reviews, (3) an increase in time to final decision, and (4) inadequate assurance of the safety and effectiveness of approved or cleared devices. FDA is taking steps--including issuing new guidance documents, enhancing reviewer training, and developing an electronic system for reporting adverse events--that may address many of these issues. It is important for the agency to monitor the impact of those steps in ensuring that safe and effective medical devices are reaching the market in a timely manner. In commenting on a draft of this report, HHS generally agreed with GAO's findings and noted that FDA has identified some of the same performance trends in its annual reports to Congress. HHS also called attention to the activities FDA has undertaken to improve the medical device review process.
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The SSN was created in 1936 as a means of tracking workers' earnings and eligibility for Social Security benefits. SSNs are issued to most U.S. citizens, and to some noncitizens lawfully admitted to the United States. Through a process known as enumeration, a unique nine-digit number is created. The number is divided into three parts-- first three digits represent the geographic area where the SSN was assigned; the middle two are the group number, which is assigned in a specified order for each area number; and the last four are serial numbers ranging from 0001 to 9999. Because of the number's uniqueness and broad applicability, SSNs have become the identifier of choice for government agencies and private businesses, and are used for a myriad of non-Social Security purposes. Information resellers, sometimes referred to as information brokers, are businesses that specialize in amassing personal information from multiple sources and offering informational services. These entities may provide their services to a variety of prospective buyers, either to specific business clients or to the general public through the Internet. More prominent or large information resellers such as consumer reporting agencies and entities like LexisNexis provide information to their customers for various purposes, such as building consumer credit reports, verifying an individual's identity, differentiating records, marketing their products, and preventing financial fraud. These large information resellers limit their services to businesses and government entities that establish accounts with them and have a legitimate purpose for obtaining an individual's personal information. For example, law firms and collection agencies may request information on an individual's bank accounts and real estate holdings for use in civil proceedings, such as a divorce. Information resellers that offer their services through the Internet (Internet resellers) will generally advertise their services to the general public for a fee. Resellers, whether well-known or Internet-based, collect information from three sources: public records, publicly available information, and nonpublic information. Public records are available to anyone and obtainable from governmental entities. Exactly what constitutes public records depends on state and federal laws, but generally includes birth and death records, property records, tax lien records, voter registrations, and court records (including criminal records, bankruptcy filings, civil case files, and legal judgments). Publicly available information is information not found in public records but nevertheless available to the public through other sources. These sources include telephone directories, business directories, print publications such as classified ads or magazines, and other sources accessible by the general public. Nonpublic information is derived from proprietary or private sources, such as credit header data and application information provided by individuals--for example, information on a credit card application--directly to private businesses. Information resellers provide information to their customers for various purposes, such as building consumer credit reports, verifying an individual's identity, differentiating records, marketing their products, and preventing financial fraud. The aggregation of the general public's personal information, such as SSNs, in large corporate databases and the increased availability of information via the Internet may provide unscrupulous individuals a means to acquire SSNs and use them for illegal purposes. Because of the myriad uses of the SSN, Congress has previously asked GAO to review various aspects of SSN-use in both the public and private sectors. In our previous work, our reports have looked at how private businesses and government agencies obtain and use SSNs. In addition, we have reported that the perceived widespread sharing of personal information and instances of identity theft have heightened public concern about the use of Social Security numbers. We have also noted that the SSN is used, in part, as a verification tool for services such as child support collection, law enforcement enhancement, and issuing credit to individuals. Although these uses of SSNs are beneficial to the public, SSNs are also key elements in creating false identities. We testified before the Subcommittee on Social Security, House Committee on Ways and Means, about SSA's enumeration and verification processes and also reported that the aggregation of personal information, such as SSNs, in large corporate databases, as well as the public display of SSNs in various public records, may provide criminals the opportunity to commit identity crimes. We have also previously reported that certain federal and state laws help information resellers limit the disclosure of personal information including SSNs to their prescreened clients. Specifically, we described how certain federal laws place restrictions on how some Internet resellers' obtain, use, and disclose consumer information. The limitations these laws afford are shown in table 1. The Web sites of the 154 Internet resellers we reviewed had similar characteristics. Most resellers offered a variety of information that could be purchased, from telephone records to credit reports. In addition, Internet resellers also offered to sell information in various ways, from packaged information, such as various information that would be collected through a background check or a search of a person's criminal records to single types of information, such as a credit score. These resellers usually listed the types of clients that they market their services to and broadly identified their sources of information. We found that Internet resellers offered to sell a variety of information to anyone willing to pay a fee. On average, resellers offered about 8 types of services and two offered 20 types of informational services. As shown in figure 1, the majority of resellers offered to sell anywhere from 1 to 10 informational services. The Internet resellers offering the fewest services tended to specialize in services provided to the public. For example, most of the resellers offering only one service were resellers that specialized in helping locate an individual. Others offered services related to employment or background checks. Internet resellers also offered different ways for buyers to purchase their information. For example, some offered memberships that allowed online access to the reseller's information, with the member performing the search. Another reseller offered to sell a software package that would allow a buyer to purchase access to the Internet reseller's information through the purchased software and allowed many different types of information searches. The majority of resellers would require selected information about the buyer and then would perform the data search and provide an information report to the buyer. We identified over 50 types of information offered for purchase by these resellers, which we categorized into six major categories including personal, legal, financial, employment, driver or vehicle, and telephone. Table 2 gives examples of the types of information found in these categories. All the resellers offered to sell information from at least one of the six categories. However, not all resellers offered to sell driver or vehicle information, or telephone information. For example, only 85 of the 154 resellers we reviewed offered to sell some type of driver's information, while 56 resellers offered to sell telephone information. We found that Internet resellers either sold their information as a part of a package or sold single pieces of information. For example, resellers sold packaged information such as background checks, criminal checks, or employment checks/tenant screenings. Of the packaged information, we found that background checks provided the most extensive information. A background check may include personal, legal, and financial information, such as name, SSN, address, neighbors, relatives, and associates information. Such checks may include national, state, or county criminal records searches and bankruptcy and lien information. Other packages, such as criminal records packages, may include national, state, and county criminal records searches, sex offender searches, and civil litigation. Employment checks/tenant screenings may include current and past employment, SSN verifications, and national, state, and county criminal records searches. Over 80 percent of Internet resellers identified the clients to whom they marketed their information. Internet resellers identified their clients in several ways. About 60 percent of the time, resellers used the information sections of their Web sites to identify their clients. Web pages such as "Frequently Asked Questions," "Help," or "About Us" were frequently used to identify their clients. For example, the "About Us" Web page generally provided a brief description about the Internet reseller's business and would often describe the clients it marketed to. Other ways in which resellers marketed to their clients were through testimonials or in a separate section on their Web page. Internet resellers marketed their services to a variety of clients. As shown in table 3, individuals, businesses, and attorneys were the most frequently identified clients. Some of the businesses resellers identified were Fortune 500 companies and retailers. For the financial institution clients, resellers mostly identified banks. In addition, most of the Internet resellers' clients were from the private sector, although some had government and law enforcement agency clients. Finally, we found that most of the resellers had multiple types of clients. About 30 percent of the resellers identified only one type of client. About 75 percent, or 115, Internet resellers identified the source of their information on their Web sites. Most of these resellers obtained their information from public or nonpublic sources or a combination of both sources. For example, a few resellers offered to conduct a background investigation on an individual, which included compiling information on the individual from court records and using a credit bureau to obtain consumer credit data. Some used only public records as their only source of information. The most frequently identified public records were court records, department of motor vehicle records, real property records, legal judgments, and bankruptcy records. We found about one-third of the Internet resellers used only one source of information. More often, they used a combination of the three sources. Figure 2 below shows the various combinations of sources of information. Most of our attempts to purchase SSNs from a select group of resellers failed. Of the 154 Internet resellers' Web sites we reviewed, 53, almost 35 percent, offered to sell SSNs. We attempted to purchase SSNs from 21 resellers that were chosen because they required minimal information about prospective buyers or about the person whose SSN we wanted to obtain. Of the 21 resellers from which we tried to purchase SSNs, only 5 provided some form of an SSN. As shown in table 5, the reasons for being unable to obtain SSNs from 16 of the 21 resellers varied. Nine resellers, a majority of the resellers that did not sell SSNs to us, did not explain why but simply did not provide the information we sought. Four of the remaining resellers attempted to contact us to request legal documentation to support a permissible purpose for obtaining the information. However, since we attempted to purchase SSNs as a member of the general public, we could not provide the requested information. One of these resellers sent us an e-mail asking us to fax a signed letter stating our reason for obtaining a person's SSN and a copy of our driver's license to verify our identity, which we could not provide. We contacted the other three to find out why prospective buyers were required to have a permissible purpose. One reseller told us that the company is audited every year by the government and that a legal document request was part of its security screening of its customers. The other two stated that some form of legal documentation, such as a certified copy of a court order, was required in order for their companies to release the information. In addition to receiving one full and four truncated SSNs, we also received other information related to our purchases. Given that we only received SSNs as a part of packaged information, we were not surprised that we received additional information about the person whose SSN we were trying to obtain. For example, the two Internet resellers that provided some form of SSN in a background check report also provided the following information: the person's current and previous addresses, date of birth, a list of other names associated with the person, a list of their neighbors, tax liens and judgments against the person, and properties owned by the person. However, in one case we received unexpected and unrequested information. In this case, we did not receive the SSN of the person whose number we requested, but instead received the truncated SSNs of the person's past and present neighbors, information we did not request. Five of the 21 resellers from whom we attempted to purchase SSNs did provide us with some form of an SSN. We received one full nine-digit SSN and four truncated SSNs. All five resellers that supplied an SSN provided the SSN as a part of a package of information. As shown in table 6, the full SSN was obtained as a part of a background check, and the four truncated SSNs were provided as a part of a "people locator" package, a background package, and an employment trace. We attempted to order SSNs from five resellers that offered to sell the SSN alone, and we were unable to obtain an SSN from those resellers. We also found a wide range of the costs for information services when we tried to purchase SSNs. The packages of information we attempted to purchase ranged from about $4 to $200 compared to the costs to purchase individual SSNs that ranged from about $15 to $150. The range of costs from the five resellers that provided some form of the SSN was about $20 to $200. The Internet reseller that provided the full SSN did so for $95. Of the four resellers that gave us truncated SSNs, three of these disclosed on their Web sites that they would provide full SSNs, but only under certain circumstances. For example, one reseller said that, by law, it cannot provide a person's SSN to any third party. Another required the customer to have a legitimate reason for requesting the information under laws such as GLBA. This reseller said it may not provide the full SSN if the customer did not meet those requirements. None explained why they only provided the first five digits. All resellers that provided truncated SSNs showed the first five digits and masked the last four digits. We interviewed industry representatives and privacy experts to determine if this way of truncating the SSN was the standard practice among private sector entities. Industry representatives and privacy experts told us that entities in other industries may truncate the SSN differently from the truncated SSNs we bought from Internet resellers. For example, consumer data industry representatives said that members of their association decide for themselves how and when to truncate SSNs. One consumer reporting agency we spoke to told us that it truncates the SSN by masking the first five digits on reports it provides directly to consumers, by displaying only the last four digits. Some privacy experts said that certain entities that use SSNs as identifiers on lists, such as universities, also truncate the number by masking the first five digits. In addition, SSA also masks the first five digits of the SSN on the Social Security Statements mailed to individuals over the age of 25 who have an SSN and have wages or earnings from self-employment. On the basis of our discussions with government officials and industry representatives, we could not identify any industry standards or guidelines for truncating SSNs. None of the officials we spoke to knew for certain why either method--masking the first five digits or the last four digits-- was used or how such methods came into use. In addition, when we asked officials which way of truncating the SSN better protects it from misuse, there was no consensus among them, and no one knew of any research regarding this issue. Some officials said that although truncation could provide some protection for SSNs, it is unlikely to be foolproof. There are also few, if any, federal laws that require or regulate truncating the SSN. Currently, FCRA has a specific provision relating to truncating SSNs. Under this law consumers can request that their SSN be truncated to display only the last four digits on any consumer report they request about themselves. The Judicial Conference of the United States issued rules, effective in December 2003, requiring that SSNs be truncated to mask the first five digits in newly filed electronically available bankruptcy court documents. Federal agency officials whom we spoke to said that Congress or SSA should decide how SSNs should be truncated. The Social Security Act of 1935 authorized SSA to establish a record-keeping system to help manage the Social Security program and resulted in the creation of the SSN. Through a process known as enumeration, unique numbers are created for every person as a work and retirement benefit record for the Social Security program. According to SSA officials, the law does not address the use of the number by private and public sector entities. SSA officials said that SSA regulates only the agency's use of SSNs and does not have legal authority over SSNs used by others. Federal privacy laws that restrict the disclosure of personal information could be applicable to Internet resellers, but there was insufficient evidence on the resellers' Web sites we reviewed to determine if they met specific statutory definitions. Federal privacy laws such as the FCRA, GLBA, and DPPA apply primarily to entities that meet specific statutory definitions. For example, FCRA applies primarily to a consumer reporting agency, which is defined as any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing "consumer reports." In addition, these laws allow for disclosure of personal information for certain permissible purposes, and those who request or receive information from an entity meeting those statutory definitions may also have obligations under these laws. For example, FCRA generally prohibits "consumer reporting agencies" from furnishing "consumer reports" to third party users unless it is for a permissible purpose; before providing "consumer report" information to prospective users, however, the prospective user must certify the purposes for which the information is sought and that it will be used for no other purpose. GLBA and DPPA also contain prohibitions against re-disclosure of personal information covered by those laws. FCRA, GLBA, and DPPA could apply to Internet resellers that identify themselves as one of the statutorily defined entities covered under the laws--which are consumer reporting agencies for FCRA, financial institutions for GLBA, and state motor vehicle departments for DPPA--or that received information from such entities. We found four resellers that identified themselves as one of the statutorily defined entities. Three stated on their Web sites that they were consumer reporting agencies and the other stated it was a credit bureau. However, we did not find similar information on the remaining 150 resellers' Web sites to determine what type of entity they were. In addition, we found that some resellers identified the source of their information generally, but did not link information sources to particular pieces of information. For example, about 7 percent of the resellers identified "Department of Motor Vehicle records" as the source of some of their information and offered to search for personal information based on a driver's license number, license plate number, or vehicle identification number. However, most did not specify which personal information came from the "Department of Motor Vehicle records" or any state motor vehicle departments. Therefore, we could not determine if FCRA, GLBA, and DPPA were applicable to the majority of resellers we reviewed. Our review of the resellers' Web sites found 79 of them, about 50 percent, referenced one or more federal privacy laws. As shown in figure 3, the most frequently mentioned laws were FCRA, GLBA, and DPPA. We also found 5 out of the 154 Internet resellers referenced state laws on their Web sites. Two stated adherence to the California Investigative Consumer Reporting Act, which allows a consumer to review any files concerning that consumer maintained by an "investigative reporting agency." One cited two California consumer laws. One law allows California consumers to remove their names from credit bureau mailing lists used for unsolicited pre-approved credit offers for a minimum of 2 years. It also provides identity theft victims and other consumers with increased rights regarding consumer credit reports, including requiring the deletion of inquiries resulting from identity theft. The other California law prohibits consumer credit reporting agencies that furnish reports for employment purposes from reporting information on the age, marital status, race, color, or creed of any consumer and requires the user of the report to provide written notice to the consumer. The law also requires that the consumer be provided a free copy of the report upon request. Another reseller cited a Florida statute that governs divulging investigative information, and yet another reseller stated adherence to the Michigan Private Detective License Act. Both state laws regulate the activities of private investigators. Although personal information is widely available on the Internet to anyone willing to pay a fee, SSNs appear to be difficult to obtain from the Internet resellers we contacted. Few of the Internet resellers' Web sites we reviewed offered to sell an individual's SSN outright, and even those that did make such an offer did not follow through. Thus, the perception that anyone willing to pay a fee can easily obtain someone's SSN does not appear to be valid. Our experiences indicate that it is more likely that a buyer would not be able to purchase an SSN or would receive a truncated version of an SSN from Internet resellers. However, our work does suggest that someone seeking an SSN may be able to obtain a truncated SSN, and depending on the entity, the SSN may be truncated in various ways. Standardizing the truncation of the SSN could provide some protection from SSNs being misused. Under a standardized approach, the same digits of the SSN would be the only information transmitted, no matter the source from which the SSN is obtained. Given SSA's role in assigning SSNs, SSA is in the best position to determine whether and if truncation should be standardized, but because the agency does not have specific authority to regulate truncation, SSN truncation will continue to vary. Since there is no consistently practiced method for truncating SSNs, and no federal agency has the authority to regulate how SSNs should be truncated, Congress may wish to consider enacting standards for truncating SSNs or delegating authority to SSA or some other governmental entity to issue standards for truncating SSNs. We provided a draft of this report to the Social Security Administration for comment and received a written response from the administration (included as app. II). SSA agreed that standardizing the truncation of SSNs would be beneficial and supported our recommendation for congressional action. In addition, SSA stated that while it does not have the legal authority to compel organizations to truncate SSNs or to specify how such truncating should be done, it would be willing to publish information on best practices for truncating SSNs on SSA's Web site. We also provided a draft of this report to the Federal Trade Commission for technical review and received comments that were incorporated as appropriate. We are sending copies of this report to the Chairman of the Federal Trade Commission, the Commissioner of the Social Security Administration, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov/. If you have any questions concerning this report, please contact me at (202) 512-7215. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other contacts and acknowledgments are listed in appendix III. To describe readily identifiable Internet resellers, we created a list of Internet reseller Web sites. To create a list of readily identifiable Internet reseller Web sites, we used Internet search techniques and keyword search terms that we thought the members of general public would use if they were trying to obtain someone else's Social Security Number (SSN). We conducted our searches using three major Internet search engines-- Google, Microsoft Network (MSN), and Yahoo. Within each of these search engines we conducted our searches using keywords such as, "find social security number," "find ssn," "purchase social security number," and "public records search." We chose these keywords based on the advice of privacy experts and the team's judgment on terms that would yield Web sites that sell personal information including the SSN. Our searches resulted in 1,036 Web sites that we then reviewed to determine whether they were live sites, redirected sites, or duplicate sites that were operated by the same reseller. Nineteen percent of the 1,036 Web sites took us to another Internet reseller Web site that was included in our list. Most of these redirected sites took us to two Internet resellers that offered online membership--allowing access to their databases and affiliate programs, which allowed others to link their Web sites to the resellers' Web sites. More than one-half of the 1,036 Web sites were inactive at the time a GAO analyst attempted to access the site. In addition, we found a few Web sites were operated by the same reseller and were similar in appearance. As a result, we ended up with a list of 226 sites that we included in our review. We recognize that had we used different search engines, different keywords, and a different point in time we may have identified a different list of sites. To describe the types of readily identifiable Internet resellers that have SSN-related services and characteristics of their businesses, we developed a Web-based data collection instrument (DCI) for GAO analysts to document selected information contained on the Internet resellers' Web sites. We used the DCI to record information from the Web pages that contained items that addressed the types of SSN-related services and information that the resellers sold, the sources of the information, and the types of clients to whom the site marketed. To ensure that the entry of the DCI data conformed to GAO's data quality standards, each DCI was reviewed by one of the other GAO analysts. Tabulations of the DCI items were automatically generated from the Web-based DCI software. Supplemental analyses were conducted using a statistical software package. For these analyses, the computer programs were checked by a second, independent analyst. Our analyses found 154 Internet resellers with SSN-related services. To determine the extent to which Internet resellers sell Social Security numbers, we analyzed data collected from the review of Internet resellers just described, attempted to purchase SSNs from a nonprobability sample of Internet resellers, and collected data about the transactions. We used information collected from the DCI to derive a nonprobability sample of Internet resellers to purchase SSNs. The criteria we used to select the resellers for our attempted purchases included the following (1) the Web site advertised the sale of an SSN without the customer's having to provide the SSN of the subject of our inquiry, (2) the Web site advertised the sale of an SSN to the general public, and (3) the transaction could be made online through the Internet reseller's Web site using a credit card. We collected information about the purchases including cost, the information that was required about the search subject and the purchaser (including the permissible purpose), whether the site contacted us to verify our information or our permissible purpose, and whether the SSN was provided and, if it was, whether the full or a truncated SSN was provided. In addition, we interviewed staff from the Federal Trade Commission, officials from the Social Security Administration, one of the three national consumer reporting agencies, the Consumer Data Industry Association (an international trade association that represents consumer information companies), and five privacy experts to obtain their views about the use of SSN truncation as a means for safeguarding the number. We also reviewed prior GAO work and performed literature and Internet searches about SSN truncation. To determine the applicability of federal privacy laws to Internet resellers, we reviewed federal laws and the resellers' Web sites for information about the resellers' type of entity and sources of information. However, in most instances these resellers did not have sufficient information on their Web sites to determine if they were in compliance with these laws. Specifically, we were unable to determine whether most of these resellers met the definitions specified by these laws such as "financial institution," "consumer reporting agency," or an "officer, employee, or contractor" of a "State Motor Vehicle Department." We also were unable to determine the resellers' specific sources for particular pieces of information. Although Internet resellers generally did not provide information about the entity and sources of information, they generally cited, and we recorded, whether they stated adherence to any federal privacy laws. In addition to the contact above, Tamara Cross, Assistant Director, Margaret Armen, Patrick Bernard, Richard Burkard, Ellen Chu, John Cooney, Benjamin Federlein, Evan Gilman, Richard Harada, Joel Marus, Andrew O'Connell, Stanley Stenersen, Jacquelyn Stewart, and Lacy Vong made important contributions to this report.
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GAO previously reported on how large information resellers like consumer reporting agencies obtain and use Social Security numbers (SSNs). Less is known about information resellers that offer services to the general public over the Internet. Because these resellers provide access to personal information, SSNs could be obtained over the Internet. GAO was asked to examine (1) the types of readily identifiable Internet resellers that have SSN-related services and characteristics of their businesses, (2) the extent to which these resellers sell SSNs, and (3) the applicability of federal privacy laws to Internet resellers. We found 154 Internet information resellers with SSN-related services. Most of these resellers offered a range of personal information, such as dates of birth, drivers' license information, and telephone records. Many offered this information in packages, such as background checks and criminal checks. Most resellers also frequently identified individuals, businesses, attorneys, and financial institutions as their typical clients, and public or nonpublic sources, or both as their sources of information. In attempting to purchase SSNs from 21 of the 53 resellers advertising the sale of such information, we received 1 full SSN, 4 truncated SSNs displaying only the first five digits, and no SSNs from the remaining 16. In one case, we also received additional unrequested personal information including truncated SSNs of the search subject's neighbors. We also found that some other entities truncate SSNs by displaying the last four digits. According to experts we spoke to, there are few federal laws and no specific industry standards on whether to display the first five or last four digits of the SSN, and SSA officials told us the agency does not have the authority to regulate how other public or private entities use SSNs, including how they are truncated. We could not determine if federal privacy laws were applicable to the Internet resellers because such laws depend on the type of entity and the source of information, and most of the resellers' Web sites did not include this information. However, these laws could apply to resellers; 4 of the resellers we examined had Web sites identifying the type of entity they were. About one-half of the resellers cited adherence to one or more federal privacy laws and a few referenced state laws.
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The long-term fiscal pressures created by the impending retirement of the baby boom generation, rising health care costs and increased homeland security and defense commitments sharpen the need to look at competing claims on existing federal budgetary resources and emerging new priorities. As we look ahead, our nation faces an unprecedented demographic challenge. Between now and 2035, the number of people who are 65 years old or over is expected to double, driving federal spending on the elderly to a larger and ultimately unsustainable share of the federal budget. Absent substantive entitlement reform and/or dramatic changes in tax and spending policies, we will face large, escalating, and persistent deficits. For over ten years, the GAO has periodically prepared various long-term budget simulations that seek to illustrate the likely fiscal consequences of our coming demographic challenges and rising health care costs. Our latest long-term budget simulations reinforce the need for change in the major long-range cost drivers--Social Security and health care programs. As shown in figure 1, by 2040, assuming no changes to currently projected benefits or revenues, projected federal revenues may be adequate to pay little beyond interest on the debt. Reducing the relative future burdens of Social Security and federal health programs is critical to promoting a sustainable budget policy over the longer term. Absent reform, the impact of federal health and retirement programs on budget choices will be increasingly felt as the baby boom generation retires. While much of the public debate concerning the Social Security and Medicare programs focuses on trust fund balances--that is, on the programs' solvency--the larger challenge facing these programs is how to assure their longer-term security and sustainability. The Social Security and Medicare Health Insurance (HI) programs are currently running surpluses that are invested in U.S. Treasury securities, resulting in an accumulated balance of Treasury assets that can be drawn upon to pay future benefits. According to the 2003 Trustees' projections, these trust funds would be considered insolvent in 2042 for Social Security and in 2026 for Medicare HI. The information on insolvency provides one signal to policy makers that claims will exceed trust fund balances, but this measure alone can provide a false sense of security regarding these important federal programs. If we rely solely on trust fund insolvency to trigger actions to reform these programs, we will have delayed action far past the point when these two programs have become a significant and unsustainable fiscal burden on the federal government as a whole. Based on the 2003 Trustees Reports, the cash flows for Social Security will shift to a deficit in 2018 and for Medicare HI in 2013--at these points, both programs will then have to draw on their accumulated IOUs from the Treasury to pay a portion of benefits. The only way that Treasury can pay off these IOUs is by increased taxes, spending cuts, or increased borrowing from the public, or some combination of the three. Moreover, the trust funds' balances do not reflect the full future cost of existing government commitments. In addition, the HI trust fund reflects only a portion of the Medicare program, which is financed primarily through payroll taxes. Other parts of the Medicare program include the Part B Supplementary Medical Insurance component and the new Part D drug benefit, both of which are financed through general revenues and beneficiary premiums. Taken as a whole, the Medicare program is fiscally unsustainable in its present form as program expenditures are expected to exceed program revenues dramatically in the future. From a macro perspective the critical question is not how much a trust fund has in assets, but whether the government as a whole has the economic capacity to finance the benefits promised by these programs both now and in the future and, if so, at what cost, and with what implications. As a result, we need to incorporate new metrics and mechanisms into the budget process that better signal the long-term commitments and implicit promises made by the government--its fiscal exposures--so that decision makers' attention and efforts can be more concentrated on their long-term sustainability. The difficulty of developing meaningful measures of sustainability is exacerbated by the length of time covered by our long- term commitments. The longer the span of time between the collection and the expenditure of funds, the greater the uncertainty involved in forecasting future needs. Since trust fund balances do not fully inform policymakers and the public about the long-term sustainability of the programs financed by earmarked funds, consideration is warranted of other ways to make the long-term implications of spending and tax proposals and policies more apparent when making budget decisions. The future sustainability of programs is the key issue policymakers should address--that is, the capacity of the economy and budget to afford the proposed actions. While Social Security, Medicare, and Medicaid are the major drivers of the long-term spending outlook in the aggregate, they are not the only promises the federal government has made to the future. The federal government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. Specific fiscal exposures vary widely as to source, likelihood of occurrence, magnitude, and strength of the government's legal obligations. They may be explicit or implicit; they may currently exist or be contingent on future events. Their ultimate costs may or may not be reasonably measurable. Given this breadth, it is useful to think of fiscal exposures as a spectrum extending from explicit liabilities to the implicit promises embedded in current policy and/or public expectations. Figure 2 shows some selected fiscal exposures. These liabilities, commitments, and implicit exposures have created a fiscal imbalance that will put unprecedented strains on the nation's spending and tax policies. In addition, certain tax expenditures may have uncertain or accelerating future growth paths that have significant implications for the long term. Although economic growth can help, our projected fiscal gap is now so large that we will not be able to simply grow our way out of the problem. Tough choices are inevitable. Particularly troubling are the many existing "big-ticket" items that taxpayers will eventually have to deal with. The federal government has pledged its support to a long list of programs and activities, including pension and health care benefits for senior citizens, veterans' medical care, and, implicitly, various government-sponsored entities, whose potential claims on future spending total tens of trillions of dollars. Despite their serious implications for future budgets, tax burdens, and spending flexibilities, these fiscal exposures often get short shrift in reporting on the government's current financial condition and in budgetary deliberations. Even though some fiscal exposures stem from liabilities and are reported in the financial statements, their recognition in the current cash- and obligation-based budget process is wholly inadequate. And beyond explicit liabilities and contingencies, there are implicit exposures--implied commitments embedded in the government's current policies or in the public's expectations about the role of government--that may encumber future budgets or reduce fiscal flexibility. One example is the life cycle cost of fixed assets, including deferred and future maintenance and operating costs. An exposure recognized in the financial statements is the federal government's gross debt which, as of September 2003, was about $7 trillion, or about $24,000 for every man, woman, and child in this country today. But that number excludes items such as the gap between promised and funded Social Security and Medicare commitments. If these items are factored in, the burden for every American rises to well over $100,000. In addition, the new Medicare prescription drug benefit will add thousands more to that tab. The new drug benefit is one of the largest unfunded commitments ever undertaken by the federal government. The Trustees of the Social Security and Medicare trust funds will include an official estimate of the discounted present value cost of this new benefit over the next 75 years in their annual report, which is scheduled for issuance today. Preliminary estimates of its long-term cost range up to $7-8 trillion in discounted present value terms over a 75-year period. To put that number in perspective, it is as much or more than the total amount of the federal government's gross debt outstanding as of September 30, 2003. Even before the drug benefit was enacted, our long-term simulations showed that by 2040, the federal government may have to cut federal spending in half or double taxes to pay for the mounting cost of the government's unfunded commitments. Either would have devastating consequences on the nation's future economy and the quality of life for Americans in the future. Truth and transparency in government reporting are essential if the United States is to effectively address its long-term fiscal challenges. The fiscal exposures just mentioned can be managed only if they are properly accounted for and publicly disclosed. A crucial first step will be to face facts and identify the many significant commitments already facing the federal government. If citizens and government officials come to understand various fiscal exposures and their potential claims on future budgets, they are more likely to insist on prudent policy choices today and sensible levels of fiscal risk in the future. So how do we start this hard process? Today you are focusing on budget process improvements, so I will start there. We need a process that does two things better than the processes we have used in the past. The budget process needs (1) better transparency and controls about the fiscal exposures/commitments that the federal government is considering making and (2) better signals and incentives to address the fiscal exposures/commitments the federal government has already made. GAO has encouraged reforms that would help move forward on both fronts. Transparency of existing commitments would be improved by requiring that the Office of Management and Budget (OMB) report annually on fiscal exposures, including a concise list, description, and cost estimates, where possible. OMB should also ensure that agencies focus on improving cost estimates for fiscal exposures. This should complement and support continued and improved reporting of long-range projections and analysis of the budget as a whole to assess fiscal sustainability and flexibility. Others have also embraced this idea for better reporting of fiscal exposures. Last year Senator Voinovich proposed that the President report each January on the fiscal exposures of the federal government and their implications for long-term financial health. The President's fiscal year 2005 budget proposes that future Presidents' budgets report on any enacted legislation in the past year that worsens the unfunded obligations of programs with long-term actuarial projections, with CBO being required to make a similar report. Senator Voinovich's bill would require GAO to review the President's report on fiscal exposures for completeness, quality and the long-range fiscal outlook. Senator Lieberman has also introduced legislation to require better information on liabilities and commitments over both a 75-year and indefinite time horizon. Such reporting would be a good starting point. Senator Lieberman's bill provides for a point of order against bills that adversely affect the net present value of overall liabilities and commitments by more that a specified amount. Better information on existing commitments and promises must be coupled with estimates of the long-term discounted net present value cost of any new proposed commitments. Ten-year budget projections have been available to decision makers for many years. We must build on that regime but also incorporate longer-term estimates of net present value costs for spending and tax commitments comprising longer-term exposures for the federal budget beyond the 10-year window. Better reporting is just a starting point, however. While Social Security and Medicare drive the long-term spending outlook, decisions are made about a whole host of other programs with long-term implications too small to drive the long-term outlook. A budget is all about how to allocate available resources. Budget decisions reflect a number of factors including beliefs about the appropriate role of government in various areas, judgment about the likely success of a program in achieving certain goals, and the cost of a program. It is important that Members of the Congress and the President--and citizens--be able to compare the full costs of programs on a consistent basis. In the past, GAO has suggested that the budget numbers should themselves reflect long-term cost commitments for programs such as credit, federal pension and retiree health benefits, and insurance programs. The Federal Credit Reform Act of 1990 put credit programs on a comparable basis with grants and other assistance programs. This reform enabled decision makers to budget for credit based on the net present value of the federal subsidies over the life of the loan or guarantee. We have suggested that a similar treatment be applied to insurance programs in which the cost of the program in the budget would, in effect, be the missing premium--the subsidy provided by the government to the insured. This approach was included in legislation sponsored by Congressmen Nussle and Cardin several years ago. They recognized, as did GAO, that the budget's current cash treatment of insurance programs could misstate the cost of the commitments that have been made. Some improvements have been made in budgeting for federal pension and retiree health benefits, but they have not been applied to all employees. Along with better reporting, budget process mechanisms could establish opportunities for the explicit consideration of important fiscal exposures--both new and existing. When considering the creation of new exposures, Congress could modify budget rules to provide for a point of order against any proposed legislation that creates new spending or tax exposures over some specified level or trigger. This would encourage the explicit consideration of potential future costs. To make sure the cost estimates are made available, rules could also provide for a point of order against any proposed legislation that does not include estimates of the potential costs of fiscal exposures it would create. A different budget process approach would be to establish triggers that address the growth in existing exposures. Triggers would signal when the future costs of exposures rise above a certain level. Reaching the trigger would require some action to address costs or reaffirm acceptance of the increase in potential fiscal exposure. There are many different ways to construct a trigger. Possible triggers include future costs of a specific exposure exceeding a specified dollar amount, or expected program growth beyond a specified share of the federal budget or the gross domestic product. Congress already adopted an approach similar to this for the Medicare program last year. Under this process, the program as a whole would trigger a requirement for presidential and congressional consideration when the general revenue share of Medicare funding is projected in two consecutive years to exceed 45 percent during a 7-year period. The design of triggers is important and has implications for the mix of financing to be provided for covered programs. My staff would be happy to work with you if you choose this approach. We must look through a wide-angle lens when deciding what to do about the nation's fiscal imbalance. Based on realistic assumptions, our future fiscal gap is simply too great to grow our way out of the problem. As a result, we need to employ a three-pronged approach to (1) restructure existing entitlement programs, (2) reexamine the base of discretionary and other spending, and (3) review and revise the federal government's tax policy and enforcement programs. Fundamentally, we need to undertake a top-to-bottom review of government activities to ensure their relevance and fit for the 21st century and their relative priority. The understanding and support of the American people will be critical in providing a foundation for action. The fiscal risks I have discussed, however, are a long-term problem whose full impact will not be felt for some time. At the same time they are very real and time is currently working against us. While I agree with others that realistic spending caps and the restoration of PAYGO are necessary, additional actions are needed to prompt a reexamination of existing programs and activities. In the 1990s, the Congress and the Administration put in place a set of laws designed to improve information about cost and performance. More performance information has become available thanks to 10 years of experience under the Government Performance and Results Act (GPRA) and better financial and cost information has been produced as a result of legislative actions, including the Chief Financial Officers (CFO) Act of 1990. This information can clearly help inform the debate about what the federal government should do and how it should do business. Congress now has the challenge to use new information and data to engage in a process to systematically reexamine the base of federal programs across the entire budget. In previous testimonies and reports, we have suggested that Congress might equip itself to engage in this debate by (1) establishing a vehicle for communicating performance goals and measures for key congressional priorities; (2) developing a more structured oversight agenda to permit a more coordinated congressional perspective on crosscutting programs and policies; and (3) using such an agenda to inform its authorization, oversight and appropriations processes. Some have suggested a commission to jump-start this process while others have suggested periodic sunsetting of major programs. We at GAO stand ready to provide assistance to whatever process Congress chooses for this important work. Such a process can be supported by a national education campaign and outreach effort to help the public understand the nature and magnitude of the long-term financial challenge facing this nation. After all, an informed electorate is essential for a sound democracy. Members of Generation X and Y especially need to become active in this discussion because they and their children will bear the heaviest burden if policy makers fail to act in a timely and responsible manner. The difficult but necessary choices we face will be facilitated if the public has the facts and comes to support serious and sustained action to address the nation's fiscal challenges. In closing, Madam Chairman, I want to reiterate the value of sustained congressional interest in these issues, as demonstrated by this Subcommittee's hearing. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The structure of the budget process can help ensure that budget decision makers are presented with the information and choices for timely and informed decisionmaking. GAO's long-term budget simulations show that, absent substantive entitlement reform and/or dramatic changes in tax and spending policies, we will face large, escalating, and persistent deficits. A budget process incorporating new metrics and mechanisms that better signal the long-term commitments and promises made by the government will help concentrate decision makers' efforts on long-term sustainability. The long-term fiscal pressures created by the impending retirement of the baby boom generation sharpen the need to look at competing claims on existing federal budgetary resources and emerging new priorities. Truth and transparency in government reporting are essential if the United States is to effectively address these long-term fiscal challenges. Current metrics and mechanisms do not fully inform policy makers about the sustainability of existing federal programs or commitments they are considering making. While Social Security and health programs are the major drivers of the long-term spending outlook, they are not the only promises the federal government has made to the future. The government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. It is useful to think of such fiscal exposures as a spectrum extending from explicit liabilities to the implicit promises embedded in current policy and/or public expectations.
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Following the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, which established the SEC to enforce securities laws, to regulate the securities markets, and to protect investors. In enforcing these laws, the SEC issues rules and regulations to provide protection for investors and to help ensure that the securities markets are fair and honest. This is accomplished primarily by promoting adequate and effective disclosure of information to the investing public. The SEC also oversees and requires the registration of other key participants in the securities industry, including stock exchanges, broker-dealers, clearing agencies, depositories, transfer agents, investment companies, and public utility holding companies. The SEC is an independent, quasi-judicial agency that operates under a bipartisan commission appointed by the President and confirmed by the Senate. SEC had a budget of about $800 million and staff of 4,100 to monitor and regulate the securities industry in fiscal year 2004. In 2003, the volume traded on U.S. exchanges and NASDAQ exceeded $22 trillion and 850 billion shares. Each year the commission accepts, processes, and disseminates to the public more than 600,000 documents from companies and individuals that are filed with the SEC, including annual reports from more than 12,000 reporting companies. SEC relies extensively on computerized systems to support its financial operations and store the sensitive information it collects. Its local and wide area networks interconnect these systems. To support the commission's financial management functions, it relies on several financial systems to process and track financial transactions that include filing fees paid by corporations and penalties from enforcement activities. In fiscal year 2004, the SEC collected $389 million for filing fees and $948 million in penalties and disgorgements. In addition, the commission uses other systems that maintain sensitive personnel information for its employees, filing data for corporations, and legal information on enforcement activities. The commission's Chief Information Officer (CIO) is SEC's key official for information security. The CIO is responsible for establishing, implementing, and overseeing the commission's information security program. Information system controls are a critical consideration for any organization that depends on computerized systems and networks to carry out its mission or business. Without proper safeguards, there is risk that individuals and groups with malicious intent may intrude into inadequately protected systems and use this access to obtain sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. We have reported information security as a governmentwide high-risk area since February 1997. Our previous reports, and those of agency inspectors general, describe persistent information security weaknesses that place a variety of federal operations at risk of disruption, fraud, and inappropriate disclosure. Congress and the executive branch have taken actions to address the risks associated with persistent information security weaknesses. In December 2002, the Federal Information Security Management Act (FISMA), which is intended to strengthen information security, was enacted as Title III of the E-Government Act of 2002. In addition, the administration undertook important actions to improve security, such as integrating information security into the President's Management Agenda Scorecard. Moreover, the Office of Management and Budget (OMB) and the National Institute of Standards and Technology (NIST) have issued security guidance to agencies. The objective of our review was to assess the effectiveness of SEC's information system controls in protecting its financial and sensitive information. Our evaluation was based on (1) our Federal Information System Controls Audit Manual, which contains guidance for reviewing information system controls that affect the integrity, confidentiality, and availability of computerized data and (2) our May 1998 report on security management best practices at leading organizations, which identifies key elements of an effective information security management program. Specifically, we evaluated SEC's information system controls intended to prevent, limit, and detect electronic access to computer resources (data, programs, and systems), thereby protecting these resources against unauthorized disclosure, modification, and use; provide physical protection of computer facilities and resources from espionage, sabotage, damage, and theft; ensure that work responsibilities for computer functions are segregated so that one individual does not perform or control all key aspects of a computer-related operation and, thereby, have the ability to conduct unauthorized actions or gain unauthorized access to assets or records without detection by another individual performing assigned responsibilities; prevent the implementation of unauthorized changes to application or ensure the recovery of computer processing operations and data in case of disaster or other unexpected interruption; and ensure an adequate information security program. To evaluate these controls, we identified and reviewed pertinent SEC computer security policies, procedures, guidance, plans, and reports. We also discussed with key security representatives, system administrators, and management officials whether information system controls were in place, adequately designed, and operating effectively. In addition, we conducted tests and observations of controls in operation. SEC did not effectively implement information system controls to protect the integrity, confidentiality, and availability of its financial and sensitive information. Specifically, the commission did not consistently implement effective electronic access controls, including user account and passwords, access rights and permissions, network security, and audit and monitoring of security-relevant events to prevent, limit, and detect access to its critical financial and sensitive systems. In addition, weaknesses in other information system controls, including physical security, segregation of computer functions, application change controls, and service continuity, further increase the risk to SEC's information systems. As a result, sensitive data--including payroll and financial transactions, personnel data, regulatory, and other mission critical information--are at increased risk of unauthorized disclosure, modification, or loss, possibly without being detected. A basic management control objective for any organization is the protection of its information systems and critical data from unauthorized access. Organizations accomplish this objective by designing and implementing controls to prevent, limit, and detect electronic access to computing resources. These controls include user accounts and passwords, access rights and permissions, network security, and audit and monitoring of security-related events. Inadequate electronic access controls diminish the reliability of computerized data and increase the risk of unauthorized disclosure, modification, and use of data. SEC did not consistently implement effective electronic access controls to prevent, limit, and detect access to financial and sensitive data. Numerous vulnerabilities existed in SEC's computing environment because of the cumulative effects of information system control weaknesses in the area of user accounts and passwords, access rights and permissions, network security, and audit and monitoring of security-relevant events. For example, our testers found a workstation located in an area of an SEC building readily accessible by the general public that was logged into the SEC computer network. With access from this workstation, a potential attacker would have direct access to the SEC's internal network and could have exploited other vulnerabilities, such as easy-to-guess passwords, vulnerable servers, and insecurely configured system servers to gain access to critical systems that maintain the commission's financial and regulatory information. Also, because of weaknesses in system audit logs and the lack of a fully implemented intrusion detection system, the likelihood of detection would have been remote. Prior to the completion of our review, SEC completed actions to remediate this access vulnerability. Weaknesses in the specific control areas are summarized here. A computer system must be able to identify and differentiate among users so that activities on the system can be linked to specific individuals. Unique user accounts assigned to specific users allow systems to distinguish one user from another, a process called identification. The system must also establish the validity of a user's claimed identity through some means of authentication, such as a password, known only to its owner. The combination of identification and authentication, such as user account/password combinations, provides the basis for establishing individual accountability and controlling access to the system. Accordingly, agencies should (1) implement procedures to control the creation, use, and removal of user accounts and (2) establish password parameters, such as length, life, and composition, to strengthen the effectiveness of account/password combinations for authenticating the identity of users. SEC did not sufficiently control user accounts and passwords to ensure that only authorized individuals were granted access to its systems and data. For example, SEC operating personnel did not consistently configure password parameters securely, and users sometimes created easy-to-guess passwords. User accounts and passwords for privileged network and database administrator accounts were inappropriately stored in clear text, increasing the likelihood of their disclosure and unauthorized use to gain access to server resources. Moreover, SEC did not remove system access from certain separated employees, including one terminated employee who still had access to SEC's information systems 8 months after termination. These practices increase the risk that individuals might gain unauthorized access to SEC resources without attribution. A basic underlying principle for securing computer systems and data is the concept of least privilege. This means that users are granted only those access rights and permissions needed to perform their official duties. Organizations establish access rights and permissions to restrict the access of legitimate users to the specific programs and files that they need to do their work. User rights are allowable actions that can be assigned to users or groups. File and directory permissions are rules associated with a file or directory that regulate which users can access them and in what manner. Assignment of rights and permissions must be carefully considered to avoid giving users unintentional and unnecessary access to sensitive files and directories. SEC routinely permitted excessive access to the computer systems that support its critical financial and regulatory information and to certain key files and directories. For example, on certain network systems, users and administrators had access that would allow them to bypass security settings or change security parameters and audit logs. All 4,100 network users were inadvertently granted access that would allow them to circumvent the audit controls in the commission's main financial systems. Further, on certain systems, users had access to system files and directories that would allow them to gain unauthorized access to the system, thereby enabling them to compromise key servers or disrupt operations. In addition, contractor staff did not follow SEC policy for obtaining remote access and instead granted themselves access to key financial systems without SEC approval. Inappropriate access to sensitive security files, audit logs, system directories, and key financial data provides opportunities for individuals to circumvent security controls and read, modify, or delete critical or sensitive information and computer programs. Networks are a series of interconnected devices and software that allow individuals to share data and computer programs. Because sensitive programs and data are stored on or transmitted along networks, effectively securing networks is essential to protecting computing resources and data from unauthorized access, manipulation, and use. Organizations secure their network, in part, by installing and configuring network devices that permit authorized network service requests and deny unauthorized requests and by limiting the services that are available on the network. Network devices include (1) firewalls designed to prevent unauthorized access into the network, (2) routers that filter and forward data along the network, (3) switches that forward information among parts of a network, and (4) servers that host applications and data. Network services consist of protocols for transmitting data between network devices. Insecurely configured network services and devices can make a system vulnerable to internal or external threats, such as denial-of-service attacks. Since networks often provide the entry point for access to electronic information assets, failure to secure them increases the risk of unauthorized use of sensitive data and systems. SEC enabled vulnerable, outdated, and/or misconfigured network services and devices. For example, key network devices were not securely configured to prevent unauthorized individuals from gaining access to detailed network system policy settings and listings of users or groups. The SEC also did not consistently secure its network against well-known software vulnerabilities or minimize the operational impact of potential failure in a critical network device. Moreover, the commission did not have procedures to ensure that its external contractor or business partner network connections to the internal SEC network were securely configured. Running vulnerable network services, not restricting access to configuration files of network devices, and not monitoring the security of external network connections increase the risk of system compromise, such as unauthorized access to and manipulation of sensitive system data, disruption of services, and denial of service. Determining what, when, and by whom specific actions were taken on a system is crucial to establishing individual accountability, monitoring compliance with security policies, and investigating security violations. Organizations accomplish this by implementing system or security software that provides an audit trail for determining the source of a transaction or attempted transaction and monitoring users' activities. How organizations configure the system or security software determines the nature and extent of audit trail information that is provided. To be effective, organizations should (1) configure the software to collect and maintain a sufficient audit trail for security-relevant events; (2) generate reports that selectively identify unauthorized, unusual, and sensitive access activity; and (3) regularly monitor and take action on these reports. Without sufficient auditing and monitoring, organizations increase the risk that they may not detect unauthorized activities or policy violations. The risks created by the serious electronic access control weaknesses discussed earlier were heightened because SEC had not fully established a comprehensive program to monitor user access. While SEC had several initiatives under way to monitor user access activity, it did not yet have a comprehensive program to routinely review, audit, or monitor system user access activities. For example, audit logging was not consistently implemented on all network services, and there was no capability to target unusual or suspicious network events for review as they occurred. In addition, SEC had not yet fully implemented a network intrusion detection system. As a result, there is an increased risk that unauthorized access to the servers and data may not be detected in a timely manner. In response to identified weaknesses to electronic access controls, the CIO said that the commission has taken steps to improve access rights and permissions and has initiated efforts to restrict access to critical financial data and programs and related sensitive information. Further, the CIO stated that action is being taken to secure the network against known vulnerabilities, securely configure network devices, and monitor the security of external network connections. In addition, efforts were planned and, in some cases, completed, to enhance the commission's overall program for auditing and monitoring its systems for security-relevant events. In addition to the electronic access controls discussed, other important controls should be in place to ensure the integrity, confidentiality, and availability of an organization's data. These controls include policies, procedures, and control techniques to physically secure computer resources, provide appropriate segregation of computer functions, prevent unauthorized changes to application software, and ensure continuity of computer operations in the event of disaster. However, we found weaknesses in each of these areas. These weaknesses increase the risk of unauthorized access, disclosure, modification, or loss of SEC's information systems and data. Physical security controls are important for protecting computer facilities and resources from espionage, sabotage, damage, and theft. These controls involve restricting physical access to computer resources, usually by limiting access to the buildings and rooms in which the resources are housed and periodically reviewing access rights granted to ensure that access continues to be appropriate based on criteria established for granting it. At SEC, physical access control measures (such as guards, badges, and locks, used either alone or in combination) are vital to protecting its computing resources and the sensitive data it processes from external and internal threats. Although SEC had taken certain actions to strengthen its physical security environment, certain weaknesses reduced its effectiveness in protecting and controlling physical access to sensitive work areas, as illustrated by the following examples: SEC did not always ensure that access to sensitive computing resources had been granted to only those who needed it to perform their jobs. At the time of our review, approximately 300 employees and contractors had access to SEC's data center, including an undetermined number of application programmers, budget analysts, administrative and customer support staff. Typically, individuals serving in these job functions do not require access to the data center. Although SEC had a policy with specific criteria for granting and retaining physical access to its data center, it did not routinely review its access list for compliance with its policy. At our request, the commission reviewed the list of staff with access to the computer center and subsequently reduced the number of authorized staff from approximately 300 to 150. Sensitive computing resources were not always secured. For example, wiring closets containing telecommunication and data equipment were not in a physically restricted space. Although the doors could be locked, we identified six wiring closets in three facilities that were unlocked and unattended. In another facility, rooms that housed computers that were connected to the SEC network were left unlocked and unattended. As a result, increased risk exists that unauthorized individuals could gain access to sensitive computing resources and data and inadvertently or deliberately misuse or destroy them. Segregation of computer functions refers to the policies, procedures, and organizational structure that help ensure that one individual cannot independently control all key aspects of a process or computer-related operation and, thereby, gain unauthorized access to assets or records. Often segregation of computer functions is achieved by dividing responsibilities among two or more organizational groups. Dividing duties among two or more individuals or groups diminishes the likelihood that errors and wrongful acts will go undetected because the activities of one individual or group will serve as a check on the activities of the others. Inadequate segregation of computer functions increases the risk that erroneous or fraudulent transactions could be processed, improper program changes implemented, and computer resources damaged or destroyed. Although computer functions were generally properly segregated at SEC, we identified instances in which functions were not adequately segregated. For example, the commission did not sufficiently separate incompatible system administration and security administration functions of computer operating personnel on its key financial applications. To illustrate, the individuals responsible for performing system support were also responsible for setting security and audit parameters, reviewing user access privileges, and adding and deleting system users. Similarly, SEC assigned one individual to perform both security and software change management functions. Yet SEC did not provide supervisory oversight or establish other mitigating controls to ensure that this individual performed only authorized functions. These conditions existed, in part, because SEC lacked implementing guidelines for separating incompatible functions among personnel administering its computer applications environment. As a consequence, increased risk exists that these individuals could perform unauthorized system activities without being detected. It is important to ensure that only authorized and fully tested application programs are placed in operation. To ensure that changes to application programs are needed, work as intended, and do not result in the loss of data or program integrity, such changes should be documented, authorized, tested, and independently reviewed. In addition, as part of the application change control process, library management software should be used to control program versions, and test procedures should be established to ensure that only authorized changes are made to application program code. SEC did not adequately document or control changes to application programs. Examples include the following instances: Although a change control board at SEC was responsible for authorizing all application changes, the authorization for these changes was not formally documented. For example, in a random sample of 32 application changes made during fiscal year 2004, none of the changes had documentation to show that the change control board had authorized these software modifications. For a key application, documentation was not always maintained to provide evidence that required reviews and approvals were performed. For 20 software changes reviewed, 13 lacked reviews of developer testing and 17 did not have the approval needed for implementing software changes. SEC did not use automated library management software to ensure that program versions were not accidentally misidentified and to prevent simultaneous changes to the same program. Procedures were not in place to periodically test application program code to ensure that only authorized changes had been made. Without adequately documented or controlled application change control procedures, changes may be implemented that are not authorized, tested, reviewed, or approved. Further, the lack of adequate controls places SEC at greater risk that software supporting its operations will not produce reliable data or effectively meet operational needs. Service continuity controls should be designed to ensure that, when unexpected events occur, key operations continue without interruption or are promptly resumed, and critical and sensitive data are protected. These controls include environmental controls and procedures designed to protect information resources and minimize the risk of unplanned interruptions, along with a well-tested plan to recover critical operations should interruptions occur. If service continuity controls are inadequate, even relatively minor interruptions can result in lost or incorrectly processed data, which can cause financial losses, expensive recovery efforts, and inaccurate or incomplete financial or management information. SEC did not implement a service continuity plan to cover its major applications (including financial and related systems) and its general support systems. While the commission had developed draft plans, it did not include a list of alternate recovery team members, contractor service level agreements, or key components needed for processing at the backup site. Further, SEC had not developed plans for testing its service continuity plans for all critical systems. As a result, SEC has diminished assurance that it will be able to promptly recover essential processing operations if an unexpected interruption occurs. In response to identified weaknesses in the area of other information system controls, the CIO stated that the commission had revised its computer center access procedures and will conduct additional reviews to determine the continued need for access by employees and contractors. Further, he said that actions had been taken to ensure appropriate segregation of computer functions and efforts were under way to improve the commission's application change control process. In addition, the CIO noted that the commission is finalizing its disaster recovery plans and has conducted limited tests in preparation for planned live tests of its disaster recovery plans. A key reason for SEC's weaknesses in information system controls is that it has not fully developed and implemented a comprehensive agency information security program to provide reasonable assurance that effective controls are established and maintained and that information security receives sufficient management attention. Our May 1998 study of security management best practices determined that a comprehensive information security program is essential to ensuring that information system controls work effectively on a continuing basis. Also, FISMA, consistent with our study, requires an agency's information security program to include key elements. These elements include: a central information security management structure to provide overall information security policy and guidance along with oversight to ensure compliance with established policies and reviews of the effectiveness of the information security environment; periodic assessments of the risk and magnitude of the harm that could result from the unauthorized access, use, disclosure, disruption, modification, or destruction of information and information systems; policies and procedures that (1) are based on risk assessments, (2) cost effectively reduce risks, (3) ensure that information security is addressed throughout the life cycle of each system, and (4) ensure compliance with applicable requirements; security awareness training to inform personnel, including contractors and other users of information systems, of information security risks and their responsibilities in complying with agency policies and procedures; and at least annual testing and evaluation of the effectiveness of information security policies, procedures, and practices relating to management, operational, and technical controls of every major information system identified in agencies' inventories. SEC's information system control weaknesses were symptomatic of its weak security program. In its fiscal year 2004 report pursuant to FISMA, the SEC's Office of Inspector General (OIG) reported that the commission was not in substantial compliance with FISMA requirements that are intended to strengthen information security. Also, the SEC has recognized weaknesses in its information security program and since 2002 has reported information security as a material weakness in its annual accountability report. Although SEC has initiated various actions to improve its information security program, including establishing a central security management function and appointing a senior information security officer to manage the program, the organization has not yet developed a comprehensive security program to ensure that its information security policies and practices were fully defined, consistent, and continuously effective across all systems. Such a program is critical to provide SEC with a solid foundation for resolving existing information security problems and continuously managing information security risks. The first key element of an effective information security program is the establishment of a central security group with clearly defined roles and responsibilities. This group provides the overall security policy and guidance along with the oversight to ensure compliance with established policies and procedures; further, it reviews the effectiveness of the security environment. The central security group often is supplemented by individual security staff designated to assist in the implementation and management of the agency's information security program. To ensure the effectiveness of an agency's security program, clearly defined roles and responsibilities for all security staff should be established, and coordination of responsibilities between individual security staff and central security should be developed. SEC has established a central security group and appointed a senior information security officer to manage its information security program. Nonetheless, the commission has not yet developed clearly defined roles and responsibilities for this group. In addition, the commission has not designated individual security staff to provide security oversight at its 11 field offices. Without a formally defined and commission-wide security focus, SEC is at increased risk that its security program will not be adequate to ensure the security of its highly interconnected computer environment. Identifying and assessing information security risks are essential steps in determining what controls are required and what level of resources should be expended on controls. Moreover, by increasing awareness of risks, these assessments generate support for the adopted policies and controls, which helps ensure that the policies and controls operate as intended. Our study of risk assessment best practices found that a framework for performing these assessments should specify (1) when the assessments should be initiated and conducted, (2) who should participate, (3) how disagreements should be resolved, (4) what approvals are needed, and (5) how these assessments should be documented and maintained. Further, OMB Circular A-130, appendix III, prescribes that risk be assessed when significant changes are made to computerized systems or at least every 3 years. SEC has not yet fully implemented a risk assessment process. Although it has taken some action, including initiating risk assessments as part of the certification and accreditation process,SEC had not yet developed a process for conducting these assessments. In addition, SEC had not developed a process for assessing risk when significant changes are made to its facility or its computer systems. During the past year, SEC upgraded its network hardware and software, including all workstations, network servers, routers, and switches. Each of these changes could have introduced new vulnerabilities into SEC's computer network, thus warranting a need for a risk assessment. However, SEC did not assess the risks associated with the network upgrade. Another key element of an effective information security program is establishing and implementing appropriate policies, procedures, and technical standards to govern security over an agency's computing environment. Such policies and procedures should integrate all security aspects of an organization's interconnected environment, including local and wide area networks and interconnection, to contractor and other federal agencies that support critical mission operations. In addition, technical security standards are needed to provide consistent implementing guidance for each computing environment. Establishing and documenting security policies are important because they are the primary mechanism by which management communicates its views and requirements; these policies also serve as the basis for adopting specific procedures and technical controls. In addition, agencies need to take the actions necessary to effectively implement or execute these procedures and controls. Otherwise, agency systems and information will not receive the protection provided by the security policies and controls. Although SEC had made progress in developing policies and procedures for specific security areas including certification and accreditation, password standards, and disaster recovery planning, it had not yet established comprehensive policies and procedures to govern a complete information security program. For example, SEC had not developed adequate policies that address security requirements for key control areas such as physical and electronic access control, segregation of duties, application change control, service continuity, and security management covering its computer network and interconnected environment. In addition, the commission had not developed policies and procedures for such areas as wireless networks and patch management. As a result, SEC is at increased risk that its critical financial and sensitive data could be exposed to unauthorized access possibly without detection. In addition, OMB Circular A-130 requires agencies to develop and implement information security plans for major applications and general support systems. These plans should address policies and procedures for achieving management, operational, and technical controls. However, SEC had not yet developed security plans for its general support systems and had implemented security plans for only one of its seven major applications. Further, FISMA requires each agency to develop and implement specific information security configuration standards for its computer network systems. In its 2004 FISMA report, the OIG reported that SEC does not have an agency-wide policy that requires specific security configuration standards. Such technical standards would not only help ensure that appropriate computer controls are established consistently, but would also facilitate periodic reviews of these controls. Another FISMA requirement for an information security program involves promoting awareness and providing required training so that users understand the risks and their roles in implementing related policies and controls to mitigate those risks. Computer intrusions and security breakdowns often occur because computer users fail to take appropriate security measures. For this reason, it is vital that employees who use computer resources in their day-to-day operations are made aware of the importance and sensitivity of the information they handle, as well as the business and legal reasons for maintaining its confidentiality, integrity, and availability. FISMA mandates that all federal employees and contractors involved in the use of agency information systems be provided periodic training in information security awareness and accepted information security practices. Further, FISMA requires agency CIOs to ensure specialized training of personnel with significant information security requirements. SEC established information security awareness programs for its employees and contractors. These programs included distributing security awareness bulletins and brochures and creating information security poster boards. In addition, SEC developed specialized security training for database, system, and network administrators. Nevertheless, SEC did not ensure that all employees, contractors, agency detailees, or staff working in specialized information technology (IT) positions completed security awareness training. SEC's goal that only 90 percent of employees and contractors complete security awareness training was not consistent with information security laws that mandate training for all employees and contractors. In addition, more than 100 staff and contractors serving in positions that provide network operation oversight and other services that provide access to system assets had not received specialized security training. Another key element of an information security program is ongoing testing and evaluation to ensure that systems are in compliance with policies and that policies and controls are both appropriate and effective. This type of oversight is a fundamental element because it demonstrates management's commitment to the security program, reminds employees of their roles and responsibilities, and identifies and mitigates areas of noncompliance and ineffectiveness. Although control tests and evaluations may encourage compliance with security policies, the full benefits are not achieved unless the results improve the security program. Analyzing the results of monitoring efforts, as well as security reviews performed by external audit organizations, provides security specialists and business managers with a means of identifying new problem areas, reassessing the appropriateness of existing controls, and identifying the need for new controls. SEC had not established a comprehensive program to test and evaluate the effectiveness of information system controls. SEC had efforts under way to test and evaluate controls, including limited ongoing tests of its computer network. Also, SEC had initiated a formal IT certification and accreditation program using contractor support to certify and accredit the commission's major systems. However, at the completion of our review, none of the commission's seven major applications and general support system had been certified and accredited. Further efforts are still needed to fully implement an ongoing program of tests and evaluation. Missing is an ongoing program that targets the key control areas of physical and electronic access, segregation of computer functions, application and system software, and service continuity. An effective program of ongoing tests and evaluations can be used to identify and correct information security weaknesses such as those discussed in this report. Based on the results of tests and evaluations that have been conducted by agencies, including OIG and external audit groups, FISMA requires that agencies develop corrective action plans (e.g., plans of action and milestones). However, in its latest FISMA report, OIG stated that SEC does not have a comprehensive process that monitors and prioritizes all identified information security weaknesses. In addition, it noted that all information security weaknesses were not included in corrective action plans. Without adequate corrective action plans, the results of tests and evaluations may not be effectively used to improve the security program and correct identified weaknesses. In response to identified weaknesses in SEC's information security program, the CIO said that the commission would develop policies and procedures to define the roles and responsibilities of its central security group. These procedures would include coordination of responsibilities between security individuals and functions. In addition, the commission would develop a risk assessment framework to address the need to perform periodic risk assessments and to conduct these assessments when significant changes occur. SEC also intends to develop comprehensive security policies, including security plans for all major applications and general support systems. In addition, the commission plans to enhance its requirements for security awareness training and expects to develop and implement an ongoing security oversight program to include provisions for monitoring compliance with established procedures and testing the effectiveness of its controls. Information systems controls were not effective at SEC. We identified numerous weaknesses in electronic access controls and other information system controls. As a result, financial and sensitive information was at increased risk of unauthorized disclosure, modification, or loss, and operations at risk of disruption. A key reason for SEC's weaknesses in information system controls is that it has not yet fully developed and implemented a comprehensive agency information security program to ensure that effective controls are established and maintained and that information security receives sufficient attention. Effective implementation of such a program provides for an ongoing cycle of periodically assessing risks, establishing appropriate policies and procedures, promoting security awareness, and establishing an ongoing program of tests and evaluations of the effectiveness of policies and controls to ensure that they remain appropriate and accomplish their intended purpose. Such a program is critical to providing SEC with a solid foundation for resolving existing information security problems and continuously managing information security risks. SEC has taken some action to improve security management, including establishing a central security management function, appointing a senior information security officer to manage the program, and initiating actions to correct the specific weaknesses summarized in this report. However, until it fully implements an agency-wide information security program, SEC will have limited assurance that its financial and sensitive information are adequately protected. We recommend that the SEC chairman direct the CIO to take the following six actions to fully develop and implement an effective agency-wide information security program: 1. Clearly define the roles and responsibilities of the central security group. 2. Designate individual security staff to provide security oversight at SEC's 11 field offices. 3. Develop a process for assessing information security risks, including when significant changes are made to SEC facilities or computer systems. 4. Establish and implement comprehensive information security policies and procedures by addressing security requirements for key control areas and developing and implementing security plans for general support systems and major applications. 5. Provide security awareness training to each employee and contractor, and specialized security training to employees and contractors that require such training. 6. Institute an ongoing program of tests and evaluations to ensure that policies and controls are appropriate and effective and that corrective action plans address identified weaknesses. We are also making recommendations in a separate report designed for "Limited Official Use Only." These recommendations address actions needed to correct the specific information security weaknesses related to electronic access controls and other information system controls. In providing written comments on a draft of this report, SEC's CIO, Managing Executive for Operations, and Executive Director agreed with our recommendations. SEC's comments are reprinted in appendix I of this report. Specifically, SEC plans to correct the information system control weaknesses identified and enhance its information security program by June 2006. Further, they indicated that significant progress is already being made to address our recommendation. This report contains recommendations to you. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written statement of the actions taken on our recommendations to the Senate Committee on Governmental Affairs and to the House Committee on Government Reform not later than 60 days from the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of this report. Because agency personnel serve as the primary source of information on the status of recommendations, GAO requests that the agency also provide it with a copy of your agency's statement of action to serve as preliminary information on the status of open recommendations. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Banking, Housing, and Urban Affairs; the Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia, Senate Committee on Homeland Security and Governmental Affairs; House Committee of Financial Services; the Subcommittee on Government Management, Finance, and Accountability, House Committee on Government Reform; and, SEC's Office of Managing Executive for Operations; Office of the Executive Director; Office of Financial Management; Office of Information Technology; and the SEC's Inspector General. We also will make copies available to others on request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact me at (202) 512-3317 or David W. Irvin, Assistant Director, at (214) 777-5716. We can also be reached by e-mail at [email protected] and [email protected], respectively. Key contributors to this report are listed in appendix II. In addition to the individual named above, Edward Alexander, Lon Chin, West Coile, Debra Conner, Anh Dang, Nancy Glover, Steve Gosewehr, Rosanna Guerrero, Harold Lewis, Leena Mathew, Duc Ngo, Eugene Stevens, Charles Vrabel, and Chris Warweg made key contributions to this report.
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The Securities and Exchange Commission (SEC) relies extensively on computerized systems to support its financial and mission-related operations. As part of the audit of SEC's fiscal year 2004 financial statements, GAO assessed the effectiveness of the commission's information system controls in protecting the integrity, confidentiality, and availability of its financial and sensitive information. SEC has not effectively implemented information system controls to protect the integrity, confidentiality, and availability of its financial and sensitive data. Specifically, the commission had not consistently implemented effective electronic access controls, including user accounts and passwords, access rights and permissions, network security, or audit and monitoring of security-relevant events to prevent, limit, and detect access to its critical financial and sensitive systems. In addition, weaknesses in other information system controls, including physical security, segregation of computer functions, application change controls, and service continuity, further increase risk to SEC's information systems. As a result, sensitive data--including payroll and financial transactions, personnel data, regulatory, and other mission critical information--were at increased risk of unauthorized disclosure, modification, or loss, possibly without detection. A key reason for SEC's information system control weaknesses is that the commission has not fully developed and implemented a comprehensive agency information security program to provide reasonable assurance that effective controls are established and maintained and that information security receives sufficient management attention. Although SEC has taken some actions to improve security management, including establishing a central security management function and appointing a senior information security officer to manage the program, it had not clearly defined roles and responsibilities for security personnel. In addition SEC had not fully (1) assessed its risks, (2) established or implemented security policies, (3) promoted security awareness, and (4) tested and evaluated the effectiveness of its information system controls. As a result, SEC did not have a solid foundation for resolving existing information system control weaknesses and continuously managing information security risks.
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For the last 3 fiscal years, we have been unable to express an opinion on IRS' financial statements because of the pervasive nature of its financial management problems. We were unable to express an opinion on IRS' financial statements for fiscal year 1994 for the following five primary reasons. One, the amount of total revenue of $1.3 trillion reported in the financial statements could not be verified or reconciled to accounting records maintained for individual taxpayers in the aggregate. Two, amounts reported for various types of taxes collected, for example, social security, income, and excise taxes, could also not be substantiated. Three, we could not determine from our testing of IRS' gross and net accounts receivable estimates of over $69 billion and $35 billion, respectively, which include delinquent taxes, whether those estimates were reliable. Four, IRS continued to be unable to reconcile its Fund Balance With Treasury accounts. Five, we could not substantiate a significant portion of IRS' $2.1 billion in nonpayroll expenses included in its total operating expenses of $7.2 billion, primarily because of lack of documentation. However, we could verify that IRS properly accounted for and reported its $5.1 billion of payroll expenses. To help IRS resolve these issues, we have made dozens of recommendations in our financial audit reports dating back to fiscal year 1992. In total, we have made 59 recommendations on issues covering such areas as tax revenue, administrative costs, and accounts receivable. While IRS has begun to take action on many of our recommendations, as of the date of our last report--August 4, 1995--it had fully implemented only 13 of our 59 recommendations. IRS has made some progress in responding to the problems we identified in our previous audits. However, IRS needs to intensify its efforts in this area. IRS needs to develop a detailed plan with explicit, measurable goals and a set timetable for action, to attain the level of financial reporting and controls needed to effectively manage its massive operations and to reliably measure its performance. The sections below discuss these issues in greater detail. IRS' financial statement amounts for revenue, in total and by type of tax, were not derived from its revenue general ledger accounting system (RACS) or its master files of detailed individual taxpayer records. This is because RACS did not contain detailed information by type of tax, such as individual income tax or corporate tax, and the master file cannot summarize the taxpayer information needed to support the amounts identified in RACS. As a result, IRS relied on alternative sources, such as Treasury schedules, to obtain the summary total by type of tax needed for its financial statement presentation. IRS asserts that the Treasury amounts were derived from IRS records; however, neither IRS nor Treasury's records maintained any detailed information that we could test to verify the accuracy of these figures. As a result, to substantiate the Treasury figures, we attempted to reconcile IRS' master files--the only detailed records available of tax revenue collected--with the Treasury records. We found that IRS' reported total of $1.3 trillion for revenue collections, which was taken from Treasury schedules, was $10.4 billion more than what was recorded in IRS' master files. Because IRS was unable to satisfactorily explain, and we could not determine the reasons for this difference, the full magnitude of the discrepancy remains uncertain. In addition to the difference in total revenues collected, we also found large discrepancies between information in IRS' master files and the Treasury data used for the various types of taxes reported in IRS' financial statements. Some of the larger reported amounts for which IRS had insufficient support were $615 billion in individual taxes collected--this amount was $10.8 billion more than what was recorded in IRS' master files; $433 billion in social insurance taxes (FICA) collected--this amount was $5 billion less than what was recorded in IRS' master files; and $148 billion in corporate income taxes--this amount was $6.6 billion more than what was recorded in IRS' master files. Thus, IRS did not know and we could not determine if the reported amounts were correct. These discrepancies also further reduce our confidence in the accuracy of the amount of total revenues collected. Despite these problems, we were able to verify that IRS' reported total revenue collections of $1.3 trillion agreed with tax collection amounts deposited at the Department of the Treasury. However, we did find $239 million of tax collections recorded in IRS' RACS general ledger that were not included in reported tax collections derived from Treasury data. In addition to these problems, we could not determine from our testing the reliability of IRS' projected estimate for accounts receivable. As of September 30, 1994, IRS reported an estimate of valid receivables of $69.2 billion, of which $35 billion was deemed collectible. However, in our random statistical sample of accounts receivable items IRS tested, we disagreed with IRS on the validity of 19 percent of the accounts receivable and the collectibility of 17 percent of them. Accordingly, we cannot verify the reasonableness of the accuracy of the reported accounts receivable. Inadequate internal controls, especially the lack of proper documentation of transactions, resulted in IRS continuing to report unsupported revenue information. In some cases, IRS did not maintain documentation to support reported balances. In other cases, it did not perform adequate analysis, such as reconciling taxpayer transactions to the general ledger, to ensure that reported information was reliable. We found several internal control problems that contributed to our inability to express an opinion on IRS' financial statements. To illustrate, IRS was unable to provide adequate documentation for 111 items, or 68 percent, in our random sample of 163 transactions from IRS' nonmaster file. The nonmaster file is a database of taxpayer transactions that cannot be processed by the two main master files or are in need of close scrutiny by IRS personnel. These transactions relate to tax years dating as far back as the 1960s. During fiscal year 1994, approximately 438,000 transactions valued at $7.3 billion were processed through the nonmaster file. Because of the age of many of these cases, the documentation is believed to have been destroyed or lost. We sampled 4,374 statistically projectable transactions posted to taxpayer accounts. However, IRS was unable to provide adequate documentation, such as a tax return, for 524 transactions, or 12 percent. Because the documentation was lost, physically destroyed, or, by IRS policy, not maintained, some of the transactions supporting reported financial balances could not be substantiated, impairing IRS' ability to research any discrepancies that occur. IRS is authorized to offset taxpayer refunds with certain debts due to IRS and other government agencies. Before refunds are generated, IRS policy requires that reviews be performed to determine if the taxpayer has any outstanding debts to be satisfied. For expedited refunds, IRS must manually review various master files to identify outstanding debts. However, out of 358 expedited refunds tested, we identified 10 expedited refunds totaling $173 million where there were outstanding tax debts of $10 million, but IRS did not offset the funds. Thus, funds owed could have been collected but were not. IRS could not provide documentation to support $6.5 billion in contingent liabilities reported as of September 30, 1994. Contingent liabilities represent taxpayer claims for refunds of assessed taxes which IRS management considers probable to be paid. These balances are generated from stand-alone systems, other than the master file, that are located in two separate IRS divisions. Because these divisions could not provide a listing of transactions for appropriate analysis, IRS did not know, and we could not determine, the reliability of these balances. An area that we identified where the lack of controls could increase the likelihood of loss of assets and possible fraud was in the reversal of refunds. Refunds are reversed when a check is undelivered to a taxpayer, an error is identified, or IRS stops the refund for further review. In many cases, these refunds are subsequently reissued. If the refund was not actually stopped by Treasury, the taxpayer may receive two refunds. In fiscal year 1994, IRS stopped 1.2 million refunds totaling $3.2 billion. For 183 of 244, or 75 percent of our sample of refund reversals, IRS was unable to provide support for who canceled the refund, why it was canceled, and whether Treasury stopped the refund check. Service center personnel informed us that they could determine by a code whether the refund was canceled by an internal IRS process or by the taxpayer, but, as a policy, no authorization support was required, nor did procedures exist requiring verification and documentation that the related refund was not paid. With regard to controls over the processing of returns, we also found weaknesses. During fiscal year 1994, IRS processed almost 1 billion information documents and 200 million returns. In most cases, IRS processed these returns correctly. However, we found instances where IRS' mishandling of taxpayer information caused additional burden on the taxpayer and decreased IRS' productivity. In many cases, the additional taxpayer burden resulted from IRS' implementation of certain enforcement programs it uses to ensure taxpayer compliance, one of which is the matching program. This program's problems in timely processing cause additional burden when taxpayers discover 15 months to almost 3 years after the fact that they have misreported their income and must pay additional taxes plus interest and penalties. IRS has made progress in accounting for its appropriated funds, but there were factors in this area that prevented us from being able to render an opinion. Specifically, IRS was unable to fully reconcile its Fund Balance with Treasury accounts, nor could it substantiate a significant portion of its $2.1 billion in nonpayroll expenses--included in its $7.2 billion of operating expenses--primarily because of lack of documentation. With regard to its Fund Balance With Treasury, we found that, at the end of fiscal year 1994, unreconciled cash differences netted to $76 million. After we brought this difference to the CFO's attention, an additional $89 million in adjustments were made. These adjustments were attributed to accounting errors dating back as far as 1987 on which no significant action had been taken until our inquiry. IRS was researching the remaining $13 million in net differences to determine the reasons for them. These net differences, which span an 8-year period, although a large portion date from 1994, consisted of $661 million of increases and $674 million of decreases. IRS did not know and we could not determine the financial statement impact or what other problems may become evident if these accounts were properly reconciled. To deal with its long-standing problems in reconciling its Fund Balance with Treasury accounts, during fiscal year 1994, IRS made over $1.5 billion in unsupported adjustments (it wrote off these amounts) that increased cash by $784 million and decreased cash by $754 million, netting to $30 million. In addition, $44 million of unidentified cash transactions were cleared from cash suspense accounts and included in current year expense accounts because IRS could not determine the cause of the cash differences. These differences suggest that IRS did not have proper controls over cash disbursements as well as cash receipts. In addition to its reconciliation problems, we found numerous unsubstantiated amounts. These unsubstantiated amounts occurred because IRS did not have support for when and if certain goods or services were received and, in other instances, IRS had no support at all for the reported expense amount. These unsubstantiated amounts represented about 18 percent of IRS' $2.1 billion in total nonpayroll expenses and about 5 percent of IRS' $7.2 billion in total operating expenses. Most of IRS' $2.1 billion in nonpayroll related expenses are derived from interagency agreements with other federal agencies to provide goods and services in support of IRS' operations. For example, IRS purchases printing services from the Government Printing Office; phone services, rental space, and motor vehicles from the General Services Administration; and photocopying and records storage from the National Archives and Records Administration. Not having proper support for if and when goods and services are received made IRS vulnerable to receiving inappropriate interagency charges and other misstatements of its reported operating expenses, without detection. Not knowing if and/or when these items were purchased seriously undermines any effort to provide reliable, consistent cost or performance information on IRS' operations. As a result of these unsubstantiated amounts, IRS has no idea and we could not determine, when and, in some instances, if the goods or services included in its reported operating expenses were correct or received. In our prior year reports, we stated that IRS' computer security environment was inadequate. Our fiscal year 1994 audit found that IRS had made some progress in addressing and initiating actions to resolve prior years' computer security issues; however, some of the fundamental security weaknesses we previously identified continued to exist in fiscal year 1994. These weaknesses were primarily IRS' employees' capacity to make unauthorized transactions and activities without detection. IRS has taken some actions to restrict account access, review and monitor user profiles, provide an automated tool to analyze computer usage, and install security resources. However, we found that IRS still lacked sufficient safeguards to prevent or detect unauthorized browsing of taxpayer information and to prevent staff from changing certain computer programs to make unauthorized transactions without detection. The deficiencies in financial management and internal controls that I have discussed throughout this testimony demonstrate the long-standing, pervasive nature of the weaknesses in IRS' systems and operations--weaknesses which contributed to our inability to express a more positive opinion on IRS' financial statements. The erroneous amounts discussed would not likely have been identified if IRS' financial statements had not been subject to audit. Further, the errors and unsubstantiated amounts highlighted throughout this testimony suggest that information IRS provides during the year is vulnerable to errors and uncertainties as to its completeness and that reported amounts may not be representative of IRS' actual operations. IRS has made some progress in responding to the problems we have identified in previous reports. It has acknowledged these problems, and the Commissioner has committed to resolving them. These actions represent a good start in IRS' efforts to more fully account for its operating expenses. For example, IRS has successfully implemented a financial management system for its appropriated funds to account for its day-to-day operations, which should help IRS to correct some of its past transaction processing problems that diminished the accuracy and reliability of its cost information, and successfully transferred its payroll processing to the Department of Agriculture's National Finance Center and, as a result, properly accounted for and reported its $5.1 billion of payroll expenses for fiscal year 1994. IRS is working on improving the process of reconciling and monitoring its funds. In this regard, it has created a unit whose sole responsibility is to resolve all cash reconciliation issues and retained a contractor to help with this process. In the area of receipt and acceptance, IRS stated that it is more fully integrating its budgetary and management control systems. Also, IRS has developed a methodology to differentiate between financial receivables and compliance assessments and has modified current systems to provide financial management information. Finally, IRS is in the process of identifying methods to ensure the accuracy of balances reported in its custodial receipt accounts. We are currently reviewing these actions. Over the past decade, GAO has issued several reports and testified before congressional committees on IRS' costs and difficulties in modernizing its information systems. As a critical information systems project that is vulnerable to schedule delays, cost over-runs, and potential failure to meet mission goals, in February 1995, tax systems modernization (TSM) was added to our list of high-risk areas. In July 1995, we reported that one of IRS' most pressing problems is efficiently and effectively processing the over 200 million tax returns it receives annually; handling about 1 billion information documents, such as W2s and 1099s; and, when needed, retrieving tax returns from the over 1.2 billion tax returns in storage. IRS' labor-intensive tax return processing, which uses concepts instituted in the late 1950s, intensifies the need to meet this enormous information processing demand by reengineering processes and using modern technology effectively. Since 1986, IRS has invested over $2.5 billion in TSM. It plans to spend an additional $695 million in fiscal year 1996 for this effort, and through 2001, it is expected to spend up to $8 billion on TSM. By any measure, this is a world-class information systems development effort, much larger than most other organizations will ever undertake. TSM is key to IRS' vision of a virtually paper-free work environment where taxpayer account updates are rapid, and taxpayer information is readily available to IRS employees to respond to taxpayer inquiries. IRS recognizes the criticality to future efficient and effective operations of attaining its vision of modernized tax processing, and has worked for almost a decade, with substantial investment, to reach this goal. In doing so, IRS has progressed in many actions that were initiated to improve management of information systems; enhance its software development capability; and better define, perform, and manage TSM's technical activities. However, our July report noted that the government's investment and IRS' efforts to modernize tax processing were at serious risk due to pervasive management and technical weaknesses that were impeding modernization efforts. In this regard, IRS did not have a comprehensive business strategy to cost-effectively reduce paper submissions, and it had not yet fully developed and put in place the requisite management, software development, and technical infrastructures necessary to successfully implement an ambitious world-class modernization effort like TSM. Many management and technical issues were unresolved, and promptly addressing them was crucial to mitigate risks and better position IRS to achieve a successful information systems modernization. First, IRS' business strategy did not maximize electronic filings because it primarily targeted taxpayers who use a third party to prepare and/or transmit simple returns, were willing to pay a fee to file their returns electronically, and were expecting refunds. Focusing on this limited taxpaying population overlooked most taxpayers, including those who prepared their own tax returns using personal computers, had more complicated returns, owed tax balances, and/or were not willing to pay a fee to a third party to file a return electronically. Without having a strategy that also targeted these taxpayers, we reported that IRS would not meet its electronic filing goals or realize its paperless tax processing vision. In addition, if, in the future, taxpayers file more paper returns than IRS expects, added stress will be placed on IRS' paper-based systems. Next, IRS did not have the full range of management and technical foundations in place to realize TSM objectives. In analyzing IRS' strategic information management practices, we drew heavily from our research on the best practices of private and public sector organizations that have been successful in improving their performance through strategic information management and technology. These fundamental best practices are discussed in our report, Executive Guide: Improving Mission Performance Through Strategic Information Management and Technology (GAO/AIMD-94-115, May 1994), and our Strategic Information Management (SIM) Self-Assessment Toolkit (GAO/Version 1.0, October 28, 1994, exposure draft). To evaluate IRS' software development capability, we validated IRS' August 1993 assessment of its software development maturity based on the Capability Maturity Model (CMM) developed in 1984 by the Software Engineering Institute at Carnegie Mellon University. CMM establishes standards in key software development processing areas and provides a framework to evaluate a software organization's capability to consistently and predictably produce high-quality products. To its credit, IRS had (1) developed several types of plans to carry out its current and future operations, (2) drafted criteria to review TSM projects, (3) assessed its software development capability and initiated projects to improve its ability to effectively develop software, and (4) started to develop an integrated systems architecture and made progress in defining its security requirements and identifying current systems data weaknesses. However, despite activities such as these, pervasive weaknesses remained to be addressed: IRS' strategic information management practices were not fully in place to guide systems modernization. For example, (1) strategic planning was neither complete nor consistent, (2) information systems were not managed as investments, (3) cost and benefit analyses were inadequate, and (4) reengineering efforts were not tied to systems development projects. IRS' software development capability was immature and weak in key process areas. For instance, (1) a disciplined process to manage system requirements was not applied to TSM systems, (2) a software tool for planning and tracking development projects was inconsistently used, (3) software quality assurance functions were not well-defined or consistently implemented, (4) systems and acceptance testing were neither well-defined nor required, and (5) software configuration management was incomplete. IRS' systems architecture (including its security architecture and data architecture), integration planning, and system testing and test planning were incomplete. For example, (1) effective systems configuration management practices were not established, (2) integration plans were not developed and systems testing was uncoordinated, and (3) standard software interfaces were not defined. Finally, IRS had not established an effective organizational structure to consistently manage and control system modernization organizationwide. The accountability and responsibility for IRS' systems development was spread among IRS' Modernization Executive, Chief Information Officer, and research and development division. To help address this concern, in May 1995, the Modernization Executive was named Associate Commissioner. The Associate Commissioner was assigned responsibility to manage and control modernization efforts previously conducted by the Modernization Executive and the Chief Information Officer, but not those of the research and development division. However, the research and development division still did not report to the Associate Commissioner. We made over a dozen specific recommendations to the IRS Commissioner in our report to enable IRS to overcome its management and technical weaknesses by December 1995. Our recommendations were intended to improve IRS' ability to successfully develop and implement TSM efforts in fiscal year 1996. The House Conference Report on IRS' fiscal year 1996 appropriation notes that legislative language "fences" $100 million in TSM funding and requires that the Secretary of the Treasury report to the Senate and House Appropriations Committees on the progress IRS has made in responding to our recommendations with a schedule for successfully mitigating deficiencies we reported. As of March 4, 1996, the Secretary of the Treasury had not reported to the Committees on TSM. We are assessing IRS' actions and will provide a status report to the Committees by March 14, 1996. Mr. Chairman, that concludes my statement. I would be happy to answer any questions you or Members of the Subcommittee might have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed its: (1) fiscal year 1994 financial audit of the Internal Revenue Service (IRS); and (2) evaluation of the IRS Tax System Modernization (TSM) effort. GAO noted that: (1) IRS did not use its revenue general ledger accounting system or its master files for its revenue reports, but relied on alternative sources such as Treasury schedules; (2) there were large discrepancies between information in IRS master files and Treasury data; (3) IRS did not properly document transactions or perform adequate analysis to ensure the reliability of the information it reported; (4) IRS was unable to reconcile its accounts and could not substantiate some of its expenses; (5) IRS has initiated actions to correct some previously identified problems concerning computer security, payroll processing, funds reconciliation and monitoring, its budgetary and management control systems, and receipt balance accuracy; and (6) in spite of those actions, IRS lacks the strategic information management practices, software development capability, systems architecture, and effective organization structure to manage and control system modernization.
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As part of its mission of providing federal agencies with acquisition services and solutions at best value, GSA's technology programs offer agencies options to acquire needed telecommunications services. An option chosen by more than 135 agencies is the FTS2001 program, which consists of two large governmentwide telecommunications contracts--one awarded to Sprint in December 1998 and the other to MCI in January 1999--and FTS2001 crossover contracts. GSA is planning to replace the FTS2001 contracts, FTS2001 crossover contracts, and separate wireless contracts with a new set of contracts. Collectively known as the Networx program, these new contracts are to provide governmentwide telecommunications services through two indefinite-delivery/indefinite-quantity acquisitions--Networx Universal and Networx Enterprise. The Universal acquisition is expected to satisfy the requirements for a full range of national and international network services and, according to GSA, to ensure the continuity of broad-ranging services with global geographic coverage rendered under expiring contracts. The Enterprise acquisition is expected to offer agencies leading-edge services and solutions with less extensive geographic and service requirements than Universal. The services required in these contracts focus on Internet-based offerings and related security and management services. GSA expects the transition to begin when Networx Universal awards are made in March 2007 and to continue until fiscal year 2010. Because the FTS2001 contracts with Sprint Nextel Corporation and Verizon Business expired in December 2006 and January 2007, respectively, GSA and the incumbent vendors negotiated separate sole-source contracts that essentially extend the terms of the FTS2001 contracts for 42 months. These sole-source contracts were awarded to ensure uninterrupted service and allow agencies adequate time to complete the transition to Networx. GSA is working with representatives of federal agencies to prepare for the upcoming transition to Networx, both directly and through the Interagency Management Council (IMC), a group of senior federal information resource officials who advise GSA on issues related to telecommunications contracts. The IMC has worked with GSA to document lessons learned from the transition to FTS2001 that began in the late 1990s, GSA's most recent governmentwide telecommunications transition. One important lesson learned was that GSA and agency plans for funding transition expenses should be determined early to allow agencies to gauge the impact of transition expenses on their budgets. Specifically, the lessons-learned document recommended that guidelines be established to allow agencies to complete the financial planning required to ensure that the resources needed for transition were available. This led the IMC and GSA to develop a Taxonomy and Allocation of Transition Costs document that identified which Networx transition costs would be borne by GSA and which would be borne by transitioning agencies. This taxonomy document indicated that GSA will incur or reimburse agencies, including: GSA contractor support costs to, for example, aid in planning for the transition and oversight of Networx contractors. GSA officials also indicated that contractor support will be used to develop a methodology for tracking transition progress and the establishment of a transition coordination center; and certain costs incurred by agencies during transition. In 2004, following the development of the taxonomy document, GSA generated an estimate of its costs for the transition. GSA's methodology for its estimate was to: develop assumptions for the estimate, define and develop a baseline for the estimate based on experiences and lessons learned from the previous transition, determine the network growth as well as the total business volume projections for fiscal year 2006 based on historical traffic and cost trends, define the transition cost elements, define and develop a formula for calculating an estimate for each cost element, and design and develop the estimated transition cost model for sensitivity analysis. Using this methodology, GSA estimated that it would need a total of $151.5 million for a 30-month transition, most of which would be used to reimburse agencies' transition costs. Table 1 below details the transition costs GSA expects to pay. GSA planned to pay for its costs and the reimbursement of certain agency costs using its Information Technology (IT) Fund. The IT Fund was a full- cost recovery revolving fund whereby GSA fully recovered all costs of its technology programs and its operations via estimated fee rates. The fees, which are charged to agencies for the use of GSA contracts cover the direct costs of its operations--such as the development and management of contract vehicles--and indirect costs associated with its headquarters, such as support for the Offices of the Chief Information Officer and the Chief Financial Officer. The IT Fund allowed GSA to stabilize rates for its services when expenses varied and was used to provide funding for the previous transition to FTS2001. The IT Fund also contained a working capital reserve that was used to offset losses due to fluctuations in business volumes and other unexpected contingencies. At each fiscal year- end, the uncommitted balance of funds remaining was to be transferred to the general fund of the treasury as miscellaneous receipts. Recently, a new law changed the structure of the IT Fund and GSA's organization. On October 6, 2006, the General Services Administration Modernization Act combined the IT Fund with another GSA revolving fund--the General Supply Fund--to create the Acquisition Services Fund. This legislation, which also merged GSA's technology and supply programs, made all capital assets and balances remaining in the IT and General Supply Funds available for the purposes of the Acquisition Services Fund. According to GSA, the Federal Acquisition Service will increase agency savings, enhance GSA's capability to meet customer requirements for excellence, and improve internal efficiencies. The analysis GSA used to derive its estimate of $151.5 million was not sound because it was not sufficiently accurate, comprehensive, documented, or validated. The analysis was not sufficiently accurate because it is largely based on the assumption that agencies will transition 76 percent of the services acquired under the current FTS2001 contracts to a different provider under Networx--an intentionally conservative scenario that GSA program officials believe is unlikely to occur. Further, the analysis has not been updated after a nearly 2-year delay in the contract award. While GSA appears to have included all pertinent costs, it may have double-counted a cost, calling into question the comprehensiveness of its analysis. In addition, GSA did not document significant assumptions and data. Finally, GSA's analysis was not validated by an independent cost estimate nor was an uncertainty analysis performed that would allow GSA to quantify the level of confidence it has in its estimate. These weaknesses can be attributed in part to the lack of a cost estimation policy that would help to ensure that such estimates are developed using best practices. While an intentionally conservative approach minimizes the risk that GSA would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes. Estimates are accurate when they are not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation. Best practices further dictate that as schedules change, cost estimates should be revised to provide management with insight into the current program status, effective control of the program, and the ability to balance resources and the budget. The analysis GSA used to derive the estimate, however, was not sufficiently accurate. First, the estimate's main cost driver is based on the assumption that agencies will transition 76 percent of the services acquired under the current FTS2001 contracts to a different provider under Networx--60 percent due to agencies being forced to change providers and 16 percent due to voluntary changes. However, according to program officials, the 76 percent "transition traffic factor" is intentionally conservative and represents a worst-case scenario that is unlikely to occur. The 76 percent transition traffic factor is also overly conservative when compared with the previous transition. Then, approximately 60 percent of services were shifted from an incumbent to a different provider under FTS2001, the bulk being forced to change providers when an incumbent providing more than half of the services (AT&T) was not awarded an FTS2001 contract. This forced shift happened in part because GSA limited the FTS2001 awards to only two vendors. In contrast, GSA has placed no such limit on the number of Networx vendors, and therefore, all incumbent FTS2001 vendors could potentially be awarded a Networx contract. Further, because the most-used FTS2001 incumbent (Verizon Business) provides approximately 50 percent of the services under the current FTS2001 contracts, the assumption of a 60 percent forced shift would only be realized if no awards were made to Verizon Business and at least one other incumbent. Finally, GSA's assumption of a 16 percent voluntary shift is significantly higher than the 3 percent that voluntarily changed providers during the previous transition. Program officials could not identify any basis for the assumption that voluntary changes will reach 16 percent. However, the officials stated that the percentage of voluntary changes could be higher because agencies will likely have more options when selecting vendors and because of improved guidance on federal requirements regarding the fair opportunity process, which is intended to give each awardee an equal opportunity to compete for agencies' telecommunications services requirements based on agency-established selection criteria. Second, the analysis has not been updated to reflect schedule changes. When the estimate was developed in 2004, GSA expected to award the first Networx Universal contracts in mid-2005. Since that time, delays have pushed the time frame back almost 2 years. Universal awards are now expected in March 2007. GSA's analysis has not been adjusted to reflect additional inflation during this period, which could increase the estimates total by as much as $9 million. Finally, GSA has not revised its analysis to reflect an assessment of most likely costs using currently available information. The analysis assumes that reimbursable agency transition costs would be greater than during the previous transition due to growth in the volume of services ordered. While GSA estimated that service levels would grow 60 percent over the previous transition by the time of contract award, as of August 2006, service levels had actually grown by 55.9 percent and are now expected to remain stable. The overestimation of service growth added approximately $1.7 million to the estimate. Estimates are comprehensive when their level of detail ensures that all pertinent costs are included and no costs are double-counted. It is important to ensure the completeness, consistency, and realism of the information contained in the cost estimate. GSA appears to have included all pertinent costs in its analysis; however, according to officials, a specific agency cost valued at $4.3 million may have been double-counted. For several of the transition costs estimated, GSA based its calculations on the actual charges incurred during the previous transition. However, officials indicated that a specific agency cost that is estimated separately in its current estimate may have already been included in a more general category of its previous costs. Despite this uncertainty, GSA calculated the separate total for this specific agency cost based on current service levels and added it to its estimate. As a result, it is likely this specific agency cost is double-counted and therefore overstated. Cost estimates are well-documented when they can be easily repeated or updated and can be traced to original sources through auditing. Rigorous documentation increases the credibility of an estimate and helps support an organization's decision-making process. The documentation should explicitly identify the primary methods, calculations, results, rationales or assumptions, and sources of the data used to generate each cost element. GSA provided us documentation of its methodology, the calculations it used to derive each cost element, results, and many of the previous transition costs. However, it did not document significant assumptions. Specifically, GSA did not document the rationale behind its 76 percent transition traffic factor or why it used a 30-month time period for the transition--two key assumptions of its analysis. GSA also did not provide documentation of certain data sources. Specifically, program officials could not provide supporting data used to estimate an agency transition cost valued at $4.7 million. In addition, GSA could not document the data sources used to estimate costs for contractor support in planning and implementing the transition. While many costs in its estimate are based on the charges incurred during the previous transition, GSA officials stated that it was not appropriate to use previous costs as a basis for the contractor cost element. These officials explained that unlike the previous transition, GSA would not provide agencies with on-site contractor support. Officials made this decision, in part, because the 2 1/2 years of transition planning that has occurred to date is expected to result in better preparation by agencies and the ability for them to facilitate their transitions without direct assistance from GSA or its contractors. Instead of basing their projection of contractor costs on prior charges, program officials told us that GSA management decided that contractor support costs should not exceed $35 million. Program officials could not provide any data or analysis to support this decision. Estimates are adequately validated when they have been cross-checked with an independent cost estimate, and when a level of uncertainty associated with the estimate is identified. An independent cost estimate provides the estimator with an unbiased test of the reasonableness of the estimate and reduces the cost risk associated with the project by demonstrating that alternate methods generate similar results. In performing an uncertainty analysis, an entity examines the effects of varying multiple elements and, as a result, is able to express a level of confidence in its estimate. GSA did not validate its analysis against an independent cost estimate or perform an uncertainty analysis. GSA program officials could not provide a rationale of why these activities were not performed. The cumulative effect of the quantifiable weaknesses we identified in GSA's analysis is relatively small, resulting in an underestimation of $3 million, or roughly 2 percent of the total $151.5 million estimate (as shown in table 2). The underestimation of costs, related to inflation during the extended delay in making award, was offset by the overestimation of service growth and the possible double-counting of a specific agency transition cost. In contrast, if the actual level of services transitioning to a different vendor is lower than the 76 percent transition traffic factor assumed by GSA, the effect will be greater. Because this factor is the primary cost driver in the estimate, significant changes in transitioning traffic result in similarly significant changes in total costs. This effect can be illustrated using GSA's transition cost estimate model (see fig. 1). For example, if a transition traffic factor of 66 percent is used (GSA's assumption of 16 percent for a voluntary transition plus a forced shift of 50 percent that would occur if Verizon Business is not awarded a Networx contract), the total estimated cost of the transition falls to about $136 million. Similarly, if all incumbents are awarded Networx contracts and only GSA's assumption of a 16 percent voluntary transition occurs, the total estimated cost of the transition is reduced to approximately $40 million. GSA officials explained that they used a risk-averse transition traffic factor to minimize the possibility of underestimating costs. The weaknesses in GSA's analysis can be attributed in part to the lack of a policy requiring cost estimates to be developed using best practices. Officials from the Offices of the Chief Acquisition Officer, the Chief Information Officer, and the program office's Controller confirmed that GSA does not have centralized policy or guidance on cost estimation. Instead, the officials that prepared the estimate stated that they based their work loosely on best practices learned as a result of past experiences and were comfortable with the estimate. Officials believe there is no reason to revise their estimate to address the issues we raised in this report because their purpose in producing it was to minimize the risk of underestimating costs. While GSA's approach minimized the risk of having inadequate funds to fulfill its commitments, it increased the risk that GSA will retain excess funds that could be used for other purposes. GSA has accumulated adequate funding to support its anticipated commitments related to the Networx transition. As of fiscal year-end 2006, GSA accumulated approximately $142 million in a reserve dedicated to costs associated with the transition from FTS2001 to Networx. The uncertainty analysis we performed on GSA's cost estimate indicates that the funding GSA has already accumulated will most likely be adequate to pay for expected transition costs. By varying the transition traffic factor, our analysis indicates that the $142 million already retained should be adequate to cover expected expenses 96 percent of the time. Figure 2 illustrates the probability that a particular level of funding will be adequate to account for the total actual costs incurred. For example, the $151.5 million estimate represents a confidence level of 100 percent: there is almost no chance that costs will exceed the estimate. The full detail of our methodology is detailed in appendix II. The merger of the IT and General Supply Funds provides GSA with additional flexibility, further reducing the need to retain the entire amount of the estimate. As discussed, legislation combined the two funds into an Acquisition Services Fund, making their capital assets and balances available for the purposes of the new Federal Acquisition Service. The legislation also allows the Federal Acquisition Service to establish a reserve to retain surplus revenues from GSA's technology and service programs specifically for the purpose of offsetting losses and other unexpected contingencies. Further, at the end of each year, the statute requires GSA to return to the Treasury any funds not expended or held in a working capital reserve. During fiscal year 2006, GSA's technology programs experienced losses, but its supply programs reported overall positive earnings of approximately $126 million. If operations continue in this fashion, excess revenue will be available in the combined fund to offset losses or account for contingencies, such as the Networx transition, be retained within the Acquisition Services Fund, or be returned to the Treasury. With Networx contracts scheduled to be awarded starting in March 2007, GSA will soon be in a position to reassess its main assumption, the transition traffic factor, and the resulting level of funding needed to meet anticipated commitments. Unless GSA revises its estimate, it risks unnecessarily retaining funds that could be reallocated to other agency priorities or returned to the Treasury. While GSA achieved its goal of minimizing the risk that it would have inadequate funds to pay its transition commitments, the analysis used to develop the transition cost estimate was not sound because it was not sufficiently accurate, comprehensive, documented, or validated. The weaknesses can be attributed in part to a lack of a policy at GSA to ensure that such estimates are developed using best practices and make the best use of agency resources. While the quantifiable effect of the weaknesses in accuracy and comprehensiveness is small, the effect of potential inaccuracies resulting from the intentional use of an overly conservative assumption about a main cost driver could be more significant. Without the use of a cost estimation policy that reflects best practices, GSA could continue to produce similarly unsound estimates, increasing the risk that it will unnecessarily retain funds that could be reallocated for other purposes. Despite the weaknesses in its analysis, GSA has accumulated adequate funding to support its anticipated commitments related to the Networx transition. Our analysis indicates that it is highly unlikely that GSA will need more than the $142 million it has already accumulated. In addition, the merger of two revolving funds gives it increased flexibility in meeting costs. Once Networx contracts are awarded beginning in March 2007, GSA will be able to forecast the number of forced transitions more accurately, and, if necessary, reduce the amount of funding it plans to accumulate in the future or free already accumulated funds for other purposes. This reassessment will also be an opportunity for GSA to address the other weaknesses in its analysis that resulted from its deviation from best practices. To improve GSA's program management, we are making two recommendations. First, to ensure that future cost estimates are sound and can be used as a reliable basis for decisions, we recommend that the GSA Administrator establish a policy for cost estimation efforts at GSA. Specifically, this policy should reflect best practices by requiring that estimates are: accurate (not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation); comprehensive (their level of detail ensures that all pertinent costs are included and no costs are double-counted); well-documented (can be easily repeated or updated and can be traced to original sources through auditing); and validated (they have been cross-checked with an independent cost estimate and a level of uncertainty associated with the estimate has been identified.) Second, to ensure the most efficient use of federal funds, we recommend that the Administrator revise the transition cost estimate following the award of contracts under the Networx program. Specifically, this revision should reflect best practices, include a more precise transition traffic factor, and address the overestimation of service growth, the possible double-counting of a nonrecurring charge, and the effects of inflation during the extended delay in making awards. If the results of this new estimate indicate that the full $151.5 million is not needed to reasonably support the transition effort, GSA should reallocate any excess funds for other purposes allowable within the Acquisition Services Fund or return them to the Treasury. In written comments on a draft of this report, the GSA Administrator concurred with our recommendations and emphasized the importance of supporting a successful governmentwide telecommunications transition. To address our recommendations, she stated that GSA will issue improved policy guidance on cost estimating and review and adjust the cost estimate as additional information becomes available. The Administrator also commented that GSA's transition cost estimate was within 2 percent of our analysis using the same assumptions. However, while we identified only $3 million in quantifiable errors (roughly 2 percent of GSA's total estimate), our report also states that if the extent of transitioning services is significantly lower than GSA's intentionally conservative assumption, the actual costs of the transition could be considerably less than GSA's estimate. Specifically, if all incumbents are awarded Networx contracts and only GSA's assumption of a 16 percent voluntary transition occurs, the total cost of the transition could be reduced to approximately $40 million--over $110 million less than GSA's estimate. In addition, the Administrator stated that GSA does not concur with the entirety of the draft report. She presented two main objections. First, she questioned whether our reported findings were balanced given the facts and results presented. We clarified our report to ensure that our findings better reflect the information we discussed. Second, she raised a concern that we incorrectly suggested comparability between the pending Networx transition and the prior transition. We maintain that the two transitions are comparable, particularly because GSA's analysis is based, in part, on the results of the previous transition. Specifically, GSA's analysis relied on experiences and lessons learned from the previous transition to establish costs for the current estimate. Appendix III provides the full text of GSA's comments. GSA also provided technical comments that have been incorporated in this report, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the GSA Administrator and interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Should you or your offices have any questions about matters discussed in this report, please contact me at (202) 512-6240 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our objectives were to determine (1) the soundness of the analysis the General Services Administration (GSA) used to derive the estimate of funding that would be required for the transition and (2) whether GSA will have accumulated adequate funding to pay for its transition management costs. To determine the soundness of GSA's analysis, we conducted an intensive search of over 250 source documents of both government and industry literature for examples of best practices in the field of cost estimation. This included literature on cost estimation from the Society of Cost Estimating and Analysis, the Department of the U.S. Army, the Office of the Secretary of Defense, the National Aeronautics and Space Administration, and the Department of Energy. This indicated that high quality, reliable cost estimates are: accurate (not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation); comprehensive (their level of detail ensures that all pertinent costs are included and no costs are double-counted); well-documented (can be easily repeated or updated and can be traced to original sources through auditing); and validated (they have been cross-checked with an independent cost estimate and a level of uncertainty associated with the estimate has been identified). To determine the extent to which GSA followed these practices, we analyzed documentation supporting the transition estimate, documentation provided by GSA on the previous transition estimate, and the Networx Request for Proposals. We also interviewed GSA Networx program managers and attended a GSA sponsored transition conference and meetings of the Interagency Management Council Transition Working Group. To address whether GSA has accumulated adequate funding to pay for its transition management costs, we obtained and analyzed Cost and Capital Requirements Plans for the Information Technology Fund submitted to the Office of Management and Budget and legislation for GSA's Information Technology, General Supply, and Acquisition Services Funds. In addition, to determine the extent of funding held in GSA's related accounts, we analyzed financial statements for GSA's technology and service programs. To verify the reliability of these records, we obtained and analyzed the results of the most recent GSA financial audits and audit reports from GSA's Inspector General, and we interviewed GSA's independent financial auditor regarding the quality control procedures in place. The independent auditor did not specifically review the dollar amounts in the Information Technology or General Supply Funds for accuracy but did test the controls in place for compliance with laws and regulations. This auditor stated that there were no reportable findings associated with either fund, and it was reasonable to assume that these accounts were fairly stated. As a result, we determined the data were sufficiently reliable for the purposes of this report. We also interviewed officials from the Office of Management and Budget and officials from GSA's technology and service programs, Office of the Chief Acquisition Officer, Office of the Chief Financial Officer, and Office of the Chief Information Officer. To assess the adequacy of the level of funding already accumulated by GSA, we performed an uncertainty analysis for GSA's estimate using a Monte Carlo simulation. A Monte Carlo simulation provides a perspective on the potential variability of the cost estimate should the facts, circumstances, or assumptions change. We chose to vary only the transition traffic factor because it is the main driver of the costs in GSA's estimate. To carry out this simulation, we identified a minimum, maximum, and median value for the transition traffic factor based on information received from GSA. We conducted our work between May 2006 and January 2007 in accordance with generally accepted government auditing standards. An uncertainty analysis provides decision makers with a perspective on the potential variability of the estimate should the facts, circumstances, and assumptions change. By examining the effects of varying the estimates elements, a degree of uncertainty about the estimate can be expressed, possibly as an estimated range or qualified by some factor of confidence. For example, an estimate that produces a 100 percent confidence level indicates that, based on the methodology used to create that estimate, there is almost no chance that costs will exceed the estimate. We performed our uncertainty analysis on GSA's estimate using a Monte Carlo simulation. We chose to vary only the transition traffic factor because it is the main driver of the costs in GSA's estimate. To carry out this analysis, we identified a minimum, maximum, and median value for the transition traffic factor, based on information received from GSA. The transition traffic factor represents the possible percentage of services under FTS2001 that may transition to a different provider under the Networx contracts. For this factor, we chose a minimum of 3 percent, which represents the voluntary shift to a different vendor that occurred during GSA's previous transition to FTS2001. For the maximum, we used 76 percent, as this value was chosen by GSA officials as a worst-case scenario in an effort to mitigate the risks of underestimating costs. The median of these two numbers is 39.5 percent. Table 3 shows the variations of each factor used in our uncertainty analysis. In addition to the contact named above, James R. Sweetman, Jr., Assistant Director; Jamey A. Collins; Neil J. Doherty; Jennifer K. Echard; Wilfred B. Holloway; Ethan J. Iczkovitz; Frank Maguire; Karen A. Richey; Glenn D. Slocum; and Amos A. Tevelow made key contributions to this report.
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The General Services Administration (GSA) and its customer agencies are preparing to transition new governmentwide telecommunications contracts known as the Networx program. GSA estimated the costs for which it is responsible to be $151.5 million. This report addresses (1) the soundness of the analysis GSA used to derive the estimate of funding that would be required for the transition and (2) whether GSA will have accumulated adequate funding to pay for transition costs. In performing this work, GAO reviewed cost estimation best practices, analyzed relevant GSA documents, and performed an uncertainty analysis on GSA's estimate. GSA did not use sound analysis when estimating the amount of funding needed to meet its transition-related commitments. Specifically, its analysis was not sufficiently accurate, comprehensive, documented, or validated. A primary weakness is that the estimate is largely based an assumption--known as the transition traffic factor--that 76 percent of the services provided under the current contracts would be moved to a different provider under the Networx contracts. However, according to program officials, this assumption is intentionally conservative and represents a worst-case scenario that is unlikely to occur. Additionally, GSA may have double-counted a cost and did not update its analysis to reflect a nearly 2-year delay. Finally, GSA did not document significant assumptions and data sources used in its analysis, or validate it. These weaknesses can be attributed in part to the lack of a cost estimation policy that reflects best practices. While GSA's intentionally conservative approach minimizes the risk that it would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes. GSA has accumulated adequate funding to support its anticipated transition costs. As of fiscal year-end 2006, GSA had approximately $142 million in a transition reserve. GAO analysis of the estimate indicates it is unlikely that GSA will need more than it has already accumulated to fund the transition. Specifically, the $142 million already retained will be adequate to cover anticipated costs 96 percent of the time. The recent merger of two GSA funds gives the agency additional flexibility that reduces its need to accumulate the entire $151.5 million it estimated would be needed. With Networx contracts scheduled to be awarded starting in March 2007, GSA will soon have the information necessary to reassess the main assumption underlying its estimate--the transition traffic factor--and address the weaknesses GAO identified. Once this has been accomplished, GSA can reevaluate the funding needed to meet anticipated commitments.
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GSCF allows State and DOD to address emergent challenges and opportunities by pooling funds from existing departmental accounts and sharing expertise to provide equipment, supplies, and training to enhance a partner nation's security forces. State and DOD can use the GSCF authority to support partner nations' border and maritime security, internal defense, and counterterrorism operations, or to participate in or support military, stability, or peace support operations in partner nations. The GSCF authority also permits State and DOD to provide assistance to a partner nation's justice sector. State and DOD fund the program primarily by transferring funds from other accounts, with at least 20 percent of the funding from State and the remainder from DOD. In fiscal year 2012, Congress authorized State to transfer up to $50 million from certain foreign appropriation accounts and DOD to transfer up to $200 million from its defense-wide accounts for operation and maintenance into the GSCF.authorized to transfer funds into GSCF until September 30, 2015; however, these funds remain available for activities under projects that State and DOD are have started before that date. In The Consolidated Appropriations Act, 2014, Congress authorized State to transfer up to $25 million from specific State appropriations accounts and authorized DOD to transfer up to $200 million into GSCF.cable, because State is required to contribute at least 20 percent and DOD not more than 80 percent of the funding for an approved GSCF project, both departments are authorized to transfer up to a combined $125 million in fiscal year 2014. According to State's March 2014 GSCF State and DOD jointly administer GSCF; the departments work together to formulate GSCF projects that are approved by the Secretary of State, with the concurrence of the Secretary of Defense, before implementation. The departments are also required to notify Congress of their intent to transfer funds and initiate activities for GSCF projects before starting project execution, and DOD is required to seek approval to retransfer funds. Numerous State and DOD stakeholders are involved in the GSCF program from project identification to execution. Table 1 summarizes the roles and responsibilities of key stakeholders involved in the GSCF program. In March 2014, State and DOD developed processes to manage GSCF project proposal development, congressional notification, and the transfer of funds into a joint GSCF account. These processes are described in two documents: Utilizing the Global Security Contingency Fund and Global Security Contingency Fund Program Execution Guidance. State and DOD officials stated that they incorporated lessons learned from other capacity- building programs to develop the process described in Utilizing the Global Security Contingency Fund. To develop the Global Security Contingency Fund Execution Guidance, State created intradepartmental accounting and reporting procedures for GSCF funds. State and DOD officials developed a guidance document that was issued in March 2014 as a State cable titled Utilizing the Global Security Contingency Fund, which describes how State and DOD are to identify, develop, and execute GSCF projects. GSCF staff stated that they incorporated lessons learned from developing the GSCF fiscal year 2012 projects in preparing the March 2014 guidance as well as incorporating successful processes from other security assistance programs, such as The March 2014 cable describes a process that can be Section 1206.divided into three phases, with a total of 14 steps, to identify, develop, and execute projects. The cable was sent to U.S. embassies, consulates, and combatant commands and it contains sections that can be grouped into the following phases: project identification, plan development, and execution. The project identification phase is shown in figure 1. The project identification phase consists of five steps, as described below. 1. Project idea origination: officials in Washington, D.C., geographic combatant commands, or U.S. embassies are to propose an idea for a project to address an emergent or impending threat or emergent opportunity that aligns with the areas of assistance that the GSCF authority can provide. 2. Stakeholders agree to idea: key stakeholders from relevant State and DOD offices are to gather to discuss whether the project proposal addresses a high-priority national security interest without duplicating efforts, the partner nation's receptivity to the project proposal, and whether existing State or DOD authorities are available to address the need.3. Proposal development: the proposal originator is to work with GSCF staff to initiate working-level meetings with key stakeholders to assess the proposal and discuss potential lines of effort. Additionally, the proposal originator is to complete a proposal worksheet that asks for a range of information, such as detailed assistance objectives, activities, cost estimate, and envisioned timeline. The proposal originator is to obtain endorsement of the proposal worksheet from the chief of mission and the combatant command before submitting it to the GSCF staff. 4. GSCF staff review proposal: GSCF staff is to review the proposal worksheet and confirm that it includes all required elements. 5. Review and Selection Committee review proposal: the proposal is to be reviewed by the Deputy Assistant Secretary of State and Deputy Assistant Secretary of Defense Review and Selection Committee. This senior-level committee is to meet to review the proposal within 10 business days of its receipt, when possible. During the review, the committee can ask the proposal originator to make refinements and resubmit the proposal. If there is no committee consensus to proceed, the committee is to refer the proposal to the Deputy Secretaries of State and DOD for a senior-leader decision on whether to proceed with the project. If there is consensus to proceed with the proposal, the committee is to task the proposal originator and key stakeholders to develop a detailed implementation plan, which begins the plan development phase, as shown in figure 2. The plan development phase consists of six steps as described below. 1. Implementation plan development: State and DOD are to establish a Program Steering Group--jointly led by the Deputy Assistant Secretary of State and Deputy Assistant Secretary of Defense from the relevant State and DOD regional bureaus--to provide policy guidance and oversight to the planning effort and to determine the lead organization responsible for drafting the detailed implementation plan. According to the March 2014 cable, the Program Steering Group should include all stakeholders, and they are expected to contribute to, review, and endorse the detailed implementation plan. The proposal originator is to develop a detailed implementation plan that includes--among other criteria, goals, and specific assistance objectives--a detailed work plan with a breakdown of costs per activity; related security assistance that has been implemented, is in progress, or is planned; and a proposal of outcome-oriented indicators for monitoring and evaluation. The detailed implementation plan is to be completed not more than 60 days after the Review and Selection Committee grants approval to pursue GSCF assistance. 2. Implementation plan endorsement: once the implementation plan is complete, the country team is expected to secure the endorsement of the implementation plan from the chief of mission within 7 business days, if possible. 3. Implementation plan approval: after the chief of mission endorses the implementation plan, the Program Steering Group leadership is to convene to review and approve the plan within 5 business days of its receipt. 4. Implementation plan review for completeness: GSCF staff is to review the implementation plan to ensure its completeness. If the plan is incomplete, the Program Steering Group has 10 business days to provide additional information. 5. Implementation plan approval and concurrence: after the implementation plan is final, the GSCF staff is to prepare appropriate documentation for the Secretary of State's approval and the Secretary of Defense's concurrence, to include the funds approval and congressional notification packages within 10 business days. 6. Congressional notification: once the departments secure the required approvals, GSCF staff is to begin the congressional notification process. After congressional notification is complete, the project execution phase begins, as shown in figure 3. The project execution phase consists of three steps as described below. 1. Funds transfer: State and DOD are to transfer funds into the GSCF account. 2. Project oversight and implementation: project implementers are to execute the project, and the Program Steering Group is responsible for overseeing program execution. 3. Project reporting: project implementers are to provide monthly and quarterly reporting on funds execution and provide information about project activities. Project implementers, the embassy, and the partner nation are also expected to support and provide input to facilitate monitoring and evaluation activities. A contractor has developed a framework to conduct monitoring and evaluation on the GSCF program and individual GSCF projects. According to State officials, the program-results framework was developed with a broad set of GSCF goals and objectives. State officials also stated that the contractor is starting to develop the project-specific framework for three GSCF projects and one has been delayed due to partner nation security and project rescoping issues. State issued a separate document in March 2014, titled Global Security Contingency Fund Program Execution Guidance, which describes a process for congressional notification and internal State procedures for transferring and managing funds in the joint GSCF account.guidance states that State and DOD should complete all congressional notification requirements to secure approval to transfer funds. The congressional notification process is shown in figure 4. The congressional notification process consists of four steps, and the guidance states that the departments should complete all congressional notification requirements simultaneously. 1. DOD retransferring request: while DOD is to seek written approval from defense committees and subcommittees to retransfer funds from the defense-wide operation and maintenance accounts into the GSCF account, State is not required to submit a retransferring request to Congress to transfer its funds. 2. Congressional notification: both State and DOD are to notify Congress of their intent to transfer funds and intent to initiate activities. In their congressional notification packages, State and DOD are required to include original source of funds; a detailed project justification, including total anticipated costs and specific activities; budget; execution plan and timeline; anticipated completion date; list of other U.S. security-related assistance provided to the partner nation; and any other information related to the project that the departments consider appropriate. 3. Waiting period: State and DOD are to wait 30 days during the congressional notification period before executing a GSCF project. 4. Congressional approval: GSCF projects may not begin execution until after the 30-day notification period expires and Congress approves DOD's retransferring of funds. However, there may be instances in which the departments transfer funds into the GSCF account for a specific project but subsequently determine these funds are no longer needed. In such cases, the departments are required to notify Congress of the intent to initiate a new project and may use these already transferred funds. Figure 5 shows the funds transfer process for GSCF. State and DOD follow their respective departmental procedures to The three funding transfer funds from other accounts into GSCF.transfers for GSCF are identified below. 1. First transfer: the first transfer is into a time-limited U.S. Treasury- based account that GSCF staff call a parent account. State and DOD are able to transfer money into this parent account until September 30, 2015. 2. Second transfer: State created a second parent account without a time limitation since the authority also states that amounts already transferred to GSCF before September 30, 2015, shall remain available for GSCF projects that have started before this date. Once funds are transferred into the second parent account, State submits an internal transfer request to move funds a third time. 3. Third transfer: the third transfer is from the GSCF no-year parent account into a State no-year subaccount and a DOD no-year subaccount. According to State officials, funds are considered obligated once they are apportioned by the Office of Management and Budget, transferred into the respective subaccounts, and allotted to the implementing bureaus. From these accounts, State and DOD obligate funds to secure contracts or services for implementing entities. Funds are considered expended upon payment for those contracts or services. State and DOD have submitted congressional notification packages for seven projects since fiscal year 2012. As of September 2014, State and DOD have not met the execution target dates contained in the congressional notifications for the five fiscal year 2012 GSCF projects by an average of about 8 months, assuming the projects meet the currently planned execution dates. State and DOD transferred all of the funds for the two fiscal year 2014 GSCF projects in September 2014 and expect to begin execution in 2015. State and DOD have submitted congressional notification packages for seven projects since fiscal year 2012. The departments planned five of the seven projects in fiscal year 2012. To provide funding, State transferred funds from the Pakistan Counterinsurgency Capability Fund, and DOD transferred funds from the Combatant Commanders Initiative Fund and Section 1206 into GSCF. In total, State and DOD transferred $70.7 million into the GSCF account for the five projects: three special operations capacity-building projects (one in Bangladesh; another in Libya; and one in Hungary, Romania, and Slovakia), a border security capacity-building project in Libya, and a project in the Philippines to enhance maritime security and counterterrorism capabilities. In July 2014, State and DOD sent congressional notifications for two additional projects. Specifically, for one project--a national guard capacity-building project in Ukraine--State and DOD transferred $19 million for the full cost of the project. For the other project--the Counter Boko Haram project--the departments initially transferred $10 million in fiscal year 2012. Originally, this project was a counterterrorism and border security project in Nigeria but was put on hold because of evolving conditions on the ground. State and DOD subsequently rescoped the project to include Cameroon, Chad, and Niger for the purpose of improving cross-border security cooperation with Nigeria to counter Boko Haram. In September 2014, DOD transferred an additional $30 million into the GSCF account to cover the total cost. As of September 2014, GSCF projects are located across three geographic combatant commands' areas of responsibility: U.S. Africa Command, U.S. European Command, and U.S. Pacific Command, as shown in figure 6. The five State and DOD fiscal year 2012 GSCF projects have not met the execution target dates contained in the congressional notifications due to a variety of factors, including partner nation security concerns and the time it took to obtain congressional approval. As of September 2014, the projects' planned training activities and equipment delivery are an average of about 8 months late, assuming the projects meet the currently planned execution dates. Figure 7 describes each project, total funds transferred, and the original and currently planned dates of execution for initiation of training activities and equipment delivery, as of September 2014. In addition, the time from identification to execution for four of the five fiscal year 2012 GSCF projects averages about 2.1 years. This calculation includes the currently planned or actual execution dates for initiation of training activities, as of September 2014. Figure 8 illustrates our analysis of the time from identification through the beginning of execution for each GSCF project, to include original and currently planned or actual execution dates for initiation of training activities, as of September 2014. The five fiscal year 2012 GSCF projects were planned before State issued the March 2014 project guidance. State and DOD officials stated that the target dates were not met due to partner nation security concerns as well as additional details and supporting documentation needed by Congress to obtain congressional approval. State and DOD officials said that the departments submitted separate congressional notification documents containing different levels of detail about the projects. As a result, Congress requested that State and DOD coordinate more closely and resubmit the congressional notifications. GSCF staff provided the following explanations for delays in the five fiscal year 2012 GSCF projects: Bangladesh Special Operations Forces (delayed 17 months): State and DOD originally planned to initiate training activities in June 2013 and equipment delivery in September 2013. DOD's congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD's funds transfer in November 2012. State and DOD's congressional notification of intent to initiate activities was submitted in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval. In addition, the risk of unrest from the elections in Bangladesh also delayed the project. The first training course started in August 2014, and the first delivery of equipment is planned to occur between March and May 2015. Libya Special Operations Forces (delayed 12.5 months): State and DOD originally planned to initiate training activities any time between April and September 2013 and equipment delivery in April 2013. DOD's congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD's funds transfer in November 2012. State and DOD submitted the congressional notification of intent to initiate activities in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and the deteriorated security situation in Libya. Initiation of training activities is pending the arrival of Libyan recruits to the training location in Morocco and this date is unknown; however, equipment delivery began in May 2014. Hungary, Romania, and Slovakia Special Operations Forces (delayed 7.5 months): State and DOD originally planned to initiate training activities and equipment delivery any time between January and February 2014. DOD's congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD's funds transfer in November 2012. State and DOD submitted the congressional notification of intent to initiate activities in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and challenges with equipment encryption; also, training could not start until equipment delivery. Initiation of training activities is planned for November 2014, but equipment delivery began in August 2014. Libya Border Security (delayed 1.5 months): State and DOD planned to initiate training activities in January 2014 and equipment delivery in April 2014. DOD's congressional notification of intent to transfer funds and State and DOD's congressional notification of intent to initiate activities for this project were submitted in June 2013. DOD's transfer of funds and the project were approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and safety and security concerns in Libya. As of April 2014, the project is on hold and being rescoped; however, three iterations of a training activity were completed before the project was postponed. Philippines Maritime Security and Counterterrorism (delayed 3.5 months): State and DOD planned to initiate training activities any time between January and March 2014 and equipment delivery any time between January 2014 and June 2015. DOD's congressional notification of intent to transfer part of the funds for this project was submitted in August 2012 and approved in September 2012. State and DOD's congressional notifications of intent to transfer the remaining funds and intent to initiate activities were submitted in August 2013, and the project was approved in September 2013. GSCF staff said the project was delayed due to the timing of congressional approval and a typhoon that hit the Philippines in November 2013. At the time of this report, initiation of training activities and equipment delivery was planned for October 2014. State's March 2014 GSCF cable states that the GSCF program is to address near- to mid-term security concerns driven by emergent challenges or opportunities, but it does not clearly define what time frames constitute near- or mid-term. The cable outlines time frames for individual parts of the GSCF process, such as a goal to review project proposals within 10 business days. However, this does not provide stakeholders with information needed to know what meets the criteria for a near- or mid-term GSCF project. Moreover, State and DOD do not routinely track GSCF projects against established time frames. Our analysis shows that the five projects planned in fiscal year 2012 were an average of about 8 months late, assuming the projects meet the currently planned execution dates as of September 2014, as shown above in figure 8. Key management practices call for developing control activities to ensure management's directives are being met, such as clearly defining the time frame associated with projects and tracking whether the projects are meeting their goals. Specifically, Standards for Internal Control in the Federal Government state that control activities should be designed and implemented to ensure that management's directives are achieved and require tracking projects so that managers can determine whether they are meeting their goals. State's March 2014 GSCF cable states that the program is intended to be high impact, address near- to mid-term security concerns in partner nations, and be driven by emergent challenges or opportunities, but the guidance does not clearly define time frames for near- to mid-term GSCF projects. The guidance also outlines time frames for individual parts of the GSCF process, such as a goal to review project proposals within 10 business days, but this does not provide stakeholders with information needed to know what meets the criteria for a near- or mid-term GSCF project. Further enhancing the definition of the program by including a range of time for how long near- to mid-term GSCF projects should take and tracking the projects against these goals are examples of control activities that could ensure that management's directives are achieved. State officials said that GSCF is intended to address emergent challenges that fall outside of the normal budgeting and planning process; however, while this approach allows for flexibility, it does not clarify how long near- to mid-term GSCF projects should take. Officials from U.S. Africa Command, U.S. European Command, and U.S. Pacific Command stated that the uncertain time frames and onerous process associated with GSCF have inhibited the usefulness of the program to date. As a result, officials stated that they were reluctant to propose GSCF projects because of the lengthy time frames associated with the program. Once projects begin execution, State and DOD officials said that they hold biweekly meetings with project implementers to discuss the status of projects; however, these meetings do not track the time frame from project proposal to the beginning of project execution. Without clearly defining a range of time for near- to mid-term GSCF projects, stakeholders, including those proposing and approving GSCF projects, will not know the criteria for how long a project should take. Furthermore, without clearly defined time frames, State and DOD do not have a goal to track GSCF projects against. Therefore, it may be difficult to assess whether the GSCF program is meeting its goal to provide timely assistance. The timely provision of U.S. assistance to build partner nation capacity to address emerging threats has become vital to U.S. national security. Congress created GSCF as a pilot program to pool State's and DOD's funds and expertise on building partner capacity to address emergent challenges and opportunities. State and DOD have developed guidance for the GSCF program that notes that GSCF is to focus on near- to mid- term projects. While the departments have planned seven GSCF projects, the five GSCF projects planned in fiscal year 2012 have not met their original execution target dates contained in their congressional notification packages. State and DOD have not defined time frames for near- to mid-term GSCF projects and have not routinely tracked the projects against these goals. Clearly defined time frames will give State and DOD goals to track GSCF projects against and will allow stakeholders to assess whether the GSCF program is meeting its goal to provide timely assistance. Clearly defined time frames may also help Congress determine whether the pilot authority should be continued. To enhance the definition of the GSCF program and assist stakeholders in assessing whether GSCF is meeting its goals, we recommend that the Secretary of State and the Secretary of Defense take the following two actions: Provide a range of time to clarify the time frames associated with near- to mid-term GSCF projects, and track GSCF projects against established time frames. We provided a draft of this report to State and DOD for review and comment. State and DOD provided written comments, which are summarized below and reprinted in appendix II and III, respectively. State and DOD also provided technical comments, which we have incorporated, as appropriate. In the written comments, State did not agree and DOD partially agreed with the first recommendation, and both departments agreed with the second recommendation. With respect to the report's first recommendation, State did not agree and DOD partially agreed that the departments should clearly define what time frames constitute "near- to mid-term" for GSCF projects. In their written comments, both departments reprinted portions of the GSCF guidance and stated that this guidance provides policy makers and planners flexibility in defining requirements and tailoring training and equipment assistance, consistent with the GSCF authority, needed to address emergent challenges or opportunities. For example, State noted that in many partner nations receiving GSCF assistance, the situation on the ground is fluid and frequently unpredictable; therefore, it is important that proposals are driven by requirements, not timelines. In addition, State and DOD said that the guidance allows proposal submissions to occur on a rolling basis. State's response also noted that this flexibility enables them to maximize their use of the authority, to include the ability to provide assistance across ministries in partner nations. In addition, DOD noted that GSCF guidance addresses general near- to mid-term conditions that would warrant submission of a project proposal, but that defining specific time frames would restrict the program's ability to develop detailed plans that address emergent needs. We understand and agree with the desire for flexibility in the GSCF program. We initially drafted the recommendation for State and DOD to clearly define the time frames associated with near- to mid-term GSCF projects. However, because we agree with State and DOD about the importance of flexibility, we modified our recommendation to clarify our intent and specify that State and DOD should define a range of time for GSCF projects. Defining a range of time for GSCF projects would not limit the departments' flexibility for developing detailed plans that address emergent needs, would still address the need for time frames for GSCF projects, and would give key stakeholders a clear expectation of how long GSCF projects should take. As noted in the report, all of the GSCF projects planned in fiscal year 2012 have experienced delays, and it is difficult to independently assess the severity of these delays because the GSCF guidance does not set overall expectations about how long these projects should take. Moreover, the uncertainty around GSCF time frames has impacted key stakeholders trying to use the program. As noted in the report, officials from the three geographic combatant commands with GSCF projects told us that the uncertain time frames have inhibited the usefulness of GSCF to date and the lengthy time frames associated with the program caused them to be reluctant to propose GSCF projects in the future. Finally, the lack of time frames for GSCF projects creates financial risks because GSCF funds do not expire after Congress approves the transfer of funds and initiation of activities. As noted in the report, funds transferred into the GSCF account remain available indefinitely. Without defining a range of time for GSCF projects, State and DOD may lack reasonable assurance that GSCF activities are conducted and funds expended in a timely manner. Therefore, we believe that defining a range of time associated with near- to mid-term GSCF projects is needed so the departments and stakeholders can manage and assess the program and ensure accountability. Thus, we believe that State and DOD should fully implement our modified recommendation. With respect to the report's second recommendation, State and DOD agreed that the departments should track GSCF projects against established time frames. State and DOD said that the departments plan to track the projects against the congressional notification timelines and plan to continue holding biweekly calls with project implementers to identify and address implementation considerations. However, as noted in the report, these biweekly calls discuss the status of projects and do not track the time frame from project proposal to the beginning of project execution. In its response, State also noted that it does not believe it would be appropriate to track projects according to the near- to mid-term time frame that we recommend. However, we continue to believe that tracking projects against established time frames, as discussed above, will be crucial for ensuring accountability. Until the departments track projects against established time frames, they are limited in assessing whether the program is meeting its goal of providing timely assistance. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Secretary of Defense, and the Chairman of the Joint Chiefs of Staff. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Charles Michael Johnson, Jr., at (202) 512-7331 or [email protected], or John H. Pendleton at (202) 512-3489 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. The Joint Explanatory Statement accompanying the National Defense Authorization Act for Fiscal Year 2014 required GAO to review the Department of State (State) and the Department of Defense (DOD) procedures to administer and implement activities funded by the Global Security Contingency Fund (GSCF). This report (1) describes the processes State and DOD have developed to manage the program, (2) describes the status of GSCF projects, and (3) assesses the extent to which State and DOD have clearly defined time frames for GSCF projects. To conduct this work and address our objectives, we identified sources of information within State and DOD that would provide information on the processes the departments developed to manage the GSCF program. To describe the processes State and DOD developed to manage the GSCF program, we collected and analyzed guidance documents that the departments developed to manage the GSCF program. Specifically, we collected and analyzed the March 2014 diplomatic cable titled Utilizing the Global Security Contingency Fund, which provides step-by-step information on how State and DOD are to develop projects from proposal idea to project execution. We also collected and analyzed State's March 2014 information memorandum titled Global Security Contingency Fund Program Execution Guidance, which provides step-by-step information on how State and DOD are to notify Congress of their intent to transfer funds and initiate GSCF projects as well as how the departments transfer funding into the joint GSCF account. To describe the status of GSCF projects, we gathered information from congressional notification packages, funding transfer documents, and status updates provided by State and DOD since the initiation of the program. Specifically, we analyzed the amounts transferred for each GSCF project from the information contained in the congressional notifications. We also compiled the planned execution time frames from congressional notification packages for each GSCF project, to include the initiation of training activities and equipment delivery, as well as the revised dates from State and DOD briefings on GSCF projects' status. We also discussed the reasons for any project delays and obtained current information on the planned training and equipment delivery dates from State and DOD officials. To assess the extent to which State and DOD have clearly defined time frames for GSCF projects, we obtained and analyzed State and DOD's congressional notification packages for GSCF projects, GSCF project updates to Congress, and State's GSCF guidance documents. We compared this information to criteria in the Standards for Internal Control in the Federal Government. We also interviewed State and DOD officials about their management of the GSCF projects, reasons for the delays in GSCF projects, and whether State and DOD clearly defined time frames or track GSCF projects. We interviewed officials, or when appropriate obtained documentation, from the organizations listed below: Bureau of Political-Military Affairs Office of Congressional and Public Affairs Office of Security Assistance Office of U.S. Foreign Assistance Bureau of African Affairs Bureau of East Asian and Pacific Affairs Bureau of European and Eurasian Affairs Bureau of Near Eastern Affairs Office of the Under Secretary of Defense for Policy Office of the Under Secretary of Defense (Comptroller) Defense Security Cooperation Agency Joint Staff U.S. Africa Command U.S. Central Command U.S. European Command U.S. Northern Command U.S. Pacific Command Office of Defense Cooperation Bangladesh Joint U.S. Military Assistance Group Philippines U.S. Southern Command U.S. Special Operations Command We conducted this performance audit from April 2014 to November 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contacts named above, Judith McCloskey, Assistant Director; Tracy Barnes; Laurie Choi; Mary Pitts; Richard Powelson; Erika Prochaska; Michael Silver; Amie Steele; and Esther Toledo made key contributions to this report.
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As instability abroad threatens U.S. and foreign partners' interests, the United States has emphasized the importance of building partner capacity to address emerging threats. Congress established GSCF in fiscal year 2012, and this pilot authority allows State and DOD to pool funds and expertise to address near- to mid-term needs for training, equipping, and enhancing foreign security forces. State and DOD jointly administer GSCF and are required to notify Congress of their intent to transfer funds and initiate GSCF activities before starting project execution. GAO was mandated to review State and DOD's procedures for managing GSCF. This report (1) describes processes State and DOD have developed to manage the program, (2) describes the status of GSCF projects, and (3) assesses the extent to which State and DOD have clearly defined time frames for GSCF projects. GAO analyzed State and DOD guidance and GSCF documents, and compared GSCF guidance to internal control standards. GAO also interviewed State and DOD officials about GSCF. The Department of State (State) and the Department of Defense (DOD) have developed processes to manage the Global Security Contingency Fund (GSCF) program. In March 2014, State and DOD officials used lessons learned from developing the initial GSCF projects to document a 14-step process to identify, develop, and execute GSCF projects. Additionally, State issued a separate document describing the process for congressional notification and internal State procedures for how to transfer and manage funds in the joint GSCF account. State and DOD have submitted congressional notification packages for seven GSCF projects since fiscal year 2012. As of September 2014, State and DOD had not met the original dates contained in the congressional notifications for the initial five GSCF projects for beginning training and equipment delivery by an average of about 8 months. State and DOD officials stated that the dates were not met due to security concerns as well as additional details and supporting documentation required by Congress to obtain congressional approval. In July 2014, State and DOD also sent congressional notifications for two additional projects that have not begun execution. The figure below shows GAO's analysis of the identification, and original and currently planned or actual execution dates, of the initiation of training activities for the five initial GSCF projects. State's March 2014 cable states that GSCF projects are to address near- to mid-term security concerns, but the cable does not clearly define what time frame constitutes near- or mid-term, and State and DOD do not track GSCF projects against established time frames. Standards for Internal Control in the Federal Government call for developing control activities to ensure management's directives are being met, such as defining a range of time for projects and tracking whether projects are meeting their goals. State officials said that GSCF is intended to address challenges outside of the normal budgeting and planning process; however, this approach does not define how long near- to mid-term GSCF projects should take. Without a range of time for GSCF projects, it is not clear how long projects should take, and State and DOD do not have time frames to track whether GSCF projects are addressing near- to mid-term needs. GAO recommends that State and DOD (1) provide an overall range of time for near- to mid-term GSCF projects and (2) track projects against this time frame. State disagreed and DOD partially agreed with the first recommendation, citing the need for flexibility. GAO agreed and modified the recommendation to clarify its intent, as discussed in the report. Both departments agreed with the second recommendation to track GSCF projects.
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The TAA program was designed to assist workers who have lost their jobs as a result of international trade. The program provides two primary benefits to these workers--training and extended income support. In addition, as a result of the TAA Reform Act of 2002, workers also have access to wage insurance and health coverage benefits. In order to be eligible for any of these benefits, Labor must certify that a layoff was trade affected. TAA Benefits and Services Under TAA, workers enrolled in the program have access to a variety of benefits and services, including the following: Training. Participants may receive up to 130 weeks of training, including 104 weeks of vocational training and 26 weeks of remedial training, such as English as a second language. Extended income support. Participants may receive a total of 104 weeks of extended income support beyond the 26 weeks of unemployment insurance (UI) benefits available in most states. Job search and relocation benefits. Payments are available to help participants search for a job in a different geographical area and to relocate to a different area to take a job. Wage insurance benefit. The wage insurance benefit, known as the Alternative Trade Adjustment Assistance (ATAA) program, was created by the TAA Reform Act of 2002 as a demonstration project for workers age 50 or older and those who find reemployment within 26 weeks of being laid off that pays less than $50,000 and less than what they previously earned. Workers who meet these criteria are eligible to receive 50 percent of the difference between their new and old wages, up to a maximum of $10,000 over 2 years. For the fiscal year 2008 budget request, Labor estimated wage insurance benefits at $23 million. Health coverage benefit. The health coverage benefit, known as the Health Coverage Tax Credit (HCTC) and also created by the TAA Reform Act, helps workers pay for health care insurance through a tax credit. Workers can choose to receive the benefit in one of two ways--as an advance option that covers 65 percent of their monthly premiums, allowing them to lower the amount they have to pay out of pocket for health coverage, or as an end-of-year tax credit that is claimed on their income taxes. To be eligible for the health coverage benefit, workers must either be (1) receiving extended income support payments or eligible for extended income support but still receiving UI payments, or (2) receiving the wage insurance benefit. IRS administers the health coverage tax credit program. There are three health plan options that are automatically eligible: COBRA continuation plans, coverage through the worker's spouse, and individual market plans purchased by the worker. In addition, the TAA Reform Act also allows states to designate other coverage alternatives--called state-qualified options. Currently, Labor certifies workers for TAA on a layoff-by-layoff basis. Petitions may be filed by the employer experiencing the layoff, a group of at least three affected workers, a union, or the state or local workforce agency. Labor investigates whether a petition meets the requirements for TAA certification and is required to either certify or deny the petition within 40 days of receiving it. The TAA statute lays out certain basic requirements for petitions to be certified, including that a significant proportion of workers employed by a company be laid off or threatened with layoff and that affected workers must have been employed by a company that produces articles. In addition, a petition must demonstrate that the layoff is related to international trade in one of several ways, including the following: Increased imports--imports of articles that are similar to or directly compete with articles produced by the firm have increased, the sales or production of the firm has decreased, and the increase in imports has contributed importantly to the decline in sales or production and the layoff or threatened layoff of workers. Shift of production--the firm has shifted production of an article to another country, and either the country is party to a free trade agreement with the United States or the country is a beneficiary under the Andean Trade Preference Act, the African Growth and Opportunity Act, or the Caribbean Basin Economic Recovery Act or there has been or is likely to be an increase in imports of articles that are similar to or directly compete with articles produced by the firm. Labor investigates whether each petition meets the requirements for TAA certification by taking steps such as surveying officials at the petitioning firm, surveying its customers, and examining aggregate industry data. When Labor has certified a petition, it notifies the relevant state, which has responsibility for contacting the workers covered by the petition, informing them of the benefits available to them, and telling them when and where to apply for benefits. Approximately $220 million is available annually for training, and states have 3 years to spend these funds. Thus fiscal year 2006 funds must be used by the end of fiscal year 2008. Each year Labor allocates 75 percent of the training funds to states according to a formula that takes into consideration several factors, including the average amount of training funds allocated to states, reported accrued training expenditures, and the average number of training participants over the previous 2 1/2 years. In addition, to minimize year-to-year fluctuations in state funding, Labor uses a hold harmless policy that ensures that each state's initial allocation is at least 85 percent of the initial allocation received in the previous year. In fiscal year 2006, Labor initially allocated $165 million of training funds to 46 states. To cover administrative costs, Labor allocates to each state an additional 15 percent of its training allocation. Labor holds the remaining 25 percent in reserve to distribute to states throughout the year according to need as they experience unexpected large layoffs. Labor is responsible for monitoring the performance of the TAA program. States are required to submit information on exiting participants through the Trade Act Participant Report (TAPR) each quarter. The TAPR data submitted by states are used to calculate national and state outcomes on the TAA performance measures for each fiscal year, which include reemployment rate, retention rate, and wage replacement rate. Unlike other training programs, like WIA, TAA has no individual state performance goals, and states do not receive incentives or sanctions based on their performance levels, nor are they otherwise held accountable for their performance. In addition to submitting TAPR data, states also submit data to Labor on TAA services and expenditures each quarter. Labor could improve the way it administers the program in two key areas--the process it uses to allocate training funds and its tracking of program outcomes. Labor's process for allocating training funds presents two significant challenges to states. First, the amount states receive at the beginning of the fiscal year does not adequately reflect states' spending the year before or the current demand for training services in the state. Second, Labor distributes a significant amount of funds to most states on the last day of the fiscal year, even to states that have spent virtually none of their current year's allocation. In addition the performance information that Labor makes available on the TAA program does not provide a complete and credible picture of the program's performance. For example, only half the states are including all participants, as required, in the performance data they submit to Labor. Labor's process for allocating training funds does not adequately recognize the episodic nature of layoffs or the extent to which states have used their previous year's allocations. Labor allocates 75 percent of TAA training funds based upon a formula that takes into account expenditures and participation over the previous 2 1/2 years. The year-to-year fluctuation in layoffs within a state may result in states receiving more or less funds than they actually need. For example, the estimated number of trade-affected workers being laid off declined dramatically in Kansas from fiscal years 2004 to 2005 and increased somewhat in 2006. Overall the estimated number of trade-affected workers in Kansas laid off in fiscal year 2006 represented about an 80 percent decrease from 2004. On the other hand, Missouri experienced an 80 percent increase in the number of trade- affected workers being laid off between fiscal years 2004 and 2006 (see fig. 1). Kansas used hardly any of its fiscal year 2006 training fund allocation, while Missouri used virtually all of its. Despite these trends, both states received about 15 percent less in fiscal year 2007 than they received in 2006. While the 46 states responding to our survey reported using (spending or obligating), on average, about 62 percent of their fiscal year 2006 training funds during the fiscal year, the percentage of funds states expended and obligated varied widely. Thirteen of the states reported using less than 1 percent of their fiscal year 2006 funds for training, while 9 states reported using more than 95 percent of their fiscal year 2006 training funds(see fig. 2). The amount individual states reported using ranged from 0 percent in several states to about 230 percent in 1 state. A particular problem with Labor's allocation process is the hold harmless policy, which guarantees that each state receives no less than 85 percent of what it received in the previous year. While this policy is intended to minimize significant fluctuations in state funding from prior years, it awards states comparable training funds without recognition of the previous year's expenditures or obligations. For example, the 13 states that used less than 1 percent of the fiscal year 2006 funds received nearly $41 million in fiscal year 2007--an amount slightly less than they received in fiscal year 2006. Moreover, 5 of the 13 states received a larger allocation in fiscal year 2007 than they received in 2006. Labor distributes a significant amount of funds to most states on the last day of the fiscal year, regardless of whether states need these additional funds. Labor distributed end-of-year funds to 48 states, including about $5 million to states that had spent or obligated less than 1 percent of their initial fiscal year 2006 allocation. Labor distributes these funds to each state based upon a calculation that takes into account the amount of training funds each state received from its initial allocation plus any additional amount it received during the year. According to Labor officials, all states will receive an end-of-year allocation unless a state specifically informs Labor it does not want any additional funds or if it had not received any funds at all during the year. Waiting until the last day of the fiscal year to distribute training funds to states does not reflect good planning or management of program funds. Labor officials agreed that the distribution of reserve training funds could be improved so that more funds are disbursed throughout the year rather than on the last day. Officials also acknowledged that states that have not spent or obligated any of their initial allocation probably should not receive additional training funds at the end of the year. In our recent report, we recommended that the Secretary of Labor develop procedures to better allocate training funds and ensure that any reserve funds are given to only those states that have spent or obligated a substantial portion of the current fiscal year allocation. In its comments, Labor agreed with our findings and recommendations and noted that it would examine the process for allocating training funds to states. TAA performance data are incomplete and may be inaccurate. States report that they are not including all TAA participants in their performance data, despite Labor's requirement that all participants be included after they exit the program. We found that only 23 of the 46 states we surveyed reported that they are including all exiting participants in their submissions to Labor. In general, states have information on those in training, but may not systematically track those who receive other assistance, but not training. Furthermore, Labor does not have a process in place to ensure that states are including all exiting TAA participants in their reporting submissions. Despite the importance of accurately identifying exiters, the exit dates themselves may not be accurate because some states do not consistently obtain proper documentation to verify the dates. Accurate exit dates are critical to TAA performance data for two reasons. First, whether a participant exits determines if the individual should be included in the state's report to Labor. Second, the actual exit date determines when a participant's employment outcome will be assessed. Some states are not using all available data sources to determine TAA participants' employment outcomes. Labor requires states to use UI wage records to determine the employment outcomes of participants reported to Labor. However, each state's wage record database includes only wage data on workers within the state and does not have data on participants who found employment in another state. In our 2006 report, we made several recommendations to Labor to help ensure that TAA participant data reported by states are consistent, complete, and accurate, including issuing clarifying guidance. Labor has taken some steps to share information with states and to improve data quality. In fiscal year 2006, Labor distributed $250,000 to each state to help them improve their TAA performance data systems, but it is too soon to know whether their efforts will improve the quality of the data. States report being challenged by the lack of flexibility to use training funds to provide trade-affected workers with case management services, such as counseling to help them decide whether they need training and what type of training would be most appropriate. In addition, efforts to enroll workers in training are sometimes hampered by the confusing TAA training enrollment deadline that requires workers be enrolled in training within 8 weeks of certification or 16 weeks of layoff to qualify for extended income support. States also cited the lack of flexibility to use training funds to provide trade-affected workers with case management services as a challenge. Workers often need help making decisions about training--what type of training to take or whether to enroll in training at all. Difficulty funding case management services for trade-affected workers was a concern among officials in the states we visited. For example, state officials in one state said providing proper assessment, career counseling, and other case management services was a real challenge and noted that additional funds from other sources are limited. States do not receive TAA program funds for case management and, by law, cannot use training funds for this service. As a result, states must either use their limited TAA administrative funds or use funds from other programs to pay for case management, but there are limitations with these funding sources. According to Labor officials, states are encouraged to co-enroll participants in the Workforce Investment Act (WIA) program, and in Labor's view states have sufficient WIA funds to pay for case management for TAA participants. About three-fourths of the states reported in our survey that they were able to utilize WIA funds to help pay for case management services. Yet nearly half of the states also reported that coordination with WIA was a challenge. For example, WIA funding may not always be available for TAA workers, especially during a large layoff. Furthermore, local officials in a state we visited said that while 85 percent of TAA participants do co-enroll in WIA, a large layoff can strain funding and makes it difficult for WIA to completely fund case management for trade-affected workers. States also reported limitations to using administrative funds to provide case management. More than half of the states responding to our survey reported the shortage of administrative funds as a challenge. One state noted that its administrative funds are usually exhausted by the end of the first quarter because of the amount of case management that is required for the program. A local official in one state we visited said that it uses Wagner-Peyser funds to pay for case management because not enough TAA administrative funds are received and TAA training funds cannot be used. As a result, only one case manager could be funded, and this one person had to cover three counties and serve approximately 1,000 workers. Moreover, officials in some of the states we visited cautioned that administrative funds should not be used for case management because case management is a program activity--any increase in the administrative limit to pay for this service could lead to the misconception that the program has too much overhead. These state officials noted that having the flexibility to use TAA training funds for case management would alleviate this concern. In our recent report, we suggested that Congress may wish to consider allowing a portion of TAA training funds to be used for case management services to allow states greater flexibility in how they may use their TAA funds to provide services to workers. Labor, however, contended that the WIA, rather than TAA, should finance case management. We agree with Labor that co-enrollment with WIA should be encouraged, but as our report points out, WIA funds are not always available to provide this service, especially during large layoffs. We believe that states would benefit from having the option to use a portion of their training funds to defray the costs of providing case management services to trade-affected workers. Efforts to enroll workers in training are sometimes hampered by the "8-16" training enrollment deadline--that is, the requirement that workers be enrolled in training within 8 weeks of certification or 16 weeks of layoff, whichever is later, to qualify for extended income support. Nearly three- quarters of the states responding to our survey reported that enrolling workers in training by the 8-16 deadline was a challenge. For example, one state noted that trying to enroll participants in training by the 8-16 deadline is particularly challenging when dealing with large layoffs because it is difficult to handle all the logistics, such as notifying workers and setting up appointments, for a large number of workers within the deadline. Moreover, officials in the four states we visited also indicated that the deadline is very confusing to workers. They told us that workers become confused about which point in time the 8 weeks or 16 weeks apply to and, as a result, are not sure when the clock starts and stops. We previously reported that about three-fourths of states responded that workers, at least occasionally, inadvertently miss the deadline and consequently lose their eligibility for extended income support. In that report, we recommended that Labor track the ability of workers to meet the 8-16 deadline. As of April 2007, Labor had not yet begun gathering information on the impact of the deadline. In our recent report, we suggested that in order to make it easier for workers to comply with the training enrollment deadline, Congress may wish to consider simplifying the deadline by specifying a single time period that commences when workers are laid off or petitions are certified, whichever is later. Several factors, including a short deadline for getting a job and the cost of buying health coverage, may limit participation in two new benefits resulting from the TAA Reform Act of 2002. In our site visits, states reported that the requirement that workers must find a job within 26 weeks to receive the wage insurance benefit was the major factor preventing more workers from taking advantage of the benefit. An additional factor that may limit participation in wage insurance by some older workers is the requirement that for a group of workers to be certified as eligible, the petitioning workers must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion of those workers were aged 50 or over. While cost is one of the most significant factors limiting participation in the health coverage benefit, some states also reported that the health coverage tax credit program can be complicated and difficult to understand for both workers and local case managers. Few TAA participants take advantage of the wage insurance benefit. According to Labor officials, in calendar year 2006, 6,316 workers received the wage insurance benefit. The universe of workers eligible for wage insurance cannot be estimated because data are not available on the number of workers certified for TAA who are 50 years old or older and meet the other eligibility requirements. However, two-thirds of the states we surveyed reported that 5 percent or less of TAA participants received wage insurance in fiscal year 2006. We previously reported in a study of five layoffs that less than 20 percent of the workers potentially eligible for the wage insurance benefit received it. In this study, we found that workers' awareness of the wage insurance benefit varied greatly--many workers who were 50 years old and older were simply unaware of the benefit. While state or local officials told us they discussed the ATAA benefit at rapid response meetings or TAA information meetings, workers were often overwhelmed by the volume of information received after the layoff, and didn't necessarily recall some of the specifics. Although officials in the states we visited for our most recent study believe the wage insurance benefit is beneficial to older workers close to retirement, two key factors limit participation. Officials said that one of the greatest obstacles to participation was the requirement for workers to find a new job within 26 weeks after being laid off. For example, according to officials in one state, 80 percent of participants who were seeking wage insurance but were unable to obtain it because they failed to find a job within the 26-week period. The challenges of finding a job within this time frame may be compounded by the fact that workers may actually have less than 26 weeks to secure a job if they are laid off prior to becoming certified for TAA. For example, a local case worker in one state we visited said that the 26 weeks had passed completely before a worker was certified for the benefit. Another factor that may limit participation by some older workers is the requirement that, under the TAA Reform Act, for a group of workers to be certified, they must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion were aged 50 or over. Labor interprets a "significant portion" as the lesser of 5 percent of the affected workforce or 50 workers at a firm with 50 or more workers, or at least 3 workers in a firm with fewer than 50 affected workers. Labor investigates each petition to see if the firm meets the requirements, and in fiscal year 2006, nearly 90 percent of TAA-certified petitions were also certified for the wage insurance benefit. Labor officials said that eliminating this step of the TAA certification process--that is, allowing any TAA-certified workers who meet the individual eligibility criteria for the wage insurance benefit to participate--would decrease the agency's investigation workload somewhat and may increase participation in the wage insurance benefit. Labor officials told us they are taking steps to overcome the lack of awareness of wage insurance and promote the benefit by informally encouraging states to ensure case workers talk about wage insurance during one-on-one case management sessions. Furthermore, in our most recent report, we suggested that in order to enable more workers to take advantage of the wage insurance benefit, Congress may wish to consider increasing the length of time workers have to become reemployed and eliminating the requirement that to be certified as eligible for wage insurance, the petitioning workers must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion of those workers were aged 50 or over. The high cost of the health coverage benefit to participants is the greatest barrier to higher participation. State officials said that many laid-off workers cannot afford to pay 35 percent of their health care premiums while their primary income is unemployment insurance benefits. IRS officials reported that the workers' 35 percent share is among the primary barriers to participation in the benefit. For example, in the four states we visited, the average monthly premium for COBRA policies covering two or more individuals was about $800. The workers' out-of-pocket cost for COBRA coverage in these states would be nearly one-fourth of their monthly UI payment (see table 1). State-qualified plans are similarly expensive and are often more expensive than COBRA coverage. Currently, 43 states have such plans, which, among other requirements, must provide for preexisting conditions. For example, in one state we visited, the premium for the state-qualified plan for a family was about $940 per month, while the average COBRA premium was about $740 per month. The worker's share of the state-qualified premium was about $330---or about 30 percent of the UI benefit--compared to about $260 for COBRA coverage. In addition, there is currently a period of up to about 3 months where workers must cover the full cost of their health premiums before beginning to receive the advance credit, and these costs are not reimbursable. IRS officials reported that inability to pay the out-of-pocket costs between layoff and application for the advance credit is one of the reasons workers lose eligibility and may be denied the benefit. While cost is one of the most significant factors limiting participation in the health coverage benefit, some states also reported that the health coverage tax credit program can be complicated and difficult to understand for both workers and local case managers. In our survey, nearly two-thirds of the states reported that limited IRS guidance on the benefit was still a challenge. Furthermore, during our site visits, some state and local officials said that they are not experts on the health coverage benefit and do not know enough details of the benefit to get information out to workers and to assist them with the enrollment process. In some local areas, case managers we interviewed said that they provide minimal information about the benefit and primarily refer workers to pamphlets or the IRS call center for details. We previously reported on the complexity of the health coverage benefit, noting that the process for workers to become eligible and enroll for the benefit was fragmented and difficult to navigate. In that report, we recommended to several agencies, including Labor and IRS, that a centralized resource be made available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other eligibility requirements. In February 2007, IRS began distributing to all workers covered by a petition a more simplified program kit for the health coverage benefit. Two alternatives are being considered that would expand the current firm by firm petition certification approach. One approach being considered would make an industry eligible to be investigated for possible certification when Labor certifies three petitions from that industry within 180 days. Another approach would require certification of an industry once a trade remedy had been applied. An industry certification approach based on three petitions certified within 180 days would likely increase the number of workers eligible for TAA, but the extent of the increase depends upon the specific criteria that are used. Using trade remedies for industrywide certification could also result in expanded worker eligibility for TAA in a number of industries, but the extent is uncertain. As we identify in our forthcoming report, either approach presents some design and implementation challenges. From 2003 to 2005, 222 industries had three petitions certified within 180 days and therefore would have triggered an investigation to determine whether an entire industry should be certified, if such an approach had been in place at that time. These industries represented over 40 percent of the 515 industries with at least one TAA certification in those 3 years and included 71 percent of the workers estimated to be certified for TAA from 2003 to 2005. The 222 are a diverse set of industries, including textiles, apparel, wooden household furniture, motor vehicle parts and accessories, certain plastic products, and printed circuit boards. The proposals for this approach would require that, once an industry meets the three-petition criterion, Labor investigate to determine whether there is evidence of industrywide trade effects. Not all 222 industries would likely be certified industrywide. In its investigation, Labor would use additional criteria and likely consider such factors as the extent to which an industry has been affected by imports, changes in production levels in the industry, or changes in employment levels. The number of workers that would become eligible for TAA through an industry certification approach depends on what additional criteria are established. We used information from the 69 industries for which we had comprehensive data on petitions, unemployment, trade and production to estimate the potential increases in eligible workers programwide. We found that, if there were no additional criteria beyond three petitions certified in 180 days, the overall number of workers eligible for TAA might have nearly doubled, from about 118,000 to about 233,000 in 2005. If the trade threshold were set at a 10 percent increase in the import share of the domestic market, the number of eligible workers might have increased by approximately 49 percent from 118,000 to about 175,000. If certification were limited to industries with a 15 percent increase in any 1 year, the number of workers eligible for TAA might have increased by approximately 27 percent to about 150,000. Finally, if the criterion was a 20 percent increase in the import share in any 1 year, the number of workers might have increased by about 22 percent, to 144,000. More stringent criteria would result in a smaller increase in the number of workers eligible for TAA. Using trade remedies for industrywide certification could result in expanded worker eligibility for TAA in a number of industries. The number of workers eligible for TAA might increase under this approach in areas in which there have been few or no TAA petitions. For example, even though ITC found that domestic producers of certain kinds of orange juice had been injured by imports, there appear to be no TAA petitions for workers producing orange juice. However, the number of workers eligible for TAA may not increase substantially in some areas, in part because of overlap between trade remedies and TAA petitions. For example, over half of outstanding antidumping and countervailing duty orders are for iron and steel products, for which hundreds of TAA petitions have been certified. In addition, industries with trade remedies may not necessarily have experienced many trade-related job losses because the International Trade Commission (ITC) does not focus on employment when determining whether an industry has been injured, according to an ITC official. Furthermore, trade remedies are intended to mitigate the trade-related factors that caused the injury to the industry, so employment conditions in an industry could improve after the trade remedy is in place. It is difficult to estimate the extent that industry certification based on trade remedies would increase the number of workers eligible for TAA because trade remedies are imposed on specific products coming from specific U.S. trade partners, and data are not available on job losses at such a detailed level. The product classifications for a given trade remedy can be very narrow, such as a dye known as "carbazole violet pigment 23" or "welded ASTM A-312 stainless steel pipe." Although industry certification based on three petitions certified in 180 days is likely to increase the number of workers eligible for TAA, it also presents several potential challenges. Designing additional criteria for certification. Any industrywide approach raises the possibility of certifying workers who were not adversely affected by trade. Even in industries that are heavily affected by trade, workers could lose their jobs for other reasons, such as the work being relocated domestically. In addition, using the same thresholds for all industries would not take into account industry- specific patterns in trade and other economic factors. Determining appropriate duration of certification. Determining the length of time that an industry would be certified may also present challenges. If the length of time is too short, Labor may bear the administrative burden of frequently re-investigating industries that continue to experience trade-related layoffs after the initial certification expires. However, if the time period is too long, workers may continue to be eligible for TAA even if conditions change and an industry is no longer adversely affected by trade. Defining the industries. How the industries are defined would significantly affect the number of workers who would become eligible for TAA through an industry certification approach. Our analysis defined industries according to industry classification systems used by government statistical agencies. However, some of these industry categories are broad and may encompass products that are not adversely affected by trade. Notifying workers and initiating the delivery of services. Notifying workers of their eligibility for TAA has been a challenge and would continue to be under industry certification. Under the current certification process, workers are linked to services through the petition process. The specific firm is identified on the petition application, and state and local workforce agencies work through the firm to reach workers in layoffs of all sizes. For industry certification, however, there are no such procedures in place to notify all potentially eligible workers in certified industries. For large layoffs in a certified industry, agencies could make use of the existing Worker Adjustment and Retraining Notification (WARN) notices to connect with workers. However, in smaller layoffs in certified industries, or when firms do not provide advance notice, workforce agencies may not know that the layoff has occurred. Verifying worker eligibility. Verifying that a worker was laid off from a job in a certified industry to ensure that only workers eligible for TAA receive TAA benefits may be more of a challenge under industry certification than under the current system. For example, it may be difficult to identify the specific workers who made a product in the certified industry if their employer also makes products that are not covered under industrywide certification. In addition, determining who should conduct this verification may also present challenges. A centralized process conducted by Labor would likely be unwieldy, while verification by state or local workforce agencies could take less time, but ensuring consistency across states might prove challenging. An approach using trade remedies presents some of the same challenges as an industry certification approach based on three petitions certified in 180 days. Through our work on the Trade Adjustment Assistance Program since passage of the Reform Act in 2002 we have identified a number of areas where Labor and the Congress should take action. Taking steps to limit confusion, ease restrictions, and provide support for case management would facilitate workers' access to services and benefits. States' ability to assist these workers would be enhanced by an improved process for allocating training funds. Mr. Chairman, this concludes my prepared statement. I will be happy to respond to any questions you or other members of the committee may have at this time. For information regarding this testimony, please contact Sigurd R. Nilsen, Director, Education, Workforce, and Income Security Issues, at (202) 512- 7215. Individuals who made key contributions to this testimony include Dianne Blank, Wayne Sylvia, Yunsian Tai, Michael Hoffman, and Rhiannon Patterson. Trade Adjustment Assistance: Changes to Funding Allocation and Eligibility Requirements Could Enhance States' Ability to Provide Benefits and Services. GAO-07-701, GAO-07-702. (Washington, D.C.: May 31, 2007). Trade Adjustment Assistance: New Program for Farmers Provides Some Assistance, but Has Had Limited Participation and Low Program Expenditures. GAO-07-201. (Washington, D.C.: December 18, 2006). National Emergency Grants: Labor Has Improved Its Grant Award Timeliness and Data Collection, but Further Steps Can Improve Process. GAO-06-870. (Washington, D.C.: September 5, 2006). Trade Adjustment Assistance: Labor Should Take Action to Ensure Performance Data Are Complete, Accurate, and Accessible. GAO-06-496. (Washington, D.C.: April, 25, 2006). Trade Adjustment Assistance: Most Workers in Five Layoffs Received Services, but Better Outreach Needed on New Benefits. GAO-06-43. Washington, D.C.: January 31, 2006. Workforce Investment Act: Substantial Funds Are Used for Training, but Little Is Known Nationally about Training Outcomes. GAO-05-650. Washington, D.C.: June 29, 2005. Trade Adjustment Assistance: Reforms Have Accelerated Training Enrollment, but Implementation Challenges Remain. GAO-04-1012. Washington, D.C.: September 22, 2004. Workforce Investment Act: Better Guidance and Revised Funding Formula Would Enhance Dislocated Worker Program. GAO-02-274. Washington, D.C.: February 11, 2002. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Trade Adjustment Assistance (TAA) program, administered by the Department of Labor (Labor), is the nation's primary program providing income support, job training, and other benefits to manufacturing workers who lose their jobs as a result of international trade. In fiscal year 2006, Congress appropriated about $900 million for TAA, including about $220 million for training. GAO has conducted a number of studies on the TAA program since the program was last reauthorized in 2002. This testimony draws upon the results of two of those reports, issued in 2006 and 2007, as well as ongoing work, and addresses issues raised and recommendations made regarding (1) Labor's administration of the TAA program, (2) the challenges states face in providing services to trade affected workers, (3) the factors that affect workers' use of the wage insurance and health coverage benefits, and (4) the impact of using industrywide certification approaches on the number of workers potentially eligible for TAA. Labor could improve the way it administers the program in two key areas--the process it uses to allocate training funds and its tracking of program outcomes. Labor's process for allocating training funds presents two significant challenges to states. First, the amount states receive at the beginning of the fiscal year does not adequately reflect the current demand for training services in the state. Second, Labor distributes a significant amount of funds to most states on the last day of the fiscal year, even to states that have spent less than 1 percent of the current fiscal year training allocation. Regarding program outcomes, TAA nationwide performance data are incomplete and may be inaccurate. We recommended that Labor develop procedures to better allocate the training funds and improve data. Labor recently noted that it would examine its processes. States face challenges in providing services to workers, including the lack of flexibility to use training funds to provide trade-affected workers with case management services, such as counseling to help them decide whether they need training and which training would be most appropriate. States receive no TAA program funds for case management and must either use their limited administrative funds or seek resources from other programs, such as those funded by the Workforce Investment Act. States also reported that their efforts to enroll workers in training are sometimes hampered by the training enrollment deadline and that workers find the deadline confusing. We have suggested that Congress consider providing states the flexibility to use training funds for case management and simplifying the training enrollment deadline. Few TAA participants take advantage of the wage insurance and health coverage benefits, and several factors limit participation. For example, several states reported that the requirement that workers must find a job within 26 weeks to receive the wage insurance benefit was the major factor preventing more workers from taking advantage of the benefit. Regarding the health coverage benefit, several states told us that high out-of-pocket costs may discourage workers from using the benefit. Furthermore, states also reported that the health coverage benefit can be complicated and difficult to understand. We have suggested that the Congress may wish to consider increasing the length of time workers have to become eligible for wage insurance. In addition, we also recommended that a centralized resource be developed to assist workers with their questions about health coverage. In response, the agency has developed new simplified materials. Finally, an industry certification approach based on three petitions certified within any 180-day period would likely increase the number of workers eligible for TAA, potentially doubling those eligible. The approach also presents some design and implementation challenges.
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DI and SSI--the two largest federal programs providing cash to people with disabilities--grew rapidly between 1988 and 1998, with the size of the working-age beneficiary population increasing from about 4.4 million to 7.6 million. Administered by SSA and state disability determination service (DDS) offices, DI and SSI paid cash benefits totaling about $61.3 billion in 1998. According to the law, to be considered disabled by either program, an adult must be unable "to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months." Moreover, the impairment must be of such severity that the person not only is unable to do his or her previous work but, considering his or her age, education, and work experience, is unable to do any other kind of substantial work nationwide. received cash benefits for 24 months. About 4.7 million working-age people (aged 18 to 64) received about $39.9 billion in DI cash benefits in 1998. In contrast, SSI is a means-tested income assistance program for disabled, blind, or aged individuals, regardless of their prior participation in the labor force. Established in 1972 for individuals with low income and limited resources, SSI is financed from general revenues. In most states, SSI entitlement ensures an individual's eligibility for Medicaid benefits. In 1998, about 3.6 million working-age people with disabilities received SSI benefits; federal SSI cash benefits paid to these and other disabled beneficiaries amounted to $21.3 billion. The Social Security Act states that people applying for disability benefits should be promptly referred to state vocational rehabilitation (VR) agencies for services in order to maximize the number of such individuals who can return to productive activity. Furthermore, to reduce the risk a beneficiary faces in trading guaranteed monthly income and subsidized health coverage for the uncertainties of employment, the Congress has established various work incentives intended to safeguard cash and health benefits while a beneficiary tries to return to work. In a series of reports, we have discussed how DI and SSI design and operational weaknesses do not encourage beneficiaries to maximize their work potential. The cumulative impact of these weaknesses, summarized in table 1, is to understate beneficiaries' work capacity and impede efforts to improve return-to-work outcomes. In recent years, SSA has made efforts to better promote return to work. Also, the Congress and others have proposed various alternatives at program reform. The Social Security Act requires that the assessment of an applicant's work incapacity be based on the presence of medically determinable physical and mental impairments. SSA maintains a listing of impairments for medical conditions that are, according to SSA, ordinarily severe enough in themselves to prevent an individual from engaging in any gainful activity. About 50 percent of new awardees are eligible for disability because their impairment is listed or meets the severity of a listed impairment. But findings of studies we reviewed generally agree that medical conditions are a poor predictor of work incapacity. As a result, the work capacity of DI and SSI beneficiaries may be understated. While disability decisions may be more clear-cut in the case of people whose impairments inherently and permanently prevent them from working, disability determinations may be much more difficult for those who may have a reasonable chance of work if they receive appropriate assistance and support. Nonmedical factors may play a crucial role in determining the extent to which people in this latter group can work. Because a disability determination results in either a full award of benefits or a denial of benefits, applicants have a strong incentive to overstate their disabilities to establish their inability to work and thus qualify for benefits. Conversely, applicants have a disincentive to demonstrate any capacity to work because doing so may disqualify them for benefits. Furthermore, many believe that the documentation involved in establishing one's disability can create a "disability mind-set," which weakens motivation to work. Compounding this negative process, the length of time required to determine eligibility can erode skills, abilities, and habits necessary to work. In addition, VR has played a limited role in the DI and SSI programs, in part because of restrictive state VR policies and limits on alternatives to providers in the state VR system. Beneficiaries have generally been uninformed about the availability of VR services and have been given little encouragement to seek them. Moreover, the effectiveness of state VR services in securing long-term financial gains has been mixed, at best. Work incentive provisions that are complex, difficult to understand, and poorly implemented further impede return-to-work efforts. Because SSA has not promoted them extensively, few beneficiaries have been aware that work incentives exist. Despite providing some financial protection for those who want to work, work incentives do not appear to be sufficient to overcome the prospect of a drop in income for those who accept low-wage employment. For example, DI work incentives provide for a trial work period in which a beneficiary may earn any amount for 9 months (which need not be consecutive) within a 60-month period and still receive full cash and health benefits. At the end of the trial work period, if a beneficiary's countable earnings are more than $500 a month, cash benefits continue for an additional 3-month grace period and then stop, causing a precipitous drop in monthly income from full benefits to no cash benefits. SSA researchers have noted that such a drop in income is a considerable disincentive to finishing the trial work period as well as to begin working. It may be more financially advantageous for beneficiaries--especially those with low earnings--to continue to receive disability payments by not working or by limiting earnings than to earn more than $500 a month in countable income. Our work has called for SSA to develop a comprehensive, integrated return-to-work strategy that includes intervening earlier, providing return-to-work supports and assistance, and structuring benefits to encourage work. SSA has agreed that there are compelling reasons to try new return-to-work approaches. integration for beneficiaries attempting to return work. In addition, SSA has proposed to demonstrate the effectiveness of vouchers (or "tickets") for beneficiaries to obtain VR services from public or private providers reimbursed on an outcome basis. SSA has also proposed increasing the substantial gainful activities level for beneficiaries, thereby allowing them to have a higher earned income before leaving the disability rolls. In addition to SSA's proposed reforms, the Congress and advocates for people with disabilities have offered various reforms. Such reforms have proposed allowing working beneficiaries to keep more of their earnings, safeguarding medical coverage, and using tickets to enhance vocational rehabilitation. To understand how DI beneficiaries overcome the challenges and disincentives to work, we conducted survey interviews with 69 people who were receiving DI benefits and working in one of three metropolitan areas. The working DI beneficiaries we interviewed cited a number of factors as helpful to becoming employed (see table 2). The two most frequently reported factors--health interventions and encouragement to work by family members and others--appear to have been the most critical in helping beneficiaries become employed. First, health interventions--such as medical procedures, medications, physical therapy, and psychotherapy--reportedly helped beneficiaries by stabilizing their conditions and, consequently, improving functioning. Not only were health interventions perceived as important precursors to work, they were also seen as important to maintaining ongoing work attempts. Encouragement to work from family, friends, health professionals, and coworkers was also critical, according to respondents. impairments cited these factors as helpful to being employed. However, people with physical impairments found coworkers and the trial work period more helpful than did those with psychiatric impairments. My family members . . . encouraged me to go to work and not rely on disability income. They were helpful to me in assessing the merits and benefits of potential job offers. . . . I am using a combination of Prozac and lithium medications to control my condition and me to work regularly where I don't use my sick days. Therapy with my counselor for over 4 years has really allowed me to work and function in a work environment. Medications for epilepsy help keep condition under control, which minimizes seizures and the risk of getting fired. . . . checks from time to time to make sure everything is okay even suggests taking days off. infectious disease doctor encouraging and is very supportive. He wrote a letter to employer explaining condition and my capabilities. parents are very supportive medications have made me physically able to work. providing emotional support. Psychotherapy and group therapy been helpful. Also, medication has been helpful. . . . My psychotherapist has gone out of his way to help me. I can call him at any time. The pastor of my church has also counseled me. At the college I attended, a director of the disabled talks to my professors and tells them about my condition so that they can take this into account when assigning work and evaluating my performance. . . . ADA has helped because I believe that would not have hired me because of my problems. responded affirmatively said that poorer health would inhibit employment. Similarly, some said that improved health would facilitate work. We found little difference in future work and program plans between people with physical and psychiatric impairments. DI program incentives for reducing risks associated with attempting work appear to have played a limited role in beneficiaries' efforts to become employed. Although the trial work period was considered helpful by 31 respondents, others indicated it had shortcomings or were unaware that it existed. For instance, several respondents indicated the amount signifying a "successful" month of earnings ($200) was too low, an all-or-nothing cutoff of benefits after 9 months was too abrupt, and having only one trial period did not recognize the cyclical nature of some disabilities.Respondents' mixed views of the design of the trial work period suggest that while they value a transitional period between receiving full cash benefits and losing some benefits because of work, they might be more satisfied with a different design. Finally, over one-fifth were unaware of the trial work period and therefore may have unknowingly been at risk of losing cash benefits. Moreover, many respondents were unaware of other work incentives as well. Consequently, fewer respondents reported these incentives as helpful than might have had they been better informed. For example, 41 respondents were unaware of the provision that allows beneficiaries to deduct impairment-related work expenses from the amount SSA considers the threshold for determining continued eligibility. Using the deduction could make it easier for a beneficiary to continue working while on the rolls without losing benefits. Moreover, 42 respondents were unaware of the option to purchase Medicare upon leaving the rolls. As a result, some of these beneficiaries may have decided to limit their employment for fear of losing health care coverage, while others who planned to leave the rolls may have thought they were putting themselves at risk of foregoing health care coverage entirely upon program termination. return-to-work efforts. Fifty-nine respondents answered "no" when asked if people from SSA assisted them in becoming employed. However, 52 of the 69 respondents told us that they did not have experiences with SSA that made it difficult to become employed. For the 17 people reporting difficulties, the most common examples cited were the limited assistance offered and poor information provided by SSA. Because the current work incentives have either impeded or played a limited role in helping beneficiaries return to work, the Congress and others have recognized the need to reform the current work incentives, particularly those in the DI program. However, our work has found that changing the work incentives involves difficult challenges and tradeoffs. Because of the complex interactions between earnings and disability benefits, some types of work incentive changes may help some beneficiaries more than others. Moreover, tradeoffs exist between trying to increase the work effort of beneficiaries without decreasing the work effort of people with disabilities who are not currently receiving disability benefits. Two illustrations using data from Virginia Commonwealth University's Employment Support Institute underscore the complex interactions between earnings and benefits. For example, figure 1 shows that under current law, a DI beneficiary's net income may drop at two points, even as gross earnings increase. The first "income cliff" occurs when a person loses all of his or her cash benefits because countable earnings are above $500 a month and the trial work and grace periods have ended (which, in figure 1, occurs when the individual earns $750 a month). A second income cliff may occur if Medicare is purchased when premium-free Medicare benefits are exhausted (which, in figure 1, occurs when the individual earns $1,500 a month). Figure 1 also illustrates what happens to net income when a tax credit is combined with a Medicare buy-in that adjusts premiums to earnings. In this particular example--although the tax credit may cushion the impact of the drop in net income caused by loss of benefits--it does not eliminate the drop entirely. However, as figure 2 shows, the income cliff is eliminated when benefits are reduced $1 for every $2 of earnings above the substantial gainful activity level. In addition, changing work incentives may or may not increase the work effort of current beneficiaries, depending on their behavior in response to the type of change and their capacity for work and earnings. But even if changes in work incentives increase the work effort of the current beneficiaries, a net increase in work effort may not be achieved. This point is emphasized by economists who have noted that improving work incentives may make the program attractive to those not currently in it. Allowing people to keep more of their earnings would make the program more generous and could cause people who are currently not in the program to enter it. Such an effect could reduce overall work effort because those individuals not in the program could reduce their work effort to become eligible for benefits. Moreover, improving work incentives by allowing people to keep more of their earnings could keep some in the program who might otherwise have left. Decreases in the exit rate could reduce overall work effort because people on the disability rolls tend to work less than people off the rolls. The extent to which increased entry occurs and decreased exit occurs will affect how expensive these changes could be in terms of program costs. The costs of proposed reforms are difficult to estimate with certainty because of the lack of information on entry and exit effects. Although our work sheds additional light on this issue, the lack of empirical analysis with which to accurately predict outcomes of possible interventions reinforces the value of testing and evaluating alternatives to determine what strategies can best tap the work potential of beneficiaries without jeopardizing the availability of benefits for those who cannot work. Mr. Chairman, this concludes my prepared statement. At this time, I will be happy to answer any questions you or the other Members of the Subcommittee may have. Social Security Disability Insurance: Factors Affecting Beneficiaries' Return to Work (GAO/T-HEHS-98-230, July 29, 1998). Social Security Disability Insurance: Multiple Factors Affect Beneficiaries' Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998). Social Security Disability: Improving Return-to-Work Outcomes Important, but Trade-Offs and Challenges Exist (GAO/T-HEHS-97-186, July 23, 1997.) Social Security: Disability Programs Lag in Promoting Return to Work (GAO/HEHS-97-46, Mar. 17, 1997). People With Disabilities: Federal Programs Could Work Together More Efficiently to Promote Employment (GAO/HEHS-96-126, Sept. 3, 1996). SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996). Social Security: Disability Programs Lag in Promoting Return to Work (GAO/T-HEHS-96-147, June 5, 1996). SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr. 24, 1996). PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly Managed (GAO/HEHS-96-51, Feb. 28, 1996). Social Security Disability: Management Action and Program Redesign Needed to Address Long-Standing Problems (GAO/T-HEHS-95-233, Aug. 3, 1995). Supplemental Security Income: Growth and Changes in Recipient Population Call for Reexamining Program (GAO/HEHS-95-137, July 7, 1995). Disability Insurance: Broader Management Focus Needed to Better Control Caseload (GAO/T-HEHS-95-164, May 23, 1995). Social Security: Federal Disability Programs Face Major Issues (GAO/T-HEHS-95-97, Mar. 2, 1995). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. 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Pursuant to a congressional request, GAO discussed return-to-work issues facing the Disability Insurance (DI) and Supplemental Security Income (SSI) programs, focusing on: (1) structural and operational weaknesses in the current DI and SSI programs that impede return to work; (2) factors that working beneficiaries believe are helpful in becoming and staying employed; and (3) challenges that exist in improving program incentives to work. GAO noted that: (1) program eligibility requirements and the application process encourage people to focus on their inabilities, not their abilities; (2) moreover, work incentives offered by the programs do not overcome the risk of returning to work for many beneficiaries, and the complexities of work incentives can make them difficult to understand and challenging to implement; (3) also, there is little encouragement to use rehabilitation services, which are relatively inaccessible to beneficiaries seeking them; (4) some DI beneficiaries who work despite these program weaknesses cited improved ability to function in the work place, resulting from successful health care, and encouragement from family, friends, health care providers, and coworkers as the most important factors helping them find and maintain work; (5) GAO's analysis of some of the proposed changes to work incentives--such as gradually reducing the DI cash benefit level as earnings increase--indicates that there will be difficult trade-offs in any attempt to change work incentives; and (6) moreover, determining the effectiveness of any of these proposed policies in increasing work effort and reducing caseloads would require that major gaps in existing research be filled.
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Under authority first provided by Congress in 1940, VA reimburses eligible veterans for travel expenses associated with medical appointments through VHA's Beneficiary Travel Program.travel expenses eligible for reimbursement include mileage, tolls, meals, and lodging. Through the program, VA may also pay for special mode transportation--such as ambulances and wheelchair vans. Veterans are eligible for travel reimbursement if they have 30 percent or more service-connected disability ratings; are receiving care related to their service-connected disability if their service-connected disability rating is less than 30 percent; receive VA pension benefits; have an annual income below a set annual rate; present clear evidence that they are unable to defray the cost of travel; or are traveling for compensation and pension exams. Certain caregivers also may be eligible for travel reimbursement. Generally, eligible veterans are only reimbursed for round-trip travel costs associated with scheduled appointments, except in the case of emergency care. Since the program's inception, Congress has made several modifications, including adjusting eligibility requirements, types of travel expenses covered, deductible costs, and mileage reimbursement rates. For example, in fiscal years 2008 and 2009, Congress directed VA to increase its mileage reimbursement rate from 11 cents per mile to 28.5 cents per mile and then to 41.5 cents per mile. Committee reports accompanying VA's fiscal years 2008 and 2009 Medical Services appropriations indicated that the committees identified specific amounts to fund these rate increases. Spending for the Beneficiary Travel Program increased from about $370 million in fiscal year 2008 to about $860 million in fiscal year 2012, with mileage reimbursement accounting for an increased proportion of the spending in this same period. (See fig. 1.) According to VHA officials, the increase in spending was primarily due to the increased number of veterans claiming mileage reimbursement, a rise in the average number of claims per veteran, and higher mileage reimbursement rates. For example, according to VHA, the number of veterans claiming mileage reimbursement increased from about 450,000 in fiscal year 2008 to about 1,450,000 in fiscal year 2012. VHA's Chief Business Office is responsible for establishing policies and providing guidance to medical centers for the Beneficiary Travel Program. These policies describe, for example, the eligibility requirements and the types of travel expenses that are reimbursable. VHA's Office of Finance is responsible for establishing national policies for the processing of payments for reimbursement and financial quality assurance. Veterans Integrated Service Networks (VISN) have no specific oversight responsibilities for the Beneficiary Travel Program beyond the general responsibility of ensuring compliance with VHA's policies at the medical centers within their region.handled at the local medical center level. Administration of the program is largely VHA's policies outline requirements for the Beneficiary Travel Program's reimbursement process, and can be summarized into the following three broad steps: Veteran applies for travel reimbursement: VHA policies stipulate that veterans must apply for reimbursement within 30 calendar days of the travel. Veterans must provide information on the travel costs incurred to the medical center responsible for the care. Medical center reviews eligibility and determines reimbursement amount: After the veteran applies for reimbursement, VHA requires medical centers to assess the veteran's eligibility for reimbursement,determine distance traveled, and apply appropriate deductibles. For example, VHA policies stipulate that except under certain circumstances, veterans are reimbursed for mileage between their place of residence and the nearest VA facility where the care could be provided. Medical center reimburses veteran: After eligibility has been verified and reimbursement amounts determined, medical centers reimburse veterans those amounts. Medical centers also have local procedures for managing the program. (See app. I for examples of procedures used by some of the medical centers included in our review.) In February 2013, the VA OIG released a report summarizing findings from its audit of VHA's Beneficiary Travel Program. The audit revealed problems such as inadequate management and oversight, and inaccurate payment amounts. Specifically, the VA OIG reported that it did not have reasonable assurance that Beneficiary Travel Program costs were accurate or were being paid only to eligible veterans. The VA OIG report found that from January 2010 through March 2011 VA paid $89 million more in beneficiary travel reimbursements than facilities approved, including $42.5 million in unexplained payments. On the basis of its findings, the VA OIG recommended that VHA establish and implement procedures to strengthen authorization, payment, and oversight controls for the program. VHA concurred with the OIG's findings and recommendations and reported that it would, among other things, be implementing several initiatives to address the findings. Additionally, VHA has identified the Beneficiary Travel Program as being susceptible to significant improper payments. The Improper Payments Elimination and Recovery Act of 2010 (IPERA) requires agencies with programs identified as being susceptible to significant improper payments to estimate the annual amount of improper payments for each program and publish these estimates and corresponding corrective actions in an annual report; VA includes this information in its annual Performance and Accountability Report. For VA's 2012 Performance and Accountability Report, VHA estimated that the Beneficiary Travel Program had $71 million in improper payments. IPERA also requires federal agencies' inspectors general to annually determine whether their respective agencies are in compliance with IPERA requirements and to report on their determinations. In March 2013, the VA OIG reported limitations in VHA's methodology for estimating improper payments for the Beneficiary Travel Program and other programs but noted that this was not a matter of noncompliance with IPERA requirements. VHA has developed multiple efforts to improve the management and oversight of its process for reimbursing veterans' travel expenses for medical appointments. However, lack of internal controls for some efforts may hinder VHA's ability to improve the process. VHA has developed multiple efforts to improve the management and oversight of the Beneficiary Travel Program, as well as the timeliness and accuracy of payments. (See table 1.) These efforts--many of which medical centers are or will be required to implement--are expected to increase the consistency of how the program is administered. For example, the Dashboard, a Web-based software, provides a standardized process that medical centers are required to use to determine a veteran's eligibility for travel reimbursement, the amount of any deductibles, and the number of miles from the veteran's residence to the closest VA medical facility where care could be provided. The efforts are in various stages of development and implementation, with some being fully implemented in all medical centers, while others are in earlier stages. For some of the efforts, VHA has utilized a pilot process in a small number of medical centers to help identify and resolve potential problems before releasing the efforts VHA-wide to all medical centers. For example, in the fall of 2012, VHA piloted the Electronic Funds Transfer (EFT) effort--a process for transferring travel reimbursement funds electronically into veterans' bank accounts--in medical centers in 2 of the 21 VISNs. The EFT effort--along with VHA's Debit Card effort, a VHA-wide card that veterans can use to receive travel reimbursement electronically--implements a Department of the Treasury requirement for federal agencies to convert cash payments to electronic funds payments by March 1, 2013. VHA has requested and received an extension from the Department of the Treasury on the implementation of electronic funds payments to allow VHA to simultaneously implement both the EFT and Debit Card efforts. VHA anticipates VHA-wide implementation of both efforts by December 31, 2013. Some of VHA's efforts to improve the Beneficiary Travel Program have been developed in response to OIG and IPERA report findings as corrective actions to improve monitoring and oversight of the program and to decrease improper payments. One such effort is the Facility Audit Tool--a tool used to audit facilities' past travel reimbursement transactions and operations through a more standardized process. Currently this tool is being used by VHA's Office of Finance to annually audit programs identified as susceptible to improper payments under IPERA. VHA officials told us that this tool may ultimately be used by VISNs to audit their facilities' past travel reimbursement transactions and operations, but did not have a time frame for its VHA-wide implementation. Officials from the six medical centers we interviewed told us the new efforts that have been implemented generally improved or would improve some aspects of the Beneficiary Travel Program. For example, medical center officials reported that the implementation of the Dashboard had increased staff efficiency by decreasing the time needed to determine a veteran's eligibility, as well as increased the accuracy of payments, in line with VHA's goals for this program. In addition, officials said EFT would help improve oversight over the payment process. Compared to the process of paying veterans in cash, EFT provides an opportunity for the medical center staff--in this case the fiscal office staff--to review and audit travel payments before a reimbursement is issued to the veteran. Officials said these reviews could help medical centers reduce improper payments, and that EFT also improves security at medical centers because less cash is on hand for reimbursements. Although medical center officials provided positive feedback on some of the efforts, they also identified implementation challenges. For example, medical center officials reported difficulty tracking EFT reimbursements, and that staff members had received many calls from veterans who were confused by only limited information transmitted with the EFT direct deposits. In addition, when veterans claimed reimbursements for multiple appointments, they did not know which appointment was associated with which electronic reimbursement payment, or which reimbursements were still pending. According to medical center officials, investigating pending reimbursements is time consuming and takes time away from staff members' reimbursement-processing responsibilities. Medical center officials also said the lack of information transmitted with the payments hinders acceptance of the EFT process in general, as veterans do not have complete confidence that their reimbursements are timely and accurate. In our review of VHA's efforts to improve the Beneficiary Travel Program, we found that internal controls were lacking for some of the efforts. The implementation of internal controls is important for ensuring efforts achieve intended outcomes and minimizing operational problems. Without these internal controls in place, VHA cannot ensure that the efforts will meet its goals, such as improved management and oversight. Plan for Evaluating Performance Indicators. VHA has not developed a plan for evaluating VHA-wide performance indicators for at least one of its efforts, the Beneficiary Travel Analytics Tool (Data Mining Tool), as would be consistent with internal control standards. According to established internal control standards, efforts to improve performance and efficiency should include the evaluation of appropriate performance indicators of the effort to gauge progress and inform decision making in resolving any problems. The Web-based Beneficiary Travel Analytics Tool, implemented March 31, 2013, generates travel reimbursement pattern reports--reports identifying questionable veteran reimbursement patterns that may indicate improper payments, such as frequently changing addresses on reimbursement claims, which may be done to inappropriately increase travel reimbursement amounts. According to VHA officials, medical centers are expected to use the reports generated by the tool to diagnose any problems in their own travel reimbursement processes and to implement appropriate corrective actions. VHA expects medical centers to submit documentation to VHA's Chief Business Office on any resulting corrective actions they have taken. Officials told us that they expect to review the corrective actions; however, as of May 14, 2013, they did not have a documented plan for evaluating travel reimbursement pattern data collected for all medical centers on an aggregated (VHA-wide) basis. An appropriate evaluation plan consistent with internal controls would include documentation of the frequency of performance indicator evaluations, and an analysis plan for assessing either all, or a portion of, the travel reimbursement pattern data. Officials acknowledged the need to fully develop a plan to ensure that potential weaknesses are identified so that needed program improvements may be made. A plan for evaluating the data on a VHA-wide basis is necessary to ensure that the power of the Beneficiary Travel Analytics Tool is more fully realized. Timely Guidance. VHA has not provided timely guidance to medical centers on its new EFT effort, as would be consistent with internal control standards. According to these standards, reliable and timely program information should be provided to management and others to ensure that responsibilities are being carried out and VHA goals are being met. Specifically, despite being aware of the March 1, 2013, Department of the Treasury deadline for implementation of EFT in December 2010, VHA did not provide guidance to medical centers on how to implement the effort until February 22, 2013. Had the guidance been provided earlier, it would have provided timely, key information to medical centers on the implementation of EFT, including the process that medical centers should be using to enroll veterans; the procedures for veterans to request a waiver from an electronic payment when they have an immediate need for a cash payment; and VHA's contingency plan for the travel reimbursement process due to its delay in providing policies for implementing EFT VHA-wide. By delaying the issuance of the guidance, VHA failed to ensure that all medical centers were provided with consistent and timely guidance, which, according to medical center officials we spoke with, led to frustration for medical centers, as well as confusion for veterans. For example, most medical centers in our review already had developed their own local procedures for enrolling veterans into EFT and processing payments before VHA's EFT pilot began; officials from some of the medical centers in our review expressed frustration that they would have to revise some of these processes when the VHA-wide effort was eventually implemented. Effective Communication. VHA also did not provide a communication plan for sharing information on EFT with medical centers and veterans in a timely manner, as would have been consistent with internal control standards. Specifically, VHA did not share information on EFT with medical centers to help them inform veterans of the coming changes until February 22, 2013. VHA officials acknowledged they failed to develop a communications plan in a timely manner, and agreed that this is something they should have done to help ensure the success of the conversion to EFT. By not communicating this information in a timely manner, VHA did not ensure that medical centers had consistent and accurate information for informing veterans of the change in payment options, potentially affecting veterans' enrollment in EFT and their satisfaction with the new reimbursement process. Although officials from some medical centers we spoke with said they have developed their own materials for communicating with veterans about EFT, having communication materials come from VHA headquarters would have carried more weight with veterans and provided more consistency across all medical centers for this VHA-wide effort. Plan for Monitoring Compliance. VHA has not developed a plan to ensure medical centers' compliance with the efforts or its existing policies, as would be consistent with internal control standards. For example, medical centers are required to use the Dashboard, and VHA officials told us that VHA-wide procedures for using the Dashboard will be included in the program's revised Standard Operating Procedures. However, VHA officials told us they do not have a plan in place to ensure that each medical center is using this new software. Without knowing whether all medical centers are using this required software or using it consistently, VHA cannot ensure that the Dashboard's goals, including standardizing the mileage calculations, will be realized. Furthermore, because medical centers have the flexibility to develop local procedures for administering the Beneficiary Travel Program, it is important that VHA monitor local procedures to ensure they are consistent with VHA policies. For example, one medical center in our review automatically generates travel reimbursement payments to eligible veterans after each completed appointment. Thus, instead of applying for reimbursement after each medical center appointment, eligible veterans who have a signature on record can simply leave the medical center after their appointment and receive their reimbursement payment by mail or direct deposit. Acknowledging that this automatic payment procedure is different from other medical centers, medical center officials said it has greatly increased the efficiency of their management of the Beneficiary Travel Program and has received positive feedback from veterans and staff. Monitoring compliance with program policies, especially due to differences in local procedures, is an important internal control for ensuring that program goals are being met. Use Information to Improve Efficiency. VHA does not routinely collect information on medical centers' local procedures for administering the Beneficiary Travel Program to identify and share best practices. According to federal internal control standards, identifying and sharing best practices is an essential part of ensuring an effective and efficient use of resources. For example, officials at one of the medical centers we interviewed said that installing drop boxes at multiple locations around their facility was a simple and efficient way to make the process more convenient for veterans, shorten lines at the Beneficiary Travel Office, and improve staff productivity. Some medical center officials described sharing best practices on an ad hoc basis with colleagues in other medical centers, and said that learning from others' experiences is valuable to their administration of the Beneficiary Travel Program. Although VHA officials described one instance of evaluating a software program for national use that was developed and implemented at one medical center, they have not regularly solicited information on best practices; instead, they have relied on medical center and VISN officials to identify and share information. A more systematic identification and sharing of best practices would enhance medical centers' access to the same information in order to minimize problems and maximize efficiencies within the Beneficiary Travel Program. For more than 70 years, VHA's Beneficiary Travel Program has reimbursed eligible veterans for travel expenses associated with medical appointments. In the past 5 years, spending under the program has more than doubled, from about $370 million in fiscal year 2008 to about $860 million in fiscal year 2012. This increase is of particular note, as travel reimbursements come out of the same VA medical center funds used for patient care. At the same time spending is increasing, concerns have been raised about the accuracy of payments and VHA's management and oversight of the program. In response to these concerns, VHA has taken steps to improve its process for reimbursing veterans for travel expenses by developing multiple efforts aimed at enhancing management and oversight of the program. However, some of the efforts lack key internal controls that would help VHA better manage and oversee its program. Specifically, VHA has not developed a plan for evaluating VHA-wide performance indicators for the Beneficiary Travel Analytics Tool; provided timely guidance and effective communication tools to medical centers for EFT; ensured compliance with Dashboard and other efforts; and routinely collected information on medical centers' local procedures to identify and share best practices. Without appropriate management and oversight, VHA is unable to ensure that its Beneficiary Travel Program--which is on track to spend nearly $1 billion dollars annually in the next few years--is operating effectively, including assurances that payments made through the program are appropriate. To improve the management and oversight of the Beneficiary Travel Program, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to ensure appropriate internal controls have been identified and applied in the development and implementation of all of VHA's efforts aimed at improving the program, including developing and implementing a plan to evaluate performance indicators for the Beneficiary Travel Analytics Tool, providing timely guidance and effective communication tools to medical centers as VHA completes its implementation of EFT, ensuring medical centers' compliance with Dashboard and other routinely collecting information to identify and share best practices across medical centers. We provided a draft of this report to VA for comment. VA generally agreed with our conclusions and concurred with our recommendation. VA identified the activities that VHA would undertake to ensure appropriate internal controls have been identified and applied related to the four specific efforts we noted: performance indicators for the Beneficiary Travel Analytics Tool, guidance and communication to medical centers regarding EFT, compliance with Dashboard and other improvement efforts, and identification and sharing of best practices across medical centers. VA did not directly address ensuring that appropriate internal controls are identified and applied in the development and implementation of all efforts aimed at improving the program. We continue to emphasize the importance of internal controls to the success of VHA's efforts. VA's comments are reprinted in appendix II. VA also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the Secretary of Veterans Affairs and appropriate congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Example of medical center procedure Veteran submits claim for reimbursement at medical center travel office. Medical center rationale Allows medical center to provide same-day claim review, and in some cases reimbursement. Veteran puts claim for reimbursement in a designated drop box. Helps reduce the lines at the medical center's travel office, is more convenient for veterans, and allows medical center staff more time to review the claim. Medical center staff check veteran's name against photo identification for each claim submitted in person. Helps improve accuracy and reduce improper payments by ensuring the appropriate person is reimbursed. Medical center staff check veteran's address and name against information maintained in VA's data system for claims not submitted in person, such as for a veteran using a drop box. Helps improve accuracy and reduce improper payments by ensuring correct addresses are used, and VA has consistent information about the veteran in its data system. Reimbursement provided primarily through cash. Reimbursement provided primarily through a check. Allows for same-day reimbursement. Limits cash payments, which may shorten veterans' time waiting at the medical center's travel office, and reduces security and other risks associated with having large amounts of cash on- hand at medical centers. Also, helps ensure VHA has valid addresses for veterans for calculating travel reimbursements, because these addresses are where the checks are mailed. Reimbursement provided primarily through direct deposit or a debit card. Limits cash payments, which may shorten veterans' time waiting at the medical center's travel office, and reduces security and other risks associated with having large amounts of cash on- hand at medical centers. Also, turn-around time for veterans' receipt of direct deposit or debit card reimbursements is generally shorter than for check reimbursements. This procedure will change with full implementation of the Electronic Funds Transfer and Debit Card efforts. In addition to the contact named above, Janina Austin, Assistant Director; Jennie Apter; Robin Burke; Kelli Jones; Lisa Motley; and Karin Wallestad made key contributions to this report.
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VHA's Beneficiary Travel Program is designed to encourage eligible veterans to seek medical care by reducing travel costs to medical appointments. Veterans are eligible to receive reimbursement for some travel expenses, such as mileage, through the program that is administered by VA medical centers. In February 2013, the VA Office of Inspector General identified issues with inadequate management and oversight. VHA has identified the program as susceptible to significant improper payments and has estimated $71 million in improper payments for fiscal year 2012. GAO was asked to examine VHA's Beneficiary Travel Program. In this report, GAO examined recent efforts VHA has developed or implemented to improve the program. GAO reviewed documents and interviewed VHA officials about these efforts; and determined whether VHA applied the appropriate internal controls. GAO also reviewed documents and interviewed officials from six VA medical centers, which vary on the basis of fiscal year 2012 mileage reimbursement spending, geographic location, and other factors. The Department of Veterans Affairs' (VA) Veterans Health Administration (VHA) has developed efforts to improve the Beneficiary Travel Program, but lack of internal controls may impede their effectiveness. Specifically, VHA has developed multiple efforts to improve the management and oversight of its process for reimbursing veterans' travel expenses for medical appointments, as well as the timeliness and accuracy of payments, including the following: Dashboard . Web-based software that determines a veteran's eligibility for travel reimbursement, the amount of any deductibles, and the number of miles from the veteran's residence to the closest VA medical facility. The software is designed to enable VA medical center staff to quickly and consistently calculate veterans' mileage reimbursement. Beneficiary Travel Analytics Tool . Tool that provides each medical center with reports identifying questionable veteran reimbursement patterns, such as frequently changing addresses on reimbursement claims, which may be done to inappropriately increase travel reimbursement amounts. The reports are intended to help medical centers define and implement facility-level internal controls to reduce improper payments. Electronic Funds Transfer (EFT) . Process to transfer travel reimbursement funds electronically into veterans' bank accounts. This effort implements a Department of the Treasury requirement for federal agencies to convert cash payments to electronic funds payments, and aims to improve efficiency, increase oversight, and reduce the amount of cash on hand. These efforts are expected to increase the consistency of how the program is administered by medical centers. However, GAO found that internal controls were lacking for some of the efforts, including the following: Monitoring Compliance . VHA has not developed a plan to ensure medical centers' compliance with the efforts or existing policies. For example, although medical centers are required to use the Dashboard, VHA officials told us they do not have a plan in place to ensure that each medical center is using this new software. Evaluating Performance Indicators . VHA has not developed a plan for evaluating VHA-wide performance indicators for at least one of its efforts, the Beneficiary Travel Analytics Tool. Providing Effective Communication . VHA did not provide a communication plan for sharing information on EFT with medical centers and veterans in a timely manner. Without necessary internal controls in place, VHA cannot ensure that its new efforts will meet its goals, such as improved management and oversight, or that the Beneficiary Travel Program, which has seen spending more than double in the past 5 years--approaching $1 billion annually--is operating effectively. GAO recommends that VA identify and apply internal controls in its efforts to improve management and oversight of the Beneficiary Travel Program, including ensuring compliance with the Dashboard, evaluating performance indicators for the Beneficiary Travel Analytics Tool, and providing effective communication tools to medical centers for EFT. VA generally agreed with GAO's conclusions and concurred with the recommendation.
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In using baseline budget projections, we need to understand what assumptions they incorporate and how realistic these assumptions may be. Intended as a neutral reference point for comparing alternative policies, baseline projections make no assumptions about future policy change. The overarching assumption is that current laws concerning tax policy and spending continue unchanged. The conventions governing baseline projections are appropriate and understandable in the context of budget enforcement purposes. However, in using these projections as a basis for policymaking, it is important to remember what they are and what are they are not. The baseline is just that--a baseline from which to estimate the impact of policy actions; one would expect the ultimate outcomes to be different--particularly over a decade. Some analysts have suggested that baseline projections may understate likely future discretionary spending while overstating likely future revenues. Where current law does not provide a determinative rule--as is the case for discretionary spending after expiration of the caps--both CBO and OMB must make some assumptions. CBO's most commonly used projection for discretionary spending--and the one we use for the first 10 years of our long-term simulations--is the baseline under which discretionary spending grows with inflation. A number of observers of the federal budget, including former CBO directors Robert Reischauer and Rudolph Penner, have suggested that this inflated discretionary assumption is unrealistic. One analysis has pointed out that a growth rate no higher than inflation would mean that future per-capita discretionary spending would decline in real terms during an era of budget surpluses. In addition, projections based on current-law assumptions may overstate likely future revenues. For example, the baseline projections assume expiration of a set of about 20 tax credits--including the research and experimentation tax credit--which have been routinely extended in the past. The baseline projections also assume no change to the alternative minimum tax, which is expected to affect an increasing number of middle- class taxpayers. All projections are surrounded by uncertainty. In using budget estimates, we need to keep in mind that budget estimates are not--and are not meant to be--a crystal ball. CBO itself has warned against attributing precision to its projections, stating that actual budgetary outcomes will almost certainly differ from the baseline projections--even absent any policy changes. CBO notes that its estimate of the 2006 surplus could vary by as much as $400 billion in either direction. As CBO has said, the value of the 10-year estimates is that they allow Congress to consider the longer-term implications of legislation rather than focus only on the short-term effects. No policy should assume the exactness of baseline projections; relatively small shifts can lead to large year-to-year differences. While considerable uncertainty surrounds both short- and long-term budget projections, we know two things for certain: the population is aging and the baby boom generation is approaching retirement age. In addition demographic trends are more certain than budget projections! Although the 10-year horizon looks better in CBO's January 31 projections than it did in July 2000, the long-term fiscal outlook looks worse. In the longer term--beyond the 10-year budget window of CBO's projections-- the share of the population over 65 will begin to climb, and the federal budget will increasingly be driven by demographic trends. As more and more of the baby boom generation enters retirement, spending for Social Security, Medicare, and Medicaid will demand correspondingly larger shares of federal revenues. Federal health and retirement spending will also surge due to improvements in longevity. People are likely to live longer than they did in the past, and spend more time in retirement. Finally, advances in medical technology are likely to keep pushing up the cost of providing health care. In contrast to the improvement in the 10-year projections, our updated simulations--shown in figure 2--show a worsening in the long-term fiscal outlook since July. This worsening is largely due to a change in the assumptions about health care costs over the longer term. In recent months there has been an emerging consensus that the long-term cost growth assumption traditionally used in projecting Medicare and Medicaid costs in the out-years is too low. A technical panel advising the Medicare Trustees stated this conclusion in its final report. Charged with reviewing the methods and assumptions used in the Trustees' Medicare projections, the panel found that the methods and assumptions were generally reasonable with the exception of the long-term cost growth assumption. Basing its finding on recent research and program experience, the panel recommended that in the last 50 years of the 75-year projection period, per-beneficiary program costs should be assumed to grow at a rate one percentage point above per-capita gross domestic product (GDP) growth. CBO made a similar change to its Medicare and Medicaid long- term cost growth assumptions its October 2000 report on the long term.Given this convergence of views, we have incorporated higher long-term health care cost growth consistent with the Medicare technical panel's recommendation into our January update. The message from our long-term simulations, which incorporate CBO's 10- year estimates, remains the same as it was a year ago. Indeed, it is the same as when we first published long-term simulations in 1992. Even if all projected unified surpluses are saved and used for debt reduction, deficits reappear in 2042. If only the Social Security surpluses are saved, unified deficits emerge in 2019. (See figure 3.) In both scenarios deficits would eventually grow to unsustainable levels absent policy changes. To move into the future with no changes in federal health and retirement programs is to envision a very different role for the federal government. Assuming, for example, that Congress and the President adhere to the often-stated goal of saving the Social Security surpluses our long-term model shows a world by 2030 in which Social Security, Medicare, and Medicaid increasingly absorb available revenues within the federal budget. Under this scenario, these programs would require more than three- quarters of total federal revenue. (See figure 4.) Little room would be left for other federal spending priorities such as national defense, education, and law enforcement. Absent changes in the structure of Social Security and Medicare, some time during the 2040s government would do nothing but mail checks to the elderly and their healthcare providers. Accordingly, substantive reform of Social Security and health programs remains critical to recapturing our future fiscal flexibility. Since these simulations assume current-law entitlement benefits, they both overstate and understate the challenge. They overstate it because they assume Congress and the President would take no action to change the cost structure of these programs. However, they understate it because they also assume no benefit enhancements such as the addition of coverage for prescription drugs. In addition, these simulations--like the budget--do not recognize the long-term cost implications of insurance programs, environmental cleanup liabilities and other long-term commitments. In other words, in some ways this could be seen as an optimistic scenario! The government undertakes other activities and programs that directly obligate it to spend in the future. While some steps have been taken to improve financial statement reporting of a number of these commitments, more needs to be done. In addition, many future costs are not reflected in either budget projections or long-term simulations. Explicit liabilities not reflected in the budget can be sizable. For example, estimates indicate that environmental cleanup of government-caused waste is expected to cost the federal government at least $300 billion. Other future financial commitments and contingencies are also important considerations. The future costs of other activities are often difficult to estimate, but nonetheless can add to future fiscal stress. Some, such as credit subsidy costs, are in the budget and thus in the baseline; others, like the risk assumed by federal insurance programs, are not. All of these as well as demands for increased federal support in areas ranging from health insurance to national defense will compete for a share of the fiscal pie in the future--a pie that will already be increasingly encumbered by higher costs for the elderly. This highlights the government's stewardship responsibility to provide future generations with sufficient budgetary flexibility to make their own choices and an economic base sufficient to finance current commitments as well as future needs. Today Congress and the President face a very different set of budget choices than did your recent predecessors. For over 15 years fiscal policy has been seen in the context of the need to reduce the deficit. The policies and procedures put in place to achieve a balanced budget do not provide guidance for fiscal policy in a time of surplus. At the same time, as Chairman Greenspan warned last month, we "need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake." As you know, we have looked at a number of other countries that have already faced this challenge. Like the United States, these nations achieved budget surpluses largely as the result of improving economies and sustained deficit reduction efforts. After years of restraint, there are pent-up demands--for tax cuts and/or for spending. In several notable cases, these countries met current demands while retaining surpluses for longer-term economic goals. How do countries meet these demands without abandoning restraint? The countries we reviewed articulated a compelling case for sustaining surpluses and developed a fiscal policy framework that addressed current needs within the context of broader economic targets or goals. Some adopted fiscal targets such as debt-to- GDP ratios as a guide for decision-making while others such as Australia attempted to focus on the impact of fiscal policy on national saving and economic growth. Achieving consensus on a long-term fiscal policy goal this year may seem unlikely. Nevertheless, I believe it is important that Congress and the President look at budget choices today in the context not only of today's needs and demands but also of the long-term pressures we know loom on the horizon. Today's surpluses create, in effect, a unique window of opportunity to better position the government and the nation to address both current needs as well as the longer-term budget and economy we will hand to succeeding generations. Our long-term model illustrates how important it is for us to use our newfound fiscal good fortune to promote a more sustainable longer-term budget and economic outlook so that future generations can more readily afford the commitments of an aging society. Today's budget decisions have important consequences for the living standards of future generations. The financial burdens facing the smaller cohort of future workers in an aging society would most certainly be ameliorated if the economic pie were enlarged. This is no easy challenge, but in a very real sense, our fiscal decisions affect the longer-term economy through their effects on national saving. Recent research estimated that increasing saving as a share of GDP by one percentage point each year would boost GDP enough to cover 95 percent of the increase in elderly costs between now and 2050. Simply put, we are not saving enough as a nation. Personal saving is at a 40-year low. As shown in figure 5, the reduction of federal deficits and the emergence of budget surpluses in recent years have slowed the long-term decline in national saving. While investment needed to promote growth has been supported by foreign capital in recent years, the profits due to foreign investment go abroad. What would happen if in the future foreign investors found more attractive opportunities elsewhere? The most viable strategy for expanded growth in the long run is to increase saving from our own economy. Since expanding the nation's productive capacity through saving and investment is a long-term process, increasing saving now is vital since labor force growth is expected to slow significantly over the next 20 years. Traditionally, the most direct way for the federal government to increase saving has been to reduce the deficit or--more recently--to run a surplus. Although the government may try to increase personal saving, results of these efforts have been mixed. As a general rule the surest way for the federal government to affect national saving has been through its fiscal policy. In general, saving involves trading off consumption today for greater consumption tomorrow. When the government saves by reducing debt by the public, it helps lift future fiscal burdens by freeing up budgetary resources encumbered for interest payments--which currently represent more than 12 cents of every federal dollar spent--and by enhancing the pool of economic resources available for private investment and long-term economic growth. This is especially important since--as I noted a year and a half ago--we enter this period of surplus with a large overhang of debt held by the public. Indeed, we should be a little more subdued in congratulating ourselves on the decline in debt held by the public--we are still significantly above the debt/GDP ratio of the late 1970s. Given the demographic pressures looming, today's level of publicly held debt is not a good benchmark. However, current projections show that--depending on the budget policies adopted--the United States could reach a point in this decade at which annual budget surpluses could not be fully used to reduce debt. Although estimates of exactly when this might occur vary, most put it between 2004 and 2011. If the entire unified surplus is saved, this point is likely to be reached in sometime in the next 5 years; if only the Social Security surplus is saved, this point will be delayed until the second half of the decade. This would raise a number of issues: whether and if so how the government should hold nonfederal assets; whether and if so how a market for debt held by the public should be maintained; how do we as a nation raise the level of national saving if reducing federal debt held by the public is not an option. The issues Chairman Greenspan raised concerning government ownership of nonfederal assets deserve careful consideration. I note that while Chairman Greenspan opposed such a step, he also said that if the government were to acquire nonfederal assets, he would prefer that they be allocated to the Social Security Trust Funds. At GAO we have looked both at the experiences of other countries during times of declining debt and at the question of trust fund investments in equities. We believe this work can assist you in your deliberations. For example, in our ongoing work looking at other nations' experiences with declining debt, we found that some have decided to hold some nonfederal assets as part of their efforts to deal with long-term pressures. With the advent of surpluses, Norway established a goal of sustained surpluses in order to build up savings to address long-term fiscal and economic concerns resulting primarily from an aging population and declining petroleum reserves. As a vehicle for accumulating assets, the government created the Government Petroleum Fund in 1991 to help manage Norway's petroleum wealth over the long term. The Fund serves several important fiscal and economic functions. By investing surpluses, the Fund is an instrument for saving part of Norway's petroleum revenues for the next generation. During the 1990s, Canada modified its pension system to invest in nonfederal assets as one way to improve the system's sustainability. Sweden also invests a portion of its pension funds in nonfederal assets. Management of Norway's Petroleum Fund is the responsibility of the Ministry of Finance, which has delegated the task of operational management of the Fund to Norway's central bank. Both Canada and Sweden have established separate boards to oversee the investment of their fund assets. In the near future, we plan to conduct a study of other nations that invest in nonfederal assets in order to learn more about how they deal with governance issues. In 1998, we reported on the implications of allowing the Social Security Trust Funds to invest in nonfederal assets, specifically equities. One of the implementation issues we looked at was that of governance--at the concern that there would be tremendous political pressures to steer the trust funds' investments to achieve economic, social, or political purposes. We concluded that passively investing in a broad-based index would reduce, but not eliminate, the possibility of political influence over the government's stock selections. The question of how to handle stock voting rights, however, seemed likely to be more difficult to resolve. To blunt concerns about potential federal meddling, the government's stock voting rights could be restricted by statute or delegated to investment managers. The issue of how to select stock investments also emerged when the federal employees' Thrift Savings Plan (TSP) was created. To eliminate political influence in TSP's stock investment decisions, the Congress restricted TSP investments to widely recognized broad-based market indexes; thus the portfolio composition is automatically determined by the market index chosen and consideration of nonfinancial objectives is precluded. TSP board members and employees are subject to strict fiduciary rules, and breaching their fiduciary duty would expose them to civil and criminal liabilities. The fiduciary rules require board members and employees to invest the money and manage the funds solely for the benefit of the owners of the individual accounts--the participating federal employees and their beneficiaries. TSP board members and employees are prohibited from exercising stock voting rights, and voting instead is delegated to investment managers according to their own guidelines. Obviously, the design and management of any federally owned assets will be critical to mitigate the risks of political interference. Since TSP assets are owned by federal employees, it cannot be seen as directly analogous to government investment. Nevertheless, it can be helpful in considering these issues. Government ownership of nonfederal assets is obviously complicated and would carry certain risks. Although the governance issues may not be insurmountable, another possible concern is the magnitude of federal involvement in the financial markets. Although the federal government would become the largest single investor, the amounts invested might not seem disproportionately large in terms of the size of the U.S. financial markets. Under our Save the Social Security Surpluses simulation, the federal government would buy nonfederal assets for about a decade and cumulative federal holdings would peak at about 2 percent of GDP assuming that a federal debt market is not maintained. This would represent about 1 percent of the stock market or 4 percent of the corporate bond market today. Any price effects associated with the federal government acquiring and then selling these assets are uncertain. However, the government would not necessarily be selling its nonfederal assets in this window. If nonfederal assets are to be held by the government, the question arises whether they could be used to prefund a portion of federal commitments and liabilities. Since a successful stock investment strategy should be grounded in a long-term outlook, the idea of investing in nonfederal assets could be considered appropriate for federal programs with a long time horizon. For example, federal civilian and military retirement programs could buy and hold assets that match the expected timing of their liabilities. As I have already noted, there is a growing body of experience in other nations that might help us understand this new landscape better. It is worth noting that investing in the financial markets is a standard practice for state and local governments, and the experiences of public pension funds may yield some insights into the implications of the federal government investing on behalf of Social Security or other federal retirement programs. Other nations have decided that the potential risks of political interference with markets can be managed and are outweighed by what they perceive as a risk of failing to save for the future or providing a cushion for contingencies. These trade-offs are inherently political decisions--and although we can look to others for insights, we will have to resolve these issues in our own way. If the governance, control and size issues loom so large that there is a consensus the federal government should not hold nonfederal assets, we face a new set of issues: should we avoid eliminating debt held by the public, and if so, how? How then would we accumulate sufficient national saving to promote the level of economic growth needed to finance the baby boom retirement? The surest way for the federal government to raise national saving has been by raising government saving. How to raise national saving in an environment of zero federal debt is a complex question. The government could aim for a balanced budget once the federal debt held by the public is eliminated. In such a case, all national saving would have to be achieved through increased private saving. Whether existing federal incentives for people to save have been effective in increasing private saving and ultimately national saving is open to question. Even with preferential tax treatment granted since the 1970s to encourage retirement saving, the personal saving rate has steadily declined, as shown in figure 6. Some have suggested that one option would be using the surpluses to finance individual saving accounts. Various proposals have been advanced that would create a new system of individual accounts as part of comprehensive Social Security reform, while other proposals would create new accounts outside of Social Security. Individual account proposals also differ as to whether individuals' participation would be mandatory or voluntary. If the goal of individual account proposals is to increase national saving, careful consideration must be given to the specifics of design. Matching provisions may affect how much such accounts increase national saving. On another dimension, allowing early access to these accounts increases people's willingness to put money in them-but reduces their usefulness as retirement accounts. One possible approach might be to use part of any realized surplus as a kind of surplus dividend that could be returned in the form of an individual saving account. Again, design features including targeting and limitations on access would be important. As I discussed earlier, reducing the relative future burdens of Social Security and health programs is critical to promoting a sustainable budget policy for the longer term. Moreover, absent reform, the impact of federal health and retirement programs on budget choices will be felt as the baby boom generation begins to retire. While much of the public debate concerning the Social Security and Medicare programs focuses on trust fund balances--that is, on the programs' solvency--the larger issue concerns sustainability. Absent reform, the impact of federal health and retirement programs on budget choices will be felt long before projected trust fund insolvency dates when the cash needs of these programs begin to seriously constrain overall budgetary flexibility. The 2000 Trustees Reports estimate that the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds will remain solvent through 2037 and the Hospital Insurance (HI) Trust Fund through 2025. This date does not incorporate either the technical panel's suggested higher cost growth assumption or any benefit expansions such as prescription drug coverage. Furthermore, because of the nature of federal trust funds, HI and OASDI Trust Fund balances do not provide meaningful information about program sustainability--that is, the government's fiscal capacity to pay benefits when the program's cash inflows fall below benefit expenses. From this perspective, the net cash impact of the trust funds on the government as a whole--not trust fund solvency--is the important measure. Under the Trustees' intermediate assumptions, the OASDI Trust Funds are projected to have a cash deficit beginning in 2015 and the HI Trust Fund a deficit beginning in 2009 (see figure 7). At that point, the programs become net claimants on the Treasury. In addition, as we have noted in other testimony, a focus on HI solvency presents an incomplete picture of the Medicare program's expected future fiscal claims; the Supplementary Medical Insurance (SMI) portion of Medicare, which is not reflected in the HI solvency measure, is projected to grow even faster than HI in the future. To finance these cash deficits, Social Security and the Hospital Insurance portion of Medicare will need to draw on their special issue Treasury securities acquired during the years when these programs generated cash surpluses. In essence, for OASDI or HI to "redeem" their securities, the government must raise taxes, cut spending for other programs, or reduce projected surpluses. Our long-term simulations illustrate the magnitude of the fiscal challenges associated with our aging society and the significance of the related challenges that government will be called upon to address. As we have stated elsewhere, early action to change these programs would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in their own planning. This message is not changed by the new surplus numbers. It remains true that the longer we wait to take action on the programs driving long-term deficits, the more painful and difficult the choices will become. While these new surplus projections offer an opportunity to address today's needs and the many pent-up demands held in abeyance during years of fighting deficits, they do not eliminate our obligation to prepare for the future. Today's choices must be seen not only in terms of how they respond to today's needs, but also how they affect the future capacity of the nation and our ability to meet our looming demographic challenge. When we looked at how other nations responded to budget surpluses, we discovered that most found a way to respond to pressing national needs while also promoting future fiscal flexibility and saving. Their actions could be seen as constituting a range of actions across a continuum by the degree of long-term fiscal risk they present. Figure 8 illustrates this array along one dimension. At one end debt reduction and entitlement reform actually increase future fiscal flexibility by freeing up resources. One-time actions--either on the tax or spending side of the budget--may neither increase nor decrease future flexibility--although here many would distinguish between types of actions; devoting funds to previously underfunded liabilities or to one-time capital investments may be seen as different than actions that increase consumption. Permanent or open- ended tax cuts and/or spending increases may reduce future fiscal flexibility--although that is likely to depend on their structure and implementation. For example, many would argue that certain permanent changes in the tax structure and/or funding for well-chosen investments can enhance economic growth and build for the future. The decision on how to allocate surpluses is by its very nature inherently a political one--and I am not here to advocate any particular tax or spending proposal. Rather, my point is that since surplus projections are more uncertain than demographic trends, prudence would argue for seeking to balance risk. You might think about the budget choices you face today as a portfolio of fiscal actions balancing today's unmet needs with tomorrow's fiscal challenges. If the experience of other nations and the states is any guide, we will most likely choose actions across an array of choices. In thinking about balanced risk, it is not the merits of any individual proposal that are key but the impact of these decisions in the aggregate or from a portfolio perspective. This suggests that whatever the fiscal choices made in allocating the surplus among debt reduction, tax cuts, and spending increases, approaches should be explored to mitigate risk to the long term. For example, provisions with plausible expiration dates--on the spending and the tax side--may prompt re-examination taking into account any changes in fiscal circumstances. A mix of temporary and permanent actions may also reduce risk. In our recent Performance and Accountability series, we also suggested that, given the inherent uncertainty of surplus projections, consideration be given to linking a portion of new fiscal commitments to the actual levels of surpluses achieved. As I mentioned earlier, one possible approach could be a kind of "surplus dividend" that had to be saved. Whatever the form, linking new commitments to actual results can be seen as a kind of contingency planning. Others have suggested considering a portion of the surplus as a kind of contingency fund. Some states have developed approaches to limiting fiscal risk by linking temporary tax cuts or spending to actual fiscal results. In Ohio, an Income Tax Reduction Fund was established as a mechanism to return surplus revenues to taxpayers based on the size of the actual surplus in excess of the amount required to maintain the budget stabilization fund. Minnesota has refunded surplus revenues beginning in 1997 and has since instituted a requirement that a revenue surplus exceeding 0.5 percent be designated for a tax rebate. Arizona developed triggers which designate the use of surplus revenues for specific tax reductions, or new appropriations based on the amount of actual surpluses achieved. Arizona also has increased the balances in the Budget Stabilization Fund. The excess surplus funds triggered reductions in vehicle license and corporate taxes as well as increased education funding. Surpluses challenge our nation to move beyond a focus on reducing annual deficits to a broader agenda. They offer us an opportunity to look more closely at what government does and how it does business. With the advent of surpluses in the near-term, the nation needs to develop a new fiscal paradigm-one that will prompt greater attention to the long-term implications of current programs and policy choices and help to better balance today's wants against tomorrow's needs. For more than a decade, budget processes have been designed with the goal of reaching a zero deficit. Now that goal has been reached--indeed passed. Clearly, the limits imposed to achieve a balanced budget are not working in the world of surplus. At the same time eliminating all controls would be a mistake. You face the need not only to make choices about tax and spending policy, but also to design a process for the future. Now that the goal of "Zero Deficit" is gone, what should replace it? Whatever measure you select, we believe that the budget and the budget process must pay more attention to the long-term cost implications of today's budget and program decisions. We have recommended, for example, budgeting for the fully accrued costs for insurance and pensions in current budgets to reflect the future commitments made in current programs. Ultimately, the federal government needs a decision-making framework that permits it to evaluate fiscal good fortune and choices against both today's needs and the longer-term fiscal future we wish to hand to future generations. I have suggested here today that budget choices can be seen as a fiscal portfolio--and as such the ideal set would balance different types of fiscal risks. Not only should policy choices be examined individually, but also their aggregate impact on the nation's long-term economic health should be considered. The budget surpluses before us offer policymakers the opportunity to strike a balance between addressing today's needs and the obligation to hand a strong economy and sustainable fiscal policies on to our children, our grandchildren, and future generations. (450041)
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In this statement, the Comptroller General discusses the fiscal policy challenges facing Congress and the nation. The focus of tax administration and budgeting are shifting because of current and projected budget surpluses. The Comptroller General speaks of the need for fiscal responsibility when using surplus projections to design tax and spending policies. These projections are based on a set of assumptions that may or may not hold. They are not a precise prediction of a future and should be used as a reference point when making policy decisions. Although the projected surpluses can provide an opportunity to respond to pent-up demands for additional spending or tax cuts, Congress must balance those demands with the nation's long-term economic health.
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The Section 521 Rental Assistance Program, started in 1978, is administered by RHS's Multifamily Housing Division of Portfolio Management. The program provides rental assistance for tenants living in units created through RHS's Multifamily Direct Rural Rental Housing Loans and Multifamily Housing Farm Labor Loans programs. Under the program, eligible tenants pay no more than 30 percent of their income toward the rent, and RHS pays the balance to the project owner. As of January 2003, approximately 53 percent of tenants in the program's 464,604 housing units were receiving rental assistance. According to program officials, the program has a waiting list of approximately 80,000 eligible tenants. RHS provides the subsidies through 5-year contracts with project owners; 20-year contracts were also issued to units in newly constructed properties from 1978 through 1982. The contracts specify that owners will receive payments on behalf of tenants in a designated number of units at the project. Contracts may be renewed as many times as funds are made available, and additional units may be covered if funds are available. According to program officials, about 96 percent of the Rental Assistance Program's budget is used to renew expiring rental assistance contracts. The remaining funds are used to provide rental assistance for units in newly constructed properties and additional rental assistance at existing properties. Budget needs are estimated assuming a 5-year rental assistance contract life, although a contract's actual life is determined by how long its funds last and could run far beyond its estimated life if the funds are expended slowly enough. Each month, project owners or their management companies must certify the number of rental assistance units that are occupied. If a unit is empty and rental assistance is not being used, the project owner assigns a new tenant from the waiting list. If there are no tenants eligible for the rental assistance, the rental assistance may be transferred to another property. RHS's national, state, and local offices manage the rental assistance program. The national Office of Multifamily Housing Portfolio Management develops and implements the program regulations, estimates program budgets, allocates funds, and tracks nationwide program statistics. State and local offices work directly with property owners, property management companies, and tenants to monitor the program. State and local responsibilities include conducting financial, management, and physical reviews of the properties; executing rental assistance contracts with property owners; approving rent increases; and processing rental assistance payments. State and local staff also collect and maintain property and tenant data for their areas. Support for the program is also provided through two offices in St. Louis. The Information Resources Management Office's Rural Housing Service Branch maintains the automated databases used to manage program data. The Office of the Deputy Chief Financial Officer uses the program data to generate and maintain the general ledger and financial statements for the program. In 1982--the fourth year of the program--RHS reported in an internal position paper that rental assistance funds were being substantially underused. The agency found that approximately $100 million of the rental assistance funds obligated for 5-year contracts would be lost between 1983 and 1985, because the contracts would expire before all the obligated funds were used. The study found that rental assistance contracts set to expire at the end of 5 years still had funds available for an average of 5 additional years. The agency noted that if contract terms were extended until the funds ran out, the tenants could receive benefits twice as long without any further appropriation of funds. Alternately, the agency noted that terminating contracts at the end of their terms and returning the unexpended funds would save federal funds, assuming the contracts would not be replaced. The paper recommended the indefinite extension of rental assistance contracts, and the recommendation was adopted as agency policy in 1983. Contract language was changed at that time, and previously written contracts were amended. Using its current methodology, RHS has overestimated its budget needs for 5-year rental assistance contracts in three ways. First, the agency has used inflation factors that are higher than those projected by OMB for use in the budget process. Second, RHS compounds the inflation rate to reflect the price level in the fifth year and applies that rate to each contract year, rather than using an appropriate rate for each year. Third, the expenditure rates RHS uses to estimate budget needs may also overstate the need for rental assistance. Furthermore, RHS budget processes do not adhere to certain internal control standards. While a new budget forecasting model shows promise, it is, at present, flawed. RHS's processes for estimating its budget and allocation needs have evolved over time. An agency official who worked on the program's initial budgets from 1978 through 1982 told us that RHS intentionally overfunded the contracts in an effort to subsidize the poorest possible tenant by basing tenant contributions on minimum Social Security payments. Agency documents suggest that the agency was using inflation rates of 10 to 20 percent to estimate future spending rates for the life of the contracts. After this time period, the agency made a series of changes to its processes, including increasing tenant contributions from 25 percent to 30 percent, and differentiating per-unit costs for rural rental housing and farm labor housing properties. The current method for estimating budget needs was developed by two agency officials, between 1995 and 1997, and is based on a formula that consists of multiplying estimates for the number of expiring rental assistance units by a national average per-unit cost and by an inflation factor. The need for rental assistance for units in newly constructed properties and additional rental assistance at existing properties is also calculated. Since 1996, one official has largely managed the process with oversight from the Rural Development Budget Office, OMB staff, and RHS supervisors. OMB Circular A-11, Preparation, Submission, and Execution of the Budget, provides guidance to agency officials, stating that preparation of agency budgets must be consistent with the economic assumptions provided by OMB. These assumptions are listed each year in the President's Budget, though they are made available to agencies prior to that time for their budget preparations. However, neither OMB staff nor the Rural Development Budget Office official we spoke with required RHS to use these rates or objected to the agency determining its own inflation rates. Although OMB policy does permit agencies to consider other factors in developing their budget estimates, it does not allow agencies to automatically apply these factors to their budget requests. Also, although OMB staff and a Rural Development budget official review and approve RHS's budget requests each year, neither has ever required nor sought a justification for the rates chosen. RHS considers its annual rental assistance needs through two different processes prior to funding the contracts. First, the agency prepares the submission for the President's Budget about 2 years prior to the budget year, based on previous renewal needs, average per-unit costs, and a compounded inflation rate. Agency officials explained that in recent years they used 2.7 percent when preparing estimates to submit with the President's Budget. By the time Congress appropriates a budget based on this information, the data used by the agency are about 2 years old. Therefore, after receiving the fiscal year budget, and before allocating the rental assistance funds, RHS rechecks the estimated number of expiring units and average per-unit costs, based on more current data. For this second process, the agency prepares a report using the Automated Multi-Housing Accounting System database (AMAS) on the contracts expected to expire in the coming year. This report is sent to the local offices for verification and then returned to the national office. The agency establishes average per-unit values, based on the contracts expiring in the coming year, by inflating the maximum per-unit cost from the prior 3 months by a compounded inflation rate. According to agency officials, RHS adjusts the inflation rate to more closely approximate the level of funding received. If the original budget estimate and the allocation estimate differ, RHS distributes any rental assistance funds remaining after the expiring contracts are renewed among states to create new rental assistance units. These allocation figures then become the basis for future submissions for the President's Budget. Because it has not followed OMB procedures, RHS has overestimated its future budget needs. For example, although OMB's fiscal year 2003 published rates varied between 2.2 and 2.4 percent for 2003 through 2007, RHS used a rate of inflation of 2.7 percent when preparing its budget for 5- year contracts that would be renewed in 2003. Applied to the average per- unit, per-year base rate of $3,264, the 2.7 percent rate created a difference of $203 per unit over the 5-year contract period. Since RHS planned to issue 5-year contracts for 44,652 units that year, it overestimated its budget needs by more than $9 million. RHS did not keep documentation of the inflation rates it used prior to 2000 but, as table 1 shows, the agency's inflation rates have been higher than OMB's rates for every year for which it has documentation. However, it is not so much the inflation rates RHS uses as how it uses them that has caused the agency to significantly overestimate its budget needs. As we have seen, OMB's economic assumptions provide inflation rates for each year, and agencies are expected to use these individual rates for each year they are projecting, compounding the rates separately for each subsequent year based on the previous year's rate. But RHS uses one inflation rate for all 5 years of the contract, compounds that rate to the fifth year, and then applies the compounded rate to each year of the contract. This practice results in the agency using a rate that is more than five times the rate it started with for the first year. For example, rather than applying its 2003 inflation rate of 2.7 percent to each year, RHS compounded this rate to the fifth year and applied the resulting value (14.2 percent) back to each year of the contract (fig. 2). Spending was thus assumed to be 14.2 percent higher for each of the subsequent 5 years, although its stated inflation projection was that prices would be only 2.7 percent higher in the next year, about 5.4 percent higher in the following year, and so on. Thus RHS multiplied the annual per-unit base rate of $3,264 by over 14 percent, rather than the 2.7 percent it started with, or the 2.2 to 2.4 percent projected by OMB. Compared with OMB's rates and procedures for calculating future spending, RHS's method created a difference of $1,147 per unit. Again, as RHS estimated it would fund contracts for 44,652 units in 2003, it actually overestimated its budget needs by over $51 million (6.5 percent). The expenditure rates RHS uses to estimate budget needs may also overstate the need for rental assistance. RHS officials claim that the expenditure rates they use--equal to the maximum amount of monthly rental assistance used over the previous 3 months--account for vacant units at the properties. However, using this method treats vacant units as if they were occupied and ignores the impact that a property's vacancy rate has on rental assistance usage. For example, a property with 10 units (receiving $200 of rental assistance for each unit) may have no vacant units during the first month, one vacant unit during the second month, and 2 vacant units during the third month. During an average month, one of the property's units will be vacant, and the property will require $1,800 in rental assistance ($200 from each of the nine occupied units). However, using the maximum of 3 months, it would appear the property has no vacant units and that rental assistance needs are $2,000 a month. The estimation rate would be 10 percent higher than it should be, because the impact of the vacant units on rental assistance usage was ignored. We believe using a 3- or 12-month average could produce a more accurate picture of usage. We discussed this practice with RHS officials, and they replied that they used the maximum monthly rate because they did not believe averages were accurate for their purposes. Finally, RHS is not adhering to internal control standards regarding segregation of duties. A single employee within the agency is largely responsible for both the budget estimation and allocation processes for the rental assistance program. Furthermore, this employee's work is not afforded a deliberative review by the Rural Development Budget Office, OMB staff, or RHS supervisors. While the office has assigned staff to support this employee, the employee told us that due to staff turnover, there was no one available to help with the budget estimation and allocation processes. Internal control is a major part of managing an organization. Our Standards for Internal Control in the Federal Government provide the overall framework for establishing and maintaining internal control and for identifying and addressing major performance and management challenges and areas at greatest risk of fraud, waste, abuse, and mismanagement. Internal control activities are the policies, procedures, techniques, and mechanisms that enforce management's directives and help ensure that actions are taken to address risks. Control activities are an integral part of an entity's planning, implementing, reviewing, and accountability for stewardship of government resources. One very basic but essential example of a control activity is the segregation of duties. According to the standards, key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. This should include separating the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets. No one individual should control all key aspects of a transaction or event. Based on our analysis of RHS's budget estimation and allocation processes, and our Standards for Internal Control, it is our view that the autonomy of this employee is not consistent with internal control standards. In March 2003, RHS began the process of automating its budget estimation and allocation processes by developing a forecasting model that it will use to estimate future budget needs, starting in 2006. A team consisting of staff from the national office, state offices, and the Information Resources Management Office's Rural Housing Service Branch created the model. RHS also used contractors and consulted with numerous internal experts. The model was designed to automatically calculate rental assistance by projecting renewal needs on a property-by-property basis and calculating future rental assistance usage estimates using a combination of factors, including prior actual usage, inflation, the potential for rate increases, and rental assistance volatility. These last two factors were dropped from the model when the agency determined that their impact on future spending was negligible. The forecasting model is currently in the testing phase. RHS demonstrated its new forecasting model to us in late 2003. Certain aspects of the model promise improvements over the current estimating methods. For example, the model (1) allows RHS to use property-level data rather than the national averages that are currently used to establish per-unit rates and (2) determines each property's per-unit rate based on the average usage over the prior 12 months, rather than the maximum usage of the previous 3 months that is currently used. These improvements should allow for more accurate replacement estimates based on actual rental assistance usage at each property. Furthermore, the model properly applies the inflation rate to each of the 5 years for which the agency is forecasting. Program officials also told us that three to four staff members will be trained to use the model and develop the budget and allocation estimates for the agency, which should mitigate the segregation of duties concern. However, the inflation calculation in the model is flawed. RHS continues using its own inflation rates rather than those provided by OMB, and the agency is incorrectly calculating the rates it plans to use. RHS officials explained that they are using historical rates of change to determine future spending rates rather than OMB's rates, which are based on future projections of inflation. This means that RHS is looking to past activity to determine what will happen in the future, whereas OMB asks agencies to use projections of future change. Furthermore, RHS is incorrectly calculating its historical rates of change in a way that could cause the agency to underestimate its budget needs. RHS calculates the average per-unit expenditures for each year over 3 years, then calculates the change from the first year to the third and divides that number by 3. The agency should divide by 2, since it is estimating an annual rate of change from 2 years of changes. By dividing by a larger number than appropriate, RHS's method will cause it to underestimate the rate of change and thus to underestimate its budget needs. For example, if prices increased 3 percent from 2000 to 2001, and 2 percent--of the year 2000 level--from 2001 to 2002, then the average annual increase is 3 plus 2, divided by 2, which equals 2.5. If RHS divides by 3, it will come up with an inflation rate of 1.67-- lower than the average inflation rate of the recent past. Contracts issued from 1978 through 1982 account for the majority of unexpended balances and are expending their funds at a relatively slow rate. Based on current average expenditures, these contracts likely will not expend their funds completely until 2011. USDA has concluded that these funds cannot be deobligated. Contracts issued from 1983 through 1997 also have unexpended balances; based on our analysis, these funds likely will be expended in 2004. Based on their age, contracts issued from 1978 through 1997 (both 5 and 20 year), should have expired by the end of 2002. As of June 2003, approximately 18 percent of these contracts were still active, accounting for $605 million in unexpended balances. Most of this amount ($510 million or 84 percent) involved the 32 percent of the contracts from 1978 through 1982 that were still active (see fig. 3). Contracts issued from 1983 through 1997 accounted for the remaining $95 million. Based on average current spending rates calculated from AMAS data and projected forward using OMB inflation rates, RHS will not exhaust all the unexpended balances from these contracts until at least 2011. In 2002, approximately $179 million in rental assistance funds was paid to project owners from contracts issued from 1978 through 1997, $53 million of it from contracts issued from 1978 through 1982, and $126 million from contracts issued from 1983 through 1997. At this rate, contracts from the 1983 to 1997 period will likely expend their remaining $95 million during 2004. The 1978 to 1982 contracts, which were funded based on inflation projections of 10 to 20 percent, will not expend their $510 million in unexpended balances until 2011 on average--8 years after the last of the 20-year contracts should have expired. The USDA regulations state that rental assistance contracts are effective for, depending on the contract, 5 or 20 years from the effective date of the agreement. These same regulations, however, make it clear that the expiration date of a contract is at complete disbursement of the funds obligated to the contract. This date, as the USDA regulations state, may be "before or after" the 5- or 20-year term. The rental assistance contracts that implement this policy explicitly tie their expiration to the disbursement of rental assistance amounts listed in the contracts. In practice, this has resulted in many of the contracts extending beyond (in some instances, far beyond) the contemplated 5- or 20-year term. According to USDA, any effort to recapture the remaining unexpended funds associated with rental assistance agreements entered into from 1978 through 1982 would result in a breach of those contracts and would subject USDA to liability. Ninety percent of the contracts issued from 1998 through 2002 are still active and appear to be expending their funds at a slower rate than RHS anticipated. Based on current expenditure rates, these contracts likely will run an average of over 6 years each. These findings are consistent with our analysis of RHS data, which shows that RHS has overestimated its spending needs most years since 1990. According to RHS data, and illustrated in figure 5, a relatively small percentage of contracts have expired. As of June 2003, 74 percent of the contracts issued in 1998 were still active, although the average contract should have expired by this date. The fact that so many were still active suggests that the majority of the 1998 contracts may have been overfunded. Furthermore, about 25 percent of the funds remained from the contracts issued in 1998, and about 35 percent of the funds remained from the contracts issued in 1999; only 11 percent of the funds allocated in 2002 were spent during the contracts' first 1 1/2 years. This suggests that the contracts are also expending their funds more slowly than the 5 years on which RHS bases its budget needs. A document provided by the agency indicates that, since 1992, contracts have been spending on average 3 percent in their first year, 14 to 18 percent in the second through sixth years, 8 percent in the seventh year, and tapering off around the twelfth year. According to the agency, this tapering indicates that overfunding of contracts is moderate. However, it should be noted that the document projects, for example, that about 1.7 percent of the funds allocated in 2000 will remain by the tenth year--a balance of $10.8 million from the $640 million originally allocated. Using RHS rental assistance payment data, we calculated that RHS overestimated its funding needs for these contracts by an average of about 8 percent each year. Between 1998 and 2002, almost $1.2 billion in rental assistance payments were made from contracts originating in those years, at an average rate of $2,808 per-unit per-year. However, RHS budgeted these units at an average annual rate of $3,019--a difference of $211 per- unit per-year (7.5 percent), or $1,055 per-unit per 5-year contract. Our analysis of rental assistance payment data showed that the agency has been overestimating its budget needs since at least 1990, the earliest year for which we gathered data. Importantly, where we had sufficient data from the agency, our analysis also shows that if RHS had used and correctly applied OMB inflation rates to its base per-unit rates, its estimates would have been closer to actual expenditures. Figure 6 below provides an example of the difference between RHS's actual and estimated expenditures. The actual expenditures are averaged from the entire portfolio of 5-year contracts issued from 1989 through 2002, while the estimated expenditures are averaged from only those units for which renewal, new construction, or servicing contracts originated in the corresponding year. Furthermore, the RHS estimated expenditure for a given year shows the effect of the 5-year estimate in the first year only. Due to RHS's method for calculating its estimated expenditures over a 5-year period, the difference is largest in the first year and declines over time as inflation raises the actual expenditure (or more accurate estimation) closer to the estimated expenditure (see fig. 2). The declining differentials of the second to fifth years are not reflected in figure 6 below. Nonetheless, while the estimated expenditures for any given year represent about 20 percent of the portfolio, they represent almost the entire portfolio over any 5-year period in the figure. RHS estimates are above actual expenditures in each of the years. In addition, the corresponding estimated expenditures using OMB inflation rates also helps to illustrate the degree to which the RHS method has lead to overestimation. Sufficient information was not available from the agency to extend our OMB-based estimate of RHS expenditure prior to 2000. Our scope and methodology section contains a discussion of the data limitations we faced in our assessment of activity levels. Between 1998 and 2002, RHS planned to fund 5-year contracts for an average of 42,000 units each year; the difference between the actual rate of expenditure and what RHS budgeted may mean that the agency had a surplus of approximately $43 million per year during this period, or more than $220 million total over the last 5 years. Based on current spending rates, and allowing for inflation, the average contract issued during these years will likely run out of funds during its sixth year. That is, the average contract issued in 2000 or 2001 will completely expend its funds during 2006 or 2007, respectively, and the average contract issued in 2002 will completely expend its funds during 2008. RHS provides subsidized rental housing to almost half a million people each year. The rental assistance program, with an annual budget of over $700 million, provides further subsidies to about half this number. RHS budget estimating processes have caused the agency to overstate its spending needs over the life of the rental assistance program, resulting in hundreds of millions of dollars in unexpended balances. Consistently overstating funding needs for one program also undermines the congressional budget process by not allowing those funds to be available for other programs. RHS is updating and automating its budget estimation process, and its new forecasting model shows some improvements over past and current processes. However, there are some flaws with the model. The agency plans to use its own inflation rates, which are based on historic rates of change, rather than the inflation rates provided by OMB, which predict future rates of change. Furthermore, RHS is incorrectly calculating the rates it plans to use, which may cause the agency to underestimate its future contract needs. A simple modification to the agency's planned budget estimation process would help the agency more accurately estimate its rental assistance needs and curtail future unexpended balances--or budget shortfalls as the case may be. To more accurately estimate rental assistance budget needs, we recommend that the Secretary of Agriculture require program officials to use and correctly apply the inflation rates provided by OMB in its annual budget and allocation estimation processes. We provided USDA and OMB with a draft of this report for their review and comment. The Acting Undersecretary for Rural Development for USDA raised several concerns about our analysis of RHS's budgeting practices and rental assistance expenditure data. In particular, the Acting Undersecretary argued that OMB's Circular A-11 encourages the use of a per-property microscale rate of change, rather than a blanket national rate. OMB's Circular A-11 states that all budget materials must be consistent with the economic assumptions provided by OMB. While OMB policy permits consideration of certain factors in developing out-year estimates, this does not mean that an agency should automatically use its own economic assumptions without providing documentation and justification. As we note in our report, neither OMB staff nor the Rural Development Budget Office required a justification for the agency's inflation rates. Furthermore, according to the Acting Undersecretary, we did not demonstrate that using inflation rate projections from the President's Budget would provide a more accurate budget estimate. We believe that figure 6 in this report illustrates that using the inflation projections from the President's Budget would have brought the agency's budget estimates closer to its actual expenditures, without running the risk of underfunding the rental assistance contracts. USDA also disagreed with our finding that RHS's budget estimates were too high. As stated in this report, we believe RHS overestimates its budget needs by using inflation factors that are higher than those projected by OMB for use in the budget process, improperly compounding the inflation rates, and using expenditure rates that may overstate the need for rental assistance. Our estimates reflect the extent to which RHS may have overestimated its budgets when compared with estimates based on OMB budget guidance documents and appropriate application of a compounding formula. USDA's complete written comments and our responses appear in appendix I. We received oral comments from OMB. OMB representatives did not have comments on the specific findings or conclusions of this report. They did, however, note that they are always open to suggestions that would help the Administration provide more accurate budget projections along with the related oversight. To assess the accuracy of RHS's budget estimates for the rental assistance program, we collected written and testimonial information from agency officials on current budget estimation methods and the budget automation plan that is being developed. We reviewed OMB guidance on preparing agency budgets and the inflation rates provided by OMB for agency use, and interviewed OMB staff that oversee the rental assistance program. Finally, we consulted our Standards for Internal Control in the Federal Government to review control activities that apply to RHS's budget estimation processes. In describing RHS's current process for estimating its budget needs, we faced the problem that the agency has no official written documentation for that process. Most information was provided verbally, and the information the agency did provide outlined only its elementary budget processes. To assess the activity level of rental assistance contracts issued from 1978 through 1997 with unexpended balances, we reviewed rental assistance data from the agency's Automated Multi-Housing Accounting System (AMAS) from January 1990 through October 2003 to determine the extent of the unexpended balances. We also used these data to determine the rate at which those balances were currently being expended; by applying OMB inflation rates for future years to the current rates of expenditure, we estimated when the funds will expire. We acquired OMB inflation rates for future years from the fiscal year 2004 and 2005 President's Budgets. To assess the activity level of rental assistance contracts issued from 1998 through 2002 and the accuracy of RHS's estimates of the rates at which these funds would be used, we reviewed rental assistance data from AMAS from January 1998 through October 2003 to determine the activity level of the unexpended balances. We also used these data to determine the rate at which those balances were currently being expended; by applying OMB inflation rates for future years to current rates of expenditure we estimated when the funds will expire. We assessed the accuracy of RHS's estimates of the rate at which the funds would be used by comparing RHS's estimated rental assistance expenditures to actual program expenditures. We determined RHS's estimated expenditures based on data provided by the agency. We determined actual program expenditures using payment data from AMAS. We faced limitations in our assessment of actual program expenditures using AMAS data. We had compared actual expenditures averaged from the entire portfolio of contracts issued from 1978 through 2002 with estimated expenditures averaged from only those units for which renewal, new construction, or servicing contracts originated in the corresponding year. In response to agency concerns, we eliminated contracts issued prior to 1989 because they represented a mix of contracts that were expending funds normally and contracts that exhibited unusual behavior resulting in abnormally low expenditures. The agency opined that the annual expenditures from these abnormal contracts could not be compared with their estimates. Due to the structure of AMAS data, we were unable to isolate the abnormal behaving contracts. However, the resulting figure (fig. 6), based on their comments, looks very similar to the original figure. For the AMAS data we used, we requested and received the most current data available from the system. We assessed the reliability of the data by (1) reviewing existing information about the systems and the data, (2) interviewing agency officials knowledgeable about the data, and (3) examining the data elements (fields) used in our work by comparing known and/or anticipated values. When inconsistencies were found, we discussed our findings with agency officials to understand why inconsistencies could exist. We determined that the data were sufficiently reliable for the purposes of this report. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to interested Members of Congress and congressional committees. We also will send copies to the Secretary of the Department of Agriculture and the Director of the Office of Management and Budget and make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4325, or Andy Finkel at (202) 512-6765, if you or your staff have any questions concerning this report. Key contributors to this report are listed in appendix III. The following are GAO's comments on the U.S. Department of Agriculture's letter dated March 8, 2004. 1. Our $51 million figure is based on data provided by the U.S. Department of Agriculture (USDA), analyzed in a manner consistent with the Office of Management and Budget (OMB) budgetary guidance, correcting for the areas where we believe USDA overestimates its budgetary requirements. As we state in the report, this number is an estimate of the extent to which the Rural Housing Service (RHS) may have overestimated its budget when compared with an estimate based on OMB budget guidance documents and appropriate application of a compounding formula. 2. Although we concur that a budget estimation process, by itself, will not necessarily put government funds at risk, consistently overstating funding needs undermines the congressional budget process. In addition, without performing a detailed internal controls review, we cannot state that the current process for allocating budget funds has not put government funds at risk or led to a loss of funds. We do note that RHS is not adhering to internal control standards regarding segregation of duties for both its estimation and allocation processes, and such an internal control lapse could introduce a risk of error or fraud. 3. We agree that RHS's contracts are not lasting as long as they did in the past, however, a 6-year average life contract is still 20 percent greater than the intended contract life. 4. Circular A-11 states that "all budget materials, including those for out- year policy and baseline estimates, must be consistent with the economic assumptions provided by OMB. OMB policy permits consideration of price changes for goods and services as a factor in developing estimates. However, this does not mean that you should automatically include an allowance for the full rate of anticipated inflation in your request." If the agency has evidence that a property will perform above or below the Consumer Price Index, which is the basis for OMB's economic assumptions, we would agree that this evidence should be used. OMB guidance indicates that the agency should document this evidence and justify that its proposed budget- estimation methodology would create a more accurate budget estimate. 5. We note in our report that the difference declines over time. Figure 2 shows this decline and shows that RHS is still overestimating its budget needs in the fifth year, albeit by less than in years 1 through 4. 6. As stated in the note in figure 6, RHS's estimated expenditures are based on data provided by the agency. Actual RHS expenditures are based on data from RHS's Automated Multi-Housing Accounting System (AMAS). As noted in the report, RHS did not document the inflation rate it used in its budget and allocation estimates prior to 2000. This is the lack of data to which we refer. It only affected our OMB- based estimate of RHS expenditures by preventing us from backing out agency rates and replacing them with the inflation projections from the President's Budget for years prior to fiscal year 2000. We clarified the text on this point. 7. Our concern centers on the fact that the agency is using the highest of the most recent 3 months instead of an average of all 3 months, not on the use of 3 months of data versus 12 months of data. 8. We concur that these rates are, in fact, an estimate, but as figure 6 illustrates, using these rates would have brought the agency's estimates closer to its actual expenditures. Furthermore, as shown in figure 6, budget estimates based on the inflation projections from the President's Budget would still have been higher than actual program expenditures, which should alleviate USDA's concern that using this method would underfund contracts. 9. Our report does not make this assertion. We state that the activity of contracts issued from 1998 through 2002 is consistent with earlier years, and in particular, that RHS has overestimated its spending needs in most years since 1990. 10. The $51 million overestimate does not stem from the inflation rate only. It also stems from RHS compounding the rate to the fifth power and then applying that rate back to each year of the contract. We concur that we will not know the outcome of the contracts issued in 2003 until 2008 or later. This is our best estimate based on data provided by the agency and following OMB budgetary guidance. In addition to those named above, William Bates, Emily Chalmers, Jamila Jones, Austin Kelly, Marc Molino, and Julie Trinder made key contributions to this report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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The Rural Housing Service's (RHS) Section 521 Rental Assistance Program provides rental subsidies to about 250,000 rural tenants. With an annual budget of over $700 million, the program is RHS's largest line-item appropriation, accounting for approximately 70 percent of the agency's budget. In early 2003, RHS reported hundreds of millions of dollars in unexpended balances, primarily tied to 5- and 20-year contracts issued from 1978 through 1982. Concern has arisen that these unexpended balances may be the result of the agency's budget practices, especially its procedures for estimating funding needs. GAO was asked to assess the accuracy of RHS's budget estimates for the rental assistance program, the activity level of rental assistance contracts issued from 1978 through 1997, and the activity level of rental assistance contracts issued from 1998 through 2002 and the accuracy of RHS's estimates of the rate at which these funds would be used. RHS is overestimating its budget needs for 5-year rental assistance contracts in three ways. First, the agency uses inflation factors that are higher than those OMB recommends for use in the budget process. Second, RHS does not apply its inflation rate separately to each year of a 5-year contract, but instead compounds the rate to reflect the price level in the fifth year and applies that rate to each contract year. Using these first two methods, RHS overestimated its 2003 budget needs by $51 million (6.5 percent). Third, RHS bases its estimates of future expenditure rates on recent maximum expenditures, rather than on the average rates at which rental assistance funds are expended. RHS has begun the process of automating its budget processes and certain aspects of its new model promise improvements over the current estimating methods. However, the agency continues to use its own inflation rates and incorrectly calculates those rates in such a way that would cause the agency to actually underestimate its budget needs. At current spending rates, it will take another 7 years for all the active contracts that were issued from 1978 through 1982 to expend their funds, 8 years after the last of the 20-year contracts were expected to expire. Contracts issued from 1983 through 1997 should expend their remaining funds in 2004. GAO calculated that RHS overestimated its funding needs for contracts issued from 1998 through 2002 by an average of about 8 percent each year. GAO analysis of rental assistance payment data showed that the agency has overestimated its budget needs almost every year since 1990, the earliest year for which GAO gathered data. Where GAO had sufficient data from the agency, the analysis also shows that if RHS had used and correctly applied OMB inflation rates to its base perunit rates, its estimates would have been closer to actual expenditures. Standardizing the agency's budget estimation processes would help the agency more accurately estimate its rental assistance needs and curtail future unexpended balances or budget shortfalls.
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In accordance with the United States International Broadcasting Act of 1994, as amended, BBG manages and oversees all U.S. civilian international broadcasting, including the federal entities VOA and OCB and the grantees MBN, RFA, and RFE/RL. Collectively, these entities include 69 language services that produce content in 59 languages for radio, television, the Internet, mobile devices, and social media in more The International Broadcasting Bureau provides all than 100 countries.support services to BBG, oversight over grantee operations, and transmission and distribution services to BBG entities. BBG is managed by a nine-member part-time bipartisan Board of Governors. As an element of U.S. public diplomacy, BBG is to be responsive to U.S. foreign policy and national security priorities while maintaining editorial independence. All BBG entities are required to provide news and information that is consistently reliable, authoritative, accurate, objective, and comprehensive. VOA provides global, U.S., and local news, as well as information on U.S. policies, to people living in closed societies. OCB provides news and information to the people of Cuba. The role of the grantee broadcasters--MBN, RFA, and RFE/RL--is to operate as surrogates for the local media in countries where a free and open press does not exist. Following specific foreign policy challenges over the last decade, Congress created the five broadcasting entities that compose BBG. In some instances, BBG entities were created or directed to broadcast in languages and countries where VOA was already present. BBG officials noted, for example: The International Broadcasting Act authorized RFA in 1994 to broadcast in seven Asian countries where VOA already broadcast. In 2009, a House of Representatives Committee on Appropriations report and a Senate Committee on Appropriations report directed BBG to provide an increase in daily broadcast hours for VOA's language service in the Afghanistan-Pakistan region (Deewa Radio) while also calling for the establishment of an RFE/RL radio program (Radio Mashaal) in the region. Figure 1 shows the creation of BBG entities since 1942. Figure 2 describes each BBG entity's mission and shows the amount of appropriated funds each entity received in fiscal year 2012. BBG annually conducts a language service review, as required by law, intended to help the agency make decisions regarding allocating resources to language services. In conducting the language service review, BBG considers foreign policy priorities, the domestic media environment in countries that receive BBG broadcasts, audience research, and the impact of BBG programming. BBG uses the review to determine which language services should be enhanced or added and which services to recommend for closure or reduced funding. From 2001 through 2012, BBG eliminated 20 language services, including VOA's Czech, Polish, and Slovak services and RFE/RL's Czech and Slovak services. In its fiscal year 2009 through 2013 annual budget requests, BBG has proposed to eliminate additional language services, including two services that overlap with another service. In response to BBG's proposals, Congressional appropriations committees, which have jurisdiction over BBG funding, in some years have directed the continuation of the language services. Nearly two-thirds of the BBG language services--that is, offices that produce content for particular languages and regions--overlap with another BBG service by providing programs to the same countries in the same languages. BBG's 2012-2016 strategic plan identifies the need to reduce overlap among its language services. However, BBG's annual language service reviews have not systematically considered the cost and impact of overlap. We identified 23 instances of overlap, involving 43 of BBG's 69 language services (62 percent), where two services provide programming to the same countries in the same languages. For example, in 8 instances involving 16 services, a VOA service and an RFA service overlapped. Figure 3 shows the extent of overlap among BBG language services as of June 2012. (See app. II for a detailed list of BBG language services.) Of the 43 language services that overlap in terms of language and country, 91 percent (39 services) also overlap in terms of platform (i.e., radio or television).broadcast on the same platforms, while in others, such as Ukraine, RFE/RL broadcasts only by radio and VOA broadcasts only on television. In almost all countries, the overlapping entities BBG officials noted some benefits of its overlapping language services, such as the availability of news from various sources in countries of strategic interest to the United States. In addition, BBG officials noted that in authorizing more than one entity to undertake international broadcasting, the statutory structure appears to envision that some overlap in activities may be necessary to achieve U.S. government objectives. However, these officials acknowledged that overlap among its language services reduces the funding available for other BBG broadcasts, including those that may have greater impact. BBG officials emphasized that overlapping language services are sometimes distinguished by their broadcast hours or purpose and content. Broadcast hours. BBG officials told us that overlapping language services generally coordinate with one another to broadcast at different hours of the day to ensure that audiences are able to access programs from both services. For example, VOA officials from the Farsi language service told us that VOA and RFE/RL collaborate to avoid overlap and do not broadcast on the radio simultaneously. BBG officials also said that overlapping services coordinate regarding their broadcast hours even if using different platforms. Purpose and content. BBG officials said that VOA and the grantee broadcasters have different purposes and that flexibility in their governing laws allows some overlapping content. The officials noted that according to those laws, VOA must represent the United States, presenting and explaining the country's policies in addition to providing accurate news. In contrast, the grantee broadcasters, in their surrogate role, generally act as regional or local news providers, with less emphasis on international news and limited discussion of U.S. policies or interests. However, BBG officials noted that the entities' mandates and missions allows for some flexibility related to programming content. For example, the International Broadcasting Act states that in order to be effective, VOA must win the attention and respect of listeners. According to BBG officials, to attract a larger audience and to provide fuller news coverage, some VOA language services produce not only news about the United States and the views of the U.S. government but also local news, which a BBG grantee might also broadcast in the same language and country. BBG officials stated that the roles of VOA and grantee broadcasters when both VOA and a grantee broadcast in a particular country and language are not clearly established. For example, it is not clear whether, in such cases, VOA should provide strictly U.S. and international news and the grantee should provide strictly local and regional news or whether the types of content they provide can, or should, overlap. BBG officials told us that this can lead to overlapping content. For example, officials from Deewa Radio (VOA) stated that they sometimes cover the same news stories, with similar content, as Radio Mashaal (RFE/RL) in the same region. Although BBG has identified the need to reduce overlap among its broadcast entities' language services, BBG has not systematically considered the cost or impact of such overlap as part of its annual language service review process. The International Broadcasting Act, as amended, directs BBG to consider issues related to overlap, such as duplication, among some language services. For example, the law requires that grant agreements to RFE/RL shall include a provision stating that duplication of language services and technical operations between RFE/RL and VOA should be reduced to the extent appropriate, as determined by BBG's Board of Governors. In addition, the law gives the board authority to identify areas in which broadcasting activities could be made more efficient and economical. In its strategic plan for 2012-2016, BBG addresses language service overlap and recognizes the need to streamline and improve coordination and efficiency. The plan states that BBG found that its language services overlapped significantly and that the agency could not easily manage its resources for highest impact and efficiency. In the plan, BBG states in general terms that it will end language services in countries that have more developed, independent media and that are no longer strategic priorities; however, the plan does not describe specific steps for achieving this goal. The plan also states that where there are two broadcast entities operating in a given country, they will cooperate--with shared bureaus, freelance reporters, and distribution networks--and will provide complementary, not duplicative, content. According to BBG officials, some entities already cooperate with each other to share resources and maximize efficiency. For example, VOA and RFE/RL staff share office space in Afghanistan and collaborate on their Persian service to share news agendas and reduce duplication of effort. BBG officials also said that the agency's proposed management reforms included in the strategic plan may enhance their ability to increase coordination, reduce overlap, and create a more integrated and efficient organization. Although BBG's strategic plan includes a general proposal to reduce language service overlap, BBG's annual language service review--the agency's primary method of prioritizing broadcast languages and planning resource allocations--does not systematically consider the cost and impact of language service overlap. BBG's language service review is intended to help the agency make decisions regarding allocating resources to language services by considering factors such as foreign policy priorities and the domestic media environment in countries that receive BBG broadcasts. The resulting Annual Language Service Review Briefing Book provides detailed data for all language services, including information regarding the media and political environments in which the services operate. example, when more than one BBG entity broadcasts in a language--it does not discuss the cost or impact associated with this overlap. BBG officials stated that the methodology for the language service review does not include an assessment of the cost and impact of overlapping language services because officials are already well aware of overlap among their language services and because the law has not required BBG to include assessments of overlap as part of its annual language service review. For example, BBG considers the Media Sustainability Index, which measures a number of contributing factors of a well-functioning media system and considers both traditional media types and new media platforms. Among its other measures, the index includes a measure of plurality of news sources. associated with maintaining the 43 overlapping language services is about $149 million, or nearly 20 percent of BBG's total appropriations for fiscal year 2011. This amount represents the sum of the total cost for all overlapping language services, including employee salaries, benefits, and general operating expenses, as reported in BBG's Annual Language Service Review Briefing Book from fiscal year 2011. This amount exceeds the potential savings from eliminating or reducing overlap. The amount of money that could be saved by reducing or eliminating overlapping language services would depend on a variety of factors, including which services were reduced or eliminated, which transmission assets or broadcast hours were reduced or transferred, and whether staff and other resources from an eliminated service were transferred to the remaining services. More than half of BBG's broadcast languages are used by other international broadcasters, although these broadcasters' objectives differ from those of BBG. Specifically, we found that U.S. commercial broadcasters transmit in 7 of the 59 BBG languages and target different audiences, and other democratic nations' government-supported broadcasters transmit in over half of BBG languages, but each represents the unique perspectives and interests of its respective country. BBG's annual language service review has not systematically considered the activities of these broadcasters, and as a result BBG risks missing opportunities to strengthen its allocation of resources. BBG and the other international broadcasters we reviewed broadcast in many of the same languages, although their objectives differ. The U.S. commercial international broadcasters that we identified, including CNN International and Fox News, broadcast in 7 of the 59 languages that BBG uses. Officials from both BBG and commercial broadcasters said that they target different audiences and consider their approaches to providing content to be distinct. Commercial broadcasters are often not present in smaller markets where vernacular languages are spoken, because these markets offer little potential for generating profit.broadcasters may target audiences such as business people and other professionals. For example, officials from one network told us they target U.S. citizens outside the United States, including travelers and expatriates. In contrast, BBG targets foreign audiences. Moreover, commercial broadcasters generally provide broad international or regional programming as opposed to the more localized content that BBG entities often provide. Collectively, major government-supported international broadcasters from other democratic nations--Audiovisuel Exterieur de la France (AEF), the British Broadcasting Corporation World Service (BBC), Deutsche Welle (DW), and Radio Netherlands Worldwide (RNW)--transmit programs in 35 of the 59 languages that BBG uses (see fig. 4). These broadcasters transmit programs in 10 languages that BBG does not use. (For the full list of languages used by the democratic nations' broadcasters, see app. III.) Representatives of other democratic nations' government-supported international broadcasters generally told us that they coordinate with each other and BBG on issues such as broadcast transmission and audience research. However, most of these broadcasters do not consider the presence of, or coordinate with, other international broadcasters when determining whether to transmit in a given language or country, because their objectives differ in several ways. Democratic nations' international broadcasters focus on respective national interests. According to the broadcasters' representatives, no nation's international broadcaster can accurately represent the interests, perspectives, values, and culture of another nation. AEF, DW, BBC, and RNW's missions are to represent, respectively, the French, German, British, and Dutch perspectives on international news and events in an independent and unbiased manner. Although democratic nations' broadcasters represent many of the same perspectives on values such as democracy and freedom of speech, the representatives stated that their countries' particular perspectives cannot be accurately represented by another country's international broadcaster. Democratic nations' international broadcasters have different substantive and geographic targets. The focus and target audiences of democratic nations' broadcasters' programming differ significantly, according to the broadcasters' representatives. For example, while DW aims to provide thorough information to opinion makers and to emphasize human rights issues, BBC aims to serve as the premiere independent and unbiased global news provider. RNW recently adopted a narrower focus, targeting individuals between the ages of 15 and 30 and focusing on free speech. Representatives of democratic nations' broadcasters also indicated that foreign policy priorities may weigh in favor of a broadcaster's presence in a given language even when other broadcasters are present. For example, partly because of the current strategic importance of the Middle East, BBG, BBC, DW, AEF, and RNW all broadcast in Arabic. Additionally, broadcasters told us they believed that the presence of multiple democratic nations' broadcasters in the same broadcast language can be positive and provide multiple perspectives in countries in which the press is not free. Representatives of these major democratic nations' broadcasters further suggest that the surrogate role served by BBG grantees--MBN, RFA, and RFE/RL--is a distinct U.S. contribution to the context of government- supported international broadcasting. According to the representatives, other democratic nations' broadcasters present their countries' perspectives, but their primary functions generally do not include acting as indigenous media or providing local news and information in countries in which press freedom is limited or nonexistent. Other democratic nations' broadcasters have faced declining budgets in recent years and have consequently reduced their broadcasting and implemented other organizational changes. For example, RNW's budget decreased by 70 percent from 2012 to 2013 (from approximately $60 million to $18 million), and BBC World Service's budget decreased by 11 percent from 2009 to 2012 (from approximately $402 million to $356 million). To cope with declining resources, broadcasters have taken steps such as restructuring their organizations and changing their program formats and distribution. For example, the broadcasters have significantly reduced their broadcasts in shortwave radio, which are more expensive to maintain than are other broadcast platforms. In addition, BBC eliminated five language services and moved other services from radio transmission to Internet only. In early 2013, RNW will reduce its number of broadcast languages from ten to five and will end direct distribution on platforms other than the Internet. The International Broadcasting Act contains 18 standards and principles for U.S. international broadcasting, including that U.S. international broadcasting shall not duplicate the activities of private U.S. broadcasters or of other democratic nations' government-supported broadcasting entities. BBG officials stated that the agency is in compliance with this principle. The law does not specify, however, that BBG should assess duplication in its annual language service reviews. Moreover, BBG officials noted that the law provides BBG broad latitude on how to interpret duplication and that the term should be considered in the context of BBG's overall authorities and responsibilities. BBG officials stated that to maximize the impact of its resources, BBG should be aware of, and complement, the efforts of commercial U.S. broadcasters and of other democratic nations' broadcasters. BBG's annual language service review generally considers the broadcast alternatives available to targeted audiences by identifying the most significant broadcasters in each market BBG serves. The resulting briefing book lists the top 10 sources of news in each market. However, the language service review process does not systematically identify the languages used, and the countries served, by other major democratic nations' international broadcasters and U.S. commercial broadcasters. Further, it does not assess the extent to which these broadcasters provide similar or complementary alternatives to BBG broadcasts. BBG officials noted that the law has not required that the annual language service review consider other international broadcasters. BBG officials also stated that individual BBG entities are well informed about the broadcast activities of relevant commercial international broadcasters and other democratic nations' broadcasters. However, without regularly reviewing and documenting the activities of other international broadcasters, BBG risks missing opportunities to better allocate its resources. U.S. public diplomacy efforts rely on U.S. international broadcasting to communicate directly with audiences in countries with limited journalism alternatives. Over the past 70 years, Congress authorized five separate entities to broadcast news and information throughout the world to address new foreign policy priorities, and these entities overlap substantially with one another in the countries and languages they serve. BBG's strategic plan for 2012-2016 broadly recognizes the need to reduce overlap and reallocate limited resources to broadcasts that will have the greatest impact. However, by not systematically considering the cost and impact of overlap in its annual language service reviews--BBG's primary method of prioritizing broadcast languages and planning resource allocations--the agency risks missing opportunities to reduce overlap as appropriate, strengthen impact, and improve coordination among its entities. Further, without systematically considering the activities of other international broadcasters in its annual language service review, BBG also may be missing opportunities to better allocate its resources in order to maximize the impact of U.S. international broadcasting. To strengthen BBG's efforts to streamline and maximize the impact of U.S. international broadcasting, we recommend that BBG's Board of Governors take the following two actions: Ensure that BBG's annual language service review includes systematic consideration of the cost and impact of internal overlap among BBG entities' language services. Ensure that BBG's annual language service review includes systematic consideration of the activities of U.S. commercial broadcasters and other democratic nations' broadcasters, such as the languages used and the countries served. We sent a draft of this report to BBG, State, and USAID for comment. BBG provided written comments, which are reprinted in appendix IV, as well as technical comments, which we incorporated as appropriate. State and USAID had no comments. We also sent excerpts of the draft to the U.S. commercial broadcasters and other major democratic nations' government-supported international broadcasters that we reviewed, and we incorporated their comments as appropriate. In its written comments, BBG agreed with our recommendations and said that it had begun the planning necessary to include a more in-depth and systematic review of overlapping language services in its annual language service review and that it would assess the countries served and languages broadcast by other commercial and government- sponsored broadcasters. BBG noted that it broadly agreed with our presentation of the challenges involved in addressing overlap and offered several comments on the issues we discussed in the draft report. First, BBG noted that its spending in fiscal year 2011 to maintain language services broadcasting in the same countries and languages--$149 million--represented the baseline budget for the 43 overlapping language services we identified but not the amount that could be saved if overlapping services were eliminated. For example, BBG stated that some overlap may be necessary and beneficial, and that, in some cases, the overlap resulted from statutory mandates. In addition, BBG noted that its strategic plan for 2012-2016 recognized the existence of overlapping language services and that it had introduced proposals to reduce unnecessary overlap. BBG further noted that enhancing the programming and operations of two language services in distinct organizations is a complex and sensitive undertaking. In each case, and as BBG acknowledged, our draft report generally reflected this information. Including a more in-depth and systematic assessment of overlapping language services in its annual language service review will provide BBG with an opportunity to balance these considerations, improve its operational efficiency, and maximize the impact of U.S. international broadcasting. We are sending copies of this report to interested congressional committees and to BBG, State, and USAID. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-3665 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix V. This report examines the extent to which (1) Broadcasting Board of Governors (BBG) language services overlap with one another, and (2) BBG broadcasts in the same languages as other international broadcasters. To examine BBG language service overlap, we reviewed laws, reports, and other documents related to U.S. international broadcasting, including BBG's strategic plan for 2012-2016 and its 2011 Annual Language Service Review Briefing Book. In particular, we reviewed the United States International Broadcasting Act of 1994, as amended, and other laws relevant to the five BBG entities--federal entities the Voice of America (VOA) and Office of Cuba Broadcasting (OCB), and nonprofit grantees Middle East Broadcasting Networks, Inc. (MBN), Radio Free Asia (RFA), and Radio Free Europe/Radio Liberty (RFE/RL). We obtained and reviewed BBG's interpretation of the International Broadcasting Act provisions related to overlap and duplication. We also reviewed information from BBG on the broadcast coverage of each entity, by country, language, and platform. To assess language service overlap among BBG entities, we identified instances in which the language services of two BBG entities broadcast in the same language and country, and we calculated the percentage of language services that overlap with another BBG language service. In our calculations, each instance of overlap involved two overlapping services. Some language services produce content in multiple languages; for those, we considered the language service to overlap if any of its languages overlapped with other BBG services. In addition, we counted BBG's services in English, English to Africa, and Special English/Learning English as one language service. To obtain views about the causes and impact of overlap, we interviewed officials from BBG, the Department of State, and the U.S. Agency for International Development, as well as experts from U.S. and international organizations. We visited and conducted interviews at the headquarters of VOA (Washington, D.C.), MBN (Springfield, Va.), RFA (Washington, D.C.), and RFE/RL (Prague, Czech Republic), and we interviewed OCB officials by telephone. We also reviewed BBG's methodology for its annual language service review and described the extent to which it included consideration of the cost and impact of overlap. We did not analyze the content of broadcast programs, overlap in BBG administrative or technical operations, or management and administrative streamlining proposals. To examine the extent to which BBG broadcasts in the same languages as other international broadcasters, we interviewed representatives of U.S. commercial broadcasters and democratic nations' government- supported international broadcasters. Through interviews with the National Association of Broadcasters, the Association for International Broadcasting, and other experts, we identified several U.S. commercial broadcasters that provide general news programming to audiences outside the United States. We conducted interviews with representatives of two of these broadcasters: Fox News and CNN International. We interviewed major democratic nations' international broadcasters-- Audiovisuel Exterieur de la France (AEF), the British Broadcasting Corporation World Service (BBC), Deutsche Welle (DW), and Radio Netherlands Worldwide (RNW)--as well as several other public international broadcasters, including Voice of Russia. We interviewed some international public broadcasters at a global media forum in Bonn, Germany, and others by telephone. For both U.S. commercial broadcasters and democratic nations' international broadcasters, we reviewed information on their objectives and the languages in which they broadcast, and we compared these to BBG objectives and broadcast languages. We assessed BBG's processes for compiling information on the broadcast languages used and countries served by BBG entities' language services, and we determined that these data were adequate and sufficiently reliable for the purposes of our review. We conducted this performance audit from February 2012 to January 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Voice of America (VOA) Africa Division Central Africa (Kinyarwanda, Kirundi) Horn Of Africa (Amharic, Tigrigna, Afaan Oromoo) Office of Cuba Broadcasting (OCB) Radio Free Europe/Radio Liberty (RFE/RL) Balkans (Bosnian, Macedonian, Serbian, Albanian, Montenegrin, Croatian)* Radio Farda (Persian)* Radio Free Afghanistan (Dari and Pashto)* Radio Mashaal (Pashto)* Radio Free Iraq (Arabic)* North Caucasus Unit (Avar, Chechen and Circassian) Tatar-Bashkir (Tatar, Crimean Tatar, Bashkir) Radio Free Asia (RFA) Middle East Broadcasting Networks (MBN) Swahili (Kiswahili) In addition to the contacts named above, Jason Bair (Assistant Director), Marissa Jones, Mary Moutsos, Ashley Alley, Qahira El'Amin, Julia Jebo Grant, and Reid Lowe made key contributions to this report. Additional assistance was provided by Mike Courts, Etana Finkler, Dave Hancock, Julia Ann Roberts, Mike Rohrback, Mike Silver, and Mike ten Kate.
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U.S. international broadcasting is intended to communicate directly with audiences in countries with limited journalism alternatives and to inform, engage, and connect people around the world. BBG oversees two U.S. government entities--Voice of America and the Office of Cuba Broadcasting-- and three nonprofit grantees that act as surrogates for local media--Middle East Broadcasting Networks, Inc.; Radio Free Asia; and Radio Free Europe/Radio Liberty. In 2003, GAO found overlap among BBG's language services. In its strategic plan for 2012- 2016, BBG recognizes the need to reduce language service overlap. GAO was asked to review issues related to international broadcasting. This report examines the extent to which (1) BBG language services overlap with one another and (2) BBG broadcasts in the same languages as other international broadcasters. GAO reviewed laws, reports, and other documents related to U.S. international broadcasting; analyzed information on the BBG entities; and interviewed representatives of the five BBG entities and international broadcasters. Nearly two-thirds of the Broadcasting Board of Governors (BBG) language services--offices that produce content for particular languages and regions-- overlap with another BBG service by providing programs to the same countries in the same languages. GAO identified 23 instances of overlap involving 43 of BBG's 69 services. For example, in 8 instances involving 16 services, a Voice of America service and a Radio Free Asia service overlapped. Almost all overlapping services also broadcast on the same platform (i.e., radio or television). BBG officials noted that some overlap may be helpful in providing news from various sources in countries of strategic interest to the United States; however, they acknowledged that overlap reduces the funding available for broadcasts that may have greater impact. BBG budget information indicates that BBG spent approximately $149 million in fiscal year 2011 to maintain language services broadcasting in the same countries and languages--nearly 20 percent of its total appropriations. However, BBG has not estimated the potential savings and efficiencies from reducing unnecessary overlap. Further, BBG's annual language service review--its primary means of prioritizing broadcast languages and planning resource allocations--does not systematically consider the cost and impact of overlap. As a result, BBG may be missing opportunities to reduce overlap as appropriate, strengthen impact, and improve BBG entity coordination. More than half of BBG's broadcast languages are used by other international broadcasters--U.S. commercial international broadcasters and other major democratic nations' government-supported international broadcasters--although these broadcasters' objectives differ from BBG's. The U.S. commercial broadcasters that GAO identified transmit in seven of the BBG languages and target different audiences, with for-profit aims. Other democratic nations' broadcasters, including Germany's Deutsche Welle and the United Kingdom's BBC, transmit in 35 of the 59 BBG languages, although each broadcaster represents the unique perspectives and interests of its respective country. BBG's annual language service review generally considers the broadcast alternatives available to targeted audiences by identifying the most significant broadcasters in each market BBG serves. However, the review process does not systematically identify the languages used and the countries served by other international broadcasters, and it does not assess the extent to which these broadcasters provide similar or complementary alternatives to BBG broadcasts. As a result, BBG risks missing additional opportunities to better allocate its resources. GAO recommends that BBG systematically consider in its annual language service reviews (1) the cost and impact of overlap among BBG entities' language services and (2) the activities of other international broadcasters. BBG agreed with GAO's recommendations and reported taking initial steps to implement them.
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Immigration enforcement includes, among other things, patrolling 8,000 miles of international boundaries to prevent illegal entry into the United States; inspecting over 500 million travelers each year to determine their admissibility; apprehending, detaining, and removing criminal and illegal aliens; disrupting and dismantling organized smuggling of humans and contraband as well as human trafficking; investigating and prosecuting those who engage in benefit and document fraud; blocking and removing employers' access to undocumented workers; and enforcing compliance with programs to monitor visitors. Immigration functions also include providing services or benefits to facilitate entry, residence, employment, and naturalization of legal immigrants; processing millions of applications each year; making the right adjudicative decision in approving or denying the applications; and rendering decisions in a timely manner. When INS was abolished in 2003 by the Homeland Security Act of 2002, its enforcement functions were transferred to two bureaus within the DHS. First, INS's interior enforcement programs--investigations, intelligence, and detention and removal--were placed in ICE. Within ICE, investigators and intelligence analysts from former INS and the U.S. Customs Service were merged into the investigations and intelligence offices, while staff from former INS's detention and removal program were placed in the detention and removal office. Second, inspectors from former INS, Customs, and Agriculture and Plant Health Inspection Service, as well as former INS's Border Patrol agents were incorporated into CBP. Both CBP and ICE report to the Undersecretary for Border and Transportation Security, who in turn reports to the Deputy Secretary of the DHS. For service functions, INS's Immigration Services Division, responsible for processing applications for immigration benefits, was placed in Citizenship and Immigration Services (CIS), which reports directly to the Deputy Secretary of DHS. Figure 1 shows the transition of INS functions into DHS. Immigration and Naturalization Service (INS) (Secretary) Transition efforts for CBP posed fewer challenges than for ICE. Specifically, CBP brought together INS and Customs inspections programs that, prior to the transition, largely worked side by side in many land ports of entry around the country and that shared similar missions. In contrast, ICE is a patchwork of agencies and programs that includes INS's investigations and intelligence programs, Customs' investigations and intelligence programs, the Federal Protective Service, and the Federal Air Marshals. In combining the investigations programs, ICE has been tasked with merging former INS investigators who specialized in immigration enforcement (e.g., criminal aliens) with former Customs investigators who specialized in customs enforcement (e.g., drug smuggling). The integration of INS and Customs investigators into a single investigative program has involved the blending of two vastly different workforces, each with its own culture, policies, procedures, and mission priorities. Both programs were in agencies with dual missions that prior to the merger had differences in investigative priorities. For example, INS primarily looked for illegal aliens and Customs primarily looked for illegal drugs. In addition, INS investigators typically pursued administrative violations, while Customs investigators typically pursued criminal violations. Whether further structural changes are warranted is one of the topics that this hearing is to address. Some observers have proposed merging ICE and CBP. For example, the Heritage Foundation and the Center for Strategic and International Studies (CSIS), in a report on DHS management, suggested a possible merger of ICE and CBP to address some of these management problems. A Senior Research Fellow at The Heritage Foundation stated in a March 2005 congressional testimony, "DHS needs to be organized not to accommodate the present, but to build toward the ideal organization of the future. Therefore, the department needs to articulate how it envisions conducting its missions five to ten years from now and let this vision drive the organizational design, particularly the structure of border security operations." Another witness stated, "Whether the decision is ultimately made to merge ICE and CBP or not, the real issues will remain unless the underlying mission, vision, and planning occur in a unified manner." Over the years, we have issued numerous reports that identified management challenges INS experienced in its efforts to achieve both effective immigration law enforcement and service delivery. For example, in 1997 we reported that INS lacked clearly defined priorities and goals and that its organizational structure was fragmented both programmatically and geographically. Additionally, after reorganization in 1994, field managers still had difficulty determining whom to coordinate with, when to coordinate, and how to communicate with one another because they were unclear about headquarters offices' responsibilities and authority. We also reported that INS had not adequately defined the roles of its two key enforcement programs--Border Patrol and investigations-- which resulted in overlapping responsibilities, inconsistent program implementation, and ineffective use of resources. INS's poor communication led to weaknesses in policies and procedures. In later reports, we showed that broader management challenges affected INS's efforts to implement programs to control the border, deter alien smuggling, reduce immigration benefit fraud, reduce unauthorized alien employment, remove criminal aliens, and manage the immigration benefit application workload and reduce the backlog. In 1999 and 2001, we testified on these management challenges before this subcommittee. Our 2001 testimony was delivered at the time when Congress, the Administration, and others had offered various options for restructuring the INS to deal with its management challenges. We testified that while restructuring may help address certain management challenges, we saw an organization (INS) that faced significant challenges in assembling the basic building blocks that any organization needs: clearly delineated roles and responsibilities, policies and procedures that effectively balance competing priorities, effective internal and external communications and coordination, and automation systems that provide accurate and timely information. We noted that unless these elements were established, enforcing our immigration laws, providing services to eligible aliens, and effectively participating in the government-wide efforts to combat terrorism would be problematic regardless of how INS was organized. In 2004, we reported DHS experienced management challenges similar to those we had found at INS. For example, some officials noted that in some areas related to investigative techniques and other operations, unresolved issues regarding the roles and responsibilities of CBP and ICE give rise to disagreements and confusion, with the potential for serious consequences. As in 1999 and 2001, we reported in 2004 that selected operations had reportedly been hampered by the absence of communication and coordination between CBP and ICE. Further, we reported in 2004 that CBP and ICE lacked formal guidance for addressing some overlapping responsibilities. As this Subcommittee, DHS officials, and other stakeholders consider potential structural changes to ICE and CBP, we have identified three factors to consider for resolving management challenges including (1) a management framework for ICE and CBP, (2) systems and processes to support this framework, and (3) the context of the larger DHS transformation. These factors are important to help identify the most suitable and appropriate course of action to address management challenges. Based on our work on the creation and development of DHS, and additional work on transformation and mergers, we have identified a number of key success factors. Those factors that I would like to focus on today include clarity of mission, strategic planning, organizational alignment, performance measures, and leadership focus and accountability. Clarity of Mission: We have previously reported on the importance of establishing a coherent mission that defines an organization's culture and serves as a vehicle for employees to unite and rally around. As such, a comprehensive agency mission statement is the first GPRA- required element of a successful strategic plan. In successful transformation efforts, developing, communicating, and constantly reinforcing the mission gives employees a sense of what the organization intends to accomplish, as well as helps employees figure out how their positions fit in with the new organization and what they need to do differently to help the new organization achieve success. However, as noted above, while CBP was created from programs that generally shared similar missions, ICE blended agencies with distinct mission priorities and cultures, and thus faces a greater challenge in creating a unified bureau. Strategic Planning: Closely related to establishing a clear mission is strategic planning--a continuous, dynamic, and inclusive process that provides the foundation for the fundamental results that an organization seeks to achieve. The starting point for this process is the strategic plan that describes an organization's mission, outcome- oriented strategic goals, strategies to achieve these goals, and key factors beyond the agency's control that could impact the goals' achievement, among other things. As with the mission, strategic goals for a transforming organization must be clear to employees, customers, and stakeholders to ensure they see a direct personal connection to the transformation. Organizational Alignment: To ensure that form follows function, an organizational alignment that supports the mission and strategic goals is another component of the management framework. Leading organizations recognize that sound planning is not enough to ensure their success. An organization's activities, core processes, and resources must be aligned to support its mission and help it achieve its goals. Such organizations start by assessing the extent to which their programs and activities are structured to accomplish their mission and desired outcomes. Performance Measures: Effective implementation of this framework requires agencies to clearly establish results-oriented performance goals in strategic and annual performance plans for which they will be held accountable, measure progress towards those goals, determine the strategies and resources to effectively accomplish the goals, use performance information to make the programmatic decisions necessary to improve performance, and formally communicate results in performance reports. Leadership Focus and Accountability: To be successful, transformation efforts must have leaders, managers, and employees who have the individual competencies to integrate and create synergy among the multiple organizations involved in the transformation effort. Leaders need to be held accountable for ensuring results, recognizing when management attention is required and taking corrective action. High-performing organizations create this clear linkage between individual performance and organizational success and thus transform their cultures to be more results-oriented, customer-focused, and collaborative in nature. As we have reported, a Chief Operating Officer (COO)/Chief Management Officer (CMO) may effectively provide the continuing, focused attention essential to successfully completing these multi-year transformations in agencies like DHS. At DHS, we have reported that the COO/CMO concept would provide the department with a single organizational focus for the key management functions involved in the business transformation of the department, as well as for other organizational transformation initiatives. The lack of program guidance has adversely impacted ICE's ability to efficiently and effectively perform its mission. In May 2004, we reported that ICE had not provided its deportation officers with guidance on how to prioritize their caseload of aliens who required supervision after release from detention. Consequently, ICE was unable to determine whether and to what extent such aliens had met the conditions of their release. We recommended that ICE develop and disseminate guidance to enable deportation officers to prioritize ICE's caseload of aliens on orders of supervision so that ICE could focus its limited resources on supervising aliens who may be a threat to the community or who are not likely to comply with the conditions of their release. Also, in October 2004, we reported that ICE headquarters and field offices had a lack of uniform policies and procedures for some ICE operations that had caused confusion and hindered the creation of a new integrated culture. ICE headquarters officials told us that they were prioritizing the establishment of uniform policies and that until a new ICE policy is established, field offices are required to use the policies of the former agencies. Shortfalls in communications about administrative support services were also a source of frustration in DHS. In October 2004, we reported that DHS was in the process of developing and implementing systems and processes called "shared services." In December 2003, DHS instituted a shared service system in which certain mission support services--such as human resources--are provided by one bureau to the other bureaus. However, there were weaknesses in how the shared services program was communicated to employees. Officials in CBP, CIS, and ICE expressed confusion about shared services when we interviewed them 3 to 4 months after the system was instituted. Many field officials said they did not know what constituted shared services, what processes they should have been using for receiving assistance from a shared service provider, or how many of their staff administrative positions would be reassigned to positions in other offices as shared service providers. Further, CBP, CIS, and ICE officials also expressed frustration with problems they have encountered coordinating their administrative systems managed within the agency and not a part of shared services, including travel, budget, and payroll. Some ICE field officials also expressed concern about their ability to manage their budgets and payroll problems, because of the systems used for these functions. Information technology systems and information sharing in general are also an area of concern. For example, ICE did not have information that provides assurance that its custody reviews are timely and its custody determinations are consistent with the Supreme Court decision and implementing regulations regarding long term alien detention. One reason ICE had difficulty providing assurance is that it lacked complete, accurate, and readily available information to provide to deportation officers when post order custody reviews are due for eligible aliens. In addition, ICE did not have the capability to record information on how many post order custody reviews had been made pursuant to regulations and what decisions resulted from those reviews. Therefore, ICE managers could not gauge overall compliance with the regulations for aliens who have been ordered to be removed from the United States. Although ICE was in the process of updating its case management system, ICE officials said that they did not know when the system will have the capability to capture information about the timeliness and results of post order custody reviews. In 2005, we designated information sharing mechanisms for homeland security as a high-risk issue, based on root causes behind vulnerabilities, as well as actions needed on the part of the agency involved. In addition to considering developing a management framework and corresponding systems and processes, it is important to consider these changes in the larger context of the transformation of DHS. We designated DHS's transformation as a high-risk area in 2003, based on three factors. First, DHS faced enormous challenges in implementing an effective transformation process, developing partnerships, and building management capacity because it had to transform 22 agencies into one department. Second, DHS faced a broad array of operational and management challenges that it inherited from its component legacy agencies. Finally, DHS's failure to effectively address its management challenges and program risks could have serious consequences for our national security. Overall, DHS has made some progress, but significant management challenges remain to transform DHS into a more efficient organization while maintaining and improving its effectiveness in securing the homeland. The experience of successful transformations and change management initiatives in large public and private organizations suggests that it can take 5-7 years until such initiatives are fully implemented and cultures are transformed in a substantial manner. Further, some management challenges at ICE and CBP might be affected by department-wide management initiatives. The management challenges of the DHS transformation create additional challenges for its components, including ICE and CBP, such as: Providing focus for management efforts: Although DHS has been operating about 2 years, it has had two Secretaries, three Deputy Secretaries, and additional turnover at the Undersecretary and Assistant Secretary levels. The recent turnover in DHS's top leadership raises questions about the department's ability to provide the consistent and sustained senior leadership necessary to achieve integration over the long term. Monitoring transformation and integration: DHS's integration of varied management processes, systems, and people--in areas such as information technology, financial management, procurement, and human capital------as well as administrative services is important to provide support for the total integration of the department. Total integration of the department, including its operations and programs, is critical to ultimately meeting its mission of protecting the homeland. Overall, we found that while DHS has made some progress in its management integration efforts, it has the opportunity to better leverage this progress by implementing a comprehensive and sustained approach to its overall integration efforts. Improving strategic planning: DHS released its first strategic plan in 2004 that details its mission and strategic goals. DHS's strategic plan addresses five of the six GPRA-required elements--a mission statement, long-term goals, strategies to achieve the goals, external key factors, and program evaluations--but does not describe the relationship between annual and long-term goals. Managing human capital: DHS has been given significant authority to design a new human capital system free from many of the government's existing civil service requirements, and has issued final regulations for this new system. Although we reported the department's efforts generally reflected important elements of effective transformations and included many principles that are consistent with proven approaches to strategic human capital management, DHS has considerable work ahead to define the details of the implementation of the system. Strengthening financial management infrastructure: DHS faces significant financial management challenges. Specifically, it must address numerous internal control weaknesses, meet the mandates of the DHS Financial Accountability Act, and integrate and modernize its financial management systems, which individually have problems and collectively are not compatible with one another. In July 2004, we reported that DHS continues to work to reduce the number of financial management service providers and to acquire and deploy an integrated financial enterprise solution. Establishing an information technology framework: DHS has recognized the need for a strategic management framework that addresses key information technology disciplines, and has made a significant effort to make improvements in each of these disciplines. However, much remains to be accomplished before it will have fully established a department-wide information technology management framework. To fully develop and institutionalize the management framework, DHS will need to strengthen strategic planning, develop the enterprise architecture, improve management of systems development and acquisition, and strengthen security. Managing acquisitions: DHS faces the challenge of structuring its acquisition organization so that its various procurement organizations are held accountable for complying with procurement policies and regulations and ensuring that taxpayer dollars are well-spent. Coordinating research and development: DHS has not yet completed a strategic plan to identify priorities, goals, objectives, and policies for the research and development of homeland security technologies, and additional challenges remain in its coordination with other federal agencies. Despite real and hard-earned progress, DHS still has significant challenges to overcome in all of its management areas. Resolving these challenges at the top levels could help address similar management challenges in DHS's component organizations including ICE and CBP. In closing, it is important to understand the expectations and limitations of various proposals to address management challenges at ICE and CBP that we and others have identified. With respect to potential restructuring, reorganizing an agency or function to better align it with the mission and strategic planning process is desirable, whereas reorganizing mainly to address underlying weaknesses in supporting systems and processes, such as a lack of coordination and cooperation among units or a lack of guidance relating to operational activities, might not be productive. As we have seen to date, reorganizing immigration and customs functions, without fixing existing problems with underlying systems and processes, has not resolved long-standing management issues. In addition, ICE and CBP may not be able to resolve some of these challenges alone if they are affected by DHS department-wide management initiatives and developments. To assist the Congress in its oversight and in ensuring accountability in homeland security programs, we will continue to monitor and evaluate ICE and CBP programs as they meet, and hopefully overcome, their management challenges. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other members of the Subcommittee may have at this time. For further information about this testimony, please contact Richard Stana at 202-512-8777. Other key contributors to this statement were Stephen L. Caldwell, Lisa Brown, Mary Catherine Hult, Lori Kmetz, Sarah E. Veale, and Katherine Davis. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Homeland Security (DHS) assumed responsibility for the immigration programs of the former Immigration and Naturalization Service (INS) in 2003. The three DHS bureaus with primary responsibility for immigration functions are U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), and U.S. Citizenship and Immigration Services (CIS). This testimony focuses on CBP and ICE, which took over the immigration enforcement function. CBP is responsible for functions related to inspections and border patrol, and ICE is responsible for functions related to investigations, intelligence, detention, and removal. The Subcommittee on Immigration, Border Security, and Claims, House Committee on the Judiciary, held a hearing to discuss management challenges and potential structural changes. Some research organizations have suggested structural changes to address management challenges, including a merger of CBP and ICE. This testimony addresses the following questions: (1) Have ICE and CBP encountered similar management challenges to those encountered at INS? (2) What factors might be considered in addressing some of the management challenges that exist at ICE and CBP? A number of similar management challenges that had been experienced by INS have continued in the new organizations now responsible for immigration enforcement functions. In 2001, GAO testified that, while restructuring may help address certain management challenges, INS faced significant challenges in assembling the basic systems and processes that any organization needs to accomplish its mission. These include clearly delineated roles and responsibilities, policies and procedures that effectively balance competing priorities, effective internal and external communications and coordination, and automation systems that provide accurate and timely information. In March 2003, the functions of the INS were transferred to the new DHS and placed in the newly-created ICE and CBP. In 2004, we reported that many similar management challenges we found at INS were still in existence in the new bureaus. In evaluating solutions to ICE and CBP management challenges, including potential structural changes, several factors might be considered. The first factor is whether ICE and CBP currently have good management frameworks in place. Such a management framework, among other items, would include a clear mission, a strategic planning process, good organizational alignment, performance measures, and leadership and accountability mechanisms. The second factor is whether ICE and CBP have developed systems and processes to support the management frameworks they may have in place. The third factor is that the management challenges in these two bureaus exist in the larger context of the creation and evolution of DHS. The transformation and integration activities at DHS can take 5-7 years to accomplish, and some management challenges might be resolved in this process.
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U.S. critical infrastructure is made of systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on national security, economic security, national public health or safety, or any combination of these matters. Critical infrastructure includes, among other things, banking and financing institutions, telecommunications networks, and energy production and transmission facilities, most of which are owned and operated by the private sector. Sector-specific agencies (SSA) are federal departments or agencies with responsibility for providing institutional knowledge and specialized expertise as well as leading, facilitating, or supporting the security and resilience programs and associated activities of their designated critical infrastructure sector in the all-hazards environment. Threats to systems supporting critical infrastructure and federal information systems are evolving and growing. Risks to cyber-based assets can originate from unintentional and intentional threats. Unintentional or non-adversarial threat sources include failures in equipment, software coding errors, or resource depletion, such as accidental actions of employees. They also include natural disasters and failures of critical infrastructure on which the organization depends but are outside of its control. Intentional threats include both targeted and untargeted attacks from a variety of sources, including criminal groups, hackers, disgruntled employees, foreign nations engaged in espionage and information warfare, and terrorists. These threat adversaries vary in terms of the capabilities of the actors, their willingness to act, and their motives, which can include seeking monetary gain or pursuing an economic, political, or military advantage. Table 1 describes the sources of cyber-based threats in more detail. Cyber threat adversaries make use of various techniques, tactics, and practices--or exploits--to adversely affect an organization's computers, software, or networks, or to intercept or steal valuable or sensitive information. These exploits are carried out through various conduits, including websites, e-mail, wireless and cellular communications, Internet protocols, portable media, and social media. Further, adversaries can leverage common computer software programs, such as Adobe Acrobat and Microsoft Office, to deliver a threat by embedding exploits within software files that can be activated when a user opens a file within its corresponding program. Table 2 provides descriptions of common exploits or techniques, tactics, and practices used by cyber adversaries. Because the private sector owns the majority of the nation's critical infrastructure--such as banking and financial institutions, commercial facilities, and energy production and transmission facilities--it is vital that the public and private sectors work together to protect these assets and systems. Toward this end, federal law and policy assign roles and responsibilities for agencies to assist the private sector in protecting critical infrastructure, including enhancing cybersecurity. Presidential Policy Directive 21 (PPD-21) assigns roles and responsibilities for the critical infrastructure sectors to the SSAs. The directive identified 16 critical infrastructure sectors and designated associated federal SSAs. Table 3 shows the 16 critical infrastructure sectors and the SSA for each sector. PPD-21 identified SSA roles and responsibilities to include collaborating with critical infrastructure owners and operators; independent regulatory agencies; and state, local, tribal, and territorial entities as appropriate, as well as providing, supporting, or facilitating technical assistance and consultations for their respective sectors to identify vulnerabilities and help mitigate incidents, as appropriate. Federal law and policy have also established roles and responsibilities for federal agencies to work with industry to enhance the cybersecurity of the nation's critical infrastructures. These include Executive Order 13636, the Cybersecurity Enhancement Act of 2014, and the National Infrastructure Protection Plan (NIPP). Executive Order 13636, Improving Critical Infrastructure Cybersecurity, issued in February 2013, outlines an action plan for improving security for critical cyber infrastructure. This includes, among other things, requirements for NIST to develop a voluntary critical infrastructure cybersecurity framework and performance measures. In developing the cybersecurity framework, NIST is to engage in an open public review and comment process. The order also directs SSAs, in consultation with DHS and other interested agencies, to review the cybersecurity framework and if necessary, develop implementation guidance or supplemental materials to address sector-specific risks and operating environments. The Cybersecurity Enhancement Act of 2014, enacted in December 2014, established requirements that are consistent with the order regarding NIST's development of a cybersecurity framework. NIST's responsibilities in developing the cybersecurity framework under this law include, among other things, identifying an approach that is performance-based, and cost-effective. In response to Executive Order 13636, NIST issued the Framework for Critical Infrastructure Cybersecurity in February 2014, which is intended to help organizations apply the principles and best practices of risk management to improving the security and resilience of critical infrastructure. The framework proposes a risk-based approach to managing cybersecurity risk and is composed of three parts: the framework core, the framework profile, and the framework implementation tiers. The framework core is a set of cybersecurity activities, outcomes, and informative references that are common across critical infrastructure sectors, which is to provide guidance for developing individual organization profiles. Through the use of profiles, the framework is intended to help organizations align their cybersecurity activities with business requirements, risk tolerances, and resources. The tiers provide a mechanism for organizations to view and understand the characteristics of their approach to managing cybersecurity risk. (Further information on the framework core is provided in app. II.) The NIPP defines the overarching approach for integrating the nation's critical infrastructure protection and resilience activities into a single national effort. DHS developed the NIPP in collaboration with public- and private-sector owners and operators and federal and nonfederal government representatives, including SSAs, from the critical infrastructure community. It details DHS's roles and responsibilities in protecting the nation's critical infrastructures and how sector stakeholders should use risk management principles to prioritize protection activities within and across sectors. It emphasizes the importance of collaboration, partnering, and voluntary information sharing among DHS and industry owners and operators, and state, local, and tribal governments. According to the NIPP, SSAs are to work with their private-sector counterparts to understand cyber risk and develop sector-specific plans that address the security of the sector's cyber and other assets and functions. The SSAs and their private-sector partners are to update their sector-specific plans based on DHS sector-specific plan guidance issued in 2014. NIST used several methods to obtain and incorporate stakeholder views when developing its cybersecurity framework. Respondents to our survey were generally satisfied with NIST's efforts and methods to develop the framework. Also, NIST met the requirements under Executive Order 13636 and the Cybersecurity Enhancement Act to develop an approach that can help critical infrastructure organizations manage cyber risk. Executive Order 13636, released in February 2013 required NIST to create a flexible performance-based cybersecurity framework that includes a set of standards, procedures, and processes that align policy, business, and technological approaches to address cyber risks. In addition, under the Cybersecurity Enhancement Act, enacted into law in December 2014, NIST is required to facilitate and support the development of a voluntary set of standards, guidelines, methodologies, and procedures to cost-effectively reduce cyber risks to critical infrastructure. In February 2014, NIST issued the Framework for Critical Infrastructure Cybersecurity. In developing the framework, NIST used several methods to obtain and incorporate the views of experts from government, industry, and academia. Specifically, it solicited public comments through formal "requests for information," held workshops with stakeholders to identify and develop elements of the framework, and published a draft version of the framework for further review and comment. Figure 1 summarizes the development of the framework. NIST began the collaboration process for developing the framework on February 26, 2013, when it issued a formal request for information in the Federal Register to seek comments regarding risk management practices, frameworks, standards, guidelines, and best practices. NIST received 246 unique comments in response to the request from organizations and individuals representing, among others, large companies, associations, sector coordinating councils, federal agencies, universities, and international companies. NIST analyzed the comments received to, among other things, identify common cybersecurity practices and methods to facilitate discussions on the development of the framework. After the initial request for information, NIST hosted six workshops at various locations across the country to drive the development of the framework. Workshop participants and attendees included critical infrastructure owners and operators, industry associations, individual companies, and government agencies. Table 4 summarizes the NIST workshops. At each workshop, NIST facilitated discussions with attendees and accepted industry input to collaboratively identify and develop standards and guidelines for the framework. Based on the input from the first four workshops, NIST prepared and published a preliminary draft of the framework for public review and comment following its fourth workshop. NIST analyzed responses to its request for information, conclusions from workshops, and stakeholder analysis to select components for the framework, such as identifying security common practices, principles, and approaches that supported the objectives of Executive Order 13636. To identify the framework components that reflected the comments received, NIST used input from volunteer industry stakeholders. These stakeholders helped to, among other things, evaluate common themes identified by NIST as well as cybersecurity areas that needed additional exploration to encourage industry engagement in the framework development process. After the initial draft was issued for comment, NIST held the fifth workshop to obtain further stakeholder input. Subsequently, NIST published its final draft of the framework in February 2014. Following issuance of the framework, on August 26, 2014, NIST issued a second request for information to seek comments on users' experience with the framework, as part of its efforts to promote use of the framework, and held an additional workshop to obtain information on how organizations learned about and used the framework. NIST received 57 unique comments in response to the second request for information from organizations and individuals that represented, among others, large companies, associations, and sector coordinating councils. In addition to the framework, NIST developed a roadmap to discuss future plans for the framework, which included identifying areas of improvement of the preliminary framework. To promote the use and adoption of the framework, NIST officials stated they plan to update the framework based on industry feedback and develop guidance on how organizations can use the framework to reduce cybersecurity risks. One of NIST's responsibilities under the Cybersecurity Enhancement Act was to incorporate industry input in the development of the standards and methodologies to manage cybersecurity risks for critical infrastructure. A majority of the 252 respondents to our survey indicated satisfaction with the mechanisms employed by NIST to develop the framework. For example, 186 of 251 respondents indicated that they were "very satisfied" or "satisfied" that NIST provided opportunities for them to provide feedback on the framework during its development process. Similarly, a majority (170 of 187) indicated the workshops hosted by NIST were "very" or "somewhat effective" in engaging industry involvement in development of the framework. Appendix III provides additional details on survey respondents' evaluations of NIST's collaborative approach to developing the framework. NIST implemented the requirements for development of a cybersecurity approach as required by Executive Order 13636 and the Cybersecurity Enhancement Act of 2014. Executive Order 13636 required NIST to develop among other things a flexible, repeatable, performance-based, and cost-effective approach to help owners and operators of critical infrastructure identify, assess, and manage cyber risk. In addition, NIST was to develop a set of standards that align policy, business, and technological approaches to address cyber risks. Similar to Executive Order 13636, the Cybersecurity Enhancement Act of 2014 authorizes NIST to, among other things, facilitate and support the development of a voluntary set of standards, guidelines, methodologies, and procedures to cost-effectively reduce cyber risks to critical infrastructure. In carrying out these activities, NIST is required to identify, among other things, a flexible, repeatable, performance-based, and cost- effective approach that can be voluntarily adopted to help identify, assess, and manage cyber risks. To ensure the framework could assist owners and operators with their cyber risk as called for by the executive order and the act, NIST created implementation tiers to allow organizations to determine their cybersecurity risks and identify processes that align to their business approaches to manage those risks. According to the framework, implementation tiers describe how cybersecurity risk is managed by an organization and the degree to which its risk management practices exhibit key characteristics defined in the framework. There are four tiers discussed in the framework, with each one building upon the previous tier: Partial (Tier 1), Risk Informed (Tier 2), Repeatable (Tier 3), and Adaptive (Tier 4). Further, based on our analysis, the framework supported and developed by NIST is intended to be: Flexible: The NIST framework can be modified to an organization's cybersecurity condition and needs. Its processes also provide for a flexible and risk-based implementation of the framework and can be used with a broad array of cybersecurity risk management processes. Repeatable: Under the framework, organizations are able to create a framework profile to compare their current cybersecurity state to their targeted state. This allows for identification and prioritization of improvement opportunities within the context of a continuous and repeatable process that can be assessed as the organization moves toward its targeted state. Performance-based: Organizations can use the framework implementation tiers to measure progress for managing cybersecurity risk. Specifically, the implementation tiers allow organizations to track their performance in managing cyber risks from an informal, reactive response to an approach that is agile and risk-informed. For example, in order to track performance, organizations are encouraged to identify their desired tier according to organizational goals and to progress to higher tiers to continue reducing cybersecurity risks. Cost-effective: The framework's implementation tiers can be used to allow organizations to evaluate their current cyber activities to determine if adoption of cybersecurity risk management practices was sufficient given their mission and regulatory requirements. Additionally, these tiers allow organizations to determine activities that are most important to their critical services, allowing them to prioritize expenditures to maximize the impact of their investment in cybersecurity. Further, in accordance with the executive order and the act, the framework is voluntary. The framework emphasizes that the information it contains is guidance for individual organizations to use to improve their cybersecurity posture. According to NIST, the implementation tier approach allows for organizations to determine activities that are most important to critical service delivery as well as prioritize expenditures to maximize the impact of their cybersecurity investment. DHS, SSAs, and NIST have promoted adoption and use of the cybersecurity framework by critical infrastructure owners and operators through a variety of methods. Specifically, DHS established a program, in accordance with Executive Order 13636, to encourage adoption of the framework and has taken a number of actions, including disseminating guidance and working with stakeholders to promote it. However, DHS is not measuring the effectiveness of these actions in order to evaluate the results of its activities and programs. For their part, SSAs for most sectors are developing tailored guidance for implementing the framework in their sectors, and NIST has promoted the framework through public events and its website. DHS, as required by Executive Order 13636, established the Critical Infrastructure Cyber Community (C) Voluntary Program in February 2014 to support the voluntary adoption of the framework. The program is intended to enhance critical infrastructure cybersecurity and encourage the adoption of the NIST framework. According to DHS C Voluntary Program has framework promotion actions broken out into three phases. Phase 1 is focused on outreach and building awareness of the framework. Phase 2, which was initiated in 2015, involves entity capability building, where DHS promotes the framework to specific types of entities, such as academia, business, and state governments, and highlighting resources to assist in implementing the framework from DHS, other federal agencies, and the private sector. Phase 3 is to facilitate the creation of communities of interest around critical infrastructure cybersecurity. To promote awareness of the framework during phase 1, DHS launched a website with guidance and links to resources to assist critical infrastructure organizations interested in implementing the framework. DHS also developed a webinar series in January 2015 to provide organizations additional resources for addressing and improving cybersecurity risk management practices. Several past webinars are available on demand on the website. DHS Cstated that they specifically targeted promotional efforts to entities identified as having nationally critical assets. According to officials, as of October 1, 2015, the C Voluntary Program had held 256 briefings since November 2013. For phase 2, which began in 2015, DHS C these included resources for academia; business (large, midsize, and small); federal government; and state, local, tribal and territorial governments. For example, to assist in identifying cyber resilience and practices, DHS points to its cyber resiliency review. According to officials, as of October 1, 2015, the resiliency review had been downloaded from the site over 6,500 times. Further, to assist with cybersecurity incident detection, DHS identified the Cyber Information Sharing and Collaboration Program, which is intended to share incident information. The C Voluntary Program also developed a Small and Midsize Business Toolkit, which contains a number of resources to help entities recognize and address cybersecurity risks, including information for startups and a guide to free tools intended to provide cybersecurity assistance. The toolkit, which was posted on the program's website in May 2015, had received over 2,000 downloads as of October 1, 2015, according to officials. Among the respondents to our survey who indicated that the Cresponses out of 112 responding to the question indicated that the C Voluntary Program promotional activities were "very" or "somewhat" effective in encouraging the use of the framework. DHS C Voluntary Program was assisting SSAs and 10 sectors in developing framework implementation guidance. According to DHS, sector-specific implementation guidance will provide each sector with a tailored approach on how to best use the framework within their industry and make it easier for organizations to (1) use the framework to secure themselves against cyber risk, (2) learn about available tools and resources and approaches that can support cybersecurity risk management and the framework, and (3) gain an understanding of how different sectors and industries are approaching cybersecurity risk management broadly. DHS C According to DHS officials, Phase 3, which is to facilitate the creation of communities of interest around DHS cybersecurity initiatives, began in 2015 and will continue into 2016. DHS officials stated that the intended outcome of this phase is to facilitate the development of self-sustaining communities by continuing to provide forums for information sharing among critical infrastructure owners and operators across the nation. DHS officials stated that phase 3 will be accomplished through a series of regional events, webinars, and development of new resources that promote information sharing and community building. Performance measurement involves identifying performance goals and measures, establishing performance baselines by tracking performance over time, identifying targets for improving performance, and measuring progress against those targets. As we have previously reported, according to leading practices in the federal government and in industry, organizations should measure performance in order to evaluate the success or failure of their activities and programs. In addition, the Standards for Internal Control in the Federal Government, known as the "Green Book," sets internal control standards for federal entities. Those standards state that internal control monitoring should occur and that the quality of performance over time should be assessed. DHS C Voluntary Program documentation identifies three metrics that align with program goals: (1) making resources accessible, (2) increasing participation by entities with the CHowever, none of these metrics indicate the effectiveness of the program's efforts to promote adoption of the framework, and program officials are not otherwise measuring or tracking how effective those efforts or materials are in encouraging individuals and organizations to voluntarily adopt the framework. For example, they are not tracking what percentage of an individual sector they have promoted to or how effective their efforts and guidance are at encouraging the use of the framework by entities within a critical infrastructure sector. According to DHS C Voluntary Program officials, they have not established these metrics or monitoring mechanisms because DHS has focused on getting as much information and resources out as possible. However, without understanding whether its promotional efforts are effective, the C Voluntary Program and NIST personnel or resources, speaking at industry conferences, and providing information during sector coordinating council meetings. For example, within the water sector, the Environmental Protection Agency (EPA) and the sector coordinating council are working to understand how entities within the sector are managing risk, including using the framework. Specifically, EPA is supporting the council by providing contractor and subject matter expert support as the council develops metrics and administers a survey to the sector through 2016. EPA officials stated that once the sector coordinating council receives and analyzes the information received from the survey, it will provide the information to EPA. Another example is the transportation systems sector, where DHS, as the co-SSA, held several promotional activities for Cybersecurity Month in October 2015. Respondents to our survey who indicated that their SSA promoted use of the framework stated that they were usually encouraged to use the framework as a result. Specifically, 60 of the 82 respondents who responded to that question indicated that SSA promotional activities were "very" or "somewhat" effective in encouraging the use of the framework. In addition, most SSAs have determined whether to develop framework implementation guidance to address sector-specific risks and operating environments for their sector. Executive Order 13636 requires SSAs to determine whether or not it is necessary for their sector to develop sector- specific framework implementation guidance, and SSAs for 15 of the 16 sectors had made this determination as of October 2015. Of the 15 sectors, 5 have completed and released framework implementation guidance. These framework implementation guides were created by SSAs, sector stakeholders, or a combination of both. For example, the energy sector was the first sector to produce implementation guidance, and the SSA worked with sector stakeholders to produce it. The health care and public health sector had a sector stakeholder provide a crosswalk between their risk framework and the NIST cybersecurity framework. HHS officials representing the health care and public health SSA stated that they are beginning an effort to create further implementation guidance for the sector's seven subsectors. Seven other sectors have begun drafting implementation guidance. According to officials, these sectors were finalizing their guidance and had involved their sector stakeholders to review it. For the food and agriculture sector, Department of Agriculture and Food and Drug Administration officials representing the SSAs for the sector stated that they had yet to begin drafting framework implementation guidance and were exploring the creation of sector guidance with their stakeholders. The Departments of Defense (DOD) and the Treasury, as SSAs for the defense industrial base and financial services sectors, respectively, decided not to create sector-specific framework implementation guidance. According to DOD officials representing the defense industrial base SSA, the department determined, after discussions with the defense industrial base sector coordinating council, that implementation guidance is not needed. The DOD officials stated that there was a consensus within the sector coordinating council that sector companies would voluntarily adopt the framework as they determined to be necessary. Treasury officials representing the SSA for the financial services sector stated that they determined, with input from the sector, that implementation guidance should not be created by Treasury as the financial services SSA. According to the Treasury officials this decision was made in cooperation with the financial services sector coordinating council, and they concluded that implementation guidance was not necessary due to the regulatory structure of the sector. DHS and the General Services Administration (GSA), which are the co- SSAs for the government facilities sector, have yet to determine if sector implementation guidance should be developed. A GSA official representing the SSA for the government facilities sector stated that there are metrics in the sector-specific plan that will allow GSA to gather information from the sector on its promotional and implementation needs and use that information to best meet the needs of the sector. According to DHS and GSA officials they are waiting until this information is gathered and assessed before discussing whether sector-specific implementation guidance will be needed. DHS and GSA officials do not have a specific time frame for when the information will be gathered or for when they will make a decision. Without a decision by DHS and GSA under Executive Order 13636 whether guidance is needed to address sector-specific risks and operating environments, implementation of the framework in the government facilities sector may be hindered. Although not specifically required to by Executive Order 13636 or the Cybersecurity Enhancement Act of 2014, NIST has continued its efforts to promote the framework. NIST encouraged the use of the framework at workshops and public events it hosted and updated its website to provide information on upcoming events and resources related to the framework. Specifically, NIST's website for the framework (www.nist.gov/cyberframework) provides a list of publically available resources to assist entities interested in using the framework. The website includes guidance and tools created by federal and private sector entities for implementing the framework. NIST encourages entities to submit publically available framework implementation guidance that they create so that NIST can provide information about it with the other guidance and tools already highlighted. The website also lists upcoming events where NIST officials will provide framework information and perspectives. Past speaking events from across the country are also listed with links to the event webpage and in some cases the NIST presentation slides. Respondents to our survey who indicated they had been promoted to by NIST noted that they were encouraged to use the framework as a result. Specifically, 102 responses out of 132 indicated that NIST promotional activities were "very" or "somewhat" effective in encouraging the use of the framework. Additionally, NIST officials stated they are following implementation of the framework, and a section on the NIST website is dedicated to accounts from entities of how they have implemented the framework. As of October 2015, the section listed an Intel use case for framework implementation and a link to a podcast on how the University of Pittsburgh is using the framework. NIST officials added that they are seeking feedback on the framework. Specifically, officials stated that they are researching how organizations are applying the framework methodologies, what value they are obtaining from the framework, and what challenges they are facing in implementing the framework. NIST officials stated they are currently focused on the overall effectiveness of the framework for the benefit of those using it to improve future versions. They further stated that they continue to ask stakeholders when an appropriate time to update the framework would be. To solicit this feedback, officials stated that they are asking individuals attending NIST presentations and may issue a request for information through the Federal Register regarding whether or not the critical infrastructure community believes that it is necessary to begin updating the framework. NIST has generally fulfilled its requirements, established in Executive Order 13636 and the Cybersecurity Enhancement Act, to develop a cybersecurity framework for adoption by critical infrastructure sectors. By using a collaborative process for developing the framework, NIST has helped ensure that the resulting guidance, standards, and methodologies, if effectively implemented, can help cost-effectively reduce cyber risks to critical infrastructure. To facilitate the voluntary adoption of the framework by critical infrastructure owners and operators, DHS, sector-specific agencies, and NIST are taking a variety of actions. However, while DHS has established a program dedicated to encouraging the framework's adoption, without establishing metrics to assess the effectiveness of these efforts, it has less assurance that it is meeting its objectives. In addition, while most SSAs have determined the need for sector-specific guidance to implement the framework, DHS and GSA have yet to meet this requirement for the government facilities sector, which may hinder adoption of the framework in this sector. To better facilitate adoption of the NIST Framework for Improving Critical Infrastructure Cybersecurity, we are making the following recommendations: We recommend that the Secretary of Homeland Security direct officials responsible for the Critical Infrastructure Cyber Community Voluntary Program to develop metrics for measuring the effectiveness of efforts to promote and support the framework. We also recommend that the Secretary of Homeland Security and the Administrator of GSA set a time frame for determining the need for sector-specific guidance to implement the framework in the government facilities sector. We provided a draft of this report to the Departments of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Transportation, and the Treasury and to GSA and EPA. In written comments signed by the Director, Departmental GAO-OIG Liaison Office (reprinted in app. IV), DHS concurred with our two recommendations. DHS agreed with the need to further refine and mature metrics for measuring the effectiveness of efforts to promote and support the framework. DHS also provided details about efforts to track output metrics addressing the CIn addition, officials from the Departments of Commerce, Health and Human Services, and Homeland Security provided technical comments via e-mail that have been addressed in this report as appropriate. The Departments of Agriculture, Defense, Energy, Transportation, and the Treasury and EPA responded via e-email that they had no comment on the report. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Transportation, and the Treasury; the Administrators of the Environmental Protection Agency and General Services Administration; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6244 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. The objectives of our review were to determine the extent to which (1) the National Institute of Standards and Technology (NIST) facilitated the development of voluntary standards and procedures to reduce cyber risks to critical infrastructure, and (2) federal agencies promote the standards and procedures to reduce cyber risks to critical infrastructure. To determine how NIST facilitated the development of voluntary standards and procedures for critical infrastructure, we reviewed and analyzed the actions taken by NIST to develop its Framework for Improving Critical Infrastructure Cybersecurity. In addition, we analyzed Executive Order 13636, issued in February 2013, and the Cybersecurity Enhancement Act of 2014, enacted in December 2014, to identify key NIST responsibilities for developing a cybersecurity framework. We analyzed documents and performed interviews with NIST officials to assess its collaborative efforts with industry stakeholders in soliciting input in the development of the framework, including workshops it hosted and the website it set up to disseminate updates on the framework. Specifically, we reviewed documentation and videos of the six workshops hosted by NIST intended to obtain industry, academia, and government representative feedback in the development of the framework, in addition to NIST's two requests for information to the public for input on cybersecurity standards and methodologies. We also analyzed the resulting framework to assess whether NIST had fulfilled its responsibilities under law. Additionally, to address this objective, we conducted a web-based survey of individuals who (1) provided written comments with contact information in response to a NIST request for information notice or (2) registered for at least one of the workshops hosted by NIST to develop the framework. There were 2,082 individuals in the population that we targeted, and to make the survey as inclusive as possible we sent the survey request to all of them. The questionnaire included questions about the effectiveness of NIST's collaborative efforts in fulfilling requirements to develop the framework using an open and public comment process. To minimize errors arising from differences in how questions might be interpreted and to reduce variability in responses that should be qualitatively the same, we conducted pretests with critical infrastructure representatives over the telephone. Based on feedback from these pretests, we revised the questionnaire to improve the clarity of the questions. An independent survey specialist within GAO also reviewed a draft of the questionnaire prior to its administration. After completing the pretests, we administered the survey to the NIST workshop attendees and request for information respondents on August 10, 2015, notifying them that our online questionnaire would be activated within a couple of days. On August 18, 2015, we sent a second e-mail message to these individuals, informing them that the questionnaire was available online and providing them with unique passwords and usernames. We collected responses through August 24, 2015. We were able to obtain 252 completed questionnaires, a 12 percent response rate, in the time available for survey fieldwork. Because we do not know if the answers that nonrespondents would have given would materially differ from those that did respond, our results can only represent the views of those who did respond. Their views are not generalizable to the registrant and respondent population as a whole. To address our second objective, we reviewed and analyzed actions and documentation related to promoting the framework by the nine sector- specific agencies (SSAs) responsible for the 16 critical infrastructure sectors established in Presidential Policy Directive-21, including the Department of Homeland Security (DHS), and NIST. For DHS, we analyzed agency documentation and the website of its Critical Infrastructure Cyber Community (C) Voluntary Program to identify the framework promotional guidance and tools provided to the critical infrastructure sectors. Also, we analyzed the metrics and information being used by the DHS CTo analyze NIST's promotional efforts, we analyzed documentation and interviewed relevant NIST officials. We reviewed the NIST framework website to understand how NIST was informing the public about its public events to promote the framework and presenting entities with guidance to implement the framework for other agencies, sectors, and third parties. In addition, we surveyed individuals who responded to NISTs requests for information and registered for one of the workshops hosted by NIST for the development of the framework to identify and evaluate the effectiveness of DHS, SSA, and NIST efforts to promote the framework. We also interviewed federal officials from DHS's C Voluntary Program, the nine SSAs representing the 16 critical infrastructure sectors, and NIST regarding their efforts to promote the framework and create sector- specific framework implementation guidance. We conducted this performance audit from February 2015 to December 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The National Institute of Standards and Technology (NIST) Framework for Improving Critical Infrastructure Cybersecurity is intended to help organizations apply the principles and best practices of risk management to improving the security and resilience of critical infrastructure. The framework proposes a risk-based approach to managing cybersecurity risk and is composed of three parts: the framework core, the framework profile, and the framework implementation tiers. The framework core includes a listing of functions, categories, subcategories, and informative references that describe specific cybersecurity activities the framework identified as common across all critical infrastructure sectors. According to NIST, the framework core represents a common set of activities for managing cybersecurity risk. The framework also states that while it is not exhaustive, it is extensible, allowing organizations, sectors, and other entities to use subcategories and informative references that are cost-effective and efficient and that enable them to manage their cybersecurity risk. Table 6 includes the five functions and 22 categories of the framework core, and Table 7 includes information for one of the categories, asset management, as described in the NIST framework and appendix A of the framework. The information presented here represents how each function has categories, subcategories, and informative references. For more information on the framework, framework core, and categories, see the NIST framework website at www.nist.gov/cyberframework. Table 7 provides an example of the subcategories and related informative references for a single category of the identify function: asset management. The following table presents selected questions and responses from our survey of registrants at the National Institute of Standards and Technology's (NIST) workshops for developing the NIST Framework for Improving Critical Infrastructure Cybersecurity and commenters who responded to NIST's request for information. There were 2,082 individuals in the population that we targeted, and to make the survey as inclusive as possible we sent the survey request to all of them. We obtained 252 completed questionnaires, a 12 percent response rate, in the time available for survey fieldwork. Because we do not know if the answers that nonrespondents would have given would materially differ from those that did respond, our results represent the views of those who did respond. They are not generalizable to the registrant and respondent population as a whole. Not all questions were applicable to or otherwise answered by the respondents to our survey. Our results represent those answering each specific question. In addition to the contact named above, Michael W. Gilmore, Assistant Director; Sher'rie Bacon; Wilfred Holloway; Lee McCracken; David Plocher; Carl Ramirez; and Jeffrey Woodward made key contributions to this report.
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U.S. critical infrastructures, such as financial institutions and communications networks, are systems and assets vital to national security, economic stability, and public health and safety. Systems supporting critical infrastructures face an evolving array of cyber-based threats. To better address cyber-related risks to critical infrastructure, federal law and policy called for NIST to develop a set of voluntary cybersecurity standards and procedures that can be adopted by industry to better protect critical cyber infrastructure. The Cybersecurity Enhancement Act of 2014 included provisions for GAO to review aspects of the cybersecurity standards and procedures developed by NIST. This report determines the extent to which (1) NIST facilitated the development of voluntary cybersecurity standards and procedures and (2) federal agencies promoted these standards and procedures. GAO examined NIST's efforts to develop standards, surveyed a non-generalizable sample of critical infrastructure stakeholders, reviewed agency documentation, and interviewed relevant officials. In accordance with requirements in a 2013 executive order which were enacted into law in 2014, the National Institute of Standards and Technology (NIST) facilitated the development of a set of voluntary standards and procedures for enhancing cybersecurity of critical infrastructure. This process, which involved stakeholders from the public and private sectors, resulted in NIST's Framework for Improving Critical Infrastructure Cybersecurity . The framework is to provide a flexible and risk-based approach for entities within the nation's 16 critical infrastructure sectors to protect their vital assets from cyber-based threats. To develop the framework in a collaborative manner, NIST solicited input from sector stakeholders through a formal request for information and conducted multiple workshops with critical infrastructure owners and operators, industry associations, government agencies, and other stakeholders. Participants GAO surveyed were generally satisfied with the approach NIST took to develop the framework. Further, the framework meets the requirements established in federal law that it be flexible, repeatable, performance-based, and cost-effective. For example, the framework contains multiple implementation "tiers," which allows it to be adapted to an organization's specific conditions and needs. Agencies with responsibilities for supporting protection efforts in critical infrastructure sectors (known as sector-specific agencies), and NIST have promoted and supported adoption of the cybersecurity framework in the critical infrastructure sectors. For example, the Department of Homeland Security (DHS) established the Critical Infrastructure Cyber Community Voluntary Program to encourage adoption of the framework and has undertaken multiple efforts as part of this program. These include developing guidance and tools that are intended to help sector entities use the framework. However, DHS has not developed metrics to measure the success of its activities and programs. Accordingly, DHS does not know if its efforts are effectively encouraging adoption of the framework. Sector-specific agencies have also promoted the framework in their sectors by, for example, presenting to meetings of sector stakeholders and holding other promotional events. In addition, all of the sector-specific agencies except for DHS and the General Services Administration (GSA), as co-SSAs for the government facilities sector, had decided whether or not to develop tailored framework implementation guidance for their sectors, as required by Executive Order 13636. Specifically, DHS and GSA had not yet set a time frame to determine whether sector-specific implementation guidance is needed for the government facilities sector. By not doing so, DHS and GSA may be hindering the adoption of the cybersecurity framework in this sector. GAO recommends that DHS develop metrics to assess the effectiveness of its framework promotion efforts. In addition, DHS and GSA should set a time frame to determine whether implementation guidance is needed for the government facilities sector. DHS and GSA concurred with the recommendations.
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Federal agencies are generally required to use full and open competition to award contracts, with certain exceptions. This requirement was established through CICA, which required agencies to obtain full and open competition through the use of competitive procedures in their procurement activities unless otherwise authorized by law. Using full and open competition to award contracts means that all responsible sources--or prospective contractors that meet certain criteria--are permitted to submit proposals. Agencies are generally required to perform acquisition planning and conduct market research to promote and provide for, among other things, full and open competition. However, Congress, by enacting CICA, also recognized that there are situations that require or allow for contracts to be awarded noncompetitively--that is, without full and open competition. Generally, noncompetitive contracts must be supported by written J&As that contain sufficient facts and rationale to justify the use of the specific exception to full and open competition that is being applied to the procurement. Examples of allowable exceptions include circumstances where the contractor is the only source capable of performing the requirement or where an urgent need precludes adequate time for competition. Justifications generally are required to be published on the FedBizOpps.gov website and must be approved at levels that vary according to the dollar value of the procurement. J&As may be made for an individual procurement or on a class basis for a group of related acquisitions. Noncompetitive contracts are not permitted in situations in which the requiring agency has failed to adequately plan for the procurement or in which there are concerns related to availability of funding for the agency, such as funds expiring at the end of the year. Although full and open competition is generally required, agencies can also competitively award contracts after limiting the pool of available contractors--a process called "full and open competition after exclusion of sources." For example, agencies set aside procurements for small businesses. In these cases, agencies are required to set aside procurements for competition among qualified small businesses if there is a reasonable expectation that two or more responsible small businesses will compete for the work and offer fair market prices. When agencies issue task orders under IDIQ contracts, they are required to follow different procedures than those for full and open competition. As established under the Federal Acquisition Streamlining Act (FASA) of 1994, IDIQ contracts can be single award (to one contractor) or multiple award (to more than one contractor through one solicitation), but FASA establishes a preference for multiple award contracts. Agencies are generally required to compete orders on multiple award contracts among all contract holders. However, agencies can award noncompetitive orders--through a process called an exception to a fair opportunity to be considered--for reasons similar to those used for awarding contracts without full and open competition, such as only one contractor being capable of providing the supplies or services needed, or for an urgent requirement. As with noncompetitive contracts, the reasons for issuing task orders under multiple award IDIQ contracts under an exception to the fair opportunity process must generally be documented in writing and approved at levels that vary according to the dollar value of the procurement. GSA, under its schedules program, awards IDIQ contracts to multiple vendors for commercially available goods and services, and federal agencies place orders under the contracts. Ordering procedures under the schedules program vary according to the dollar value of the procurement. For example, to meet competition requirements for orders exceeding the micro-purchase threshold ($3,000) but not exceeding the simplified acquisition threshold ($150,000), agencies must survey or request quotes from at least three schedule contractors. However, to meet competition requirements for proposed orders exceeding the simplified acquisition threshold, agencies must post a request for quotation on GSA's posting website or provide it to as many schedule contractors as practicable to reasonably ensure that agencies receive at least three quotes from contractors that can fulfill the requirement. Agencies must document in the file if fewer than three quotes are received from contractors capable of fulfilling the requirement. For orders issued noncompetitively under the schedules program, the ordering agency must justify in writing--with specific content required by the FAR--the need to restrict competition and also obtain approval at the same dollar values and by the same officials as for contracts awarded without full and open competition. Contracts that are awarded using competitive procedures but for which only one offer is received have recently gained attention as an area of concern. OMB's Office of Federal Procurement Policy recently noted that competitions that yield only one offer in response to a solicitation deprive agencies of the ability to consider alternative solutions in a reasoned and structured manner. Under DOD's Better Buying Power policy, competitive procurements where only one offer to a solicitation was received even when publicized under full and open competition are termed as "ineffective competition." The Navy has identified the potential for cost savings when effective competition is achieved. Specifically, in 2010, the Navy conducted a commodity study on the acquisition of information technology services that identified cost savings when more than one offer was received. Currently, FPDS-NG distinguishes these contracts by recording how many offers were received on any procurement. In fiscal year 2011, the competition rate for dollars obligated across DOD on contracts and task orders for non-R&D services was substantially higher than the competition rate for products--78 percent compared to 41 percent. R&D services had a competition rate of 59 percent. (See figure 1.) DOD's overall competition rate for all services and products was 58 percent. According to a DOD procurement policy official, non-R&D services may be more commercial in nature than products, so there are more providers available to compete for these contracts. In contrast, the official said that opportunities for competition for R&D services are limited because they are generally provided by a limited number of vendors, such as university research laboratories, which each have their own area of specialized expertise. From fiscal years 2007 through 2011, the rate at which non-R&D services were competed did not change significantly across DOD, the Army, or the Navy. Across DOD, competition rates went from 79 percent in 2007 to 78 percent in 2011. Among the major components, the Air Force had a significant decline, dropping from 75 percent to 59 percent. According to a DOD procurement policy official, the Air Force competition advocate is assessing the reasons for lower competition rates. Other defense agencies had a small increase in competition rates, from 85 percent to 89 percent. (See figure 2.) Competition rates for obligations on only new contracts and orders for non-R&D services across DOD over the same 5-year period exhibited the same general trend as for obligations on all non-R&D services contracts and orders, with two main exceptions. The competition rate for new actions at the Navy declined, from 76 percent to 71 percent, and the competition rate at other defense agencies increased significantly, from 78 percent to 91 percent. In fiscal year 2011, almost half of obligations for non-R&D services were made on new contracts and task orders awarded in that year. The remaining obligations were under contracts and task orders that had been awarded in prior years. We also examined competition rates for non-DOD agencies providing assisted acquisition services to DOD. These agencies are commonly referred to as assisting agencies. For example, in fiscal year 2011, Department of the Interior (Interior) and GSA contracting offices, among other agencies, obligated a total of $3.8 billion in DOD funds for non-R&D services. While the assisting agencies had varying competition rates, their average competition rate was slightly higher than that of DOD's contracting offices--81 percent compared to 78 percent. However, one non-DOD contracting office within Interior, which was among the assisting agencies with the highest DOD obligations, had a substantially lower competition rate for non-R&D services--51 percent. (See figure 3.) A DOD procurement policy official stated that the competition advocates do not currently track competition rates by assisting agencies as part of their overall competition assessments. Based on our analysis of FPDS-NG data, in fiscal year 2011 the majority of DOD's noncompetitive non-R&D services contracts and task orders were coded under the "only one responsible source" category. In addition, based on our prior work, a variety of factors can affect competition, including reliance on contractor expertise and data rights, the influence of program offices on the acquisition process, and unanticipated events such as bid protests. In fiscal year 2011, the majority of DOD's non-R&D services obligations under noncompetitive contracts and task orders not coded as subject to fair opportunity were coded under the competition exception "only one responsible source" in FPDS-NG. The second most cited exception was "authorized by statute." Together, these two exceptions comprised more than 80 percent of all obligations on noncompetitive contract actions.See figure 4 for obligations across competition exceptions for noncompetitive non-R&D services contracts and task orders not subject to fair opportunity. Major weapon systems programs have cited the "only one responsible source" exception to justify not competing large contract actions in class J&As. Under a class J&A, one justification supports not competing consolidated product and service requirements across DOD activities and multiple programs. In our review of J&As, we identified several examples where DOD cited the "only one responsible source" exception, including: The Air Force justified a $200.7 million noncompetitive contract under a class J&A to a subcontractor of one of its long-standing incumbent contractors for communication equipment and support services for an aircraft system. Market research indicated that the subcontractor was the only source of the equipment and services, and by eliminating pass-through costs associated with subcontracting the Air Force could save up to $66 million or 33 percent of the estimated contract value. The Army justified extending an $8.3 million task order noncompetitively for training and support services for soldiers going into and returning from overseas deployment following a decision to change the location where the services would be required under a planned follow-on competitive procurement. The J&A noted that planning for the follow-on contract had started in December 2009, but in late October 2010 the contracting office learned that all required support services would be fully transferred to other Army locations by December 2011. According to the J&A, officials noted that it would not be advantageous to pursue full and open competition for a 1-year service contract. Noncompetitive obligations categorized as "authorized by statute" include contracts that are authorized or required to be made through another agency or from a specified source, including awards under the HUBZone Act of 1997, the Veterans Benefit Act of 2003, and the Small Business Administration's 8(a) business development program. For example, the Defense Commissary Agency cited this exception for a noncompetitive contract for emergency repairs valued at $308,759 to a service disabled veteran-owned small business. The agency urgently needed to upgrade its computer room air conditioning and noted that the contractor had performed similar work in the past with excellent results. In addition, 5 percent of noncompetitive obligations on contracts and task orders not subject to fair opportunity were categorized under the "national security" exception, which is used when the disclosure of the agency's needs would compromise national security. This exception, however, is not to be used merely because the acquisition is classified or because access to classified matter is necessary. Task orders issued under multiple award contracts and coded as subject to the fair opportunity process represented only 12 percent of noncompetitive non-R&D services obligations in fiscal year 2011. Of the over $4 billion obligated under noncompetitive non-R&D task orders that were subject to the fair opportunity process, over 80 percent were coded under two exceptions to the fair opportunity process in FPDS-NG. Specifically, "follow-on action following competitive initial action" was cited for 46 percent of the obligations and "only one source" was cited for 36 percent. Agencies can noncompetitively award a logical follow-on to an order already issued under an IDIQ contract if all awardees were given a fair opportunity to be considered for the original order. In July 2010, we identified key factors affecting competition, including reliance on contractor expertise and proprietary data. Also, program officials can influence competition by expressing vendor preferences, planning acquisitions poorly, or specifying overly restrictive requirements. Unanticipated events such as bid protests or unforeseen requirements with time frames that preclude competition can also impact competition. We have previously reported that DOD needs access to technical data related to its weapon systems in order to help control costs and maintain flexibility in the acquisition and sustainment of those weapon systems. Technical data can enable the government to complete maintenance work in-house, as well as to competitively award acquisition and sustainment contracts. For contracts pertaining to DOD weapons programs, which can involve products as well as support services, the lack of access to proprietary technical data and a heavy reliance on specific contractors for expertise limit, or even preclude the possibility of, competition. Even when technical data are not an issue, the government may have little choice other than to rely on the contractors that were the original equipment manufacturers, and that, in some cases, designed and developed the weapon system. In our review of selected fiscal year 2011 J&As, we identified many instances where DOD lacked either the expertise or the technical data necessary to conduct a full and open competition. Two examples, which were justified under the "only one responsible source" competition exception, are: The Navy approved a class J&A for noncompetitive contract actions valued at $2.3 billion to acquire the next generation of aircraft along with supporting supplies and services. Officials noted that the contractor had been the sole designer, developer, and manufacturer of the system since 1964 and would not sell the government the technical data required to compete the acquisition. The Army justified a noncompetitive $455.3 million contract to remanufacture helicopters because the Army lacked the technical data and expertise necessary to compete the requirement. According to the J&A, although a related contract from the late 1980s allowed the government to have technical data packages suitable for competition, the data was never obtained. According to the J&A, the contractor's estimated cost for this data was nearly $4 billion. In approving the J&A, the senior procurement official noted, "I hope that all contracting activities can persistently monitor how to be more competitive, despite the noncompetitive positions we have gotten ourselves into over the years." In 2010, we reported that program officials play a significant role in the contracting process, particularly in developing requirements and interfacing with contractors. Program officials may put pressure on the contracting process to award contracts to a specific vendor without competition. Contracting officials have said that a program office may be comfortable with the incumbent contractor because a relationship had developed between the program office and the contractor, who understands the program requirements. Program officials pressure the contracting office to remain with that contractor, thus inhibiting competition. In one J&A we reviewed, the Office of Military Commissions expressed a strong preference for the incumbent contractor. Specifically, the office justified noncompetitively awarding a contract extension valued at up to $15 million for courtroom services at Guantanamo Bay, under the competition exception for expert services. According to the J&A, since 2007, the contractor representatives had become fully integrated members of the litigation teams. These services included handling and securing sensitive documents and protecting sensitive information in the courtroom. Given that the government did not expect to need these services for longer than a year, the government did not want to risk delays and inefficiencies in the trial process by bringing on a new contractor. In 2010, we also reported that, according to contracting officials, program officials are often insufficiently aware of the amount of time needed to complete acquisition planning, including performing market research, properly defining requirements, and allowing contractors time to respond to requests for proposals, which may hinder opportunities to increase competition. In 2011, we reported that program officials at civilian agencies may not know how long these key steps can take, and we have recommended that agencies establish time frames for when program officials should begin acquisition planning. Similarly, in one DOD J&A we reviewed, the Army justified awarding an $11.2 million noncompetitive bridge contract for mission support services at Ft. Bliss, Texas under the "only one responsible source" competition exception. Bridge contracts are typically short-term to avoid a lapse in service while the award of a follow- on contract is being planned or an awarded contract is being implemented. According to the J&A, this bridge contract was necessary after unexpected delays in the acquisition planning process for a planned competitive follow-on task order. The delays were due to, among other things, the program office changing managers multiple times and difficulties writing requirements that met the contracting officer's standards, conflicting end-of-year responsibilities for contracting office staff, and the senior procurement officials taking 6 months to approve the acquisition strategy. We have also previously reported that the government's requirements can influence the number of offers received under competitive solicitations if these requirements are written too restrictively. Contracting officials explained that it is challenging to identify program office requirements that are written so restrictively that they are geared toward the incumbent. These officials said that their technical backgrounds and having the assistance of technical staff in evaluating the requirements can help them determine whether the requirements can be broadened. They noted that if they lack technical expertise in the specific area, it is more difficult to question whether a statement of work is written too restrictively. Finally, we identified instances when unanticipated events stalled planned competition, leading to bridge contracts. Unforeseen events that can lead to bridge contracts include unexpected expansion of requirements and competitors filing bid protests of competitive follow-on contract awards. Of 111 J&As we reviewed, 18 were bridge contracts valued at a total of over $9 billion. Five of these bridge contracts were due to bid protests. Examples of bridge contracts due to unanticipated events include: DOD's TRICARE program justified negotiating noncompetitive options that extended the performance on each of the two existing TRICARE contracts for 1 year valued at $6.6 billion under the "only one responsible source" competition exception to provide managed care support services. According to the J&A, these options were necessary after unexpected delays in the acquisition process were triggered by protests at the agency level and to GAO of the prior competitive awards for these services. The extensions allowed TRICARE to compete a large follow-on contract while implementing recommendations stemming from the sustained GAO protest without disrupting the delivery of health care services to TRICARE beneficiaries. The U.S. Army Corps of Engineers justified a $22 million noncompetitive modification of an existing contract under the "only one responsible source" competition exception after learning of a major construction requirement in Afghanistan with little notice. As a result, current plans for prison construction already under way were unexpectedly expanded and had to be completed within a short time frame. According to the J&A, the only way to meet this time frame was to not compete a new contract. Officials noted that using the existing contract could save 30 days or more "off an almost unachievable schedule, making every single day saved absolutely critical." Since 2009, OMB and DOD have implemented efficiency initiatives related to competition--including actions to address some opportunities we previously identified. In July 2010, we reported that recent congressional actions to strengthen competition opportunities in major defense programs may take some time to demonstrate results. Additionally, we reported that OMB's efforts to reduce agencies' use of high-risk contract types may help agencies refocus and reenergize efforts to improve competition. Despite these actions, we identified additional opportunities to increase competition and we recommended that OMB take several actions--including emphasizing the role of program officials in influencing competition, taking steps to better understand the circumstances leading to only one offer on competitive contracts, and examining how competition advocates are appointed. OMB has taken steps to increase efficiency and enhance competition in government contracting, including responding to previous GAO recommendations and issuing guidance to DOD among other agencies. Recent initiatives include: In July 2009, OMB implemented an initiative to reduce obligations through new contracts in fiscal year 2010 by 10 percent in certain high-risk categories--including noncompetitive contracts and competitive procurements that only receive one offer. We recently reported on challenges with this initiative. In October 2009, OMB established initial guidelines to help chief acquisition officers and senior procurement executives evaluate the effectiveness of their agencies' competition practices and processes for selecting contract types. The Office of Federal Procurement Policy released new guidance with respect to competition in establishing GSA schedule blanket purchase agreements in December 2009 in response to our recommendation that OMB take greater advantage of the opportunities that competition provides under schedule blanket purchase agreements. GAO, Contract Management: Agencies Are Not Maximizing Opportunities for Competition or Savings under Blanket Purchase Agreements despite Significant Increase in Usage, GAO-09-792 (Washington, D.C.: Sept. 9, 2009). In March 2011, the FAR Council issued an interim rule (effective May 16, 2011), amending the FAR to implement section 863 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417. The interim rule establishes enhanced competition requirements for placing orders under multiple-award contracts, including schedule contracts, and competition requirements for the establishment and placement of orders under schedule blanket purchase agreements. It also restricts the circumstances when blanket purchase agreements may be established based on a limited-source justification. Pursuing open systems architecture and establishing rules for the acquisition of technical data rights; Seeking opportunities to increase the role of small businesses in defense marketplace competition and opportunities to compete multiple award IDIQ service contracts among small businesses; and Presenting a competitive strategy at each program milestone for defense acquisition programs. DOD has put particular emphasis on increasing "effective competition"--when more than one offer is received under a competitive solicitation--and has issued enhanced guidance for situations when competitive procedures are used but only one offer is received. Specifically, in November 2010 DOD issued a memorandum that requires contracting officers to provide additional time for contractors to respond to solicitations when only one offer is received, if less than 30 days was provided for the receipt of proposals under the original solicitation. In addition, if a solicitation allowed at least 30 days for receipt of offers and only one offer was received, the contracting officer must determine prices to be fair and reasonable through price or cost analysis or enter negotiations with the offeror. In addition, in July 2010, in response to our recommendations and as part of the Better Buying Power initiative, the Chairman of DOD's Panel on Contracting Integrity established a new subcommittee tasked with examining improvements for competitive opportunities and ways to be more effective at reducing single source buys. According to a DOD procurement policy official, the subcommittee is in the process of reviewing and responding to comments on the proposed rule on competitive procurements with only one offer, which is expected to be finalized in late spring 2012. DOD has also taken actions to enhance the competition advocate role, such as requiring each component or agency competition advocate to develop a plan to improve the overall rate of competition by at least two percent per year, and the rate of "effective competition" by at least 10 percent per year. DOD also holds quarterly meetings where competition advocates from the military services and other DOD agencies review the progress toward meeting competition procurement goals and discuss challenges and best practices. In December 2011, DOD issued a department-wide memorandum stating that DOD did not meet its fiscal year 2011 competition goals under the Better Buying Power initiative. DOD's competition advocate stated that the department is paying too much for products and services and that competition is the key to driving down prices. He urged the component competition advocates to continue to identify shortcomings in competitive procedures and to communicate new ideas with each other on how to implement and improve competition. The memorandum also outlines fiscal year 2012 competition goals for DOD overall as well as for individual departments and components. DOD does not establish separate goals for products and services. The fiscal year 2012 goal for DOD overall (60 percent) is lower than the fiscal year 2011 goal (62.8 percent). According to a DOD procurement policy official, competition goals for fiscal year 2012 were established based on actual competition rates over the past few years. During our previous work, DOD officials reported they have taken additional steps at the component level to enhance competition--such as efforts to educate and hold program officials accountable and additional review of individual contract actions under class J&As. In July 2010, we reported that the Navy has made competition training mandatory for personnel engaged in the acquisition process, including program managers, program executive officers and logistics personnel. In addition, in 2009 a senior Navy official told us that the Navy is following up with program managers who previously submitted J&As but stated that the requirement would be competed the next year to see if program managers are actually competing these requirements in the future. In January 2012, we reported that the Air Force revised its process for a recently approved national security class justification for an intelligence, surveillance, and reconnaissance program office, requiring individual contract actions over $85.5 million to be submitted to the Air Force senior procurement executive for expedited review. According to an Air Force General Counsel official, the Air Force has not yet determined what type of documentation will be required as part of that review, but it believes the increased review may identify additional opportunities for competition. We recommended that DOD evaluate the Air Force's new review process for national security exception actions under class justifications and implement a similar process across the department if it is found beneficial; DOD agreed with this recommendation. In addition to the recent actions DOD has taken, in July 2010, we identified other opportunities to increase competition across the federal government. These include emphasizing the role of program officials in influencing competition, better understanding the circumstances leading to only one offer on competitive contracts, and examining how competition advocates are appointed. We continue to track the agencies' progress in implementing these recommendations. We provided a draft of this report to DOD and the department responded that it had no comments. We are sending copies of this report to interested congressional committees and the Secretary of Defense. This report will also be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions about this report or need additional information, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff acknowledgments are provided in appendix III. The objectives for this review were to examine (1) how competition for non-research and development (R&D) services compares to competition for products, and trends in competition for non-R&D services at the Department of Defense (DOD); (2) the reasons for noncompetitive contracts and task orders for services; and (3) steps DOD has taken to increase competition for services. To address these objectives, we identified through the Federal Procurement Data System-Next Generation (FPDS-NG) DOD obligations under competitive and noncompetitive contracts in fiscal years 2007 through 2011, the most recent data available when we conducted our review. For competitive contract actions, we included contracts and orders coded as "full and open competition," "full and open after exclusion of sources," "competitive delivery order," and "competed under simplified acquisition procedures" as well as orders coded as subject to fair opportunity and as "fair opportunity given." For noncompetitive contract actions, we included contracts and orders coded as "not competed," "not available for competition," "not competed under simplified acquisition procedures," "follow-on to competed action," and "non-competitive delivery order" as well as orders coded as subject to fair opportunity and under an exception to fair opportunity, including "urgency," "only one source," "minimum guarantee," "follow-on action following competitive initial action," and "other statutory authority." In addition, we identified fiscal year 2011 obligations under contracts where more than one offer had been received. We calculated competition rates as the percentage of obligations on competitive contracts and orders over all obligations on contracts and orders. We focused our review on non-research and development (R&D) services to concentrate our analysis on contracts not related to development of weapons systems, but conducted limited analysis to understand competition rates for R&D services as compared to non-R&D services and to products, in fiscal year 2011. We also identified trends in competition rates for non-R&D services at DOD components from fiscal years 2007 through 2011. We assessed competition rates across the 23 non-R&D service categories in FPDS-NG as well as across DOD and non-DOD contracting organizations (those organizations that obligated funds for services on DOD's behalf in fiscal year 2011). We also examined the reasons cited in FPDS-NG for not competing DOD contracts and orders for services in fiscal year 2011. To do so, we selected and reviewed a non-generalizable sample of 111 justification and approval (J&A) and exception to fair opportunity documents to identify what circumstances led to the award of noncompetitive contracts and orders. While agencies are generally required to post J&As to the FedBizOpps.gov website, we did not assess whether the available data represented the full universe. We used a non-generalizable sample to provide illustrative examples of J&As, which was an appropriate approach to meet our reporting objective. The J&A documents we reviewed included: A selection of 77 documents provided by DOD components in response to our request for all justification and approval documents approved by the senior procurement executives in fiscal year 2011.Some of these documents were for a mix of products and services providing weapons system support. A selection of 34 DOD J&As posted on the FedBizOpps.gov website. We selected these to obtain a mix of J&As from: the non-R&D service categories with the highest obligations (Maintenance, Repair, and Rebuilding of Equipment, Professional, Administrative and Management Support, and Construction of Structures and Facilities); each major DOD component (Air Force, Army, Navy, and other Defense agencies); and approvals at various points throughout fiscal year 2011. In addition, we reviewed previous GAO reports, Office of Management and Budget and DOD policies and guidance, and DOD competition reports for fiscal years 2009 and 2010 to identify reasons for not competing contracts as well as actions that have been taken to improve competition at DOD. We also reviewed recent GAO interviews with DOD officials to identify barriers to competition as well as actions underway or planned for the future to improve competition. Interviews were conducted as part of previous work related to government-wide competition, national security competition exception, and acquisition planning. We conducted this performance audit from September 2011 to March 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In fiscal year 2011, competition rates varied significantly among the 23 non-R&D service categories in FPDS-NG--from 43 to 97 percent. Competition rates also varied among the three service categories with the highest obligations, which together made up over half of all non-R&D services obligations. See table 1. In fiscal year 2011, the major DOD components had varying competition rates for non-R&D services. The Air Force had the lowest overall competition rate (59 percent) while other defense agencies had the highest (89 percent). Effective competition--a subset of overall competition which DOD defines as competed actions that received more than one offer in response to a solicitation--rates also varied across the major components (52 percent at the Air Force to 82 percent at other defense agencies). The Navy had the highest percentage of competed actions with only one offer (16 percent). See figure 5 for competition percentages at each major DOD component. In addition to the contact names above, Michele Mackin, Acting Director; Alexandra Dew Silva; Peter Anderson; Georgeann Higgins; Julia Kennon; Jean McSween; Cary Russell; Kenneth Patton; Sylvia Schatz; Roxanna Sun; and Andrea Yohe made key contributions to this report.
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Competition is a critical tool for achieving the best return on investment for taxpayers. In fiscal year 2011, the Department of Defense (DOD) obligated about $375 billion through contracts; more than half that amount was for services. Agencies are required to award contracts on the basis of full and open competition, but are permitted to award noncompetitive contracts in certain situations. The Senate Armed Services Committee report on the National Defense Authorization Act for Fiscal Year 2012 directed GAO to report on competition for DOD contracts and task orders for services. GAO examined (1) how competition rates for services compare to competition rates for products and trends in competition for services, (2) the reasons for noncompetitive contracts and task orders for services, and (3) steps DOD has taken to increase competition. GAO reviewed federal procurement data for 2007 through 2011 and a non-generalizable sample of 111 justifications for noncompetitive awards, which were from different DOD components and for different types of services. GAO defines competition rates as the dollars obligated under competitive contracts and task orders as a percentage of all obligations. GAO focused on non-research and development (R&D) services to concentrate analysis on contracts not related to development of weapons systems. GAO reviewed DOD policies and competition reports, and prior GAO reports. GAO is not making any new recommendations. DOD responded to a draft of this report with no comments. In fiscal year 2011, the competition rate for DOD's non-R&D services was almost twice the competition rate as that of products, and almost 20 percent higher than that of R&D services. From fiscal year 2007 through 2011, competition rates for non-R&D services have been nearly 80 percent and have not changed significantly across DOD, but have declined at the Air Force, dropping from 75 percent to 59 percent. According to a DOD procurement policy official, the Air Force competition advocate is assessing the reasons for lower competition rates. When non-DOD agencies procured non-R&D services on behalf of DOD in fiscal year 2011, their average competition rate was 81 percent, slightly higher than the average rate of 78 percent for DOD's own contracting offices. The majority of DOD noncompetitive obligations for non-R&D services in fiscal year 2011 were due to the contractor being the only responsible source for the procurement. The second most cited exception was "authorized by statute," for example, awards under the Small Business Administration's 8(a) business development program. Based on prior GAO work, a variety of factors can affect competition, including reliance on contractor expertise and data rights, the influence of program offices, and unanticipated events such as bid protests. GAO analysis of the justifications for noncompetitive contracts identified examples of these factors affecting competition for DOD procurements in fiscal year 2011. Since 2009, the Office of Management and Budget (OMB) and DOD have undertaken initiatives related to competition, including actions to address some opportunities GAO previously identified. DOD has taken steps aimed at increasing competition, in particular "effective competition" which DOD defines as situations where more than one offer is received in response to a competitive solicitation. For instance, DOD has implemented requirements to provide additional response time to solicitations when only one offer is received for a solicitation that initially provided less than 30 days for receipt of proposals. Outside of recent efforts to increase competition, OMB and DOD have additional opportunities to address prior GAO recommendations--such as promoting the role of program officials in influencing competition and better understanding the circumstances leading to only one offer on competitive contracts.
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As you know, technology plays an important role in helping the federal government provide security for its many physical and information assets. Today, federal employees are issued a wide variety of identification (ID) cards, which are used to access federal buildings and facilities, sometimes solely on the basis of visual inspection by security personnel. These cards often cannot be used for other important identification purposes--such as gaining access to an agency's computer systems--and many can be easily forged or stolen and altered to permit access by unauthorized individuals. In general, the ease with which traditional ID cards--including credit cards--can be forged has contributed to increases in identity theft and related security and financial problems for both individuals and organizations. Smart cards can readily be tailored to meet the varying needs of federal agencies or to accommodate previously installed systems. For example, other media--such as magnetic stripes, bar codes, and optical memory (laser-readable) stripes--can be added to smart cards to support interactions with existing systems and services or to provide additional storage capacity. An agency that has been using magnetic stripe cards for access to certain facilities could migrate to smart cards that would work with both its existing magnetic stripe readers as well as new smart card readers. Of course, the functions provided by the card's magnetic stripe, which cannot process transactions, would be much more limited than those supported by the card's integrated circuit chip. Optical memory stripes (which are similar to the technology used in commercial compact discs) can be used to equip a card with a large memory capacity for storing more extensive data--such as color photos, multiple fingerprint images, or other digitized images--and for making that card and its stored data very difficult to counterfeit. Figure 1 shows a typical example of a smart card. Smart cards are grouped into two major classes: contact cards and "contactless" cards. Contact cards have gold-plated contacts that connect directly with the read/write heads of a smart card reader when the card is inserted into the device. Contactless cards contain an embedded antenna and work when the card is waved within the magnetic field of a card reader or terminal. Contactless cards are better suited for environments where quick interaction between the card and reader is required, such as high-volume physical access. For example, the Washington Metropolitan Area Transit Authority has deployed an automated fare collection system using contactless smart cards as a way of speeding patrons' access to the Washington, D.C., subway system. Smart cards can be configured to include both contact and contactless capabilities, but two separate interfaces are needed, because standards for the technologies are very different. Since the 1990s, the federal government has considered the use of smart card technology as one option for electronically improving security over buildings and computer systems. In 1996, OMB tasked GSA with taking the lead in facilitating a coordinated interagency management approach for the adoption of multiapplication smart cards across government. At the time, OMB envisioned broad adoption of smart card technology throughout the government, as evidenced by the President's budget for fiscal year 1998, which set a goal of enabling every federal employee ultimately to be able to use one smart card for a wide range of purposes, including travel, small purchases, and building access. In January 1998, the President's Management Council and the Electronic Processing Initiatives Committee (EPIC) established an implementation plan for smart cards that called for a governmentwide, multiapplication card that would support a range of functions--including controlling access to government buildings--and operate as part of a standardized system. More recently, the Enhanced Border Security and Visa Entry Reform Act of 2002 called for enhancing national security and counterterrorism efforts by using technologies such as smart cards that could provide biometric comparison and authentication to better identify individuals entering the country. In developing this testimony, our objectives were to explain the potential benefits of smart cards, to discuss the challenges to successful adoption of smart cards, and to discuss the steps that federal agencies have taken to address those challenges. To address these objectives, we obtained relevant documentation and interviewed officials from GSA and the Department of the Interior. We also analyzed agencies' accomplishments and planned activities to promote smart cards in light of the challenges to smart card adoption across the federal government that we identified in our January report. We performed our work between August 2003 and September 2003, in accordance with generally accepted auditing standards. The unique properties and capabilities of smart cards offer the potential to significantly improve the security of federal buildings, systems, data, and transactions. For example, the process of verifying the identity of people accessing federal buildings and computer systems, especially when used in combination with other technologies, such as biometrics, is significantly enhanced with the use of smart cards. Since 1998, multiple smart card projects have been launched in the federal government, addressing an array of capabilities and providing many tangible and intangible benefits, including enhancing security over buildings and other facilities, safeguarding computer systems and data, and conducting financial and nonfinancial transactions more accurately and efficiently. Other potential benefits and uses include creating electronic passenger lists for deploying military personnel and tracking immunization and other medical records. The advantage of smart cards--as opposed to cards with simpler technology, such as magnetic stripes or bar codes--is that smart cards can exchange data with other systems and process information rather than simply serving as static data repositories. By securely exchanging information, a smart card can help authenticate the identity of the individual possessing the card in a far more rigorous way than is possible with simpler, traditional ID cards. Even stronger authentication can be achieved if smart cards are used in conjunction with biometrics. Smart cards can be configured to store biometric information (such as fingerprints or iris scans) in electronic records that can be retrieved and compared with an individual's live biometric scan as a means of verifying that person's identity in a way that is difficult to circumvent. A system requiring users to present a smart card, enter a password, and verify a biometric scan provides what security experts call "three-factor" authentication, the three factors being "something you possess" (the smart card), "something you know" (the password), and "something you are" (the biometric). Systems employing three-factor authentication are considered to provide a relatively high level of security. As of November 2002, 18 agencies had reported initiating a total of 62 smart card projects in the federal government. In what could be the largest federally sponsored smart card rollout to date, the Department of Homeland Security's Transportation Security Administration (TSA) plans to issue smart ID cards to up to 15 million transportation workers who require unescorted access to secure parts of transportation venues, such as airports, seaports, and railroad terminals. TSA's goal is to create a standardized, universally recognized and accepted credential for the transportation industry. According to agency officials, the card is being designed to address a minimum set of requirements, but it will remain flexible enough to support additional requirements as needed. According to TSA's plans, local authorities will use the card to verify the identity and security level of the cardholder and will grant access to facilities in accordance with local security policies. In addition to Homeland Security, a number of other agencies have undertaken pilot projects to test the capabilities of smart cards. The Department of the Interior's Bureau of Land Management, for example, launched a pilot to provide smart cards to about 1,100 employees to be used for personal identification at the bureau's facilities and to serve as an example to communicate the benefits of smart cards to employees throughout the bureau. According to bureau officials, the project has been a success, and the bureau plans to continue the rollout of smart cards to its remaining employees. Other major smart card projects are also under way at the Departments of the Treasury and State. In addition to better securing physical access to facilities, smart cards can be used to enhance the security of an organization's computer systems by tightening what is known as "logical" access to systems and networks. A user wishing to log on to a computer system or network with controlled access must "prove" his or her identity to the system--a process called authentication. Many systems authenticate users by merely requiring them to enter secret passwords, which provide only modest security because they can be easily compromised. Substantially better user authentication can be achieved by supplementing passwords with smart cards. To gain access under this scenario, a user is prompted to insert a smart card into a reader attached to the computer as well as type in a password. This authentication process is significantly harder to circumvent, because an intruder would need not only to guess a user's password but also to possess the same user's smart card. Smart cards can also be used in conjunction with public key infrastructure (PKI) technology to better secure electronic messages and transactions. A properly implemented and maintained PKI can offer several important security services, including assurance that (1) the parties to an electronic transaction are really whom they claim to be, (2) the information has not been altered or shared with any unauthorized entity, and (3) neither party will be able to wrongfully deny taking part in the transaction. An essential component is the use of special pairs of encryption codes, called "public keys" and "private keys," that are unique to each user. The private keys must be kept secret and secure; however, storing and using private keys on a computer leaves them susceptible to attack, because a hacker who gains control of that computer may then be able to use the private key stored in it to fraudulently sign messages and conduct electronic transactions. In contrast, if the private key is stored on a user's smart card, it may be significantly less vulnerable to attack and compromise. Security experts generally agree that PKI technology is most effective when deployed in conjunction with smart cards. The largest smart card program currently in the implementation phase is the Department of Defense's Common Access Card, which is being used initially for logical access to automated systems and networks. Rollout began in October 2000 with a goal of distributing cards to approximately 4 million individuals across the department by October 2003. In addition to enabling access to specific Defense systems, the card is also used to better ensure that electronic messages are accessible only by designated recipients. The card includes a set of PKI credentials, including an encryption key, signing key, and digital certificate, which contains the user's public key. Defense plans to add biometrics to the Common Access Card in the future--which may include fingerprints, palm prints, iris scans, or facial features--and to enable users to digitally sign travel vouchers using the digital certificates on their cards. Defense also plans to add a contactless chip to the card in the future to speed physical access for military personnel to Defense facilities. The benefits of smart card adoption can be achieved only if key management and technical challenges are understood and met. While these challenges have slowed the adoption of smart card technology in past years, they may be less difficult in the future because of increased management concerns about securing federal facilities and information systems, and because technical advances have improved the capabilities and reduced the cost of smart card systems. Maintaining executive-level commitment is essential to implementing a smart card system effectively. For example, according to Defense officials, the formal mandate of the Deputy Secretary of Defense to implement a uniform, common access identification card across Defense was essential to getting a project as large as the Common Access Card initiative launched and funded. The Deputy Secretary also assigned roles and responsibilities to the military services and agencies and established a deadline for defining smart card requirements. Defense officials noted that without such executive-level support and clear direction, the smart card initiative likely would have encountered organizational resistance and concerns about cost that could have led to significant delays or cancellation. Treasury and TSA officials also indicated that sustained high-level support had been crucial in launching smart card initiatives within their organizations and that without this support, funding for such initiatives probably would not have been available. In contrast, other federal smart card pilot projects have been cancelled due to lack of executive-level support. Officials at the Department of Veterans Affairs (VA) indicated that their pilot VA Express smart card project, which issued cards to veterans for use in registering at VA hospitals, would probably not be expanded to full-scale implementation, largely because executive-level priorities had changed, and support for a wide-scale smart card project had not been sustained. Smart card implementation costs can be high, particularly if significant infrastructure modifications are required, or other technologies, such as biometrics and PKI, are being implemented in tandem with the cards. Key implementation activities that can be costly include managing contractors and card suppliers, developing systems and interfaces with existing personnel or credentialing systems, installing equipment and systems to distribute the cards, and training personnel to issue and use smart cards. As a result, agency officials have found that obtaining adequate resources is critical to implementing a major government smart card system. For example, at least $4.2 million was required to design, develop, and implement the Western Governors Association's Health Passport Project to service up to 30,000 customers of health care services in several western states. A report on that project acknowledged that it was complicated and costly to manage card issuance activities. The report further indicated that help-desk services were difficult to manage because of the number of organizations and outside retailers, as well as different systems and hardware involved in the project. Project officials said they expect costs to decrease as more clients are provided with smart cards and the technology becomes more familiar to users; they also believe that smart card benefits will exceed costs over the long term. The full cost of a smart card system can also be greater than originally anticipated because of the costs of related technologies, such as PKI. For example, Defense initially budgeted about $78 million for the Common Access Card program in 2000 and 2001 and expected to provide the device to about 4 million military, civilian, and contract employees by October 2003. It now expects to expend over $250 million by 2003--more than double the original estimate--and likely will not have all cards distributed until 2004. Many of the increases in Common Access Card program costs were attributed by Defense officials to underestimating the costs of upgrading and managing legacy systems and processes for card issuance. According to Defense program officials, the department will likely expend over $1 billion for its smart cards and PKI capabilities by 2005. In addition to the costs mentioned above, the military services and defense agencies were required to fund the purchase of over 2.5 million card readers and the middleware to make them work with existing computer applications, at a cost likely to exceed $93 million. The military services and defense agencies are also expected to provide funding to enable applications to interoperate with the PKI certificates loaded on the cards. Defense provided about $712 million to issue certificates to cardholders as part of the PKI program but provided no additional funding to enable applications. The ability of smart card systems to address both physical and logical (information systems) security means that unprecedented levels of cooperation may be required among internal organizations that often had not previously collaborated, especially physical security organizations and information technology organizations. Nearly all federal officials we interviewed noted that existing security practices and procedures varied significantly across organizational entities within their agencies and that changing each of these well-established processes and attempting to integrate them across the agency was a formidable challenge. Defense officials stated that it has been difficult to take advantage of the multiapplication capabilities of its Common Access Card for these very reasons. As it is being rolled out, the card is primarily being used for logical access--for helping to authenticate cardholders accessing systems and networks and for digitally signing electronic transactions using PKI. Officials have only recently begun to consider ways to use the Common Access Card across the department to better control physical access over military facilities. Few Defense facilities are currently using the card for this purpose. Defense officials said it had been difficult to persuade personnel responsible for the physical security of military facilities to establish new processes for smart cards and biometrics and to make significant changes to existing badge systems. In addition to the gap between physical and logical security organizations, the sheer number of separate and incompatible existing systems also adds to the challenge to establishing an integrated agencywide smart card system. One Treasury official, for example, noted that departmentwide initiatives, such as its planned smart card project, require the support of 14 different bureaus and services. Each of these entities has different systems and processes in place to control access to buildings, automated systems, and electronic transactions. Agreement could not always be reached on a single business process to address security requirements among these diverse entities. Interoperability is a key consideration in smart card deployment. The value of a smart card is greatly enhanced if it can be used with multiple systems at different agencies, and GSA has reported that virtually all agencies agree that interoperability at some level is critical to widespread adoption of smart cards across the government. However, achieving interoperability has been difficult, because smart card products and systems developed in the past have generally been incompatible in all but very rudimentary ways. With varying products available from many vendors, there has been no obvious choice for an interoperability standard. GSA considered the achievement of interoperability across card systems to be one of its main priorities in developing its Smart Access Common ID Card contract, which is intended to serve as a governmentwide vehicle for obtaining commercial smart card products and services. Accordingly, GSA designed the contract to require awardees to work with GSA and the National Institute of Standards and Technology (NIST) to develop a government interoperability specification. The resulting specification defines a uniform set of command and response messages for smart cards to use in communicating with card readers. Vendors can meet the specification by writing software for their cards that translates their unique command and response formats to the government standard. Such a specification previously had not been available. According to NIST officials, the first version of the interoperability specification, completed in August 2000, did not include sufficient detail to establish interoperability among vendors' disparate smart card products. The officials stated that this occurred because representatives from NIST, the contractors, and other federal agencies had only a very limited time to develop the first version. The current version, version 2.1, released in July 2003, is a significant improvement, providing better definitions of many details, such as how smart cards should exchange information with software applications and card readers, as well as a specification for contactless cards and accommodations for the future use of biometrics. However, potential interoperability issues may arise for those agencies that purchased and deployed smart card products based on the original specification. Although concerns about security are a key driver for the adoption of smart card technology in the federal government, the security of smart card systems is not foolproof and must be addressed when agencies plan the implementation of a smart card system. Smart cards can offer significantly enhanced control over access to buildings and systems, particularly when used in combination with other advanced technologies, such as PKI and biometrics. Although smart card systems are generally much harder to attack than traditional ID cards and password-protected systems, they are not invulnerable. In order to obtain the improved security services that smart cards offer, care must be taken to ensure that the cards and their supporting systems do not pose unacceptable security risks. Smart card systems generally are designed with a variety of features designed to thwart attack. For example, cards are assigned unique serial numbers to counter unauthorized duplication and contain integrated circuit chips that are resistant to tampering so that their information cannot be easily extracted and used. However, security experts point out that because a smart-card-based system involves many different discrete elements that cannot be physically controlled at all times by an organization's security personnel, there is at least a theoretically greater opportunity for malfeasance than would exist for a more self-contained system. In fact, a smart-card-based system involves many parties (the cardholders, data owner, computing devices, card issuer, card manufacturer, and software manufacturer) that potentially could pose threats to the system. For example, researchers have found ways to circumvent security measures and extract information from smart cards, and an individual cardholder could be motivated to attack his or her card in order to access and modify the stored data on the card--perhaps to change personal information or increase the cash value that may be stored on the card. Further, smart cards are connected to computing devices (such as agency networks, desktop and laptop computers, and automatic teller machines) through card readers that control the flow of data to and from the smart card. Attacks mounted on either the card readers or any of the attached computing systems could compromise the safeguards that are the goals of implementing a smart card system. Smart cards used to support multiple applications may introduce additional risks to the system. For example, if adequate care is not taken in designing and testing each software application, loading new applications onto existing cards could compromise the security of the other applications already stored on the cards. In general, guaranteeing the security of a multiapplication card can be more difficult because of the difficulty of determining which application is running inside a multiapplication smart card at any given time. If an application runs at an unauthorized time, it could gain unauthorized access to data intended only for other applications. In addition to security, protecting the privacy of personal information is a growing concern and must be addressed with regard to the personal information contained on smart cards. Once in place, smart-card-based systems designed simply to control access to facilities and systems could also be used to track the day-to-day activities of individuals, potentially compromising their privacy. Further, smart-card-based systems could be used to aggregate sensitive information about individuals for purposes other than those prompting the initial collection of the information, which could compromise privacy. The Privacy Act of 1974 requires the federal government to restrict the disclosure of personally identifiable records maintained by federal agencies, while permitting individuals access to their own records and the right to seek amendment of agency records that are inaccurate, irrelevant, untimely, or incomplete. Further, the E- Government Act of 2002 requires that agencies conduct privacy impact assessments before developing or procuring information technology that collects, maintains, or disseminates personally identifiable information. Accordingly, agency officials need to assess and plan for appropriate privacy measures when implementing smart-card-based systems and ensure that privacy impact assessments are conducted when required. GSA, NIST, and other agency officials indicated that security and privacy issues are challenging, because governmentwide policies have not yet been established, and widespread use of the technology has not yet occurred. As smart card projects evolve and are used more frequently, especially by citizens, agencies are increasingly likely to need policy guidance to ensure consistent and appropriate implementation that ensures an adequate degree of security as well as privacy. Given the significant management and technical challenges associated with successful adoption of smart cards, an ongoing series of initiatives have been undertaken in the federal government to facilitate the adoption of the technology. As I mentioned earlier, GSA was originally tasked in 1996 with coordinating an effort to adopt multiapplication smart cards across the federal government, and it has taken important steps to promote federal smart card use. For example, since 1998, GSA has worked with several other federal agencies to promote broad adoption of smart cards for authentication throughout the federal government. Specifically, GSA worked with the Department of the Navy to establish a technology demonstration center to showcase smart card technology and applications, and it established a smart card project managers' group and Government Smart Card Interagency Advisory Board. The agency also established an interagency team to plan for uniform federal access procedures, digital signatures, and other transactions, and to develop federal smart card interoperability and security guidelines. For many federal agencies, GSA's chief contribution to promoting federal adoption of smart cards was its effort in 2000 to develop a standard contracting vehicle for use by federal agencies in procuring commercial smart card products from vendors. Under the terms of the Smart Access Common ID Card contract, GSA, NIST, and the contract's awardees worked together to develop smart card interoperability guidelines-- including an architectural model, interface definitions, and standard data elements--that were intended to guarantee that all the products made available through the contract would be capable of working together. Several federal smart card projects--including projects at NASA and the Departments of Homeland Security, State, and the Treasury--have used or are planning to use the GSA contract vehicle. This effort is intended to directly address the challenge of achieving interoperability among smart card systems that I mentioned earlier. In our report issued earlier this year, we pointed out additional areas that are important for GSA to address in order to more effectively promote adoption of smart cards, including, among other things, implementing smart cards consistently throughout GSA and developing an agencywide position on the adoption of smart cards. We made recommendations to GSA to address these issues, and agency officials told us they have begun to address them. Specifically, GSA has adopted a new agencywide credential policy and consolidated its internal smart card projects within the Public Buildings Service. It is planning to roll out a uniform smart ID card for all GSA employees by December 2003. In our January report, we also recommended that OMB develop governmentwide policy guidance for adoption of smart cards, seeking input from all federal agencies, with particular emphasis on agencies with smart card expertise. We noted that without such guidance, agencies may be unnecessarily reluctant to take advantage of the potential of smart cards to enhance the security of agency facilities and automated systems. OMB has begun to take action to develop a framework of policy guidance for governmentwide smart card adoption. Specifically, on July 3, 2003, OMB's Administrator for E-Government and Information Technology issued a memorandum detailing specific actions the administration was taking to streamline authentication and identity management in the federal government. The memo sketched out a three-part initiative: First, OMB plans to develop common policy for authentication and identity management, including technical guidance to be developed by GSA and NIST, that will result in a comprehensive policy for credentialing federal employees. A newly established Federal Identity and Credentialing Committee is intended to collect agency input on policy and requirements and coordinate this effort. Second, OMB intends to execute a governmentwide acquisition of authentication technology, including smart cards, to achieve cost savings in the near term. The memo states that agencies are encouraged to refrain from making separate acquisitions without coordinating with the Federal Identity and Credentialing Committee. Finally OMB plans to consolidate agency investments in credentials and PKI services by selecting shared service providers by the end of 2003 and planning for agencies to migrate to those providers during fiscal years 2004 and 2005. Much work remains to be done to turn OMB's vision of streamlined federal credentialing into reality. According to GSA's smart cards program director, it will be difficult to reconcile the widely varying security requirements of federal agencies to arrive at a stable system design that all agencies can adhere to. Even with a new version of NIST's governmentwide smart card interoperability specification in place, agencies are still not in agreement about definitions for certain basic elements, because advances in technology create endless opportunities to change the specification. For example, the Department of Defense is currently seeking a change in the standard size of a smart card's embedded identifying code, to strengthen the card's internal security. However, implementing such a change may be very expensive for agencies already committed to the existing specification. While it is important to keep technical specifications up to date--and addressing security is a challenge that I've already noted--frequent changes in specifications could nevertheless slow progress in achieving a governmentwide solution. Given the trade-offs that must be considered, achieving governmentwide interoperability of smart cards could take longer than OMB's memorandum anticipates. In our January report, we recommended that NIST continue to improve and update the government smart card interoperability specification by addressing additional technologies--such as contactless cards, biometrics, and optical stripe media--as well as integration with PKI. As I discussed earlier, NIST recently issued version 2.1 of the specification, which includes as an appendix a specification for contactless cards, as well as accommodations for the future use of biometrics. NIST officials said they intend to continue working to improve the specification and plan to actively participate in the newly established Federal Identity and Credentialing Committee. Another potential difficulty in achieving OMB's vision of streamlined federal credentialing could be the need to reach consensus on policies for using smart-card-based systems. In our January report, we recommended that OMB issue governmentwide policy guidance regarding adoption of smart cards for secure access to physical and logical assets, and to do so in conjunction with federal agencies that have experience with smart card technology. According to the chair of the Federal Identity and Credentialing Committee, basic policy guidance on developing smart- card-based systems is being readied, based on work done at the Department of Homeland Security. However, additional guidance will also be needed to define minimum standards for the process of verifying individuals' identities when credentials are issued to them. According to the committee chair, it is likely that agencies currently have in place a wide variety of ways of performing identity verification, and it will be challenging to achieve consistency in how this is done across government. Without such consistency, agencies might not be able to rely on credentials issued by other agencies, because they would not know what level of assurance was met in issuing those credentials. In summary, the federal government has made progress in promoting the adoption of smart cards, which have clear benefits in enhancing security over access to buildings and other facilities as well as computer systems and networks. However, agencies continue to face a number of challenges in implementing smart-card-based systems, including sustaining executive level commitment, recognizing resource requirements, integrating physical and logical security practices, achieving interoperability, and maintaining system security and privacy of personal information. In July 2003, OMB took an important step in addressing these challenges by issuing new policy for streamlining authentication and identity management in the federal government. However, much work still needs to be done before credentialing systems that are interoperable and achieve consistent levels of assurance are commonplace across government agencies. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the subcommittee may have at this time. If you should have any questions about this testimony, please contact me at (202) 512-6222 or via E-mail at [email protected]. Other major contributors to this testimony included Barbara Collier, John de Ferrari, Steven Law, Elizabeth Roach, and Yvonne Vigil. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The federal government is increasingly interested in the use of smart cards--credit-card-like devices that use integrated circuit chips to store and process data--for improving the security of its many physical and information assets. Besides better authentication of the identities of people accessing buildings and computer systems, smart cards offer a number of potential benefits and uses, such as creating electronic passenger lists for deploying military personnel, and tracking immunization and other medical records. Earlier this year, GAO reported on the use of smart cards across the federal government (GAO-03-144). GAO was asked to testify on the results of this work, including the challenges to successful adoption of smart cards throughout the federal government, as well as the government's progress in promoting this smart card adoption. To successfully implement smart card systems, agency managers have faced a number of substantial challenges: sustaining executive-level commitment in the face of organizational resistance and cost concerns; obtaining adequate resources for projects that can require extensive modifications to technical infrastructures and software; integrating security practices across agencies, a task requiring collaboration among separate and dissimilar internal organizations; achieving smart card interoperability across the government; and maintaining the security of smart card systems and the privacy of personal information. These difficulties may be less formidable as management concerns about facility and information system security increase and as technical advances improve smart card capabilities and reduce costs. However, such challenges, which have slowed the adoption of this technology in the past, continue to be factors in smart card projects. Given the significant management and technical challenges associated with successful adoption of smart cards, a series of initiatives has been undertaken to facilitate the adoption of the technology. As the federal government's designated promoter of smart card technology, GSA assists agencies in assessing the potential of smart cards and in implementation. GSA has set up a governmentwide, standards-based contracting vehicle and has established interagency groups to work on procedures, standards, and guidelines. As the government's policymaker, OMB is beginning to develop a framework of policy guidance for governmentwide smart card adoption. In a July 2003 memorandum, OMB described a three-part initiative on authentication and identity management in the government, consisting of (1) developing common policy and technical guidance; (2) executing a governmentwide acquisition of authentication technology, including smart cards; and (3) selecting shared service providers for smart card technology. These efforts address the need for consistent, up-to-date standards and policy on smart cards, but both GSA and OMB still have much work to do before common credentialing systems can be successfully implemented across government agencies.
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The Air Force's manpower requirements are determined by individual major commands, using a number of methodologies, including manpower standards, logistical models, and crew ratios. Once approved by Air Force leadership, the results serve as the basis for authorizing military, civilian, and contractor positions in the Air Force and are entered into the Air Force's Manpower Data System. The Air Force's Directorate of Manpower and Organization designed the Total Force Assessment (TFA) process to assess whether the various methodologies used by the Air Force to determine manpower requirements generated sufficient manpower to accomplish two purposes: (1) meet deployment commitments should it be called on to fight two major theater wars and (2) conduct multiple small-scale contingency operations in peacetime. To assess whether the authorized manpower was adequate for the wartime scenario, the Air Force compared the authorized forces in the Manpower Data System to the deployment commitments demanded by the two major theater wars. It then calculated the effect of deploying these forces on the manpower needed to continue operations at existing airbases (i.e., in-place support forces). Demands for the deployment commitments were identified using troop deployment listsgenerated from war plans for conducting wars in Southwest and Northeast Asia. The requirements for in-place support forces were calculated using a model that adjusts manpower requirements to account for changes in the personnel needed to support ongoing Air Force operations when forces are deployed. Plans for assessing the adequacy of forces in peacetime were never finalized. The Air Force conducted only the wartime component of the assessment, not the component assessing the adequacy of its manpower in conducting multiple contingency operations in peacetime. Moreover, the wartime component of the assessment was stopped before all discrepancies were resolved and, as a result, it was not conclusive. The incompleteness and irregular timing of this and similar past assessments indicate that they have not been a high priority for the Air Force. The Total Force Assessment was not entirely implemented as planned, and as a result the Air Force cannot objectively demonstrate that it has the manpower needed to carry out the operations envisioned by DOD. Begun in May 2000, this effort was conducted, in part, to provide the Air Force with an overarching analysis of its personnel requirements in preparation for the 2001 Quadrennial Defense Review. It was to be completed by January 2001. However, as of January 2002, the Air Force had essentially completed its assessment of wartime requirements, but it had not yet begun its assessment of whether Air Force authorized personnel were sufficient to support contingency operations in peacetime. The peacetime analysis was important because it would demonstrate whether particular career fields might be overburdened in peacetime even if sufficient forces were available to meet the two-theater-war scenario. The results of the wartime analysis were somewhat inconclusive because the Air Force stopped work on the study before some discrepancies in the assessment's results were resolved. These discrepancies occurred because the process used for the study resulted in double counting some requirements, which in turn required the Air Force to manually review results for accuracy. Air Force officials told us they discontinued further work resolving discrepancies because Air Force leadership believed there was a strong likelihood that defense guidance would be changed from the two major theater war scenario to some other scenario. Such a change would have reduced the utility of any further efforts to produce more accurate results. At the time they stopped work, Air Force officials had concluded that results were about 90 percent accurate. According to Air Force officials, the leadership of the Air Force Directorate of Manpower and Organization believed that, at that point, the assessment results showed that forces were adequate to support the wartime scenario, and these results were subsequently briefed to the chief of staff of the Air Force. At the time of our review, Air Force officials still planned to conduct the peacetime analysis, but in view of the change in defense strategy they no longer plan to complete this portion of the current assessment. Instead, the Air Force plans to revamp the TFA process. Air Force officials advised us that in the future the TFA might be streamlined and shortened in duration since Air Force leadership believes that the current assessment is too time-consuming and manpower intensive. These officials said that they had proposed that the next TFA capitalize on the modeling that was used in the most recent Quadrennial Defense Review to test whether Air Force manpower is sufficient to meet a wide range of scenarios indicated by that review. Using this new approach, Air Force officials now anticipate completing a new iteration of TFA, covering the full spectrum of conflict, by December 2002. The incomplete implementation of the TFA reflects that, to some extent, the Air Force has not placed a high priority on achieving the goals of this type of assessment, as evidenced by the long interval experienced between assessments. A forerunner to Total Force Assessment, FORSIZE, was last completed in 1995--more than 6 years ago. No FORSIZE study was conducted in 1996 or 1997 because the analytical resources needed to conduct the assessment were devoted to the 1997 Quadrennial Defense Review instead. Planning for the most recent TFA began in 1999, but efforts were impeded by other changes the Air Force was undergoing, such as the recognition that the Air Force needed forces to conduct contingency operations as well as forces to meet the wartime scenarios, a need that then had to be incorporated in TFA's design. While these changes certainly complicated the Air Force analysis, such uncertainty and change have almost become constants within DOD. Doing without a regular, institutionalized process-- on the basis of inevitable complications--denies the Air Force's Directorate of Manpower and Organization a way to determine objectively whether it has the forces needed to carry out the defense strategy. The Air Force did not use the results from the assessment for all of the purposes it had envisioned. On the positive side, Air Force officials told us that TFA results had been useful in helping some functional managers discuss the health of their career fields in briefings to the chief of staff of the Air Force. For example, the Total Force Assessment showed that the number of active forces fell somewhat short of the numbers demanded for the wartime scenario, while the number of reserve forces exceeded demands. In some situations, functional managers were asked to consider making greater use of reserve forces if active forces were deemed insufficient. On the other hand, the Air Force did not use TFA results as anticipated to support changes in budget submissions or to influence day- to-day management of manpower assets. Officials also noted that TFA results were not used to reallocate forces among various functional managers to make the best use of available forces, although they noted that TFA was not designed to do this. As a result, TFA has not lived up to its full potential for assisting Air Force leadership in making manpower decisions that can lead to a more effective force. We believe there are two possible reasons why the Air Force did not use TFA results to the full extent expected. First, because implementation of TFA was incomplete, the results themselves are incomplete and thus may have been viewed as of limited value for supporting changes to the budget or in making day to day management decisions. For example, officials told us that, with the changes to defense guidance and deployment schedules, TFA results are now viewed as one more data source on which to base decisions. Second, because TFA has not been institutionalized and does not occur on a regular basis, its results may have been viewed as insufficient or not timely for these purposes; for example, the Air Force might not have been able to link TFA results to very formalized and regularly occurring systems like the budget. Because the Air Force cannot objectively demonstrate that it has the forces necessary to carry out the full spectrum of military operations envisioned in defense guidance, its operational risk in both wartime and peacetime may not be fully understood. Both the secretary of defense and the Congress need this information to effectively discharge their respective oversight responsibilities. Without an institutionalized process for assessing risk, which occurs on a regular basis, the Air Force has no way of knowing what mitigating actions might be warranted. On the positive side, the Air Force has identified other aspects of force management that could benefit from the results of a Total Force Assessment. However, it has not been able to capitalize on this potential because the results to date have been incomplete and irregularly obtained. By not placing a high enough priority on conducting a regularly occurring assessment and by underutilizing assessment results, the Air Force may be shortchanging itself in terms of achieving an appropriate force size and mix and in terms of fully developing the related funding requirements. To enable the Air Force to objectively demonstrate it has the forces necessary to support the spectrum of military operations envisioned in the defense strategy and to enhance force management processes, we recommend that the secretary of defense direct the secretary of the Air Force to institutionalize a Total Force Assessment process to be conducted on a regular basis with clearly articulated uses for its results. In commenting on a draft of this report, DOD concurred with our recommendation that the Air Force institutionalize TFA but took issue with some of the findings and analysis in our assessment. DOD's concerns center around whether the Air Force implemented TFA as planned and was able to establish its ability to carry out the full spectrum of missions envisioned by the defense strategy. Our assertion that the TFA was not implemented as planned is based on the fact that the chief of staff of the Air Force tasking letter that initiated TFA and the subsequent overarching guidance written by the Air Force specified an assessment of manpower requirements for both peacetime and wartime operations. At the time of our review, the Air Force had completed the wartime portion, but had not yet addressed peacetime operations. We understand, and noted in our report, that the Air Force now expects to complete a new iteration of TFA, covering the full spectrum of conflict, by December 2002. We endorse this effort and are hopeful that it reaches fruition. It does not alter the fact, however, that the fiscal year 1999 TFA was not fully implemented as planned, and that, lacking requirements for peacetime operations, it did not objectively establish the Air Force's ability to fully execute the defense guidance. DOD's comments also stress that the two major theater war portion of TFA was completed and briefed to the chief of staff of the Air Force and that the results showed that the Air Force had sufficient manpower to satisfy mission requirements. Our report acknowledges these facts. We noted, however, that the numbers resulting from the assessment were somewhat inconclusive and less useful than they might have been because work on the study was discontinued before all discrepancies were resolved. As stated in our report, Air Force officials estimated that final results were about 90 percent accurate. DOD's comments further questioned our conclusion that TFA had not capitalized as anticipated on the assessment's results, stating that the results of TFA were used widely for initiating taskings and making decisions. Our report does not indicate that TFA results were not used at all, only that its intended potential was not realized. We were unable to document the extent to which TFA was used for tasking and decision- making because the Air Force Directorate of Manpower and Organization did not produce a final report on TFA results, and it did not establish procedures for systematically tracking issues developed from TFA data and resulting actions to resolve them. Based on information provided by Air Force officials, we did acknowledge in our report that TFA results were used by functional managers to explore increasing the use of reserve forces to mitigate shortfalls in the active forces. However, during our review Air Force officials told us that TFA results would not be used for other purposes envisioned in the initial guidance written for TFA (e.g., supporting budget submissions and for day-to-day management of manpower assets). The department's written comments are presented in their entirety in appendix I. To evaluate whether the Air Force's Total Force Assessment demonstrated that forces are adequate to carry out the defense strategy, we reviewed Air Force policy, guidance, and documents used in planning and conducting the assessment from calendar year 1999 through 2001. We also reviewed the assessment's results and discussed these results with officials responsible for this analysis. These included representatives of the Air Force's Directorate of Manpower and Organization at the Pentagon; Air Force Manpower Readiness Flight at Fort Detrick, Maryland; and the Air Force Manpower and Innovation Agency in San Antonio, Texas. We also discussed the assessment's methodology and past assessments with these officials. We did not independently verify the underlying manpower- requirements system information that serves as the starting point for the Total Force Assessment. To determine how the Air Force used the assessment's results, we identified its anticipated uses and discussed with Air Force officials how these results were actually used. We conducted our review from July 2001 through January 2002, in accordance with generally accepted government audit standards. We obtained comments on a draft of this report from the Department of Defense and incorporated its comments where appropriate. We are sending copies of this report to the secretary of defense and the director, Office of Management and Budget. We will also make copies available to appropriate congressional committees and to other interested parties on request. If you or your staff has any questions about this report, please call me at (202) 512-3958. Major contributors to this report were Gwendolyn R. Jaffe, James K. Mahaffey, Norman L. Jessup, Jr., and Susan K. Woodward.
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The Air Force began to test the force requirements in its manpower requirements-determination process in May 2000. The defense strategy envisions simultaneously fighting two major theater wars and conducting multiple contingency operations in peacetime. The Total Force Assessment was the Air Force's first evaluation of manpower adequacy in these contexts since 1995. Because the Total Force Assessment was not implemented as planned, the Air Force cannot demonstrate that it has the forces needed to carry out the full spectrum of military operations. Although intended to examine whether authorized Air Force personnel were sufficient to meet both the wartime and peacetime scenarios, the assessment only addressed the wartime scenario and did not address the adequacy of manpower for conducting multiple contingency operations in peacetime. Air Force officials concluded that manpower was adequate to support the wartime scenario but this assessment was inconclusive because the effort was discontinued before all discrepancies in the assessment's results were resolved. Although the Air Force spent considerable time and effort conducting at least a portion of its planned assessment, it has not used the results to the extent anticipated.
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IRCA provided for sanctions against employers who do not follow the employment verification (Form I-9) process. Employers who fail to properly complete, retain, or present for inspection a Form I-9 may face civil or administrative fines ranging from $110 to $1,100 for each employee for whom the form was not properly completed, retained, or presented. Employers who knowingly hire or continue to employ unauthorized aliens may be fined from $275 to $11,000 for each employee, depending on whether the violation is a first or subsequent offense. Employers who engage in a pattern or practice of knowingly hiring or continuing to employ unauthorized aliens are subject to criminal penalties consisting of fines up to $3,000 per unauthorized employee and up to 6 months imprisonment for the entire pattern or practice. The Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 required INS and SSA to operate three voluntary pilot programs to test electronic means for employers to verify an employee's eligibility to work, one of which was the Basic Pilot Program. The Basic Pilot Program was designed to test whether pilot verification procedures could improve the existing employment verification process by reducing (1) false claims of U.S. citizenship and document fraud; (2) discrimination against employees; (3) violations of civil liberties and privacy; and (4) the burden on employers to verify employees' work eligibility. The Basic Pilot Program provides participating employers with an electronic method to verify their employees' work eligibility. Employers may participate voluntarily in the Basic Pilot Program, but are still required to complete Forms I-9 for all newly hired employees in accordance with IRCA. After completing the forms, these employers query the pilot program's automated system by entering employee information provided on the forms, such as name and social security number, into the pilot Web site within 3 days of the employees' hire date. The pilot program then electronically matches that information against information in SSA and, if necessary, DHS databases to determine whether the employee is eligible to work, as shown in figure 1. The Basic Pilot Program electronically notifies employers whether their employees' work authorization was confirmed. Those queries that the DHS automated check cannot confirm are referred to DHS immigration status verifiers who check employee information against information in other DHS databases. In cases when the pilot system cannot confirm an employee's work authorization status either through the automatic check or the check by an immigration status verifier, the system issues the employer a tentative nonconfirmation of the employee's work authorization status. In this case, the employers must notify the affected employees of the finding, and the employees have the right to contest their tentative nonconfirmations by contacting SSA or USCIS to resolve any inaccuracies in their records within 8 days. During this time, employers may not take any adverse actions against those employees, such as limiting their work assignments or pay. Employers are required to either immediately terminate the employment, or notify DHS of the continued employment, of workers who do not successfully contest the tentative nonconfirmation and those who the pilot program finds are not work-authorized. In 1986, IRCA established the employment verification process based on employers' review of documents presented by employees to prove identity and work eligibility. On the Form I-9, employees must attest that they are U.S. citizens, lawfully admitted permanent residents, or aliens authorized to work in the United States. Employers must then certify that they have reviewed the documents presented by their employees to establish identity and work eligibility and that the documents appear genuine and relate to the individual presenting them. In making their certifications, employers are expected to judge whether the documents presented are obviously counterfeit or fraudulent. Employers are deemed in compliance with IRCA if they have followed the Form I-9 process, including when an unauthorized alien presents fraudulent documents that appear genuine. Since passage of IRCA in 1986, document and identity fraud have made it difficult for employers who want to comply with the employment verification process to ensure they hire only authorized workers. In its 1997 report to Congress, the Commission on Immigration Reform noted that the widespread availability of false documents made it easy for unauthorized aliens to obtain jobs in the United States. In past work, we reported that large numbers of unauthorized aliens have used false documents or fraudulently used valid documents belonging to others to acquire employment, including at critical infrastructure sites like airports and nuclear power plants. In addition, although studies have shown that the majority of employers comply with IRCA and try to hire only authorized workers, some employers knowingly hire unauthorized workers, often to exploit the workers' low cost labor. For example, the Commission on Immigration Reform reported that employers who knowingly hired illegal aliens often avoided sanctions by going through the motions of compliance while accepting false documents. Likewise, in 1999 we concluded that those employers who do want to comply with IRCA can intentionally hire unauthorized workers under the guise of having complied with the employment verification requirements by claiming that unauthorized workers presented false documents to obtain employment. The large number and variety of documents that are acceptable for proving work eligibility have complicated employer verification efforts under IRCA. Following the passage of IRCA in 1986, employees could present 29 different documents to establish their identity and/or work eligibility. In a 1997 interim rule, INS reduced the number of acceptable work eligibility documents from 29 to 27. The interim rule implemented changes to the list of acceptable work eligibility documents mandated by IIRIRA and was intended to serve as a temporary measure until INS issued final regulations on modifications to the Form I-9. In 1998, INS proposed a further reduction in the number of acceptable work eligibility documents to 14, but did not finalize the proposed rule. Since the passage of IRCA, various studies have addressed the need to reduce the number of acceptable work eligibility documents to make the employment verification process simpler and more secure. For example, we previously reported that the multiplicity of work eligibility documents contributed to (1) employer uncertainty about how to comply with the employment verification requirements and (2) discrimination against authorized workers. In 1998, INS noted that, when IRCA was first passed, a long inclusive list of acceptable work eligibility documents was allowed for the Form I-9 to help ensure that all persons who were eligible to work could easily meet the requirements, but as early as 1990, there had been evidence that some employers found the list confusing. According to DHS officials, the department is assessing possible revisions to the Form I-9 process, including reducing the number of acceptable work eligibility documents, but has not established a target time frame for completing this assessment and issuing regulations on Form I-9 changes. DHS released an updated version of the Form I-9 in May 2005 that changed references from INS to DHS but did not modify the list of acceptable work eligibility documents on the Form I-9 to reflect changes made to the list by the 1997 interim rule. Moreover, DHS recently issued interim regulations on the use of electronic Forms I-9, which provide guidance to employers on electronically signing and storing Forms I-9. Various immigration experts have noted that the most important step that could be taken to reduce illegal immigration is the development of a more effective system for verifying work authorization. In particular, the Commission on Immigration Reform concluded that the most promising option for verifying work authorization was a computerized registry based on employers' electronic verification of an employee's social security number with records on work authorization for aliens. The Basic Pilot Program, which is currently available on a voluntary basis to all employers in the United States, operates in a similar way to the computerized registry recommended by the commission, and shows promise to enhance employment verification and worksite enforcement efforts. Only a small portion--about 8,600 as of June 2006--of the approximately 5.6 million employer firms nationwide have registered to use the pilot program, and about 4,300 employers are active users. The Basic Pilot Program enhances the ability of participating employers to reliably verify their employees' work eligibility and assists participating employers with identification of false documents used to obtain employment by comparing employees' Form I-9 information with information in SSA and DHS databases. If newly hired employees present counterfeit documents, the pilot program would not confirm the employees' work eligibility because their employees' Form I-9 information, such as the false name or social security number, would not match SSA and DHS database information when queried through the Basic Pilot Program. Although ICE has no direct role in monitoring employer use of the Basic Pilot Program and does not have direct access to program information, which is maintained by USCIS, ICE officials told us that program data could indicate cases in which employers do not follow program requirements and therefore would help the agency better target its worksite enforcement efforts toward those employers. For example, the Basic Pilot Program's confirmation of numerous queries of the same social security number could indicate that a social security number is being used fraudulently or that an unscrupulous employer is knowingly hiring unauthorized workers by accepting the same social security number for multiple employees. ICE officials noted that, in a few cases, they have requested and received pilot program data from USCIS on specific employers who participate in the program and are under ICE investigation. However, USCIS officials told us that they have concerns about providing ICE broader access to Basic Pilot Program information because it could create a disincentive for employers to participate in the program, as employers may believe that they are more likely to be targeted for a worksite enforcement investigation as a result of program participation. According to ICE officials, mandatory employer participation in the Basic Pilot Program would eliminate the concern about sharing data and could help ICE better target its worksite enforcement efforts on employers who try to evade using the program. Moreover, these officials told us that mandatory use of an automated system like the pilot program, could limit the ability of employers who knowingly hired unauthorized workers to claim that the workers presented false documents to obtain employment, which could assist ICE agents in proving employer violations of IRCA. Although the Basic Pilot Program may enhance the employment verification process and a mandatory program could assist ICE in targeting its worksite enforcement efforts, weaknesses exist in the current program. For example, the current Basic Pilot Program cannot help employers detect identity fraud. If an unauthorized worker presents valid documentation that belongs to another person authorized to work, the Basic Pilot Program would likely find the worker to be work-authorized. Similarly, if an employee presents counterfeit documentation that contains valid information and appears authentic, the pilot program may verify the employee as work-authorized. DHS officials told us that the department is currently considering possible ways to enhance the Basic Pilot Program to help it detect cases of identity fraud, for example, by providing a digitized photograph associated with employment authorization information presented by an employee. Delays in the entry of information on arrivals and employment authorization into DHS databases can lengthen the pilot program verification process for some secondary verifications. Although the majority of pilot program queries entered by employers are confirmed via the automated SSA and DHS verification checks, about 15 percent of queries authorized by DHS required secondary verifications by immigration status verifiers in fiscal year 2004. According to USCIS, cases referred for secondary verification are typically resolved within 24 hours, but a small number of cases take longer, sometimes up to 2 weeks, due to, among other things, delays in entry of data on employees who received employment authorization documents generated by a computer and camera that are not directly linked to DHS databases. Secondary verifications lengthen the time needed to complete the employment verification process and could harm employees because employers might reduce those employees' pay or restrict training or work assignments, which are prohibited under pilot program requirements, while waiting for verification of their work eligibility. DHS has taken steps to increase the timeliness and accuracy of information entered into databases used as part of the Basic Pilot Program and reports, for example, that data on new immigrants are now typically available for verification within 10 to 12 days of an immigrant's arrival in the United States while, previously, the information was not available for up to 6 to 9 months after arrival. Furthermore, employer noncompliance with Basic Pilot Program requirements may adversely affect employees queried through the program. The Temple University Institute for Survey Research and Westat evaluation of the Basic Pilot Program concluded that the majority of employers surveyed appeared to be in compliance with Basic Pilot Program procedures. However the evaluation and our review found evidence of some noncompliance with these procedures, such as those that prohibit screening job applicants or limiting of employees' work assignments or pay while contesting tentative nonconfirmations. The Basic Pilot Program provides a variety of reports that may help USCIS determine whether employers follow program requirements, but USCIS officials told us that their efforts to review employers' use of the pilot program have been limited by lack of staff available to oversee and examine employer use of the program. According to USCIS officials, due to the growth in other USCIS verification programs, current USCIS staff may not be able to complete timely secondary verifications if the number of employers using the program significantly increased. In particular, these officials said that if a significant number of new employers registered for the program or if the program were mandatory for all employers, additional staff would be needed to maintain timely secondary verifications. USCIS has approximately 38 Immigration Status Verifiers allocated for completing Basic Pilot Program secondary verifications, and these verifiers reported that they are able to complete the majority of manual verification checks within their target time frame of 24 hours. However, USCIS officials said that the agency has serious concerns about its ability to complete timely verifications if the number of Basic Pilot Program users greatly increased. Worksite enforcement is one of various immigration enforcement programs that competes for resources and among INS and ICE responsibilities, and worksite enforcement has been a relatively low priority. For example, in the 1999 INS Interior Enforcement Strategy, the strategy to block and remove employers' access to undocumented workers was the fifth of five interior enforcement priorities. In that same year, we reported that, relative to other enforcement programs in INS, worksite enforcement received a small portion of INS's staffing and enforcement budget and that the number of employer investigations INS conducted each year covered only a fraction of the number of employers who may have employed unauthorized aliens. In keeping with the primary mission of DHS to combat terrorism, after September 11, 2001, INS and then ICE focused investigative resources primarily on national security cases. In particular, INS and then ICE focused available resources for worksite enforcement on identifying and removing unauthorized workers from critical infrastructure sites, such as airports and nuclear power plants, to help reduce vulnerabilities at those sites. We previously reported that, if critical infrastructure-related businesses were to be compromised by terrorists, this would pose a serious threat to domestic security. According to ICE, the agency adopted this focus on critical infrastructure protection because the fact that unauthorized workers can obtain employment at critical infrastructure sites indicates that there are vulnerabilities in those sites' hiring and screening practices, and unauthorized workers employed at those sites are vulnerable to exploitation by terrorists, smugglers, traffickers, and other criminals. ICE has inspected Forms I-9 and employer records at hundreds of critical infrastructure sites, including at about 200 airports as part of Operation Tarmac and at more than 50 nuclear power plants as part of Operation Glow Worm. More recently, ICE announced conducting worksite enforcement operations at other critical infrastructure sites, including at an airport, chemical plants, and a water and power facility. Since fiscal year 1999, INS and ICE have dedicated a relatively small portion of overall agent resources to the worksite enforcement program. As shown in figure 2, in fiscal year 1999 INS allocated about 240 full-time equivalents to worksite enforcement efforts, while in fiscal year 2003, ICE allocated about 90 full-time equivalents. Between fiscal years 1999 and 2003, the percentage of agent work-years spent on worksite enforcement efforts generally decreased from about 9 percent to about 4 percent. Although worksite enforcement has been a low priority relative to other programs, ICE has proposed increasing agent resources for the worksite enforcement program. For example, in its fiscal year 2007 budget submission, ICE requested funding for 206 additional positions for worksite enforcement. Yet, at this point, it is unclear what impact, if any, these additional resources would have on worksite enforcement efforts. The number of notices of intent to fine issued to employers as well as the number of unauthorized workers arrested at worksites have generally declined. Between fiscal years 1999 and 2004, the number of notices of intent to fine issued to employers for improperly completing Forms I-9 or knowingly hiring unauthorized workers generally decreased from 417 to 3. (See fig. 3.) The number of unauthorized workers arrested during worksite enforcement operations has also declined since fiscal year 1999. As shown in figure 4, the number of worksite arrests for administrative violations of immigration law, such as for violating the terms of a visa, declined by about 84 percent from 2,849 in fiscal year 1999 to 445 in fiscal year 2003. ICE attributes the decline in the number of notices of intent to fine issued to employers and number of administrative worksite arrests to various factors including the widespread availability and use of counterfeit documents and the allocation of resources to other priorities. Various studies have shown that the availability and use of fraudulent documents have made it difficult for ICE agents to prove that employers knowingly hired unauthorized workers. ICE officials also told us that employers who agents suspect of knowingly hiring unauthorized workers can claim that they were unaware that their workers presented false documents at the time of hire, making it difficult for agents to prove that the employer willfully violated IRCA. In addition, according to ICE, the allocation of INS and ICE resources to other priorities has contributed to the decline in the number of notices of intent to fine and worksite arrests. For example, INS focused its worksite enforcement resources on egregious violators who were linked to other criminal violations, like smuggling, fraud or worksite exploitation, and de- emphasized administrative employer cases and fines. Furthermore, ICE investigative resources were redirected from worksite enforcement activities to criminal alien cases, which consumed more investigative hours by the late 1990s than any other enforcement activity. After September 11, 2001, INS and ICE focused investigative resources on national security cases, and in particular, focused worksite enforcement efforts on critical infrastructure protection, which is consistent with DHS's primary mission to combat terrorism. According to ICE, the redirection of resources from other enforcement programs to perform national security- related investigations resulted in fewer resources for traditional program areas like fraud and noncritical infrastructure worksite enforcement. Additionally, some ICE field representatives, as well as immigration experts, noted that the focus on critical infrastructure protection does not address the majority of worksites in industries that have traditionally provided the magnet of jobs attracting illegal aliens to the United States. As part of the Secure Border Initiative, in April 2006 ICE announced a new interior enforcement strategy to target employers of unauthorized aliens, immigration violators, and criminal networks. Under this strategy, ICE plans to target employers who knowingly employ unauthorized workers by bringing criminal charges against them. ICE has reported increases in the numbers of criminal arrests, indictments, and convictions between fiscal years 2004 and 2005 as a result of these efforts. Between fiscal years 2004 and 2005, ICE reported that the number of criminal arrests increased from 160 to 165. Furthermore, in fiscal year 2005 ICE reported that the number of criminal indictments and convictions were 140 and 127, respectively, and in fiscal year 2004 the number of indictments and convictions were 67 and 46, respectively. In addition, ICE reported arresting 980 individuals on administrative immigration violations in fiscal year 2005 as a result of its worksite enforcement efforts. INS and ICE have faced difficulties in setting and collecting fine amounts that meaningfully deter employers from knowingly hiring unauthorized workers and in detaining unauthorized workers arrested at worksites. ICE officials told us that because fine amounts are so low, the fines do not provide a meaningful deterrent. These officials also said that when agents could prove that an employer knowingly hired an unauthorized worker and issued a notice of intent to fine, the fine amounts agents recommended were often negotiated down in value during discussion between agency attorneys and employers. The amount of mitigated fines may be, in the opinion of some ICE officials, so low that they believe that employers view the fines as a cost of doing business, making the fines an ineffective deterrent for employers who attempt to circumvent IRCA. According to ICE, the agency mitigates employer fine amounts because doing so may be a more efficient use of government resources than pursuing employers who contest or ignore fines, which could be more costly to the government than the fine amount sought. An ICE official told us that use of civil settlements and criminal charges instead of pursuit of administrative fines, specifically in regard to noncritical infrastructure employers, could be a more efficient use of investigative resources. In 2005, ICE settled a worksite enforcement case with a large company without going through the administrative fine process. As part of the settlement, the company agreed to pay $11 million and company contractors agreed to pay $4 million in forfeitures--more than an administrative fine amount ever issued against an employer for ICE violations. ICE officials also said that use of civil settlements could help ensure employers' future compliance by including in the settlements a requirement to entire into compliance agreements, such as the Basic Pilot Program. In addition, as part of ICE's new interior enforcement strategy, the agency plans to bring criminal charges against employers who knowingly hire unauthorized workers, rather than using administrative fines to sanction employers. The practice of using civil settlements and criminal charges against employers is in the early stages of implementation; therefore, the extent to which it may help limit the employment of unauthorized workers is not yet known. The former INS also faced difficulties in collecting fine amounts from employers, but collection efforts have improved. We previously reported that the former INS faced difficulties in collecting fine amounts from employers for a number of reasons, including that employers went out of business, moved, or declared bankruptcy. In 1998, INS created the Debt Management Center to centralize the collections process, and the center is now responsible for collecting fines ICE issued against employers for violations of IRCA, among other things. The ICE Debt Management Center has succeeded in collecting the full amount of final fines on most of the invoices issued to employers between fiscal years 1999 and 2004. In addition, ICE's Office of Detention and Removal has limited detention space, and unauthorized workers detained during worksite enforcement investigations have been a low priority for that space. In 2004, the Under Secretary for Border and Transportation Security sent a memo to the Commissioner of U.S. Customs and Border Protection and the Assistant Secretary for ICE outlining the priorities for the detention of aliens. According to the memo, aliens who are subjects of national security investigations were among those groups of aliens given the highest priority for detention, while those arrested as a result of worksite enforcement investigations were to be given the lowest priority. ICE officials stated that the lack of sufficient detention space has limited the effectiveness of worksite enforcement efforts. For example, they said that if investigative agents arrest unauthorized aliens at worksites, the aliens would likely be released because the Office of Detention and Removal detention centers do not have sufficient space to house the aliens and they may re-enter the workforce, in some cases returning to the worksites from where they were originally arrested. Congress has provided funds to the Office of Detention and Removal for additional bed spaces. Yet, given competing priorities for detention space, the effect, if any, these additional bed spaces will have on ICE's priority given to workers detained as a result of worksite enforcement operations cannot currently be determined. Efforts to reduce the employment of unauthorized workers in the United States necessitate a strong employment eligibility verification process and a credible worksite enforcement program to ensure that employers meet verification requirements. The current employment verification process has not fundamentally changed since its establishment in 1986, and ongoing weaknesses have undermined its effectiveness. Although DHS and the former INS have been contemplating changes to the Form I-9 since 1997, DHS has not yet issued final regulations on these changes, and it has not yet established a definitive time frame for completing the assessment. We recommended that DHS set a target time frame for completing this assessment and issuing final regulations to strengthen the current employment verification process and make it simpler and more secure. Furthermore, the Basic Pilot Program shows promise for enhancing the employment verification process and reducing document fraud if implemented on a much larger scale. However, current weaknesses in pilot program implementation would have to be fully addressed to help ensure the efficient and effective operation of an expanded or mandatory pilot program, or a similar automated employment verification program, and the cost of additional resources would be a consideration. USCIS is currently evaluating the Basic Pilot Program to include, as we have recommended, information on addressing the program's weaknesses to assist USCIS and Congress in addressing possible future use of the Basic Pilot Program. Even with a strengthened employment verification process, a credible worksite enforcement program would be needed because no verification system is foolproof and not all employers may want to comply with IRCA. ICE's focus of its enforcement resources on critical infrastructure protection since September 11, 2001, is consistent with the DHS mission to combat terrorism by detecting and mitigating vulnerabilities to terrorist attacks at critical infrastructure sites which, if exploited, could pose serious threats to domestic security. This focus on critical infrastructure protection, though, generally has not addressed noncritical infrastructure employers' noncompliance with IRCA. As a result, employers, particularly those not located at or near critical infrastructure sites, who attempted to circumvent IRCA have faced less of a likelihood that ICE would investigate them for failing to comply with the current employment verification process or for knowingly hiring unauthorized workers. ICE is taking some steps to address difficulties it has faced in its worksite enforcement efforts, but it is too early to tell whether these steps will improve the effectiveness of the worksite enforcement program and help ICE identify the millions of unauthorized workers and the employers who hired them. This concludes my prepared statement. I would be pleased to answer any questions you and the Subcommittee Members may have. For further information about this testimony, please contact Richard Stana at 202-512-8777. Other key contributors to this statement were Frances Cook, Michelle Cooper, Orlando Copeland, Michele Fejfar, Rebecca Gambler, Kathryn Godfrey, Eden C. Savino, and Robert E. White. Social Security Numbers: Coordinated Approach to SSN Data Could Help Reduce Unauthorized Work. GAO-06-458T. February 16, 2006. Immigration Enforcement: Weaknesses Hinder Employment Verification and Worksite Enforcement Efforts. GAO-05-813. August 31, 2005. Immigration Enforcement: Preliminary Observations on Employment Verification and Worksite Enforcement Efforts. GAO-05-822T. June 21, 2006. Social Security: Better Coordination among Federal Agencies Could Reduce Unidentified Earnings Reports. GAO-05-154. February 4, 2005. Immigration Enforcement: DHS Has Incorporated Immigration Enforcement Objectives and Is Addressing Future Planning Requirements. GAO-05-66. October 8, 2004. Overstay Tracking: A Key Component of Homeland Security and a Layered Defense. GAO-04-82. May 21, 2004. Homeland Security: Challenges to Implementing the Immigration Interior Enforcement Strategy. GAO-03-660T. April 10, 2003. Identity Fraud: Prevalence and Links to Alien Illegal Activities. GAO-02-830T. June 25, 2002. Illegal Aliens: Significant Obstacles to Reducing Unauthorized Alien Employment Exist. GAO/GGD-99-33. April 2, 1999. Immigration Reform: Employer Sanctions and the Question of Discrimination. GAO/GGD-90-62. March 29, 1990. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The opportunity for employment is one of the most important magnets attracting illegal immigrants to the United States. The Immigration Reform and Control Act (IRCA) of 1986 established an employment eligibility verification process and a sanctions program for fining employers for noncompliance. Few modifications have been made to the verification process and sanctions program since 1986, and immigration experts state that a more reliable verification process and a strengthened worksite enforcement capacity are needed to help deter illegal immigration. This testimony is based on GAO's August 2005 report on the employment verification process and worksite enforcement efforts. In this testimony, GAO provides observations on (1) the current employment verification process and (2) U.S. Immigration and Customs Enforcement's (ICE) priorities and resources for the worksite enforcement program and the challenges it faces in implementing that program. The current employment verification (Form I-9) process is based on employers' review of documents presented by new employees to prove their identity and work eligibility. On the Form I-9, employers certify that they have reviewed documents presented by their employees and that the documents appear genuine and relate to the individual presenting the documents. However, document fraud (use of counterfeit documents) and identity fraud (fraudulent use of valid documents or information belonging to others) have undermined the employment verification process by making it difficult for employers who want to comply with the process to ensure they hire only authorized workers and easier for unscrupulous employers to knowingly hire unauthorized workers with little fear of sanction. In addition, the large number and variety of documents acceptable for proving work eligibility has hindered employer verification efforts. In 1998, the former Immigration and Naturalization Service (INS), now part of DHS, proposed revising the Form I-9 process, particularly to reduce the number of acceptable work eligibility documents, but DHS has not yet finalized the proposal. The Basic Pilot Program, a voluntary program through which participating employers electronically verify employees' work eligibility, shows promise to enhance the current employment verification process, help reduce document fraud, and assist ICE in better targeting its worksite enforcement efforts. Yet, several weaknesses in the pilot program's implementation, such as its inability to detect identity fraud and DHS delays in entering data into its databases, could adversely affect increased use of the pilot program, if not addressed. The worksite enforcement program has been a relatively low priority under both INS and ICE. Consistent with the DHS mission to combat terrorism, after September 11, 2001, INS and then ICE focused worksite enforcement efforts mainly on detecting and removing unauthorized workers from critical infrastructure sites. Since fiscal year 1999, the numbers of employer notices of intent to fine and administrative worksite arrests have generally declined. According to ICE, this decline is due to various factors, such as the prevalence of document fraud that makes it difficult to prove employer violations. ICE officials told us that the agency has previously experienced difficulties in proving employer violations and setting and collecting fine amounts that meaningfully deter employers from knowingly hiring unauthorized workers. In April 2006, ICE announced a new interior enforcement strategy to target employers who knowingly hire unauthorized workers by bringing criminal charges against them, and ICE has reported increases in the number of criminal arrests and indictments since fiscal year 2004. However, it is too early to tell what effect, if any, this new strategy will have on enhancing worksite enforcement efforts and identifying unauthorized workers and their employers.
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The private sector is an important partner with the government in responding to and recovering from natural disasters such as Hurricanes Katrina and Rita. As we recently noted, such partnerships increasingly underlie critical government operations. With hundreds of billions of tax dollars spent each year on goods and services, it is essential that all federal agency acquisitions be handled in an efficient, effective, and accountable manner. Over $87 billion of federal funding has been appropriated in response to the recent hurricanes. In responding to Hurricanes Katrina and Rita, the government depended heavily on contractors to deliver ice, water, and food supplies; patch rooftops; and provide housing to displaced residents and temporary facilities to local government agencies. Overall, the circumstances caused by the hurricanes created a difficult environment in which agencies had to balance the need to deliver goods and services quickly with the need for appropriate controls. Although achieving that balance is sometimes hard to accomplish, that fact must not be allowed to serve as an excuse for poor contracting practices. The need for strong planning is one of the themes identified by the Comptroller General in regard to the government's overall response to the hurricanes. Planning also must explicitly address the need for and management of the contractor community. In this regard, we found that some key agencies did not always have adequate plans for contracting in a major contingency situation. We also noted the competing tensions between the selection of national contractors and the requirement under the Stafford Act for a preference for contractors from the affected area. Better planning could have alleviated those tensions. While contracts for some items were in place prior to the storm, the Federal Emergency Management Agency did not adequately anticipate needs for such services as providing temporary housing and public buildings. The practice of the U.S. Army Corps of Engineers is to establish Planning and Response Teams for various missions assigned to it by FEMA prior to an event, with specific responsibilities assigned to team members. However, the Corps indicated it did not know prior to the hurricane that it would be tasked by FEMA with some of the mission assignments it received. In one case, faced with a compressed time frame for acquiring portable classrooms and with no prior knowledge about the classroom mission they were assigned, Corps contracting officials placed an order, under an existing agreement, with a subsidiary of an Alaska Native Corporation under the Small Business Administration's section 8(a) Business Development Program. The Corps accepted the contractor's proposed price of $39.5 million even though the Corps had information that the cost for the classrooms was significantly less than that. Based on our analysis of a quote obtained by the contractor from a local Mississippi business, the price the contractor actually paid for the classrooms, and prices for similar units from General Services Administration (GSA) schedule contracts, our preliminary conclusion is that the Corps could have, but failed to, negotiate a lower price. Similarly, better management of requirements development could have avoided costs to house workers and victims. Based on information provided by local officials, FEMA spent $3 million for 4,000 base camp beds that were never used. Preparation was also lacking in implementation of the Stafford Act preference for contractors residing or doing business in the affected area. The Corps staff expressed uncertainty regarding how to apply preferences or determine if a company was in an affected area. Several GSA and FEMA officials indicated they were aware of the Stafford Act, but stated it is difficult to immediately factor in local businesses in such a catastrophic event. GSA officials stated they plan to review the Federal Acquisition Regulation (FAR) to see if additional Stafford Act guidance is necessary. In discussing our findings and observations with FEMA officials, they indicated that in order to better respond to future disasters, they were taking steps to improve in areas such as staffing and premobilization capabilities. However, they also stated that such pre-planning and preparedness has a cost. The Corps commented that contracting staff need to have defined requirements in order to get the right type of contracts put in place, and the contracting staff did not always get defined requirements in a timely manner. Additionally, a Corps official commented that until funding for a particular mission is secured, preparation for it cannot go forward and this also delayed contracting efforts. Finally, both GSA and the Corps noted that they tried to reach out to local and small businesses through forums and other means to make them aware of opportunities to contract with the federal government. We also found that processes for executing contracts were hindered by poor communication. As envisioned under the National Response Plan (NRP), federal agencies responding to a disaster carry out their acquisition functions through a network of federal, state, and local agencies. In some instances, the local or state officials determine the requirements and communicate them to FEMA; FEMA may write and award the contract or communicate the requirements to another agency that writes and awards the contract; and then FEMA or another agency oversees contract performance. This approach puts a premium on aligning roles and responsibilities clearly and maintaining good communications to ensure effective execution of the contract. Our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes. For example: FEMA officials stated that a contractor spent approximately $10 million to renovate 160 rooms and furnish another 80 rooms in military barracks in Alabama that a FEMA survey team identified for use as temporary housing. To renovate the facility, FEMA headquarters awarded a contract without consulting local FEMA officials in Alabama. According to FEMA officials in Alabama, however, the facility was not needed and they tried to stop the renovation. These same FEMA officials stated that few evacuees agreed to live at the facility, and when officials decided to close the facility, it had only six occupants. The process for ordering and delivering ice heavily depends on effective communications between FEMA and the Corps. However, according to Corps officials, FEMA did not fully understand the contracting approach used by the Corps and ordered at least double the amount of ice required, resulting in an oversupply of ice and a lack of distribution sites available to handle the volume ordered. Additionally, the local Corps personnel were not always aware of where ice might be delivered and did not have the authority to redirect ice as shipments arrived, resulting in inefficient distribution and receipt at the state level. FEMA tasked GSA to write three contracts in Louisiana for base camps, hotel rooms, and ambulances, with a total value of over $120 million. GSA contracting officers awarded the contracts, but could not tell us which FEMA officials would be responsible for overseeing contractor performance. The FEMA official identified as the main point of contact by GSA did not have any knowledge of these contracts or who was responsible for oversight. Only after contacting multiple FEMA officials over a 3-week period were we able to determine the agency officials responsible for contract oversight. In commenting on our findings, GSA officials stated that their role is to provide resource support in the response phase of a disaster, meaning they are responsible for executing contracts under the NRP, and FEMA is responsible for monitoring the contracts. FEMA officials commented that there needs to be more clarity regarding procurement roles and indicated one of their goals is to work with GSA to clarify procurement responsibilities for the future. GSA officials indicated that the current memorandum of understanding between GSA and FEMA is being updated to reflect the standards of the new NRP as well. The purpose of agencies' monitoring processes is to ensure that contracted goods and services are delivered in accordance with the agreed-upon schedule, cost, quality, and quantity provisions stated in the contract. Without sufficient numbers of trained people properly deployed, however, effective monitoring is hampered and agencies may not be able to identify and correct poor contractor performance in a timely manner. Furthermore, agencies can be at risk of paying contractors more than the value of the services performed. Our work indicated that while monitoring was occurring on the contracts we reviewed, the number of monitoring staff available was not always sufficient, and staff were not always effectively deployed. For example: FEMA's contracts for installing temporary housing in four states had only 17 of the 27 technical monitors that had been determined necessary to oversee contractor performance. Corps officials responsible for overseeing the "blue roof" program's field operations told us it was slowed down due to the lack of sufficient monitors. Deployment practices did not always provide for appropriate notification of responsibilities or overlap of rotating contracting officers and oversight personnel, thus making knowledge transfer and continuity of contract management operations difficult. For example: For four of the contracts we reviewed, officials were either unaware or not notified by FEMA of their oversight responsibilities. The lack of overlap between oversight personnel for a large temporary housing contract left the most recent contract administrator with no knowledge or documentation of who had authorized the contractor to perform certain activities or why the activities were being performed. While discussing our findings and observations with FEMA officials, they emphasized that they lacked adequate staffing, but said they have made efforts to fill staffing gaps. Additionally, FEMA officials stated they recognize the need for continuity in contract oversight and indicated they are implementing a process to ensure workload and knowledge sharing among rotating personnel. However, they also believe that fewer transition difficulties exist now as a result of hiring more people and having more oversight officials staying in the affected areas. GSA officials indicated there may also be other alternatives for ensuring adequate contract oversight, such as designating GSA employees to conduct oversight on some contracts. Corps officials stated their policy is to rotate certain personnel every 29 days to keep personnel costs to a minimum because of regulations under the Fair Labor Standards Act. In reviewing contracts awarded for Iraq--another contingency situation-- GAO found that without effective acquisition planning, management processes, and sufficient numbers of capable people, poor acquisition outcomes resulted. GAO made recommendations regarding the need for ensuring that requirements for placing orders are within the scope of contracts; timely definition of contract terms and conditions, and sufficient numbers of trained staff who have clear responsibilities and guidance for overseeing contractor performance. Having these capabilities requires preparation, such as having prearranged contracts in place in advance of the disaster or other contingency. Among the issues that we have identified in previous reports that warrant consideration by agencies when contracting in an emergency are: the strategies and flexibilities they will use to plan their procurements to avoid the risks associated with undefined contracts; the knowledge they need to have to identify, select, and manage contractors to achieve successful outcomes; and the need to have competitively awarded contracts in place prior to the event against which orders can be placed as needed. In executing these contracts, agencies should consider such issues as how to effectively communicate and coordinate with other agencies and with contractors; define contract terms and conditions to avoid excessive costs and ensure desired performance; and monitor contractors. Finally, agencies should consider crosscutting issues that affect their overall ability to manage contractors, such as the capability of their information systems to provide visibility into financial and contracting operations; skills and training of the acquisition workforce; alignment of responsibilities among the key officials in managing the award and oversight of contracts; and the policies, procedures, and guidance for managing contracts. In closing, in any acquisition, agencies must have in place sound acquisition plans, processes to make and communicate good business decisions, and a capable acquisition workforce to monitor contractor performance so that the government receives good value for the money spent. These components are critical to successfully managing contracts in any environment--even in a contingency situation such as that presented by Hurricanes Katrina and Rita. - - - - - Mr. Chairman this concludes my statement. I would be happy to respond to any questions you or other members of the Subcommittee may have at this time. For further information regarding this testimony, please contact William T. Woods at (202) 512-4841 or [email protected]. Individuals making key contributions to this testimony included Penny Augustine, James Kim, John Needham, and Shannon Simpson. Hurricane Katrina: Comprehensive Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-460, Washington, D.C.: April 6, 2006 Hurricane Katrina: Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-600T, Washington, D.C.: April 6, 2006 Hurricane Katrina: Status of the Health Care System in New Orleans and Difficult Decisions Related to Efforts to Rebuild It Approximately 6 Months After Hurricane Katrina. GAO-06-576R, Washington, D.C.: March 28, 2006 Agency Management of Contractors Responding to Hurricanes Katrina and Rita. GAO-06-461R, Washington, D.C.: March 16, 2006 Hurricane Katrina: GAO's Preliminary Observations Regarding Preparedness, Response, and Recovery. GAO-06-442T, Washington D.C.: March 8, 2006 Emergency Preparedness and Response: Some Issues and Challenges Associated with Major Emergency Incidents. GAO-06-467T. Washington: D.C.: February 23, 2006. Disaster Preparedness: Preliminary Observations on the Evacuation of Hospitals and Nursing Homes Due to Hurricanes. GAO-06-443R. Washington: D.C.: February 16, 2006. Investigation: Military Meals, Ready-To-Eat Sold on eBay. GAO-06-410R. Washington: D.C.: February 13, 2006. Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA's Control Weaknesses Exposed the Government to Significant Fraud and Abuse. GAO-06-403T. Washington: D.C.: February 13, 2006. Statement by Comptroller General David M. Walker on GAO's Preliminary Observations Regarding Preparedness and Response to Hurricanes Katrina and Rita. GAO-06-365R. Washington, D.C.: February 1, 2006. Federal Emergency Management Agency: Challenges for the National Flood Insurance Program. GAO-06-335T. Washington, D.C.: January 25, 2006. Hurricane Protection: Statutory and Regulatory Framework for Levee Maintenance and Emergency Response for the Lake Pontchartrain Project. GAO-06-322T. Washington, D.C.: December 15, 2005. Hurricanes Katrina and Rita: Provision of Charitable Assistance. GAO- 06-297T. Washington, D.C.: December 13, 2005. Army Corps of Engineers: History of the Lake Pontchartrain and Vicinity Hurricane Protection Project. GAO-06-244T. Washington, D.C.: November 9, 2005. Hurricanes Katrina and Rita: Preliminary Observations on Contracting for Response and Recovery Efforts. GAO-06-246T. Washington, D.C.: November 8, 2005. Hurricanes Katrina and Rita: Contracting for Response and Recovery Efforts. GAO-06-235T. Washington, D.C.: November 2, 2005. Federal Emergency Management Agency: Oversight and Management of the National Flood Insurance Program. GAO-06-183T. Washington, D.C.: October 20, 2005. Federal Emergency Management Agency: Challenges Facing the National Flood Insurance Program. GAO-06-174T. Washington, D.C.: October 18, 2005. Federal Emergency Management Agency: Improvements Needed to Enhance Oversight and Management of the National Flood Insurance Program. GAO-06-119. Washington, D.C.: October 18, 2005. Army Corps of Engineers: Lake Pontchartrain and Vicinity Hurricane Projection Project. GAO-05-1050T. Washington, D.C.: September 28, 2005. Hurricane Katrina: Providing Oversight of the Nation's Preparedness, Response, and Recovery Activities. GAO-05-1053T. Washington, D.C.: September 28, 2005. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The devastation experienced throughout the Gulf Coast region in the wake of Hurricanes Katrina and Rita has called into question the government's ability to effectively respond to such disasters. The government needs to understand what went right and what went wrong, and to apply these lessons to strengthen its disaster response and recovery operations. The federal government relies on partnerships across the public and private sectors to achieve critical results in preparing for and responding to natural disasters, with an increasing reliance on contractors to carry out specific aspects of its missions. At the same time, the acquisition functions at several agencies are on GAO's high-risk list, indicating a vulnerability to fraud, waste, and abuse. This testimony discusses how three agencies--the General Services Administration, the Federal Emergency Management Agency (FEMA), and the U.S. Army Corps of Engineers (the Corps)--conducted oversight of key contracts used in response to the hurricanes. Efforts are ongoing by these agencies to address issues GAO and others have identified. Agency acquisition and contractor personnel have been recognized for their hard work in providing the goods and services required to be responsive. The response efforts nonetheless suffered from three primary deficiencies: First, there was inadequate planning and preparation in anticipating requirements for needed goods and services. Some key agencies did not always have adequate plans for contracting in a major contingency situation. For example, while contracts for some items were in place prior to the storm, the Federal Emergency Management Agency did not adequately anticipate needs for such services as providing temporary housing and public buildings. There were also competing tensions between the selection of national contractors and the Stafford Act requirement that there be a preference for contractors from the affected area. Better planning could have alleviated those tensions. Second, there was a lack of clearly communicated responsibilities across agencies and jurisdictions to ensure effective outcomes. In a disaster situation, sometimes local or state officials determine the requirements and communicate them to FEMA, which then may write and award the contract or communicate the requirements to another agency that writes and awards the contract; and then FEMA or another agency will oversee contract performance. To ensure effective execution of the contract, this approach puts a premium on clear alignment of responsibilities and good communications, but our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes. For example, the process for ordering and delivering ice heavily depends on effective communications between FEMA and the Corps. However, according to Corps officials, FEMA did not fully understand the contracting approach used by the Corps and ordered at least double the amount of ice required, resulting in an oversupply of ice and a lack of distribution sites to handle the volume ordered. And third, there were insufficient numbers and inadequate deployment of personnel to provide for effective contractor oversight. The purpose of monitoring is to ensure that contracted goods and services are delivered in accordance with the agreed upon schedule, cost, quality, and quantity provisions stated in the contract. Without sufficient numbers of trained people properly deployed, however, monitoring will not be effective, agencies may not be able to quickly identify and correct poor contractor performance, and agencies will be at risk of overpaying contractors. Our work indicated that while monitoring was occurring on the contracts we reviewed, the number of staff available was not always sufficient and staff were not effectively deployed. For example: FEMA's contracts for installing temporary housing in four states had only 17 of the 27 technical monitors that had been determined necessary to oversee contractor performance.
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Tantalum is a hard, gray metal with a high melting point that is highly resistant to corrosion. It is a good conductor of heat and electricity. These attributes make it a valuable material for use in numerous military applications such as capacitors used in electronics equipment including computers, turbine engines for aircraft, and the linings of missile warheads. It is also used in numerous commercial consumer products such as mobile phones, personal computers, chemical processing equipment, heat exchangers, anti-lock brake systems, and airbag activation systems. It is possible to substitute other materials for tantalum, but substitutions usually result in a loss of performance. Worldwide tantalum supply begins with mining tantalum ore--a concentration of tantalum-containing minerals, such as tantalite, microlite, and wodginite--that is economically feasible to mine. Ore is the principal raw material from which tantalum is derived, and can be mined through industrial operations which may be mechanized or through artisanal mining operations, which are characterized by a lack of mechanization. The ore is further processed into tantalum concentrate by physically removing unwanted materials. Tantalum is also derived from synthetic concentrates, where tantalum is extracted from slags, for example, from processing tin concentrates or other forms of industrial processing. These concentrates can be chemically processed into tantalum salts, tantalum oxides, or other marketable tantalum materials such as tantalum powder, metal, and alloys, which are then further manufactured into end- products. Figure 1 shows details of the tantalum supply chain. The USGS collects, monitors, and analyzes information about natural resource conditions, issues, and problems, including those related to tantalum, to provide information to various government agencies, including DOD. Within USGS, the National Minerals Information Center develops and provides statistics and information on the worldwide production, consumption, and flow of minerals and materials essential to the United States economy and national security. To communicate this information, the USGS produces two publications that include information on tantalum, among other minerals. The Minerals Yearbook is an annual publication that provides statistical data on over 90 commodities over a 5-year period. It also includes data from over 175 countries on mineral production and trade, among other things. The Mineral Commodity Summaries is based on the data reported in the Yearbook and published each January. The annual summary includes similar historical data as reported in the Minerals Yearbook, as well as production estimates from the current reporting year. According to the USGS' 2015 Mineral Commodity Summaries, the United States relies solely on imports to meet needs for tantalum; there has been no significant tantalum mined in the United States since 1959 because the tantalum cannot be economically mined at prevailing prices. Countries for which the USGS reported tantalum mine production in 2014 are Brazil, Burundi, China, Democratic Republic of the Congo, Ethiopia, Mozambique, Nigeria, and Rwanda. Although Australia has some of the largest reserves of tantalum, USGS reported no production for the country in 2014. The USGS estimated in its 2015 Mineral Commodity Summaries that the two largest producers of mined tantalum in 2014 were Rwanda and the Democratic Republic of the Congo, producing approximately 600 and 200 metric tons, respectively. This amount represented approximately two-thirds of USGS' total 2014 estimated global mine production. The National Defense Stockpile maintains a domestically held inventory of strategic and critical materials. DOD uses USGS information on materials, in part, to help address its National Defense Stockpile program objectives. One objective of the National Defense Stockpile program is to decrease the risk of dependence on foreign suppliers or single suppliers for strategic and critical materials, such as tantalum, that are used in defense and essential civilian applications. Authority for stockpiling strategic and critical materials, which can include tantalum, is contained in the Strategic and Critical Materials Stockpiling Act (Stockpile Act) that lays out the purpose and responsibilities for the National Defense Stockpile. DOD generates national emergency scenarios for the Stockpile Act and related National Defense Stockpile Report. These scenarios cover four- year timeframes where the first year represents a period of conflict, and years two through four represent a period of recovery. The one-year period of conflict takes into consideration the following conditions: (1) a catastrophic attack on a United States city by a foreign terrorist organization or rogue state, (2) two near simultaneous major combat operations, (3) war damage from a highly capable enemy, and (4) ongoing military activities such as a military presence in a foreign country. On behalf of DOD, DLA-Strategic Materials serves as the National Defense Stockpile program manager, whose functions include: determining materials deemed strategic and critical, precluding, when possible, a dangerous and costly dependence by the United States upon foreign sources for supplies of such materials in times of national emergency, and submitting a biennial report to Congress detailing stockpiling requirements and recommendations for the National Defense Stockpile based on certain national emergency planning assumptions. USGS and DOD have an interagency support agreement to facilitate data sharing in support of DOD's biennial Stockpile Report. According to the agreement, USGS provides DOD with data on United States production, consumption, imports, exports, and world production by country for materials in the National Defense Stockpile and other materials critical for defense applications. USGS data on worldwide tantalum production is the primary production data source used by DOD to support its stockpile analyses. As the program manager for the National Defense Stockpile, DLA-Strategic Materials is responsible for compiling the data it receives from a number of entities, including the USGS and Department of Commerce, and performing analyses to determine if shortfalls for materials will occur during potential conflict scenarios. Table 1 provides a list of the sources of data and examples of the data used by DLA- Strategic Materials. The analyses focus on the sources of materials and the likelihood these materials will be available in the conflict scenario based on forecasted demand for materials in critical defense and civilian uses. In the case of a material shortfall, the analyses also consider mitigation strategies such as increased production or substitutions that could be made for these materials. The results of these analyses are published biennially in DOD's Stockpile Report and are the basis for DOD's recommendations to stockpile certain materials. Government and industry tantalum information differ because the government reports on tantalum ore from mining operations, whereas industry data include not only mining but also data on additional forms of processed tantalum, such as synthetic concentrates and scrap. In addition, government and industry have different data collection methods to address their specific needs. Differences include which forms of tantalum are measured, the frequency of data collection, and data validation practices. Having reliable tantalum data is important because DOD uses the information to assess the availability of tantalum supply by country during specific planning scenarios, among other efforts. Government and industry data differ on the forms of tantalum reported. DOD's primary government source for mineral production data, the USGS, captures data on tantalum ore from mining operations but does not include or estimate synthetic concentrates such as tantalum derived from tin slags, other means of industrial processing, or secondary types of tantalum such as scrap or recycled tantalum. USGS officials told us that they have limited visibility into the supply from secondary types of tantalum, such as scrap or recycled materials, and thus for reliability reasons, only report mine production. However, USGS officials also said their data includes some artisanal mining reported from countries like Rwanda or the Democratic Republic of the Congo, although it is difficult to quantify how much of the tantalum production they report is from industrial versus artisanal mining. Industry data, which, for the purpose of our review, are largely publically available data from the TIC, include tantalum supply from sources other than mined ore. For example, the TIC reports tantalum data that includes supply from mining as well as synthetic concentrates and slags from processing tin concentrates and other materials. Further, the TIC reports data on purchases of tantalum ore, synthetic concentrates, and some recycled material from member companies. These data may also include artisanal mined ore and processed materials of unknown origin. As a result, TIC data on tantalum purchased by processors--companies that modify the tantalum and change it into different forms for use--show higher supply figures than USGS reports on tantalum ore from mining operations. Our review also identified differences in data collection methods that affect USGS and industry tantalum reporting, including differences in how and when data are collected and validated. The USGS collects data on tantalum and other minerals to provide information to various government agencies, including DOD. Table 2 summarizes a comparison of government and industry data reporting and collection practices. To facilitate its data collection, the USGS employs country and mineral commodity specialists to help estimate tantalum production by country of origin. USGS officials said they use the term commodity to refer to ore, minerals, and materials, and their mineral commodity specialists have expertise in mineral and material markets and industries. According to USGS and DLA-Strategic Materials officials, providing production information by specific country is important to DLA-Strategic Materials' ability to assess tantalum supply risks and how much tantalum the United States may be able to acquire during conflict scenarios. USGS country and mineral commodity specialists annually survey foreign governments on the production of tantalum from mining, gather data and information from in-country visits, and review mineral reporting provided by embassies and industry sources to estimate tantalum production. USGS officials told us that while the quality of the data provided by foreign governments can vary widely, its specialists use their expertise with a mineral commodity or country to estimate production even if the data are incomplete or questionable. For example, in cases where the amount of tantalum reported is significantly different than previous information, specialists can use mining permits, trade analysis, and mine capacities to confirm estimates. In contrast, TIC data are provided as a service to its member companies rather than in support of the federal government, and are based on tantalum supply data voluntarily reported by those members. The TIC employs an independent company to compile surveys from its member mining and processing companies on a quarterly basis. Supply data are compiled and aggregated into categories such as raw material reported by mining, sales of tantalum products, and material purchased by companies that further process tantalum. These data are not reported by company or country of origin. USGS and industry also vary in their procedures for validating tantalum data. USGS data are required to meet USGS Fundamental Science Practices, a set of consistent practices, philosophical premises, and operational principles that serve as the foundation for research and monitoring activities. These practices describe how USGS work is carried out and how the resulting information products, such as maps, imagery, and publications, are developed, reviewed, and approved. The USGS also examines the mineral commodity data it collects by using a set of 14 statistical standards, most recently revised in November 2014. These 14 standards include definitions of statistical terms, conversion factors, and guidelines for graphic display of statistical information, among other things. In addition, USGS mineral commodity or country specialists compile and review survey data. In cases where these experts have different estimates, USGS officials said that managers resolve the differences based on discussion with the analysts, their own expertise, and contacts within other governments or industry to arrive at a final USGS position. Further, USGS guidelines provide that at least 75 percent of surveys should be returned in order to report data in its publications. In comparison, TIC officials stated that they do not have processes in place to validate the data received from their member companies, but they do have some guidelines for compiling the data. For example, the TIC guidelines request that member companies not report sales and purchases from other member companies to avoid double-counting of primary tantalum production. Further, the guidelines require that two- thirds of member companies, and certain major companies, provide data before the publications are released. However, industry officials we spoke with told us the TIC is not in a position to check or validate information provided by its members and that it is uncertain how much of the tantalum market the TIC's members encompass, making it difficult to ascertain how much of the worldwide tantalum market is reflected in its data. DOD has established a process for evaluating materials' availability, including tantalum, as part of the National Defense Stockpile's biennial requirements assessment process as required under the Stockpiling Act. To inform DOD's stockpile analysis, USGS provides DLA-Strategic Materials with the data it collects and validates, and DLA-Strategic Materials takes steps to ensure that the data are reliable. Further, as the program manager for the National Defense Stockpile, DLA-Strategic Materials assesses the availability of tantalum and other materials for national defense emergency planning scenarios as required under the Stockpiling Act. For example, in DOD's 2015 Strategic and Critical Materials Report on Stockpile Requirements, tantalum was among over 90 materials assessed for a potential shortfall. DLA-Strategic Materials is also taking additional steps to review and analyze industry data sources to address tantalum data challenges and better inform its stockpile analysis. DOD has a process for assessing the available supply of tantalum in selected planning scenarios as part of the National Defense Stockpile's biennial requirements assessment process, as required under the Stockpiling Act. Prior to evaluating tantalum and other materials' availability, DOD officials take steps to ensure that supply data used in its stockpile analysis are reliable. As discussed previously, USGS has documented procedures to validate its data and DLA-Strategic Materials officials identified additional steps they take to ensure that data are reliable, consistent with Standards for Internal Control in the Federal Government and other guidelines. For example, DLA-Strategic Materials officials said that their material specialists coordinate closely with USGS commodity and country specialists to verify data sources, such as whether production data are from USGS surveys or mining publications, and to determine how missing or incomplete data have been accounted for in its reports. Moreover, DLA-Strategic Materials officials told us they check USGS calculations and unit conversions to ensure accuracy prior to sending the data to the Institute for Defense Analyses, the federally funded research center responsible for the model used to perform the stockpile analysis. DLA-Strategic Materials officials also noted that they rely heavily on their own subject matter expertise, as well as interviews with knowledgeable industry and government officials and complementary data sources to inform their review of USGS production data and make decisions about whether to adjust tantalum figures. While DLA-Strategic Materials officials told us they are aware of limitations to USGS data, they told us they have generally relied on USGS mine data as the primary source for production data because its estimates are more conservative. Nevertheless, representatives stated that they believe the information USGS is able to collect and confirm is a basis for DOD's stockpile recommendations. Further, DLA-Strategic Materials officials told us that USGS has the knowledge-base and resources to effectively gather and validate reliable and unbiased mine production data as part of its stated mission and responsibilities. The Stockpiling Act is intended to provide a process to mitigate dangerous and costly reliance on foreign sources of materials during national emergencies. In accordance with the Stockpiling Act, DLA- Strategic Materials reports its findings of potential shortfalls of materials in the Stockpile Report every two years. In its 2015 report, tantalum was among over 90 materials assessed for a potential shortfall. Additionally, from 2011 through 2015 DLA-Strategic Materials identified potential shortfalls for tantalum. Since 2013, it has recommended stockpiling various amounts of tantalum. For example, in its 2013 Stockpile Report, DLA-Strategic Materials reported a shortfall for tantalum of 623,307 pounds, and DLA-Strategic Materials subsequently recommended stockpiling 187,000 pounds of tantalum divided evenly over a four-year period along with other mitigation strategies to address the estimated shortfall. In May 2015, subsequent to issuing the 2015 Stockpile Report, DLA-Strategic Materials was provided with updated primary tantalum production data from USGS that revised the supply of tantalum upward, reducing the estimated shortfall. However, based on historical and consistent shortfalls as well as the United States' reliance on foreign sources, DLA-Strategic Materials officials told us they plan to continue to seek legislative authority to stockpile tantalum. Table 3 identifies the reported tantalum shortfalls in DOD's Stockpile Report from 2011 to 2015 and recommended stockpiling actions. DLA-Strategic Materials uses a repeatable three-step process to identify potential shortfalls for materials during national emergency scenarios. In the first step, DLA-Strategic Materials identifies materials to assess and establishes data requirements needed for the shortfall assessments. DLA-Strategic Materials monitors a "watch list" of over 160 materials, which includes tantalum, that are of interest to the defense community. DLA-Strategic Materials then narrows the watch list to a smaller number of materials using an internal ranking system where additional weight is given to risks associated with heavy reliance on foreign sources of supply and single points of failure along the supply chain, among others. In the second step, DLA-Strategic Materials determines whether material shortfalls exist in the context of national emergency scenarios. A component of this step is to estimate the global supply of tantalum available for United States civilian and defense needs. To estimate available supply, DLA-Strategic Materials and the Institute for Defense Analyses rely on country reliability assessments, as well as the specific assumptions of the national emergency scenarios, to decrement foreign production during a conflict. DLA-Strategic Materials receives inputs from the intelligence community for the country reliability assessments and officials told us they may "zero out" a country's supply as part of their analyses if that country is deemed to be unreliable under the assumptions of the national emergency scenario. Because USGS production data is country- based, DLA-Strategic Materials can apply the assumptions of the national emergency scenario and country reliability assessments to decrement those amounts. In the third step of the process, DLA-Strategic Materials decides what mitigation strategies are appropriate to reduce any identified shortfalls, which may include recommendations to stockpile the material. For example, when a shortfall estimate is initially generated, DLA-Strategic Materials will determine whether mitigating options, such as substitution, reducing exports, or additional purchases of a material are sufficient to eliminate the shortfall. If mitigating options are not sufficient to eliminate the shortfall, the result is a net shortfall and DLA-Strategic Materials may decide to recommend a stockpiling action for that material. Figure 2 illustrates the shortfall analysis processes. While DOD has a detailed process for evaluating the availability of tantalum and other materials, DOD, USGS, and industry officials identified several challenges that affect their ability to gather complete and reliable tantalum data. For example, the USGS reported that unlike other materials and precious metals, tantalum concentrates are not publicly traded through commodities exchanges. Rather the material is bought and sold through networks of dealers and on contract between producers and consumers, some of whom may not provide accurate statistical data. Further, according to industry officials, artisanal mining, which is difficult to quantify in USGS reporting, may account for a significant portion of global tantalum production. In addition, industry officials commented that some artisanal mining production may enter the supply chain labeled as scrap to disguise its origin. While DLA-Strategic Materials officials told us that some of these concerns are not unique to tantalum, they said the lack of transparent tantalum supply data affects their ability to collect complete information to inform the stockpile analysis. Given the above challenges, officials from DOD, USGS, and industry acknowledged that tantalum has an "opaque" supply chain, making it difficult to collect more accurate data. Recognizing these challenges, DLA-Strategic Materials is taking additional steps to inform its analysis of tantalum availability. For example, DLA-Strategic Materials has requested that the Institute for Defense Analyses perform additional work on materials of interest. In 2013, the Institute for Defense Analyses completed a review that identified weaknesses in the supply chain for processed tantalum used in some defense applications. Further the Stockpiling Act permits DOD to identify materials requiring further study. According to the 2015 Stockpile Report, significant reliance on foreign sources or a single point of failure is the main basis for additional study, but other reasons, such as a net shortfall or the potential for supply chain disruption can also result in additional research into a material. Under this authority, DLA-Strategic Materials said they are conducting research into whether certain materials, such as tantalum, could be recovered through recycling of manufactured materials. Moreover, citing concerns about differences in tantalum data reported by USGS and industry sources, DOD's 2015 Stockpile Report noted that DLA-Strategic Materials will be comparing data and performing additional analyses on these two sources in advance of their 2017 report. DOD's efforts to review industry data were ongoing during our review, but officials noted several limitations to TIC data. For example, as discussed above, the TIC's data is not reported by country, which limits its use in support of the National Defense Stockpile analyses. Further, DLA- Strategic Materials officials told us they are uncertain about what portion of the industry is covered by TIC's reporting members, or how accurate the data are since there may be incentives for members to over- or under- report. Given these concerns, DLA-Strategic Materials officials identified several potential next steps they are considering upon completing their review of the TIC data. For example, officials said they could use the data as a complementary source to inform their review of USGS mine production data, similar to DLA-Strategic Materials' use of Roskill Information Services market report data. Additionally, officials told us that given the challenges of collecting accurate and reliable tantalum data, they may consider running two sets of analyses for tantalum in future stockpile reports--one using only USGS data and another that includes industry data estimates. In addition to their review of TIC's data, DLA-Strategic Materials is also in the process of compiling its own estimates for the supply of tantalum derived from slag, scrap, and recycled tantalum based on data and interviews with various sources, including USGS, Roskill Information Services, and tantalum processing companies. DLA-Strategic Materials officials told us that they plan to use these estimates to inform their 2017 analysis since the United States mostly imports these secondary types of tantalum, which are not included in USGS figures. We are not making recommendations in this report. DOD and the Department of the Interior were provided copies of the draft report. Neither DOD nor the Department of the Interior provided written comments. The Department of the Interior provided technical comments that were incorporated, as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Secretary of the Interior, the Director of the United States Geological Survey, the Secretary of Commerce, the Chairman of the Securities and Exchange Commission, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. The House Armed Services Committee Report on a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for GAO to examine the global tantalum supply chain. This report addresses (1) how data on tantalum supply reported by government sources differ from data reported by industry and (2) the extent to which the Department of Defense (DOD) has assessed the availability of tantalum during national defense emergency planning scenarios. To compare available tantalum data reported by government sources to industry sources, we met with United States Geological Survey (USGS) officials, Defense Logistics Agency Strategic Materials (DLA-Strategic Materials) and other DOD officials, and tantalum industry officials from the Tantalum-Niobium International Study Center (TIC) to identify tantalum data sources and collection methods, and to discuss the availability of tantalum supply data. For the purpose of our review we focused on USGS tantalum production estimates, which are DOD's primary source for estimated tantalum production in the 2015 Strategic and Critical Materials Report on Stockpile Requirements (Stockpile Report). We also reviewed industry data collected by the TIC, an international, non-profit association founded in 1974 with about 90 member companies worldwide. Some of the TIC's data are publically available, and the TIC is one of several industry data sources used by DOD to inform their analysis in the Stockpile Report. We obtained and analyzed the USGS tantalum production data that DOD used in developing the 2015 Strategic and Critical Materials Report on Stockpile Requirements as well as industry data to identify similarities and differences between the data sources and the methods of compiling estimates. We assessed the reliability of USGS data by (1) reviewing existing information about the data and the system that produced them, and (2) interviewing agency officials knowledgeable about the data. USGS takes steps to collect and confirm production estimates for use in their publications such as the Mineral Commodity Summaries and the Minerals Yearbook. Based on our review of the data and interviews with USGS and DOD we determined that USGS data were sufficiently reliable for our purposes. To assess the processes used by USGS to ensure the reliability of its data, we obtained USGS Fundamental Science Practices and Statistical Standards and discussed how those practices are implemented in the reviews of data to be published in USGS publications. In addition, due to differences in data collection and reporting methods, USGS and industry tantalum data are not directly comparable and, therefore, we do not compare supply estimates from these sources for the purpose of this report. We use the information to demonstrate differences between industry and USGS data and collection methods. For industry, we met with officials from the TIC, Roskill Information Services Ltd., Commerce Resources Corporation, and Global Advanced Metals. To the extent possible we confirmed types of information provided by the TIC by comparing it to published reports. We examined quarterly reports showing tantalum supply and discussed the types of data collected and reported and the processes used to assess reliability. However, based on our review of the process for collecting the data and assessing the reliability of the data provided by the members and on interviews with industry officials, we determined that the industry supply numbers were self-reported, but not verified, and, therefore, not sufficiently reliable for direct comparison to USGS data. Therefore, we did not compare USGS and industry figures for this report. To assess the extent to which DOD has evaluated the availability of tantalum during national defense emergency planning scenarios, we obtained and analyzed information in reports prepared by DLA-Strategic Materials for DOD's Office of the Undersecretary of Defense for Acquisition, Technology, and Logistics including the Stockpile Reports from 2011 through 2015 and the Annual Industrial Capabilities Reports to Congress. We met with officials from DLA-Strategic Materials and the Institute for Defense Analyses, the federally funded research center that assists with the stockpile analysis, to determine what steps were taken to assess the reliability of data used in the assessment process and mitigate risk. We obtained and examined DLA-Strategic Materials' proposed Annual Materials Plans for fiscal years 2015 through 2017. We reviewed relevant legislation, regulations, and policy including: the Strategic and Critical Materials Stock Piling Act (50 U.S.C. SS 98 et seq.); provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203 SS1502; policy documents from the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics concerning determining potential shortfalls and the organizational structure for executing the provisions of the Stockpiling Act. We reviewed DLA-Strategic Materials data used in the assessments and documentation of the steps they took to assure data reliability. To determine the extent to which DOD has assessed the availability of tantalum during specific national defense emergency scenarios as part of the National Defense Stockpile's biennial requirements assessment process, we reviewed the interagency support agreement between USGS and DLA-Strategic Materials. To understand the data and support USGS provides DLA-Strategic Materials, we reviewed the worldwide USGS production data provided to DLA-Strategic Materials for its assessment. We reviewed DOD reports to understand the analyses DOD had conducted to identify risks related to the availability of tantalum. Further, we met with officials from USGS, DLA-Strategic Materials, and with analysts from the Institute for Defense Analyses. We discussed sources of tantalum supply with industry representatives to determine what other sources of tantalum supply data are available and the general reliability of such data. We obtained documentation on the model DLA-Strategic Materials uses to conduct its stockpile analysis including the categories of information considered by the model to determine potential shortfalls and provide support for recommending stockpiling amounts. In addition, we interviewed DOD officials from the Under Secretary of Defense for Acquisition, Technology, and Logistics and DLA-Strategic Materials about actions underway to increase the accuracy of the data reported in the Stockpile Report. We obtained and analyzed such documentation as was available about proposed and ongoing actions to improve the reliability and accuracy of tantalum data. We assessed DOD's policies, procedures, and practices against criteria in applicable statutes, Standards for Internal Control in the Federal Government, and GAO's Framework for Assessing the Acquisition Functions at Federal Agencies. We determined whether or not documentation for the determination of reliability of the data used in the DLA-Strategic Materials model was provided but did not assess the adequacy of the information provided. We interviewed officials from USGS and DLA-Strategic Materials to clarify the issues. We concluded that the data had been collected and used in accordance with principles developed by USGS and DLA-Strategic Materials and were sufficiently reliable for the purpose of obtaining an understanding of the process used to collect the data, the model for determining potential shortfalls of material, and the reports produced by DLA-Strategic Materials. We conducted this performance audit from August 2015 to March 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Penny Berrier, Assistant Director; Marie Ahearn; Pedro Almoguera; John Beauchamp; Stephanie Gustafson; Jeffrey Harner; Mathew Jacobs; Carol Mebane; Jean McSween; Meghan Perez; Katrina Pekar-Carpenter; and Roxanna Sun made significant contributions to this review.
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The United States relies on foreign mine production of tantalum, a corrosion-resistant metal that is used in commercial and defense applications. Having reliable information on the global supply of tantalum is important for defense planning, particularly in determining if it is necessary to stockpile in case of future shortages. The House Armed Services Committee Report on a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for GAO to examine the global tantalum supply chain, with a focus on why data reported by the government and by industry vary. This report addresses (1) how tantalum supply data reported by government sources differ from industry data, and (2) the extent to which DOD has assessed the availability of tantalum during emergency planning scenarios. GAO reviewed data compiled by the USGS--DOD's primary source for tantalum production data--and by a tantalum industry organization that makes its information publicly available. GAO interviewed DOD and industry officials about the reporting and collection methods for the data; examined the data DOD uses to determine potential shortfalls of materials, including data for its biennial Strategic and Critical Materials Reports on Stockpile Requirements; and discussed with DOD officials steps they have taken to assess the reliability of the data used in the analyses. Data published by government and industry on the global supply of tantalum vary due to differences in forms of tantalum reported and data collection methods. For example, government data prepared by the United States Geological Survey (USGS) on tantalum production reports information on tantalum ore from mining. Industry data GAO obtained from the Tantalum-Niobium International Study Center includes additional forms of processed tantalum, such as synthetic concentrates and slags and recycled tantalum materials. In collecting data, the USGS employs specialists to estimate production data by country of origin for government agencies, including the Department of Defense (DOD), by conducting annual surveys of foreign governments on mine production and relying on country specialists. In contrast, industry data compiled by the Tantalum-Niobium International Study Center is based on aggregated data voluntarily reported by its member companies as a service to those members rather than in support of the federal government. The table below summarizes the differences in USGS and industry data. Source: GAO analysis of United States Geological Survey and tantalum industry data and collection methods. I GAO-16-335 DOD assesses the availability of tantalum, among other materials, for selected planning scenarios for the National Defense Stockpile's biennial assessment process. Further, DOD takes steps to help ensure that tantalum supply data used in its stockpile analyses are reliable. For example, USGS provides the Defense Logistics Agency-Strategic Materials (DLA-Strategic Materials)--the stockpile program manager--with the data it collects and validates. Consistent with internal control standards, DLA-Strategic Materials officials said they then verify sources and check calculations to ensure that data are reliable before conducting their stockpile analyses. Since 2013, DLA-Strategic Materials has identified potential shortfalls for tantalum and recommended stockpiling. Given DLA-Strategic Materials' interest in using the most accurate information available, it is taking additional steps to review and analyze existing industry tantalum data sources to better inform its stockpile analyses. GAO is not making recommendations. Neither DOD nor the Department of the Interior provided written comments.
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FSIS and FDA are the two primary food safety agencies. FSIS is responsible for the safety of meat, poultry, and processed egg products, and, pursuant to the Farm Bill, is given authority to inspect catfish as soon as it issues final regulations to carry out a catfish inspection program. FDA is responsible for virtually all other food, including seafood. Under the Federal Food, Drug, and Cosmetic Act, FDA is responsible for ensuring that the nation's food supply, including seafood, is safe, wholesome, sanitary, and properly labeled. Since 1997, FDA has used the internationally recognized Hazard Analysis and Critical Control Point (HACCP) system as its main oversight tool for seafood safety. FDA requires seafood processing firms--those that, among other things, manufacture, pack, or label seafood products--to use a HACCP system. Under this system, processors are primarily responsible for the safety of the seafood they process. That is, processors are responsible for identifying where in their processing system one or more hazards are reasonably likely to occur (hazard analysis) and implementing control techniques to prevent or mitigate these hazards. Processors are to lay out their hazard analysis and control techniques in HACCP plans. FDA verifies through inspections that the techniques are adequate to control the identified significant hazards and are being effectively implemented. FDA inspects domestic and foreign seafood processors in an effort to ensure their compliance with HACCP regulations. FDA supplements its HACCP oversight activities with an import oversight program that includes examination and testing of some imported seafood at ports of entry to ensure the products meet U.S. requirements, including the absence of residues of drugs that are unapproved for use in the United States and would render the seafood adulterated under the Federal Food, Drug, and Cosmetic Act; FDA also maintains data on the shipments of seafood that it has refused to allow into the United States. The FDA Food Safety Modernization Act (FSMA), enacted in January 2011, gives FDA new authorities to improve its ability to oversee the safety of imported foods. As described in FSMA, FDA must establish a system for recognizing accreditation bodies to accredit third-party auditors, including foreign governments, to conduct food safety audits to determine compliance with the Federal Food, Drug, and Cosmetic Act and to certify that eligible foreign entities, including seafood processors, meet applicable requirements. FDA may directly accredit third-party auditors under certain circumstances. FSMA also contains provisions on laboratory accreditation that enable FDA to leverage state, foreign government, and private laboratory resources for food testing. Furthermore, these laboratories must meet model standards developed by FDA that ensure quality and reliability of the test results used to verify the safety of any food product, including imports. In April 2011, we stated that FDA's current program to ensure the safety of imported seafood is limited because the agency relies on document review at individual foreign processing facilities and on importers for HACCP compliance, conducts only a few inspections of foreign facilities, samples a limited number of imports at the U.S. border, and does not make effective use of laboratory resources. For example, in fiscal year 2011, FDA examined about 3.4 percent of all seafood entries and performed laboratory analysis on 0.7 percent of these entries. We recommended, in part, that FDA study the feasibility of adopting practices that the European Union employs to ensure the safety of imported seafood products, such as requiring foreign countries that want to export seafood to the United States to develop a national residues monitoring plan to control the use of drugs used in aquaculture (fish farming). Because fish grown in confined aquacultured areas can have high rates of bacterial infections, farmers may treat them with drugs, such as antibiotics and antifungal agents, to increase fish survival rates. According to a 2008 FDA report, the residues of some of these drugs can cause cancer, allergic reactions, and antibiotic resistance when consumed by humans. As imports of aquacultured seafood products increase, so do the concerns over the presence of drug residues. NMFS's Seafood Inspection Program provides fee-for-service inspections, primarily under the authority of the Federal Agricultural Marketing Act of 1946. According to NMFS officials, NMFS's experience with seafood controls dates to the1970s, when the agency began systematically evaluating controls as part of its inspection program. NMFS more formally adopted the systematic evaluation with the development of its Quality Management Program in 1993, which integrates quality into its HACCP-based inspection system. Currently, NMFS provides inspection services on request to the seafood industry-- including domestic and foreign processors, distributors, and other firms-- to certify that these seafood firms comply with HACCP requirements and other federal food safety standards, among other things. Some retailers require this certification as a condition for purchasing the seafood products. Before 2002, various fish in the order Siluriformes were commonly labeled and sold as "catfish." However, in 2002, Congress amended the Federal Food, Drug, and Cosmetic Act to allow only fish from the family Ictaluridae (in the order Siluriformes) to use the name catfish in labeling. All other fish, such as those from the Pangasiidae family (in the order Siluriformes) that had previously been labeled as catfish, had to have other names on labels, such as basa, swai, or tra. In making catfish subject to mandatory FSIS inspection, the Farm Bill gave the Secretary of Agriculture discretion to define "catfish" for the purposes of inspection-- that is, to distinguish between different types of catfish or to consider all fish in the order Siluriformes as catfish. For purposes of this report, we refer to all catfish potentially subject to regulations as catfish, including fish in the family Ictaluridae, which are primarily of domestic origin, and Pangasiidae, which come primarily from Vietnam (see fig. 1). In recent years, the volume of imported catfish of all families entering the U.S. market has continued to increase, while the volume of domestic catfish entering the market has declined. In 2002, the percentage of imported catfish in the U.S. market was estimated at 2 percent, and by 2006, imported catfish of all families accounted for an estimated 12 percent of the U.S. market. This trend has continued: by 2010, imported catfish accounted for 23 percent of the U.S. catfish market, and domestic catfish accounted for 77 percent. The most recent data show a 29- percent decline in domestic catfish production from 2010 to 2011. Figure 2 shows the trend in the volume of domestic and imported catfish from 2006 to 2010. Overall, imported Siluriformes catfish constituted a small fraction of seafood imported to the U.S. in 2010, at about 3 percent. Figure 3 shows the major countries exporting catfish to the United States. The volume of catfish subject to FSIS's proposed catfish inspection program will depend on the definition of catfish that the Secretary of Agriculture decides to apply. In 2010, 79 percent of the catfish in the U.S. market consisted primarily of domestically processed catfish as well as some imported catfish from the family Ictaluridae, while the remaining 21 percent consisted of imported catfish from the family Pangasiidae. If the Secretary of Agriculture chose to limit the definition to catfish to the family Ictaluridae, FSIS's inspection program would thus cover almost 80 percent of the catfish in the U.S. market in 2010. The Farm Bill requires that FSIS issue the final regulations for its new catfish inspection program before it can begin inspecting catfish. Citing requirements of the Federal Crop Insurance Reform Act of 1994, FSIS prepared a risk assessment and an impact analysis and made them available for public review. FSIS used the risk assessment to determine the primary hazard of concern associated with consuming farm-raised catfish in the United States, and it conducted an impact analysis to examine the costs and benefits of the proposed regulations. FSIS prepared these documents to evaluate the potential public health benefits of its proposed program if the primary hazard were addressed. The Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 requires an analysis of the health risks and costs and benefits for major proposed regulations that regulate human health, human safety, or the environment (i.e., defined as regulations the Secretary of Agriculture estimates are likely to have an annual impact on the U.S. economy of $100 million in 1994 dollars). In addition, Executive Order 12866 established the guidance that agencies are to follow when developing regulations. Under this guidance, agencies are to identify the problem new regulations are intended to address and evaluate the significance of the problem. The executive order further directs that the agencies consider the alternative of not regulating, but it recognizes that agencies should issue regulations as required by law, as are the regulations for the catfish inspection program. The executive order directs agencies to provide a description of the need for any significant regulatory action, how that action meets the needs, and the costs and benefits of the action. A significant regulatory action includes any regulatory action that has an annual effect on the economy of $100 million or more or adversely affects, among other things, the economy or a sector of the economy. Under the executive order, the Office of Management and Budget (OMB) has a review function to, among other things; ensure that regulations are consistent with principles set forth in the executive order. In determining that Salmonella is the primary food safety hazard in catfish, FSIS officials told us that the agency focused on Salmonella at the direction of OMB, which considered Salmonella the most practical hazard to evaluate. However, we found that FSIS used outdated and limited information as its scientific basis for implementing a catfish inspection program that was required by law. According to FSIS, the agency initially focused its risk assessment of potential contaminants in catfish primarily on public health outcomes associated with chemical contaminants, with limited attention to Salmonella. (The appendix to FSIS's risk assessment includes information on these hazards.) However, upon reviewing the initial FSIS assessment, agency officials said that OMB directed FSIS to focus its catfish risk assessment on Salmonella, not as the "riskiest hazard" but as the "most practical" and to note that there was uncertainty regarding the sufficiency of information used to demonstrate the association between Salmonella and catfish. Furthermore, FSIS officials agreed that Salmonella was a practical choice, in part, because the agency could show that it is a major cause of illnesses in the United States, although not necessarily from catfish. For example, a 2011 report from the Department of Health and Human Services' Centers for Disease Control and Prevention stated that Salmonella infection causes more hospitalizations and deaths than any other bacteria and showed that the major sources of illnesses caused by Salmonella from 2004 to 2008 were poultry; eggs; pork; beef; and vine vegetables, fruits, and nuts. Moreover, the risk assessment cited FSIS's knowledge and experience working with Salmonella detection and prevention, but that its knowledge and experience related to poultry, not seafood. According to FSIS officials, because of OMB direction and availability of information, FSIS identified Salmonella as the primary hazard for catfish in its risk assessment. FSIS's risk assessment stated it assumed that the prevalence of the identified primary hazard associated with catfish was the same for domestic and foreign catfish. The risk assessment cited the following to support the claim that Salmonella in catfish was the primary hazard: Salmonella may be a concern with catfish because catfish are raised in fish farms, and Salmonella is a potential microbial hazard for aquatic environments. Salmonella is a high-priority hazard and of great concern in the United States because of the general burden of illnesses associated with it. In particular, FSIS's risk assessment stated that the Centers for Disease Control and Prevention had identified a 1991 Salmonella outbreak in which catfish may have been the source. A 1979 article in the Journal of Food Science indicated that Salmonella was found in 21 percent of catfish collected from ponds and retail markets. A 1998 research study found that 2 percent of catfish fillets collected from three processing facilities were contaminated with Salmonella. Researchers collected these catfish fillet samples between August 1994 and May 1995. According to an analysis by USDA's Economic Research Service of FDA data on imports that were denied entry into the United States from 1998 to 2004 (i.e., import refusal data), about 42 percent of the violations listed for imported catfish were for Salmonella. The following describes limitations we identified in FSIS's rationale for designating Salmonella as the basis for regulation: A 2010 United Nations Food and Agriculture Organization report on Salmonella contamination in aquaculture stated that products from fish farms are rarely involved in outbreaks of illnesses caused by Salmonella. In addition, even when a low prevalence of Salmonella is present, thorough cooking will eliminate the hazard. FSIS's risk assessment provided one example of a Salmonella outbreak associated with catfish consumption. This outbreak occurred in 1991, and the Centers for Disease Control and Prevention was not completely sure that catfish was the source of the Salmonella that resulted in the illnesses. For example, coleslaw was also consumed along with catfish and could have been the source of the Salmonella. The 1998 study cited in FSIS's risk assessment concluded that the health hazards from Salmonella and other bacteria in catfish were practically zero because the incidence in catfish was low and because catfish are cooked prior to consumption. Most of the information listed earlier and used by FSIS to support Salmonella as the primary hazard associated with catfish was compiled before 1997, when FDA required seafood processing facilities to implement HACCP systems. According to FDA documents, HACCP regulations initiated a landmark program to reduce seafood-related illnesses to the lowest possible levels. In its proposed catfish inspection regulations, FSIS acknowledged the impact of HACCP controls, stating that the one outbreak it identified occurred before FDA's implementation of HACCP regulations. It also noted that since HACCP implementation, no cases of illnesses caused by Salmonella and linked to catfish have been reported. In a subsequent report, USDA's Economic Research Service stated the analysis of FDA import refusal data that it provided to FSIS indicating a catfish violation rate of about 42 percent has its limitations and does not reflect the true violation level because this information is not based on a random sampling of imports. Rather, it reflects FDA's focus on areas with past compliance problems, such as companies and products.FSIS stated in its risk assessment that the limitations of the catfish In addition, in commenting on FDA's import samples, data would likely overestimate the prevalence of Salmonella contamination in catfish. FSIS also stated in its risk assessment that FDA sampling and testing limitations made reasonable assumptions about the prevalence of Salmonella in imported catfish nearly impossible. Preliminary results of microbiological testing FSIS conducted in 2011 to establish a baseline for Salmonella in catfish indicated the presence of Salmonella in over 1 percent of the total catfish samples taken in the study. This is lower than the presence of Salmonella identified in studies and other data sources that FSIS cited in its risk assessment (e.g., FDA import refusal data). FSIS stated in its risk assessment that data were limited regarding the prevalence of catfish contaminated with Salmonella. Furthermore, it stated there was substantial uncertainty about the number of illnesses caused by Salmonella that could be attributed to catfish consumption. Moreover, a peer-reviewed journal article by agency staff stated that scientific literature on foodborne hazards associated with catfish was limited and dated. The article added that extensive studies were needed to establish the baseline prevalence of Salmonella in catfish. FDA and NMFS, which each have about 14 years experience in inspecting catfish processing facilities under HACCP regulations, as well as experience in sampling catfish products, also questioned whether FSIS had adequately demonstrated that Salmonella in catfish was a problem. According to FDA and NMFS officials, FSIS did not provide any new information or data in its risk assessment indicating that catfish was unsafe to consume or that the current oversight system was not addressing any potential problems. According to FDA officials, based on the agency's experience and information from its own testing programs, catfish is a low-risk product, and the agency generally does not have any concerns related to Salmonella in catfish. According to NMFS officials, FSIS did not adequately demonstrate that Salmonella was a significant problem with catfish because data are not available to confirm this hazard. NMFS added that it was more likely that unapproved veterinary drugs and chemical residues were the hazards most associated with catfish. According to its proposed regulations, FSIS considered several other hazards it thought might be associated with catfish. FSIS's proposed catfish inspection program would further divide responsibility for overseeing seafood safety and introduce overlap at considerable cost. In our March 2011 report, we cited FSIS's catfish inspection program as an example of further fragmentation of the food safety system. In reviewing the proposed catfish program, we identified four areas that raise concerns about the potential for overlap or inefficient use of resources if FSIS were to implement the catfish inspection program: (1) similar HACCP requirements, (2) inspection overlap and unnecessary frequency of inspection, (3) inconsistent oversight of imported seafood, and (4) the cost of implementing FSIS's catfish inspection program. Similar HACCP requirements. FDA and NMFS require, and FSIS would require, facilities to implement HACCP systems to reduce the risk of illness from contaminated foods. Table 1 shows the requirements of a HACCP system for catfish and how each agency implements or would implement these requirements. As table 1 shows, the three agencies essentially do not differ from each other in their HACCP requirements. FSIS acknowledges that many domestic processing facilities are already meeting many of its proposed requirements. Nevertheless, if FSIS implements its proposed catfish program, catfish processors are likely to see their paperwork requirements increase. For example, FSIS would require written sanitation plans, while FDA inspectors do not require written sanitation plans and instead require only that sanitation be monitored and records kept, according to FDA officials. Therefore, catfish processing facilities without written sanitation plans would now be required to develop them. Catfish processing facilities that already contract for inspection services with NMFS must have written sanitation plans, but FSIS officials said the format of the FSIS sanitation plan would differ from the one already required by NMFS. FSIS officials noted that some of the additional paperwork burden required for FSIS regulations would be offset by the reduction of FDA paperwork requirements. However, facilities that process catfish and other seafood would be required to meet both FSIS and FDA paperwork requirements, which may differ. For instance, FSIS plans to develop its own forms for documenting a HACCP system, which will require processors of catfish and other seafood under FSIS and FDA oversight to enter the same information twice--once for FSIS and once for FDA. Inspection overlap and unnecessary inspection frequency. FSIS's proposed catfish program would introduce inefficiencies into the U.S. catfish inspection system by duplicating existing FDA and NMFS inspections. Currently, about 18 major domestic facilities process catfish, according to FSIS, and an unknown number of facilities process both catfish and other seafood. With the implementation of FSIS's catfish inspection program, facilities that process only catfish may be inspected by FSIS and NMFS, and facilities that process both catfish and other seafood may be inspected by all three agencies--FSIS, FDA, and NMFS. FDA inspects facilities that process only catfish every 3 to 5 years because it considers catfish a low-risk product, but it may inspect other facilities that process catfish, along with other seafood, more frequently, depending on the risks associated with the other seafood. NMFS conducts a minimum of quarterly inspections of processing facilities that participate in its Quality Management Program, including a majority of the domestic catfish-processing facilities FSIS identified. According to NMFS documents we reviewed, many retail and distribution firms buying processed catfish products currently require NMFS product verifications and are likely to still require NMFS verification after promulgation of the FSIS proposed regulations. For example, representatives we spoke with from two domestic facilities that process catfish and other seafood told us that they expect to continue to pay for NMFS inspections to meet retailer demands, despite any additional oversight FSIS provides. In addition to any NMFS services that they retain, facilities that process both catfish and other seafood will also be required to meet both FDA and FSIS requirements and will be subject to inspections by both agencies. According to FSIS officials, overlap of programs is outside the agency's control because the proposed program was mandated by Congress. Implementation of the proposed catfish inspection program would also fragment the export certification processes that some foreign governments require for the export of U.S.-produced seafood. Under its proposed regulations, FSIS would issue official export certificates for shipments of inspected and passed catfish products produced in the United States for export to foreign countries, as authorized by the Federal Meat Inspection Act. However, NMFS currently provides these certification services for all seafood, including catfish. According to NMFS officials, this dual certification creates a potential problem because NMFS already has approval from multiple foreign governments to serve as the U.S. certification authority for seafood exports. FSIS's proposed use of continuous monitoring in the form of daily inspections for catfish is also unlikely to reduce the hazard of contamination in catfish as intended and is not risk based, according to FDA and NMFS officials. (Under the Farm Bill, FSIS is required to issue final regulations to conduct continuous monitoring of catfish processing facilities, as it does for meat, poultry, and processed egg products facilities). FDA officials told us FSIS's continuous monitoring approach is counter to HACCP-based requirements for seafood and not based on risk. According to FDA and NMFS officials, only periodic inspection is necessary to verify that a HACCP plan is being implemented and adequate preventive controls are in place. According to NMFS documents we reviewed, the current HACCP approach to seafood safety is fundamental not only in the United States but also in most seafood- producing countries around the world. Consequently, these countries rely on periodic, not daily, inspections. In addition, NMFS stated that continuous inspection will not enhance the level of safety with catfish because disease cannot be identified by visual inspection, as it can for meat and poultry. NMFS noted that because continuous or daily inspection does not necessarily improve seafood safety, its use is more costly with little effect. We have reported on duplication and overlap in federal inspection of seafood in the past, when only FDA and NMFS were concerned. In 2009, we reported that FDA does not try to determine whether NMFS has already inspected a seafood facility when it is deciding which facilities to inspect. In 2011, we reported that NMFS and FDA were still not coordinating their inspection activities. Lack of coordination can burden seafood processors. For example, according to representatives of a facility that processes seafood, the facility was inspected approximately 21 times by NMFS, FDA, and USDA over a 4-year period, from 2005 to 2008, with no significant problems identified in any of the inspections. Inconsistent oversight of imported seafood. Consistent with the Federal Meat Inspection Act, as amended by the Farm Bill, FSIS plans to apply an equivalency approach for catfish that is similar to the one it uses for imported meat, poultry, and processed egg products. Under FSIS's equivalency approach, meat, poultry and processed egg products are not eligible for export to the United States unless FSIS has determined that the exporting country has a food safety system equivalent to that of the United States. Among other things, FSIS reviews documents provided by foreign governments, conducts on-site evaluations of government inspections of processing facilities, and audits laboratories to ensure their food safety regulations and oversight are adequate. In addition, FSIS reinspects products at U.S. ports of entry to promote compliance. Some individuals and organizations that supported the transfer of catfish safety from FDA to FSIS, which include representatives of the catfish industry and consumer groups, stated that there were several problems with FDA's oversight system, such as limited inspection and sampling of imported seafood, and that FSIS's proposed catfish program regulations, if implemented, would enhance catfish safety. For example, in their written comments to FSIS, some supporters stated that imported catfish may be unsafe because they were raised under less stringent standards, such as allowing the catfish to be exposed to whatever pollutants were present in the river water where they were raised. Supporters also indicated that imported catfish may contain residues from drugs that FDA has not approved for use in aquaculture. Finally, supporters noted that FSIS staff would review foreign catfish safety systems to ensure these systems met U.S. requirements before such products were admitted into U.S. commerce. In addition, FSIS inspectors would reinspect catfish imports at the ports of entry. In April 2011, we reported that FDA's oversight of imports is limited when compared with FSIS's more comprehensive reviews of food safety systems under its equivalence program. However, FSMA gives FDA authority to establish a system to accredit third-party auditors, including foreign governments, to take responsibility for certifying seafood processors or seafood meets FDA regulatory requirements. Under this system, a foreign government would have to demonstrate that its food safety programs, systems, and standards are capable of adequately ensuring that the foreign government and the foods it certifies, including seafood, meet FDA requirements. According to FDA officials, its new FSMA authorities complement the authority it already had to conduct comparability assessments, which are intended to help ensure the safety of imported foods. With comparability assessments, FDA can leverage the work of foreign governments whose food safety systems FDA has determined provide protections that are comparable to those of the U.S. food safety system. FDA is currently piloting a comparability assessment process with the European Union and New Zealand. New authorities provided in FSMA, including third party certification, will enable FDA to leverage resources of countries with sufficient qualifications--even though they may not have comparable systems--to help ensure that foods exported to the United States meet FDA requirements. Enacted in 2011, these new FSMA authorities were not available to FDA when the Farm Bill assigned responsibility for catfish inspection to FSIS in 2008. Cost of implementing FSIS's catfish inspection program. Currently, FDA estimates that it spends less than $700,000 annually to inspect catfish processing facilities, and NMFS inspection services pose no additional cost to the federal government because its costs are covered by industry service fees. FSIS estimates that the implementation of its proposed catfish inspection program would cost the federal government and industry an additional $14 million annually. As estimated by FSIS, the federal government bears most of the estimated cost, about 98 percent, and industry bears the remaining cost. We did not determine the accuracy of FSIS's estimate, but in our limited review we observed some limitations with FSIS's cost data and assumptions that would affect the final accuracy of the agency's estimate. For example, in its impact analysis, FSIS indicated that it did not have complete information on the total number of domestic and foreign catfish processing facilities that would be affected by the proposed regulations. In addition, the number of countries that will apply for equivalence determination is not known. The number of foreign applicants will, in turn, affect the cost FSIS will incur in making equivalence determinations and in examining shipments at ports of entry. In addition, FSIS may have overstated the federal dollars that FDA and NMFS would save if FSIS implements a catfish inspection program. For example, NMFS officials said that FSIS may have overstated the $1.5 million amount that would be saved if FSIS assumed all inspection duties previously carried out by NMFS inspectors. FDA officials stated that they could not validate the numbers FSIS used to estimate the amount of money FDA would save if FSIS implemented its proposed catfish program. In addition, FSIS estimated that it spent a total of $15.4 million from fiscal years 2009 to 2011 to develop the catfish inspection program, including costs related to catfish sampling studies. In fiscal year 2012, FSIS plans to spend an additional $4.4 million to support further program development. The cost effectiveness of FSIS's catfish inspection program is unclear. FSIS acknowledges in its risk assessment that there is substantial uncertainty about how effective FSIS's catfish inspection program will be in reducing the prevalence of Salmonella-contaminated catfish. In addition, FSIS acknowledged in its risk assessment that it lacks regulatory oversight experience with catfish processing facilities, although it has historically overseen the meat, poultry and processed egg products industries. FDA and NMFS officials we spoke with do not expect FSIS's proposed catfish inspection program to make catfish safer than it already is under current federal oversight programs. Moreover, FSIS would oversee a small fraction of all seafood imports to the United States-- about 3 percent--while FDA, using its enhanced authorities, could undertake oversight of all imported seafood. To implement the catfish inspection requirement in the Farm Bill, FSIS has proposed a program that seeks to mitigate the primary food safety hazard most associated with domestic and imported catfish, which FSIS identified as Salmonella. However, the agency's proposed catfish inspection program further fragments the federal oversight system for food safety without demonstrating that there is a problem with catfish or a need for a new federal program. We recognize that FSIS developed this program because it was mandated to do so by the Farm Bill--before FDA received enhanced regulatory authority under FSMA. Even so, FSIS proposed a program that essentially mirrors the catfish oversight efforts already underway by FDA and NMFS. Furthermore, since FDA introduced HACCP requirements for seafood processing facilities-- including catfish facilities--in 1997, no reported outbreaks of illnesses caused by Salmonella contamination of catfish have been reported--the hazard identified by FSIS--indicating the low risk presented by this pathogen in catfish. Consequently, if implemented, the catfish inspection program would likely not enhance the safety of catfish but would duplicate FDA and NMFS inspections at a cost to taxpayers. With FDA's new authority under FSMA, the federal government has an opportunity to enhance the effectiveness of the food safety system of all imported seafood, including catfish, and avoid the duplication of effort and costs that would result from FSIS's implementation of its proposed catfish inspection program. To enhance the effectiveness of the food safety system for catfish and avoid duplication of effort and cost, Congress should consider repealing provisions of the Farm Bill that assigned USDA responsibility for examining and inspecting catfish and for creating a catfish inspection program. We provided USDA and the Departments of Commerce and Health and Human Services with a draft of this report for their review and comment. We also provided a draft of this report to the Department of State, the Office of the U.S. Trade Representative, and the Office of Management and Budget. On April 25, 2012, we received written comments from USDA, which are reproduced in appendix II. USDA and the Department of Health and Human Services provided technical comments, which we incorporated as appropriate. The Department of Commerce did not provide written comments. USDA stated that it appreciated our work in planning, conducting, and issuing the report. USDA added that it is committed to completing the rulemaking process on catfish inspection in a manner that is consistent with the 2008 Farm Bill provisions. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, Health and Human Services, and State; the U.S. Trade Representative; the Director of the Office of Management and Budget; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. We were asked to examine the U.S. Department of Agriculture's (USDA) Food Safety Inspection Service's (FSIS) proposed catfish inspection program. Our objectives were to determine (1) how FSIS determined that Salmonella presented the primary food safety hazard in catfish and (2) the anticipated impact of FSIS's proposed catfish inspection program on other federal food safety inspection programs. To address the first objective, we reviewed documents FSIS had prepared including the draft risk assessment that assessed the hazards associated with consuming catfish. We also reviewed information on the Food and Drug Administration's (FDA) import refusals for imported catfish prepared by USDA's Economic Research Service for 1998 through August 2010. We also reviewed the results of FSIS's preliminary microbiological testing of catfish samples conducted in 2011. We interviewed officials from FSIS, FDA, and the National Marine Fisheries Service (NMFS) to better understand the food safety hazard catfish presents and the information FSIS presented in its draft risk assessment. We also interviewed officials from the Office of the U.S. Trade Representative, the Department of State, and the Office of Management and Budget. To gain stakeholders' perspectives on the food safety hazards that catfish present, we reviewed comments provided to FSIS during the public comment period. We also spoke with representatives from the Catfish Farmers of America, National Fisheries Institute, the Association of Food and Drug Officials, and the Center for Science in the Public Interest. To assess the anticipated impact of FSIS's proposed catfish inspection program on other federal food safety inspection programs, we reviewed the proposed regulations for the catfish inspection program and other agency documents including the preliminary regulatory impact analysis that describe the proposed program and the costs and benefits expected by FSIS after implementation. We reviewed the FDA Food Safety Modernization Act to identify the additional authorities to enhance the oversight of imported seafood this legislation granted FDA. We interviewed officials from FSIS, FDA, and NMFS to better understand FSIS's proposed program, its costs and benefits, and the similarities and differences between it and FDA and NMFS inspection programs. In our review of FDA and NMFS inspection programs, we also gathered information on program costs. To gain stakeholders' perspectives on FSIS's proposed regulations for continuous catfish inspection, we reviewed comments from industry and consumer groups provided to FSIS during the public comment period. We spoke with representatives of the Catfish Farmers of America and the National Fisheries Institute. We also spoke with representatives of two domestic seafood processors that process both catfish and other seafood during site visits to their facilities in Massachusetts to gain their perspectives on the potential impact of the proposed regulations on their operations. We reviewed past GAO reports relevant to this topic. In addition, we analyzed Department of Commerce data on imported seafood, including catfish, for 2010. We present these data as background to illustrate the relative volume of catfish and other seafood. We also analyzed USDA National Agricultural Statistics Service data on catfish processing to illustrate trends in domestic catfish production and imports from 2006 to 2010, also as background. For both of these data sets we reviewed existing documentation about these data and any limitations. We found both data sets to be sufficiently reliable for the above-mentioned purposes. We conducted this performance audit from June 2011 to May 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the individual named above, Anne K. Johnson (Assistant Director), David Moreno (Analyst-in-Charge), Michele Sahlhoff, Carol Herrnstadt Shulman, Swati Sheladia Thomas, and Kiki Theodoropoulos made key contributions to this report. Important contributions were also made by Kevin Bray, Michele Fejfar, Jose Alfredo Gomez, and Jena Sinkfield.
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Since 2007, federal oversight of food safety has been on GAO's list of highrisk areas, largely because of fragmentation that has caused inconsistent oversight, ineffective coordination, and inefficient use of resources. The Food, Conservation, and Energy Act of 2008 (Farm Bill) further fragmented the food safety system by directing FSIS to issue catfish inspection regulations. FSIS prepared a risk assessment to determine risks associated with catfish and identified Salmonella as the primary food safety hazard in catfish. The Farm Bill split responsibility for seafood safety between FSIS, for catfish inspection, and FDA, for seafood generally; in addition, NMFS provides fee-for-service inspections of seafood-processing facilities. GAO was asked to examine FSIS's proposed catfish inspection program. Salmonella was a problem with catfish. With the implementation of FSIS's proposed catfish inspection program, responsibility for overseeing seafood safety would be further divided and would duplicate existing federal programs at a cost. Under FSIS's proposed program, processers would implement written sanitation and hazard control plans; FSIS would conduct continuous inspections of domestic catfish processing; and for imported catfish--which equal about 3 percent of all seafood imports--foreign countries would need to demonstrate equivalence to U.S. standards. According to FSIS, implementing this program will cost the government and industry about $14 million annually. If FSIS's proposed program were implemented, GAO expects it would cause duplication and inefficient use of resources in several key areas. First, the program requires implementation of hazard analysis plans that are essentially the same as FDA's hazard analysis requirements. Second, if the program is implemented, as many as three agencies--FDA, FSIS, and NMFS--could inspect facilities that process both catfish and other types of seafood. Both FDA and NMFS officials stated that continuous inspection will not improve catfish safety and is counter to the use of FDA's hazard analysis requirements, in which systems are most efficiently monitored periodically rather than daily. Third, the FDA Food Safety Modernization Act (FSMA) gives FDA authority to establish a system to accredit third party auditors, including foreign governments, to certify imported seafood meets FDA regulatory requirements. FDA officials stated that this new authority complements FDA's existing authority to obtain assurances about the safety of seafood exports from countries with food safety systems FDA determined are comparable to the United States. Under these systems more than catfish could be covered. With FDA's new authority under FSMA, the federal government has an opportunity to enhance the safety of all imported seafood--including catfish--and avoid the duplication of effort and cost that would result from FSIS's implementation of its proposed program. Congress should consider repealing provisions of the Farm Bill assigning USDA responsibility for catfish inspection. USDA stated it is committed to completing the rulemaking process on catfish inspection consistent with the 2008 Farm Bill provisions.
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Our work has repeatedly shown that mission fragmentation and program overlap are widespread in the federal government. In 1998 and 1999, we found that this situation existed in 12 federal mission areas, ranging from agriculture to natural resources and environment. We also identified, in 1998 and 1999, 8 new areas of program overlap, including 50 programs for the homeless that were administered by eight federal agencies. These programs provided services for the homeless that appeared to be similar. For example, 23 programs operated by four agencies offered housing services, and 26 programs administered by 6 agencies offered food and nutrition services. Although our work indicates that the potential for inefficiency and waste exists, it also shows areas where the intentional participation by multiple agencies may be a reasonable response to a complex public problem. In either situation, implementation of federal crosscutting programs is often characterized by numerous individual agency efforts that are implemented with little apparent regard for the presence of efforts of related activities. In our past work, we have offered several possible approaches for better managing crosscutting programs--such as improved coordination, integration, and consolidation--to ensure that crosscutting goals are consistent; program efforts are mutually reinforcing; and, where appropriate, common or complementary performance measures are used as a basis for management. One of our oft-cited proposals is to consolidate the fragmented federal system to ensure the safety and quality of food. Perhaps most important, however, we have stated that the Results Act could provide the Office of Management and Budget (OMB), agencies, and Congress with a structured framework for addressing crosscutting program efforts. OMB, for example, could use the governmentwide performance plan, which is a key component of this framework, to integrate expected agency-level performance. It could also be used to more clearly relate and address the contributions of alternative federal strategies. Agencies, in turn, could use the annual performance planning cycle and subsequent annual performance reports to highlight crosscutting program efforts and to provide evidence of the coordination of those efforts. OMB guidance to agencies on the Results Act states that, at a minimum, an agency's annual plan should identify those programs or activities that are being undertaken with other agencies to achieve a common purpose or objective, that is, interagency and crosscutting programs. This identification need cover only programs and activities that represent a significant agency effort. An agency should also review the fiscal year 2003 performance plans of other agencies participating with it in a crosscutting program or activity to ensure that related performance goals and indicators for a crosscutting program are consistent and harmonious. As appropriate, agencies should modify performance goals to bring about greater synergy and interagency support in achieving mutual goals. In April 2002, as part of its spring budget planning guidance to agencies for preparing the President's fiscal year 2004 budget request, OMB stated that it is working to develop uniform evaluation metrics, or "common measures" for programs with similar goals. OMB asked agencies to work with OMB staff to develop evaluation metrics for several major crosscutting, governmentwide functions as part of their September budget submissions. According to OMB, such measures can help raise important questions and help inform decisions about how to direct funding and how to improve performance in specific programs. OMB's common measures initiative initially focused on the following crosscutting program areas: low income housing assistance, job training and employment, health. We recently reported that one of the purposes of the Reports Consolidation Act of 2000 is to improve the quality of agency financial and performance data. We found that only 5 of the 24 Chief Financial Officers (CFO) Act agencies' fiscal year 2000 performance reports included assessments of the completeness and reliability of their performance data in their transmittal letters. The other 19 agencies discussed, at least to some degree, the quality of their performance data elsewhere in their performance reports. To address these objectives, we first defined the scope of each crosscutting program area as follows: Border control focuses on major federal security policies and operations that manage and govern the entry of people, animals, plants, and goods into the United States through air, land, or seaports of entry. Flood mitigation and insurance focuses on major federal efforts to proactively reduce the loss in lives and property due to floods and minimize the postflood costs of repair and construction. Wildland fire management focuses on major federal efforts to reduce accumulated hazardous fuels on public lands. Wetlands focuses on major federal efforts to protect and manage this resource, such as restoration, enhancement, and permitting activities. To identify the agencies involved in each area we relied on previous GAO work and confirmed the agencies involved by reviewing the fiscal year 2001 Results Act performance report and fiscal year 2003 Results Act performance plans for each agency identified as contributing to the crosscutting program area. One of the agencies we identified as being involved in the areas of flood mitigation and wetlands was the U.S. Army Corps of Engineers (Corps). Although we identify the Corps, we do not comment on the agency because, as noted above, the Department of Defense did not submit a fiscal year 2001 performance report or fiscal year 2003 performance plan and was not included in our review. To address the remaining objectives, we reviewed the fiscal year 2001 performance reports and fiscal year 2003 performance plans and used criteria contained in the Reports Consolidation Act of 2000 and OMB guidance. The act requires that an agency's performance report include a transmittal letter from the agency head containing, in addition to any other content, an assessment of the completeness and reliability of the performance and financial data used in the report. It also requires that the assessment describe any material inadequacies in the completeness and reliability of the data and the actions the agency can take and is taking to resolve such inadequacies. OMB guidance states that an agency's annual plan should include a description of how the agency intends to verify and validate the measured values of actual performance. The means used should be sufficiently credible and specific to support the general accuracy and reliability of the performance information that is recorded, collected, and reported. We did not include any changes or modifications the agencies may have made to the reports or plans after they were issued, except in cases in which agency comments provided information from a published update to a report or plan. Furthermore, because of the scope and timing of this review, information on the progress agencies may have made on addressing their management challenges during fiscal year 2002 was not yet available. We did not independently verify or assess the information we obtained from agency performance reports and plans. Also, that an agency chose not to discuss its efforts to coordinate in these crosscutting areas in its performance reports or plans does not necessarily mean that the agency is not coordinating with the appropriate agencies. We conducted our review from September through November 2002, in accordance with generally accepted government auditing standards. As shown in table 1, multiple agencies are involved in each of the crosscutting program areas we reviewed. The discussion of the crosscutting areas below summarizes detailed information contained in the tables that appear in appendix I through IV. Hostile nations, terrorist groups, transnational criminals, and even individuals may target American people, institutions, and infrastructure with weapons of mass destruction and outbreaks of infectious disease. Given these threats, successful control of our borders relies on the ability of all levels of government and the private sector to communicate and cooperate effectively with one another. Activities that are hampered by organizational fragmentation, technological impediments, or ineffective collaboration blunt the nation's collective efforts to secure America's borders. Each of the five agencies we reviewed in the area of border control-- Agriculture, Justice, State, Transportation, and Treasury--discussed in their performance reports and/or plans the agencies they coordinated with on border control issues, although the specific areas of coordination and level of detail provided varied. For example, Agriculture, which focuses on reducing pest and disease outbreaks and foodborne illnesses related to meat, poultry, and egg products in the United States, discusses coordination with a different set of agencies than the other four agencies, which share a focus on border control issues related to travel, trade, and immigration. Agriculture stated that it is a key member of the National Invasive Species Council, which works with other nations to deal with the many pathways by which exotic pests and diseases could enter the United States. Agriculture also stated that it coordinates with the Department of Health and Human Services and EPA on food safety issues. Although Agriculture states it is responsible for inspecting imported products at ports of entry, it does not specifically describe any coordination with the Customs Service within Treasury or the Border Patrol within Justice. In its combined performance report and plan, Transportation provided general statements that the Coast Guard regularly coordinates with a variety of agencies on immigration issues and potential international agreements to ensure security in ports and waterways. However, Transportation provided a more extensive discussion of the coordination and roles played by bureaus within the agency. For example, for its goal to ensure that sea-borne foreign and domestic trade routes and seaports remain available for the movement of passengers and cargo, Transportation states that the Transportation Security Administration, the Maritime Administration (MARAD), and the Coast Guard will coordinate with the international community and federal and state agencies to improve coordination of container identification, tracking, and inspection. As an example of the roles described, Transportation states that the Coast Guard and MARAD will test deployment plans through port security readiness exercises. In its performance report, State listed the partners it coordinates with for each performance goal, but did not always provide details about the coordination that was undertaken. Both Justice and Treasury discuss expanded cooperation through BCI, which includes Agriculture; Customs; Coast Guard; the Immigration and Naturalization Service (INS), and other federal, state, local, and international agencies. According to Customs, BCI efforts toward increased cooperation among partner agencies included cross training, improved sharing of intelligence, community and importer outreach, improved communication among agencies using radio technology, and cooperative operational and tactical planning. Of the five agencies we reviewed, only Justice reported meeting all of its fiscal year 2001 performance goals related to securing America's borders. Transportation reported not meeting either of its two goals related to border control, but provided explanations and strategies for meeting the goals in the future that appeared reasonable. For example, Transportation said it did not meet its target for the percentage of undocumented migrants interdicted and/or deterred via maritime routes because socioeconomic conditions here and abroad and political and economic conditions caused variations in illegal migration patterns. To meet the target in the future, the Coast Guard plans to operate along maritime routes and establish agreements with source countries to reduce migrant flow. For its two performance goals related to border control, State reported progress in meeting its goal of reducing the risk of illegitimate entry of aliens hostile to the nation's interest, but not meeting the immigrant visa targets. State explained that it failed to meet this goal due to extremely high demand for visa numbers from INS to adjust the status of large numbers of aliens already in the United States, but did not provide any specific strategies for meeting this goal in the future. Treasury reported meeting its targets for all but two of its seven measures related to its strategic goal of protecting the nation's borders and major international terminals from traffickers and smugglers. Treasury did not provide reasonable explanations for either shortfall, and did not discuss strategies for achieving those targets in the future. Agriculture reported meeting all but one of its performance targets for its three goals. The unmet performance target for significantly reducing the prevalence of salmonella on broiler chickens fell under Agriculture's goal of creating a coordinated national and international food safety risk management system. Agriculture provides a reasonable explanation, but it is not clear if from the discussion if it is a domestic or international issue. According to their performance plans, the five agencies generally aimed to achieve the same goals as those reported on in fiscal year 2001, with targets adjusted to reflect higher performance levels. Transportation reported that it established a new performance goal and related measure in fiscal year 2002 that would also be included in the fiscal year 2003 plan. The new goal is to ensure that sea-borne foreign and domestic trade routes and seaports remain available for the movement of passengers and cargo. The new measure is the percentage of high-interest vessels screened, with a target of 100 percent for fiscal year 2003. Three of the five agencies--Agriculture, Justice, and Transportation-- discussed strategies that appeared to be reasonably linked to achieving their fiscal year 2003 goals. For example, Transportation discusses strategies for each of its goals. For its new goal Transportation describes strategies, such as increasing intelligence efforts in ports; improving advanced information on passengers, crew, and cargo; and establishing or improving information and intelligence fusion centers in Washington and on both coasts. It also identified more specific efforts, such as increasing boarding and escort operations to protect vessels carrying large numbers of passengers and vessels with dangerous cargo, such as liquefied natural gas or other volatile products, from becoming targets. In contrast, Customs discussed a more limited "strategic context" for each of its goal areas and other information in sections pertaining to specific Customs activities, both of which varied in the level of detail. For example, for its goal of contributing to a safer America by reducing civil and criminal activities associated with the enforcement of Customs laws, Customs defined challenges and constraints to achieving the goal and mentions that it is playing a major role in the interdiction and detection of weapons of mass destruction entering or leaving the United States, including increased vessel, passenger, and cargo examinations. For the most part, State provided only general statements of how it plans to achieve its fiscal year 2003 goals. For example, regarding its visa issuance goal, State said it has committed itself to improving its visa procedures and coordination with other agencies and departments. Regarding the completeness, reliability, and credibility of their reported performance data, Agriculture, Justice, Transportation, and Treasury provided general statements about the quality of their performance data and provided some information about the quality of specific performance data. For example, Transportation provided extensive information on its measures and data sources that allow for an assessment of data quality. The information includes (1) a description of the measure, (2) scope, (3) source, (4) limitations, (5) statistical issues, and (6) verification and validation. Other explanatory information is provided in a comment section of Transportation's combined performance plan and report. State did not provide consistent or adequate information for the border-control- related data sources to make judgments about data reliability, completeness, and credibility. For the most part, State provided only a few words on the data source, data storage, and frequency of the data. Floods have inflicted more economic losses upon the United States than any other natural disaster. Since its inception 34 years ago, the National Flood Insurance Program (NFIP) has combined flood hazard mitigation efforts and insurance to protect homeowners against losses from floods. The program, which is administered by FEMA, provides an incentive for communities to adopt floodplain management ordinances to mitigate the effects of flooding upon new or existing structures. It offers property owners in participating communities a mechanism--federal flood insurance--to cover flood losses without increasing the burden on the federal government to provide disaster relief payments. Virtually all communities in the country with flood-prone areas now participate in NFIP, and over 4 million U.S. households have flood insurance. The two agencies we reviewed--Agriculture and FEMA--generally address coordination efforts regarding the issue of flood mitigation. Agriculture states in its report and plan that it works with other agencies, such as FEMA and the Corps, to obtain data regarding its goal related to flood mitigation. However, Agriculture does not further specify coordination activities. FEMA's fiscal year 2001 performance report does not state which agencies it collaborates with to achieve goals related to flood mitigation and insurance. FEMA's plan provides an appendix that outlines the crosscutting activities and partner agencies associated with its flood mitigation and preparedness activities. For example, FEMA states it is the chair of the President's Long-Term Recovery Task Force, which helps state and local governments to identify their needs related to the long-term impact of a major, complex disaster. Agencies FEMA coordinates on this effort with include the departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Labor, and Transportation, among other organizations. Agriculture reported that it did not meet its only fiscal year 2001 goal related to flood mitigation--providing benefits to property and safety through flood damage reduction by completing 81 watershed protection structures. Agriculture explained that it did not meet the goal because (1) complex engineering can result in watershed protection structures taking several years to complete, (2) multiple funding sources, including federal, state, and local funds, may alter the schedule for completing the structures, and (3) external factors such as weather and delays in obtaining land rights and permits caused delays in construction. Agriculture states that many of the structures that were not completed in time for the fiscal year 2001 report will be complete in the next few months. FEMA reported meeting all but one of its fiscal year 2001 goals and indicators related to flood mitigation and insurance. FEMA's five goals were (1) prevent loss of lives and property from all hazards, (2) collect and validate building and flood loss data, confirm that the reduction in estimated losses from NFIP activities exceeds $1 billion, and continue systematic assessment of the impact and effectiveness of NFIP, (3) increase the number of NFIP policies in force by 5 percent over the end of the fiscal year 2000 count, (4) improve the program's underwriting ratio, and (5) implement NFIP business process improvements. FEMA reported that it did not meet the third goal, explaining that, although the end of year policy count for fiscal year 2001 increased, the retention rates for existing policies were not maintained. FEMA outlined three strategies that appeared reasonably linked to achieving the unmet goal in the future: (1) placing two new fiscal year 2002 television commercials that emphasize the importance of buying and keeping National Flood Insurance, (2) establishing retention goals for "Write Your Own" companies, private insurance companies that write flood insurance under a special arrangement with the federal government, and (3) targeting its marketing strategies toward those properties no longer on the books. Because it revised its strategic plan, FEMA reorganized the layout of its fiscal year 2003 performance plan. Nevertheless, FEMA's fiscal year 2003 performance goals and measures are similar to those that appear in its fiscal year 2001 performance plan. FEMA merged its goal of implementation of NFIP business process improvements into its fiscal year 2003 goal of improving NFIP's "bottom line," an income-to-expense ratio, by 1 percent. In addition, FEMA merged two other goals: (1) prevent loss of lives and property from all hazards and (2) collect and validate building and flood loss data, confirm that the reduction in estimated losses from NFIP activities exceeds $1 billion, and continue the systematic assessment of the impact and effectiveness of NFIP. FEMA adopted one new goal in its fiscal year 2003 plan related to modernizing its floodplain mapping. Agriculture expects to continue making progress on its goal of providing benefits to property and safety through flood damage reduction, but has adopted a new approach to achieving the goal. Agriculture appears to have dropped its target for completing new watershed protection structures and instead plans to implement a new program of rehabilitating aging dams. Overall, the strategies Agriculture and FEMA plan to use appear to be reasonably linked to achieving their fiscal year 2003 goals. For example, to support its fiscal year 2003 performance goals, FEMA outlines several strategies, such as increasing the number of Emergency Action Plans in communities located below significant and potentially high-hazard dams. In its fiscal year 2001 Annual Performance and Accountability Report, FEMA states "the performance measurement criteria and information systems are thought to be generally effective and reliable." FEMA does not individually identify data quality assessment methods for any of its performance indicators. However, it acknowledges a data limitation for one of its goals relating to business process improvement. FEMA explained that it relied on trend data to assess its performance in customer service for fiscal year 2001 because of a delay in obtaining OMB approval for distributing its customer surveys that year. FEMA states that it plans to conduct the surveys in fiscal year 2002 to obtain more accurate information. Agriculture addresses this issue at the beginning of its report by stating, "performance information supporting these performance goals is of sufficient quality and reliability except where otherwise noted in this document." Agriculture also states that the data reported by state offices for fiscal year 2001 are accurate. According to estimates by FWS, more than half of the 221 million acres of wetlands that existed during colonial times in what is now the contiguous United States have been lost. These areas, once considered worthless, are now recognized for the variety of important functions that they perform, such as providing wildlife habitats, maintaining water quality, and aiding in flood control. Despite the passage of numerous laws and the issuance of two presidential orders for protecting wetlands, no specific or consistent goal for the nation's wetlands-related activities existed until 1989. Recognizing the value of wetlands, in 1989, President George Bush established the national goal of no net loss of wetlands. However, the issue of wetlands protection and the various federal programs that have evolved piecemeal over the years to protect and manage this resource have been subjects of continued debate. We previously reported that for the six major agencies involved in and responsible for implementing wetlands-related activities--the Corps, Agriculture's Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS), Interior's FWS, Commerce's NOAA, and EPA--the consistency and reliability of wetlands acreage data reported by these federal agencies were questionable. Moreover, we reported that the agencies' reporting practices did not permit the actual accomplishments of the agencies--that is, the number of acres restored, enhanced, or otherwise improved--to be determined. These reporting practices included inconsistencies in the use of terms to describe and report wetlands-related activities and the resulting accomplishments, the inclusion of nonwetlands acreage in wetlands project totals, and the double counting of accomplishments. We recommended that these agencies develop and implement a strategy for ensuring that all actions contained in the Clean Water Action Plan related to wetlands data are adopted governmentwide. Such actions included, in addition to the ongoing effort to develop a single set of accurate, reliable figures on the status and trends of the nation's wetlands, the development of consistent, understandable definitions and reporting standards that are used by all federal agencies in reporting their wetlands-related activities and the changes to wetlands that result from such activities. The agencies we reviewed generally discussed the need to coordinate with other agencies in their performance plans, but provided little detail on the level of coordination or specific coordination strategies. Agriculture's annual performance plan includes a strategy to work with other federal agencies and partners to identify priority wetlands that could benefit from conservation practices in the surrounding landscape. Neither of the bureaus within Agriculture--FSA or NRCS--specifically discussed coordination on wetlands issues in their performance reports or plans. Interior's annual performance report and plan indicate that it will work with Agriculture, EPA, the Corps, the Federal Energy Regulatory Commission (FERC), and the states on wetlands issues. EPA discusses cooperation with the Corps, NOAA's National Marine Fisheries Service within Commerce, FEMA, FWS within Interior, and NRCS within Agriculture, but provides no specifics. Both Commerce and NOAA indicate that they work with other federal agencies to address crosscutting issues. Although NOAA mentions that it works closely with other agencies on a number of crosscutting issues to address critical challenges facing coastal areas, its plan does not specifically mention coordination with other agencies on wetlands issues. Each of the agencies we reviewed had goals related to wetlands that it reported having met or exceeded in fiscal year 2001. For example, FWS within Interior reported that it restored or enhanced 144,729 acres of wetlands habitat on non-FWS lands, exceeding its goal of 77,581 acres. However, FWS did not report on the number of acres of wetlands restored or enhanced on FWS lands and did not distinguish between the number of acres restored and the number enhanced. Furthermore, several of the agencies included nonwetlands acreage when reporting their accomplishments, and NOAA changed its performance measure from acres of coastal wetlands restored to acres benefited. Consequently, the contributions made by these agencies toward achieving the national goal of no net loss of the nation's remaining wetlands cannot be determined from their reports. Each of the agencies we reviewed had plans to create, restore, enhance, and/or benefit additional wetlands acreage in fiscal year 2003, although the targets were in some cases lower than the targets for fiscal year 2001. Of the agencies we reviewed, only NRCS indicated in its plan that its progress would contribute to the national goal of no net loss of wetlands. The strategies the agencies planned to use appeared to be reasonably linked to achieving their fiscal year 2003 goals. For example, FSA planned to use the same strategy it has successfully used in past years to achieve its goals-- working with producers to enroll land in the Conservation Reserve Program. Regarding the completeness, reliability, and credibility of the performance data reported, agency discussions varied in the specifics they provided. NOAA and FWS had overall discussions of the sources of their performance data and the verification procedures they followed in their performance reports. Within Agriculture, while FSA reported on the sources and processes used to develop the data reported for the number of wetlands acres restored, NRCS discussed its requirement that each state conservationist verify and validate the state's performance data. NRCS also acknowledged that some discrepancies were noted when the performance data were analyzed, but indicated that there was no compelling reason to discount the performance data reported. Two agencies--FWS and EPA--acknowledged shortcomings in the data, including the possibility of double counting performance data. EPA also indicated that the measure might not reflect actual improvements in the health of the habitat. While FWS does not discuss any steps to resolve or minimize the shortcomings in its data, EPA described improvements it made to make data reported more consistent. FSA indicated some limitations to its data for the Conservation Reserve Program, which it attributed to lags between the date a contract is signed with a producer and when the data are entered, the continual updating of the contract data, and the periodic changes in contract data, but did not discuss any steps to resolve the limitation. We recently testified that the most extensive and serious problem related to the health of forested lands--particularly in the interior West--is the overaccumulation of vegetation, which is causing an increasing number of large, intense, uncontrollable, and destructive wildfires. In 1999, Agriculture's Forest Service estimated that 39 million acres of national forested lands in the interior West were at high risk of catastrophic wildfire. This figure later grew to over 125 million acres as Interior agencies and states identified additional land that they considered to be high risk. To a large degree, these forest health problems contributed to the wildfires in the year 2000--which were some of the worst in the last 50 years. The policy response to these problems was the development of the National Fire Plan--a long-term, multibillion-dollar effort to address the wildland fire threats we are now facing. Our work on wildland fire has stressed the need for three things: (1) a cohesive strategy to address growing threats to national forest resources and nearby communities from catastrophic wildfires, (2) clearly defined and effective leadership to carry out that strategy in a coordinated manner, and (3) accountability to ensure that progress is being made toward accomplishing the goals of the National Fire Plan. Two years ago, the Forest Service and Interior began developing strategies to address these problems, and recently established a leadership entity--the Wildland Fire Leadership Council--that is intended to respond to the need for greater interagency coordination. Whether the strategy and the council will serve as the framework and mechanism to effectively deal with the threat of catastrophic wildland fire remains to be seen and will depend upon how well the National Fire Plan is implemented. To determine the effectiveness of this implementation effort, we continue to believe that a sound performance accountability framework is needed, one that provides for specific performance measures and data that can be used to assess implementation progress and problems. Both Interior and the Forest Service indicate in their performance plans their participation in developing the 2000 National Fire Plan and a 10-year Comprehensive Strategy under the plan. Furthermore, both agencies discuss current efforts under way to develop a joint Implementation Plan for the Comprehensive Strategy. Consistent with our recommendations, the implementation plan is reported to include cooperatively developed, long-term goals and performance measures for the wildland fire management program. In its performance report, the Forest Service detailed additional specific actions it collaborated on with Interior and other agencies related to wildland fire management, such as conducting an interagency review of the fire plan system. Regarding progress in achieving its fiscal year 2001 goals, Interior reported meeting only about half of its planned target of using fire and other treatments to restore natural ecological processes to 1.4 million acres. Although Interior's report provided reasonable explanations for the unmet goals--difficulty in obtaining permits to carry out the treatments and shifting of resources from restoration to suppression of active fires--it did not discuss any specific strategies for overcoming these challenges in the future. The Forest Service reported meeting its goal of treating wildlands with high fire risks in national forests and grasslands. However, the Forest Service did not meet any of the individual indicators related to this goal. For example, the Forest Service treated only 1.4 million acres of its targeted 1.8 million hazardous fuel acres. The Forest Service provided explanations that appeared reasonable for some of its unmet targets. For example, unusual drought conditions combined with the added complexities and restrictions of treating hazardous fuels in the wildland urban interface contributed to the unmet hazardous fuels goal. The Forest Service did not provide any strategies for meeting the unmet targets in the future. In fiscal year 2003, Interior expects to treat 1.1 million acres to reduce hazards and restore ecosystem health compared to its goal of 1.4 million acres in 2001. In addition, Interior has added goals for wildland fire containment, providing assistance to rural fire departments, treating high- priority fuels projects, and bringing fire facilities up to approved standards. Interior's strategies for achieving these goals are very broad and general and lack a clear link or rationale for how the strategies will contribute to improved performance. The Forest Service expects to treat 1.6 million acres to reduce hazardous fuels, slightly less than its 2001 target of 1.8 million acres, and assist over 7,000 communities and fire departments. The Forest Service did not include one of its targets for 2001--maximizing fire fighting production capability. The Forest Services strategies for achieving its goals, although fairly general, appear to be reasonably linked to achieving each of the performance targets. The performance data reported by Interior and the Forest Service for wildfire management generally appear to be complete, reliable, and credible. The Forest Service reported that it will use the Budget Formulation and Execution System to report on performance. However, we have found that this system is more of a planning tool for ranking fuel reduction work at the local unit level and that another system, the National Fire Plan Operations and Reporting System, is being implemented by both the Forest Service and Interior to track outputs and measure accomplishments. Interior acknowledges that its bureaus may interpret the data they collect differently and that a common set of performance measures is still being developed between Interior and the Forest Service as they implement the National Fire Plan. We have recommended that the agencies develop a common set of outcome-based performance goals to better gauge whether agencies are achieving the objective of restoring ecosystem health. The Forest Service acknowledges possible data limitations and reported that it is currently taking steps, such as conducting field reviews, to ensure effective internal controls over the reporting of performance data. We have previously stated that the Results Act could provide OMB, agencies, and Congress with a structured framework for addressing crosscutting program efforts. OMB in its guidance clearly encourages agencies to use their performance plans as a tool to communicate and coordinate with other agencies on programs being undertaken for common purposes to ensure that related performance goals and indicators are consistent and harmonious. We have also stated that the Results Act could also be used as a vehicle to more clearly relate and address the contributions of alternative federal strategies. The President's common measures initiative, by developing metrics that can be used to compare the performance of different agencies contributing to common objectives, appears to be a step in this direction. Some of the agencies we reviewed appear to be using their performance reports and plans as a vehicle to assist in collaborating and coordinating crosscutting program areas. Those that provided more detailed information on the nature of their coordination provided greater confidence that they are working in concert with other agencies to achieve common objectives. Other agencies do not appear to be using their plans and reports to the extent they could to describe their coordination efforts to Congress, citizens, and other agencies. Furthermore, the quality of the performance information reported--how agencies explain unmet goals and discuss strategies for achieving performance goals in the future, and overall descriptions of the completeness, reliability, and credibility of the performance information reported--varied considerably. Although we found a number of agencies that provided detailed information about how they verify and validate individual measures, only 5 of the 10 agencies we reviewed for all the crosscutting areas commented on the overall quality and reliability of the data in their performance reports consistent with the requirements of the Reports Consolidation Act. Without such statements, performance information lacks the credibility needed to provide transparency in government operations so that Congress, program managers, and other decision makers can use the information. We sent drafts of this report to the respective agencies for comments. We received comments from EPA, FEMA, Commerce, and State. The agencies generally agreed with the accuracy of the information in the report. The comments we received were mostly technical and we have incorporated them where appropriate. Regarding flood mitigation and insurance, FEMA commented that performance reports and plans are static documents that are over a year old and therefore may not reflect the progress FEMA has made since then. FEMA also stated that, although not reflected in it performance reports and plans, it coordinates its flood mitigation and insurance activities extensively and maintains and employs a number of interagency agreements related to the implementation of its programs. We acknowledge these limitations to our analysis in the scope and methodology section of this report. Regarding border control, State commented that, as summary documents, performance reports and plans provide a limited opportunity to fully describe their coordination and data validity and verification efforts. State indicated that it plans to include more appropriate measures of performance and performance data that are complete, reliable, and credible in its upcoming performance reports and plans. Regarding its unmet goal for the number of visas processed, State explained that this is not an accurate measure of program performance because it depends on the demand for visas, which is beyond the agency's control. State plans to revise this measure to one that will more appropriately reflect program effectiveness. Regarding wetlands, EPA commented on a number of initiatives it has undertaken along with other federal agencies to address the accuracy and availability of data on the extent and health of wetlands. For example, EPA states that its Region V office (Chicago) is working with other federal and state agencies to develop an integrated, comprehensive, geographic information system-based wetlands mapping system for the Minnesota River Basin. Once completed, this new wetland inventory would provide a reliable estimate of total wetland acreage for the Minnesota River Basin, provide a test to update the older National Wetland Inventory data, and serve as a pilot project for identifying wetlands throughout the country using an innovative technology. We are sending copies of this report to the President, the Director of the Office of Management and Budget, the congressional leadership, other Members of Congress, and the heads of major departments and agencies. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me or Elizabeth Curda on (202) 512-6806 or [email protected]. Major contributors to this report are listed in appendix V. In addition to the individual named above, the following individuals made significant contributions to this report: Steven J. Berke, Paul Bollea, Lisa M. Brown, Sharon L. Caudle, Amy M. Choi, Peter J. Del Toro and Sherry L. McDonald. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO's Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. 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GAO's work has repeatedly shown that mission fragmentation and program overlap are widespread in the federal government. Implementation of federal crosscutting programs is often characterized by numerous individual agency efforts that are implemented with little apparent regard for the presence and efforts of related activities. GAO has in the past offered possible approaches for managing crosscutting programs, and has stated that the Government Performance and Results Act could provide a framework for addressing crosscutting efforts. GAO was asked to examine the actions and plans agencies reported in addressing the crosscutting issues of border control, flood mitigation and insurance, wetlands, and wildland fire management. GAO reviewed the fiscal year 2001 performance reports and fiscal year 2003 performance plans for the major agencies involved in these issues. GAO did not independently verify or assess the information it obtained from agency performance reports and plans. On the basis of the reports and plans, GAO found that most agencies involved in the crosscutting issues discussed coordination with other agencies in their performance reports and plans, although the extent of coordination and level of detail provided varied considerably. The progress agencies reported in meeting their fiscal year 2001 performance goals also varied considerably. For example, wetlands was the only area in which all of the agencies GAO reviewed met or exceeded fiscal year 2001 goals. Some of the agencies that did not meet their goals provided reasonable explanations and/or strategies that appeared reasonably linked to meeting the goals in the future. The agencies GAO reviewed generally planned to pursue goals in fiscal year 2003 similar to those in 2001, although some agencies added new goals, dropped existing goals, or dropped goals altogether. Many agencies discussed strategies that appeared to be reasonably linked to achieving their fiscal year 2003 goals.
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Our work on patent examination issues, which was performed at this Committee's request, is discussed in detail in our July 15, 1996, report entitled Intellectual Property: Enhancements Needed in Computing and Reporting Patent Examination Statistics (GAO/RCED-96-190). This section of our statement discusses the following three areas: (1) patent pendency--the amount of time that PTO spends in examining an application to determine whether an invention should receive a patent; (2) PTO's resources committed to the patent process, the trademark process, the dissemination of information, and executive direction and administration; and (3) PTO's workload and examination process in comparison with those of other industrialized countries. The importance of the issues addressed in our report has increased over the past year because of new legislation affecting the term of most patents. Public Law 103-465, enacted December 8, 1994, changed the term for most patents granted by the United States from 17 years from the date of issuance to 20 years from the date of the earliest filing of an application. Accordingly, the time frame for issuance reduces the effective term of the patent left to the inventor under the new law. In analyzing patent pendency, we found that the overall pendency statistics being reported by PTO do not provide inventors and decisionmakers with enough information. This is particularly the case after Public Law 103-465 changed the patent term for most applications filed after June 7, 1995. We attributed this lack of information to four reasons. First, PTO's pendency computation method considers both issued patents and abandoned applications but does not consider applications still in-process. PTO defines pendency as the period from the date when an application is filed until the date when a patent is issued or an application is abandoned. As used by PTO, an abandoned application is any application that does not result in an issued patent and is eventually taken out of the examination process by the applicant or PTO. While PTO and other decisionmakers may be interested in knowing that overall pendency in fiscal year 1994 was 20.2 months or that applications abandoned during the year were pending for an average of 18.3 months, inventors may be most interested in knowing that the average pendency for patents issued was 21.3 months. Second, pendency can vary widely for individual applications, depending on the type of invention and factors such as whether the application is subject to a secrecy order. For example, while overall pendency for fiscal year 1994 was 20.2 months, pendency in the Computer Systems area averaged 27.6 months, while pendency in the Solar, Heat, Power, and Fluid Engineering area averaged 16.9 months. Similarly, pendency for patents issued and applications abandoned that were subject to secrecy orders averaged 62.9 months, although they were so relatively few in number that they had no appreciable effect on overall pendency. As above, such variations are of importance to the inventor, who needs to know the potential examination time associated with different types of inventions and factors such as whether a secrecy order will be imposed. Third, pendency is higher when the filing date used is that of the original, rather than the most recent, application for the particular invention. Frequently, an application may spawn other applications during the examination process. PTO refers to the original application as the "parent" and any application emerging from the original as a "child." Some cases can involve several generations of applications. PTO's current method for computing pendency considers the filing date of the current, or child, application whereas, under the new law, the patent term will be calculated for most patents from the filing date of the parent. Thus, PTO's method does not provide inventors and decisionmakers with an accurate appraisal of how long applications are under examination. We found that calculating pendency by using the parent filing date rather than the current filing date raises pendency significantly. For fiscal year 1994, overall pendency would have been 28 months rather than 20.2 months. Applications in process would have been under examination an average of 25 months rather than 16 months. If only those applications that had a parent were considered, the differences would have been even more dramatic--increasing from 17.9 months to 47.7 months for fiscal year 1994 and from 14.6 months to 45 months for those applications in-process as of October 1, 1994. Fourth, the applicants themselves are partly responsible for the time taken to examine applications. PTO's current method of computing pendency includes all of the time between the filing of the application and the issuance of a patent or the abandonment of the application. It does not separate the pendency for which PTO is responsible from the pendency created by the applicant. We calculated the pendency attributable to the applicants in one area--the time taken to respond to questions raised or requests for additional information by PTO during examination. These responses accounted for an average of 3.6 months of the 20.2 months total pendency for fiscal year 1994. Subsequent to our analysis, PTO made its own analysis of other areas where the applicant caused delays and computed an additional 3.8 months for fiscal year 1994. While we did not verify PTO's computations, adding the applicants' delays that PTO identified to those we computed would result in about 7.4 months of the 20.2-month average pendency for fiscal year 1994 being attributable to the applicants themselves. As a result of our findings, we recommended in our report that PTO compute and report patent pendency statistics that will separately identify issued patents, abandoned applications, and applications under examination. In commenting on our recommendations, the Department of Commerce said that more was needed than just an expansion of the pendency statistics now in use. It said that by fiscal year 2003, PTO's goal is to complete the examination of each new patent application within 12 months. The Department said that PTO would continue to report pendency as it had in the past until new procedures associated with this new 12-month goal are implemented. We agree that PTO needs to track and report pendency when its new examination policy is put into effect. However, because this new policy may not take effect for several years, we believe that PTO needs to begin reporting pendency statistics in the interim as we recommended. Furthermore, we believe this change is needed regardless of PTO's organizational placement. In analyzing the commitment of PTO's resources to various functions, we found that PTO has consistently committed most of its resources to the patent process. In fiscal year 1995, about three-fourths of PTO's funding--all of which now is generated by fees--and staff were devoted to the patent process. Other major activities in PTO include the trademark process, the agency's executive direction and administration, and the dissemination of information. PTO's annual obligations have increased steadily in recent years. In the 10-year period from fiscal year 1986 to fiscal year 1995, PTO's annual obligations increased from $212 million to $589 million, an average annual increase of nearly 20 percent. The increases in resources allocated to the patent process from fiscal year 1986 through fiscal 1995 do not appear to have come at the expense of PTO's other activities. Funding and staffing for these activities also increased in most years over this period. Overall, the patent process accounted for 56.6 to 75.4 percent of the obligations in individual years, while the range was 5.4 to 8.5 percent for the trademark process, 6.4 to 20.2 percent for executive direction and administration, and 9.9 to 18.5 percent for the dissemination of information. The majority of PTO staff also was committed to the patent process during the 10-year period. In fiscal year 1986, PTO had a total of 3,180 full-time equivalent (FTE) staff; in fiscal year 1995, the total was 5,007. In individual years, the percentage of staff ranged from 58 to 75.1 percent for the patent process, 6.8 to 9.7 percent for the trademark process, 7.1 to 15.4 percent for executive direction and administration, and 8 to 22.4 percent for the dissemination of information. In comparing PTO's patent examination process with those of other industrialized countries, we found that they differ markedly. As one example, PTO considers the examination process to have begun when the application is filed. In the Japanese Patent Office, however, an application is not considered a request for examination. Rather, the applicant must make a separate request for examination, which may come at any time up to 7 years after the application is filed. Similarly, in the European Patent Office, examination is a two-phase process. A filing is taken to imply a request for a search to determine whether the invention is new compared with the state of the art. If an applicant then desires a substantive examination for industrial applicability, the applicant must file a separate request not more than 6 months after the publication of the search. Methods for computing pendency also differ between the three patent offices. For example, Japan and Europe consider applications in process when computing pendency, while PTO considers only those applications that resulted in a patent or were abandoned. These different computation methods would yield fundamentally different results. Consequently, caution should be exercised in comparing workloads and pendency between these offices. Our work on Copyright Office issues was summarized in our May 7, 1996, testimony before the Joint Committee on the Library of Congress. In October 1995, Senators Connie Mack and Mark Hatfield asked that we conduct a broad assessment of the Library's management by the spring of 1996. To help meet that time frame, given that our limited resources were already committed to other priority projects, we contracted with Booz-Allen & Hamilton Inc. to conduct a general management review of the Library. Among the issues that Booz-Allen addressed in its review that the Senate Committee on the Judiciary expressed interest in were: (1) the potential for the Copyright Office to be transferred from the Library of Congress to another organization; (2) the possible additional revenues that the Copyright Office could charge if it recovered all costs; and (3) the impact on the Library, including the Copyright Office, from revisions to its competitive selection process as a result of the settlement of a class-action discrimination suit. Given the era of deficit reduction in which the federal government has found itself and the need for each agency to become as efficient as possible, Booz-Allen structured its management review to include a consideration of opportunities that might exist for the Library to reduce costs and enhance revenues. Within this context, Booz-Allen looked at various aspects of the Library's organizational components and the Library's fee structure. One such aspect included the potential for transferring the Copyright Office from the Library to another organization. Booz-Allen considered four elements of copyright operations, including the long-standing relationship between the Library and the Copyright Office, copyright registration as a source of material for Library collections, linkages between cataloging for copyright purposes and for Library collections, and the revenue potential from copyright receipts. Booz-Allen pointed out that its scope did not include an assessment of the operations, efficiency, or effectiveness of organizations outside the Library that might be considered potential recipients of the copyright function or the benefits of transferring it elsewhere. Booz-Allen concluded that while the transfer of the Copyright Office to another organization might not have negative operational impacts, the benefits of such a move were unknown and might cause significant disruption. Booz-Allen concluded that while there was little operational reason for housing the copyright function at the Library of Congress, the physical relocation of the Copyright Office could result in the office incurring an annual cost of $800,000 for leasing facilities that are now provided by the Library or the Architect of the Capitol at no cost to the Copyright Office. Also, the Booz-Allen analysis showed that while the Library saved $13 million a year from not having to purchase material obtained through copyright deposits and that this source of materials could be legislatively protected if the copyright function were housed elsewhere, the transportation and coordination aspects of such a shift would have to be assessed and would likely impose additional costs. Booz-Allen found that although both the Library and the Copyright Office perform cataloging processes, their purposes and methods were substantially different. With regard to the fees collected by the Library for copyright registrations, which amounted to $12.6 million in fiscal year 1995, Booz-Allen noted that the Library's fee does not recover its full cost. Booz-Allen estimated that by increasing the fee to recover full cost, the Library could generate revenue in the range of $24 million to $29 million (or an additional $11 million to $17 million over current fees charged). In developing this estimate, Booz-Allen cautioned that it was predicated on the comparison of fees received in fiscal year 1995 with its estimate of the full cost of the copyright registration process and did not take into account possible changes stemming from a fee increase, such as a potential drop in the number of registrations received. Booz-Allen also said that the effect of increasing fees could adversely affect that part of the Library's mission that deals with building its collection. As Booz-Allen also reported, the Copyright Law provides the Library with the authority to adjust fees at 5-year intervals to reflect changes in the Consumer Price Index, but the Copyright Office has elected not to do so. In its commentary concerning the recovery of all copyright fees, Booz-Allen also pointed out that the Library would first have to (1) refine its cost data and cost assumptions for the Copyright Office to obtain better cost information and (2) establish the capability and mechanisms to handle fee changes and possible multiple fee schedules. As part of its management review, Booz-Allen studied how well the Library of Congress managed its human resources. Since this part of the study was Library-wide in nature, the findings do not relate specifically to the Copyright Office or any other components of the Library but would apply generally to the Copyright Office. Booz-Allen found that the Library's hiring process had been adversely affected by its settlement of a class action suit, commonly referred to as the Cook Case, which asserted the Library practiced discriminatory employment practices that denied African-American employees opportunities for promotion and advancement. The settlement required the Library to revise its competitive selection process, make a specified number of promotions and reassignments, pay monetary relief to the class, provide Library supervisors with specified training, and eliminate any discriminatory criteria for noncompetitive personnel actions. As part of the Cook Case settlement, which was approved by the court in September 1995, the court reserved jurisdiction for 4 years to ensure compliance with the settlement. The settlement agreement is currently under appeal which would delay the start of the 4-year period. Booz-Allen found that while efforts to revise the competitive selection process had resulted in significant improvements in the Library's racial/ethnic profile, the revised process was viewed by many Library managers and human resources staff as lengthy and cumbersome. Booz-Allen found that the median number of calendar days to fill vacancies during fiscal years 1993 through 1995 was 177 days at the Library. In comparison, three other agencies took from 30 to 120 days to hire employees. As a result of inefficiently hiring qualified employees, Booz-Allen found that the Library potentially loses highly qualified candidates to other jobs, employees lack trust in the system, the Library pays the additional costs of contractors and internal staff time, and the Library is not able to handle changes to recruitment and selection requirements. Mr. Chairman, this concludes our statement. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed: (1) patent examination issues at the Department of Commerce's Patent and Trademark Office (PTO); and (2) examined the fees that PTO and the Library of Congress's Copyright Office charge for their services. GAO noted that: (1) PTO patent pendency statistics do not provide inventors and decisionmakers with enough information; (2) reported pendency depend on the computation method used, type of invention, filing date, and the amount of time it takes for applicants to answer additional requests for information; (3) calculating pendency using the patent filing date significantly increases pendency; (4) three-fourths of PTO funding and staff were devoted to the patent process in 1995; (5) since 1986, PTO annual obligations have increased from $212 million to $589 million, an average annual increase of 20 percent; and (6) PTO examines patent applications and computes pendency differently from its counterparts in other industrialized countries. GAO also noted that: (1) the Library's fees do not fully recover the cost of copyright registrations; (2) the Library could generate additional revenue by increasing the copyright registration fee; (3) the Library's hiring process has been adversely affected by a settlement that requires it to revise its competitive selection process; and (4) the Library's actions in response to the settlement have resulted in prospective employees taking other jobs and added additional costs to Library operations.
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The fiscal year 1989 Department of Justice Appropriation Act established the IEFA, which was to be used to reimburse any appropriation for expenses incurred in providing immigration adjudication and naturalization services. In 1990, Congress added a provision allowing the fees for providing adjudication and naturalization services to be set at a level that would ensure recovery of the full costs of providing such services, including the costs of similar services provided to asylum applicants but without a charge to such applicants. To recover the costs of providing services to asylum applicants, INS charges all other immigration and naturalization applicants a surcharge. In subsequent years, according to INS officials, Congress directed that additional services that traditionally had been paid from appropriated accounts were to be paid from the IEFA. For example, in fiscal year 1996, Congress directed that the costs of the Cuban-Haitian Entrant Program from the Community Relations Service Appropriation be borne by the IEFA. INS officials said that this transfer required the IEFA to absorb $10 million in unreimbursed services. Similarly, in fiscal year 1997, Congress required that approximately $57 million in costs for asylum applications and INS' automated application processing system, which had been funded by the Violent Crime Reduction Trust Fund, be paid from the IEFA. INS collects fees and processes applications at 4 regional service centers and 33 district offices. At the time of its fee study, INS processed almost all applications that required an applicant interview (e.g., naturalization) at its district offices. Generally, applications not requiring an interview are processed at its service centers. According to INS budget officials, in fiscal year 1997, INS collected and deposited about $624 million in application fees into the IEFA. The IEFA comprises approximately 16 percent of INS' estimated total fiscal year 1998 budget of about $3.8 billion. OMB Circular A-25, "User Fees," establishes federal policy regarding fees assessed for government services and provides information on the scope and types of activities that are subject to user fees. Circular A-25 states that, as a general policy, a user charge will be assessed against each identifiable recipient for special benefits derived from federal activities beyond those received by the general public. The circular requires that the imposed charge should, whenever possible, recover the full cost to the government for providing the special benefit, or in limited circumstances, its market price. Full cost is defined in the circular as all direct and indirect costs to any part of the federal government. Moreover, the circular states that " . . . full cost shall be determined or estimated from the best available records of the agency, and new cost accounting systems need not be established solely for this purpose." Agencies imposing user fees are responsible for reviewing the charges every 2 years in part to ensure that existing charges are adjusted to reflect unanticipated changes to costs. The Federal Accounting Standards Advisory Board, which was established by the Department of the Treasury, OMB, and the Comptroller General, recommends accounting standards for the federal government, including standards on how to determine the costs of government services. Once the Director of OMB, the Secretary of the Treasury, and the Comptroller General approve Federal Accounting Standards Advisory Board recommendations, they are issued by the General Accounting Office and by OMB as Statements of Federal Financial Accounting Standards (SFFAS). SFFAS No. 4, which was issued in final in July 1995, sets forth managerial cost accounting concepts and standards to be followed in the federal government. In addressing the selection of a costing methodology, SFFAS No. 4 notes that its standard does not require the use of a particular type of costing system or costing methodology. Instead, SFFAS No. 4 notes that agency and program managements are in the best position to select the type of costing system that would meet their needs. However, the standard requires that whatever system is adopted should be appropriate to the agency's operating environment and should be used consistently. SFFAS No. 4 also notes that several costing methodologies have been successful in the private sector and in some government entities. Among those discussed was activity-based costing (ABC)--the costing methodology selected by INS for its fee study. According to SFFAS No. 4, ABC focuses on the activities of a production cycle, on the basis of the premises that an output requires activities to produce, and activities consume resources. ABC's major processes are to (1) identify the activities performed to produce outputs, (2) assign or map resources required to carry out the activities, (3) identify the outputs for which the activities are performed, and (4) assign activity costs to the outputs. In 1995, INS established a team to develop and conduct a study to determine what, if any, changes were needed to the IEFA fee schedule. INS had previously revised its user fees in 1994. Starting in the spring of 1996, the fee study team was comprised of INS personnel and contracted technical staff from McNeil Technologies, Inc., and Coopers & Lybrand L.L.P. INS identified which fees should be revised by studying all types of applications with an annual adjudicated volume of 10,000 or more (26 large-volume applications). INS chose large-volume applications so it could perform random sampling to statistically project the study's results to the universe of similar applications. INS applied the ABC methodology to determine its costs to provide immigration adjudication and naturalization services. On the basis of the fee study, INS concluded that the 26 large-volume application fees needed to be increased to reflect the full processing costs. INS also proposed increases for the types of applications with annual adjudicated volumes below 10,000 (4 small-volume applications). For these four application types, INS determined that the processing activities were similar to certain large-volume applications and, on the basis of these similarities, established the new fees. Using the ABC methodology, INS developed processing models for the large-volume applications to be studied. On the basis of interviews and observations at INS service centers and district offices, the study team identified the activities that made up the application process and diagrammed the flow of applications from receipt through their adjudication process. For example, the study identified six common activities (e.g., receive application/petition, manage records, and respond to inquiry) and two unique activities (i.e., adjudicate application and issue end product). Each activity included a number of identified tasks. For example, the activity referred to as "receive application/petition" would include various tasks, such as get the mail, open the mail, and affix the date stamp. Using the flow diagrams and a statistical sampling plan that it had developed, the study team selected various sites, observed selected employees, and timed how long it took them to accomplish various tasks in the application processing cycle. To arrive at the proposed IEFA fee amounts, INS first calculated the total time needed to process a single application--its cycle time--by adding the resultant cycle times for each of the activities that comprised the processing of that application. INS then multiplied the total cycle time of the single application by the estimated number of applications that were expected to be received. Using this calculation, INS derived the total estimated cycle time to be spent processing a single application type. By adding the total cycle times for each of the 26 large-volume application types, INS determined the total time spent by staff processing all applications. Using the above information, INS then calculated the percentage of total time needed to process each application type to the total processing time for all application types. INS then applied the resultant percentages for each application type against the IEFA budget, which had been adjusted to include certain unfunded items. The application of the percentages to the budget determined the total cost for processing an application by type. By dividing the result by the estimated number of applications to be received, INS determined a unit cost for each application by type. To this amount, INS added a pro rata cost for processing waivers and asylee applications (i.e., applications for which fees are not charged) to develop a fee for each application type. According to Circular A-25, the fees charged are to be reviewed every 2 years and adjusted as costs change or as more precise cost determination processes become available. In August 1998, on the basis of the 1997 fee study, INS published its new fees in the Federal Register. Except for the Application for Naturalization fee, the implementation of which is being delayed until January 15, 1999, the application fees are scheduled to become effective on October 13, 1998. The implementation of the Application for Naturalization fee is being delayed to permit the full implementation of INS' plan to address naturalization processing, which the INS Commissioner pledged to improve before implementing a revised fee. To achieve our first objective--examine the extent to which INS' methodology for computing the proposed fees complied with federal user fee requirements and used generally accepted statistical sampling procedures--we examined whether INS (1) followed legislative requirements and federal guidance in setting application fees and (2) used generally accepted social science techniques for statistical sampling in its fee study. We reviewed applicable legislation governing federal user fees and OMB cost accounting requirements. To help assess INS' compliance with Circular A-25, we talked to OMB staff responsible for user fee guidance who provided their perspective on INS' adherence to the circular. We examined the costing methodology that INS used to determine the user fee amounts and how that methodology was applied. We also examined INS' sampling plan and how it was implemented to select application processing sites and personnel for observation. We compared the sampling plan to sound social science procedures. Such procedures included (1) the identification of a known universe of application processing sites and the use of unbiased sampling procedures to randomly select sites from this universe, (2) full disclosure of study procedures and limitations, and (3) procedures to ensure the statistical validity of the data used and appropriate generalization on the basis of the data gathered and analyzed. Moreover, we interviewed key officials from the INS Office of Budget, Fee Policy and Rate Setting Branch. This branch was responsible for the 1997 IEFA fee study and the proposed revisions to the user fees. In addition, we interviewed key contractor participants on the fee study team from Coopers & Lybrand L.L.P. We also interviewed a consultant from Steeples and Associates who provided statistical analysis. These INS and contractor officials discussed the procedures and the accounting and statistical methodology used to conduct the INS 1997 study and the subsequent statistical analysis of the study's results. The officials provided us with information and documentation on (1) how INS determined which immigration applications to examine for a rate review, (2) the selection and application of the accounting methodology that was used to determine the revised fees, (3) the sampling procedures that were used to select the locations for the study and the personnel to observe processing applications, and (4) the methodology and procedures used to aggregate and formulate the final proposed fee schedule. In addition, we analyzed the IEFA fee study report. This report lays out the basis for the increases to the revised IEFA fees and describes the accounting and statistical methodology used by INS to determine the fee schedule adjustments. We also analyzed the key policy guidance followed by INS to determine these new fees. The guidance analyzed included (1) Circular A-25, Revised, which provides information on the types of activities that are subject to user fees and the basis for setting these fees; (2) SFFAS No. 4, which sets forth managerial cost accounting concepts and standards for the federal government; (3) Department of Justice guidance on user fee programs; and (4) INS guidance on user fee programs. Regarding our second objective--determine whether INS will reassess service costs for changes it plans to make to the citizenship process--we interviewed officials from INS' Office of Naturalization Operations and Coopers & Lybrand L.L.P. The officials provided us with information on the basis for redesigning the naturalization process, the status of their reengineering efforts, and the projected benefits to be accrued from this effort. We then contacted key Fee Policy and Rate Setting Branch members to determine whether they planned to incorporate the costs of the newly developed naturalization processing revisions into the Immigration Examinations Fee Schedule and what the projected impact revisions would have on these fees. We also obtained and reviewed key studies dealing with this topic, including A Blueprint for the New Naturalization Process (Summary Report) issued by INS in conjunction with Coopers & Lybrand L.L.P. on September 30, 1997. To provide information addressing these issues before the user fee revisions are implemented, we did not determine the validity of (1) the data INS collected and used to compute the new fees and (2) the databases INS used for budget and application processing projections. We did our work from June 1998 through August 1998 in Washington, D.C., in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Attorney General or her designees. Responsible INS officials provided oral comments at a meeting on September 9, 1998. These comments are discussed near the end of this report. On the basis of its study, INS is revising the fees for 30 types of applications for immigration and naturalization services. On the basis of our discussions with OMB staff and our review of INS' efforts to identify the costs associated with processing applications, we believe that INS complied, to the extent it was able, with OMB user fee guidance. In the determination of appropriate user fees, Circular A-25 requires that the user fees imposed should recover, whenever possible, the full cost to the government for providing an identifiable recipient with special benefits beyond those received by the public. To identify its full cost of providing naturalization services, INS used the ABC methodology. SFFAS No. 4 recognizes ABC as one of a number of appropriate costing methodologies used in cost accounting and cost studies. However, according to its 1997 fee study report, INS was unable to determine the full costs it incurs for processing applications because (1) INS' financial management information system cannot provide actual cost data, including such items as depreciation and support service costs from other INS functions, and (2) INS excluded certain costs items, such as unfunded pension liability and postretirement life insurance and health benefits costs, because explicit guidance on how to treat them had not been promulgated. According to INS officials, its financial management information system does not provide actual cost data. According to them, the best data source INS had available for its analysis was the President's Fiscal Year 1998 Budget for the IEFA. To recognize certain costs that were not covered in the estimated IEFA portion of the budget, INS adjusted that amount by adding to it estimates of certain unfunded costs, including unused annual leave carryover, contingent liabilities, and bad debt expenses. However, INS was not able to calculate other cost items typically included in determining full costs. These cost items included unfunded pension liability and postretirement life insurance and health benefits costs; depreciation expenses; support service costs from other INS functions (e.g., supply costs, utilities, insurance, travel, and rents); and some inter-entity costs, which did not include reimbursable agreements (e.g., services provided to INS by other government agencies, i.e., the Department of State). INS' fee study recognizes that these costs were not included and attributes their omission to such factors as the lack of an adequate financial management information system, time and cost constraints to develop certain information, or the lack of Office of Personnel Management and OMB guidance on how certain costs are to be incorporated into the fees. Had INS been able to calculate these amounts and include them in its fee calculations, the unfunded pension liability and postretirement life insurance and health benefits costs, depreciation expenses, support service costs, and inter-entity costs could have increased the fees. INS officials indicated that future user fee studies would address these items but that INS was awaiting guidance from the Office of Personnel Management. An OMB staff person who was responsible for reviewing INS' study said that INS complied, to the extent it was able, with user fee setting guidance. Furthermore, he said that OMB's goal is for agencies to achieve complete compliance with the full cost requirement. He also noted that Circular A-25 does not require agencies to include in their fee calculations costs that their financial information management systems do not capture. Subsequent to INS' fee study, OMB issued a memorandum to federal agencies' chief financial officers and inspectors general addressing the need to determine inter-entity costs for purposes related to SFFAS No. 4 and provided interim guidance on incorporating inter-entity costs into their financial statements. According to the memorandum, OMB believes that significant progress toward the full cost accounting standard can be made by recognizing several major categories of costs that are paid by one agency but reported by another agency. Among those costs that OMB is asking agencies to recognize are costs funded by the Office of Personnel Management, such as employees' pension, health and life insurance, and other benefits for retired employees. For information needed to calculate these items, OMB directs agencies, where applicable, to consult with the Office of Personnel Management. Moreover, OMB asks agencies not to recognize any other inter-entity costs until OMB can provide further guidance. While OMB staff stated that the purpose of the memorandum was to provide guidance for developing full cost information for financial statement reporting purposes, we believe this cost information could be used by INS in developing full cost data that would be helpful in calculating appropriate user fees in accordance with Circular A-25. To collect data on the amount of time it took INS to process applications (application cycle time), INS' study team developed a statistical sampling plan that was based on scientific probability sampling. The cycle times provided the means of assigning activity costs to each application using the ABC methodology. Applications to be timed were to have had a "known chance" of being selected into the sample. First, sites were to be randomly chosen. Second, employees in each site who processed applications were to be randomly selected and timed while completing certain activities. INS intended for the study results to be generalized to all INS application processing sites nationwide. However, several judgmental changes made to (1) INS' initial sample of randomly selected sites and (2) the procedures used to select employees to be observed during the study's implementation adversely affected INS' ability to project the study's results to all processing sites. The methodology INS used to select application processing sites included both random selections and nonrandom judgmental selections. While INS provided operational reasons for including the judgmental selections, their inclusion undermined the scientific basis for making statistical inferences about all INS processing sites. Thus, INS' projection of its study results to INS offices as a whole and its claim that these results are representative is not appropriate. To select the sample of sites, INS grouped sites into strata that were based on the annual number of applications the sites processed. INS divided district offices into small, medium, and large office strata and then randomly selected seven sites from the three strata. INS selected Miami, FL, and Los Angeles, CA, to represent large offices; Honolulu, HI, Phoenix, AZ, and San Antonio, TX, to represent medium offices; and Kansas City, MO, and Omaha, NE, to represent small offices. INS grouped service centers into a separate stratum and judgmentally selected the Nebraska Service Center. After the initial random selection of district office sites, INS made several adjustments to the sample. INS judged that offices in the Eastern Region were underrepresented. To compensate for this situation, INS randomly selected the Boston District Office from a pool of district offices in the northeast and added it to the large district office selections. In addition, it removed the Honolulu District Office from the sample, because of the high costs of travel to Hawaii, and randomly selected the Philadelphia District Office from the remaining offices in the medium district office stratum to replace Honolulu. Moreover, INS added the Baltimore District Office to the sample because the district office was piloting an automated application processing system that it plans to roll out over time to other offices. INS wanted to determine how this system would affect the processing of applications. During the study, INS for various reasons made additional sampling adjustments, some of which affected the randomness of the sample. For example, (1) sample sizes of timings at specific sites were increased to better ensure that the total number of timings needed could be obtained; (2) a visit to the Toronto, Ontario (Canada) preinspection site (judgmental selection) was added to observe the processing of an application that was not processed at any other INS site; and (3) the Buffalo (NY) District Office was judgmentally added to gather timings of applications for which too few had been obtained at other sites. Although the above changes may appear to be reasonable, some adversely affected the projectability of the study's results to all sites. The methodology to select employees within service centers and district offices also used both random and nonrandom samplings. The plan to sample employees for observation and applications for timing was based on selecting employees randomly by using a random numbers table and establishing a specific quota of timings needed at each selected office. However, judgmental changes that INS made during study implementation about how employees would be selected for observation were not appropriate for making statistical inferences about the time employees take to process applications. Therefore, the nationwide projections about the processing of the types of applications studied could be affected by these nonrandom selection procedures. In general, INS decided to observe the minimum number of employees necessary to obtain the specified quota of timings for each site; therefore, when the quota was obtained, data collection stopped, regardless of the number of timings obtained from different employees. Additionally, to obtain the quotas in the shortest time possible, team members were instructed to observe, whenever possible, other employees who processed the same type of applications and who sat in proximity to the selected employee and to time their activities as well. Therefore, employees who worked next to each other could have had higher probabilities of having timings recorded than employees who worked alone. For several reasons, INS is unable to determine the precision of the study's estimated times for processing the various applications. Using a nonprobability sample has two important implications. First, it is not clear to what universe of INS application processing sites INS' observations can be generalized. For example, Hawaii was excluded from the initially drawn sample due to travel costs. It is not clear whether INS would have excluded other offices, such as Anchorage, AK, or San Juan, PR, due to high travel costs had they been selected. To have precluded this problem, INS should have specified before its initial selections which offices were eligible for data collection and which were not. INS then should have specified that its projections only referred to eligible offices. Second, even if INS had defined a universe of sites, its timings of employee activities cannot be adjusted to adequately represent all employees who process applications, because of the judgmental changes made in the way employees were selected for observation. Additionally, the data collection database did not provide sufficient information about the observations or the sample design to enable calculation of sampling errors or to evaluate the accuracy of the fees. For example, observations cannot be distinguished by individual employees in the database, nor can the times for specific work tasks be separated. In part, according to INS, this was due to the nature of its work and the way some activities are performed at various offices, such as sorting mail and batching applications of the same type. We are not able to evaluate the precision of the estimates of the amount of time needed to complete the application forms, nor the fees upon which these are based. Had INS repeated the surveys under essentially the same conditions, we do not know whether the resultant fees would have been similar or different from the ones derived from this study. To increase its productivity while ensuring the fairness and integrity of the naturalization process, INS has begun implementing changes to the process. INS determined the need for a reengineered naturalization process because of (1) integrity problems relating to the fingerprinting of alien applicants, (2) continued customer service problems, and (3) a projected increase of new applications in 1998. To address these issues, in March 1997, Justice awarded a 2-year contract to Coopers & Lybrand L.L.P. to develop a plan to reengineer the naturalization process and, according to a Coopers & Lybrand L.L.P. official, to assist with the new process' implementation and evaluate the new process once it has been implemented. On September 30, 1997, INS and Coopers & Lybrand L.L.P. issued the summary report outlining the concept for a new naturalization process. Partly on the basis of the Coopers & Lybrand L.L.P. study, INS is now in the process of implementing a number of improvements to the immigration naturalization process. According to INS officials, the majority of the improvements that are being implemented are to be paid from the IEFA. The officials said that both the costs and resulting efficiencies derived from the new processes will be reflected in future revisions to the user fees generated by the next and succeeding biennial IEFA user fee studies. According to INS, its specific goals for the new naturalization process are to establish a framework that will allow INS to (1) make the correct eligibility decisions regarding who is qualified to become a naturalized citizen, (2) make decisions in reasonable time frames, (3) conduct the naturalization process consistently, (4) design a cost-effective naturalization process, and (5) improve customer satisfaction. To achieve these goals, INS has completed some changes and is in the process of implementing several others to the naturalization process. Some of the important changes include the following: Through many sources, such as INS' forms centers, community-based organizations, and the Internet, INS plans to distribute naturalization packets containing information that explains naturalization eligibility requirements and how the process works. INS believes this information will help reduce application processing times and the current backlog of applications by (1) improving qualified aliens' compliance with INS documentation requirements and (2) reducing unqualified aliens' submissions of naturalization applications. As of April 15, 1998, INS completed its implementation of a nationwide direct-mail system that routes all naturalization applications directly to INS service centers, rather than through INS' district offices. INS expects this system to expedite processing times because (1) the service centers are centralized and better equipped to handle upfront receipt and processing of applications than district offices and (2) district offices will be able to focus their efforts on alien interviews and case completion responsibilities. Because of integrity concerns about fingerprints that aliens submitted to INS with their applications, Congress mandated that INS be responsible for taking naturalization applicants' fingerprints. According to INS, it is now overseeing alien fingerprinting, which is now done by a contractor located in INS facilities. The new naturalization process is being substantially paid from the IEFA, which, in turn, is funded through the collection of user fees. According to INS officials, costs resulting from the reengineered naturalization process will be reflected in INS' budget. Moreover, changes in application processing at the service centers and district offices are to be captured in the ABC methodology when INS makes its biennial fee evaluation. INS officials stated that they plan to initiate a new study of its user fees in early fiscal year 1999. INS officials told us that because the revised fees were calculated before any reengineering changes were made, those changes are not reflected in the fees. Furthermore, INS officials told us that they do not know whether full implementation of the reengineered naturalization process will increase or decrease the component fees in the immigration examination fee schedule. For example, the cost of processing applications could increase due to the cost of purchasing new computers and telecommunications equipment, but this cost may be offset by a reduction in personnel costs or, if application processing times improve, once the present application backlog is reduced. INS officials believe that some of its changes will help to reduce the existing application backlog while other changes will systemically improve the naturalization process in the long term. On the basis of our discussions with OMB staff and our review of INS' efforts to identify the costs associated with processing applications, we believe that INS complied, to the extent it was able, with available OMB user fee guidance that requires agencies to recover the full costs of providing services. However, according to its 1997 fee study, INS was unable to determine its full costs for processing applications because (1) INS' financial management information system does not provide actual cost data, including such items as depreciation and support service costs from other INS functions, and (2) INS excluded certain cost items, such as unfunded pension liability and postretirement life insurance and health benefits costs, because it lacked guidance on how to treat them. Circular A-25 does not require agencies to include in their fee calculations costs that their financial information management systems do not capture. Had INS been able to determine these costs and included them in its fee computation, the revised fees could have been set at a higher level. INS' initial plan for sampling the processing of applications at regional service centers and selected district offices and by selected processing personnel to determine how long it took to process various applications incorporated generally accepted statistical sampling procedures. However, some of the changes INS made for operational reasons to its planned statistical sample during implementation undermined scientific sampling principles and adversely affected INS' ability to project the study's results to all application processing sites. We are unable, however, to determine the impact of these changes on the revised user fees. INS is reengineering the way it processes naturalization applications. Changes to the naturalization process are intended to improve the integrity of the process and make it more efficient and customer oriented. Some changes have already taken place while others are slated to take place in the future. Since these changes took place after INS' fee study, the fee revisions do not recognize these changes, and INS does not know what affect these changes will have on the user fee schedule. INS officials said INS is planning to initiate the next IEFA user fee review early in fiscal year 1999. The costing methodology that INS plans to use in this study--ABC--should capture whatever reengineering or other process changes that have taken place at the time of the study. To improve confidence in the sampling methodologies used to determine future immigration and naturalization fees, we recommend that the Commissioner of INS ensure that future samples are consistent with generally accepted social science techniques and that the statistical integrity of the sampling plans are maintained throughout the study. To obtain comments on a draft of this report, we met on September 9, 1998, with officials representing INS from the Offices of Budget, Naturalization Operations, General Counsel, Congressional Affairs, Adjudications, Internal Audit, and Public Affairs. Overall, the officials agreed that the draft report was accurate and fair. They also provided technical comments, which have been incorporated in this report where appropriate. As arranged with your office, we plan no further distribution of this report until 30 days after the date of its publication, unless you release the report or its contents before that time. After 30 days, we will send copies of this report to the Chairmen and Ranking Minority Members of congressional committees with jurisdiction over INS, the Attorney General, the Commissioner of the Immigration and Naturalization Service, and other interested parties. Please contact me at (202) 512-8777 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix II. The following tables show the immigration and naturalization application fees that are currently being charged, the revised fees, and fiscal year 1995 annual volume for the various applications. Application to Replace Alien Resistration Card Application to Replace Nonimmigrant Document Petition for Nonimmigrant Worker Petition to Classify Nonimmigrant as Temporary Worker/Trainee Petition to Employ Intracompany Petition for Alien Fiance(e) Petition to Classify Status of Alien Relative for Immigration Visa Immigrant Petition for Foreign Worker Application to Extend Status - Change Nonimmigrant Status Petition to Classify Orphan as Immediate Relative Application for Advance Processing of Orphan Petition Application to Remove on Residence Application for Voluntary Departure Under Family Unity Program Filing for Action on Approved Application or Petition Application to Replace Naturalization Citizenship Certificate Application for Certificate of Citizenship (Table notes on next page) For these forms, INS did not have volume data by application. The volume data provided represent the total volume for all forms in each group. To achieve a total volume larger than 10,000, INS combined the volumes of Forms I-600 and I-600A because the processing of these forms was determined through discussions with field office personnel to be similar. Jan B. Montgomery, Assistant General Counsel The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the Immigration and Naturalization Service's (INS) fee increase proposal, focusing on: (1) the extent to which INS' methodology for computing the proposed application fees complied with federal user fee requirements and used generally accepted statistical sampling procedures; and (2) whether INS recognized implemented and proposed changes to the naturalization process in its application fees. GAO noted that: (1) on the basis of its user fee study, INS revised the fees it charges for 30 types of immigration and naturalization applications; (2) GAO believes, on the basis of its discussions with Office of Management and Budget (OMB) staff and its review of INS' efforts to identify the costs associated with processing applications, that INS complied, to the extent it was able, with OMB user fee guidance; (3) OMB guidance requires agencies to recover, whenever possible, the full cost of providing their services; (4) however, according to its 1997 fee study report, INS was unable to determine its full cost for processing applications because: (a) INS' financial management information system does not provide actual cost data, including items such as depreciation and support service costs from other INS functions; and (b) INS excluded certain cost items because INS said it lacked guidance on how to treat them; (5) had INS been able to determine these costs and include them in its fee computation, the revised fees could have been set at a higher level; (6) INS' initial plan for sampling the processing of applications at regional service centers and selected district offices and by selected personnel to determine how long it took to process various applications incorporated generally accepted statistical sampling procedures; (7) however, some of the changes INS made for operational reasons to its planned statistical sample during implementation undermined scientific sampling principles and adversely affected INS' ability to project the study's results to all application processing sites; (8) GAO is unable to determine the impact of these changes on the revised user fees; (9) INS is reengineering the way it processes naturalization applications; (10) changes to the naturalization process are intended to improve the integrity of the process and make it more efficient and customer oriented; (11) since these changes took place after INS' fee study, the fee revisions do not recognize these changes; and (12) INS officials said INS is planning to initiate the next Immigration Examination Fee Account user fee review early in fiscal year 1999 and, at that time, the study will recognize any naturalization process or other process changes that have taken place.
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PPACA required the establishment of individual health insurance exchanges, as well as small business exchanges, within each state by 2014. PPACA does not require issuers to offer plans through these exchanges, but instead generally relies on market incentives to encourage issuer participation. Issuers seeking to offer a health plan in an individual exchange or small business exchange must first have that plan approved by the exchange in the state. We previously reported that most of the largest issuers holding the majority of the market in the 2012 individual and small-group markets participated in the 2014 exchanges, although most of the numerous smaller issuers in those markets did not. In addition, some issuers that participated in the 2014 individual or small business exchanges had not participated in that respective market in 2012. While some of these issuers had previously provided coverage in other markets in 2012, other issuers were newly established through the federally supported Consumer Oriented and Operated Plans (CO-OP) program. As I mentioned above, PPACA also changed, as of 2014, how insurers determine health insurance premiums and how consumers shop for health insurance plans. As part of this, PPACA required that health plans be marketed based on information that helps consumers compare the relative value of each plan. Specifically, plans must be marketed by specific categories--including four "metal" tiers of coverage (bronze, silver, gold, and platinum)--that reflect out-of-pocket costs that may be incurred by an enrollee. These changes occurred at the same time that PPACA required the establishment of health insurance exchanges for each state, through which consumers could compare and select from among QHPs. Finally, beginning January 1, 2014, premium tax credits and cost-sharing subsidies became available under PPACA for qualified individuals who purchased QHPs sold through an exchange. In 2016, we examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in each year, markets were concentrated among a small number of issuers in most states. On average, in each state, 11 or more issuers participated in each of three types of markets--individual, small group, and large group--from 2011 through 2014. However, in most states, the 3 largest issuers in each market had at least an 80 percent share of the market during the period. (See fig. 1.) Not all issuers in the individual and small group markets participated in the exchanges in 2014, and several exchanges had fewer than 3 participating issuers. Enrollment through the exchanges was generally more concentrated among a few issuers than was true for the individual and small group markets overall in 2014. For our examination of issuer participation in the first year of the exchanges, we reported that fewer issuers participated in most state health insurance markets in 2014 compared to 2013, though exiting issuers generally had small market shares in that prior year. Specifically, we found that from 2013 to 2014, the number of issuers participating in individual markets decreased in 46 states, while fewer states' small-group and large-group markets had decreased participation (28 and 22 states, respectively). (See fig. 2.) However, across the three types of markets, those issuers exiting each state market before 2014 generally had less than 1 percent of the market in the prior year. There were also issuers that newly entered state markets in 2014. Their market shares in 2014 varied across the three types of markets, with some newly entering issuers in the individual market capturing a market share of over 10 percent. Most newly entering issuers in 2014 participated in the exchanges and they generally had a larger share of the enrollment sold through the exchanges than through the overall markets. In addition, some newly entering issuers captured a majority of their exchange market, with CO-OPs having a higher proportion. Since 2014, there have been additional changes to the number of issuers entering and exiting the individual and small group markets. For example, most of the CO-OPs that offered coverage in the exchanges in 2014 have since discontinued offering coverage. In addition, in an analysis of data from exchanges in states that used the FFE and state-based exchanges, where available, HHS has since reported that the number of issuers offering health plans through the exchanges decreased from 2016 to 2017, reflecting multi-state withdrawals by a few large insurers. In 2015, we reported that individual market consumers generally had access to more health plans in 2015--a year after the initial implementation of key PPACA provisions--than in 2014. Consumers in most of the counties analyzed in the 28 states for which we had sufficiently reliable data for plans offered either on or off an exchange had six or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold) in both 2014 and 2015. The percentage of counties with six or more plans in those metal tiers increased from 2014 to 2015. Specifically, in 2014, six or more bronze-, silver-, and gold-tier plans were available to consumers in the individual market (either on or off an exchange) in at least 95 percent of the 1,886 counties and were available on an exchange in at least 59 percent of the 2,613 of the counties for which we had sufficiently reliable data for plans offered on an exchange. In 2015, the percentage of these same counties with six or more bronze-, silver-, and gold-tier plans available in the individual market increased to 100 percent, and at least 71 percent had six or more of these plans available on an exchange. (See table 1.) In our 2015 report, we also found that premiums varied among states and counties, the lowest cost plans were typically available on an exchange, and in most states premiums increased from 2014 to 2015. Specifically, we found that: The range of premiums available to consumers in 2014 and 2015 varied among the states and counties we analyzed. For example, in Arizona, the premium for the lowest-cost silver plan option for a 30- year-old in 2015 was $147 per month, but in Maine, the lowest-cost silver plan for a 30-year-old in 2015 was $237. We also found that the range of premiums--from the lowest to highest cost--differed considerably by state. For example, in Rhode Island, 2015 premiums for silver plans available to a 30-year-old either on or off an exchange ranged from a low of $217 per month to a high of $285 per month, a difference of 32 percent. By contrast, in Arizona, 2015 premiums for these plans ranged from a low of $147 per month to a high of $545 per month, a difference of 270 percent. The lowest cost plans were typically available on an exchange. Specifically, in both years, taking into account plans available through an exchange and those only available off an exchange, the lowest cost plans were available through an exchange in most of the 1,886 counties we analyzed in the 28 states. In most states, the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. For example, in the 28 states included in our analysis, from 2014 to 2015 the minimum premiums for silver plans available to a 30-year-old increased in 18 states, decreased in 9 states, and remained unchanged in 1 state. At the county level, we found that premiums for the lowest cost silver option available for a 30-year-old increased by 5 percent or more in 51 percent of the counties in the 28 states. While our 2015 report examining the numbers of health plans and ranges of health plan premiums available to individuals in 2014 and 2015 was our most recent examination of these two issues, HHS has examined more recent data. For example, in 2016, HHS reported that despite a decline in the number of issuers participating in the FFE from 2016 to 2017, all consumers were able to choose among various plan options for 2017, although the options for about 21 percent of consumers were among choices of plans offered by a single insurer. HHS also conducted analyses focused on the premiums for the second-lowest cost silver plan in states that used the FFE and estimated that average premiums for these plans increased more between 2016 and 2017 (25 percent) than in previous years (2 percent between 2014 and 2015, and 7 percent between 2015 and 2016). In 2016, we reported that most enrollees who obtained their coverage through the health insurance exchanges were satisfied overall with their QHP during the first few years that exchanges operated, according to national surveys of QHP enrollees. For example, most QHP enrollees who obtained their coverage through the exchanges reported overall satisfaction with their plans in 2014 through 2016, according to three national surveys that asked this question. One survey found that most 2015 enrollees re-enrolled in 2016 with the same insurer, and often with the same plan offered by that insurer, and another survey reported that most re-enrollees expressed satisfaction with their QHP. The surveys reported that QHP enrollees' satisfaction with their plans was either somewhat lower than, or was similar to, that of those enrolled in employer-sponsored health insurance in 2015 and 2016. To varying degrees, QHP enrollees expressed satisfaction with specific aspects of their plan, including their coverage and choice of providers, and with plan affordability. We also interviewed stakeholders--including experts, state departments of insurance, and others--and reviewed literature for our 2016 report. These interviews and the literature revealed some concerns about QHP enrollee experiences that were similar to longstanding concerns in the private health insurance market. For example, according to these experts, some enrollees found it too expensive to pay for their out-of-pocket expenses before reaching their deductibles and have reported concerns about affording care or have been deterred from seeking care. Some enrollees have also faced difficulties understanding their QHP's coverage terminology and others have faced problems accessing care after enrollment, according to stakeholders and literature we reviewed. Chairman Jordan, Ranking Member Krishnamoorthi, and Members of the Subcommittee, this concludes my statement. I look forward to answering any questions that you may have. For questions about this statement, please contact John E. Dicken at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include John E. Dicken, Director; Gerardine Brennan and William Hadley, Assistant Directors; and Kristen J. Anderson, LaKendra Beard, Sandra George, and Laurie Pachter. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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PPACA contained provisions, many of which took effect in 2014, that could affect how issuers determine health insurance coverage and premiums and how they market their plans. For example, PPACA prohibits issuers from denying coverage or varying premiums based on consumer health status or gender. PPACA also requires health plans to generally be marketed based on metal tiers (bronze, silver, gold, and platinum), which allows consumers to compare the relative value of each plan. It also required the establishment of health insurance exchanges in each state, through which consumers can compare and select from among participating health plans. This testimony describes (1) private health-insurance market concentration and issuer participation from 2011 through 2014, the year by which key PPACA provisions took effect, (2) health plans and premiums available to individuals in 2014 and 2015, and (3) the experience of enrollees that obtained coverage through the exchanges from 2014 through 2016. It is based on three GAO reports issued in 2015 and 2016. For these reports, GAO examined data from the Centers for Medicare & Medicaid Services (CMS); reviewed published research; and interviewed stakeholders, including experts and officials from CMS and five states--Colorado, Indiana, Montana, North Carolina, and Vermont--that varied in geography and whether the state or CMS offered the exchange. GAO issued three reports in 2015 and 2016 on the early impact of the Patient Protection and Affordable Care Act (PPACA) on private health insurance markets. Market Concentration In a 2016 report, GAO examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in all years analyzed, markets were concentrated among a small number of issuers in most states. Beginning in 2014, enrollment in PPACA exchange plans was generally more concentrated among a few issuers than was true for the overall markets. Plan Availability and Premiums In a 2015 report, GAO examined the availability of health plans for individual market consumers and found that they generally had access to more health plans in 2015 than in 2014. In both years, most consumers in 28 states for which GAO had sufficiently reliable data had 6 or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold). The range of premiums available to consumers varied considerably by state, and in most states the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. In both years, the lowest cost plans were typically available on an exchange. More recent analyses by the Department of Health and Human Services found that in 2017 all consumers continued to have multiple plan options, and that premiums for exchange plans increased more in 2017 compared to the annual increases for these plans since 2014. Enrollee Experiences In a 2016 report, GAO examined national survey data to examine satisfaction of exchange enrollees. GAO found that, from 2014 through 2016, most enrollees who obtained their coverage through an exchange reported being satisfied overall with their plans. In 2015 and 2016, the satisfaction that exchange enrollees reported with their plans was either somewhat lower than or similar to that of enrollees in employer-sponsored plans. Exchange enrollees reported varying degrees of satisfaction with specific aspects of their plans, including coverage and plan affordability. Stakeholders GAO interviewed and literature GAO reviewed revealed some concerns about exchange enrollee experiences that were generally consistent with longstanding concerns in the private health insurance market--including concerns about affordability of out-of-pocket expenses and difficulties understanding coverage terminology.
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According to the U.S. Census, 4.5 million people, or 2 percent of the total U.S. population, reported that they were at least part Indian in 2007. During the 2000 Census, about 36 percent of Indians lived on reservations. The largest federal Indian reservation covers roughly 15 million acres and the smallest reservation covers slightly more than 0.9 of an acre. Indian tribes are sovereign governments that generally are exempt from federal income taxation, but individual Indians are not exempt from income taxes. Indians are among the most economically distressed groups in the United States. The Census estimated in 2006 that 32 percent of American Indians and Alaska Natives were unemployed. The Census also reported that the median household income of American Indians and Alaska Natives was $33,762, nearly $15,000 less than the median of all households in the United States, and had the highest poverty rate of all Census ethnic categories at 26.6 percent. The federal government has more than 100 programs that can assist Indians. Indian tribes also have used various strategies to stimulate economic development on reservations, but our previous work has shown that the prospects for economic growth may be limited. Tribes own enterprises on reservations in a number of sectors, including gaming, tourism, manufacturing, natural resources, and agriculture, and some tribes may encourage private companies owned by nonmembers to locate on their reservations. Still, many tribes lack some of the factors, including accessibility to population centers and adequate physical infrastructure, shown to be important for economic growth. Reservations located in rural or remote locations have limited access to markets and may lack physical infrastructure, such as roads, electricity, water, and suitable land for building, making it difficult for many businesses to operate. In 1993, Congress passed legislation enacting IRD, which acts as an incentive for investing on Indian reservations. Depreciation is an annual deduction from income that allows taxpayers to recover the cost or other basis of certain property used in a business or other income-producing activity over the useful life of the property. The deduction is calculated on IRS Form 4562. According to IRS, MACRS is used to recover the basis of most property placed in service after 1986. The General Depreciation System (GDS) is one of the recovery systems permitted by MACRS. GDS allows taxpayers to depreciate their property using specified amounts of time--called recovery periods--which differ in length according to the category--called a property class--that the property belongs. For example, tractors and race horses are categorized as 3-year property. Under IRD, taxpayers use shorter recovery periods than are otherwise permitted under GDS. Table 1 shows the GDS schedule for property class recovery periods and the corresponding IRD schedule. Table 2 shows an example of the effects that IRD has on taxpayers' depreciation deduction. According to the rules, the same method and convention should be used when calculating the deduction for IRD and GDS. To compare the difference in deduction between IRD and GDS most simply, the example uses the straight line method and the half-year convention to depreciate a property with a basis of $30,000 and falls in the 3-year property class. Under the rules for straight line depreciation, taxpayers deduct the same amount in each year except for the year in which the property was placed in service and the final year it was depreciated. With the half-year convention, the portion of the year during which the property is to be depreciated determines the amount deducted. With the half-year convention, as shown in table 2, one-half of the amount invested (called the basis) divided by the recovery period is deducted in the first and final years. IRD provides an incentive by permitting taxpayers to deduct a greater proportion of the cost of the property earlier within the property's depreciable life. This deduction can reduce taxpayers' tax liability, if any. Reducing tax liability earlier acts as an incentive because of the time value of money--having a lower tax payment today is worth more to the taxpayer than having the lower payment in the future. IRD was designed to reduce the after-tax cost of capital by exploiting this timing difference in deductions and thereby make more funds available to the taxpayer for additional investment on Indian reservations. To qualify for IRD, property must be used predominately in the conduct of an active trade or business on an Indian reservation. Some property, however, does not qualify for IRD even if it is located or used on a reservation, such as residential rental property, 25-year property, property acquired from a related person, and property placed in service for conducting or housing certain gaming facilities. An additional first-year bonus depreciation deduction was allowed for certain property--including MACRS property and any applicable IRD property--placed in service after September 10, 2001, and before January 1, 2005. The bonus depreciation deduction was available for property being depreciated using the IRD and GDS systems. For property acquired after September 10, 2001, and before May 6, 2003, and placed in service before January 1, 2005, a 30 percent rate applied. For property acquired after May 5, 2003, and placed in service before January 1, 2005, a 50 percent rate applied. Essentially, bonus depreciation allowed taxpayers a greater deduction in the first year in which property was placed in service. For example, under 50 percent bonus depreciation in 2004, the initial basis of a $50,000 property would have been reduced to $25,000, which the taxpayer then would have continued to depreciate under IRS's guidelines for GDS or IRD. In 2005, we reported that information on tax expenditures, such as IRD, was needed to evaluate their effectiveness as a means of accomplishing federal objectives and to ensure that they are achieving their intended purpose. A wide variety of data could be useful for determining whether IRD is stimulating economic development on Indian reservations, but three essential pieces of information include which taxpayers claim IRD, how much they invest in IRD properties, and on which reservations they have placed IRD properties. The taxpayers' identities and investment amounts are needed for several reasons, including for analyses determining whether and how much the IRD incentive is leading taxpayers to change their investment behavior consistent with the provision's purpose. The IRD tax incentive, like other kinds of accelerated depreciation, could boost economic development, in the first place, by affecting business' decisions about how much and where to invest. The identity of IRD investors and the amounts they invest could be used to determine whether the tax incentive increases the total amount of taxpayers' investment or induces IRD investors to shift investment onto reservations from other locations, a shift that would be consistent with IRD's purpose. The identity of IRD claimants also could be used to determine whether IRD overlaps other programs designed to assist Indians in a way that affects the incentive to invest on Indian reservations. The location of the IRD properties being placed into service is needed to assess whether those investments are affecting the economic development of the specific reservations on which the properties are placed. However, available data cannot be used to identify IRD claimants because of limitations in the manner in which IRS instructs taxpayers to report depreciation and limitations on how IRS compiles tax return information. Although IRD properties have unique recovery periods compared to other depreciation recovery periods and Form 4562 does provide space for taxpayers to report the recovery period, depreciation deduction, and basis by property class, this information is insufficient to determine whether the depreciation is IRD in all cases. Figure 1 shows how a taxpayer would report the depreciation of a $30,000, 3-year property to IRS. The taxpayer would report the basis, recovery period, method, convention, and depreciation amount on Part III of the form. The currently required information on Form 4562 is insufficient to identify accurately all claimants of IRD or the amounts they invest in IRD property in part because taxpayers are allowed to group properties on Form 4562. Form 4562 on line 18 permits taxpayers to combine properties in the same property class. If the properties within any given property class (lines 19a to 19i in figure 1) are both IRD and GDS properties, however, IRD claimants cannot be identified unless taxpayers indicate an IRD recovery period on the form. The instructions provide no guidance for how taxpayers should record recovery IRD periods if they are reporting both IRD and GDS property. IRD users can be identified from Form 4562 when they claim depreciation only for IRD property within any given property class and enter the recovery period correctly on Form 4562. However, even in this case, it is difficult to identify all users because IRS does not transcribe recovery period data from paper-filed Forms 4562 and electronically compile recovery periods into a database. Our data analysis also shows reported depreciation deductions that could be explained by taxpayers grouping IRD with non-IRD property. Given these limitations, we attempted to use the basis and depreciation amounts from Form 4562 (columns c and g in figure 1), which IRS does compile and maintain in its SOI database, to infer the recovery period. However, we found that the amount of depreciation and basis did not uniquely determine which recovery period was used by the taxpayer and thus did not identify all claimants of IRD. The reported depreciation and basis were consistent with both the IRD and the GDS depreciation recovery period for certain property classes when different methods and conventions were used. Accordingly, although we could identify reliably a portion of those who claimed IRD and the amounts they invested, we could not do so for a possibly significant portion of those who claimed IRD. When we reviewed a non-representative sample of corporate SOI returns to verify the reliability of our inference methodology, we also found that taxpayers may not fill out the form correctly. For example, we saw several instances where all other information on the Form 4562 pointed to the taxpayer having used IRD, yet the taxpayer recorded a recovery period on the Form 4562 that was not consistent with IRD. For example, the taxpayer may have indicated that the property had a 3-year recovery period and yet the depreciation amount claimed could have resulted from the taxpayer depreciating the property over the 2-year recovery period allowed by IRD. These taxpayers may have recorded that the property with a 3-year recovery period simply because the name of the property class is "3-year property." IRS does not collect the other essential information to assess the effectiveness of IRD in promoting economic development on reservations. IRD property location data--that is, which reservation the property has been placed into service--are necessary to evaluate the impact of IRD on economic development on Indian reservations. A common evaluation approach would be to compare development in communities that receive IRD investment to those that do not while controlling for other factors that affect development. However, IRS does not require taxpayers to list where property is placed in service. Not knowing which reservation the investment is occurring means that it is impossible to link the property invested through IRD to indicators of the reservation's economic performance. It also is impossible to distinguish between the effect on economic growth of IRD investment and other kinds of investment that may occur on reservations, such as the growth of gaming facilities. IRS officials said that IRS did not compile information on the use of IRD or require the location of IRD property to be reported because the information was not needed for processing returns or for compliance purposes. Collecting additional data on IRD also could take resources from other priorities, such as combating tax avoidance schemes. IRS officials said that although redesigning Form 4562 for reporting IRD location information could be done, no system was in place to transcribe, collect, and analyze the information from paper returns, and they said that creating such a system could be costly. IRS officials said that IRS likely would not collect additional Indian reservation depreciation information unless doing so would result in enforcement actions that would be cost efficient. Although IRS may incur costs to acquire the appropriate data, these additional costs would be required to evaluate whether the provision is accomplishing its legislative intent. Obtaining data that identifies IRD claimants and the IRD amounts claimed could be accomplished by requiring taxpayers to self-identify IRD use with a check box on Form 4562 and file separate forms listing IRD property. IRS would need to revise Form 4562 to include the check box, and space appears to be available to do so. Thus the change would not require redesigning forms. Segregating the IRD properties also appears unlikely to impose significant additional costs on taxpayers since they already need to separately identify the properties in their books and records to be able to calculate and claim the correct depreciation amount. IRS officials also said that large corporations often file spreadsheets as attachments to Form 4562 that show their depreciation calculations for individual properties. However, to compile data on the forms that identify IRD claimants, IRS officials told us that significant changes would need to be made in how Form 4562 was processed, such as putting validation checks in place and developing a system to segregate IRD Form 4562s from non-IRD Form 4562s, which would add considerable burden to forms processing. The officials said that the benefit given the cost would be questionable. Obtaining location data for IRD properties likely also would require some change to tax forms. Form 4562 does not have sufficient space to add an address field for each of the properties being depreciated using IRD. IRS managers and officials in submissions processing and media and publications did not provide a specific dollar amount on how much it would cost to make the changes, but IRS managers said a new form would be burdensome and involve substantial changes to the way IRS processes forms, including many of the issues of form redesign already discussed, plus changes to IRS's system for processing tax forms. Other tax forms require taxpayers to provide information analogous to what is needed to assess the effectiveness of IRD. For example, Schedule E requires those renting properties to list the location of each rental property that they claim and the low income housing tax credit form (Form 8609) also requires taxpayers to list the address of each claimed property. A form also exists for claiming the Indian employment tax credit (Form 8845), which the Joint Committee on Taxation (JCT) estimated had less than $50 million in revenue loss for fiscal year 2008, far less than the $300 million revenue loss estimate on IRD for the same year. An IRS official said that information gathered on forms varies by the program for such reasons as legislative requirements, IRS policy, compliance- enforcement needs, or the scope of the IRD provision's use. Some economic development programs that we have studied also have more data for monitoring performance than IRD. For example, we were able to analyze the New Markets Tax Credit (NMTC) partly because its overseeing agency, the Community Development Financial Institutions Fund, collected data on NMTC investors and on the location, type and size of the investment. JCT's most recent tax expenditure estimates for fiscal year 2008 estimated revenue loss for NMTC to be about $900 million, $600 million more than the IRD estimate. In our 2004 report on the Economic Development Administration (EDA) grants to Indian tribes, we were able to analyze the results of grants because we had information on who the recipients were and where the grants were being used from grant applications. The grants to Indian tribes were much smaller than the revenue losses estimated for IRD, totaling about $112 million from 1993 to 2002, or an average of about $11.2 million per year. But IRD is similar to other programs we have studied in lacking adequate data for evaluation of its effectiveness. For example, we said in our 2007 report that the Empowerment Zone (EZ) and Enterprise Communities (EC) program, which provides grants and tax benefits for certain impoverished urban communities, lacks complete data on program tax benefits and the data it has cannot be linked to individual communities. The JCT revenue loss estimate for fiscal year 2008 for the EZ/EC provisions was $600 million. Although having information on which taxpayers claimed IRD, how much they invested, and where those investments were located would help in assessing whether the IRD is leading to economic development on Indian reservations, gauging the effect of economic development programs is very complex. Often analyses of such programs cannot definitively show how much a program has contributed to economic development. Nevertheless, without these data on taxpayers' use of IRD no valid assessment can be made on the effect of the IRD provision. The absence of data on IRD users could affect IRS's ability to determine IRD compliance. To enforce IRD, IRS officials said that IRS uses a computer scoring model and other audit selection programs, such as special projects where auditors focus on identifying and analyzing specific audit issues. The model may be able to identify taxpayers who likely are noncompliant overall in claiming depreciation deductions, but it could not do so for IRD itself, because, as we found, it is impossible to accurately identify each taxpayer who uses IRD with existing data. Also, even if auditors were to detect a pattern of IRD noncompliance, a special compliance project would have difficulty targeting returns with IRD for review because taxpayers do not directly report its use on their tax returns. IRS officials also told us that despite the limitations on information reported on Form 4562, if a tax return was selected for audit, experienced auditors should still be able to recognize use of IRD from the property class, basis, and deduction amount reported on Form 4562. Based on our analysis, auditors should be able to infer the use of IRD in some cases, but not all. Of course, if the auditor reviews all of the support for claimed depreciation expenses, the taxpayer should be able to provide evidence from books and records supporting the proper claim of IRD. Although an IRS manager said that IRS would not collect data when the available data are sufficient to enforce IRD, some other IRS officials involved with audits said that additional, more accurate information on items taxpayers use to calculate their deductions would be helpful. In particular, the officials said that an automated system that taxpayers could use to calculate their depreciation deductions based on the property class and basis would be helpful. The officials pointed to the spreadsheets that some large taxpayers attach to their returns as an example of a format that would provide more useful information. In addition to the possible tax enforcement challenges caused by being unable to identify IRD users, data specifically on IRD compliance problems found during audits do not exist. For example, examination databases that track audit issues do not single out information specifically on IRD. Thus, there is no readily available way to determine patterns of noncompliance, if any, by IRD claimants from IRS examination records. We know from our previous work, however, that depreciation is a prominent audit issue, at least for individuals. According to figures from IRS's National Research Program (NRP), depreciation was one of the four most misreported items by individuals filing business tax returns in 2001, with 42 percent of those returns containing a depreciation error. NRP did not systematically compile information on how often those errors involved IRD. A taxpayer who depreciates property under the IRD schedule will be able to make larger deductions in the near term than under the GDS schedule for the same property, and the advantage of using IRD grows as property- class recovery periods become longer. For example, figure 2 shows that for a hypothetical $50,000 property in the 3-year property class, the present value (PV) of the cumulative deduction under IRD is $577--or 1.2 percent--more than the deduction permitted under the GDS schedule. In contrast, the PV-adjusted deduction for a 39-year property (nonresidential real property class) is $6,786--or 21.7 percent--higher for IRD than the same property under GDS. The extent of the tax savings depends on how much more quickly the IRD property is depreciated relative to GDS recovery periods and how much more valuable to the taxpayer current deductions are relative to future deductions. The incentive to use the IRD schedule for shorter-life property classes is relatively small compared to longer-life property classes because the PV of the depreciation deduction does not increase as much for shorter property classes as it does for property classes with longer recovery periods. Additionally, the incentive to use IRD will vary by the discount rate, which is the interest rate used to determine the PV of a future stream of receipts or outlays. The larger the discount rate, the greater the difference in cumulative deduction amounts for each property class and the greater incentive there would be to use IRD. The availability of bonus depreciation, which narrowed the difference between cumulative IRD and GDS tax deductions, also could have reduced the incentive to use IRD. For example, a $50,000, 20-year property under bonus depreciation had a cumulative tax deduction value that was $1,901 higher in present-value terms under IRD than GDS. In comparison, the difference between the two methods without bonus depreciation for the same property was $3,802, or double the amount with bonus depreciation. Although IRD still retained a relative advantage in cumulative tax deduction PV, the smaller differences could have led more taxpayers to invest outside reservations, given that other factors besides tax savings influence decisions on where to invest. We found no way to determine reliably from available data which taxpayers use IRD, how much IRD investment is made, or whether the provision is having a positive effect on Indians. The analytical and oversight problems stemming from the lack of IRD data echo concerns we have expressed about tax expenditures in recent years. As we have said previously, information on tax expenditures is needed to evaluate their effectiveness, but inadequate or missing data can impede effectiveness studies of tax expenditures. IRD is a case in point. Without additional data, it is impossible to know whether IRD is succeeding in having its intended impact. Furthermore, with more than 100 programs on Indian economic development, the potential exists for IRD overlap with these programs. As we found with the bonus depreciation provision described in this report, overlap from other tax expenditures could interfere with IRD as an incentive. Gathering and analyzing data that identifies IRD users and the location of IRD property likely would increase administrative costs--perhaps substantially, according to IRS--for IRS, as additional forms and processing procedures would be needed. However, precedents exist for IRS collecting this kind of information on other tax provisions, such as depreciation of rental property and the low-income housing tax credit. In cases where the right data exist, economic analysis is possible, although still challenging. Our review also raises questions about IRS's ability to ensure compliance with the IRD provision, a potentially key shortcoming given that depreciation is one of the most misreported items by individuals with businesses. Without the ability for auditors to identify IRD users from tax forms, noncompliant taxpayers could more easily go undetected. Improved information and instructions on the recovery periods taxpayers use to calculate their depreciation deductions on Form 4562--a concern given the mistakes listing recovery periods we observed on taxpayers' returns--could help IRS auditors better ensure compliance not only of IRD but also of all depreciation deductions. Given the lack of information on IRD users and where property claimed under IRD is placed in service, Congress should consider requiring IRS to collect information identifying which taxpayers use IRD and the reservation and/or address where they have placed the property into service. In deliberating additional requirements, Congress should weigh the need for more IRD information with the associated costs of collecting and analyzing the information as well as the effects on IRS's other priorities. We recommend that the Commissioner of Internal Revenue change the instructions on the directions for Form 4562 so that it is clear that taxpayers depreciating IRD property should use different recovery periods. The updated directions also should include an example of how to fill out Form 4562 properly. We requested written comments from the Commission of Internal Revenue and received a letter from the IRS on June 16, 2008 (see app. III). The IRS generally agreed with our findings. Its letter emphasized that compiling data on IRD would add burden to IRS administration of its processing functions and increase taxpayer burden. IRS also said it would review its publications and instructions on depreciation and determine where additional information about IRD would be beneficial. As agreed with your offices, unless you publicly release the contents earlier, we plan no further distribution of this report until 30 days from its date. At that time, we will send copies to interested congressional committees, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other interested parties. The report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. In attempting to identify and describe Indian reservation depreciation users, we analyzed data from IRS's Statistics of Income (SOI) database on the corporate tax return (Form 1120), individual return (Form 1040), partnership return (Form 1065), and the depreciation form (Form 4562) for tax years 1998 through 2004. IRD has a unique recovery period schedule and Form 4562 provides space for taxpayers to report the recovery period. However, IRS does not compile this recovery period information electronically. Therefore, we used information on depreciation deduction and basis by property class from Form 4562 to construct an algorithm for identifying IRD claimants by comparing the depreciation they are required to claim on Form 4562 to the amount that they claimed using all available methods and conventions. To limit error from false positives to an acceptable level, we intended to identify taxpayers as claiming IRD if the calculated amount was within 1 percent of the actual amount that they claimed on the form. Our goal was to produce estimates that represented a reasonable lower bound on the size of the program. After repeated sensitivity tests and refinements of the algorithm, we concluded that the information reported on Form 4562 is insufficient to determine which taxpayers are claiming IRD. Our analysis of the IRS data showed that, in many cases, the amount of basis and depreciation did not uniquely determine which recovery period was used by the taxpayer. The reported depreciation and basis were consistent with both the IRD and the regular General Depreciation System (GDS) depreciation recovery period for the property class even when different methods and conventions were used. Therefore, the number of claimants and the amount invested with IRD cannot be determined accurately and completely from IRS data. To analyze the effects of IRD, we reviewed previous GAO work on economic development, and tax expenditures, including our 2005 report on tax expenditures in general, as well as our work on individual tax expenditures, such as the new markets tax credit and the empowerment zone and community enterprise program. We discussed our objectives with officials from IRS, which has data on depreciation and the U.S. Department of the Interior's Bureau of Indian Affairs to discuss business on reservations. We had planned to use the SOI data to conduct an analysis of IRD investment as an initial step in analyzing how IRD affects economic development on Indian reservations. However, we determined that available information was not sufficient for this purpose because we could not identify all claimants of IRD. To show the potential tax advantages for taking accelerated Indian reservation depreciation, we calculated regular depreciation and accelerated depreciation for the following properties: 3-year, 5-year, 7- year, 10-year, 15-year, 20-year, and nonresidential real property. Further calculations included 30 percent bonus depreciation and 50 percent bonus depreciation for both regular depreciation and accelerated depreciation. We chose a basis value of $50,000 to determine the present value for all the types of depreciation. To determine the present value (PV) for all the types of depreciation, we chose the half-year convention. For 3-year, 5-year, 7- year, and 10-year property, we chose the double-declining balance method switching to straight line method in the optimal year. For 15-year and 20- year property, we chose the 150 percent declining balance switching to straight line method in the optimal year. Nonresidential real property was depreciated with the straight line method and midmonth convention as required by IRS. The discount rate for each property class was derived from the Federal Reserve's report of (July 7, 2007) inflation-adjusted interest rates for U.S. Treasury debt instruments of corresponding maturities. We conducted this performance audit from March 2007 through June 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following is a list of the nine General Depreciation System (GDS) property classes and the corresponding Indian reservation depreciation (IRD) recovery period schedule, along with examples of the types of property included in each class. In addition to the contact named above, Kevin Daly, Assistant Director; Eric Gorman; Tami Gurley; Cheryl Peterson; Jennifer Neer; and Anne Stevens made key contributions to this report. A measure of an individual's investment in property for tax purposes. A method established under MACRS to determine the portion of the year to depreciate property both in the year the property is placed in service and in the year of disposition. The annual deduction allowed to recover the cost of business or investment property having a useful life substantially beyond the tax year. A term that means property is ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity. The discounted value of a payment or stream of payments to be received or paid in the future, taking into consideration a specific interest or discount rate. A category for property under MACRS that generally determines the depreciation method, recovery period, and convention. The number of years over which the basis of an item of property is recovered. A way to figure depreciation for property that ratably deducts the same amount for each year in the recovery period. The rate (in percentage terms) is determined by dividing 1 by the number of years in the recovery period. An estimate of how long an item of property can be expected to be usable in trade or business or to produce income.
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Indians lag behind other Americans on many key economic indicators, such as median household income. To improve such conditions, Congress in 1993 created Indian reservation depreciation (IRD), a tax expenditure offering accelerated depreciation for property invested on Indian reservations. GAO was asked to (1) describe which taxpayers claimed IRD, (2) analyze the effect of IRD on the economic development of reservations, and (3) describe the tax benefits offered by IRD. GAO used the Internal Revenue Service's (IRS) Statistics of Income data to try to identify IRD users and measure IRD's effects; however, the data were unreliable for those purposes. GAO also calculated examples of potential IRD tax benefits for different property classes. Available data are insufficient to identify users of the Indian reservation depreciation (IRD) provision. Although IRD is to be calculated using unique recovery periods, this and other information that taxpayers report are not sufficient to infer from the tax returns which taxpayers are using IRD, in part because taxpayers appear to have reported IRD in combination with other depreciation on their tax forms. In some instances, taxpayers also appear to have made mistakes filling out Form 4562, listing recovery periods inconsistent with IRD when the deduction and basis amounts they reported suggest IRD was in fact used. Data are also insufficient to determine whether IRD increases economic development on Indian reservations. Taxpayers are not required to identify the reservation on which the depreciated property is located. This location data is critical for determining the effects of IRD on the economic development of reservations. Such a determination requires linking IRD investment to economic indicators on specific reservations and controlling for the influence of other economic trends, such as the growth of gaming facilities on these reservations. The lack of data on IRD also may affect how well the Internal Revenue Service (IRS) enforces IRD compliance with the tax law. IRS does not track compliance issues related to IRD and could fail to detect taxpayers who claim IRD deductions but do not in fact have property on a reservation. IRS officials said getting additional information could be costly to obtain, but auditors told us it would be useful. In fact, IRS collects data on some other tax expenditures that allow closer examination of compliance and use. For example, the low-income housing tax credit requires taxpayers to list the address for the property they are claiming, and New Markets Tax Credits users report identifying information for the Department of the Treasury. Tax benefits can accrue to taxpayers who use the IRD schedule because they can achieve higher depreciation deductions, in present value terms, than a taxpayer who claims a depreciation deduction under the usual schedule for the same type of property over the entire life of the property. For example, on a $50,000 property, the savings range from about 1 percent savings over the normal schedule to 22 percent savings, depending on the type of property depreciated. The greatest potential tax savings come from IRD claimed for property with the longest recovery periods. Additional bonus depreciation, when available, however, may decrease the incentive to use IRD.
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AOC and its major construction contractors have made progress since the Subcommittee's May 17 hearing. As of May 31, the construction management contractor reported that the CVC project's construction was about 65 percent complete. The sequence 1 contractor, Centex Construction Company, which was responsible for the project's excavation and structural work, has continued to address punch-list items, such as stopping water leaks that continue to appear in perimeter walls. According to the construction management contractor, as of May 31, the sequence 1 contractor had completed almost all of the items on the punch list. AOC expects the sequence 1 contractor to be completely done with this list and off site by June 30, although the contractor may have to return later to address some issues. Furthermore, the sequence 2 contractor, which is responsible for the mechanical, electrical, plumbing, and finishing work, continued to make progress in these areas, including erecting masonry block, placing concrete, and installing finish stone, sheetrock and plaster, and granite pavers. The sequence 2 contractor also continued work on the utility tunnel. As the Subcommittee requested, we worked with AOC on the selection of several sequence 2 milestones that the Subcommittee can use to help track the project's progress from the Subcommittee's May 17 hearing to July 31. These milestones are shown in appendix 1 and include activities on the project's critical path, as well as other activities that we and AOC believe are important for the project's timely completion. AOC's sequence 2 contractor completed 3 of the 11 activities listed in appendix 1 as scheduled for completion by today. The 11 activities include certain stone work in the Great Hall, a portion of the masonry wall in the auditorium, and certain utility tunnel work. According to AOC, the delays in 8 of these activities were caused by a number of factors, such as unforeseen site conditions, a design problem, and delays in completing certain masonry work that had to be completed before other work could be done. AOC does not expect these delays to postpone the project's scheduled September 2006 completion date because it believes that the sequence 2 contractor can recover the lost time. Since the May 17 hearing, AOC learned that the utility tunnel, which was expected to be operational in October 2005, is not now likely to be operational until March 2006. According to AOC, this date slipped because of unforeseen site conditions and the need to do certain work earlier than originally anticipated. The sequence 2 contractor has indicated that the impact of this delay on the project's scheduled September 2006 completion date will be mitigated by the use of temporary dehumidification equipment. However, this mitigation approach will result in additional costs, as explained later in this statement. Also since the May 17 hearing, AOC's contractors have updated the project's master schedule, and the new schedule shows seven paths that are critical or are within 15 days of being critical. For example, the updated schedule shows millwork and finishing the auditorium to be within 10 days and 15 days, respectively, of being critical. Having so many critical or near-critical paths complicates schedule management and increases the risk of problems that could lead AOC to miss its scheduled completion date. In our May 17 statement, we provided several observations on AOC's management of the project's schedules, including our view that problems in this area contributed to slippage in the project's scheduled completion date and additional project costs associated with delays. We also discussed recommendations we had already made to AOC to enhance its schedule management. AOC had agreed with these recommendations and had generally begun to implement them, but, it still needed, in our view, to give priority attention to them to keep the project on track and as close to budget as possible. A brief discussion follows of the issues that need AOC's priority attention and the current status of AOC's actions to address these issues. Having realistic time frames for completing work and obtaining fully acceptable schedules from contractors. Over the course of the project, AOC's schedules have shown dates for completing tasks that project personnel themselves considered unlikely to be met. In addition, the master project schedule ( prepared by AOC's construction management contractor) that AOC was using in May 2005 did not tie all interrelated activities together and did not identify the resources to be applied for all the activities, as AOC's contract requires. On June 10, the construction management contractor told us that it had reassessed the reasonableness of the activity durations and found that they reasonably reflected the time required to perform the activities. Last week, AOC provided us with a revised master schedule that the construction management contractor said (1) reflected significant improvement in the linkage of interrelated tasks and (2) provided sufficient information to manage the project's resources. AOC said that it planned to approve and accept this schedule subject to several conditions. Although our initial review of this revised schedule indicates that a number of improvements have been made, we have not yet had time to fully evaluate it. We will have a more complete assessment for the Subcommittee by its next CVC oversight hearing. Furthermore, as we said during the May 17 hearing, we continue to believe that AOC's scheduled September 2006 completion date is optimistic and that the project is more likely to be done in the December 2006 to March 2007 time frame, largely because of past problems, the risks to the schedule identified during our assessment of it in early 2004, and future risks and uncertainties facing the project. We plan to update our risk assessment for AOC's revised schedule and have our update completed in September 2005. Our update will include a review of activity durations. Aggressive monitoring and managing contractors' adherence to the schedule, including documenting and addressing the causes of delays, and reporting accurately to Congress on the status of the project's schedule. We noted in our May 17 testimony that neither AOC nor its construction management contractor had previously (1) adhered to contract provisions calling for monthly progress review meetings and schedule updates and revisions, (2) systematically tracked and documented delays and their causes as they occurred or apportioned their time and costs to the appropriate parties on an ongoing basis, and (3) always accurately reported on the status of the project's schedule. AOC and the construction management contractor have been working with the schedule consultant to develop a new, systematic process for tracking, analyzing, and documenting schedule progress and delays, addressing schedule issues, approving proposed schedule changes, and reporting on the schedule's status. On June 7, AOC, the construction management contractor, the sequence 2 contractor, and the schedule consultant conducted the first monthly schedule status review session using the newly developed approach. If effectively implemented and sustained, we believe that this new approach should generally resolve the schedule management concerns we previously raised, although it is not yet clear how delays will be handled on an ongoing basis. We believe that the successful implementation of this new approach, including the effective handling of delays, depends heavily on the CVC project team's continuous commitment of sufficient skilled resources to schedule management. On June 9, the construction management contractor told us that a project control engineer who had been assigned temporarily to help manage the project's schedule would be working full time on the project starting June 13. We plan to closely monitor the implementation of this new approach, including the resources devoted to it, the handling of delays, and the accuracy of the information provided to Congress. Developing and implementing risk mitigation plans. In the course of monitoring the CVC project, we have identified a number of risks and uncertainties that could have significant adverse effects on the project's schedule and costs. Some of these risks, such as underground obstructions and unforeseen conditions, have already materialized and have had the anticipated adverse effects. We believe the project continues to face risks and uncertainties, such as unforeseen conditions associated with the project's remaining tunnels and other work, scope gaps or other problems associated with the segmentation of the project between two major contractors, and shortages in the supply of stone and skilled stone workers. Although we have recommended that AOC develop and implement risk mitigation plans for these types of risks and uncertainties, AOC has not yet done so. AOC has agreed, however, to begin to do this shortly, and, according to AOC's CVC project executive, is exploring possible approaches. Preparing a master schedule that integrates the major steps needed to complete CVC construction and the steps necessary to prepare for operations. A number of activities, such as hiring and training staff, procuring supplies and services, and developing policies and procedures, need to be planned and carried out on a timely basis for CVC to open to the public when construction is complete. Although AOC has started to plan and prepare for CVC operations, as we indicated in our May 17 testimony, it has not yet developed a schedule that integrates the construction activities with those activities necessary to prepare for operations. The Subcommittee requested such a schedule during its April 13, 2005, hearing on AOC's fiscal year 2006 budget request. Because of a lack of funds, AOC had not been able to extend the work of a contractor that had been helping it plan and prepare for operations. Last week, AOC received the funding needed to re-engage this contractor, and AOC said that it would be working with the contractor to continue planning and preparing for CVC operations. As we said during the Subcommittee's May 17 hearing, we estimate that the cost to complete the construction of the CVC project, including proposed revisions to its scope, will range from about $522 million without provision for risks and uncertainties to about $559 million with provision for risks and uncertainties. As of June 10, 2005, about $483.7 million had been provided for CVC construction. In its fiscal year 2006 budget request, AOC asked Congress for an additional $36.9 million for CVC construction. AOC believes this amount will be sufficient to complete construction and, if approved, will bring the total funding provided for the project's construction to $520.6 million. Adding $1.7 million to this amount for additional work related to the air filtration system that we believe will likely be necessary brings the total funding needed to slightly more than the previously cited $522 million. AOC believes that it could obtain this $1.7 million, if needed, from the Department of Defense. AOC's $36.9 million budget request includes $4.2 million for potential additions to the project's scope (e.g. congressional seals, an orientation film, and storage space for backpacks) that Congress will have to consider when deciding on AOC's fiscal year 2006 CVC budget request. AOC has not asked Congress for the additional $37 million ($559 million minus $522 million) that we believe will likely be needed to address the risks and uncertainties that continue to face the project. These include, but are not limited to, shortages in the supply of stone and skilled stone workers, unforeseen conditions, scope gaps, further delays, possible additional requirements or time for life safety or security changes and commissioning, unknown operator requirements, and contractor coordination issues. These types of problems have been occurring, and as of June 1, 2005, AOC had received proposed sequence 2 change orders with costs estimated to exceed the funding available in fiscal year 2005 for sequence 2 changes by about $400,000. AOC plans to help cover this potential shortfall by requesting approval from the House and Senate Committees on Appropriations to reprogram funds from other project elements that it does not believe will be needed for those elements. AOC can also request approval from these Committees to use part of $10.6 million that Congress approved for transfer to the CVC project from funds appropriated for Capitol Buildings operations and maintenance. For several reasons, we believe that AOC may need additional funds for CVC construction in the next several months. These reasons include the pace at which AOC is receiving proposed change orders for sequence 2, the problems it is encountering and likely to encounter in finishing the project, and the uncertainties associated with how much AOC may have to pay for sequence 2 delays as well as when AOC will have fiscal year 2006 funds available to it. For example, AOC is likely to incur additional costs for dehumidification if the expected delay in the utility tunnel cannot be mitigated or AOC has to obtain temporary equipment to provide steam and chilled water to CVC. AOC may be able to meet this need as well as the other already identified needs by additional reprogramming of funds and by obtaining approval to use some of the previously discussed $10.6 million. However, these funds may not be sufficient to address the risks and uncertainties that may materialize from later this fiscal year through fiscal year 2007. Thus, while AOC may not need all of the remaining $37 million we have suggested be allowed for risks and uncertainties, we believe AOC is likely to need more funds in fiscal years 2006 and 2007 than it has already received and has requested to complete the construction of CVC's currently approved scope, although the exact amount and timing are not clear at this time. Effective implementation of our recommendations, including risk mitigation, could reduce AOC's funding needs. Given the development of a new project schedule, the pace at which sequence 2 change orders are being proposed, and the risks and uncertainties that continue to face the project, we recommend that, in the September to November 2005 time frame, the Architect of the Capitol update the estimated cost to complete the project. We believe that such information will be useful to Congress as it considers AOC's budget request for fiscal year 2007 as well as any other requests AOC may make for CVC funding. We expect to have our risk assessment of AOC's new project schedule done in September and believe that the information developed during this assessment will be important in estimating future costs. In addition, we believe that AOC will have more information on the possible costs of sequence 2 delays by that time. AOC has agreed to do this update. Mr. Chairman, this completes our prepared statement. We would be happy to answer questions that you or other Subcommittee Members may have. For further information about this testimony, please contact Bernard Ungar at (202) 512-4232 or Terrell Dorn at (202) 512-6923. Other key contributors to this testimony include Shirley Abel, Maria Edelstein, Elizabeth Eisenstadt, Brett Fallavolitta, Jeanette Franzel, Jackie Hamilton, Bradley James, Scott Riback, and Kris Trueblood. construction management contractor for the actual completion dates. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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This testimony discusses the Architect of the Capitol's (AOC) progress in achieving selected project milestones and in managing the project's schedule since Congress's May 17 hearing on the project. We will also discuss the project's costs and funding, including the potential impact of schedule-related issues on the project's costs. Our observations today are based on our review of schedules and financial reports for the CVC project and related records maintained by AOC and its construction management contractor, Gilbane Building Company; our observations on the progress of work at the CVC construction site; and our discussions with CVC project staff, including AOC, its construction management contractor, and representatives of an AOC schedule consultant, McDonough Bolyard Peck (MBP). We did not perform an audit; rather we performed our work to assist Congress in conducting its oversight activities. In summary, AOC's sequence 2 contractor, Manhattan Construction Company, has met 3 of 11 significant milestones scheduled for completion by today's hearing. The sequence 2 contractor missed the other 8 milestones for several reasons, such as unforeseen site conditions and a design problem. AOC does not expect these delays to affect the CVC project's scheduled September 2006 completion date because AOC believes that the contractor can recover the lost time. Furthermore, certain utility tunnel work is scheduled for completion about 5 months later than previously reported, but AOC does not expect this delay to postpone the project's completion date because AOC plans to use temporary equipment that will allow the project to move forward but will also increase its costs. However, largely because of past problems and risks and uncertainties that face the project, we continue to believe that the project is more likely to be completed in the December 2006 to March 2007 time frame than in September 2006, as shown in AOC's schedule. AOC and its construction management contractor have continued their efforts to address two of the areas we identified during Congress's May 17 CVC hearing as requiring priority attention--having a realistic, acceptable schedule and aggressively monitoring and managing adherence to the schedule. But AOC has not yet developed risk mitigation plans or, as the Subcommittee requested, prepared a master schedule that integrates the major steps needed to complete construction with the steps needed to prepare for operations. Until recently, AOC did not have funding to continue contractual support it had been receiving to help plan and prepare for CVC operations. We continue to believe that these areas require AOC's priority attention and that the project's estimated cost at completion will be between $522 million and $559 million, and that, as we indicated during the May 17 hearing, AOC will likely need as much as $37 million more than it has requested to cover risks and uncertainties to complete the project. We believe that most of these additional funds will be needed in fiscal years 2006 and 2007, although exactly how much will be needed at any one time is not clear. We are recommending that this fall AOC update its estimate of the cost to complete the project.
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Agencies should have sufficient staff with the technical expertise to oversee the activities under their authority. Oil and gas production methods on federal lands and waters have become increasingly sophisticated over the past decade. Additionally, oil and gas companies now rely on information technology to manage and oversee their operations. In a March 2010 review, we found that Interior had challenges in hiring, training, and retaining staff in critical oil and gas oversight roles, leading to questions about the technical capacity of Interior staff overseeing oil and gas activities. We found that Interior has faced difficulties in hiring, retaining, and training staff in key oil and gas oversight positions. Specifically, we found that staff within Interior's program for verifying that oil and gas produced from federal leases are correctly measured--including petroleum engineers and inspectors--lacked critical skills because, according to agency officials, Interior 1) has had difficulty in hiring experienced staff, 2) has struggled to retain staff, and 3) has not consistently provided the appropriate training for staff. Interior's challenges in hiring and retaining staff stem, in part, from competition with the oil and gas industry, which generally pays significantly more than the federal government. Moreover, key technical positions responsible for oversight of oil and gas activities have experienced high turnover rates, which, according to Interior officials, impede these employees' capacity to oversee oil and gas activities. These positions included petroleum engineers, who process drilling permits and review oil and gas metering systems, and inspection staff--including BLM's petroleum engineer technicians and production accountability technicians onshore--who conduct drilling, safety and oil and gas production verification inspections (see app. I). For example, we found that turnover rates for OEMM inspectors at the four district offices we reviewed between 2004 and 2008 ranged from 27 to 44 percent. Furthermore, Interior has not consistently provided training to the staff it has been able to hire and retain. For example, neither onshore nor offshore petroleum engineers had a requirement for training on the measurement of oil and gas, which is critical to accurate royalty collections and can be challenging at times because of such factors as the type of meter used, the specific qualities of the gas or oil being measured, and the rate of production. Additionally, although BLM offers a core curriculum for its petroleum engineer technicians and requires that they obtain official BLM certification and then be recertified once every 5 years to demonstrate continued proficiency, the agency has not offered a recertification course since 2002, negatively impacting its ability to conduct inspections. It is important to note that BLM's petroleum engineer technicians are the eyes and ears for the agency--performing key functions and also perhaps the only Interior staff with direct contact with the onshore lease property itself. We also found that Interior's efforts to provide its inspection staff with mobile computing capabilities for use in the field are moving slowly and are years from full implementation. Interior inspectors continue to rely on documenting inspection results on paper, and later reentering these results into Interior databases. Specifically, Interior's BLM and OEMM are independently developing the capacity for inspection staff to (1) electronically document inspection results and (2) access reference documents, such as American Petroleum Institute standards and measurement regulations, via laptops while in the field. BLM initiated work on developing this capacity in 2001, whereas OEMM is now in the preliminary planning stages of a similar effort. According to Interior officials, widespread implementation of a mobile computing tool to assist with production verification and other types of inspections, potentially including drilling and safety, are still several years away. Interior officials said having such a tool would allow inspection staff to not only easily reference technical documents while conducting inspections to verify compliance with regulations but also to document the results of those inspections while in the field and subsequently upload them to Interior databases. An effective oversight program should include a component for systematic inspections and reviews, whose findings should be documented and subsequently addressed. In several recent reviews, we found that Interior had been unable to complete its necessary reviews, including both environmental and oil and gas production verification inspections and certain offshore environmental analyses. We found that Interior was unable to meet its goals for conducting environmental and oil and gas production verification oversight inspections because of a management focus on drilling. For example, in June 2005, we reported that Interior devoted fewer resources to completing onshore environmental inspections--inspections to ensure that oil and gas companies are complying with various environmental laws and lease stipulations. According to Interior staff, one of the principal reasons was that management shifted available resources to processing drilling permits. More recently, in March 2010, we reported that Interior had only been able to complete approximately one-third of the required onshore oil and gas production verification inspections, raising concerns about the accuracy of the oil and gas volumes reported to MRM. In another March 2010 report, we found that MMS faces challenges in the Alaska Outer Continental Shelf (OCS) Region in conducting reviews of oil and gas development under the National Environmental Protection Act (NEPA), which requires MMS to evaluate the likely environmental effects of proposed actions, including oil and gas development. Although Interior policy directed its agencies to prepare handbooks providing guidance on how to implement NEPA, we found that MMS lacked such a handbook. The lack of comprehensive guidance in a handbook, combined with high staff turnover in recent years, left the process for meeting NEPA requirements ill defined for the analysts charged with developing NEPA documents. It also left unclear MMS's policy on what constitutes a significant environmental impact as well as its procedures for conducting and documenting NEPA-required analyses to address environmental and cultural sensitivities, which have often been the topic of litigation over Alaskan offshore oil and gas development. We also found that the Alaska OCS Region shared information selectively, a practice that was inconsistent with agency policy, which directed that information, including proprietary data from industry, be shared with all staff involved in environmental reviews. According to regional MMS staff, this practice has hindered their ability to complete sound environmental analyses under NEPA. In an August 2009 report examining Interior's royalty-in-kind (RIK) program, we found that although MRM staff had made progress in conducting reviews of gas imbalances--instances where Interior may not be receiving the total amount of royalties due from gas production--they were unable to determine the exact amount the agency was owed for imbalances because it lacked certain key information. For example, MRM did not verify production data to ensure it received its entitled percentage of RIK gas from leases taken in kind. Without these and other data, MRM staff were unable to quantify revenues from imbalances, leading to forgone revenues and uncertainty about how much gas the government is owed. Until recently, Interior has left key functions it oversees without review for long periods. In two reports issued in 2008, we noted that Interior received less in royalties and other payments for development of its oil and gas resources than many other countries and that Interior did less than other landowners to encourage development of resources it leased for development. In a September 2008 report on royalties and other payments, we found that Interior had not done a comprehensive analysis of its royalty and other revenue structure in over 25 years, and we recommended that it do so. In an October 2008 report, we found that Interior had done less than selected states and private landowners to encourage development of oil and gas leases, and we recommended that it develop a strategy to evaluate options to encourage faster development on federal lands. Just this year, Secretary Salazar directed Interior to conduct studies examining these issues. We are encouraged that Interior is undertaking these efforts and hopeful that the findings of the studies will identify opportunities to improve Interior's oversight of oil and gas development. Oversight entities must have the authority to ensure that all regulated entities fully comply with the law and applicable regulations. In our March 2010 report, we determined that in some instances Interior is uncertain about its legal authority for undertaking necessary enforcement actions and may be using its enforcement authority inconsistently. We found that Interior had not determined the extent of its authority over key elements of oil and gas production infrastructure necessary for ensuring accurate measurement. This infrastructure includes meters in (or after) gas plants, which may include the meter where oil and gas are measured for royalties and meters owned by pipeline companies. These companies frequently own, operate, and maintain the meter used at the official measurement point on federal leases and own the production data the meter generates. Because it did not know the extent of its authority, Interior did not know what steps it could take to enforce its standards and regulations for meters. Thus it lacked assurances that royalty-bearing volumes of oil and gas were correctly measured. We also found that Interior inspection staff were not, in all cases, pursuing enforcement actions when they identified oil and gas production activities not in compliance with its regulations. Specifically, we found that some Interior staff were not issuing incidents of non-compliance--a type of enforcement action--when they identified certain measurement devices during the course of their inspections, as they believe the current measurement regulations were out of date. If staff do not uniformly ensure compliance with regulations through specified procedures and document their findings, Interior is at risk of not capturing data to know the full extent of particular violations. Organizations should make relevant information widely available to ensure that those most affected by operations, including the public, can fully participate in decision-making processes that can, ultimately, have significant impacts. We recently found that Interior has been providing inconsistent and limited information with respect to its use of categorical exclusions in approving onshore oil and gas activities. Also, in preliminary results from our ongoing work on public challenges to BLM's federal onshore oil and gas lease sale decisions, we found that BLM state offices provide limited and varying amounts of information to the public on their leasing decisions. In September 2009, we found that BLM's use of categorical exclusions was not fully transparent. In addressing long-term energy challenges, Congress enacted the Energy Policy Act of 2005, in part to expedite oil and gas development within the United States. This law authorizes BLM, for certain oil and gas activities, to approve projects without preparing new environmental analyses that would normally be required by NEPA. Section 390 of the Energy Policy Act of 2005 does not specify procedures for involving or informing either the public or other government agencies when section 390 categorical exclusions are used. According to Interior and BLM officials, there is no requirement to publicly disclose that BLM used a section 390 categorical exclusion to approve a project or to disclose approved section 390 categorical exclusion decision documents. Instead, the public depends on the discretion of each field office for such disclosure. We found that BLM field offices had different degrees and methods of disclosing information related to decisions on section 390 categorical exclusions. For example, some field offices, such as White River and Glenwood Springs, Colorado, publicly disclosed online which Applications for Permit to Drill they approved with section 390 categorical exclusions. In contrast, other field offices, such as Price/Moab, Utah, and Pinedale, Wyoming, did not publicly disclose their decisions to use section 390 categorical exclusions and, in fact, required the public to file Freedom of Information Act requests to identify which projects BLM approved using section 390 categorical exclusions and to obtain copies of approved section 390 categorical exclusion decision documents. In some cases, it was difficult for other governmental agencies--including state environmental agencies--and the public to determine whether BLM had used a section 390 categorical exclusion until it was too late to comment on or challenge BLM's action. When the public and other federal and state agencies do not have a reliable or consistent way of determining which projects have been approved with section 390 categorical exclusions, they lack a fundamental piece of information needed to hold BLM accountable for their use. In preliminary results from our ongoing work on public challenges to BLM's federal oil and gas lease sale decisions in the four Mountain West states responsible for most onshore federal oil and gas development, we found the extent to which BLM made publicly available information related to public protests filed during the leasing process varied by state and was generally limited in scope. We also found that stakeholders-- nongovernmental organizations representing environmental, recreational, and hunting interests that filed protests to BLM lease offerings--wanted additional time to participate in the leasing process and more information from BLM about its leasing decisions. In May 2010, the Secretary of the Interior announced several agencywide leasing reforms that are to take place at BLM, some of which may address concerns raised by these stakeholder groups. For instance, BLM state offices are to provide an additional public review and comment opportunity during the leasing process. They are also required to post on their Web sites their responses to letters filed in protest of state office decisions to offer specific parcels of land for oil and gas development. The agency should be free from the direct and indirect influence of the oil and gas industry. Our past work, as well as that of Interior's OIG, has identified several instances where Interior staff had inappropriate relationships with oil and gas industry personnel, raising questions about whether Interior's oversight efforts were sufficient. During the course of our audit work for our report on Interior's use of categorical exclusions, allegations were made about inappropriate relationships between Interior management and the oil and gas industry. We referred these allegations to Interior's OIG, which initiated an investigation. The results of the investigation substantiated these inappropriate contacts, the details of which are included in an Interior OIG investigative report. Additional reports by Interior's OIG have also identified instances that call into question the independence of key staff working in Interior's oil and gas program. In August 2008, Interior's OIG reported on inappropriate relationships between staff working in Interior's RIK program and the oil and gas industry. Specifically, the OIG found that between 2002 and 2006 nearly one-third of the RIK program staff socialized with and received a wide array of gifts and gratuities from oil and gas companies with whom the program was conducting official business. Most recently, in May 2010, the OIG reported on inappropriate relationships between Interior's offshore inspection staff and certain oil and gas companies operating in the Gulf of Mexico. Interior's Acting Inspector General stated that her greatest concern is the environment in which these inspectors operate, particularly the ease with which they move between industry and government. In conclusion, over the past several years, we and others have found Interior to be in need of fundamental reform. This past work has found weaknesses across a wide range of Interior's oversight of onshore and off shore oil and gas development. Secretary Salazar has taken notable steps to begin comprehensive evaluations of leasing rules and practices as well as the amount and ways in which the federal government collects revenues. Interior is also currently implementing a number of our recommendations aimed at making improvements within the existing organization of Interior's functions. As the Secretary and Congress consider what fundamental changes are needed in how Interior structures its oversight of oil and gas programs, we believe that our and others' past work provides a strong rationale for broad reform of the agency's oil and gas oversight functions--at MMS to be sure, but also across other parts of Interior, including those responsible for oversight of onshore areas. If steps are not taken to ensure effective independent oversight, we are concerned about the agency's ability to manage the nation's oil and gas resources, ensure the safe operation of onshore and offshore leases, provide adequate environmental protection, and provide reasonable assurance that the U.S. government is collecting the revenue to which it is entitled. Reorganization and fundamental change can be very difficult for an organization. Although we have not conducted a detailed evaluation of Secretary Salazar's proposals for reforming MMS, we believe that regardless of how MMS is ultimately reorganized, Interior's top leadership must also address the wide range of outstanding recommendations for any reorganization effort to be effective. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. For further information on this statement, please contact Frank Rusco at (202) 512-3841 or [email protected]. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. Other staff that made key contributions to this testimony include, Ron Belak, Dan Feehan, Glenn C. Fischer, Jon Ludwigson, Ben Shouse, Kiki Theodoropoulos, and Barbara Timmerman. Oil and Gas Management: Interior's Oil and Gas Production Verification Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes, GAO-10-313, (Washington, D.C.: Mar. 15, 2010). Offshore Oil and Gas Development: Additional Guidance Would Help Strengthen the Minerals Management Service's Assessment of Environmental Impacts in the North Aleutian Basin, GAO-10-276, (Washington, D.C.: Mar. 8, 2010). Energy Policy Act of 2005: Greater Clarity Needed to Address Concerns with Categorical Exclusions for Oil and Gas Development under Section 390 of the Act, GAO-09-872, (Washington, D.C.: Sept. 26, 2009). Federal Oil And Gas Management: Opportunities Exist to Improve Oversight, GAO-09-1014T, (Washington, D.C.: Sept. 16, 2009). Royalty-In-Kind Program: MMS Does Not Provide Reasonable Assurance It Receives Its Share of Gas, Resulting in Millions in Forgone Revenue, GAO-09-744, (Washington, D.C.: Aug. 14, 2009). Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties, GAO-09-549, (Washington, D.C.: July 15, 2009). Strategic Petroleum Reserve: Issues Regarding the Inclusion of Refined Petroleum Products as Part of the Strategic Petroleum Reserve, GAO-09-695T, (Washington, D.C.: May 12, 2009). Oil and Gas Management: Federal Oil and Gas Resource Management and Revenue Collection In Need of Stronger Oversight and Comprehensive Reassessment, GAO-09-556T, (Washington, D.C.: Apr. 2, 2009). Oil and Gas Leasing: Federal Oil and Gas Resource Management and Revenue Collection in Need of Comprehensive Reassessment, GAO-09-506T, (Washington, D.C.: Mar. 17, 2009). Department of the Interior, Minerals Management Service: Royalty Relief for Deepwater Outer Continental Shelf Oil and Gas Leases--Conforming Regulations to Court Decision, GAO-09-102R, (Washington, D.C.: Oct. 21, 2008). Oil and Gas Leasing: Interior Could Do More to Encourage Diligent Development, GAO-09-74, (Washington, D.C.: Oct. 3, 2008). Oil and Gas Royalties: MMS's Oversight of Its Royalty-in-Kind Program Can Be Improved through Additional Use of Production Verification Data and Enhanced Reporting of Financial Benefits and Costs, GAO-08-942R, (Washington, D.C.: Sept. 26, 2008). Mineral Revenues: Data Management Problems and Reliance on Self- Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk, GAO-08-893R, (Washington, D.C.: Sept. 12, 2008). Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues Needs Comprehensive Reassessment, GAO-08-691, (Washington, D.C.: Sept. 3, 2008). Oil and Gas Royalties: Litigation over Royalty Relief Could Cost the Federal Government Billions of Dollars, GAO-08-792R, (Washington, D.C.: June 5, 2008). Strategic Petroleum Reserve: Improving the Cost-Effectiveness of Filling the Reserve, GAO-08-726T, (Washington, D.C.: Apr. 24, 2008). Mineral Revenues: Data Management Problems and Reliance on Self- Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk, GAO-08-560T, (Washington, D.C.: Mar. 11, 2008). Strategic Petroleum Reserve: Options to Improve the Cost-Effectiveness of Filling the Reserve, GAO-08-521T, (Washington, D.C.: Feb. 26, 2008). Oil and Gas Royalties: A Comparison of the Share of Revenue Received from Oil and Gas Production by the Federal Government and Other Resource Owners, GAO-07-676R, (Washington, D.C.: May 1, 2007). Oil and Gas Royalties: Royalty Relief Will Cost the Government Billions of Dollars but Uncertainty Over Future Energy Prices and Production Levels Make Precise Estimates Impossible at this Time, GAO-07-590R, (Washington, D.C.: Apr. 12, 2007). Royalties Collection: Ongoing Problems with Interior's Efforts to Ensure A Fair Return for Taxpayers Require Attention, GAO-07-682T, (Washington, D.C.: Mar. 28, 2007). Oil and Gas Royalties: Royalty Relief Will Likely Cost the Government Billions, but the Final Costs Have Yet to Be Determined, GAO-07-369T, (Washington, D.C.: Jan. 18, 2007). Strategic Petroleum Reserve: Available Oil Can Provide Significant Benefits, but Many Factors Should Influence Future Decisions about Fill, Use, and Expansion, GAO-06-872, (Washington, D.C.: Aug. 24, 2006). Royalty Revenues: Total Revenues Have Not Increased at the Same Pace as Rising Oil and Natural Gas Prices due to Decreasing Production Sold, GAO-06-786R, (Washington, D.C.: June 21, 2006). Oil and Gas Development: Increased Permitting Activity Has Lessened BLM's Ability to Meet Its Environmental Protection Responsibilities, GAO-05-418, (Washington, D.C.: June 17, 2005). Mineral Revenues: Cost and Revenue Information Needed to Compare Different Approaches for Collecting Federal Oil and Gas Royalties, GAO-04-448, (Washington, D.C.: Apr. 16, 2004). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The catastrophic oil spill in the Gulf of Mexico has drawn national attention to the exploration and production of oil and gas from leases on federal lands and waters. The Department of the Interior's Bureau of Land Management (BLM) oversees onshore oil and gas activities, the Minerals Management Service's (MMS) Offshore Energy and Minerals Management oversees offshore oil and gas activities, and MMS's Minerals Revenue Management collects revenues from oil and gas produced. Interior's oil and gas oversight has long been the subject of audits and investigations by GAO, Interior's Office of Inspector General (OIG), and others. In response to the recent oil spill, the Secretary of the Interior has proposed reorganizing MMS. Over the past 5 years, GAO has issued numerous recommendations to the Secretary of the Interior to improve the agency's management of oil and gas resources--most recently resulting in two reports in March 2010. Overall, GAO's work in this area can be useful in evaluating key aspects of the Secretary's plans to reorganize MMS. In particular, GAO's findings and recommendations can provide guidance on how to achieve effective oversight of federal oil and gas management by improving (1) technical expertise in the agency, (2) performance of analyses and reviews, (3) enforcement of laws and regulations, (4) public access to information, and (5) the degree of independence in the agency. Technical Expertise. Oil and gas production methods on federal lands and waters have become increasingly sophisticated over the past decade. GAO found in a March 2010 report that Interior had challenges in hiring, training, and retaining key staff, leading to questions about the technical capacity of Interior staff overseeing oil and gas activities. Interior's challenges partly stem from competition with the oil and gas industry, which can pay staff higher salaries. Moreover, key technical positions responsible for oversight of oil and gas activities have experienced high turnover rates, which, according to Interior officials, impede their capacity to oversee oil and gas activities. Ability to perform reviews and require that findings be addressed. In several recent reports, GAO found that Interior was unable to complete necessary reviews, including environmental and oil and gas production verification inspections, and had an ill-defined process for conducting certain offshore environmental analyses. For example, GAO reported in March 2010 that MMS faced challenges in Alaska conducting required environmental reviews, because although Interior policy directed MMS to prepare a handbook providing guidance on how to conduct these reviews, MMS lacked such a handbook. This lack of guidance also left unclear MMS's policy on what constitutes a significant environmental impact. Enforcement Authority. In a March 2010 review, GAO determined that in some instances, Interior was uncertain about its legal authority for undertaking potential necessary enforcement actions, and that Interior may be inconsistently using its enforcement authority. For example, staff from one BLM office told us that they were not issuing enforcement actions for unauthorized devices intended to modify gas flow upstream of the measurement meter--which may result in inaccurate measurement of gas production volumes. These staff explained that this was due to measurement regulations that were out of date. Public Access. In its preliminary results from ongoing work on public challenges to BLM's federal onshore oil and gas lease sale decisions in the four Mountain West states responsible for most federal oil and gas development, GAO found state-by-state variation in what protest-related information was made publicly available across BLM state offices. GAO also found that stakeholders, including industry groups and nongovernmental organizations representing environmental, recreational, and hunting interests, expressed frustration with the transparency and timeliness of the information. Independence. During GAO's work in 2009 and in Interior OIG reports in 2008 and 2010, several instances were identified where Interior staff had inappropriate relationships with oil and gas industry personnel, raising questions about whether Interior's oversight efforts were sufficient. The OIG found numerous instances of inappropriate contact between industry and Interior staff, including staff receipt of gifts.
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With WIA, the Congress sought to replace the fragmented employment and training system that existed under the previous workforce system. Among other things, WIA sought to streamline program services at one-stop centers; offer job seekers the ability to make informed choices about training, and provide private-sector leadership to manage this new workforce development system. To streamline services, WIA requires at least 17 programs administered by four federal agencies to make their core services available through the one-stops and support the operation of those one-stops. As shown in table 1, these programs represent a range of funding levels, from $2.4 billion for the Department of Education's Vocational Rehabilitation Program to $55 million for Labor's Native American Employment and Training Program. The programs also serve various target populations. For example, while many of the programs serve either low-income or otherwise disadvantaged or unemployed individuals, WIA's Adult Program can serve any individual aged 18 or older, as can Labor's Wagner-Peyser Employment Service (Employment Service). In contrast, Education's Vocational Rehabilitation Program can only serve disabled individuals, and even then, prioritizes which of those it can serve. These programs also represent a range of service delivery methods. Public agency personnel (such as state labor or education departments) administer many of these programs' services. Several programs are administered by, among others, nonprofit or community-based organizations, unions, Indian tribal governments, and community development corporations. Several of these programs are block grants that federal agencies provide to states and localities for a variety of efforts, which may or may not include employment and training services. Although many of the programs provide for training, such as WIA's Adult and Dislocated Worker Programs, some, such as employment and training programs for veterans, must work with other programs to obtain training for their participants. WIA did not prescribe how the one-stops should operate, but in guidance produced in June 2000, Labor identified a range of options for one-stops, including simple collocation of program staff at the one-stops or electronic linkages between existing program offices and the one-stops. In this guidance, however, Labor laid out a vision for one-stop operations that it called "full integration." The realization of a fully integrated system would entail all partner programs operating under one management structure and accounting system and offering joint delivery of program services from combined resources. WIA also allowed partners a wide range of methods to support the one-stop's operation. For example, partners could pay rent for the space occupied by program staff or could provide equipment or shared services, such as providing initial intake services of greeting one- stop visitors and collecting general information from them to assess program eligibility or teaching classes to individuals at the one-stop. WIA also required that any training provider wishing to provide training services to any individual receiving training through WIA's Adult and Dislocated Worker Programs provide key data--such as (1) completion rates, (2) job placement rates, and (3) wages at placement for students. WIA required the collection of these outcome data so that job seekers receiving training could use them to make more informed choices about training providers. Unlike prior systems, WIA allowed individuals eligible for training under the Adult and Dislocated Worker Programs to receive vouchers--called Individual Training Accounts--which they could use for the training provider and course offering of their choice, within certain limitations. WIA also required these data so that states and localities could assess training providers' performance. For example, a state might determine that only training providers' courses with an 80-percent completion rate would be allowed to remain on the training provider list. If a course failed to meet that level, it would no longer be available to receive WIA-funded individuals. WIA provided a 1-year initial eligibility period before these requirements went into effect. Labor's final regulations allowed states to extend the initial eligibility period for up to an additional six months under certain circumstances. Finally, WIA called for the development of workforce investment boards to oversee WIA implementation at the state and local levels. At the state level, WIA required, among other things, that the workforce investment board assist the governor in helping to set up the system, establish procedures and processes for ensuring accountability, and designate local workforce investment areas. WIA also required that boards be established within each of the local workforce investment areas to carry out the formal agreements developed between the boards and each partner and oversee one-stop operations. According to Labor, there are 54 state workforce investment boards and approximately 600 local boards. WIA listed what types of members should participate on the workforce investment boards, but did not prescribe a minimum or maximum number of members. Also, it allowed governors to select representatives from various segments of the workforce investment community, including business, education, labor, and other organizations with experience in the delivery of workforce investment activities to be represented on the state boards. The specifics for local board membership were similar to those for the state. WIA required that private-sector representatives chair the boards and make up the majority of board members. This was to help ensure that the private-sector would be able to provide information on the available employment opportunities and expanding career fields and help develop ways to close the gap between job seekers and labor market needs. WIA's mandatory partners are making efforts to participate in the one- stops as required by the law. However, they are wrestling with questions about how to accomplish the required participation, as well as move closer to the vision of full integration, given their clients' needs, their programs' rules, and their financial constraints. Responsible federal agencies have published guidance in these areas, and Labor has recently established an interagency workgroup to address these issues. However, state and local implementers said they continue to lack a clear sense of how one-stop participation, as well as rules for client eligibility and cost accounting, is compatible with their clients' needs. First, many of the mandatory partners have expressed concerns that significantly altering existing service delivery methods to participate in the one-stops might adversely affect the quality of services they provide to their target populations. For example, staff from Education's Vocational Rehabilitation Program, which serves the disabled, were concerned that one-stops might not adequately provide the special services, equipment, or personnel (such as staff who know sign language) that their clients need. As a result, even though Vocational Rehabilitation staff were present in some form at the nine one-stops we visited, they continued to maintain existing program offices to ensure that the special needs of their eligible clients were accommodated. Other partners said that they did not see how participation in the one-stop would benefit their eligible populations, who in some cases were already receiving services through other sources. For example, California education department officials told us that low- income and disadvantaged populations in California already have full access to the community college system at low or no cost. According to these officials, this access decreased partners' incentive to provide Perkins or Adult Education and Literacy Program services through the one-stops. Second, a number of partners have expressed concerns that altering traditional service delivery methods to participate in the one-stops may lead to conflicts with their own program's requirements regarding which individuals are eligible for the services they offer. For example, at several of the one-stops we visited, veterans' staff believed they could not provide shared services, such as greeting one-stop visitors and collecting general information from them. They were concerned that doing so might mean serving individuals who are not veterans, which is not allowed under their authorizing legislation. We found that at some locations, veterans' staff were unwilling to teach orientation or job preparation classes if anyone in the class was a not a veteran. Yet at other locations, veterans' staff were willing to teach classes attended by nonveterans. Labor has published no guidance to address this confusion. However, Labor officials with whom we spoke agreed that having veterans' staff serve nonveterans was a violation of the program's mandate, but believed it was permissible for veterans' staff to teach such classes as long as the majority of students were veterans. Nonetheless, Labor also said that any expenditures associated with delivery of services to nonveterans would be disallowed. The concerns that veterans' staff have about violating program mandates may explain why veterans staff were collocated at the nine one-stops we visited, but served only veterans and paid rent as their required support of the one-stop rather than providing a shared service. Third, many of WIA's mandatory partners said participation in the one- stops was problematic given financial constraints. For example, Labor and others have found that, at least in some locations, the Employment Service operates at the one-stop and also at existing offices outside the one-stops. We found this to be the case for at least two of the nine one-stops we visited, largely because the Employment Service could not afford to break leases on existing facilities. According to Employment Service officials we spoke to, limited funding also makes it difficult to assign additional personnel to staff the one-stop or to devote resources to developing electronic linkages with the one-stop. In the states we visited, partners told us that limited funding was also a primary reason why, when partners did provide individuals to help staff the one-stop, they did so on only a part-time basis. Some of the programs also have caps on spending that affect their ability to contribute to the support of the one-stop's operations. For example, WIA's Adult and Dislocated Worker Programs have a 10-percent administrative cap on their costs for the one-stops' operation and staff who support the local workforce investment board. According to a survey conducted for us by a national association, 61 of the 69 counties that responded stated that this cap limits the ability to serve both functions, especially given the funding limitations of other programs. Finally, many of the partners were not sure how to define or account for allowable activities in the one-stop environment, given existing guidance from the Office of Management and Budget (OMB) and Labor. For example, OMB requires that all shared services be properly accounted for by programs. This means that if a partner dedicated a copy machine to the one-stop, the copy machine cannot be used for any purpose other than its program. Any other partner who uses the machine would have to pay or somehow reimburse that partner. According to a number of partners, tracking this kind of activity is very difficult to do. Also, partners said the guidance was not meant to address situations where costs must be allocated across programs with different or competing missions. For example, if partners are only willing to staff the one-stop 1 day a month, they only pay for that percentage of the one-stop costs, leaving other partners to make up the shortfall. According to partners we interviewed, this has led to partners with a broad client base, or those with greater connection to the one-stops--such as WIA's Adult and Dislocated Worker Programs--paying a greater share of the one-stop operations. Partners also questioned how to account for personnel who, in the process of providing support services, may provide services to potentially ineligible populations. Although both Education and Labor have provided information to states and local implementers about how to interpret WIA's requirements, according to state and local implementers we interviewed, the guidance does little to specifically address the concerns about how to integrate services while not adversely affecting target populations or violating program requirements. Labor has recently established a one-stop workgroup that seeks to specifically address financial concerns, but as of yet, has released no findings. Although training providers are making efforts to participate in the WIA system, they believe that the new data collection and reporting requirements it imposed are too burdensome to warrant their participation in the system, especially given the few individuals sent to training. As a result, they are reducing the number of course offerings they make available under WIA-in effect, reducing the training options from which WIA job seekers have to choose. Labor has established a workgroup in an effort to address many of the issues that training providers described as burdensome, but this workgroup may not include all the key players and, to date, has not provided any guidance. Training providers and other state and local implementers we interviewed identified the number of students for whom they potentially must collect data as one factor that makes WIA's data collection and reporting burdensome. WIA requires that training providers report program completion, placement, and wage data, among other data elements, for all students in a class, regardless of whether they were WIA-funded. This means that even if only one student in a class of 100 was WIA-funded, the training provider would be required to provide data on all 100 students. The methods available to collect the required data are a second factor that makes data collection burdensome, according to training providers we interviewed. WIA did not specify how training providers would collect or report the required information, and in many locations, the methods being used strain training providers' resources or raise privacy concerns. For example, in two of the states we visited, training providers planned to track students after they graduated and call them to obtain the necessary data, but said they did not have the staff necessary to call hundreds of students. In other states, training providers were considering meeting data collection requirements by providing students' social security numbers (SSNs) to state agencies (such as departments of labor) responsible for WIA implementation. These agencies would then match the SSNs against unemployment insurance wage records (which are reported by SSNs). Although this method was more efficient, training providers worried that it might violate the privacy rights of students. They said that the Family Educational Rights and Privacy Act (FERPA) generally prohibits an educational institution from disclosing personally identifiable student information (such as an SSN) without the student's consent. There are a number of exceptions where providing such data is allowed-for example, to the Department of Education. Although Labor and Education issued a January 2001 memo noting that certain exceptions could allow educational institutions to disclose this information without a student's prior consent, many of the training providers we interviewed did not see the memo as sufficient assurance that such a practice could be carried out without violating FERPA. Training providers identified differences between WIA's data collection and reporting requirements and those of other programs as a third factor that makes data collection burdensome. Training providers noted that these differences mean that data have to be collected twice for similar outcomes. For example, in Texas, the state defined completion for most WIA-eligible training programs as receipt of a 9-hour credit certificate. For Education's Perkins program, however, the state defined program completion as receipt of a 15-hour credit certificate. While the outcomes being measured are similar, the differences require two separate measures. According to training providers, the fourth factor that makes the training requirements burdensome is their focus on process rather than the outcomes training providers achieve. Training providers believed that at least some of the required data focused on process rather than outcomes, and as a result, did not accurately reflect their performance. For example, WIA requires training providers to track the number of students who complete a program, but several community colleges told us that this measure fails to reflect how a community college serves individuals. According to training providers, often students acquire the skills they need and/or find jobs before a program is over, and so they leave the program without completing it. In such cases, a state or locality could penalize a training provider for not achieving a particular level of program completion, even though the training provider achieved one of WIA's goals helping people find employment. Training providers we spoke with said that the few WIA clients that have been sent to training since WIA was passed made the data collection and reporting requirements even more onerous. For example, each of the nine one-stops we visited had sent training providers, on average, only six individuals for training since July 2000. According to training providers we interviewed, this is significantly fewer than they had received under the workforce system predating WIA. A variety of reasons may explain the low number of job seekers sent to training. First, many state and local implementers we interviewed, as well as federal agency officials, believe that WIA calls for a work-first approach, which encourages job seekers to obtain employment without training. Second, the strong economy over the past several years has encouraged employers to be more interested in getting workers on board quickly than waiting for them to complete training. Third, states may be discouraging one-stops from placing hard-to- employ individuals into training, fearing that this may affect their achievement of WIA performance measures that focus on employment. Finally, because the Adult and Dislocated Worker Programs have had to consistently bear a greater share of the costs associated with establishing and maintaining the one-stops, they have had little money left for training, according to local implementers. WIA data collection coupled with the few job seekers sent to training has, to date, resulted in training providers reducing the number of programs they offer. We found that the number of providers and course offerings on available course listings decreased in many locations. For example, between July 2000 and July 2001, Vermont's list decreased from offering 600 programs by 80 providers to offering 158 programs by 46 providers. Labor has established an adult and dislocated worker workgroup in an effort to address many of the issues that training providers described as burdensome. Labor's goal is to craft solutions that do not penalize states already collecting the data successfully. However, the workgroup has no deadline for completion, and although it invited training provider representatives to a meeting, the formal membership does not include these representatives. This may limit the value of any solutions developed and the willingness of training providers to adopt those solutions. Private-sector representatives who are supposed to be leading workforce investment boards have expressed frustrations that the manner in which boards are operated may be diluting their input and, ultimately, discouraging their participation. Private-sector representatives we spoke with believed that state and local boards are too large to efficiently address key workforce issues and that staff and committees intended to help deal with the size of the boards may not reflect private-sector views. Labor has issued little guidance on this matter, but has recently formed a workgroup to examine these concerns. Private-sector representatives and others believed that the large number of board members--exceeding 40 in most places, according to a national board association--makes it difficult to set up meetings and run them efficiently. For example, officials in one local workforce investment area noted that as the number of board members increased, so did their dispersion throughout the state. These officials said that the dispersion of members throughout the state made it difficult to find locations for the board meetings that were convenient to all members. If members were unable to attend the meetings, boards might not be able to achieve a quorum (usually a simple majority) and, therefore might be unable to vote on courses of action. Ensuring that the numerous board members all have the same information before a meeting and keeping members apprised of the board's activities also becomes more difficult as the size of a board increases. Addressing issues, reconciling disagreements, and reaching agreements would also become more challenging because having a large number of members results in more opinions. These difficulties have been especially prevalent this past year as boards have had to perform many administrative tasks to set up the WIA system, such as developing strategic plans or certifying one-stops. Private-sector representatives also believed that the staff put in place to serve the boards may not share employer's perspectives regarding the system. Every state and local board has assigned staff that are responsible for setting up meetings, developing the agenda, and ensuring that boards stay current with compliance issues. However, according to private-sector representatives and other implementers, the public-sector agency responsible for carrying out many of WIA's mandatory programs, usually a labor or human services agency, employs these staff. Private-sector and other representatives expressed concerns regarding how staff are to carry out their primary focus of serving the board when they report to supervisors in their respective agencies. In addition, private-sector representatives believed that committees serving under the auspices of the boards may dilute employer's input into the system. These committees research particular issues that the board may ultimately address. WIA is silent on the establishment of the committees and the form that they should take, but we were told that private-sector representatives are often underrepresented or not represented at all on the committees, even though the committees play an important role in influencing board activities. In the states we visited, committees generally had less than 50-percent private-sector membership, and only one committee at the state level had more than 50-percent private-sector membership. Labor has recently established a workforce investment board workgroup to consider these issues, has provided technical assistance to state and local boards, and has arranged peer assistance and provided information on promising practices to help local boards deal with some of these challenges. However, private-sector representatives and other state and local implementers said they lack information on how to balance the requirements of the board operations with the needs of the private sector. Despite the struggles of state and local implementers in these areas, many of them have found ways to overcome these difficulties. Some examples follow. One-stop partners jointly financed a separate staff person to perform shared support services, such as initial intake, to allow partners to provide shared services without violating their program requirements. A state board decided to classify expenses associated with running the one-stop as programmatic rather than administrative as a way to lessen the impact of a cap on certain spending. A state board gave the education community approval to use existing Perkins' outcome data for the purposes of WIA data collection and reporting until the state is able to fully implement other outcome data measures. This was intended to lessen the burden posed by similar, yet different, data collection and reporting requirements. A community college enrolled WIA-funded training participants in a "separate" college. This college exists in name only and stands in for the community college where WIA-funded training participants actually take classes. This was done to avoid collecting data on non-WIA-funded students. Several local areas required that all committees have private-sector leadership and a private-sector majority and that quorums have a private- sector majority. State and local implementers we contacted also identified a number of actions they believed could enhance their ability to implement WIA in these areas and move closer to the vision of full integration. However, there was no consensus on which of these ideas had the greatest potential to address these concerns while preserving the local flexibility key to WIA. Some of the ideas included providing more specific guidance at the federal level, while others could require legislative and/or regulatory action. For example, amending the enabling legislation to more explicitly detail the level or type of one-stop participation partners should achieve; leaving partners' authorizing legislation as is but providing incentives for participation (for example, not requiring partners to financially support the one-stops or expanding the scope of activities allowable at the one- stop); giving training providers additional funds to offset the cost of data appointing board staff either from private-sector-oriented entities (for example, economic development agencies) or nonprofit entities that reflect employers' outlook. The workforce development system envisioned under WIA represents a sea change from prior systems, not only because of WIA's new requirements and the additional partners involved, but also because of the flexibility allowed to state and local implementers to determine how to implement these new requirements. Given this, it is understandable that skepticism and resistance to change continue to affect the speed and caliber of implementation efforts. State and local implementers agreed that the issues we highlighted need to be addressed to enhance WIA implementation, but there was no consensus on which efforts would best achieve WIA's goals while maintaining state and local flexibility. As a result, more specific guidance to address these concerns, in addition to time, may be what is required. Better guidance can help ensure that the flexibility provided to states and local areas under WIA fosters innovation rather than confusion, unnecessary burden, diminished customer choice, and a decline in private-sector participation. Specific guidance may also help states and localities make progress toward a seamless system of service delivery. In line with this thinking, in our report, we make several recommendations to the respective Secretaries to work together to provide more effective guidance to address the concerns raised by state and local implementers. In all of these areas we believe guidance can be detailed without being prescriptive, since the goal would be to focus on the benefits and incentives of participation rather than the requirements. Specifically, the report being issued today recommends that the Secretaries of Labor, Education, HHS, and HUD, jointly explore the programmatic and financial concerns raised by state and local implementers that affect their ability to participate and fully integrate services. We also recommend that Education and Labor disseminate best- practice information on the cost-effective methods the states and localities are using to comply with WIA's data collection and reporting requirements, as well as address confusion concerning dual reporting requirements and FERPA privacy concerns. In addition, because training providers will also need time to resolve data collection issues before they are judged on their performance, we recommend that Congress consider giving training providers additional time to receive WIA-funded students before they have to meet all the new WIA requirements. Finally, we recommend that Labor disseminate information on successful practices by states and localities to help ensure that boards gain the most from private- sector participation. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or other members of the Committee may have.
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The Workforce Investment Act was passed in 1998 to unify a fragmented employment and training system. The act sought to change the workforce development system by streamlining the delivery of employment and training services, enabling job seekers to make informed choices among training providers and course offerings and enhancing the private-sector role. During the early stages of the act's implementation, state and local implementers were challenged by the significant changes to the workforce system. Mandatory partners have concerns about how to participate in one-stops without adversely affecting their respective target populations, violating their own programs' rules, or straining their financial resources. Training providers have struggled to find ways to effectively meet the act's data collection and reporting requirements that they believe are burdensome and, as a result, have reduced the courses offered to job seekers.
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As a result of their historical development, four distinct land management agencies, each operating under unique authorities, today oversee more than 630 million acres of federal land. Established in 1849, Interior was given authority for managing public lands, including those acquired by the federal government during the nation's westward expansion. While the government disposed of many of its lands to new states, the railroads, homesteaders, and miners, in the late nineteenth century it also began setting aside some lands under Interior's jurisdiction for parks and forest reserves. Then in 1905 Congress transferred control of the forest reserves from Interior to USDA, consolidating USDA's forestry research program and the forest reserves into one agency, which became known as the Forest Service. In creating the Forest Service in USDA, where it remains today, Congress was responding in part to scientists and policymakers who believed the nation's forests and timber supply would be better managed under USDA's agriculture and conservation mission. Between 1916 and 1956, Congress created the three other land management agencies within Interior, in part to manage its parks, wildlife refuges, and rangelands. Over the past several decades, both the Forest Service and Interior's bureaus--particularly BLM--have experienced increased economic, ecological, and legal transformations, such as shrinking supplies of natural resources, passage of key environmental legislation in the 1960s and 1970s, and shifting public expectations for land management. Changes like these have made managing federal lands more complex, with managers needing to reconcile differences among growing demands for often conflicting land uses. Most recently, all the land management agencies, but particularly the Forest Service, have faced unprecedented challenges in the form of large- scale problems that cross agency and ownership boundaries such as wildland fire, invasive species, and development of private lands along their borders. A move of the Forest Service into Interior could improve federal land management by aligning the federal land management mission under one department and increasing program effectiveness. It may also yield long- term, but few short-term, efficiencies. One result of moving the Forest Service into Interior would be an alignment of the federal land management mission in one department by bringing the Forest Service together with the other three federal agencies having major land management missions. The Forest Service and BLM both manage their lands for multiple uses, including timber, grazing, oil and gas, recreation, wilderness, and fish and wildlife, although they emphasize different uses depending on their specific authorities and public demands. As shown in figure 1, Forest Service and Interior lands often abut each other and are sometimes intermingled. As a result, particularly in the western states, land managers often cross each other's lands to work on their own lands and work with members of the same communities. Several experts and officials pointed to the amount and proximity of Forest Service's and Interior's lands as a reason for moving the Forest Service into Interior. According to many of the experts and officials we interviewed, however, a move of the Forest Service into Interior could diminish the role that the agency plays in managing state and private forestlands--a mission focus the Forest Service shares with USDA but does not have in common with Interior. The Forest Service's state and private forestry arm provides technical and financial assistance to state and private landowners to sustain and conserve forests and protect them from wildland fires. Such outreach, or extension service, is not a function of Interior agencies. According to many officials and others we interviewed, moving the Forest Service into Interior could diminish this role by directing the agency's attention to its federal lands and away from the nation's nearly 750 million acres of forested lands (shown in fig. 2), including almost 430 million acres of private forested lands across the nation. According to some officials and state foresters, USDA has developed a closer relationship with state and private entities and has a better perspective on what private landowners need to conserve their resources. Other officials said, however, that Interior could work more with state and local entities if the authorities to do so were transferred with the Forest Service to Interior and extended to Interior's other agencies. Improvements in the effectiveness of federal land management programs could result from a move of the Forest Service into Interior, according to several officials, if the four agencies took the opportunity to coordinate programs they have in common. For example, a possible outcome of having the land management agencies together in one department could be the improvement of land management across jurisdictional boundaries. Program areas that offer opportunities for improved coordination include law enforcement, recreation, and wilderness management. The optimal approach for improving the effectiveness of federal land management programs, according to many officials and experts, could be to align the Forest Service's and BLM's statutes, regulations, policies, and programs in such areas as timber, grazing, oil and gas, appeals, and mapping. Many of these officials and experts, however, said an alignment would not automatically occur if the Forest Service were moved into Interior, and further action--legislative or executive--would need to be taken to improve effectiveness. While many of the officials and experts we interviewed believed a move would improve effectiveness, many did not believe that many efficiencies would be achieved in the short term if the Forest Service were moved into Interior as a separate bureau, with its own authorities and programs. Still, a number of them believed that efficiencies might be gained in the long term if the department took certain actions to convert the Forest Service to Interior's information technology and other business systems. According to several officials and experts, existing efforts to integrate programs demonstrate improved program effectiveness and public service but few efficiencies in the short term. For example, parts of the Forest Service, BLM, Fish and Wildlife Service, National Park Service, and Interior's Bureau of Indian Affairs have been colocated at the National Interagency Fire Center in Boise, Idaho, since 1965 and, through the center, coordinate their mobilization of supplies, equipment, and personnel to suppress wildland fires quickly and more effectively. Despite this coordination, the agencies still have key differences that hinder management effectiveness and efficiency; such differences include incompatible information technology and other business operations and systems. Service First offices have also integrated a number of programs that have helped improve the effectiveness, and perhaps efficiency, of land management and public service. Under the Service First program begun in 1996, the Forest Service, BLM, Fish and Wildlife Service, and National Park Service can use one another's authorities, duties, and responsibilities to conduct joint or integrated programs or business operations to improve the agencies' customer service, operational efficiency, and land management. For example, a Service First office in Durango, Colorado, has both Forest Service and BLM staff working jointly to manage recreation activities, grazing allotments, oil and gas exploration and production, and other resources to increase the effectiveness of land management. The Service First efforts also demonstrate some of the difficulties that the Forest Service and BLM have working together because of different systems and the resulting inefficiencies. For example, although the Colorado Service First offices have integrated aspects of their programs, the offices have to maintain two separate computer systems, one for the Forest Service and the second for BLM. Many agency officials and experts we interviewed suggested that if the objective of a move is to improve federal land management or increase the efficiency and effectiveness of the agencies' diverse programs, other organizational options may achieve better results than moving the Forest Service into Interior. These officials and experts raised a range of other options, such as increasing collaboration and coordination, moving BLM to USDA, and creating a new department of natural resources. In addition to these options, a number of officials and experts believed the Forest Service should remain separate from Interior and its agencies because it provides an alternative model of land management. A few officials said that the Forest Service and BLM serve to check and balance each other, in that no one Secretary manages all public lands, thereby diminishing the influence one person can have on these lands. Other officials and experts pointed out that the two agencies manage different lands and therefore have different management purposes: the Forest Service manages higher, wetter, mountainous lands, while BLM manages lower-elevation rangelands. Moving the Forest Service into Interior would raise a number of cultural, organizational, and legal factors and related transition costs for Interior and USDA to consider. Nevertheless, Interior and USDA could implement some key merger and transformation practices to help manage any resulting disruptions and other transition costs. Differences between the Forest Service's culture and those of Interior's land management agencies may produce clashes resulting in decreased morale and productivity if the Forest Service is moved into Interior. The agencies' cultures stem in large part from their histories and have also developed as a result of each agency's level of autonomy within USDA or Interior. A number of officials said that the Forest Service has a fair degree of independence within USDA. For example, some agency officials said that the Forest Service budget does not receive as much attention or scrutiny as other USDA agency budgets. Because of cultural differences, many officials and experts believed that moving the Forest Service into Interior could lead to decreased morale and productivity. Some experts and officials indicated that Forest Service employees may feel a loss of identity and independence in leaving USDA and would fear and resist a move, while a move may leave Interior employees feeling threatened, worrying that because of its size, the Forest Service would dominate Interior; they too may resist a move. According to many officials and experts, the agencies may also see an increase in the number of retirements and resignations after a move, which may facilitate cultural change but also decrease productivity because of the loss of experienced staff. The consolidation of Interior's National Biological Service into the United States Geological Survey (USGS) offers one illustration of possible cultural implications of moving the Forest Service into Interior. The National Biological Service was created in 1993 to gather, analyze, and disseminate biological information necessary for the sound stewardship of the nation's natural resources. In 1996, the agency was merged into USGS. According to an Interior official, the cultural and emotional aspects of the move caused a lot of hardship and mistrust among employees within both the former National Biological Service and USGS. According to this official, the transition into USGS took 4 to 5 years, and more than a decade afterward, some employees still question the move. We previously reported that it can take at least 5 to 7 years to fully implement initiatives to merge or transform organizations and sustainably transform their organizational cultures. Organizational factors could also complicate a transition, including the organizational structures of the agencies; effects on Interior functions, such as its Office of Inspector General; the need to integrate the Forest Service into Interior's information technology and other business systems; effects on USDA functions, such as its relationship with other USDA agencies; and human capital practices. USDA and Interior are both cabinet-level departments organized under politically appointed Secretaries and Deputy Secretaries, but the organizational structures of the departments differ at the next levels. At the agency level, the directors of Interior's land management agencies are politically appointed, unlike the Chief of the Forest Service. According to some agency officials and experts, if the Forest Service were moved, Interior would need to consider how the Forest Service would be placed in the department, unless this organization were legislated. In particular, agency officials questioned which of Interior's Assistant Secretaries the Forest Service would fall under or if a new Assistant Secretary position would be created. Further, some questioned whether the Forest Service would retain its career Chief or if the Chief would be replaced with a politically appointed director, consistent with Interior's other bureaus. Effects on Interior functions and the need to integrate systems would also complicate a move. Adding about 29,000 Forest Service employees to Interior would likely increase the workload at the departmental level and strain shared departmental resources. Furthermore, integrating the Forest Service's reporting, budgeting, acquisition, and other processes and systems into Interior's would be difficult, time-consuming, and costly, according to many experts and officials. One official estimated that costs to integrate systems could be on the order of tens of millions of dollars, while others estimated costs on the order of hundreds of millions of dollars. Some officials believed, however, that the timing is opportune to move the Forest Service because Interior and USDA are both moving to new financial management systems and the agency could be merged into Interior's new financial system without further investment in USDA's system. In contrast, other officials said that now is not a good time to move the Forest Service, because the agency has recently gone through many difficult changes and may not be able to handle additional change without detracting from its service to the public. The Forest Service is the largest agency in USDA in terms of employees, and many agency officials and experts noted that moving would affect not only Interior but USDA and its other agencies. For example, the Forest Service pays a large share of USDA's overhead charges; therefore, a move would affect these expenses and economies of scale within the department. Further, moving the Forest Service out of USDA could affect its relationship with the Natural Resources Conservation Service (NRCS) and other agencies in the department. The Forest Service and NRCS coordinate providing technical assistance to private foresters and other land conservation activities. The Forest Service also works with other agencies in USDA, including the Animal and Plant Health Inspection Service. Legal issues would also need to be resolved if a move were to take place. The Forest Service and Interior operate under differing statutory authorities and legal precedents. While moving the Forest Service into Interior as a separate bureau would not necessarily entail changing the laws governing the agencies, many officials and experts said these laws should be examined and may need to be reconciled if a move took place. Even in areas in which the Forest Service and Interior agencies operate under the same laws, they have sometimes received different legal opinions from USDA's Office of General Counsel and Interior's Office of the Solicitor. In addition, legislation authorizing a move would need careful crafting. For example, such legislation could transfer the proper authorities from the Secretary of Agriculture to the Secretary of the Interior, as well as give the Secretary of the Interior broad reorganization authority to bring the agencies' programs into alignment and to manage and modify processes, some officials said. The authorizing legislation would need to allow Interior flexibility and time to change and deal with these details, one expert said. Additional legal factors needing consideration include tribal issues, congressional committee jurisdiction, and interest groups. In some cases, treaties with Native American tribes have assured tribal governments certain "reserved rights"--such as rights for grazing, hunting, fishing, trapping, and water--on former tribal land now part of present-day national forests and grasslands. According to one official, tribes would be concerned about how moving the Forest Service might affect these rights and tribal access to national forests and grasslands and would need to be consulted about a move. According to some experts, aligning congressional committee structure to match a departmental reorganization would be critical to the success of a move of the Forest Service into Interior. While our interviews revealed no consensus among outside groups with an interest in the agencies about a move of the Forest Service into Interior, some groups, such as recreation or state forestry organizations, worried about jeopardizing established relationships with the Forest Service, while others were unsure of the effects of a move on their organization. To help plan for and manage a move and possible disruptions, our previous work on transforming organizations has identified some key practices at the center of successful mergers and organizational transformations, and the experts and officials we interviewed mentioned several of them. For example, one key practice is to ensure that top leadership drives the transformation. Remarking that strong leadership can ease cultural transitions and minimize disruption, several officials told us that agency leaders would need to clearly explain the reason for a move so that employees understood the rationale and logic behind it and had incentives to support it. We also reported in the past that a move must be closely managed with implementation goals and a timeline and that creating an effective strategy for continual communication is essential. Some officials said that agency leaders would need to communicate extensively with stakeholders and agency employees if the Forest Service is to be moved, which could put some employees at ease and mitigate disruptions from decreased morale and productivity. A move of the Forest Service into Interior would be no small undertaking. Organizational transformations are inevitably complex, involving many factors and often creating unintended consequences. Further, these transformations can take many years to achieve. In considering a move of the Forest Service into Interior, policymakers will need to carefully weigh long-term mission and management gains against potential short-term disruption and operational costs. Significant large-scale challenges to federal land management, such as climate change, energy production, dwindling water supplies, wildland fire, and constrained budgets, suggest the need to approach these problems innovatively. If a move were undertaken, adequate time and attention would need to be devoted to planning for and implementing key merger and transformation practices to manage potential disruption and other transition costs. In particular, any legislation authorizing a move would need to provide the departments ample time to plan the move--in light of cultural, organizational, and legal factors--and incorporate these key practices. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 or at [email protected]. Contact points for our Offices of Public Affairs and Congressional Relations may be found on the last page of this report. Ulana Bihun, David P. Bixler, Ellen W. Chu, Susan Iott, Richard P. Johnson, Mehrzad Nadji, Susan Offutt, Angela Pleasants, Anne Rhodes- Kline; Lesley Rinner, Dawn Shorey, and Sarah Veale made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Agriculture's (USDA) Forest Service, which manages almost a quarter of the nation's lands, is the only major land management agency outside the Department of the Interior (Interior). Four federal land management agencies--the Forest Service and the Bureau of Land Management (BLM), Fish and Wildlife Service, and National Park Service in Interior--manage most of the 680 million acres of federal land across the country. Growing ecological challenges, ranging from wildland fires to climate change, have revived interest in moving the Forest Service into Interior. GAO was asked to report on the potential effects of moving the Forest Service into Interior and creating a new bureau equal to Interior's other bureaus, such as BLM. GAO was also asked to identify factors that should be considered if such a move were legislated, as well as management practices that could facilitate a move. Moving the Forest Service into Interior could potentially improve federal land management by consolidating into one department key agencies with land management missions and increasing the effectiveness of their programs. At the same time, a move would provide few efficiencies in the short term and could diminish the role the Forest Service plays in state and private land management. According to many agency officials and experts, where the Forest Service mission is aligned with Interior's--in particular, the multiple-use mission comparable to BLM's--a move could increase the overall effectiveness of some of the agencies' programs and policies. Conversely, most agency officials and experts GAO interviewed believed that few short-term efficiencies would be realized from a move, although a number said opportunities would be created for potential long-term efficiencies. Many officials and experts suggested that if the objective of a move is to improve land management and increase the effectiveness and efficiency of the agencies' diverse programs, other options might achieve better results. If the Forest Service were moved into Interior, USDA and Interior would need to consider a number of cultural, organizational, and legal factors and related transition costs, some of which could be managed by certain practices successfully used in the past to merge and transform organizations. For example, integrating the Forest Service's reporting, budgeting, and human capital processes and systems into Interior's could be time-consuming, costly, and disruptive. Nevertheless, Interior and USDA could implement some key merger and transformation practices to help manage any resulting disruptions and other transition costs. In considering a move of the Forest Service into Interior, policymakers will need to carefully weigh mission and management gains against potential short-term disruption and operational costs.
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NIST serves as the focal point for conducting scientific research and developing measurements, standards, and related technologies in the federal government. NIST carries out its mission through 12 research and development laboratories (also known as Operating Units). See figure 1 for NIST's organizational chart. In 1950, Congress established NIST's working capital fund, giving it broad statutory authority to use the fund to support any activities NIST is authorized to undertake as an agency. NIST's working capital fund is a type of intragovernmental revolving fund. These funds--which include franchise, supply, and working capital funds--finance business-like operations. An intragovernmental revolving fund charges for the sale of products or services it provides and uses the proceeds to finance its operations. See table 1 for the NIST working capital fund's four purposes and the funding sources that support those uses. In fiscal year 2009, nearly 70 percent of NIST's working capital fund was related to interagency agreements (see fig. 2). Almost all of NIST's federal clients advanced funds to NIST for those agreements. Client agency advances to the working capital fund cannot be earned until NIST begins work on the agreement and retain the period of availability from the original appropriation. Once NIST earns those amounts, receipts and collections are available to NIST without fiscal year limitation. NIST's interagency agreements with federal clients originate in many ways, including through congressional mandates and client requests. NIST has established criteria for accepting requests for work from client agencies, which include: (1) the need for traceability of measurements to national standards; (2) the need for work that cannot or will not be addressed by the private sector; (3) work supported by legislation that authorizes or mandates certain services; and (4) work that would result in an unavoidable conflict of interest if carried out by the private sector or regulatory agencies. Operating Unit Directors commit NIST to providing services to client agencies, while the Deputy Chief Finance Officer accepts the order. Upon acceptance, the finance division and NIST's Office of General Counsel takes steps to process, monitor, and close-out each agreement. The carryover balance in NIST's working capital fund is largely driven by pending and ongoing work associated with interagency agreements as well as work for which NIST has accepted advanced funds but not yet started. In fiscal year 2009, NIST carried forward $120 million to fiscal year 2010. This amounts to 41 percent of the working capital fund's total resources, down from a high of 51 percent (see table 2). However, because NIST does not monitor its interagency agreement workload it was unsure what factors have led to a decline in the last two years. Specifically, funds from interagency agreements constituted between 71 to 89 percent of the working capital fund's carryover balance from fiscal years 2004 to 2009; in fiscal year 2009, it was 71 percent--the lowest over the 6-year period (see table 3). Again, NIST officials were unsure about the reasons for the decline in this balance. NIST's budget documents refer to the interagency agreement carryover balance as unobligated because it is for unfinished work that NIST has not yet earned. However, client agencies are to record an obligation against their own appropriation when they entered into the agreement with NIST. Therefore, that balance is only available to NIST for work on that agreement. See figure 3 for an illustration of how unfinished work on interagency agreements contributes to the working capital fund carryover balance. Some carryover in the working capital fund can be expected given the basic characteristics of NIST's interagency agreements. Ninety-three percent of all NIST agreements had a period of performance of more than 1 fiscal year between fiscal years 2004 to 2009. Accordingly, work associated with those agreements will not be completed within a single fiscal year. By definition, unearned amounts associated with these agreements would be carried over to the next fiscal year. As such, 82 percent of the active agreements in fiscal year 2009 generated carryover balances. The timing of when NIST accepts new work also affects the carryover balances in the working capital fund. NIST accepts most of its agreements in the second half of the fiscal year. Further, since most agreements cross fiscal years, many are also likely to extend into the next fiscal year. Table 4 shows that 63 percent of all new agreements between fiscal years 2004 to 2009 were accepted during the second half of the fiscal year. Our previous work has established that a high carryover in working capital funds may indicate poor workload planning, which could lead to inefficient use of agency resources and missed opportunities to use those funds for other needs. Significant carryover balances may also reflect a situation in which the performing agency is using appropriations advanced in prior years to support an interagency agreement when the funds are no longer legally available. NIST does not monitor the period of availability of appropriations advanced from client agencies; therefore, it cannot ensure that funds are legally available for obligation when it bills against them. Client advances to the working capital fund that have not yet been earned retain the period of availability from the original appropriation. Those advances are available to NIST for covering costs of performance under the agreement during the appropriation's period of availability plus 5 fiscal years, regardless of the specified period of performance for an agreement. After this time, those amounts are cancelled by operation of law and are no longer available to cover NIST's costs. In other words, NIST cannot liquidate, or bill against, these funds after the account closes. If NIST were to use funds after the account closes, the client agency would be required to transfer currently available funds to NIST. If the client does not have such funds available, they could be exposed to possible Antideficiency Act violations. In our case-file review of 11 agreements, we found instances where NIST could potentially be billing against closed accounts because it does not monitor the dates that funds expire and become cancelled. Ten of these agreements remain open and active in NIST's financial system. NIST officials told us that the system prevents an agreement from being closed and deemed inactive if there are any outstanding transactions. Further, they said that some of those agreements may have outstanding undelivered orders that need to be resolved. However, if the funds advanced in support of these agreements are time-limited, it is possible that they are legally unavailable to NIST for further billing. We found the expiration date of funds advanced to NIST in the paper files of 3 agreements and were therefore able to determine their legal availability. For the other 8 agreements, however, NIST lacked the necessary information to allow it to determine the legal availability of funds without requesting specific appropriation information from NIST's client agencies--agencies that were not included in the scope of our review. NIST shares responsibility with its client agencies to ensure the proper use of federal funds when entering into interagency agreements. NIST finance officials told us that expiration and account closing dates of appropriations were not available to them. However, NIST's policies require that all interagency agreements state the Treasury Account Symbol (TAS), from which the period of availability of appropriated funds could be determined. We found that most of the hard-copy agreement files we reviewed included such an appropriation code. We found three reasons why NIST does not electronically record or monitor the period of availability of appropriations advanced from client agencies. First, NIST treats all client advances as if they are free from the original appropriation's period of availability. Second, NIST manages agreements by period of performance, which can be different from the client appropriation's period of availability. Third, NIST does not manage at the agreement level--the legal level of control. Rather, it manages at the project level, which can include multiple agreements. NIST officials treat funds advanced for agreements accepted under NIST's statutory authority as no-year funds; that is, free from the time period of availability associated with the original appropriation. This policy is contained in NIST's Administrative Manual and is based on an interpretation of Commerce policy described in a 1983 legal memo. When we sought clarification on this policy in January 2010, Commerce's Office of General Counsel clarified the interpretation of the legal memo and responded that it is revising its policy and working with NIST to revise the Administrative Manual in response to our inquiry. As we will discuss, NIST officials provided additional details on these efforts in August 2010. Further, NIST manages agreements by period of performance, which can be different from the client appropriation's period of availability. The period of performance is defined by the start and end dates of the agreement. However, appropriations acts determine the period of availability of appropriations. Lastly, NIST manages the technical work it performs for client agencies and bills and records transactions through projects. NIST officials explained that they manage by project because it allows them to track and monitor related agreements together. However, client agencies advance funds to NIST based on the terms and amounts specified in interagency agreements, which is the legal level of control. Although most projects relate to a single agreement, some projects comprise multiple agreements (see fig. 4). For example, related agreements from a client agency are sometimes grouped together under an umbrella project. Occasionally, NIST combines several related agreements from different clients under a consortium project. As a result of our review, Commerce is working with NIST to review and revise policies described in the Administrative Manual and processes related to interagency agreements. In August 2010, NIST officials told us that they have begun to identify and resolve issues related to the interagency agreement process, including drafting templates and checklists for interagency agreements. The Commerce Office of General Counsel has begun communicating these changes to NIST staff through training sessions and town hall meetings. However, because we did not receive this information until after we completed our review, we were unable to determine what effect the changes may have on NIST's interagency agreement process. See appendix I for more information about these changes. NIST does not record or monitor whether it begins working on agreements within a reasonable amount of time after it received funds advanced by client agencies. Performing agencies should begin work within a reasonable period of time to ensure that the use of a client agency's funds fulfill a bona fide need of the client arising during the fund's period of availability. That is, appropriations may be obligated only to meet a legitimate need, arising in--or in some cases, arising prior to but continuing to exist in--the fiscal years for which the appropriation was made. Long delays between when an agency accepts funds advanced from clients and when it begins work on its agreements may lead to the improper use of appropriated funds. Although client agencies bear ultimate responsibility for proper use of their funds, performing agencies share responsibility as well. Because NIST, as the performing agency, does not record or monitor when work begins on its agreements, it would be difficult for it to carry out this responsibility. There is no governmentwide standard for a reasonable time period for performing work under an interagency agreement as it relates to a client agency's bona fide need. A reasonable time frame depends on the nature of the work to be performed and any associated requirements such as hiring a subcontractor or developing a specialized tool or machinery. Although neither Commerce nor NIST has established such a standard, other federal agencies have done so. For example, both the General Services Administration and the Department of Defense consider 90 days as a reasonable period of time for starting work. Because NIST has not considered what a reasonable standard for starting its work might be, we use 90 days as a point of reference for the purposes of this report. We recognize that if NIST were to consider a standard time frame for starting work, it may not necessarily select 90 days. We estimate that NIST took, on average, 125 days to begin work on its interagency agreements in fiscal years 2004 through 2009. We also estimate that work began for almost half of all agreements at least 90 days after NIST received funds advanced from client agencies. For these agreements, NIST waited an average of 226 days--or over 7 months-- before beginning work (see table 5). We also found some agreements that were delayed for as long as 301, 464, 669, and 707 days. Failure to begin work in a reasonable period of time raises legitimate questions about whether the client's order fulfills a bona fide need of the client agency. Long gaps between when NIST accepts advanced funds and when it begins work on agreements may lead to NIST using funds that are no longer legally available. Further, client agencies may incur opportunity costs associated with funds advanced to NIST that remain untapped for a prolonged period of time. Because determining whether work began within a reasonable period of time depends on specific facts, we reviewed 11 agreements in more depth to better understand why work was delayed in some instances. In one case, NIST did not begin work on an agreement it entered into in December 2006 until October 2007--over 300 days later. NIST officials explained that staff who could perform the work could not start earlier because they were working on other projects. This suggests that NIST did not assess whether it had appropriate resources available before accepting the agreement. In another case, NIST said that it took over 260 days to establish a relationship with the National Cancer Institute and coordinate work plans with nine NIST divisions before work could begin for an agreement. Assessing whether it has appropriate resources available before accepting an agreement is critical, because long gaps between when NIST accepts advanced funds from clients and when it begins work raises concerns about whether an agreement reflects a bona fide need of the client agency, and may lead to an improper use of appropriated funds and, as such, noncompliance with fiscal law. We found two reasons why NIST does not know whether it begins work within a reasonable period of time. First, the start date in NIST's financial system--the system NIST uses to track its interagency agreements--does not reflect when work actually begins on an agreement. According to finance division officials, NIST tracks the date that it enters into an agreement with a client agency; however, we found that this is usually not the date that work actually begins. NIST also does not electronically track or monitor the date it received funds advanced from client agencies. Without monitoring the amount of time that elapsed between when funds were advanced and when work actually began, NIST cannot know whether it is starting work within a reasonable period of time. Second, because NIST manages by project instead of by agreement, it does not record information about agreements that is important for knowing whether work begins within a reasonable period of time. For example, billing information is only tracked at the project level and cumulatively by fiscal year. When we requested the individual charges for each agreement to analyze when work began, NIST said it does not manage or review billing information that way and had to create a special report. Accordingly, NIST could not provide any billing data for umbrella projects (see fig. 4 above). Each agreement is funded by different appropriations and may be conducted under unique authorities and circumstances. Absent information on billed costs at the agreement level, NIST cannot determine whether it is starting work within a reasonable period of time given the facts of each particular agreement. In our case file review, we found that some of NIST's interagency agreements were incomplete or included incorrect information. Federal internal control standards require that transactions be properly authorized and executed, recorded timely, and documented appropriately. Absent these types of robust internal controls, NIST cannot provide reasonable assurance that it is efficiently using its resources and complying with applicable fiscal laws. Some agreement files we reviewed lacked documentation of information needed to provide a complete and accurate record of the agreement as well as transactions between NIST and client agencies. For example, we found instances where required documents were not included in the agreement files. One agreement file we reviewed did not include a statement of work. At the time NIST and the client agency enter into an interagency agreement, the client incurs an obligation for the costs of the work to be performed. However, to properly record an obligation, the client must have documentary evidence of a binding agreement between the 2 agencies for specific goods and services. In another example, only one of the agreements we reviewed documented how NIST handled unused funds that had been advanced in support of an agreement. Federal internal control standards require clear documentation of all transactions and significant events. Moreover, NIST's processes for closing out completed agreements require it to return unused funds if they are greater than $1,000 to the client. Absent clear authority, NIST may not write off any amount of unearned funds to the working capital fund. We also found agreement files that incorrectly recorded the dates of when funds were advanced to NIST from client agencies. One file showed that NIST accepted advanced funds before a formal interagency agreement with the agency was in place. Federal agencies are prohibited from transferring funds for an interagency transaction like orders placed with NIST without a binding legal agreement. When we asked NIST finance officials to explain this, they said that the date was recorded in error and should be 1 year after the date indicated in the file. The corrected date would indicate that NIST accepted advanced funds after a binding agreement was in place; however, the error reflects an inaccurate record of this transaction. Federal internal control standards require an accurate recording of transactions to maintain their relevance to managers in controlling operations and making decisions. In another example, the file incorrectly recorded an advance as having been made 10 months later than the actual transaction date. NIST's Deputy Chief Financial Officer told us that NIST does not maintain a single consolidated file of all pertinent documents related to each agreement, and that such information is generally spread among files maintained by other Operating Units across the agency. Finance division officials explained that legal and financial documents are kept separately from program files, which are managed by scientists in the Operating Unit that accepted the agreement. While we recognize that program managers may also have a need to maintain separate files for their own purposes, absent complete, easily accessible agreement files, NIST will have difficulty monitoring and managing agreements in a manner consistent with applicable fiscal laws and federal internal control standards. NIST lacks a high-level, senior management focus on managing its interagency agreement workload. Effective workforce planning strategies help address an agency's mission and goals by making the best use of the government's most important resource--its people. A key principle of strategic workforce planning is the effective deployment of staff to achieve the agency's mission and goals. NIST places a high priority on its interagency agreements. However, NIST senior managers play no role in determining whether the appropriate resources are available agencywide to support its interagency agreement workload. NIST's decentralized workload acceptance process may contribute to NIST's having more work than it has the resources to handle. Division Chiefs--the officials generally responsible for accepting new work--do not fully consider resource constraints agencywide or include an assessment of whether NIST has the resources available to begin work within a reasonable period of time. Even though more than one division contributes staff or resources to over half of all agreements, Division Chiefs do not consult with other parts of NIST before accepting work. Therefore, even if the accepting division or Operating Unit has adequate resources to begin work within a reasonable time frame, NIST lacks assurance that the necessary resources are available agencywide. As previously mentioned, we found several instances where NIST delayed starting work on agreements because it did not have the available staff or resources to do the work. Poor use of NIST's staff and resources may also have potential legal implications for NIST and its clients, as previously discussed. Without strategically managing its workload, NIST cannot be sure that it is effectively managing this high-priority area. Although NIST shares responsibility with its federal clients for ensuring the proper use of appropriated funds, it does not sufficiently communicate to clients important information about the status of work and the use of these funds--information that would help its clients know whether their funds are being properly used. For example, it does not provide its clients with estimated work start dates for each agreement. Agencies strive to become high-performing service organizations by focusing on client satisfaction through sustaining high-quality and timely service. Although NIST's Administrative Manual discusses the need for a coordinator to serve as the principal contact with each client agency, officials told us this position does not exist nor does anyone currently perform those duties. Such a coordinator could communicate important information--including when NIST expects to begin work on agreements--that would better inform client decisions about how best to use their appropriated funds. Funds advanced in support of interagency agreements are the biggest driver of the carryover balance in NIST's working capital fund. Although some carryover is to be expected, insufficient management of interagency agreements can lead to inefficient use of federal resources. NIST does not monitor the period of availability of appropriations advanced from client agencies and therefore cannot ensure that funds are legally available when it bills against them. If NIST were to use funds after the account closes, the client agency would be required to transfer currently available funds to NIST. Additionally, NIST does not track or monitor when it actually begins work on agreements, nor does it have a standard for what it considers a reasonable time frame for starting work. NIST's decentralized approach to accepting agreements results in no consideration given to whether the necessary resources exist agencywide to start work within a reasonable time frame. Further, our case-file review found agreements that were incomplete or included incorrect information. As such, NIST will have difficulty ensuring that it has entered into binding legal agreements and is managing them in a manner consistent with applicable fiscal laws and federal internal control standards. NIST and its client agencies have joint responsibility for ensuring that amounts advanced to NIST in support of NIST's technical service to federal clients are used in accordance with fiscal requirements; however, we found weaknesses in NIST's processes in these areas. For example, NIST lacks an identified legal basis for NIST's policy of writing off unearned funds less than $1,000. Absent improvements in how NIST tracks and monitors its interagency agreements, client agencies and the Congress will lack assurance that these requirements are being met. Although NIST designates interagency agreements as an agency priority, it lacks a strategic focus and oversight for how its resources are deployed in support of this important work. Further, NIST shares responsibility with its client agencies for ensuring the proper use of federal funds advanced to it. Because NIST does not monitor and communicate clearly and consistently the status and progress of its interagency agreements, both parties lack important information that would help ensure compliance with applicable fiscal requirements. To improve the management of NIST interagency agreements and provide reasonable assurance that NIST is efficiently using its resources and complying with applicable fiscal laws, we recommend that the Secretary of Commerce direct the NIST Director to take the following five actions: (1) To help ensure efficient, effective deployment of NIST's workforce and be a responsible steward of federal resources, hold senior management accountable for strategically managing its interagency agreements. This includes periodic senior management involvement in reviewing whether NIST has the appropriate resources to begin and perform new and existing work. (2) To meet its responsibilities in ensuring the proper use of federal funds, (a) develop, implement, and communicate to its clients policies regarding reasonable time frames for beginning work on interagency agreements; (b) track and monitor the work start date for each agreement; and (c) monitor and report internally, and periodically inform federal clients about, the amount of time elapsed between when funds were advanced to it from client agencies and when it actually began billing against an agreement. For example, NIST could provide estimated work start dates for each agreement based on agencywide resource considerations; devise a notification system that would indicate when work has not begun within a certain time frame and provide the date work actually began; or periodically provide clients with a report detailing the balance of unbilled funds as the account closing date approaches. (3) To help guard against the use of cancelled appropriations, electronically record and monitor key information about the period of availability of appropriations advanced to NIST from client agencies. (4) To provide reasonable assurance that its interagency agreements are complete, accurate, and constitute a binding legal agreement, create, document, and implement a robust fiscal and legal review process for interagency agreements. This could include (a) developing and delivering periodic training to staff involved in accepting, processing, managing, and overseeing interagency agreements on how to appropriately accept, process, review, and monitor its interagency agreements and (b) maintaining complete, accurate, and easily accessible files for all agreements. (5) To comply with fiscal law, NIST should review its close-out policies regarding returning unearned funds to client agencies and adjust its accounts accordingly. We provided a draft of this report to the Director of NIST. The agency provided us with written comments which are summarized below and reprinted in appendix III. NIST concurred with our findings and all five of our recommendations. For each recommendation NIST described corrective actions it is taking. NIST expects to fully implement these actions by September 30, 2011. NIST also provided technical comments which we incorporated in the report as appropriate. In its comments, NIST stated that it immediately began revising its interagency agreement operating procedures and related financial management policies and practices in response to Commerce's clarification of the policy on which these procedures were based. NIST said that it provided documentation on these policies and procedures for our review but that we did not examine them as a part of our audit. We note that Commerce clarified its policy in February 2010 and that NIST provided us with information about its proposed changes in August 2010 at the exit conference for this engagement. We responded that we would include the existence of the new policies in our report (see appendix I for a summary of these changes) but since NIST chose not to provide this information until the end of our review, we would be unable to determine what effect the new policies may have. NIST also stated that the 1983 legal opinion upon which the operating and financial policies of its interagency agreement were based has not been disputed until recently and that the propriety of its treatment of interagency agreement funding has never been in question. We note that a 2004 Commerce Office of Inspector General review of NIST questioned the 1983 Commerce opinion and raised numerous concerns regarding the agency's management of interagency agreements. We are sending copies of this report to the Secretary of Commerce, the NIST Director, and other interested parties. The report is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-6806 or by e-mail at [email protected]. Contact points for our Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV. In August 2010, the National Institute of Standards and Technology (NIST) provided information about the steps it is taking to improve the overall internal control of interagency agreements and funding it receives, as a result of our review. From March to May 2010, the Department of Commerce's (Commerce) Office of General Counsel, General Law Division, and NIST's Office of General Counsel reviewed all of NIST's interagency agreements. They conducted a legal review of all agreements, evaluated existing processes, and created new procedures through the development of checklists and interagency agreement templates. Further, NIST began to communicate these changes through town hall meetings and trainings with Operating Unit staff. NIST officials told us that Commerce is still reviewing these changes and they have not yet approved or finalized these processes. Nevertheless, our review of the interim trainings and draft documents indicate that NIST is taking steps to help ensure its interagency agreements comply with fiscal laws. Some changes include the following: Documenting time limitations on the use of federal funds. NIST agreements are required to include the Treasury Account Symbol (TAS) code, which indicates the period of availability of appropriations. Draft agreement templates include a placeholder for both the TAS code and the date of expiration. Additionally, the review checklists specifically ask for the inclusion of this information. The expiration date should also be included in NIST's financial management system for tracking purposes. Documenting NIST criteria for accepting work. NIST agreements are required to cite the specific authorization or criteria for entering into interagency agreements, as required by the agency's Administrative Manual. The draft review checklist also requires the inclusion of this justification in agreement files. Clarifying the bona fide needs rule and its accounting implications. Commerce's trainings discuss the bona fide needs rule and how it applies to the different types of services that NIST provides. The training also provides information about the accounting implications of the bona fide needs rule as well as obligation requirements as it relates to this rule. Clarifying the legal review process. The training materials preview a legal review process as well as specific roles and responsibilities for administering interagency agreements. Commerce's General Law Division is to document legal clearance for certain agreements through a concurrence memo that includes such information as the period of availability of funds advanced to NIST and programmatic authorities. Finance division and Operating Unit staff are also involved in the legal review process. Because the National Institute of Standards and Technology (NIST) does not record when it began work on its interagency agreements, we determined the start date for a sample of its agreements. We drew an initial simple random sample of 80 agreements from NIST's 354 interagency agreements with federal clients spanning more than 1 fiscal year that began after October 1, 2003, and were completed by September 30, 2009. From this initial sample, cost information was not available for 16 records. We drew an additional sample of 15 agreements and achieved a target sample of 76 agreements. Three of the additional 15 records did not have cost information associated with them and therefore we did not include them in our analysis. We assessed the reliability of NIST's interagency agreement data by performing electronic testing of the data for missing data, outliers, and obvious errors; reviewing documentation from the system, such as screen shots and training materials; and interviewing knowledgeable agency officials about how primary users enter data into the system and the internal control steps taken by NIST to ensure data reliability. Given this information, we determined that the data were sufficiently reliable for the purposes of this report. For in-depth case-file reviews, we selected 11 agreements that did not begin in the fiscal year in which the agreement was accepted and work that (1) began more than 268 days after the agreement was signed (which represents the average time it took for NIST to begin work on agreements that did not begin in the fiscal year during which NIST accepted them); or (2) had a carryover balance greater than $1. In addition to the contact named above, Jacqueline M. Nowicki, Assistant Director, and Shirley Hwang, Analyst-in-Charge, managed this assignment. Jeffrey Heit, Travis Hill, Felicia Lopez, Julia Matta, Leah Q. Nash, Rebecca Rose, and Kan Wang made major contributions. Sheila Rajabiun provided legal assistance. Susan Baker, Jean McSween, and Dae Park provided sample design and methodological assistance.
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GAO previously found that a significant portion of the National Institute of Standards and Technology's (NIST) working capital fund contained a growing carryover balance. Almost all of the fund's resources come from appropriations advanced from federal clients for NIST's technical services through interagency agreements. Monitoring and tracking key information about agreements and the funds advanced for them is critical for both NIST and its clients to make well-informed budget decisions, comply with applicable fiscal laws and internal controls, and ensure the proper use of federal funds. GAO was asked to review (1) the factors contributing to the working capital fund's carryover balance and (2) NIST's processes for managing its interagency agreements and workload. To do so, GAO reviewed laws and fiscal requirements, analyzed NIST budget data and policies related to its interagency agreements, analyzed a random sample of agreements, and interviewed NIST officials. NIST's working capital fund carryover balance is largely driven by appropriations advanced from federal clients to support interagency agreements. Most agreements cross fiscal years and because more than half were accepted in the second half of the fiscal year, some carryover of funds and work is expected. NIST's processes for managing agreements are insufficient to help ensure compliance with applicable fiscal laws. 1) NIST does not monitor the period of availability of appropriations advanced from client agencies and therefore cannot be sure that funds are legally available when it bills against them. If NIST were to use funds after an account closes, its clients could be exposed to possible Antideficiency Act violations. GAO found two reasons for this. First, NIST treats these funds as being available without fiscal year limitation. Second, NIST does not manage agreements in a way that would allow it to monitor the availability of client advances. 2) NIST does not ensure that it starts work on its agreements within a reasonable amount of time after client agencies advance funds to NIST. Long delays in starting work may lead to the improper use of appropriated funds. There is no governmentwide standard for a reasonable time in which to begin work. NIST has not considered such a standard for itself, but some agencies use 90 days as a general guide. NIST took, on average, an estimated 125 days to start work. Further, GAO estimates that NIST began work about 7 months after receiving funds advanced from clients for about half of its agreements. In some cases the delay was 1-2 years. There were several reasons for this, including that NIST does not record or monitor the date it begins work on agreements, and does not consider whether it has the appropriate resources agencywide before accepting new work. NIST lacks a high-level, senior management focus on managing its interagency agreement workload. Strategic workforce planning requires the effective deployment of staff to achieve agency goals. NIST places a high priority on its interagency agreements; however, senior managers play no role in determining whether appropriate resources are available agencywide to support its workload. Further, although NIST shares responsibility with its federal clients for ensuring the proper use of appropriated funds, it does not sufficiently communicate important information to clients--such as when work is expected to begin on agreements--that would better inform client decisions about how to best use their funds. Absent strategic workload management and improved client communications, NIST cannot meet the needs of this high-priority area. As a result of our review, NIST began revising its interagency agreement process. Because NIST did not provide this information to GAO until after the review was complete, GAO was unable to determine the effect of those changes. GAO is making 5 recommendations to improve NIST's management of its interagency agreements, including holding senior managers responsible for strategic workload management, improving internal monitoring and reporting, ensuring compliance with applicable fiscal laws, and communicating key information to clients on its agreement status. NIST agreed with all 5 recommendations and is taking action to implement them by the end of this fiscal year.
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We have identified three fundamental principles that can serve as a framework for considering large-scale federal assistance efforts. These principles are (1) identifying and defining the problem, (2) determining the national interests and setting clear goals and objectives that address the problem, and (3) protecting the government's interests. Identify and define the problem: The government should clearly identify and define the specific problems confronting the industry-- separating out those that require an immediate response from those structural challenges that will take more time to resolve. According to the auto manufacturers, the most immediate threat to the industry comes from inadequate cash reserves and negative projected cash flows combined with a tightening or denial of credit by commercial lending institutions. General Motors and Ford have not been profitable since at least 2006, and sales have decreased substantially for the Big 3 in 2008. In this regard, deteriorating financial and real estate markets, weakening labor markets, and high fuel prices have contributed to reductions in consumers' demand for new vehicles, particularly less fuel-efficient vehicles. In addition, tightening consumer credit has made it difficult for some consumers to obtain auto loans. The industry, however, also faces structural challenges that will need to be dealt with, including higher labor and pension costs than competitors, dealership relationships and structure, and fleet characteristics--especially in the area of fuel efficiency. Determine national interests and set clear goals and objectives that address the problem: After defining the problem, Congress must determine whether a legislative solution best serves the national interest. If Congress determines that the benefits of federal intervention exceed those of bankruptcy reorganization for one or more of the domestic manufacturers, Congress could draft legislation to guide the availability and use of federal assistance. It is important that the legislation include a clear and concise statement of the objectives and goals of the assistance program. A statement of the objectives and goals of the program would help Congress and program administrators determine which financial tools are needed and most appropriate for the industry and for company- specific circumstances; provide criteria for program decisions; and serve as a basis for monitoring progress. Finally, although Congress may decide that there is a compelling national interest in providing financial assistance to help ensure the long-term viability of the Big 3, companies receiving assistance should not remain under federal protection indefinitely. Identifying the conditions that will signal an end to that protection would serve as congressional guidance on when the industry should emerge from the assistance program. Protecting the government's interest: Because these assistance programs pose significant financial risk to the federal government, appropriate mechanisms should be included to protect taxpayers from excessive or unnecessary risks. Mechanisms, structures, and protections should be implemented to ensure prudent use of taxpayer resources and manage the government's risk consistent with a good faith attempt to achieve the congressional goals and objectives of any federal financial assistance program. This can be achieved through the following four actions--all of which have been used in the past. 1. Concessions from others: Congress should require concessions from others with a stake in the outcome--including management, labor, suppliers, dealers, and creditors. The concessions are not meant to extract penalties for past actions, but to ensure cooperation and flexibility in securing a successful future outcome. 2. Controls over management: The government must have the authority to approve an aid recipient's financial and operating plans and new major contracts. The authority is meant to ensure a restructuring plan with realistic objectives and to hold management accountable for achieving results. 3. Collateral: To the extent feasible, the government should require that the recipient provide adequate collateral, and that the government be in a first lien position. 4. Compensation for risk: The government should receive compensation through fees and/or equity participation in return for providing federal aid. The government's participation in any upside gains is particularly important if the program succeeds in restoring the recipient's financial operational health. Congress could apply these principles if it decides to offer financial assistance to the domestic auto manufacturers. If Congress determines that the systemic, economic consequences of risking the immediate failure of any or all of these companies are too great, a two-pronged approach in applying the principles could be appropriate. Specifically, Congress could 1) authorize immediate, but temporary, financial assistance to the auto manufacturing industry and 2) concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government's interests. The federal government has a range of tools it could use to provide such bridge assistance, including loans and loan guarantees. Historically, the federal government has used loans and loan guarantees in its financial assistance to specific companies. In providing such credit assistance, the government has assumed that the federal role is to help the industry overcome a cyclical or event-specific crisis by gaining access to cash in the short term that it otherwise cannot obtain through the markets. Credit assistance assumes that the aided companies will eventually return to financial health and have the capacity to pay back the loans. The government has offered such assistance in return for companies providing various forms of collateral and/or equity to protect taxpayer interests, as well as for various concessions by interested parties to share the risk and promote shared responsibility. For example, any federal assistance to an auto manufacturer might seek to ensure that all parties, including labor and management, share responsibility for bringing the company back to profitability, and that no party makes excessive concessions relative to the other parties. Finally, accountability should be built in so that Congress and the public can have confidence that the assistance was prudent and consistent with the identified objectives. For example, as a condition for receiving federal assistance, the auto manufacturers should be required to provide program administrators and appropriate oversight bodies with access to their financial records and submit detailed operating and financial plans indicating how the funds and other sources of financing will be used to successfully return the companies to profitability. Such information would allow program administrators to oversee the use of funds and to hold the companies accountable for results. Congress should concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. The federal government has established boards to implement past financial assistance efforts, including when providing assistance to Lockheed in 1971 and Chrysler in 1980. More recently, in the aftermath of the 2001 terrorist attacks on the United States, Congress created the Air Transportation Stabilization Board (ATSB) to provide loan guarantees to the airline industry. The voting members of ATSB included a member of the Board of Governors of the Federal Reserve System and representatives from the Departments of the Treasury and Transportation. While the exact membership of a board to provide financial assistance to the Big 3 auto manufacturers could differ, past federal financial assistance efforts suggest that it would be prudent to include representatives from agencies knowledgeable about the auto manufacturing industry as well as from those agencies skilled in financial and economic analysis and assistance. In creating such a board, it will be crucial for Congress to ensure that the board, similar to boards created to implement past federal financial assistance efforts, has access to all financial or operational records for any recipients of federal assistance so that informed judgments and reviews can occur. It would also be important to ensure that the board has the authority and resources to hire or contract for necessary legal, financial, and other expertise. For example, ATSB hired an executive director, financial analyst, and legal counsel to help the board carry out its duties. Beyond access to records and expertise, however, to succeed in achieving the goal of a restructured industry, the board is likely to need the authority to implement procedures and controls to protect the government's interests. This would include bringing the parties with a stake in a successful outcome to the table. Our review of past large-scale financial assistance efforts leads us to conclude that all of these parties must make concessions--not as penalties for past actions but rather to ensure cooperation in securing a successful future. The board would also need authority to approve the borrower's operating and financial plans and major new contracts to ensure the plans are realistic and to assess management's efforts in achieving results. In addition, the federal government should be the first creditor to be repaid in the event of a bankruptcy or when the company returns to profitability. In 1980, when providing assistance to Chrysler, Congress mandated that Chrysler meet additional policy-oriented requirements such as achieving certain energy efficiency goals and placed limits on executive compensation. More recently, as a condition of receiving federal assistance in the wake of the September 11 terrorist attacks, the Air Transportation Safety and System Stabilization Act required that airlines limit executive compensation. In addition, the board, consistent with congressional direction, could require that manufacturers, with the cooperation of labor unions, take steps to help control costs. Such steps could include reducing excess capacity by closing or downsizing manufacturing facilities, reducing work- rule restrictions that limit flexibility in terms of which workers can do what types of jobs, and ending contracts with dealerships that require the manufacturer to pay a large buyout to a dealer if a product line is eliminated. Some of these steps should be specifically addressed in the legislation. It will be important to keep in mind, however, that the affected parties will cooperate only if the assistance program offers a better alternative than bankruptcy. The government should not expect creditors, for example, to make concessions that will cost them more than they would expect to lose in a bankruptcy proceeding. Finally, Congress should provide the board with enough flexibility to balance requirements in each recipient's business plan to achieve and maintain profitability. The board could be the logical entity to establish and implement clearly defined eligibility criteria for potential borrowers, consistent with statutory direction provided by Congress, and establish other safeguards to help protect the government's interests and limit the government's exposure to loss. The safeguards could vary, depending on the nature of the financial assistance tools used. Examples of safeguards over loans and loan guarantees that have been used in the past include the following: Potential borrowers have been required to demonstrate that they meet specific eligibility criteria, consistent with congressional direction as to the problems to be addressed and the objectives and goals of the assistance. Potential borrowers have been required to demonstrate that their prospective earning power, together with the character and value of any security pledged, provided reasonable assurance of repayment of the loan in accordance with its terms. Potential borrowers have been required to clearly indicate the planned use of the loans so that the board could make appropriate decisions about the borrower's financial plan and terms and conditions, as well as collateral. The government has charged fees to help offset the risks it assumed in providing such assistance. For loan guarantees, the level of guarantee has been limited to a given percentage of the total amount of the loan outstanding. To further enhance accountability and promote transparency, the board should monitor the status of federal assistance on a regular basis and require regular reporting from companies receiving assistance. This reporting should, at a minimum, include information on cash flow, financial position, and results of independent audits. In addition, the board should be required to provide periodic reports to Congress. This reporting should include status reports on the amount and types of assistance provided to the auto manufacturing industry, periodic assessments of the effectiveness of the assistance, and status of any repayments of loans that the federal government has provided to the industry. In addition to providing oversight and accountability of the federal funds, the board could be charged with overseeing efforts of the assisted companies to implement required changes and reform. The board would likely need to consider industry-specific issues in implementing financial assistance and industry reform. Employee compensation would be one of those issues, and a very complex one. Benefits for auto industry workers represent a significant long-term financial commitment of the companies seeking assistance, much of it to retirees and their families. Although success in a company's future will depend in part on sacrifice from all stakeholders, most of the changes in this area will necessarily take effect over the long term. The complexities of these arrangements and their interface with active workers and with existing government programs will make implementing federal assistance particularly challenging. For example, the board would need to consider the impact that a possible bankruptcy filing by an auto manufacturer would have on the Pension Benefit Guaranty Corporation, the federal agency that insures private employers' defined benefit pensions, and whose cumulative balance is already negative. In conclusion, Congress is faced with a complex and consequential decision regarding the auto manufacturers' request for financial assistance. The collapse or partial collapse of the domestic auto manufacturing industry would have a significant ripple effect throughout other sectors of the economy and serve as a drag on an already weakened economy. However, providing federal financial assistance to the auto manufacturing industry raises concerns about protecting the government's interests and the precedent such assistance could set for other industries seeking relief from the current economic downturn. My remarks today have focused on principles Congress may wish to consider as it contemplates possible financial assistance for the auto manufacturing industry. These principles are drawn directly from GAO's support of congressional efforts over several decades to assist segments of industries, firms, the savings and loan industry, and municipalities. Although the principles do not provide operational rules outlining exactly what should be done, they do provide a framework for considering federal financial assistance. By defining the problem, determining whether a legislative solution to that problem best serves the national interest, and-- assuming that such a solution is appropriate--establishing an appropriate governance structure, Congress might better assure itself and the American people that the federal assistance will achieve its intended purpose. Thank you Mr. Chairman, Ranking Member Shelby, and members of the committee for having me here today. We at GAO, of course, stand ready to assist you and your colleagues as you tackle these important challenges. For further information on this testimony, please contact Katherine A. Siggerud on (202) 512-2834 (auto industry issues), J. Christopher Mihm on (202) 512-3236 (GAO's principles), and Gary L. Kepplinger on (202) 512- 5400 (legal issues). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The current economic downturn has brought significant financial stress to the auto manufacturing industry. Recent deteriorating financial, real estate, and labor markets have reduced consumer confidence and available credit, and automobile purchases have declined. While auto manufacturers broadly have experienced declining sales in 2008 as the economy has worsened, sales of the "Big 3" (General Motors, Chrysler, and Ford) have also declined relative to those of some other auto manufacturers in recent years because higher gasoline prices have particularly hurt sales of sport utility vehicles. In addition to causing potential job losses at auto manufacturers, failure of the domestic auto industry would likely adversely affect other sectors. Officials from the Big 3 have requested, and Congress is considering, immediate federal financial assistance. This testimony discusses principles that can serve as a framework for considering the desirability, nature, scope, and conditions of federal financial assistance. Should Congress decide to provide financial assistance, we also discuss how these principles could be applied in these circumstances. The testimony is based on GAO's extensive body of work on previous federal rescue efforts that dates back to the 1970s. From our previous work on federal financial assistance to large firms and municipalities, we have identified three fundamental principles that can serve as a framework for considering future assistance. These principles are (1) identifying and defining the problem, (2) determining the national interests and setting clear goals and objectives that address the problem, and (3) protecting the government's interests. First, problems confronting the industry must be clearly defined--separating out those that require an immediate response from those structural challenges that will take more time to resolve. Second, Congress should determine whether the national interest will be best served through a legislative solution, or whether market forces and established legal procedures, such as bankruptcy, should be allowed to take their course. Should Congress decide that federal financial assistance is warranted, it is important that Congress establish clear objectives and goals for this assistance. Third, given the significant financial risk the federal government may assume, the structure Congress sets up to administer any assistance should provide for appropriate mechanisms, such as concessions by all parties, controls over management, compensation for risk, and a strong independent board, to protect taxpayers from excessive or unnecessary risks. These principles could help the Congress in deciding whether to offer financial assistance to the domestic auto manufacturers. If Congress determines that a legislative solution is in the national interest, a two-pronged approach could be appropriate in these circumstances. Specifically, Congress could 1) authorize immediate, but temporary, financial assistance to the auto manufacturing industry and 2) concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government's interests.
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In our 2010 assessment of weapon programs, we made several observations concerning DOD's management of its major defense acquisition portfolio. First, in DOD's fiscal year 2010 budget, the Secretary of Defense proposed canceling or significantly curtailing programs with projected total costs of at least $126 billion that he characterized as too costly or no longer relevant for current operations, while increasing funding for others that he assessed as higher priorities. Congress supported several of the recommended terminations (see table 1). Second, DOD plans to replace several of the canceled programs in fiscal years 2010 and 2011, hopefully with new, knowledge-based acquisition strategies, because the warfighter need remains. The most significant of these new programs will be the effort to restructure the Army's Future Combat System program into several smaller, integrated programs. Third, DOD's portfolio of major defense acquisition programs grew to 102 programs in 2009--a net increase of 6 since December 2007. Eighteen programs with an estimated cost of over $72 billion entered the portfolio. Not all of these programs entering the portfolio are new starts. For instance, the Airborne Signals Intelligence Payload, and the Reaper Unmanned Aircraft System are two programs that began as acquisition category II programs, but their total research and development or procurement costs now exceed the threshold for major defense acquisition programs. Twelve programs with an estimated cost of $48 billion, including over $7 billion in cost growth, left the portfolio. These programs left the portfolio for a variety of reasons, including program restructure, termination, or completion. When the Future Combat System is added to the programs leaving the portfolio, the total cost of these programs increases to $179 billion, including over $47 billion in cost growth. Our 2010 assessment did not include an analysis of the cost and schedule performance of DOD's major defense acquisition program portfolio as a whole. In recent years, this analysis showed that the cumulative cost growth on DOD programs had reached $300 billion (in fiscal year 2010 dollars) and the average delay in delivering initial capabilities was 22 months. DOD did not issue timely or complete Selected Acquisition Reports for its major defense acquisition programs in fiscal year 2009 for the second consecutive presidential transition, which precluded an analysis of the performance of DOD's portfolio. We will resume our portfolio analysis in next year's assessment. At the program level, our recent observations present a mixed picture of DOD's adherence to a knowledge-based acquisition approach, which is key for improving acquisition outcomes. In our 2010 assessment of weapon programs, we assessed the knowledge attained by key junctures in the acquisition process for 42 individual weapon programs in DOD's 2009 portfolio. While program knowledge is increasing, as in the past, none of the 42 programs we assessed have attained or are on track to attain all of the requisite amounts of technology, design, and production knowledge by each of the key junctures in the acquisition process. However, if DOD consistently implements its December 2008 policy revisions on new and ongoing programs, then DOD's performance in these areas, as well as its cost and schedule outcomes, should improve. Our analysis allows us to make five observations about DOD's management of technology, design, and manufacturing risks and its use of testing and early systems engineering to reduce these risks. Newer programs are beginning with higher levels of technology maturity, but they are not taking other steps, such as holding early systems engineering reviews, to ensure there is a match between requirements and resources. Achieving a high level of technology maturity by the start of system development is an important indicator of whether a match between the warfighter's requirements and the available resources--knowledge, time, and money--has been made. Since 2006, there has been a significant increase in the percentage of technologies demonstrated in a relevant or realistic environment by the start of system development. This increase coincided with a change in statute. In 2006, the National Defense Authorization Act included a provision requiring all major defense acquisition programs seeking milestone B approval--entry into system development--to get a certification stating the program's technologies have been demonstrated in a relevant environment. While only one of the six programs that entered system development since 2006 and provided data had fully mature critical technologies--that is, demonstrated in a realistic environment, according to our criteria--all the programs had critical technologies that had been at least demonstrated in a relevant environment. Overall, only 4 of the 29 programs in our assessment that provided data on technical maturity at development start did so with fully mature critical technologies. While the technology levels of DOD programs entering system development have increased, these programs are still not regularly conducting early systems engineering reviews, which help ensure there is a match between requirements and resources. We have previously reported that before starting development, programs should hold systems engineering events, such as the preliminary design review, to ensure that requirements are defined and feasible and that the proposed design can meet those requirements within cost, schedule, and other system constraints. We have also found that programs conducting these events prior to development start experienced less research and development cost growth and shorter delays in the delivery of initial operational capabilities than programs that conducted these reviews after development start. Almost all nonship programs (37 of 40 that provided data) in our latest assessment have held at least one of three key systems engineering reviews (system requirements review, system functional review, and preliminary design review). However, only 1 of 37 programs that held a preliminary design review did so before the start of system development. The remaining programs held the review, on average, 30 months after development start. The Weapon Systems Acquisition Reform Act of 2009 established a statutory requirement for programs to conduct a preliminary design review before milestone B, so we expect improvements in this area. Programs that have held critical design reviews in recent years reported higher levels of design knowledge; however, few programs are demonstrating that the design is capable of meeting performance requirements by testing an integrated prototype. Knowing a product's design is stable before system demonstration reduces the risk of costly design changes occurring during the manufacturing of production-representative prototypes-- when investments in acquisitions become more significant. The overall design knowledge that programs have demonstrated at their critical design reviews has increased since 2003. Programs in our assessment that held a critical design review between 2006 and 2009 had, on average, almost 70 percent of their design drawings releasable at the time of the review, which is a consistent upward trend since 2003. However, most designs are still not stable at this point. Of the 28 programs in our latest assessment that have held a system-level critical design review, only 8 reported having a stable design. Only 2 of the 5 programs that held a critical design review in 2009 had a stable design at that point. The 5 programs reported that, on average, 83 percent of the total expected drawings were releasable. While the design knowledge of DOD programs at the system-level critical design review has increased since 2003, these programs are still not regularly demonstrating that these designs can meet performance requirements by testing integrated prototypes before the critical design review--a best practice. None of the 5 programs in our latest assessment that held their critical design review in 2009 and planned to test a prototype did so before the review. Of the 33 programs that reported that they either had tested or were going to test an early system prototype and provided a critical design review date, only 4 did so before their critical design review. The Weapon Systems Acquisition Reform Act of 2009 requires that DOD policy ensure that the acquisition strategy for each major defense acquisition program provides for competitive prototypes before milestone B approval, unless a waiver is properly granted. This requirement should increase the percentage of programs demonstrating that the system's design works as intended before the critical design review. Some programs are taking steps to bring critical manufacturing processes into control, however many programs still rely on "after the fact" metrics. Capturing critical manufacturing knowledge before entering production helps ensure that a weapon system will work as intended and can be manufactured efficiently to meet cost, schedule, and quality targets. Identifying key product characteristics and the associated critical manufacturing processes is a key initial step to ensuring production elements are stable and in control. Seven programs in our latest assessment have identified their critical manufacturing processes, including four of the programs that entered production in 2009. Three of those seven programs reported that their critical manufacturing processes were in control. It is generally less costly--in terms of time and money--to eliminate product variation by controlling manufacturing processes than to perform extensive inspection after a product is built. However, many DOD programs rely on inspecting produced components instead of using statistical process control data in order to assess the maturity of their production processes. For example, 12 programs in our assessment reported tracking defects in delivered units, nonconformances, or scrap/rework as a way to measure production process maturity. The use of "after the fact" metrics is a reactive approach towards managing manufacturing quality as opposed to a prevention-based approach. Programs are still not regularly testing production representative prototypes before committing to production. We have previously reported that in addition to demonstrating that the system can be built efficiently, production and postproduction costs are minimized when a fully integrated, capable prototype is demonstrated to show that the system will work as intended and in a reliable manner. The benefits of testing are maximized when the tests are completed prior to a production decision because making design changes after production begins can be both costly and inefficient. However, of the 32 programs in our assessment that could have tested a prototype before production, only 17 either tested or expect to test a fully configured, integrated, production-representative prototype before holding their production decision. In December 2008, DOD changed its policy to require programs to test production- representative articles before entering production. More programs are using reliability growth curves before beginning production. Reliability growth testing provides visibility over how reliability is improving and uncovers design problems so fixes can be incorporated before production begins. According to DOD's acquisition policy, a major defense acquisition program may not proceed beyond low-rate initial production until it has demonstrated acceptable reliability. Over half--22 of 40 programs that responded to our questionnaire--reported that they use a reliability growth curve, with 18 of these programs reporting they are currently meeting their established goals. In addition, 12 of 19 programs that expect to hold their production decision in 2010 and beyond reported using reliability growth curves and most stated they are currently meeting their goals. This practice should help these programs begin production with a reliable product design. Our 2010 assessment of weapon programs also included three observations on other areas related to DOD's management of its weapons programs, including requirements, software management, and program office staffing. We have previously identified requirements changes and increases in software lines of code as sources of program instability that can contribute to cost growth and schedule delays. We have also reported that workforce challenges can hinder program execution and negatively affect program management and oversight. A majority of programs changed key systems requirements after development start. Of the 42 programs in our 2010 assessment that reported tracking requirements changes, 23 programs reported having had at least one change (addition, reduction, enhancement, or deferment) to a key performance parameter--a top-level requirement--since development start. Further, nine programs experienced at least one change to a key system attribute--a lower level, but still a crucial requirement of the system. Eight programs reported major effects on the program as a result of these requirements changes, such as not meeting acquisition program baseline cost, schedule, and performance thresholds. DOD's revised December 2008 acquisition policy attempts to reduce potentially disruptive requirements changes by requiring programs to hold annual configuration steering board meetings to ensure that significant technical changes are not approved without considering their effect on cost and schedule. Many programs are at risk for cost growth and schedule delays because of software development issues. Seventeen of the 28 programs in our 2010 assessment that reported data on software lines of code estimated that the number of lines of code required for the system to function has grown or will grow by 25 percent or more--a predictor of future cost and schedule growth. Overall, the average growth or expected growth in lines of code for the 28 programs was about 92 percent. In addition to measuring growth in software lines of code, we have previously reported that collecting earned value management data for software development and tracking and containing software defects in phase are good management practices. Overall, 30 programs in our assessment reported collecting earned value management data to help manage software development. Thirty- two programs in our latest assessment also reported collecting some type of software defect data. For the 22 programs that responded a more specific question about defect correction, on average, only 69 percent of the defects were corrected in the phase of software development in which they occurred. Capturing software defects in phase is important because discovering defects out of phase can cause expensive rework later in programs. Programs' reliance on nongovernment personnel continues to increase in order to make up for shortfalls in government personnel and capabilities. In recent years, Congress and DOD have taken steps to ensure the acquisition workforce has the capacity, personnel, and skills needed to properly perform its mission; however, programs continue to struggle to fill all staff positions authorized. Only 19 of the 50 programs in our 2010 assessment that responded to our questions on staffing were able to fill all the positions they had been authorized. A commonly cited reason for not being able to fill positions was difficulty finding qualified candidates. As a result of staff shortfalls, program offices reported that program management and oversight has been degraded, contracting activities have been delayed, and program management costs have increased as contractors are used to fill the gap. Overall, 43 programs or 86 percent of those providing data reported utilizing support contractors to make up for shortfalls in government personnel and capabilities. In addition, for the first time since we began reporting on program office staffing in 2008, programs reported having more nongovernment than government staff working in program offices (see table 2). The greatest numbers of support contractors are in engineering and technical positions, but their participation has increased in all areas, from program management and contracting to administrative support and other business functions. DOD has begun to incorporate acquisition reforms into the acquisition strategies for new programs. Both DOD's December 2008 acquisition policy revisions and the Weapon Systems Acquisition Reform Act of 2009 require programs to invest more time and resources in the front end of the acquisition process--refining concepts through early systems engineering, developing technologies, and building prototypes before starting system development. In addition, DOD policy requires establishment of configuration steering boards that meet annually to review all program requirements changes as well as to make recommendations on proposed descoping options that could help keep a program within its established cost and schedule targets. These steps could provide a foundation for establishing sound, knowledge-based business cases for individual weapon programs and are consistent with many of our past recommendations; however, if reform is to succeed and weapon program outcomes are to improve, they must continue to be reinforced in practice through decisions on individual programs. Our analysis of the programs in our 2010 assessment allowed us to make two observations about the extent to which DOD is implementing recent acquisition reforms: Most of the ten programs in our 2010 assessment that had not yet entered system development reported having acquisitions strategies consistent with both DOD's revised acquisition policy and the provisions of the Weapon Systems Acquisition Reform Act of 2009. Specifically, 8 programs in our assessment planned to develop competitive prototypes before milestone B. In addition, 7 programs have already scheduled a preliminary design review before milestone B. Only a few programs reported holding configuration steering boards to review requirements changes, significant technical changes, or de-scoping options in 2009. Seven programs in our assessment reported holding configuration steering boards in 2009. Under DOD's revised acquisition policy, ongoing acquisition category I and IA programs in development are required to conduct annual configuration steering boards to review requirements changes and significant technical configuration changes that have the potential to result in cost and schedule effects on the program. In addition, the program manager is expected to present de-scoping options to the board that could reduce program costs or moderate requirements. None of the programs reported that the boards that were held approved requirements changes or significant technical changes. One program--the P-8A Poseidon--reported that it presented de-scoping options to decrease cost and schedule risk on the program and had those options approved. I would like to offer a few thoughts about other factors that should be considered so that we make the most out of today's opportunity for meaningful change. First, I think it is useful to think of the processes that affect weapon system outcomes (requirements, funding, and acquisition) as being in a state of equilibrium. Poor outcomes--delays, cost growth, and reduced quantities--have been persistent for decades. If we think of these processes as merely "broken", then some targeted repairs should fix them. I think the challenge is greater than that. If we think of these processes as being in equilibrium, where their inefficiencies are implicitly accepted as the cost of doing business, then the challenge for getting better outcomes is greater. Seen in this light, it will take considerable and sustained effort to change the incentives and inertia that reinforce the status quo. Second, while actions taken and proposed by DOD and Congress are constructive and will serve to improve acquisition outcomes, one has to ask the question why extraordinary actions are needed to force practices that should occur normally. The answer to this question will shed light on the cultural or environmental forces that operate against sound management practices. For reforms to work, they will have to address these forces as well. For example, there have been a number of changes to make cost estimates more rigorous and realistic, but do these address all of the reasons why estimates are not already realistic? Clearly, more independence, methodological rigor, and better information about risk areas like technology will make estimates more realistic. On the other hand, realism is compromised as the competition for funding encourages programs to appear affordable. Also, when program sponsors present a program as more than a weapon system, but rather as essential to new fighting concepts, pressures exist to accept less than rigorous cost estimates. Reform must recognize and counteract these pressures as well. Third, decisions on individual systems must reinforce good practices. Programs that have pursued risky and unexecutable acquisition strategies have succeeded in winning approval and funding. If reform is to succeed, then programs that present realistic strategies and resource estimates must succeed in winning approval and funding. Those programs that continue past practices of pushing unexecutable strategies must be denied funding before they begin. This will require sustained leadership from the Secretary of Defense, the Under Secretary of Defense for Acquisition, Technology and Logistics, and the military services, and the cooperation and support of Congress. Fourth, consideration should be given to setting some limits on what is a reasonable length of time for developing a system. For example, if a program has to complete development within 5 or 6 years, this could serve as a basis to constrain requirements and exotic programs. It would also serve to get capability in the hands of the warfighter sooner. Fifth, the institutional resources we have must match the outcomes we desire. For example, if more work must be done to reduce technical risk before development start--milestone B--DOD needs to have the organizational, people, and financial resources to do so. Once a program is approved for development, program offices and testing organizations must have the workforce with the requisite skills to manage and oversee the effort. Contracting instruments must be used that match the needs of the acquisition and protect the government's interests. Finally, DOD must be judicious and consistent in how it relies on contractors. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For further information about this statement, please contact Michael J. Sullivan (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Ronald E. Schwenn, Assistant Director, Kristine R. Hassinger, Carol T. Mebane, and Kenneth E. Patton. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The past two years have seen the Congress and DOD take meaningful steps towards addressing long-standing weapon acquisition issues--an area that has been on GAO's high risk list since 1990. This testimony focuses on the progress DOD has made in improving the planning and execution of its weapon acquisition programs and the potential for recent acquisition reforms to improve program outcomes. The testimony includes observations about (1) DOD's efforts to manage its portfolio of major defense acquisition programs, (2) the knowledge attained at key junctures of a subset of 42 weapon programs from the 2009 portfolio, (3) other factors that can affect program execution, and (4) DOD's implementation of recent acquisition reforms. The testimony is based on the results of our annual assessment of weapon programs. To conduct the assessment, GAO analyzed data on the composition of DOD's portfolio of major defense acquisition programs. GAO also collected data from program offices on technology, design, and manufacturing knowledge, as well as on other factors that can affect program execution. GAO has made numerous recommendations on weapon system acquisition in prior work but is not making any new recommendations in this testimony. While DOD still faces significant challenges in managing its weapon system programs, the current acquisition reform environment provides an opportunity to leverage the lessons of the past and manage risks differently. This environment is shaped by significant acquisition reform legislation, constructive changes in DOD's acquisition policy, and initiatives by the administration, including making difficult decisions to terminate or trim numerous weapon systems. To sustain momentum and make the most of this opportunity, it will be essential that decisions to approve and fund acquisitions be consistent with the reforms and policies aimed at getting better outcomes. DOD has started to reprioritize and rebalance its weapon system investments. In 2009, the Secretary of Defense proposed canceling or significantly curtailing weapon programs with a projected cost of at least $126 billion that he characterized as too costly or no longer relevant for current operations, while increasing funding for others that he assessed as higher priorities. Congress supported several of the recommended terminations. DOD plans to replace several of the canceled programs in fiscal years 2010 and 2011, hopefully with new, knowledge-based acquisition strategies, because the warfighter need remains. The most significant of these will be the effort to restructure the Army's terminated Future Combat System program. At the same time, however, DOD's portfolio of major defense acquisition programs continues to grow. Between December 2007 and July 2009, the number of major defense acquisition programs grew from 96 to 102 programs. GAO has previously reported that DOD should continue to work to balance its weapon system portfolio with available funding, which includes reducing the number or size of weapon system programs, or both, and assessing the affordability of new programs and capabilities in the context of overall defense spending. At the program level, our recent observations present a mixed picture of DOD's adherence to a knowledge-based acquisition approach, which is a key for improving acquisition outcomes. For 42 programs GAO assessed in depth in 2010, there has been continued improvement in the technology, design, and manufacturing knowledge programs had at key points in the acquisition process. However, most programs are still proceeding with less knowledge than best practices suggest, putting them at higher risk for cost growth and schedule delays. A majority of programs have also experienced requirements changes, software development challenges, or workforce issues, or a combination, which can affect program stability and execution. DOD has begun to implement a revised acquisition policy and congressional reforms that address many of these areas. For example, eight programs we examined in the technology development phase plan to test competitive prototypes before starting system development and seven programs plan to hold early systems engineering reviews. If DOD consistently applies this policy, the number of programs adhering to a knowledge-based acquisition should increase and the outcomes for DOD programs should improve.
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The DRC's size, location, and wealth of natural resources contribute to its importance to U.S. interests in the region. With an area of more than 900,000 square miles, the DRC is roughly the size of the United States east of the Mississippi River. Located in the center of Africa, the DRC borders nine nations. Its abundant natural resources, which constitute its primary export products, include 34 percent of the world's cobalt reserves, 10 percent of the world's copper reserves, and 64 percent of the world's coltan reserves, as well as diamonds, gold, cassiterite, and other minerals. Moreover, the DRC's rain forests provide 8 percent of the world's carbon. The DRC has had a turbulent history. In 1965, fewer than 5 years after the nation achieved independence from Belgium, a military regime seized control of the DRC and ruled, often brutally, for more than 3 decades. It was toppled in 1997 by a coalition of internal groups and neighboring countries to the east, including Rwanda and Uganda, after dissident Rwandan groups began operating in the DRC. Subsequent efforts by a new DRC government to secure the withdrawal of Rwandan and Ugandan troops prompted a second war in 1998 that eventually drew the armies of three more African nations into the DRC. Beginning in 1999, a United Nations (UN) peacekeeping force was deployed to the DRC. After a series of U.S.-supported peace talks that began in 2001, the other nations withdrew all or most of their troops and an interim government was established. Elections held in 2006 with logistical support provided by UN peacekeepers culminated in the December 6, 2006, inauguration of the DRC's first democratically elected president in more than 40 years. However, conflict in the DRC has continued. According to the International Rescue Committee, from 1998 through 2007, 5.4 million Congolese died as the direct or indirect consequence of conflict in the country, with an estimated 2.1 million of those deaths since 2002. The DRC suffers from a wide range of problems, including acute poverty and limited economic prospects. It is one of the poorest and least developed countries in the world: the current life expectancy is 43 years, in part because the DRC suffers from high rates of tuberculosis, HIV/AIDS, and malaria. USAID reports that 2 of every 10 children born in the DRC die before their fifth birthday and that the maternal death rate is the world's highest. An international group of donor nations recently concluded that the DRC's educational system is failing and that most rural children do not attend school. In addition, wars and turmoil have reduced its economy to dependence on subsistence agriculture and informal activities. The DRC's prospects are also encumbered by an external debt load of around $8 billion, which is three times greater than the level of debt that the World Bank and the IMF consider sustainable. Moreover, the DRC has not fully qualified for debt relief under the enhanced Heavily Indebted Poor Country (HIPC) initiative. The DRC receives assistance from a number of donor nations and organizations. During 2004 and 2005, the 10 largest donors to the DRC were the World Bank's International Development Association, the European Commission, Japan, Belgium, the United Kingdom, the United States, France, Germany, the IMF, and the Netherlands. The United States' goal for its assistance to the DRC, as characterized by State, is to strengthen the process of internal reconciliation and democratization to promote a stable, developing, and democratic DRC. As described by the Assistant Secretary of State for African Affairs, U.S. policy is to support, but not lead, the efforts of the DRC to address its problems. Table 1 shows the Act's 15 U.S. policy objectives for the DRC, linked to the five categories of assistance--humanitarian, social development, economic and natural resource management, governance, and security. U.S. agencies have implemented a number of programs and activities that support the Act's policy objectives. In fiscal years 2006 and 2007, about 70 percent of U.S. funding for the DRC was allocated for programs that would support the Act's emergency humanitarian and social development objectives and about 30 percent was allocated for programs and activities that would support the Act's economic, governance, and security objectives (see fig. 1). Seven U.S. agencies--USDA, DOD, HHS, DOL, State, Treasury, and USAID--allocated about $217.9 million and $181.5 million for aid to the DRC in fiscal years 2006 and 2007, respectively, with State and USAID providing the majority of these funds (see fig. 2). Examples of U.S. agencies' programs and activities in each category include the following (see app. II for more information). Humanitarian. USAID and State have provided humanitarian assistance to help the DRC meet its citizens' and vulnerable populations' basic needs. USAID has provided emergency assistance to vulnerable populations in the DRC. Working primarily through the UN World Food Program and an NGO, USAID has supported distribution of food to internally displaced persons; people infected with, and orphans affected by, HIV/AIDS; and victims of sexual abuse by soldiers. Working primarily through NGOs, USAID has provided emergency supplies, health care, nutrition programs, water and sanitation improvements, food, and agricultural assistance to other vulnerable populations, such as malnourished children and war- affected populations. USAID has provided emergency assistance to support road rehabilitation and bridge reconstruction projects; schools; and the socioeconomic reintegration of ex-child soldiers, adult combatants, and their families. State has provided humanitarian assistance to help repatriate, integrate, and resettle refugees in the DRC. In fiscal year 2007, this assistance was implemented primarily by the UN High Commissioner on Refugees, other international organizations, and NGOs. Social development. USAID, HHS, and DOL have provided assistance to support the Act's social development and rehabilitation objectives. USAID has worked through NGOs to improve education, health care, and family planning. For instance, USAID has funded efforts to reduce abandonment of children; provide psychosocial support, medical assistance, and reintegration support to survivors of sexual and gender- based violence in the eastern DRC; train teachers; and increase access to education for vulnerable children. USAID has funded efforts to train medical staff and nurses in the management of primary health care, distribute bed nets to prevent the spread of malaria and polio, provide family planning services, and support voluntary counseling and testing centers for HIV/AIDS. HHS has allocated funds for immunization against, and the surveillance and control of, infectious diseases such as polio, measles, and HIV/AIDS. DOL has allocated funds to address children's involvement in mining and related services, small-scale commerce, child soldiering, and other forms of child labor in the DRC. Economic and natural resource management. Treasury, USAID, State, and USDA have provided support for the Act's economic objectives. Treasury has worked with the World Bank and the IMF to relieve the DRC of some of its foreign debt. The United States provided the DRC interim debt relief (primarily through reduced interest payments) in fiscal years 2005 through 2007, following the DRC's admittance into the HIPC debt relief program. Once the DRC qualifies for the completion of its HIPC debt relief, Treasury plans to pay the budgetary costs of fully relieving the DRC's $1.3 billion debt to the United States. USAID has allocated funds to support sustainable natural resource management, forest protection, and biodiversity in the DRC through the Central African Regional Program for the Environment. State has supported efforts to promote transparency in the DRC's natural resource sector by serving as the U.S. representative to the Kimberley Process Certification Scheme, which deals with rough diamond trade, and to the Extractive Industries Transparency Initiative (EITI). USDA has allocated funds to improve agricultural productivity, increase rural market development, provide credit for agribusiness and rural infrastructure, and increase access to potable water and water for irrigation in the DRC. Governance. USAID and State have allocated funds for programs that support the Act's governance objectives. USAID has allocated funds to organize itinerant court sessions intended to bring justice institutions closer to citizens, facilitate greater access to justice for vulnerable people, and provide quality legal assistance to the population in relatively inaccessible parts of the DRC. USAID has supported an NGO's establishment of democracy resource centers to assist political party leaders, civic activists, elected local and national officials, and government institutions in promoting good governance and democracy. USAID, to promote judicial independence, supported an NGO's efforts by fostering improvements to the DRC's legal framework, such as laws on sexual violence and the rights of women, and providing legal assistance activities for victims of sexual and gender-based violence. State allocated funds in 2006 for more than 30 programs by the National Endowment for Democracy, including programs aimed at informing women of their rights, addressing issues of abuse and corruption, and promoting political participation. Security. State, USAID, and DOD have provided security-related assistance in the DRC. State has facilitated a multinational forum, the Tripartite Plus Commission, for the DRC and nations on its troubled eastern border-- Uganda, Rwanda, and Burundi--to discuss regional security issues, including militias operating illegally in the eastern DRC. USAID has launched programs to promote the reintegration of some former fighters into Congolese society. State is refurbishing the DRC's military officer training school and training multiple levels of the military, including brigade- and battalion-staff level officers, on military justice reform, civil-military relations, and other issues of concern. U.S., NGO, and other officials and experts identified several major challenges that are impeding U.S. efforts to achieve the Act's policy objectives. These challenges include (1) an unstable security environment, (2) weak governance and widespread corruption, (3) mismanagement of natural resources, and (4) lack of basic infrastructure. Because these challenges are interrelated, they negatively impact progress in multiple areas. Unstable security environment. The DRC's weak and abusive security forces have been unable to quell continuing militia activities in the DRC's eastern regions, where security worsened during 2007. For example, the UN reported that the DRC army is responsible for 40 percent of recently reported human rights violations--including rapes, mass killings of civilians, and summary executions--and DRC police and other security forces have killed and tortured civilians with total impunity. State reported that government and other armed forces in the DRC have committed a wide range of human rights abuses, including forcing children into the security forces. Further, the DRC's unstable security situation has worsened the DRC's humanitarian and social problems and impeded efforts to address these problems. For instance, U.S. agency officials reported that the conflict has forced them to curtail some emergency assistance programs, and NGOs implementing development and humanitarian assistance activities in the DRC reported that the lack of security has resulted in attacks on their staff or led them to suspend site visits and cancel and reschedule work. In addition, the DRC's unstable security situation has negatively affected the country's economic potential by discouraging investment, which in turn could worsen security through renewed conflict. Weak governance and corruption. By many accounts, corruption in the DRC is widespread. For example, Transparency International's 2007 Corruption Perceptions Index identifies the DRC as one of the 10th most corrupt countries in the world. Further, weak governance and corruption in the DRC have hindered efforts to reform the security sector and hold human rights violators accountable. For instance, according to U.S. officials, the DRC lacks a government office with clear authority on security issues, and efforts to reform the DRC's police may be impeded by lack of support from corrupt DRC institutions. According to NGO representatives, the lack of an effective judiciary impedes efforts to hold human rights violators accountable for their actions, which in turn promotes a "culture of impunity." Moreover, governance problems have hindered efforts to implement economic reforms required for debt relief and promote economic growth. For example, according to Treasury officials and IMF documents, the government's lack of commitment to meet certain requirements has jeopardized the DRC's ability to receive some interim debt relief, qualify for full debt relief, and improve the country's overall economic prospects. Finally, the judiciary's ineffective enforcement of commercial contracts in the DRC has likely discouraged private sector investment and hence economic growth. The World Bank rated the DRC's enforcement of contracts as among the weakest in the world, such that a company might need to expend roughly 150 percent of a typical contract's value to ensure enforcement through court proceedings. Mismanagement of natural resources. Governance and capacity challenges in the DRC have limited the ability of international donors, NGOs, and the DRC government to improve natural resource management. For example, the Kimberley Process Certification Scheme has criticized the DRC for weak internal controls, customs capacity, and ability to track diamonds extracted by large number of self-employed miners. According to U.S. and NGO officials, the DRC also conducted a national mining contract review without publishing its terms of reference or all of the contracts or clearly defining the role of civil society representatives. Further, mismanagement of the DRC's natural resources has fueled continued conflict and corruption. According to U.S. officials, international donors, and NGOs, the DRC's abundant natural resources fuel conflict between neighboring countries' militias and armed domestic factions and foster corruption among government officials. Lack of basic infrastructure. The DRC lacks many key elements of basic infrastructure, such as buildings, equipment, and transportation. For example, according to a recent study by 17 donor nations, no roads link 9 of the DRC's 10 provincial capitals to the national capital and no roads link the DRC's northern and southern regions or its eastern and western regions. International observers have reported that the DRC's educational and penal infrastructures are dilapidated, and an international group of donor nations stated that the DRC's electrification, communications, and supplies of clean water have major deficiencies. Moreover, the DRC's lack of basic infrastructure has hindered progress in humanitarian, developmental, and governance programs. According to U.S. officials, the lack of an adequate in- country transportation system increases the time required to get supplies to those in need and, according to U.S. and NGO officials, increases the expense or difficulty associated with their programs. International donors and organizations said that the lack of infrastructure has made economic development impossible in many areas and may stifle the potential for economic growth and private sector activity in most DRC provinces. Although U.S. agencies monitor their efforts in the DRC, the U.S. government has not established a process to assess overall progress toward achieving the Act's policy objectives in the DRC. Further, although State and NSC have developed mechanisms to coordinate some of the agencies' activities in the DRC, neither mechanism systematically assesses overall progress. Some of the key agencies involved in the DRC monitor their respective programs. For example, USAID's Office of Foreign Disaster Assistance (OFDA) has two program officers in the DRC who regularly visit project sites and publish quarterly reports on OFDA activities. Their partner organizations, or implementers, also provide reports and updates on their projects. However, the executive branch has not established a governmentwide process to use such information for an assessment of overall U.S. progress in the DRC. Although State and NSC have developed mechanisms aimed at providing some degree of coordination among executive branch agencies active in the DRC, neither mechanism currently provides for the systematic assessment of overall U.S. progress toward its goals. In 2006, to ensure that foreign assistance, including assistance provided to the DRC, is used as effectively as possible to meet broad foreign policy objectives, the Secretary of State appointed a Director of Foreign Assistance (DFA), who also serves as the Administrator of USAID. Under DFA's guidance, State and USAID have begun to develop a joint planning and budgeting process that, according to State officials, may eventually assess all U.S. foreign assistance. However, as of February 2008, the Office of the DFA had not completed its DRC operations plan for fiscal year 2007, which ended on September 30, 2007. To focus attention on issues affecting the Great Lakes region of central Africa, which encompasses the DRC, the National Security Council established an interagency working group, comprising officials from DOD, State, and USAID. The group's mission is to establish a coordinated approach, policies, and actions to address issues, such as security, in the DRC and other countries in the region. However, according to NSC and State officials, the group has not developed systematic tools for assessing the impact of all U.S. agencies' efforts to achieve the Act's objectives. Also, the group does not include several agencies providing assistance to the DRC, such as DOL, HHS, and USDA. The lack of a governmentwide process for assessing its overall progress in the DRC limits the U.S. government's ability to ensure that it has allocated its resources in the most effective manner. At the same time, given the DRC's significance to Africa's stability, the scope, complexity, and urgency of the challenges to achieving U.S. policy objectives in the DRC warrant a governmentwide response. To ensure a basis for informed decisions regarding U.S. allocations for assistance in the DRC as well as any needed bilateral or multilateral actions, we recommended in December 2007 that the Secretary of State, through the Director of Foreign Assistance, work with the heads of the other U.S. agencies implementing programs and activities in the DRC to develop a plan for systematically assessing the extent to which the U.S. government as a whole is making progress in achieving the Act's policy objectives. Commenting on a draft of our 2007 report, State endorsed our recommendation, noting that it would likely be met as DFA's joint planning and budgeting processes are extended to include all U.S. agencies engaged in the DRC. This completes my prepared statement. I would be happy to respond to any questions that Members of the Caucus may have at this time. For our December 2007 report, we identified (1) U.S. programs and activities that support the objectives of the DRC Relief, Security, and Democracy Promotion Act of 2006 (the Act), (2) major challenges hindering accomplishment of these objectives, and (3) U.S. efforts to assess progress toward accomplishing these objectives. To identify U.S. programs and activities that support the Act's objectives, we analyzed policy, planning, budget, and programming documents describing U.S. policies and programs in the DRC provided by key U.S. agencies--the Departments of Agriculture (USDA), Defense (DOD), Labor (DOL), Health and Human Services (HHS), State, and the Treasury; the Overseas Private Investment Corporation (OPIC); and the U.S. Agency for International Development (USAID). We identified the amount of funding each agency allocated for its DRC programs in fiscal years 2006 and 2007; we did not determine the extent to which each agency obligated or expended its allocated funds. We also met with representatives from each of these agencies, the National Security Council (NSC), nongovernmental organizations (NGO), and other organizations with expertise on DRC- related issues. To identify key impediments hindering accomplishment of the Act's policy objectives, we analyzed relevant policy and program documents; interviewed U.S. agency officials; conducted a round-table session with a nonprobability sample of 11 NGOs with a broad range of experience and expertise implementing programs and projects in the DRC; and interviewed representatives from other organizations with experience in the DRC. To identify U.S. efforts to assess progress toward accomplishing the Act's policy objectives, we reviewed U.S. agency assessments and implementation documents. Although we did not travel to the DRC, we conducted several telephone interviews with U.S. embassy and USAID mission staff in the DRC. We conducted this performance audit from May 2007 to December 2007, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Zina Merritt (Assistant Director), Pierre Toureille, Kristy Kennedy, Kendall Schaefer, Martin De Alteriis, Michael Hoffman, Reid Lowe, and Farhanaz Kermalli made key contributions to this report. Grace Lui provided technical assistance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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During the last decade, conflict in the Democratic Republic of the Congo (DRC)--one of the world's poorest countries--led directly or indirectly to the deaths of an estimated 5.4 million Congolese. A U.S.-supported peace process began in 2001, and the country's first democratically elected president in 40 years was inaugurated in 2006. However, conflict in the country has continued. In enacting the Democratic Republic of the Congo Relief, Security, and Democracy Promotion Act of 2006 (the Act), Congress established 15 U.S. policy objectives that address humanitarian, social development, economic and natural resource management, governance, and security concerns in the DRC. The Act mandated that GAO review U.S. programs in the DRC that support these policy objectives. In this testimony, based on its December 2007 report, GAO identifies (1) U.S. programs and activities that support the Act's objectives, (2) major challenges hindering the accomplishment of the objectives. For its report, GAO obtained and analyzed program documents for seven U.S. agencies--the Departments of Agriculture (USDA), Defense (DOD), Health and Human Services (HHS), Labor (DOL), State, and the Treasury and the U.S. Agency for International Development (USAID). GAO also met with officials of these agencies and nongovernmental organizations (NGO) active in the DRC. In fiscal years 2006 and 2007, respectively, seven agencies allocated a total of about $217.9 million and $181.5 million for the DRC. About 70 percent of these funds supported the Act's humanitarian and social development objectives and about 30 percent supported its economic and natural resource management, governance, and security objectives. Agencies' programs and activities included, for example, USAID's provision of emergency supplies, food, and water and sanitation improvements to vulnerable populations; Treasury's provision of interim debt relief; and State's provision of training and other assistance for professionalizing members of the DRC's military. Several major, interrelated challenges--an unstable security environment, weak governance, mismanagement of natural resources, and lack of basic infrastructure--have impeded efforts to achieve the Act's policy objectives. For instance, weak and abusive DRC security forces have worsened humanitarian and social problems, forcing U.S. and NGO staff to curtail some efforts. At the same time, corruption and other governance problems have impeded efforts to reform the security sector and hold human rights violators accountable. Meanwhile, mismanagement of natural resources has fueled continued conflict and corruption, and a lack of basic infrastructure has hindered progress in humanitarian, developmental, and governance programs. The U.S. government has not established a process to assess overall progress toward the Act's policy objectives. As a result, it cannot be assured that it has allocated U.S. resources in the most effective manner. In its December 2007 report, GAO recommended that the Secretary of State work with the heads of the other agencies implementing programs in the DRC to develop a plan for systematically assessing the U.S. government's overall progress in achieving the Act's policy objectives. State agreed with GAO's recommendation.
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FPS--located within the National Protection and Programs Directorate of DHS--protects the over 9,000 federal facilities that are under the control and custody of GSA, as well as the persons on those properties. FPS headquarters is located in Washington, D.C.; regional offices are located in New York, Boston, Philadelphia, Atlanta, Denver, Chicago, San Francisco, Seattle, Fort Worth, Kansas City, and the District of Columbia. FPS is authorized to enforce federal laws and regulations aimed at protecting GSA buildings and persons on the property and to investigate offenses against these buildings and persons.include buildings of exclusive, concurrent, and proprietary jurisdictions. Exclusive: Under exclusive federal jurisdiction, the federal government--and federal law enforcement entities--have all of the legislative authority within the land area in question, while the state-- and its state and local law enforcement entities--have no residual police powers. Concurrent: In concurrent jurisdiction facilities, both federal and state governments--and law enforcement entities--have jurisdiction over the property. Proprietary: Under proprietary jurisdiction, the federal government has rights--similar to a private landowner--but also maintains its authorities and responsibilities as the federal government. Under proprietary jurisdiction, the local government is the principal municipal police authority. To enable FPS to track changes in the inventory of federal buildings that it protects, GSA, through its Public Buildings Service, provides building data in electronic files to FPS weekly from GSA's building property system. These data include each building number with address; type of jurisdiction; and square footage and number of personnel to assist FPS to bill for its services, among other things. FPS personnel then input this information into its systems electronically. MegaCenters--the four regional dispatch centers within FPS that are the primary focal points for incident notification (see figure 1)--use the data to direct calls concerning building incidents and emergencies to FPS personnel as well as state and local law enforcement agencies. As a general practice, MegaCenters make direct radio calls for incident response to FPS personnel and telephone calls to state and local law enforcement agencies. FPS instructs tenants to contact the MegaCenter by calling 1-877-4FPS-411 and, in areas where FPS responders cannot provide an immediate response; tenants are often directed to also dial 911. (See fig. 2.) In this report, we assess GSA and FPS's processes against GAO's collaboration key practices and internal control standards. Our previous work has broadly defined collaboration as any joint activity that is intended to produce more public value than could be produced when organizations act alone. We have found that key practices for collaboration include: identifying and addressing needs by leveraging resources to support the common outcome and, where necessary, identifying opportunities to leverage resources; agreeing upon agency roles and responsibilities; and establishing compatible policies, procedures, and other means to operate across agency boundaries. Additionally, agencies can strengthen their commitment to work collaboratively by articulating their agreements in formal documents, such as an MOU. We have also reported that organizations may face a range of barriers when they attempt to collaborate with other organizations. One such barrier stems from agencies' concerns about protecting jurisdiction over missions. In addition, interagency collaboration is often hindered by incompatible procedures, processes, data, and computer systems. GAO has identified standards in facility protection that provide a framework for guiding agencies' efforts in this area, such as establishing a means of coordinating and sharing information with other government entities and the private sector. Finally, standards for controls over information processing come from GAO's Standards for Internal Control in the Federal Government. According to these standards, internal control is a major part of managing an organization and comprises the plans, methods, and procedures used to meet missions, goals, and objectives. Internal control standards specific for information systems help ensure the completeness and accuracy of data. Some other federal agencies provide their own law enforcement at their facilities. These include the Department of Veterans Affairs (VA) Police, National Park Service (NPS) law enforcement within the Department of the Interior, and Smithsonian Institution (SI) Police. VA Police provide law enforcement duties to the 152 VA Medical Centers (VAMC). U.S. Park Police is a unit of the National Park Service, with jurisdiction in all National Park Service areas and certain other federal and state lands. U.S. Park Police provides law enforcement services to designated areas within the National Park Service (primarily in the District of Columbia, New York City, and San Francisco, California metropolitan areas). Additionally, Law Enforcement Park Rangers, belonging to the "Visitor and Resource Protection Division" within the National Park Service, are authorized to carry firearms, conduct investigations, make arrests, and serve warrants pursuant to law and policy. Protection and security services at Smithsonian Institution facilities are provided by the Smithsonian Police. FPS uses a variety of methods to collaborate with state and local law enforcement, ranging from establishing MOUs to document agreement on roles and responsibilities with some, to relying on long-standing working relationships with others. FPS also has guidance and various other efforts under way related to coordination with state and local law enforcement. More specifically, FPS reported that it had 21 signed MOUs with state and local law enforcement agencies across the United States as of September 2011.usage in Alabama; MOUs for arrest authority on properties adjacent to federal property in California and Florida; and MOUs for mutual aid in the District of Columbia and Georgia, such as FPS's reciprocal support agreement with Metropolitan Atlanta Rapid Transit Authority. MOUs are mechanisms that can be used to formalize key practices in agency collaboration such as agreeing on roles and responsibilities, including For example, there is an MOU for radio frequency leadership, and to establish compatible policies, procedures, and other means to operate across agency boundaries. While FPS has often found MOUs helpful, the general consensus among FPS officials was that effective coordination did not depend on having MOUs. FPS prefers a flexible approach of pursuing MOUs only when it determines they are needed, as opposed to seeking them in all cases. FPS's Director stated that FPS has generally not found it necessary to create written documents, requirements, or MOUs because FPS has always received good cooperation from state and local law enforcement agencies when their assistance was needed. For example, in some jurisdictions such as the suburbs surrounding the District of Columbia, FPS has no MOUs with state and local law enforcement agencies but has regular contact and longstanding mutual aid relationships. In addition, several FPS Regional Directors highlighted the importance of local response to incidents in and around federal facilities in rural areas because of the lack of FPS staff at these locations and noted that their informal relationships have worked successfully because state and local law enforcement agencies were consistently reliable in their response to these locations. FPS officials stated that mandating the pursuance of MOUs with all law enforcement entities would not be in the best interest of effectiveness and efficiency and would increase the burden on already task-saturated FPS staff. In addition, it is generally up to state and local law enforcement agencies as to whether they would be willing to enter into an MOU with a federal agency. With regard to long-standing working relationships and regular contact with state and local law enforcement, FPS Inspectors and Regional Directors have developed relationships with state and local law enforcement agencies and collaborate on different levels. Regional Directors in all 11 FPS regions stated that their offices routinely had direct contact with state and local law enforcement agencies at multiple types of security meetings such as the Federal Executive Boards, joint terrorism task forces, and regional fusion center meetings.state and local law enforcement agencies and FPS at these meetings establishes mutually reinforcing or joint strategies designed to help align activities, core processes, and resources to achieve a common outcome. For example, FPS participates in monthly meetings of the Law Enforcement Working Group of the Atlanta Downtown Improvement District. State and local law enforcement chiefs or deputy chiefs from the surrounding area, officials from 15 local colleges, and officials from other federal agencies participate. According to an FPS regional official, the group acts as a "force multiplier" to fight crime within the district, which includes GSA-controlled facilities. FPS officials also have discussions with state and local law enforcement agencies as needed during operational planning associated with special events such as the Olympics, protests, and parades. FPS also has guidance for FPS staff and other efforts under way to collaborate with state and local law enforcement. Regional Directors are responsible for carrying out FPS policy and guidance, and state that many of these written policies contain directives for collaboration with state and local law enforcement. One such directive is FPS Directive 15.1.2.1, Law Enforcement Authority and Powers, which outlines the scope of law enforcement authority on federal property. Other policies that reference state and local law enforcement agencies' coordination include FPS's Regional Information Sharing Program, Detention and Arrest, and Joint Terrorism Task Force Policy, among others. Best practices and lessons learned are also communicated throughout FPS regions with weekly regional director conference calls, a regional director's council that meets monthly, and yearly Regional Director conferences. In addition to guidance, FPS added three new positions in fiscal year 2011 intended to improve communication and standardization across FPS by coordinating with federal, state, and local law enforcement officials to reduce crime at, and potential threats to, federal facilities. These positions are titled Assistant Director for Field Operations (ADFO) for west, central, and east operations. The ADFO will be a spokesman for FPS, representing the Director in his or her designated area. Other initiatives employed by FPS include collaborative operations to avert or obstruct potential threats inside the facility, such as the presence of unauthorized persons, or potentially disruptive or dangerous activities, such as potential terrorist operations and criminal activity in and around federal buildings. Using a combination of law enforcement agencies is consistent with facility protection key practices to establish a means of coordinating and sharing information with other government entities. These operations begin with planning meetings involving FPS and any other federal, state, and local law enforcement agencies that may be called upon to assist. The operations combine physical security expertise and law enforcement authority into an enhanced security team to provide a visual deterrent at FPS-protected facilities. The combined team then selects a federal building for which FPS has security oversight and provides a highly visible presence for a select period of time with patrol operations, explosive detection dog sweeps, and an enhanced security posture. As a means to leverage resources, FPS has collaborated with state and local law enforcement to assist in conducting these operations by enlisting their support in Chicago, Illinois; New York, New York; Newark, New Jersey; and the District of Columbia. Other federal organizations with law enforcement responsibilities similar to FPS also used a variety of methods to collaborate with state and local law enforcement. For example, VA has a policy requiring all locations of VA-controlled property to have formally documented MOUs with state and local law enforcement agencies to ensure timely backup support for VA VA headquarters officials stated that MOUs are useful Police officers.because VA Police typically transport detainees to state and local law enforcement agencies for arrest and processing, while state and local law enforcement agencies typically provide first response to leased property under VA control. However, VA Police reported they cannot provide mutual aid to state and local law enforcement agencies on non-VA controlled property because existing law limits the authority of Department police officers to VA property. According to U.S. Park Police headquarters officials, the Park Police has MOUs with federal, state, and local law enforcement including a longstanding formal relationship with the District of Columbia Metropolitan Police Department (MPD). Some of the MOUs are for events and are short-term, such as the last presidential inauguration in the District of Columbia. The U.S. Park Police also stated they have MOUs that are formal incident response plans, which outline the roles and responsibilities of the various entities. In the District of Columbia, the U.S. Park Police responded to the U.S. Holocaust Museum shooting incident in 2009 and have provided service to the Kennedy Center for the Performing Arts for a fee. Our questionnaire of state and local law enforcement agencies and follow-up discussions showed a general willingness of those that replied to respond to incidents at federal facilities. For example, 48 of 52 agencies that answered the question replied that they would respond to calls that dispatch to a federally occupied (owned and/or leased) building, and 27 of 44 had actually responded to a federally occupied building since 2007. As for MOUs, 11 of 43 agencies that answered the question reported having formal MOUs with FPS and 4 of 40 reported having informal agreements. (See table 1.) Four state and local law enforcement agencies stated that they would decline to respond to an incident at a federal building in their jurisdiction. Three of these four law enforcement agencies were sheriff or highway patrol entities that stated that they are not the first responders to incidents at the facilities in question and that there were local police available for response. A fourth questionnaire responder did not clarify why it answered negatively; however, additional inquiry with the federal property owner in this law enforcement's jurisdiction stated the particular law enforcement agency did coordinate and respond to calls at the property. Only one state and local law enforcement agency replied that it was denied access to a federal building when responding to an incident within its jurisdiction; however, it declined to clarify the specific instance in which it was denied access. The only law enforcement agency that answered it had declined to respond to a call dispatched at a federally occupied (owned and/or leased) building, later clarified that the answer applied to non-GSA-controlled facilities such as buildings of Department of Defense and other federal agencies. Table 1 shows the specific questions and responses provided by state and local law enforcement. Overall, the variety of efforts FPS has under way reflects a reasonable approach to collaboration, especially when combined with results we found from our questionnaire of state and local law enforcement agencies. The practice of maintaining working relationships and having regular contact with state and local law enforcement officials establishes mutually reinforcing or joint strategies designed to help align activities, core processes, and resources to achieve a common outcome. The MOUs that FPS has in place are mechanisms consistent with facilitating key practices in agency collaboration, such as defining and agreeing to roles and responsibilities. Establishing compatible policies, procedures, and other means to operate across agency boundaries are key practices that can help enhance and sustain collaboration. Pursuing MOUs on an as-needed basis is also consistent with how other federal law enforcement agencies approach collaboration. Performing operations such as extra patrol activities using a combination of law enforcement agencies is consistent with facility protection key practices to establish a means of coordinating and sharing information with other government entities. Although FPS's approach to collaboration is reasonable, issues related to data quality arose during our review. Specifically, we found that FPS lacked complete data from GSA on the type of jurisdiction (e.g., concurrent or exclusive) for about one-third of the buildings FPS protects, making it difficult to ensure that it is addressing the full scope of issues related to jurisdictional roles and responsibilities. At the end of our review, GSA officials informed us that they had made significant progress addressing this issue. More specifically, when we reviewed the property list that GSA provided to FPS in December 2011--which is provided on a weekly basis--about thirty-four percent of the properties lacked recorded jurisdictions, including blank and pending jurisdiction categories. (See table 2.) GSA officials stated that they were aware of the numerous blank data fields pertaining to jurisdictions and that they were trying to individually assess these fields building by building. They further stated that it was a time-consuming process that included reviewing individual property historical records. GSA officials stated they had made progress and the jurisdictions that have not been identified were down to 2 percent. However, these data had not yet been added to GSA's building property system or contained in the electronic files GSA sends to FPS weekly. GSA officials also stated the jurisdictional field on the GSA property list was not in the top fifty fields that the agency typically monitors because of the large number of data fields, although the officials recognized the importance of this field to FPS. During our review, we found no instances in which state or local law enforcement exceeded their jurisdictional authority. In some instances, state and local law enforcement responded to the perimeter of buildings with exclusive jurisdiction for matters such as traffic accidents and suspicious packages. FPS officials said that state and local law enforcement may also be granted access if officers are in pursuit of a suspect. Furthermore, FPS officials said that inspectors and GSA staff at the building level generally know the jurisdiction of the individual buildings for which they are responsible. Nonetheless, given that facilities of exclusive jurisdiction are unique because state and local law enforcement agencies generally have no law enforcement authority on these properties, incomplete data leaves FPS less equipped to define and agree to respective roles and responsibilities with regard to state and local law enforcement collaboration. An additional effect of not having these data is that FPS lacks assurance that, in relying on state and local law enforcement to respond to incidents at federal facilities, it is not creating a situation where these entities may be exercising police authority where they lack such authority as in the case of exclusive jurisdiction properties. In addition, having incomplete data is inconsistent with established standards for internal control over data systems, including those standards that relate to accuracy and completeness. While only 4 percent of GSA's inventory was known to be of exclusive jurisdiction, 34 percent of GSA's inventory had incomplete data on the type of jurisdiction in GSA's building property system. In our review, we also found inconsistencies between FPS and GSA data on buildings and their locations--6 of the 11 FPS regions reported that the GSA list does not match the current property inventory. One FPS regional official stated that GSA does not keep the property list as current as FPS needs; changes occur but are not captured by GSA. For example, the official stated that in his region, agencies sign leases about a dozen times a year without FPS's knowledge or timely notice. FPS officials noted that the overall number could be greater across all FPS regions. The current MOU between GSA and FPS calls for a pre-lease assessment of the building by FPS, but these assessments cannot be completed if FPS is unaware of the new lease. Another FPS regional official stated that the region uses its own building list, which is updated by FPS regularly as information becomes available. A third FPS official stated that the GSA list does not capture changes to buildings with a security risk level of 1 or 2 as quickly as FPS needs. A fourth regional official stated that the region relies on a combination of building lists from GSA, FPS provided lists, and its own regional list. This official stated these lists often do not reconcile because of changes that are not updated in a timely manner. In addition, a majority of state and local law enforcement agencies we sent questions to replied that they did not identify the jurisdiction of the individual federal buildings in their geographic areas, while three entities replied that they only identified some building jurisdictions. GSA officials recognize that the exchange of building data with FPS is an issue. GSA stated that only recently did it have the ability to cross- reference and address these differences, and is working with FPS to correct them. For example, in 2011, GSA and FPS held working groups to begin to improve the building property list, and established a permanent GSA liaison in FPS's headquarters to improve data coordination. Although this effort is still in progress and data inconsistencies remain, GSA and FPS are addressing concerns about data inconsistencies. Further, GSA and FPS are currently negotiating a new MOU that is expected to be finalized in early 2012. GSA officials told us that the new MOU will include an agreement on sharing information, such as the building data, and specifically sharing information at the regional level. FPS and GSA did not indicate whether the revised MOU would address the aforementioned issue related to incomplete jurisdictional data. However, it would seem that addressing this issue in conjunction with revising the MOU would ensure that data shared were not only consistent, but more complete as well. FPS's approach to collaborating with state and local law enforcement is reasonable and consistent with key practices in that the approach uses mechanisms such as MOUs to document agreements on roles and responsibilities in some cases, long-standing working relationships, written guidance to FPS staff, joint operations, and other initiatives to promote mutual collaboration. Other federal organizations with law enforcement responsibilities similar to FPS--such as VA, U.S. Park Police, and Smithsonian--also use a variety of methods for collaboration with state and local law enforcement. State and local law enforcement agencies we contacted were generally willing to assist FPS with incidents at federal facilities. Related to the quality of data exchanged between FPS and GSA on buildings and their locations, FPS and GSA had taken action to address data inconsistency issues. However, as of the end of our review, FPS still lacked complete data from GSA on whether the jurisdictions of about one-third of the buildings FPS protects are exclusive, concurrent, or proprietary. Having these data is important because state and local law enforcement generally have no authority to enforce state and local law on properties of exclusive jurisdiction. At the end of our review, GSA informed us that it had made progress with addressing this issue. GSA and FPS are negotiating a revised MOU that will include agreement on sharing information such as the building data. As such, addressing the issue related to incomplete data on jurisdictions, in conjunction with revising the MOU, would ensure that data were not only consistent, but more complete as well. Otherwise, FPS would remain less equipped to define and agree to respective roles and responsibilities as it proceeds with its efforts to rely on state and local law enforcement for assistance in responding to incidents at federal facilities. In conjunction with the revised MOU that is being developed between GSA and FPS, we recommend the Administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed and that these data are provided to FPS so that FPS is better equipped to manage jurisdictional roles and responsibilities at GSA buildings. We provided a draft of this report to GSA, DHS, DOI, VA, and Smithsonian Institution for their review and comment. GSA provided written comments, which are reprinted in appendix II. GSA concurred with our recommendation that the Administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed, and that these data are provided to FPS so that FPS is better equipped to manage jurisdictional roles and responsibilities at GSA buildings. DHS provided a letter, reprinted in appendix III, describing its efforts to collaborate with state and local law enforcement. DHS also provided technical comments, which we incorporated, as appropriate. DOI, VA, and the Smithsonian Institution provided minor technical comments, via email, which we incorporated, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Homeland Security, the Director of FPS, the Administrator of GSA, the Secretary of the Interior, the Secretary of Veterans Affairs, and Secretary of the Smithsonian Institution. In addition, the report will be available at no charge on the GAO's Web site at http://www.gao.gov. If you, or your staff, have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. To assess the Federal Protective Service's (FPS) efforts to collaborate with state and local law enforcement for assistance in responding to incidents at federal facilities, we reviewed FPS data on buildings protected, staffing, procedures, and memorandums of understanding (MOUs). We also reviewed relevant federal facility building data from the General Services Administration (GSA) including for example, each building number with address; type of jurisdiction; and square footage and number of personnel, among other things. We interviewed FPS officials throughout the regions, and FPS and GSA officials at their respective agency's headquarters in Washington, D.C., regarding the processes and procedures for exchanging these data. We reviewed the building data for completeness, but did not verify the accuracy of the information contained for each building. To ensure we were assessing the exact data that FPS uses, we requested data samples for fiscal year 2011 from both GSA and FPS and replicated the jurisdiction category results. We assessed the extent to which there were missing jurisdiction assignments by reviewing pending and blank jurisdiction categories. We then assessed GSA and FPS's processes for managing these data against GAO's Standards for Internal Control in the Federal Government, Homeland Security: Further Actions Needed to Coordinate Federal Agencies' Facility Protection Efforts and Promote Key Practices, and Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. According to GAO's standards for internal control in the federal government, internal control is a major part of managing an organization and comprises the plans, methods, and procedures used to meet missions, goals, and objectives. Internal control, which is synonymous with management control, helps government program managers achieve desired results through effective stewardship of public resources. Control activities--such as reconciliations performed to verify data completeness; an agency's data entry design features contribute to data accuracy; data validation and editing performed to identify erroneous data; and erroneous data that is captured, reported, investigated, and promptly corrected--contribute to data accuracy and completeness. We determined that the data were sufficiently reliable for the purposes of this report. For comparison with FPS's coordination efforts, we contacted three federal agencies that provide law enforcement at their facilities--the Department of Veterans Affairs (VA), the National Park Service (NPS) within the Department of the Interior, and the Smithsonian Institution (SI). To gain insight into FPS, VA, SI, and NPS coordination with state and local law enforcement agencies, we emailed a self-administered set of 22 structured questions to the heads of 73 state and local law enforcement agencies. Our non-random selection of locations included varying population sizes located in a mixture of metro, urban, and rural areas as defined by the United States Department of Agriculture using the most recent Rural-Urban Continuum Codes for jurisdictions that we determined had FPS, and/or VA, NPS, and SI buildings throughout the United States. The state and local law enforcement agencies we chose included a mix of police, sheriff, highway patrol agencies in each of the 11 FPS regions. We also followed up our email with phone calls to these state and local law enforcement agencies. Not every respondent answered every question related to coordination with FPS, VA Police, U.S. Park Police, and SI police. Additionally, the responses had varying levels of staff within the state and local law enforcement organization reply for the organization. Furthermore, the structured questions were related to coordination with the Federal Protective Service, Veterans Affairs Police, Smithsonian police, and the U.S. Park Police. Although the results of our questions cannot be generalized to the universe of jurisdictions that have interaction with FPS, the results provide key insights on how state and local law enforcement collaborates with FPS to assist with federal facility protection. These results illustrate how FPS relies on these organizations to respond to incidents and collectively, how this multi-faceted approach enabled us to make conclusions whether FPS's approach is reasonable. Further, we interviewed officials at two FPS MegaCenters--the four regional dispatch centers within FPS that are the primary focal points for initial incident notification--and toured the Suitland, Md., MegaCenter facility. We attended an FPS operational exercise in the District of Columbia. We also interviewed each of the 11 FPS Regional Directors to determine how their region coordinates with state and local law enforcement entities for the properties in their jurisdiction. We interviewed GSA officials at GSA headquarters in the District of Columbia. We obtained relevant documents pertaining to VA, NPS, and SI collaboration with state and local law enforcement and interviewed agency officials. Lastly, we reviewed prior GAO work, including reports on key practices in interagency collaboration and facility protection. We conducted this performance audit from February 2011 to March 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, David Sausville (Assistant Director), Maren McAvoy, and George Depaoli made key contributions to this report. Additionally, Colin Fallon, Kathleen Gilhooly, Hannah Laufe, and Andrew Stavisky aided in this assignment.
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The Department of Homeland Security's (DHS) Federal Protective Service (FPS) protects over 9,000 federal facilities under the custody and control of the General Services Administration (GSA). In 2007, FPS adopted an inspector-based workforce approach and indicated it would increase its reliance on state and local law enforcement agencies to respond to incidents at these facilities. These facilities range from facilities of proprietary or concurrent jurisdiction--where authority is shared by federal and state and local police--to facilities of exclusive jurisdiction, where only federal law enforcement has authority. As requested, this report assesses FPS's efforts to collaborate with state and local law enforcement for assistance in responding to incidents at these federal facilities. GAO reviewed documents on collaboration, GSA and FPS facility data, and GAO's work on key collaboration practices and internal control standards. GAO also contacted 73 selected state and local law enforcement agencies from geographic jurisdictions of varying population sizes and FPS buildings throughout the United States and interviewed FPS and GSA officials. To collaborate with state and local law enforcement, the Federal Protective Service (FPS) uses memorandums of understanding (MOU), long-standing working relationships, written guidance to FPS staff, joint operations, and other initiatives. For example, FPS has MOUs ranging from sharing radio frequency usage in Alabama, to a mutual aid agreement with the Metropolitan Atlanta Rapid Transit Authority in Georgia. In some jurisdictions, such as the suburbs of the District of Columbia, FPS has no MOUs but has regular contact and long-standing mutual aid relationships with state and local law enforcement. To collaborate with state and local law enforcement, FPS has guidance that addresses issues such as the scope of law enforcement authorities on federal property and information sharing among jurisdictions. FPS established regional staff positions intended to improve collaboration with other organizations and has engaged in joint operations with state and local law enforcement. By comparison, other federal organizations with law enforcement responsibilities similar to FPS also use a variety of methods, ranging from the Department of Veterans Affairs' policy to seek MOUs with state and local law enforcement to the Smithsonian Institution's established relationships with the Metropolitan D.C. Police and others. GAO found that state and local law enforcement organizations it contacted are generally willing to assist with incidents at federal facilities. For example, 48 of 52 respondents from state and local law enforcement agencies GAO contacted about this issue said that they would respond to a call at a federally owned facility; 27 said they had done so since 2007. Overall, the variety of efforts FPS has under way is consistent with the key collaboration practices GAO has previously identified and reflects a reasonable approach to collaboration, especially when combined with the willingness of state and local law enforcement to assist. Although FPS has a reasonable approach to state and local collaboration, GAO found issues related to the quality of data exchanged between GSA and FPS on buildings and their locations. Through working groups, GSA is working with FPS to address these data inconsistency issues and is establishing a permanent GSA liaison at FPS's headquarters to improve data coordination. But as of the end of GAO's review, FPS still lacked complete data from GSA on the jurisdiction of about one third of the buildings it protects. GSA officials informed GAO that they are making progress with identifying building jurisdictions but were not yet in a position to provide complete information to FPS. These data are important because state and local law enforcement generally has no authority to enforce state and local law on properties of exclusive federal jurisdiction. An additional effect of not having these data is that FPS lacks assurance that in relying on state and local law enforcement to respond to incidents at federal facilities, it is not creating a situation where these entities may be exercising police authority where they lack such authority. As a result, incomplete jurisdictional data leaves FPS and state and local law enforcement less equipped to define and agree to respective roles and responsibilities when there are incidents at federal facilities. In conjunction with the revised MOU that is being developed between GSA and FPS, GAO recommends the administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed and that these data are provided to FPS. GSA concurred with the recommendation.
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OSHA is the federal agency responsible for administering the Occupational Safety and Health Act of 1970, as amended (OSH Act), which was enacted to assure safe and healthful working conditions for the nation's workers. As authorized by the act, OSHA sets and enforces occupational safety and health standards, which are regulations that set forth specific safety and health requirements with which covered employers must comply. Among its other responsibilities under the OSH Act, OSHA is also required to provide for the establishment and supervision of training programs to help workers and employers recognize, avoid, and prevent workplace safety and health hazards. The Outreach Training Program is the agency's primary way to offer training for workers in the basics of occupational safety and health, according to OSHA. Outreach Training includes voluntary 10-hour and 30-hour safety courses designed to provide basic hazard awareness training for workers in construction, maritime, and general industry, and a 15-hour course for workers at disaster sites. The training covers how to recognize and prevent hazards on a jobsite, workers' rights, employers' responsibilities, and how to file a complaint. The 30-hour courses are intended to provide more in-depth training to workers who have some safety responsibility. Workers that successfully complete an OSHA Outreach Training Program course receive a student course completion card. The student course completion cards in Construction, General Industry, and Disaster Site do not have an expiration date; however, the Maritime Outreach Training student course completion cards expire 5 years after completing the training. While OSHA does not require workers to take its Outreach Training courses, depending on their jobs and where the workers are located, they may be subject to other requirements to show an OSHA course completion card to demonstrate they completed the training. For example, some states, municipalities, unions, and employers may require workers to take an OSHA Outreach Training course as a condition of employment for certain jobs, and OSHA maintains a list of states and municipalities that have such a requirement. According to OSHA's list, seven states (Connecticut, Massachusetts, Missouri, Nevada, New Hampshire, New York, and Rhode Island), and three municipalities (Miami-Dade County, New York City, and Philadelphia) require certain workers to take some form of OSHA Outreach Training or an equivalent training. For example, all of these states and municipalities require certain workers on public construction projects to take a 10-hour construction safety course. Some, including Nevada and Philadelphia, also require this training for workers on private construction projects. Outreach Training courses are delivered by OSHA-authorized external training providers that receive no funding from OSHA, but instead, rely on tuition and fees from training participants to cover the cost of the training. The types of training providers include Education Centers, which train Outreach trainers to deliver in-person Outreach Training courses to workers, and online training providers. Education Centers: OSHA has nonfinancial cooperative agreements with 27 Education Centers-which are typically universities-to provide occupational safety and health training to workers and employers on behalf of OSHA. The Education Centers have two main roles under the Outreach Training Program: (1) conduct in-person train-the-trainer courses to qualified individuals interested in becoming authorized Outreach trainers; and (2) act as an authorized training organization for the Outreach trainers by monitoring Outreach trainers through records audits and training observations and by processing course completion cards that Outreach trainers request on behalf of the workers who take their courses. OSHA selected the Education Centers through a formal competitive application process. Successful applicants entered into 5-year nonfinancial cooperative agreements with OSHA. Outreach trainers: For in-person training, Education Centers authorize Outreach trainers to provide the training to workers. To become an authorized Outreach trainer, individuals must meet industry safety experience requirements, complete a training course on the applicable OSHA standards, and successfully complete a train- the-trainer course at one of the Education Centers. Outreach trainers are authorized to provide in-person training to workers for 4 years from the date that the trainer course is completed and must successfully complete an update course at an Education Center to maintain authorization. Currently, there are approximately 30,000 authorized Outreach trainers, according to OSHA officials. Online training providers: Online training is provided by nine OSHA- authorized online training providers, including eight companies and one Education Center. OSHA used a multi-phase process to select the current online training providers that is described in OSHA guidance. The guidance provided the requirements for establishing an online Outreach Training course and a process for OSHA authorization. The phases of the process included: (1) submission of a description of the online training program, target audience, and expected impact of the program; (2) submission of a detailed written description of the online training plan; (3) self-verification audit where the online training provider reviews the training against OSHA's guidance; and (4) OSHA's review of the completed online training to verify that the program is consistent with OSHA's guidance. In recent years, OSHA has attempted to change its process for selecting the online training providers, but those attempts have been challenged in court. In 2011 and 2014, the agency issued public solicitations, intending to enter into nonfinancial cooperative agreements or contracts with selected providers. Both solicitations were found to have procedural deficiencies by the U.S. Court of Federal Claims after online training companies challenged them in court. According to OSHA officials, the agency has revised the solicitation to address the court rulings, but no date has been set for issuing the revised solicitation. Currently, the nine online training providers provide OSHA Outreach Training under their 2009 authorization. Participation in the Outreach Training Program has grown substantially over time. The number of workers trained more than quadrupled from 200,522 in fiscal year 2000 to 900,010 in fiscal year 2016. The vast majority of participants take the courses in-person; however, the number of participants taking the courses online has increased in recent years (see fig. 1). In fiscal year 2016, 70 percent of participants took the Outreach Training courses in person, and 30 percent took the courses online. The number of participants taking the courses online increased from 19 percent in fiscal year 2011 to 30 percent in fiscal year 2016. The courses tailored to the construction industry are the most popular. In fiscal year 2016, about 75 percent of the Outreach Training participants took the construction courses, and 24 percent took the general industry courses (see fig. 2). OSHA's Outreach Training Program reflects attributes of a well-designed training program. GAO's training guide identifies attributes of a well- designed training program and suggests the kinds of documentation to look for that indicate that a training program has a particular attribute in place. OSHA is not required to follow GAO's training guide, however, we found that the program's design reflected at least one indicator for six of the seven attributes of a well-designed training program described in the guide (see table 1). OSHA took steps to design the Outreach Training Program so that workers receive consistent and quality training by using data to identify the content of the training, developing training materials, and issuing detailed requirements for training providers. According to OSHA officials, the content of the training was selected after the agency reviewed data on the leading causes of worker deaths and the most frequently cited OSHA standards. OSHA also developed training materials that training providers can use, including presentations, lesson plans, fact sheets, and tests. In addition, OSHA developed detailed requirements regarding the content and delivery of the training that apply to all Outreach Training providers to improve the quality of the courses and ensure the integrity of its authorized trainers. Specifically, in 2011, OSHA replaced its previous program guidelines with a revised policy document establishing requirements that apply to all Outreach Training providers, including in- person and online training providers. OSHA issued general Outreach Training Program Requirements and separate Industry Procedures for the Construction, General Industry, Maritime, and Disaster Site courses. The requirements and industry-specific procedures identify the learning objectives for the courses, the topics that must be covered, and the amount of time training providers must spend on each topic, among other things. OSHA most recently revised the Outreach Training Program Requirements and industry-specific procedures in January of 2017. OSHA used a combination of centralized and decentralized approaches to design the Outreach Training Program. GAO's training guide suggests agencies consider the advantages and disadvantages of using centralized and decentralized approaches to designing training programs. Centralizing design can enhance consistency of training content whereas a decentralized approach to training design can enable agencies to tailor training programs to better meet the unique needs of the intended audience. OSHA used a combination of approaches by centrally setting the learning objectives and establishing detailed content requirements, while also allowing training providers to supplement the curriculum to meet the specific needs of their audience. For example, while OSHA requires all Outreach Training courses to include 2 hours of introductory information about OSHA, training providers have some flexibility to develop the rest of the curriculum as long as they cover the required topics and meet the time requirements. Table 2 provides a summary of OSHA's topic and time requirements for the 10-hour construction Outreach Training course. In addition, although OSHA does not require any accreditation for Outreach Training providers, OSHA's Directorate of Training and Education, which designed the Outreach Training Program, and several of the online training providers, reported that they are accredited by the International Association for Continuing Education and Training (IACET). IACET accreditation involves an audit of the organization's training program that benchmarks the organization against a national standard called the IACET Standard for Continuing Education and Training. IACET officials review the training provider's application and document that the standard is being followed by the organization and that the attestations in the application are accurate by conducting a site visit. IACET-accredited training providers must demonstrate that they have processes in place to ensure that the individuals involved in training design are qualified and that the content and instructional methods used are appropriate for the learning objectives of the training, among other things. According to OSHA officials, having OSHA's Directorate of Training and Education become IACET-accredited as a continuing education provider demonstrates the agency's commitment to high standards for the agency's training programs. The Education Centers we interviewed had a different form of accreditation associated with their universities. To obtain course completion cards, which training providers distribute to workers who complete the training, training providers must submit class documentation through either an automated or paper-based process. Outreach trainers-who deliver in-person training to workers-request cards by submitting class documentation electronically through a web- based system to the Education Center where the trainer was authorized. If approved, the Outreach trainers are sent wallet-sized plastic cards for the workers, each with a Quick Response (QR) code that can be scanned with a smart phone, allowing employers and workers to verify the authenticity of the card. In contrast, online training providers mail class documentation, such as student names, course completion dates, test results, and student evaluations of the courses, to OSHA to obtain cards for the workers who take the training online. If approved, the online training providers are sent wallet-sized paper cards for the workers. The online training provider then prints the student names on the paper cards and distributes them to the workers (see fig.3). OSHA typically processed the course completion cards within 2 weeks of receiving the request from the online training providers, according to our analysis of OSHA data. OSHA has 30 days to process course completion cards after receiving an online training provider's request for cards, according to an internal deadline set by OSHA. In our analysis of OSHA fiscal year 2012-2016 data, we found that OSHA took 7 days on average to process the cards, and the processing time ranged from processing the cards the day OSHA received the request to 51 days. Two-thirds of the card requests were processed in a week or less, and 91 percent were processed within 2 weeks. However, six of the nine online training providers we interviewed said OSHA's paper-based system for processing course completion cards contributed to delays in issuing cards to workers. For example, one online training provider said it mails OSHA between 200 and 300 pages of class documentation on a bi-weekly basis and it takes OSHA up to 4 weeks to mail the cards back to them. Three of the nine online training providers we interviewed gave examples of how lengthy processing times can negatively impact workers. One online training provider that serves younger workers said delays can be problematic, especially at the end of the school semester, because if the student does not get the course completion card in time, he or she may not have the required documents needed to start their summer job. Another online training provider said that waiting for OSHA to process the cards causes anxiety for many students, as 3 or 4 weeks is a long time to wait for something required before they can get a job. A third online training provider said there have been instances where their students could not start working on the job site because the student did not have their course completion card and the employer or union refused to accept the online training provider's certificate of completion. While online training providers have noted these issues, the two national organizations we interviewed that represent employers and unions said that they have not received complaints from workers regarding delays in getting their course completion cards or that delays affected their ability to start working at their job site. Differences in the process for issuing course completion cards stem from the history of the program, according to OSHA officials. When OSHA began partnering with the Education Centers to conduct OSHA Training Institute courses in 1992, the agency required individual Outreach trainers to request course completion cards for workers through the Education Center where they received authorization to serve as trainers. According to OSHA officials, in 2001, when OSHA began allowing the 10- and 30- hour construction and general industry Outreach Training courses to be delivered in an online format, OSHA decided to serve as the authorizer for the online providers. OSHA officials told us that they are planning to allow the online training providers to request cards electronically by having the Education Centers take over processing the course completion cards for the online training providers, but OSHA has not established a timeline for implementing this new process. According to OSHA officials, the agency plans to include a process for electronically requesting course completion cards in conjunction with the revised solicitation for selecting the online training providers that OSHA is finalizing. OSHA also intends to make the plastic cards available to workers who take the courses online. Having the Education Centers issue course completion cards to online providers may help to speed the time for issuing these cards to workers. However, the online training providers we interviewed generally said that they believe that they could issue the cards more quickly if they issued the cards themselves. OSHA officials told us they considered allowing the online training providers to process and print their own OSHA cards but decided not to because they want to limit the number of organizations that have access to the course completion cards. Training providers and OSHA officials reported using automated and manual checks to help ensure that cards are requested only for the students who successfully complete the courses and that the courses meet OSHA's Outreach Training Program requirements. Both the Education Centers and online training providers reported using information systems that automatically check whether the students have taken courses that met OSHA requirements, such as spending the minimum amount of time on specific topics. Some of the online and in- person training providers reported also using staff to manually verify the information in the class documentation submitted to obtain course completion cards. The online training providers reported using user names and passwords to verify that the person registered for the course is the person completing the course. In addition, some of the online training providers reported that they are capable of using biometric data, such as voice recognition or keystroke analysis, to authenticate students. OSHA manually compares the number of cards requested by the online training providers to the number of student names listed in the class documentation and logs the unique course completion card numbers into a spreadsheet. Use of internal controls in the course completion card process is important to protect the integrity of the program. OSHA works with DOL's Office of Inspector General to investigate and address fraudulent activity. According to OSHA officials, there have been relatively few cases of fraud in the program. OSHA refers fraudulent activity to DOL's Office of Inspector General, and trainers caught falsifying information may be subject to criminal prosecution. DOL's Office of Inspector General investigated four cases of fraud involving OSHA training over the last 3 years, according to Office of Inspector General officials. Examples of fraud cases they identified include an Outreach trainer selling course completion cards to construction workers without providing the training and an individual conspiring with an Outreach trainer to sell fraudulent OSHA course completion cards. OSHA oversees the in-person training providers on an ongoing basis by collecting and assessing data from the Education Centers, including: Course information: OSHA collects data on the train-the-trainer courses the Education Centers deliver to individuals interested in becoming authorized Outreach trainers, including the names of the courses presented each month, training locations and dates, instructor names, total students, total instructional hours, and test results. Course completion card processing: OSHA collects data on the number of course completion cards the Education Centers process each month for their authorized Outreach trainers. Monitoring activities: OSHA collects data on the number of record audits and training observations the Education Centers conduct on their authorized Outreach trainers to check that the in-person training delivered to workers complies with OSHA's Outreach Training Program requirements and procedures. OSHA assesses the Education Centers' performance on 11 performance elements (see table 3), which relate to the Education Centers' Outreach Training Program responsibilities and their other responsibilities outlined in their nonfinancial cooperative agreements with OSHA. OSHA uses the data it collects from the Education Centers to assess the extent to which the Education Centers are meeting their performance goals in an annual appraisal. OSHA rates the Education Centers on a three-point scale of "outstanding," "satisfactory," or "area for improvement" for seven performance elements and on a two-point scale of "satisfactory" and "area for improvement" for the remaining four performance elements. For example, in OSHA's appraisals for fiscal year 2015, OSHA rated 22 of 27 Education Centers an "outstanding" or "satisfactory" rating on their Outreach trainer monitoring and identified this as an "area of improvement" for 5 Education Centers because they did not take certain actions, such as conducting enough records audits and training observations (see fig. 4). OSHA follows up with the Education Centers that have received "area for improvement" ratings to ensure they are taking corrective action. OSHA checks whether corrective actions are implemented by conducting quarterly course documentation audits, annual conference calls, and periodic on-site audits, as well as by developing mid-year status reports. In addition, the program coordinator for the OSHA Training Institute Education Center Program interacts with the Education Centers throughout the year to ensure they are meeting performance goals, according to OSHA officials. OSHA also investigates complaints it receives about Outreach trainers from the general public, referrals from the Education Centers based on their Outreach trainer monitoring, and requests by other OSHA regional offices. OSHA investigates allegations that an Outreach trainer may not be in compliance with OSHA's Outreach Training Program Requirements and allegations of potential fraud. For example, OSHA may investigate cases where an Outreach trainer fails to respond to audit requests from an Education Center or fails to provide training that meets OSHA's requirements, such as spending enough time on required topics. OSHA will notify the Outreach trainer of its findings from the investigation and allow the trainer 15 days to address the findings identified in the notification. If the trainer does not respond within this timeframe, OSHA may suspend the trainer indefinitely until a response is received. The trainers can appeal OSHA's initial decision. If there is an appeal, OSHA will review it and make a final decision, which may result in the Outreach trainer being subjected to disciplinary actions, including probation, suspension, or revocation of the Outreach trainer authorization. As of October 2016, 107 Outreach trainers, which is less than 1 percent of the approximately 30,000 Outreach trainers, have had their status as authorized Outreach trainers suspended or revoked by OSHA as a result of failing to comply with the Outreach Training Program requirements and procedures. OSHA officials said that they oversee the online training providers by collecting updated course information twice per year and investigating any complaints about the training. In 2009, OSHA required that online training providers complete an initial multi-phase process to develop online Outreach Training courses that meet OSHA's requirements. According to OSHA officials, after they initially approved the online training providers, OSHA monitoring has consisted of responding to complaints about the training, requiring online providers to submit updated information on their courses twice per year, and requiring that providers self-certify twice per year that their training meets OSHA's requirements. OSHA investigates complaints about the online training providers by first sending them a notification letter describing the issue. Examples of issues OSHA has investigated include cases where an online provider incorrectly advertised the courses or offered the training outside of OSHA's geographic jurisdiction. The online provider has 15 days to respond to OSHA, and if OSHA determines they have violated applicable requirements, OSHA may suspend, terminate, or put them on probation. Online providers who are placed on probation are required to submit monthly self-certifications to OSHA that their program is in compliance with OSHA's online training guidance. OSHA did not establish a performance assessment process for online training providers when the current providers were selected in 2009, but according to officials, the agency is in the process of finalizing a public solicitation for a new model for authorizing online providers that they said will include new requirements for the providers. OSHA officials said that having these new requirements in place for the online training providers will improve the providers' understanding of what is expected of them and help OSHA gather additional information on the providers' performance. OSHA tracks the number of workers who take the Outreach Training courses to measure the reach of the program. OSHA measures the results of the Outreach Training Program by setting yearly targets for the number of workers trained and uses these data to report its progress in meeting its strategic goal of improving workplace safety and health. While the agency missed its target for fiscal years 2011 and 2012, it exceeded its targets for fiscal years 2013 through 2016 (see fig. 5). OSHA obtains information on the number of workers trained from the Education Centers and online training providers. OSHA also requires some of the Outreach Training providers to evaluate the training they provide using the Kirkpatrick model--a commonly accepted model for evaluating training--which is endorsed by the Office of Personnel Management in its training evaluation guidance and GAO's training guide. The Kirkpatrick model consists of a four-level approach for soliciting feedback from training course participants and evaluating the impact the training had on individual development, among other things. The Education Centers and the online training providers are required to report on the first two of those levels (see fig. 6) and are encouraged to conduct the other two higher levels of evaluation of the courses they deliver. Individual Outreach trainers, who provide in-person training to workers, are not required to assess the training they deliver. OSHA officials said they decided not to require Outreach trainers conducting in-person training to test student knowledge or use student evaluations--even though this is how the vast majority of training in the program is delivered--because they did not want these activities to take away from instructional time. According to OSHA officials, when delivering 10- and 30-hour Outreach Training courses in the classroom, trainers have the ability to ask questions to encourage student participation and use activities to verify that the transfer of learning has occurred. However, due to the less interactive nature of the online training courses, OSHA determined that the online 10- and 30-hour classes require a testing component to ensure the students understand the material provided. According to OSHA officials, OSHA also requires testing for the Education Centers' train-the-trainer courses to ensure the trainers have mastered the course content and are able to effectively teach the Outreach Training curriculum to workers. OSHA has taken some steps to assess the results of some of the evaluation information it collects and plans to make greater use of evaluation information it collects from the Education Centers in the future. For the in-person train-the-trainer courses that the Education Centers deliver, OSHA receives test results and copies of student evaluations. The Education Centers use a standard student evaluation form that can be electronically processed by OSHA. OSHA then automatically tabulates the information in the student evaluations and returns them to the Education Centers so that they can use them to make improvements to their courses. According to OSHA officials, OSHA reviewed a sample of the student evaluations and found positive results through these reviews. Beginning in fiscal year 2017, OSHA officials said they plan to begin assessing the student evaluation results from the train- the trainer courses as part of the annual appraisal process for Education Centers by adding a related performance measure to its expectations for the Education Centers. For the online training, OSHA receives test results and copies of student evaluations, which ask the students to identify the extent to which the training will help them better identify hazards and if they had any technical problems accessing the training, among other things. According to OSHA officials, they have not used this information to assess the results of the Outreach Training Program because the agency receives paper copies of the results in different formats, and the agency does not have the resources to analyze the information in its current format. We provided a draft of this report to DOL for its review. DOL did not provide formal comments and did not have any technical comments. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time we will send copies of this report to the appropriate congressional committees, the Acting Secretary of Labor, the Deputy Assistant Secretary for OSHA, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. Please contact me on (202) 512-7215 or at [email protected] if you or your staff have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix I. In addition to the contact named above, Mary Crenshaw (Assistant Director), Cathy Roark (Analyst-in-Charge), Hiwotte Amare, Deborah Bland, Carol Bray, David Chrisinger, Scott Coleman, Sarah Cornetto, Cliff Douglas, Holly Dye, Sharon Hermes, Sheila McCoy, Jonathan McMurray, Jean McSween, David Moser, Mimi Nguyen, Stacy Spence, and Bill Woods made significant contributions to this report.
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In fiscal year 2016, approximately 900,000 workers were trained through OSHA's Outreach Training Program, the agency's primary mechanism for training workers on the basics of occupational safety and health. OSHA offers this training through OSHA-authorized in-person and online training providers. GAO was asked to review OSHA's administration of the program. GAO examined (1) the extent to which the program aligns with leading practices in designing an effective training program, (2) the process for documenting successful completion of the training and whether internal controls are in place to assure completion is accurately documented, and (3) how OSHA oversees training providers and assesses the results of the program. GAO compared OSHA's design and evaluation efforts for its training program with leading practices in GAO's training guide (GAO-04-546G) and federal internal control standards, and analyzed fiscal year 2012-2016 OSHA data (the most recent available) on time frames for processing completion card requests from online training providers. GAO also interviewed all nine online training providers and five in-person training providers, selected for having a high number of participants in fiscal year 2015, as well as OSHA officials. GAO is not making recommendations in this report. The Department of Labor's Occupational Safety and Health Administration's (OSHA) Outreach Training Program-which offers training on job hazard recognition and avoidance-reflects many of the attributes of a well-designed training program identified in GAO's training guide. OSHA is not required to follow GAO's training guide; however, the program's design reflects at least one indicator for six of the seven attributes of a well-designed training program GAO has identified. For example, OSHA used an appropriate mix of centralized and decentralized approaches by developing core learning objectives and content requirements for the courses but allowed training providers to modify the curriculum to meet the specific needs of their audience. In addition, OSHA officials told GAO that they took into account the leading causes of worker deaths and the most common workplace safety and health violations to determine topics to be covered in the training. OSHA documents successful course completion differently depending on whether training was delivered in-person or online, but it uses the same controls to prevent fraudulent completion cards from being issued. OSHA officials and the training providers GAO interviewed reported using several checks to prevent fraudulent completion cards from being issued, such as verifying course completion through automated and manual processes and comparing the number of cards requested to the number of registered students. Although OSHA does not require workers to complete Outreach Training, some workers may need to show proof of completion to satisfy requirements by their states, municipalities, employers, or unions. To obtain completion cards, Outreach trainers who deliver in-person training submit course information through a web-based system, while online training providers mail documentation to OSHA. OSHA processed 91 percent of the card requests from online training providers within 2 weeks, which is within the 30-day deadline OSHA has set for itself, according to GAO's analysis of OSHA data. OSHA officials reported that they plan to allow all training providers to request completion cards electronically, but the agency has not established a timeline for implementing this new process. According to OSHA officials, the agency is taking steps to modify its process for selecting online training providers and plans to incorporate electronic requests for completion cards into the new process. OSHA oversees the performance of training providers by routinely collecting and assessing data and investigating complaints and has taken some steps to assess the results of the program. Specifically, OSHA collects data from the training providers to help ensure that the training meets the program requirements and that the trainers are delivering the Outreach Training courses as intended. OSHA also investigates complaints it receives about training providers, including issues such as the trainer not spending enough time on required safety topics. To assess program results, OSHA tracks the number of workers who take the Outreach Training courses to measure the reach of the program. According to OSHA data, from fiscal year 2000 to fiscal year 2016, the number of workers trained more than quadrupled from 200,522 to 900,010. OSHA also receives test results and student evaluations of the courses from some of the Outreach Training providers.
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NTIA and RUS face scheduling, staffing, and data challenges in evaluating applications and awarding funds. The agencies have taken steps to meet these challenges, such as adopting a two-step evaluation process, utilizing nongovernmental personnel, and publishing information on the applicant's proposed service area. While these steps address some challenges, the agencies lack the needed time to apply lessons learned from the first funding round and face a compressed schedule to review new applications. As a result, the agencies may risk awarding funds to projects that are not sustainable or do not meet the priorities of the Recovery Act. Scheduling challenges. The agencies have 18 months to establish their respective programs, solicit and evaluate applications, and award all funds. While in some instances a compressed schedule does not pose a challenge, two factors enhance the challenges associated with the 18- month schedule. First, NTIA must establish the BTOP program from scratch, and RUS has existing broadband grant and loan programs, albeit on a much smaller scale than BIP. Second, the agencies face an unprecedented volume of funds and anticipated number of applications compared to their previous experiences. The funding associated with BTOP and BIP exceed NTIA's and RUS's prior experience with other grant or loan programs (see fig. 1). In comparison to the $4.7 billion appropriation NTIA received for BTOP, its Public Telecommunications Facilities Program received an average of $23 million annually and its Telecommunications Opportunities Program received $24 million annually. NTIA also administered the one-time Public Safety Interoperable Communications Program (PSIC), with an appropriation of about $1 billion, in close coordination with the Department of Homeland Security (DHS). In comparison to the $2.5 billion appropriation RUS received for BIP, its Community Connect Program's average annual appropriation was $12 million and its Broadband Access Loan Program's Program's average annual appropriation was $15 million. average annual appropriation was $15 million. NTIA and RUS also face an increase in the number of applications that they must review and evaluate in comparison to similar programs (see fig. 2). According to preliminary information from the agencies, they received approximately 2,200 applications requesting $28 billion in grants and loans in the first funding round. Of these 2,200 applications, NTIA received 940 applications exclusively for BTOP and RUS received 400 applications exclusively for BIP and 830 dual applications that both agencies will review. In comparison, NTIA received an average of 838 applications annually for the Telecommunications Opportunities Program; for PSIC, NTIA and DHS received 56 applications from state and territorial governments containing a total of 301 proposed projects. RUS received an average of 35 applications annually for the Broadband Access Loan program and an average of 105 applications annually for the Community Connect Program. Staffing challenges. NTIA and RUS will need additional personnel to administer BTOP and BIP. NTIA's initial risk assessment indicated that a lack of experienced and knowledgeable staff was a key risk to properly implementing the program in accordance with the priorities of the Recovery Act. In its fiscal year 2010 budget request to Congress, NTIA estimated that it will need 30 full-time-equivalent staff in fiscal year 2009 and 40 more full-time-equivalent staff for fiscal year 2010. While RUS already has broadband loan and grant programs in place and staff to administer them, it also faces a shortage of personnel. RUS's staffing assessments indicated that the agency will need 47 additional full-time- equivalents to administer BIP. Data challenges. NTIA and RUS lack detailed data on the availability of broadband service throughout the country that may limit their ability to target funds to priority areas. According to the agencies, priority areas include unserved and underserved areas. The agencies require applicants to assemble their proposed service areas from contiguous census blocks and to identify the proposed service area as unserved or underserved. However, the agencies will be awarding loans and grants before the national broadband plan or broadband mapping is complete. FCC must complete the national broadband plan by February 17, 2010, and NTIA does not expect to have complete, national data on broadband service levels at the census block level until at least March 2010. Two-step evaluation process. To address the scheduling and staffing challenges, NTIA and RUS are using a two-step process. In the first step, the agencies will evaluate and score applications based on the criteria in the NOFA, such as project purpose and project viability. During this step, the agencies will select which applications proceed to the second step. After the first step is complete and the pool of potential projects is reduced, the agencies intend to conduct the second step--due diligence, which involves requesting extra documentation to confirm and verify information contained in an application. Since not all applications will proceed to the second step, not all applicants will be required to submit extra documentation which will reduce the amount of information the agencies must review. Use of nongovernmental personnel. Both NTIA and RUS are using nongovernmental personnel to address anticipated staffing needs associated with the evaluation of applications and awarding of funds. To evaluate applications, NTIA is using a volunteer peer review system, in which three unpaid, expert reviewers examine and score applications; these volunteers must have significant expertise and experience in broadband-related activities, such as the construction and operation of a broadband network. In addition, NTIA will use contractors in an administrative role to assist the expert reviewers. RUS will also use contractors to evaluate and score applications. Regardless of who reviews the application, the final selection and funding decisions are to be formally made by a selecting official in each agency. Publish applicant information. To address the challenge of incomplete data on broadband service, NTIA and RUS require applicants to identify and attest to the service availability--either unserved or underserved--in their proposed service area. In order to verify these self-attestations, NTIA and RUS will post a public notice identifying the proposed funded service area of each broadband infrastructure applicant. The agencies intend to allow existing service providers in the proposed service area to question an applicant's characterization of broadband service in that area. If this information raises eligibility issues, RUS may send field staff to the proposed service area to conduct a market survey. RUS will resolve eligibility issues by determining the actual availability of broadband service in the proposed service area. NTIA has no procedure for resolving these types of issues. During the first funding round, the compressed schedule posed a challenge for both applicants and the agencies. As mentioned previously, NTIA and RUS initially proposed to utilize three separate funding rounds during the 18-month window to award the $7.2 billion. As such, each funding round would operate under a compressed schedule. Eight of the 15 industry stakeholders with whom we spoke expressed concern that a small entity would have difficulties in completing an application in a timely manner. The compressed schedule also posed challenges for the agencies. During the first funding round, the agencies missed several milestones. For example, RUS originally intended to select a contractor on June 12, 2009, and NTIA intended to select a contractor on June 30, 2009; however, both agencies missed their target dates, with RUS selecting its contractor on July 31, 2009, and NTIA selecting its contractor on August 3, 2009. Because of the compressed schedule within the individual funding rounds, NTIA and RUS have less time to review applications than similar grant and loan programs. In the first funding round, the agencies have approximately 2 months to review 2,200 applications. In contrast, from fiscal year 2005 through 2008, RUS took from 4 to 7 months to receive and review an average of 26 applications per year for its Broadband Access Loan Program. NTIA's Public Telecommunications Facilities Program operated on a year-long grant award cycle. For the PSIC program, NTIA and DHS completed application reviews in roughly 6 months. Based on their experience with the first funding round, NTIA and RUS are considering reducing the number of funding rounds from three to two. In the second and final funding round, the agencies anticipate extending the window for entities to submit applications. This change will help mitigate the challenges the compressed schedule posed for applicants in the first funding round. However, it is unclear whether the agencies will similarly extend the amount of time to review the applications and thereby bring the review time more in line with the experiences of other broadband grant and loan programs. NTIA officials indicated that the agency would like to make all awards by summer 2010, to promote the stimulative effect of the BTOP program. Alternatively, RUS officials indicated that the agency will make all awards by September 30, 2010, as required by the Recovery Act, indicating a potentially longer review process. Depending on the timeframes NTIA and RUS select, the risks for both applicants and the agencies may persist with two funding rounds. In particular, these risks include: Limited opportunity for "lessons learned." Based on the current schedule, NTIA and RUS will have less than one month between the completion of the first funding round and the beginning of the second funding round. Because of this compressed time frame, applicants might not have sufficient time to analyze their experiences with the first funding round to provide constructive comments to the agencies. Further, the agencies might not have sufficient time to analyze the outcomes of the first round and the comments from potential applicants. As such, a compressed schedule limits the opportunity to apply lessons learned from the first funding round to improve the second round. Compressed schedule to review applications. Due to the complex nature of many projects, NTIA and RUS need adequate time to evaluate the wide range of applications and verify the information contained in the applications. NTIA is soliciting applications for infrastructure, public computer center, and sustainable adoption projects. Therefore, NTIA will receive applications containing information responding to different criteria and it will evaluate the applications with different standards. Even among infrastructure applications, a wide variability exists in the estimates, projections, and performance measures considered reasonable for a project. For example, in RUS's Broadband Access Loan Program, approved broadband loans for the highest-cost projects, on a cost-per- subscriber basis, ranged as much as 15, 18, and even 70 times as high as the lowest-cost project, even among projects using the same technology to deploy broadband. Continued lack of broadband data and plan. According to NTIA, national broadband data provide critical information for grant making. NTIA does not expect to have complete data for a national broadband map until at least March 2010. Also, as mentioned previously, FCC must deliver to Congress a national broadband plan by February 17, 2010. By operating on a compressed schedule, NTIA and RUS will complete the first funding round before the agencies have the data needed to target funds to unserved and underserved areas and before FCC completes the national broadband plan. Depending on the time frames the agencies select for the second funding round, they may again review applications without the benefit of national broadband data and a national broadband plan. NTIA and RUS will need to oversee a far greater number of projects than in the past, including projects with large budgets and a diversity of purposes and locations. In doing so, the agencies face the challenge of monitoring these projects with far fewer staff per project than were available in similar grant and loan programs they have managed. To address this challenge, NTIA and RUS procured contractors to assist with oversight activities and will require funding recipients to complete quarterly reports and, in some cases, obtain annual audits. Despite the steps taken, several risks remain to adequate oversight. These risks include insufficient resources to actively monitor funded projects beyond fiscal year 2010 and a lack of updated performance measures for NTIA and RUS. In addition, NTIA has yet to define annual audit requirements for commercial entities funded under BTOP. NTIA and RUS will need to oversee a far greater number of projects than in the past. Although the exact number of funded projects is unknown, both agencies have estimated that they could fund as many as 1,000 projects each--or 2,000 projects in total--before September 30, 2010. In comparison, from fiscal year 1994 through fiscal year 2004, NTIA awarded a total of 610 grants through its Technology Opportunities Program--or an average of 55 grants per year. From fiscal year 2005 through fiscal year 2008, RUS awarded a total of 84 Community Connect grants, averaging 21 grants per year; and through its Broadband Access Loan Program, RUS approved 92 loans from fiscal year 2003 through fiscal year 2008, or about 15 loans per year. In addition to overseeing a large number of projects, the scale and diversity of BTOP- and BIP-funded projects are likely to be much greater than projects funded under the agencies' prior grant programs. Based on NTIA's estimated funding authority for BTOP grants and RUS's estimated potential total funding for BIP grants, loans, and loan/grant combinations, if the agencies fund 1,000 projects each, as estimated, the average funded amount for BTOP and BIP projects would be about $4.35 million and $9 million, respectively. In comparison, from fiscal year 1994 to fiscal year 2004, NTIA's average grant award for its Technology Opportunities Program was about $382,000 and from fiscal year 2005 to fiscal year 2008, RUS awarded, on average, about $521,000 per Community Connect grant award. Further, the agencies expect to fund several different types of projects that will be dispersed nationwide, such as infrastructure and public computer center projects. Because of the volume of expected projects, NTIA and RUS plan to oversee and monitor BTOP- and BIP-funded projects with fewer staff resources per project than the agencies used in similar grant and loan programs (see table 1). NTIA reported that it will need 41 full-time- equivalent staff to manage BTOP; at the time of our review it had filled 33 of these positions. Based on NTIA's estimate of funding 1,000 projects and its estimated 41 full-time-equivalent staff needed, NTIA will have about 1 full-time-equivalent staff available for every 24 projects. NTIA reported that it is continually assessing its resources and is considering additional staff hires. Similarly, RUS reported that it will need 47 full-time-equivalent staff to administer all aspects of BIP, and the majority of these positions were to be filled by the end of September 2009. These 47 staff members are in addition to the 114 full-time-equivalent staff in the Rural Development Telecommunications program which support four existing loan or grant programs. If RUS funds a total of 1,000 projects, as estimated, based on the 47 staff assigned to BIP, it would have 1 staff of any capacity available for every 21 funded projects. RUS reported that it could use other staff in the Rural Development Telecommunications program to address BIP staffing needs, if necessary. Contractor services. NTIA and RUS will use contractors to help monitor and provide technical assistance for BTOP and BIP projects. On August 3, 2009, NTIA procured contractor services to assist in a range of tasks, including tracking and summarizing grantees' performance, developing grant-monitoring guidance, and assisting with site visits and responses to audits of BTOP-funded projects. On July 31, 2009, RUS awarded a contract to a separate contractor for a wide range of program management activities for BIP. RUS's contractor will be responsible for a number of grant-monitoring activities, including developing a workflow system to track grants and loans, assisting RUS in developing project monitoring guidance and policies, and assisting in site visits to monitor projects and guard against waste, fraud, and abuse. In addition to its contractor, RUS intends to use existing field staff for program oversight. RUS reported that it currently has 30 general field representatives in the telecommunications program and 31 field accountants in USDA's Rural Development mission area that may be available to monitor broadband programs. In addition, RUS officials told us that Rural Development has an estimated 5,000 field staff available across the country that support a variety of Rural Development loan and grant programs. Although these individuals do not have specific experience with telecommunications or broadband projects, according to RUS, this staff has experience supporting RUS's business and community development loan programs, and this workforce could be used for project monitoring activities if there were an acute need. Unlike RUS, NTIA does not have field staff. According to NTIA, the agency has been in talks with RUS about sharing some of RUS's field staff to monitor BTOP projects, although no formal agreement is in place. Recipient reports and audits. To help address the challenge of monitoring a large number of diverse projects, NTIA and RUS have developed program-specific reporting requirements that are intended to provide transparency on the progress of funded projects. Based on our review of the requirements, if NTIA and RUS have sufficient capacity to review and verify that information provided by funding recipients is accurate and reliable, these requirements could provide the agencies with useful information to help them monitor projects. The following reporting requirements apply to BTOP and BIP funding recipients: General recovery act reports. Section 1512 of the Recovery Act and related OMB guidance requires all funding recipients to report quarterly to a centralized reporting system on, among other things, the amount of funding received that was expended or obligated, the project completion status, and an estimate of the number of jobs created or retained through the funded project, among other information. Under OMB guidance, awarding agencies are responsible for ensuring that funding recipients submit timely reports, and must perform a data quality review and request further information or corrections by funding recipients, if necessary. BTOP-specific reports. The Recovery Act requires BTOP funding recipients to report quarterly on their use of funds and NTIA to make these reports available to the public. NTIA also requires that funding recipients report quarterly on their broadband equipment purchases and progress made in achieving goals, objectives, and milestones identified in the recipient's application, including whether the recipient is on schedule to substantially complete its project no later than 2 years after the award and complete its project no later than 3 years after the award. Recipients of funding for infrastructure projects must report on a number of metrics, such as the number of households and businesses receiving new or improved access to broadband as a result of the project, and the advertised and averaged broadband speeds and the price of the broadband services provided. BIP-specific reports. RUS requires BIP funding recipients to submit quarterly balance sheets, income and cash-flow statements, and the number of customers taking broadband service on a per community basis, among other information. BIP funding recipients must also report annually on the number of households; businesses; and educational, library, health care, and public safety providers subscribing to new or improved access to broadband. RUS officials reported that it plans to use quarterly reports to identify specific projects for on-site monitoring and to determine when that monitoring should take place. NTIA and RUS also require some funding recipients to obtain annual, independent audits of their projects; however, NTIA has yet to determine what annual audit requirements, if any, will apply to commercial grantees (see table 2). The primary tool for monitoring federal awards through annual audits is the single audit report required under the Single Audit Act, as amended. We recently reported that the Single Audit is a valuable source of information on internal control and compliance for use in a management's risk assessment and monitoring processes--and with some adjustments, we said, the Single Audit process could be improved for Recovery Act oversight. The Single Audit report is prepared in accordance with OMB's implementing guidance in OMB Circular No. A- 133. All states, local governments, and nonprofit organizations that expend over $500,000 in federal awards per year must obtain an annual Single Audit or, in some cases, a program-specific audit. Commercial (for profit) entities awarded federal funding of any amount are not covered by the Single Audit Act, and states, local governments, and nonprofit organizations expending less than $500,000 in federal awards per year are also not required to obtain an annual Single Audit under the Single Audit Act. RUS, however, requires all commercial recipients of BIP funds to obtain an annual, independent audit of their financial statements under requirements that also apply to RUS's existing broadband grant and loan programs. NTIA has yet to determine what annual audit requirements, if any, will apply to commercial grantees. Lack of sufficient resources beyond fiscal year 2010. Both NTIA and RUS face the risk of having insufficient resources to actively monitor BTOP- and BIP-funded projects after September 30, 2010, which could result in insufficient oversight of projects not yet completed by that date. As required by the Recovery Act, NTIA and RUS must ensure that all awards are made before the end of fiscal year 2010. Under the current timeline, the agencies do not anticipate completing the award of funds until that date. Funded projects must be substantially complete no later than 2 years, and complete no later than 3 years following the date of issuance of the award. Yet, the Recovery Act provides funding through September 30, 2010. The DOC Inspector General has expressed concerns that "without sufficient funding for a BTOP program office, funded projects that are still underway at September 30, 2010, will no longer be actively managed, monitored, and closed." NTIA officials told us that NTIA has consulted with the OMB about seeking BTOP funding after September 30, 2010, to allow it to close grants. RUS officials reported that given the large increase in its project portfolio from BIP, RUS's capacity to actively monitor these projects after its BIP funding expires may be stressed. Without sufficient resources to actively monitor and close BTOP grants and BIP grants and loans by the required completion dates, NTIA and RUS may be unable to ensure that all recipients have expended their funding and completed projects as required. Lack of updated performance measures. The Government Performance and Results Act of 1993 (GPRA) directs federal agencies to establish objective, quantifiable, and measurable goals within annual performance plans to improve program effectiveness, accountability, and service delivery. Specifically, performance measures allow an agency to track its progress in achieving intended results and help inform management decisions about such issues as the need to redirect resources or shift priorities. NTIA has established preliminary program performance measures for BTOP, including job creation, increasing broadband access, stimulation of private sector investment, and spurring broadband demand. However, NTIA has not established quantitative, outcome-based goals for those measures. NTIA officials reported that the agency lacks sufficient data to develop such goals and is using applications for the first round of funding to gather data, such as the expected number of households that will receive new or improved broadband service. According to NTIA officials, data collected from applications for the first funding round could be used to develop program goals for future funding rounds. RUS has established quantifiable program goals for its existing broadband grant and loan programs, including a measure for the number of subscribers receiving new or improved broadband service as a result of the programs. However, according to USDA's fiscal year 2010 annual performance plan, RUS has not updated its measures to reflect the large increase in funding it received for broadband programs under the Recovery Act. In addition, RUS officials told us that the agency's existing measure for the number of subscribers receiving new or improved broadband access as a result of its programs is based on the estimates provided by RUS borrowers in their applications. Consequently, these program goals do not reflect actual program outcomes, but rather the estimates of applicants prior to the execution of their funded projects. Undefined audit requirements for commercial recipients. At the time of our review, NTIA did not have audit requirements or guidelines in place for annual audits of commercial entities receiving BTOP grants. NTIA officials reported that because BTOP is the first program managed by NTIA to make grants to commercial entities, the agency does not have existing audit guidelines for commercial entities. However, NTIA reported that it intends to develop program-specific audit requirements and guidelines that will apply to commercial recipients that receive broadband grants and it plans to have those guidelines in place by December 2009. In the absence of clear audit requirements and guidelines for commercial recipients of BTOP funding, NTIA will lack an important oversight tool to identify risks and monitor BTOP grant expenditures. Mr. Chairman and Members of the Committee, this concludes my prepared statement. Our future work, which we expect to complete in November, will provide additional information on the implementation and oversight of the broadband programs. We also expect to make recommendations at that time. I would be pleased to respond to any questions that you or other members of the committee might have. For questions regarding this statement, please contact Mark L. Goldstein at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Relations can be found on the last page of this statement. Michael Clements, Assistant Director; Eli Albagli; Matt Barranca; Elizabeth Eisenstadt; Dean Gudicello; Tom James; Kim McGatlin; Sara Ann Moessbauer; Josh Ormond; and Mindi Weisenbloom also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Access to broadband service is seen as vital to economic, social, and educational development, yet many areas of the country lack access to, or their residents do not use, broadband. To expand broadband deployment and adoption, the American Recovery and Reinvestment Act (the Recovery Act) provided $7.2 billion to the Department of Commerce's National Telecommunications and Information Administration (NTIA) and the Department of Agriculture's Rural Utilities Service (RUS) for grants or loans to a variety of program applicants. The agencies must award all funds by September 30, 2010. This testimony provides preliminary information on the challenges NTIA and RUS face; the steps taken to address challenges; and the remaining risks in (1) evaluating applications and awarding funds and (2) overseeing funded projects. This statement is based on related ongoing work that GAO expects to complete in November. To conduct this work, GAO is reviewing relevant laws and program documents and interviewing agency officials and industry stakeholders. While this testimony does not include recommendations, GAO expects to make recommendations in its November report. Application evaluation and awards. NTIA and RUS face scheduling, staffing, and data challenges in evaluating applications and awarding funds. NTIA, through its new Broadband Technology Opportunities Program, and RUS, through its new Broadband Initiatives Program, must review more applications and award far more funds than the agencies formerly handled through their legacy telecommunications grant or loan programs. NTIA and RUS initially proposed distributing these funds in three rounds. To meet these challenges, the agencies have established a two-step application evaluation process that uses contractors or volunteers for application reviews and plan to publish information on applicants' proposed service areas to help ensure the eligibility of proposed projects. While these steps address some challenges, the upcoming deadline for awarding funds may pose risks to the thoroughness of the application evaluation process. In particular, the agencies may lack time to apply lessons learned from the first funding round and to thoroughly evaluate applications for the remaining rounds. Oversight of funded projects. NTIA and RUS will oversee a significant number of projects, including projects with large budgets and diverse purposes and locations. In doing so, the agencies face the challenge of monitoring these projects with far fewer staff per project than were available for their legacy grant and loan programs. To address this challenge, NTIA and RUS have hired contractors to assist with oversight activities and plan to require funding recipients to complete quarterly reports and, in some cases, obtain annual audits. Despite these steps, several risks remain, including a lack of funding for oversight beyond fiscal year 2010 and a lack of updated performance measures to ensure accountability for NTIA and RUS. In addition, NTIA has yet to define annual audit requirements for commercial entities funded under the Broadband Technology Opportunities Program.
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Within Labor, the Division of Federal Employees' Compensation in the OWCP administers the FECA program, which provides wage replacement and medical benefits to federal employees who suffer partial or total disabilities resulting from work-related injuries and occupational diseases. OWCP is the central point where FECA claims are processed and eligibility and benefit decisions are made. Claims examiners (CE) at OWCP's 12 FECA district offices determine applicants' eligibility for FECA benefits and process claims for wage-loss payments. FECA laws and regulations specify criteria for computing compensation payments. Using information provided by the employing agency and the claimant on a claims form, OWCP calculates compensation on the basis of a number of factors, including the claimant's rate of pay, the claimant's marital status, and whether or not the claimant has dependents. Eligible disabled employees generally receive 66-2/3 percent (or 75 percent if married or with dependents) of their basic salary, tax-free, plus medical- related expenses. When an injury results in partial disability, and the employee suffers a wage loss because of the disability, the claimant is entitled to monthly monetary compensation equal to 66-2/3 percent (or 75 percent if married or with dependents) of the difference between the claimant's monthly pay and his or her monthly wage-earning capacity (WEC). According to OWCP officials, initial claims received from employing federal agencies are reviewed by claims examiners to assess the existence of key elements. (See fig. 1.) The elements include evidence that the claim was filed within FECA's statutory time requirements; that the employee was, at the time of injury, disease, or death, an employee of the United States; that the employee was injured while on duty; and that the condition resulted from the work-related injury. If the key elements are in place, OWCP will approve a claim and begin processing bills for medical costs. After initial claim approval, additional reviews are done while a claim remains active to determine whether the claimant can continue to receive wage-loss compensation. Once a claim is approved, payments are sent directly to the claimant or provider. An employee can continue to receive wage-loss compensation for as long as medical evidence shows that the employee is totally or partially disabled and that the disability is related to the accepted injury or condition. Specifically, a medical review is required annually for employees receiving temporary total-disability payments, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants on the periodic rolls who have been determined to not have any WEC. Employees receiving compensation for partial or total disability must advise OWCP immediately if they return to work, either part-time or full-time. Claimants are required to self-report all employment wages, whether salaried or not, and self-employment. OWCP requires that all individuals on the periodic roll (both partial and total disability) complete Form CA- 1032 on a yearly basis stating their income or whether their dependent status has changed. A new employer may also be requested to provide information regarding a claimant's employment and earnings. Labor can use this form to adjust the amount of FECA compensation. Employees must report even those earnings that do not seem likely to affect their level of benefits, such as concurrent income that an employee was receiving prior to his or her injury that was not directly related to the employee's federal employment. While earning income will not necessarily result in a reduced compensation, the FECA statute and implementing regulations stipulate that failure to report income may result in forfeiture of all benefits paid during the reporting period. To help verify income levels, Labor requests that FECA claimants provide it with their consent to access their Social Security Administration (SSA) earnings file; however, claimants are not required to provide Labor with their consent, and authorization to obtain such information is not required to receive compensation. In instances where Labor is authorized to collect earnings information from SSA by claimants, according to OWCP officials, SSA's earnings data may be as much as 2 years old,may hinder timely adjustments to compensation benefits. Established by the Social Security Act of 1935, the federal-state UI program generally temporarily and partially replaces the lost earnings of those who become unemployed through no fault of their own. To be eligible for UI benefits, unemployed workers must meet eligibility requirements established by state laws that conform to federal law, including that they have worked recently, are involuntarily unemployed, and are able and available for work. Whereas federal statutes and regulations provide broad guidelines on UI eligibility, the specifics of UI eligibility are determined by each state. According to Labor's Employment and Training Agency, all states require that a claimant must have earned a specified amount of wages, worked a certain number of weeks in covered employment, or must have met some combination of the wage and employment requirements within his or her base period. To be eligible for benefits, claimants must also be free from disqualification for acts such as voluntarily leaving without good cause, discharge for misconduct connected with the work, and refusal of suitable work. However, the specific eligibility requirements regarding an applicant being "able and available for work" vary among the states. For example, a few states specify that a worker must be physically able, or mentally and physically able, to work. Likewise, while some states require that a worker must be available for work, other states require that a worker must be available for suitable work; still other states may find an individual able and available for work so long as any limitation due to illness, injury, or presence in the usual labor market does not constitute a withdrawal from the labor market. In addition to being able and available for work, all states require by law or by practice that a worker be actively seeking work or making a reasonable effort to obtain work. According to ETA, some states permit payment of benefits to sick or disabled individuals under certain circumstances, but there is nothing in their laws that prohibit a denial of benefits in those circumstances. We found examples of improper payments, overlapping benefits, and potential fraud in the FECA program, which could be attributed, in part, to factors such as oversight and data-access issues. OWCP has taken some steps to enhance oversight of the FECA program; however, Labor lacks authority to directly access wage data, which limits its ability to verify self-reported wage information. In addition, OWCP does not have a process to access data needed to identify the extent that claimants are receiving overlapping FECA and UI benefits and does not report FECA claimant information to states, which increases the risk that FECA claimants are receiving overlapping benefits improperly. OWCP has designed additional oversight mechanisms to better monitor claimants' eligibility, which could help identify improper payments and potential fraud. To determine a claimant's eligibility for FECA, claimants who suffer partial or total disabilities resulting from work-related injuries are required to submit medical evidence to OWCP so it can determine the nature and extent of disability resulting from this condition and any changes to their condition that could affect continuing entitlement. Specifically, a CE is required to conduct a medical review annually for claimants on total disability receiving long-term compensation who are on the program's periodic rolls, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants who have been determined to not have any WEC. OWCP bears the burden of justifying the termination or modification of compensation benefits. Accordingly, OWCP must have medical evidence in order to support any change in compensation to a claimant. Without up-to-date medical reports for claimants, OWCP lacks the necessary evidence to change compensation levels. In addition, claimants are also required to submit an annual form (Form CA-1032) stating whether their income or dependent status has changed. The form must be signed to acknowledge evidence of benefit eligibility and to acknowledge that criminal prosecution may result from deliberate falsehood. OWCP's review of this annual form is especially important for claimants who are deemed to not have any WEC and, therefore, have less frequent medical reviews. Our review of a nongeneralizable sample of 32 individual cases identified four claimants who were on partial disability, receiving payments for loss of WEC, but did not have evidence that OWCP obtained or reviewed the required medical reports every 2 years, as required. These individuals continued to receive FECA compensation benefits without evidence that their medical condition has not improved, which potentially could result in an improper payment. For the 28 cases that had medical reports, we found that 14 cases did not include the Work Capacity Evaluation (OWCP-5c) form, which is not a mandatory form but is to be completed by a medical professional. According to OWCP, a narrative medical report may be more informative than the OWCP-5c and more helpful in determining a claimant's ability to earn wages. The purpose of the OWCP-5c form is to help clarify whether a claimant is capable of fulfilling his employment duties by identifying a claimant's specific work-tolerance limitation, where the accepted condition is musculoskeletal in nature. Without this form, it can be difficult to determine whether the claimant is capable of performing the job and whether employers can readily accommodate the medical condition. For all 14 cases, the claimant did suffer a musculoskeletal injury. Our review identified 2 out of our sample of 32 FECA claimants who did not have evidence in their FECA file that OWCP reviewed their employment activity annually, as required. These two claimants continued to improperly receive higher FECA compensation benefits than warranted during our period of review because a timely adjustment was not made to their disability compensation. In addition, one claimant failed to submit the income certification, and OWCP did not promptly terminate benefits. Labor and IGs from employing departments and agencies have consistently reported similar FECA program-management challenges and have linked increased program costs to improper payments. For example, Labor's oversight of the FECA program has been identified as a management challenge in prior work. beginning with its 2004 Performance and Accountability Report, and every year since, Labor has indicated that adequately overseeing the FECA program was one of its chief management challenges, citing verifying beneficiaries' eligibility as one of the oversight difficulties that it faces. Moreover, IGs from employing agencies that participate in FECA have reported that certain policies and procedures did not exist, or when they did exist, they were not always followed by employing agencies. Most often these deficiencies were related to a lack of controls that would have enabled staff to verify beneficiaries' continued eligibility. For example, see U.S. Department of Labor, Office of Inspector General-Office of Audit, Mechanisms Used to Identify Changes in Eligibility Are Inadequate at the FECA District Office in Jacksonville, Florida. performance measures. Finally, OWCP officials stated that they are in the process of establishing quality-assurance reviews of PER processing. As such, Labor will convene Accountability Review teams of program specialists to evaluate the quality of workload processing in its district operations. These evaluations are to scrutinize processed work, such as elements relating to fiscal and operational integrity. Accountability Review findings are to be reviewed by the relevant OWCP program director and corrective action plans will be developed, as necessary. In addition, according to OWCP officials, two new Quality Measures have been implemented in fiscal year 2013 to rate the accuracy of compensation benefit payments, and whether the factual and medical evidence of record supports the current level of benefits provided. According to Labor officials, OWCP plans to start conducting these reviews by the end of fiscal year 2013. In 2012, we reported that periodic reviews of FECA case files are a promising practice and can be used to help increase program officials' awareness of potential fraudulent activities. Further, these controls are consistent with the detection and monitoring component of GAO's fraud-prevention framework, and could help to validate claimants' eligibility including medical conditions and income information. If implemented properly, these steps will assist OWCP in identifying cases for return-to-work potential and referral to vocational rehabilitation. In addition, verification of proper and accurate benefit levels will also support FECA program fiscal integrity. As we have previously reported, because Labor does not have statutory authority to directly access private or public wage data that is reported to SSA and the Department of Health and Human Services' (HHS) National Directory of New Hires (NDNH) database, OWCP relies heavily on claimants' self-reporting of earnings on the annual Form CA-1032 to identify potential fraud. For example, while OWCP requests that FECA claimants provide it with consent to access their SSA earnings file, claimants are not required to provide OWCP with consent, and authorization to obtain such information is not required to receive compensation. Our review of a nongeneralizable sample of 32 individual cases identified eight FECA claimants who had significantly underreported employment wages in comparison to the wages reported in the state's QW reports for the same period. We also found that three claimants did not provide authorization to OWCP to access their SSA earnings file. GAO-12-402. the SSA.that they studied whether to use NDNH and communicated with HHS, but determined that this would not be an effective solution because of cost issues, limited participation by employers in NDNH, and the likelihood that unreported earnings would not be listed. For example, OWCP officials stated that it would cost about $1 million to implement an automated process for verifying wage information with NDNH. To help address the issue, OWCP officials reported ongoing negotiations over several years with SSA to develop a formal agreement that includes regular data matching to verify wage data so that Labor does not have to rely on obtaining consent to access SSA wage data from the claimant. A current agreement is being developed, though officials stated that these negotiations were still in the early stages. In response to our recommendation, OWCP officials stated Labor has also proposed legislative reforms to FECA that would enhance its ability to assist FECA beneficiaries and also enhance program oversight. As part of this reform, OWCP sought authority to match SSA wage data directly with FECA files. According to Labor OIG officials, to enhance its FECA program oversight, Labor OIG has also requested changes to legislation that would allow Labor to easily and expeditiously access NDNH wage records, so that its investigations can be more efficient and effective. However, at this time, Labor does not have direct access to the NDNH or SSA wage data. Having access to these data sources would allow Labor to verify claimants' self-reported employment income and better position the agency to identify potential fraud. Because of case law and regulatory requirements, once OWCP calculates an individual's WEC, it remains in place unless the evidence establishes that there is a material change in the nature and extent of the injury-related condition; the claimant has been retrained, or otherwise vocationally rehabilitated; or it is established that OWCP's original determination was erroneous. As a result, claimants could be earning more money than they were originally determined capable of earning but never have the WEC adjusted to account for the increase in wage earning capacity. According to program procedures, OWCP can modify the WEC if the claimant is earning 25 percent more than the current pay of the job for which the beneficiary was originally rated. However, to adjust the WEC, OWCP must demonstrate that customary criteria for modification is met such as the claimant is rehabilitated or self-rehabilitated, or evidence shows that the claimant was retrained for a different job. Of the 32 cases we reviewed, we found five instances where an individual's WEC was not adjusted even though the individual earned substantially more (at least 25 percent) than what was originally calculated as their WEC. While this situation is allowable under FECA program requirements, it could be an indicator of potential waste in the FECA program. In addition, two FECA total-disability claimants continued to receive private-employment salaries that were not subject to the WEC. Earnings received from dissimilar private employment at the time of injury may not be used by Labor when determining an injured employee's pay rate for compensation purposes, and earnings from that same employment cannot be considered in determining the employee's WEC. Thus, claimants are allowed to receive income, in some cases substantial income, while also receiving FECA compensation benefits. The FECA program statute allows claimants to select their own physician, which we reported in 2012 to be a potential vulnerability. The regulation also requires examination by a physician employed or selected by the government only when a second opinion is deemed necessary by the government. As a result, as we previously reported, essential processes within the FECA program could be operating without a review conducted by a physician selected by the government. This potential vulnerability affects key control processes outlined in GAO's fraud- prevention framework in two areas: first, the lack of reviews when assessing validity of initial claims, and second, the lack of the same when monitoring the duration of the injury. Out of the 32 individual cases that we reviewed, 12 did not have a second opinion from a medical professional assessing the injury and possible work restrictions, and a physician selected by the government was not involved in making the disability determination. Without a second opinion, the federal government must rely on the physician of the claimant's choosing, which is a potential vulnerability in assessing the validity of the claim. While FECA claimants can be eligible to receive state UI benefits in addition to FECA benefits, Labor lacks a process to share the necessary data with states to determine whether FECA claimants may be improperly receiving overlapping benefits. Individuals may be eligible for both FECA and UI depending on the applicable state laws regarding UI eligibility, and federal law does not authorize an automatic reduction or potential elimination of benefits if a claimant receives both. For example, under FECA, an individual is encouraged to return to work. Upon returning to work, the individual's FECA compensation payment is supposed to be reduced or terminated. In certain circumstances these individuals may have returned to the workforce, for example, with partial disability, and subsequently been involuntarily terminated. These individuals may also meet the states' "able and available for work" criteria and thus also be eligible for UI benefits. As a result, some individuals may have a disability under federal law but still be able and available for work under state law, and thus are eligible to receive concurrent UI and FECA benefits. However, claimants may be not eligible to receive both types of payments because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In February 2012, the Middle Class Tax Relief and Job Creation Act was enacted, which amended federal law and included a requirement that individuals claiming UI benefits be actively seeking work as a condition of some eligibility. In addition, certain states, for example four of the five selected states in our review, require the offset of UI benefits against certain workers' compensation payments, including FECA. Labor officials acknowledged that they do not have a process to share the necessary data to identify overlapping payments, which would help the ETA and the states identify the extent to which overlapping payments are not being offset. As previously reported, we have found that processes that rely heavily on self-reported data by claimants create potential vulnerabilities within the program. Without the ability to verify self-reported information on the receipt of other benefits, Labor may make overlapping payments contrary to the regulations governing the program. Our review of a nongeneralizable sample of 19 individual cases identified claimants who received overlapping UI and FECA benefits totaling over $1.3 million from January 2008 to June 2012. Four claimants who resided in states that require UI payments to be offset received more income from the combined UI and FECA benefits than they would have received from their federal salary alone. Some of these claimants were former FECA claimants who attempted to return to the federal agency to perform work within their medical restrictions. However, the claimants were subsequently discharged because they did not meet the federal agency requirements for continuing employment. As such, these claimants were entitled to their FECA benefits and they also applied for and received UI benefits that were not offset by their respective states. According to OWCP officials, Labor does not systematically report information on claimants receiving FECA benefits to states, which would help states identify overlapping FECA and UI payments as well as UI payments that might need to be offset. Currently, states must rely on obtaining this information either directly from the UI applicant or UI applicant's recent employers. As previously discussed, certain states use the workers' compensation amount, such as FECA, to reduce or eliminate the UI benefit amount. States utilize this information to determine whether the individual is actually "able and available for work." As such, all states must require claimants to certify that they are still meeting all UI eligibility criteria such as changes in employment status. Labor is not required to and thus does not report FECA payments to NDNH, which is a primary mechanism that some states use to verify employee wage levels, because NDNH was established as a depository for wage reporting that, among other things, enables state child-support agencies to be more effective in enforcing child-support orders. Were Labor to report FECA payments to this database, states would more easily be able to identify such payments in their review. Our review of a nongeneralizable sample of 19 individual cases identified nine claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application, which could have potentially reduced or eliminated the UI benefit amount. As previously discussed, limited access to necessary information is a potential vulnerability. Without information on individuals who are receiving federal workers' compensation payments, it is difficult for the states to identify those individuals and reduce or terminate the UI payments to them. As a promising practice we previously reported, Labor provides quarterly data extracts to employing agencies on wage- compensation payments, medical billing payments, and case- management data. Similarly, if OWCP reported FECA compensation data to the states (either directly or through NDNH), this could help federal and state agencies coordinate benefits and reduce the risk of overlapping payments. We have previously reported on the importance of interagency collaborative mechanisms, such as sharing information across organizational boundaries, to achieve crosscutting program goals. Further, although not a requirement, the value of greater information sharing between federal and state entities is demonstrated by the actions of some states that check the NDNH to determine if an applicant is working. For example, by cross-matching UI claims against NDNH data, states can better detect overpayments to UI claimants who have gone back to work. While our sample of individuals who have received overlapping FECA and UI benefits cannot be generalized to the entire population of FECA claimants, we did identify some claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application. Thus, establishing a mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments, to the extent that it is cost-effective, could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute. We discussed this proposal with OWCP program officials in January 2013 and they agreed that sharing compensation data with the states may be beneficial, although they stated that they have never been asked to provide FECA compensation information previously. With estimated future actuarial liabilities for government-wide FECA compensation payments at over $34 billion as of fiscal year 2012, and in an era of scarce government resources, it is vital that Labor ensures effective stewardship of those resources. FECA and UI provide an important safety net for workers who have lost their income because of workplace injuries or unemployment. However, Labor and the states must continually monitor these claimants to ensure that they continue to be entitled to these benefits and that the benefits are adjusted to account for changes in claimants' wage earnings and for overlapping state UI payments. While in certain circumstances receiving concurrent UI and FECA benefits may be allowable, the cases we identified where claimants received concurrent UI and FECA benefits without Labor's knowledge could be an indicator of improper payments. A cost-effective mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments could help determine the extent that improper payments or potential fraud are occurring, which could help save taxpayer dollars. In addition, without the authority to access wage data, which both OWCP and Labor's OIG have sought, Labor's reliance on claimants' self-reported employment information limits the agency's ability to identify potential fraud. Congress should consider granting Labor the additional authority it is seeking to access wage data to help verify claimants' reported income and help ensure the proper payment of benefits. We recommend that the Secretary of Labor assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. We provided a draft of this report to Labor for comment on February 28, 2013. Labor provided written comments on the draft, which can be found in appendix I. Labor agreed with the recommendation to assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with the states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. Labor stated that it will undertake a review to determine whether such data sharing and reporting is feasible. However, Labor expressed concerns regarding the cost-effectiveness of such an approach. We agree that it will be important for Labor to assess the cost-effectiveness of such an approach when conducting its review. As stated in the report, some states check the NDNH database to verify employee wage levels. Thus, establishing a mechanism, such as reporting FECA compensation to NDNH, could provide a cost-effective way for states to identify whether claimants are inappropriately receiving overlapping UI and FECA payments, and could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute. In its response, Labor also stated that since FECA contains no offset for UI benefits, a claimant may be entitled to receive both FECA and UI benefits under a particular state law, which would not be classified as receiving improper payments. We recognize, as stated in this report, that there may be certain situations where individuals are entitled to the concurrent receipt of FECA and UI benefits. However, it is also important to note that, as discussed in the report, claimants may not be eligible to receive both types of payments in some cases. For example, some claimants are not able to meet the "able and available" requirement for UI benefits because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In addition, certain states, such as four of the five selected states in our review, require the offset of UI benefits against certain workers' compensation payments, including FECA. In addition, Labor stated that one of our examples cited in our report--example 5--should not be classified as an improper payment because FECA program procedures allow a claimant to receive wages from two different employers and not have those wages affect the claimant's WEC or ability to receive FECA benefits. We agree that this is not an improper payment and did not classify it as such. As stated in the report, claimants are allowed to receive such income, in some cases substantial income, while also receiving FECA compensation benefits. Labor also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff has questions about this report, please contact me at 202-512-4379 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.
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In fiscal year 2012, the FECA program made more than $2.1 billion in wageloss compensation payments to claimants. FECA provides benefits to federal employees who sustained injuries or illnesses at work. GAO was asked to examine whether examples of improper payments, potential fraud, or overlapping benefits could be found in the FECA program. This report identifies examples of these issues, what factors may contribute to these issues, and how, if at all, Labor could address them. GAO matched QW and unemployment files from five selected states with FECA payment files for the period of July 2009 to June 2010. GAO identified 530 individuals who received concurrent FECA compensation payments and wages of at least $5,000 between July 2009 and June 2010. GAO also identified 50 individuals who received concurrent FECA compensation and UI benefits of at least $5,000 each during the same period. GAO randomly selected up to seven recipients from each state for an in-depth review, for a total of 32 QW and 19 UI cases, respectively. These examples cannot be generalized beyond those presented. GAO also reviewed Labor's policies, guidelines, and procedures for managing claims. GAO found examples of improper payments and indicators of potential fraud in the Federal Employees' Compensation Act (FECA) program, which could be attributed, in part, to oversight and data-access issues. GAO found examples of claimants' receiving overlapping FECA and unemployment insurance (UI) benefits, which may be allowable under certain circumstances, but could also be erroneous. GAO also found that FECA program requirements allow claimants to receive earnings, and earnings increases, without necessarily resulting in adjustment of FECA compensation. For example, of the 32 FECA case files reviewed, GAO found five instances where an individual's wage-earning capacity (WEC), which is used to determine FECA benefits, was not adjusted even though the individual earned substantially more than the wage that was originally used to calculate the WEC. In addition, two FECA claimants continued to receive privateemployment salaries that were not subject to their WEC calculation. This is because, as currently written, program procedures allow claimants to receive increases in earnings, in certain circumstances, without adjustments to FECA compensation, and current law allows for claimants' earnings from dissimilar concurrent private employment at the time of injury to be exempt when determining FECA compensation. As discussed below, GAO identified challenges related to oversight and data access, which could result in improper payments or overlapping benefits. GAO found that the Department of Labor (Labor) did not conduct a timely review of the medical activity reports of 4 of the 32 FECA claimants and did not complete a timely review of the employment activity reports of 2 claimants, which could potentially result in an improper payment or be an indicator of potential fraud in one case where a claimant did not respond to repeated Labor requests for the employment activity reports. Labor has taken some steps to enhance oversight of the program, such as developing measures to improve the periodic review of claimants' documentation. GAO found that 8 out of 32 claimants underreported employment wages in comparison to the state's quarterly wage (QW) reports. Labor does not have authority to directly access Social Security Administration (SSA) wage data to verify claimants' reported income; consequently, it relies on periodic selfreporting of income. GAO has previously identified this as a potential vulnerability that could increase the risk of claimants receiving benefits they are not entitled to. To address this, Labor proposed legislation allowing the agency to match SSA wage data with FECA files, but the proposal is still pending. GAO identified 19 cases where claimants were receiving overlapping UI and FECA benefits totaling over $1.3 million. Four of these 19 claimants received more income from combined UI and FECA benefits than they would have received from their federal salary alone. Four of the five selected states in our review require the offset of UI benefits against FECA compensation payments. Because Labor does not have a process to share necessary data with states to identify overlapping FECA and UI payments, a mechanism to share FECA information with the states would help provide reasonable assurance that payments are being made properly. GAO recommends that the Secretary of Labor develop an effective mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. In addition, Congress should consider granting Labor the additional authority it is seeking to access wage data to help verify claimants' reported income and help ensure the proper payment of benefits. Labor agreed to study the feasibility of sharing compensation information with the states.
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Purchase cards first came into use as part of the government's effort to cut the cost of buying goods and services. In March 1982, the President issued an executive order directing executive agencies to reduce administrative procurement costs. Under that order, in 1986, several agencies pilot tested use of a government commercial credit card, called a purchase card, and found that it reduced such costs. According to a report on the pilot tests, those agencies found that the purchase card had advantages over other procurement methods. Generally, the card could be a less costly and more efficient way to buy goods and services. In 1989, the purchase card was made available governmentwide through a competitively awarded contract with Rocky Mountain BankCard System (RMBCS), administered by the General Services Administration (GSA). The contract specifies controls that an agency must establish before issuing cards to their staff. It also requires that an agency designate a program coordinator, who serves as liaison to RMBCS and GSA and who is responsible for the purchase card program within the agency. In 1993, NPR identified the purchase card as an acquisition reform that could save $180 million annually if one half of small purchases were made with the card. NPR recommended that all federal agencies use purchase cards and that the FAR be amended to promote and facilitate purchase card use for making small purchases and in ordering from established contracts. Card use was further facilitated and encouraged in October 1994 by FASA, Executive Order 12931, and an Office of Management and Budget memorandum to agency senior procurement executives and the Deputy Under Secretary of Defense for Acquisition Reform. In December 1994, an interim FAR rule was issued making the card the preferred method for making micropurchases. Agency officials have used the purchase card and the micropurchase authority provided in FASA to move simple purchases from procurement offices to program offices. Several studies have shown this move reduced the labor and payment processing costs for those purchases by eliminating steps from the procurement process and consolidating bills for many purchases into one payment. One interagency study showed that costs were often cut by more than half. Several agencies in our review identified millions of dollars in current or potential savings from using purchase cards. In addition, some agencies are using the card to help absorb the impact of staff reductions being made as a result of the Federal Workforce Restructuring Act of 1994, which has a goal of reducing government employment by almost 273,000 staff. Planned reductions particularly target administrative staff, such as the procurement and finance staff who buy supplies and pay bills. Most agencies in our review also noted that, with purchase cards, program office staff can buy needed goods and services more quickly, thus improving their efficiencies and their abilities to support their agencies' missions. In 1994, an interagency group, the Purchase Card Council, performed a cost-benefit study on using the purchase card versus purchase orders.The group reviewed the labor cost of requisitioning, purchasing, administering, receiving, invoicing items, and processing bills through finance offices for payment. For all 17 organizations in the study, it found that purchase cards were less expensive than purchase orders. For 15 organizations, purchase card use cut costs by at least one third. For 8 of these 15 organizations, costs were cut by over half. Per transaction savings for the 17 organizations ranged from $1.42 to over $142, with an average saving of about $54. Since 1989, 9 of the 12 agencies in our review have performed cost-benefit analyses on using purchase cards, including 5 agencies that were part of the interagency study. All found that the card was less expensive to use than other methods. However, several noted that determining savings from using the purchase card can be difficult because of several factors. For instance, some studies noted that the purchase card does not replace all transactions made with any one procurement method, such as purchase orders, but instead usually partially replaces transactions previously made by several different methods, such as purchase orders, imprest funds, and blanket purchase agreements. Further, studies stated that the administrative cost of a purchase is affected by local procedures, the dollar amount, and the degree that processing systems are automated. Most of the studies we reviewed included the labor cost for program officials to support the procurement process when using a tool other than the card (e.g., ensuring funds are available, preparing a procurement request, and identifying a vendor). About half of the studies also included the labor cost for program officials to place purchase card orders or reconcile statements. In some cases, the studies included the cost of an administrative service fee charged by RMBCS until early 1994. None included the value of rebates as part of the benefit. All of the studies we reviewed identified significant savings. However, because of the previously mentioned factors, we found no one precise dollar figure that could be used to reliably calculate savings for all government agencies. Several agencies' studies identified millions of dollars in current or potential savings from card use. For instance, in 1994, Health and Human Services identified the potential to save about $5.7 million a year by using the card. The Postal Service, currently the second largest card user, also identified major current cost reductions. It estimated that using the card, instead of other means, reduced costs by about $22 per transaction. In fiscal year 1995, the Postal Service had almost 700,000 purchase card transactions. Using the $22 figure, it would have reduced costs by over $15 million. The Postal Service developed its estimate of cost reduction per transaction by comparing the costs of ordering and making payment for purchase card purchases versus noncompeted, single source purchases. It found the shortest time for processing purchases without the card was eight times longer than the shortest time with the card, for a labor savings of $15.65 a transaction. It also estimated payment savings of over $6.00 a transaction, based on the cost of paying for transactions individually versus paying for all purchase card transactions with a single monthly check. According to officials at the Office of Federal Procurement Policy, agencies can maximize the savings potential of the purchase card by promoting streamlining and empowerment and eliminating unnecessary paperwork. Officials stated that one way agencies could do this would be to identify high-dollar aggregate purchases from individual merchants and negotiate discounts with those vendors, as recommended by NPR. They also noted that agencies have access to central purchasing contracts that have quantity discounts negotiated into the prices. As an example, they cited a contract for office supplies recently awarded by GSA that allows for 24-hour delivery and payment by purchase card and has prices below discounted retail prices. Agencies have reported that using the purchase card reduces the workload in procurement and finance offices. At the same time, the number of staff in those offices is being targeted for reductions by government reform efforts. In 1993, the executive branch announced a goal to eliminate 252,000 government jobs, particularly targeting administrative areas. The Federal Workforce Restructuring Act of 1994 later raised that goal to 272,900. According to the September 1995 update of NPR, more than 160,000 of those positions had been eliminated. Several agencies in our review cited staffing cuts in support areas as one reason they are emphasizing purchase cards. The Department of the Interior noted that its procurement workforce has decreased by 12 percent since 1993 and that its ability to manage its workload with reduced staff can be partially attributed to the card. Social Security Administration officials also told us that the finance staff is scheduled to be reduced by about one third in fiscal year 1996 and that they will be better able to manage those losses since the card has reduced the number of bills the finance office is paying. The reforms contained in FASA have enabled program staff to use the card to make many purchases that had been handled by procurement offices. While procurement offices had done the actual buying, program office staff supported the procurement process by identifying the needed supplies or services, preparing procurement requests, ensuring money was available, and following up with procurement and other offices involved in the purchases. With the authority provided in FASA and the purchase card, program staff can buy the needed item or service. Most of the agencies in our review reported that, with this change, program offices can improve their efficiency by filling their requirements more quickly and reducing procurement lead times. This improved efficiency enables them to better deliver their services. One example where service delivery has improved is at the Department of Veterans' Affairs, which pilot tested the use of the card in its vocational rehabilitation and counseling program offices. In the pilot test, those offices reduced the time veterans had to wait for services by an average of 22 days. They did this by using the card to pay for books, tools, and other items veterans needed to enter rehabilitation programs. This use of the card allowed them to better serve veterans by reducing the time the veterans waited to attend classes or to obtain the tools or books needed for classwork. Based on the success of the pilot test, Veterans' Affairs plans to use the purchase card in vocational rehabilitation and counseling programs nationwide. Since the beginning of the purchase card program, the use of the cards has skyrocketed. However, there is still significant growth potential for card use. During fiscal year 1990, the first full year that cards were available governmentwide, the cards were used for about 271,000 purchases worth about $64 million. Over the next 5 years, card purchases increased by about 1,500 percent, and the value of those purchases increased by almost 2,400 percent until, by fiscal year 1995, purchase cards were used for more than 4 million purchases worth over $1.6 billion. According to agency and GSA officials, this growth is generally due to purchases below the micropurchase level. In fiscal year 1995, the average purchase card transaction, which could include purchases of several items, was $375. The program growth by number of transactions and by dollars is shown in figure 1. Currently, most agencies use purchase cards to some extent. Still, agency data show many purchases that could be made with the card are being made by other means. Some agencies have set goals for card use or have identified purchases that they believe should be made with the card. For instance: The Department of Agriculture could make 207,000 purchases by using the card instead of purchase orders. Health and Human Services could make about 100,000 purchases using the card in program offices instead of purchase orders in procurement offices. Veterans' Affairs could make most of its 1.4 million micropurchases with the card. Neither GSA nor the agencies we reviewed believed the cards have been used to their fullest potential. Instead, they believe that use will increase as agencies continue to emphasize card use for existing cardholders and add new cardholders in program offices. The results can be dramatic. In the first 4 months of fiscal year 1996, Veterans' Affairs exceeded by almost 200 percent the number of card purchases it had made in all of fiscal year 1995. Card use is also growing at the Department of the Army, which has the largest agency card program. In the first 10 months of fiscal year 1995, the Army more than doubled its fiscal year 1994 card purchases, from over 310,000 to over 701,000. According to Army data, that number could increase to almost 1.4 million if the Army were to make 80 percent of its micropurchases with the card. The emphasis in the purchase card program has been on using the cards to allow staff in program offices to make simple purchases. At the same time, however, there have been concerns that placing the cards in the hands of program staff would lead to increased abuse. We found no evidence of increased abuse. In fact, with the controls required by the purchase card contract and some tools that agencies have developed, purchase card use can be closely monitored. The purchase card contract requires that agencies have certain specified procedures in place before any purchase cards can be issued to agency staff. For example, agencies must have procedures to identify, by name, those persons who are authorized to use cards; set spending limits for cardholders and offices, including single purchase limits and monthly limits; approve purchases and ensure funds are available before goods or services are bought; and reconcile and approve cardholder statements. Agencies may add other management and financial controls they deem necessary. Also, agencies have recently been able to obtain RMBCS electronic data that identify purchases by cardholder, approving official, date, dollar amount, merchant type, and merchant name. Those agencies in our review that have begun using this electronic data are finding that the card leaves a trail that is more complete and easier to follow than traditional paper records. In addition to these procedural controls, agencies have another safeguard against fraudulent use of the card by unauthorized individuals--they can dispute any purchases they find questionable. In such cases, the contract requires RMBCS to issue a credit against that purchase until the dispute is resolved. One organization that has used the electronic data is the Postal Service. Postal Inspection Service officials developed surveillance software that allows them to analyze thousands of card transactions from a remote location with limited manpower. They are able to analyze transactions by cardholder, approving official, dollar amount, date of purchase, vendor name, vendor type, vendor city, and other attributes. At the recommendation of the Inspection Service, the surveillance software is being made available to appropriate Postal Service managers nationwide. Postal Service officials believe that this will improve their oversight of the card program, since the electronic reviews are more expedient than reviews of paper records. Since 1993, agency inspectors general, audit agencies, or internal review offices have reviewed card programs at most of the agencies in our review. Generally, those reviews found either that controls were adequate or that agencies were taking steps to address control weaknesses. Such weaknesses included noncompliance with procedures and failure to record purchases of accountable property. The reviews did identify several instances where cards were used for prohibited or questionable purchases. Also, officials from one inspector's general office expressed concern about the rapid growth in card use and questioned whether budgetary and other management controls were sufficient to ensure that credit card purchases were warranted and justified. Overall, the reviews did not identify significant patterns of misuse. Several inspectors general, audit agencies, and internal review reports noted that agencies were not achieving the full benefit of the card because much of the paperwork had not been eliminated from processes, cards had not been provided to staff outside of procurement offices, or card use had not been encouraged or had been excessively limited. Most of the agencies we reviewed indicated they were taking steps to address such concerns. Agency officials told us they were emphasizing card use, reengineering their processes, and developing automated tools to improve their programs. They stated that their efforts were producing benefits, including increased savings. There are still opportunities, though, for the program to be improved on a governmentwide level. For instance, most agencies in our review believed that more explicit guidance to promote the purchase card was needed in the FAR. At present, the FAR only discusses the card in the micropurchase section. Also, we found no effective mechanism for agencies to communicate with each other about their experiences and share innovations. In 1993, NPR recommended that the FAR be amended to promote and facilitate purchase card use for making small purchases and ordering from established contracts. At the time, the FAR provided no guidance on card use, although the cards had been available governmentwide since 1989. As part of implementing FASA, an interim FAR rule for micropurchase procedures was issued in December 1994 that encouraged the use of purchase cards or electronic purchasing techniques for micropurchases to the extent practicable. Officials at most of the agencies in our review told us that more explicit coverage to promote the card in the FAR would be helpful, although some were concerned that coverage not be too restrictive. While agencies have their own regulations and policies for card use, those documents typically refer to the FAR for guidance. In fact, as far back as 1989, Health and Human Services identified the need for purchase card coverage in the FAR and agency regulations. Health and Human Services noted then that, like all agencies, it was being encouraged to use the purchase card, but FAR coverage had not yet been developed and agency regulations would naturally follow the FAR, rather than precede it. With the current coverage, some agencies in our review had differing opinions or were confused about how the card could be used above and even below the micropurchase threshold. Areas of confusion or dispute included whether the card could be used to pay for services or nonexpendable items. The FAR does not provide guidance on usage of the card comparable to the guidance provided for imprest funds, purchase orders, and blanket purchase agreements. Each of those has a separate section in the FAR. The purchase card, on the other hand, is only discussed in the FAR's micropurchase section. That section states that use of the card is not limited to micropurchases if otherwise authorized under agency procedures. However, no guidance is provided for such use. As the FAR was being revised to incorporate changes from FASA, GSA commented on the proposed changes during the public comment period. GSA commented that the small purchase/simplified procedures section was illogical, confusing, and of limited usefulness to the program staff. Specifically, GSA said that the proposed language did not provide the necessary encouragement to agencies to make maximum effective use of the card and did not promote the objectives of Congress or the executive branch. GSA added that even with the proposed changes, the FAR would provide more coverage for imprest funds, which the government wants to deemphasize, than for purchase cards, which the government wants to encourage. An interagency team has looked at how the FAR addresses small purchases/simplified procedures to determine what revisions may be necessary and has proposed FAR language. In its proposal, the team has included a separate section on the purchase card. A proposed FAR rule is planned for issuance later this year. Most of the agencies in our review have identified the potential to increase their savings or efficiencies gained from card use by reengineering their programs or using automated tools to improve their processes. Agency officials told us that they are interested in communicating with each other about their efforts and have identified instances where tools developed by one agency can be useful to other agencies. However, we found no effective system for agencies to communicate with each other about their successes or problems. In fact, several agencies in our review identified problems that we learned had been addressed or partially addressed by other agencies' efforts. Agencies have found that efforts to improve their programs can be very resource-intensive, requiring input from several offices, top management support, and good communication. However, they have also found that such efforts can have a significant payoff. Agriculture, for example, initially emphasized purchase cards because it found that the process cost was less than half of that for a purchase order, or $32 versus $77. It has since determined that reengineering can cut the process cost almost in half again. By automating the billing and payment processes as recommended by a cross-functional team guided by a top management review board, Agriculture expects to reduce the card process cost to $17. According to its business process reengineering report, this could lead to over $45 million in savings from fiscal years 1996 through 2000. This amount is in addition to what is already saved by using cards instead of purchase orders. Agriculture has already eliminated an administrative payment system costing $400,000 per year. Other agencies have also automated or reengineered their payment processes, including the Social Security Administration, Veterans' Affairs, and, within the Department of Transportation, the Coast Guard, which accounts for about 70 percent of Transportation's card purchases. Agency officials told us that, by improving how they pay their bills, they have also increased their potential for rebates. In fact, from November 1994 through July 1995, the most current period for which data were available, Transportation was the largest rebate recipient. Over that time period, Transportation received 34 percent of all rebates paid to agencies, even though it accounted for only 8 percent of sales. In addition to these efforts, some other agencies or organizations within agencies have developed automated tools to address particular problems. For example: Within the Department of Defense, the Defense Mapping Agency developed a database intended to help streamline the process for reconciling cardholder statements and maintain accounting information and property accountability for goods and services purchased with the card. Within the Department of Transportation, the Federal Aviation Administration developed a database intended to help cardholders reconcile their statements. The Postal Service developed surveillance software, discussed earlier in this report, intended to improve program oversight. GSA and, within Defense, the Army Management Engineering College, developed an interactive program intended to improve training for cardholders and approving officials. Agencies have found that their improvement efforts can be useful to other agencies. For instance, the Postal Service has demonstrated its surveillance software for purchase card program coordinators from 15 agencies and inspectors general from 10 agencies, both civilian and military. Almost all officials attending the demonstrations believed that the software was worth deploying governmentwide and that it would be useful for finance, accounting, inspectors general, and program management offices. The Postal Service plans to make its software available to other agencies. Officials said the software is being provided to the Departments of Transportation, Treasury, and Commerce. In another example, after the Defense Mapping Agency's database was profiled in an issue of "Government Computer News," officials said they were inundated with requests for information from other agencies, both military and civilian. They sent copies of their database to more than 90 agencies and offices in 32 states and Europe. Although agencies want to share information about their innovations, we found that innovations were not always well known outside the agencies that developed them. We also found no effective means for agencies to communicate with each other about their problems or improvements. Some agency officials share information through informal networks and there are some formal multiagency forums, such as GSA and RMBCS purchase card conferences, the Purchase Card Council, and the Chief Financial Officers Council's Financial Implementation Team for Electronic Commerce. However, these mechanisms are not readily accessible to all officials, particularly those who are away from headquarters or who are newer to the program. Further, there can be considerable lag time between when an agency identifies a problem or develops an innovation and when a formal interagency meeting or conference is scheduled. Without a more effective means of communication, agencies may not be able to build on the successes and failures of other agencies to improve their purchase card programs. Officials at the Office of Federal Procurement Policy stated that Acquisition Reform Net, a government Internet site for acquisition reform information and discussion, could be used for this type of communication. By its nature, it would be available to agency officials nationwide and could be used to disseminate information or questions quickly. Using the purchase card has helped government agencies achieve administrative savings and efficiencies, absorb some of the impact of staffing cuts, and improve their abilities to fulfill their missions. However, the FAR does not provide guidance on usage of the card comparable to the guidance provided for imprest funds, purchase orders, and blanket purchase agreements. Further, agencies have no effective means to communicate with each other about their problems and innovations. We therefore recommend that the Administrator for Federal Procurement Policy ensure, in conjunction with the Federal Acquisition Regulatory Council, that the FAR provides clear guidance on the appropriate uses of the purchase card as a means for making payments, purchases, and orders from established contracts and establish a site on one of the government's electronic media, such as the Acquisition Reform Net on the Internet, to facilitate agencies' efforts to exchange information about problems or progress with purchase card use. In commenting orally on a draft of this report, the Office of Federal Procurement Policy said that it had no major objections. It obtained informal comments from the agencies we reviewed and found that they also indicated no material objections to our report, although several agencies stressed that any FAR coverage should emphasize flexibility and not be restrictive. We have incorporated in our report, where appropriate, editorial and technical comments that were provided. To obtain background and program history information, we reviewed executive and congressional guidance, including Executive Orders 12931 and 12352; the Vice President's NPR and subsequent updates; FASA; the FAR; and agency regulations, policies, and directives. We also interviewed officials from the Office of Management and Budget's Office of Federal Procurement Policy, GSA, and the Interagency Purchase Card Council. We obtained card program statistical data from RMBCS and GSA for the government as a whole and by agency for 1989 through 1995. The data included number and dollar value of transactions and rebates and the number of cardholders. We did not validate the computer-generated data; however, we discussed data reliability and quality with all of the agencies in our review and with GSA. We reviewed purchase card programs in the agencies with 12 of the largest programs, including the 9 largest programs judged by either dollars or transactions (see app. I). In addition to obtaining data on program size, we obtained data on potential for growth, length of involvement in the purchase card program, special program initiatives, and administrative responsibility. To determine the extent to which card use has resulted in administrative savings or other benefits, we interviewed purchase card program coordinators, officials from agency finance and procurement offices, and officials from GSA, NPR, and the Office of Federal Procurement Policy. We also obtained and reviewed cost-benefit studies, management reports, and reengineering studies. We discussed the methodology used for those studies, and the subsequent findings and projections, with appropriate personnel. We did not verify the cost data and savings projections in those studies. To determine the potential for continued growth in purchase card use, we examined trends in card use and projections made by the agencies in our review, GSA, and RMBCS. We also reviewed agency and federal directives encouraging, requiring, or setting goals for card use. To identify protections against misuse, we interviewed appropriate personnel at agencies and audit organizations. In addition, we reviewed the RMBCS contract guide, agency purchase card procedures and regulations, and internal audit and inspectors general reports. To identify opportunities to improve agency card programs, we interviewed appropriate agency personnel and reviewed public comments on proposed FAR changes stemming from FASA and agencies' plans to automate or reengineer portions of their systems or processes. We also witnessed demonstrations of the Postal Service's surveillance software, the Social Security Administration's and the Coast Guard's automated payment systems, the Defense Mapping Agency's and the Federal Aviation Administration's tracking databases, and GSA's and the Army Management Engineering College's training material. We conducted our work from May 1995 through April 1996 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Director, Office of Management and Budget; the Administrator for Federal Procurement Policy; the Administrator, GSA; and officials at the agencies in our review. Copies will also be made available to others upon request. Please contact me or my Associate Director, David Cooper, at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report were David Childress, Maria Storts, and Diane Handley. Department of Agriculture, Washington, D.C. Department of Commerce, Washington D.C. Department of Health and Human Services, Washington, D.C. Department of Interior, Washington, D.C. Department of Transportation, Washington, D.C. Department of the Treasury, Washington, D.C. Department of Veterans Affairs, Washington, D.C. Social Security Administration, Baltimore, Md. U.S. Postal Service, Washington, D.C. Department of the Air Force Department of the Navy The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a legislative requirement, GAO reviewed federal agencies' progress in using purchase cards, focusing: (1) the extent to which card use has led to administrative savings or other benefits; (2) the potential for growth in card use; (3) agencies' management controls; and (4) opportunities to improve agencies' purchase card programs. GAO found that: (1) the use of purchase cards for small purchases can reduce agencies' mission support, labor, and payment processing costs 50 percent by moving simple purchases from procurement offices to program offices and consolidating payments; (2) some agencies have found that purchase card use has helped them absorb the impact of administrative staff reductions and improve service delivery; (3) although the use of purchase cards has increased since 1990, there is potential for greater card use; (4) in fiscal year 1995, the average purchase card transaction was $375, well below the micropurchase threshold of $2,500; (5) there is no evidence of increased abusive use of purchase cards despite tremendous growth in the purchase card program; (6) electronic records of all purchase card transactions allow close and detailed monitoring of card use; (7) agencies' management controls are adequate to protect the government's interest and agencies are addressing control weaknesses and failures to follow proper procurement procedures; (8) most agencies are trying to improve their card programs by emphasizing card use, reengineering their processes, and increasing their use of automation; and (9) opportunities to improve the card program include revising the Federal Acquisition Regulation (FAR) to address card use more thoroughly and establishing a mechanism so agencies can share their innovations and experiences.
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In general, freedom-to-farm proposals allow farmers who have participated in the commodity payment programs to plant whatever crops they wish. The proposals in H.R. 2195 and the Balanced Budget Act of 1995 would have ended the 60-year-old requirement for farmers to idle farmland in order to qualify for federal support payments. Farmers would have been expected to plant for the marketplace, and the federal government would have gradually reduced its role in agriculture. Under H.R. 2195, farmers would have entered into 7-year market transition contracts and received fixed annual payments based on their production. The proposal would have placed a limit on total payments under the program and allowed farmers greater flexibility in planting decisions. The program's total expenditures would have been limited to $43.2 billion over the 7-year period. The program's annual expenditures would likewise have been limited, and the crops covered by the proposal would have been allocated a percentage of these total annual expenditures. Similar provisions were included in the proposed Balanced Budget Act of 1995. FSA is the agency principally responsible for administering payments to the farmers who receive federal agricultural assistance. FSA calculates payments to farmers under the federal agricultural assistance programs. FSA also monitors compliance with the programs' requirements, including the environmental requirements. In addition, the agency administers the federal crop insurance program and provides credit to farmers under the agricultural credit programs. In fiscal year 1995, FSA had the equivalent of 20,905 full-time employees, including 13,432 county-based employees. FSA employs 11 percent of USDA's staff in the Washington, D.C., area and 18 percent of USDA's staff outside that area. FSA's county office staff perform a series of complex tasks to compute acreage bases and calculate and distribute payments to farmers. FSA tracks the workload in its field offices through a system that measures the amount of time staff take to complete tasks. The agency uses this information to project personnel and budget needs. During fiscal year 1995, five major tasks--administrative functions, compliance activities, commodity program payments, crop insurance activities, and maintenance of basic farm records--represented 70 percent of the field offices' workload. Adopting the freedom-to-farm provisions set forth in H.R. 2195 would have enabled USDA to realize significant personnel savings because the proposal would have required fewer program activities than the commodity programs in effect until the enactment of the 1996 farm bill. As a result, USDA would have needed fewer staff. All of the personnel savings would have occurred in FSA, most of it at the county office level. Under the provisions of H.R. 2195, USDA could have reduced FSA personnel by 1,823 staff years and saved approximately $332 million between 1997 and 2002, using USDA's assumptions about personnel costs. USDA would not have realized dollar savings from the reduction of 197 of these staff years. These 197 staff years are associated with farm-measurement services, which are supported by the funds collected from the fees that farmers pay for the services. The savings would essentially have begun in fiscal year 1997--the second year of implementation--and continued through fiscal year 2002--the final year of implementation. The staff year workload would not have decreased in fiscal year 1996, the first year of implementation, because of the increased workload associated with implementing the new program. For example, FSA's staff would have had to sign up owners and operators for the program and inform them of the new program's provisions. FSA would also have needed to inform participants how these provisions would affect their operations and payments. Furthermore, although staff reductions would have begun in fiscal year 1997, the savings during that year would have been partially offset by $28 million in employee separation costs. The personnel reductions would have decreased FSA's total staff by about 9 percent over the period. According to USDA officials, because of the timing of the enactment of the 1996 farm bill, the full savings related to its freedom-to-farm and crop insurance provisions may not occur until 1998. Most of the personnel reductions resulting from H.R. 2195 would have occurred in FSA's county staff, particularly in five functional areas--payments under the commodity programs, maintenance of basic farm records, compliance activities, reimbursable farm-measurement services, and the establishment of bases and yields. USDA anticipated that additional staff reductions would occur in FSA's headquarters, state offices, and technical offices. Table 1 shows our analysis of the changes in staff years by work function. Regarding payments for commodity programs, reductions would have occurred primarily because farmers would have signed up for the program only once, by entering into a contract at the start of the 7-year period. Consequently, FSA would have performed the notification and recordkeeping associated with enrollment only once. In contrast, under the 1990 farm bill, farmers had to sign up annually for program payments. Regarding basic farm records, staff reductions would have occurred because less recordkeeping would have been required for changes pertaining to owners' and operators' relationships. Under the 1990 farm bill, the relationships between owners and operators could change annually. Under H.R. 2195, owners and operators would have been less likely to change their relationships because they would have signed 7-year contracts with USDA. As a result, FSA staff would have performed less work to keep the records on owners and operators updated. According to USDA officials, contrary to the initial assumptions made for H.R. 2195, under the 1996 farm bill, changes to owner-operator relationships may continue at the same level as in the past. Under the initial assumptions made for H.R. 2195, staff reductions would also have occurred in relation to compliance activities because the amount of farmland that participants would have to certify as meeting environmental standards would have decreased. Under the 1990 farm bill, participating farmers had to certify that all of their farmland met certain environmental standards. Under H.R. 2195, participating farmers would have certified only that the land covered by the market transition contracts met these environmental standards. As a result, FSA would have needed fewer staff because the number of acres subject to environmental standards would have decreased. According to USDA officials, under the 1996 farm bill, this assumption is no longer valid because participants will have to certify all farmland as meeting environmental standards, not just the land subject to the market transition contracts. Regarding reimbursable services, FSA collects fees for measuring participants' farmland. Measuring farmland helps ensure that farmers report acreage accurately. Under the 1990 farm bill, farmers could request that FSA measure their farmland to avoid the penalties assessed for incorrect reporting. H.R. 2195 would have allowed farmers greater flexibility in deciding not only what crops to plant but also how much of each crop. Because reporting accuracy would not have been as critical under this proposal, farmers may have requested this service less and therefore decreased FSA's workload. However, since farmers pay for this service, the salary savings would have been offset by the loss of these fees. Regarding establishing bases and yields, FSA's workload would have been reduced under H.R. 2195 because staff would not have needed to update this information annually under the 7-year contracts. Under the 1990 farm bill, FSA annually recalculated and notified operators of changes in crop acreage bases and yields. Under H.R. 2195, contract payments over the entire 7-year period would have been based on 1995 acreage bases and yields. Therefore, FSA would have had to update this information only when an event changed a contract payment, rather than annually. Such events would have included changes in the relationships between owners and operators or land being taken out of the Conservation Reserve Program during the 7-year period. The proposed Balanced Budget Act of 1995 included freedom-to-farm provisions as well as provisions affecting crop insurance, livestock, and conservation programs. While the freedom-to-farm provisions under the proposed Balanced Budget Act would have achieved savings similar to those under H.R. 2195, USDA would have achieved greater personnel savings under the act because it included changes in areas not addressed by H.R. 2195. The act would have resulted in a net reduction of 2,719 staff years, which represents about a 13-percent decrease in FSA's total staff from the fiscal year 1995 level. Reductions in staff beyond those resulting from the freedom-to-farm provisions would have occurred because the primary responsibility for enrolling farmers in the crop insurance program would have been transferred to the private sector. However, no dollar savings are associated with these reimbursable activities because USDA would have lost, in addition to the staff, the related offsetting collections. In addition, other provisions in the act would have slightly offset the total savings. Table 2 shows the net effect of the provisions of the proposed Balanced Budget Act. As the table shows, the proposed Balanced Budget Act included additional provisions that would have had the net effect of reducing FSA's workload by 896 staff years beyond the savings resulting from the act's freedom-to-farm provisions. Most of these additional staff year savings are associated with transferring enrollment for crop insurance from FSA to the private sector. Under procedures in effect until the enactment of the 1996 farm bill, FSA's staff sold basic catastrophic crop insurance to farmers through FSA's county offices. Farmers paid a $50 service fee per crop to sign up for the insurance coverage. FSA retained this fee to cover the cost of administering the enrollment. Transferring the crop insurance function to the private sector would have reduced FSA's workload by 1,022 staff years. Other provisions of the act covering livestock programs, environmental programs, and the reporting of information to reinsured companies would have resulted in a net workload increase of 126 staff years. Thus, the net effect of the personnel savings from crop insurance and other provisions would have been 896 staff years. Although no dollar savings would have resulted from the decrease of these 1,022 staff years, all of which are supported by offsetting collections, USDA would have incurred separation costs of $14 million as a result of these reductions. Similarly, USDA would have incurred additional costs of $14 million for the increased workload of 126 staff years resulting from the Balanced Budget Act's provisions, as discussed above. Combined, these two costs would have lowered the savings under the act by $28 million, resulting in a net savings of $304 million. The newly enacted farm bill delays the transfer of crop insurance enrollment from FSA to the private sector until crop year 1997, and FSA's county offices will continue to sell insurance in areas where private insurance is not available. Therefore, according to USDA officials, the full impact of the staff year savings and separation costs associated with changes in the crop insurance program will be delayed until 1998. USDA may have achieved additional organizational changes and related savings as it reevaluated efficiencies in its delivery of services to its customers. For example, the loss of over 2,300 county-office-based staff years could have led to office closures or consolidations. These, in turn, would have resulted in savings of operations and maintenance costs. Until the regulations for the 1996 farm bill become final, similar savings under that legislation will be difficult to estimate. We transmitted a draft of this report to FSA for review and comment. In commenting on this report, FSA's Associate Administrator pointed out that the estimates used in developing the savings discussed in this report were based on assumptions that were valid when USDA's analysis was completed. However, with the enactment of the 1996 farm bill, several of these assumptions will have to be reevaluated. For example, he said that the new legislation delays the timing of changes in the crop insurance program, amends the conservation provisions, and changes the assumptions USDA used when estimating its workload for maintaining basic farm records. We made changes in the body of this report to reflect these concerns. USDA acknowledges that the 1996 farm bill will result in reductions in workload and staffing, but the magnitude of the savings has not been determined at this time. USDA will soon begin evaluating the implications for personnel levels of the new farm bill. To estimate the reductions in staffing levels under H.R. 2195 and the agricultural provisions of the proposed Balanced Budget Act of 1995, we used the fiscal year 1995 levels of personnel in farm support programs and of workload as a baseline. The estimates of reductions were based on the changes that would have occurred in the work processes under the two proposals. We reviewed H.R. 2195 and title I of the proposed Balanced Budget Act of 1995 to identify how commodity programs would be affected. We also reviewed the Federal Agriculture Improvement and Reform Act (P.L. 104-127) to determine whether its freedom-to-farm provisions were similar to those in the two legislative proposals. We reviewed the methodology and workload measurement assumptions that USDA used in making its estimates of the workload and staffing levels that would be needed in its county offices to administer all of the farm support programs under the proposed Balanced Budget Act of 1995. Because the proposed act included freedom-to-farm provisions, USDA's analysis included data on how staff years and work functions would be affected by these provisions. We isolated the work functions related to the freedom-to-farm provisions in H.R. 2195 and estimated the resulting work reductions. USDA estimated that FSA's staff at headquarters, state offices, and technical offices would be reduced by 10 percent--about the same percentage that resulted from its calculation of the reduction in county office staff. This methodology differs from the analysis of workload statistics that USDA used to estimate the workload changes and staff reductions in the county offices. To assess the reasonableness of USDA's workload measurement assumptions and estimates, we reviewed and analyzed work processes, tasks, and personnel levels at several field offices. This analysis enabled us to reach an informed opinion on the reasonableness of USDA's methodology and assumptions. We believe USDA's methodology was reasonable. We also reviewed and discussed with USDA officials at headquarters, state, and county levels the impact that freedom-to-farm provisions would have on staffing levels. For information on the workload required to administer the commodity programs, we relied heavily on USDA's workload management assumptions and workload measurement statistics. We did not verify the accuracy of USDA's workload measurement data, but we identified how the data were developed, collected, and summarized. We performed our review from October 1995 through April 1996 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Senate Committee on Agriculture, Nutrition, and Forestry; the House Committee on Agriculture; and other appropriate congressional committees. We are also sending copies to the Secretary of Agriculture, the Congressional Budget Office, and the Office of Management and Budget. If you or your staff have any questions about this report, I can be reached at (202) 512-5138. Major contributors to this report are listed in appendix I. Robert C. Summers, Assistant Director Signora James May, Project Leader Patrick J. Kalk Paul Pansini Stuart Ryba Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO examined the personnel reductions that the Department of Agriculture (USDA) could have achieved if Congress had implemented the freedom-to-farm provisions of H.R. 2195 and the proposed Balanced Budget Act. GAO noted that: (1) under H.R. 2195, the freedom-to-farm provisions would have reduced the Farm Service Agency's (FSA) personnel by 1,823 staff years and saved approximately $332 million; (2) most of the personnel savings under H.R. 2195 would have occurred at the county level and would affect such program activities as commodity payment, record keeping, compliance, and reimbursable farm-measurement; (3) the proposed Balanced Budget Act would have achieved greater personnel savings than H.R. 2195 because it included changes not addressed by H.R. 2195; (4) personnel reductions under the proposed Balanced Budget Act would have decreased FSA staff by 13 percent, a net reduction of 2,719 staff years; (5) the Balanced Budget Act would have had the net effect of reducing FSA workload by 896 staff years; (6) as a result of the personnel reductions, USDA would have incurred separation costs of $28 million for a workload of 126 staff years; (7) these costs would have lowered USDA net savings to $304 million; and (8) the Balanced Budget Act would also afford USDA additional organizational changes, more savings, and an opportunity to focus on how it delivers its services.
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Section 107 of the Persian Gulf War Veterans' Benefits Act required VA to conduct a study to evaluate the health status of spouses and children of Persian Gulf War veterans. Under the study, VA was directed to provide diagnostic testing and medical examinations to any individual who (1) is the spouse or child of a veteran listed in VA's Persian Gulf War Veterans' Registry who is suffering from an illness or disorder; (2) is apparently suffering from, or may have suffered from, an illness or disorder (including a birth defect, miscarriage, or stillbirth) that cannot be disassociated from the veteran's service in the Southwest Asia theater of operations; and (3) in the case of a spouse, has granted VA permission to include relevant medical data in the Registry. These tests and examinations were to be used to determine the nature and extent of the association, if any, between the illness or disorder of the spouse or child and the illness of the veteran. The Congress authorized VA to use contractors to provide the medical examinations and specified that the amount spent for the program may not exceed $2 million. The entire $2 million was designated for examinations; the program administrative costs are to be covered by each coordinating medical center's operating budget. The act does not authorize funding for the treatment of family members of Persian Gulf veterans or reimbursement of participants for travel, lodging, or lost wages. The act stipulated that the program was to be carried out from November 1, 1994, through September 30, 1996. Program implementation was delayed until April 1996 because of a disagreement between VA and members of the Senate over the appropriate approach for establishing the program. VA proposed doing research, via the National Health Survey of Persian Gulf Veterans, which was designed to gather information on the incidence and nature of health problems occurring in Persian Gulf veterans and their families. The survey includes the examination of randomly selected Persian Gulf spouses and children as well as a control group, for comparison, of nondeployed Persian Gulf-era veterans and their families. (See app. II for a description of the National Health Survey of Persian Gulf Veterans.) However, in a November 1995 letter, the Ranking Minority Member of the Senate Committee on Veterans' Affairs and the Senate Minority Leader notified VA that its approach would not meet the mandate expressed in section 107 of the act. The letter stated that VA was expected to provide spouses and children the opportunity to seek medical examinations for conditions that family members believe are related to Persian Gulf service and to enter the examination information in the Persian Gulf Registry. The letter further stated that, while the survey was viewed as an important epidemiological study for which the Congress expressed approval by enactment of section 109 of the act, it would not meet the mandate of section 107 of the act. In response to these concerns, the Secretary of Veterans Affairs indicated in a February 1996 letter to the Ranking Minority Member of the Senate Committee on Veterans' Affairs that the Veterans Health Administration (VHA) would proceed immediately to provide voluntary examinations to Persian Gulf family members. VA initiated the Persian Gulf Spouse and Children Examination Program in April 1996 when it began accepting requests for clinical examinations. On October 9, 1996, the Veterans' Health Care Eligibility Reform Act of 1996 (P.L. 104-262) extended the program through December 31, 1998. The program is administered through VHA's Office of Public Health and Environmental Hazards and is implemented through coordinating VA medical centers established in each of VA's 22 Veterans Integrated Service Networks (VISN). The program is offered at 36 of VA's 172 medical centers. (See fig. 1 for a map showing locations of the VISNs and the 36 coordinating medical centers). Coordinating medical centers are responsible for establishing contracts, usually with their university-affiliated medical schools, for the examination of Persian Gulf spouses and children using standard medical protocols and guidelines developed by VA. The Persian Gulf Spouse and Children Examination Program has faced implementation problems that, to this point, have limited the program's effectiveness. To inform potential participants about the program, VA headquarters initiated national, broad-based outreach efforts with coordinating medical centers providing for local outreach. As of January 1998, VA coordinating medical centers have received 2,802 requests for examinations, but only 31 percent (872) of requested examinations have been completed. Factors contributing to the low completion rate include the lengthy and cumbersome process for scheduling examinations, which we found takes an average of 15 weeks from the time applicants first apply to the time examinations are completed. Also, examination sites are not easily accessible for some participants because only 36 of VA's 172 medical centers participate in the program, and the law does not allow for VA to reimburse participants for costs such as travel and lodging. In addition, as of January 1998, no examinations had been conducted in 3 of the 16 coordinating medical centers we contacted because those centers had not negotiated contracts with affiliated medical schools or other providers. Problems also existed with obtaining additional diagnostic testing in some locations. VA headquarters initiated national outreach through notices about the program in the Persian Gulf Review (a quarterly newsletter sent to about 67,000 Persian Gulf veterans in the Registry), public service television announcements, nationally broadcast television interviews with VA officials about Persian Gulf issues, and announcements on the Internet. The Office of Public Affairs, through its regional structure, provided coordinating VA medical centers with press releases about the program. All 172 VA medical centers received basic information about the Persian Gulf Spouse and Children Examination Program. Also, one nationwide teleconference, available to all VA medical centers, was held at the start of the program to encourage centers to inform veterans about the availability of free examinations for the family members of Persian Gulf veterans. According to a VA program official, local outreach was the responsibility of the 36 coordinating VA medical centers. Outreach efforts at the medical centers we contacted ranged from direct mailings to veterans on the Persian Gulf Registry to relying only on national outreach efforts. For example, the Tampa and Seattle medical centers contacted all veterans who had received Persian Gulf Registry examinations at their centers by letter or telephone. Some medical centers sent brochures to Persian Gulf veterans, and Persian Gulf coordinators visited reserve units and service organizations and informed them about the program. However, the Denver and Salt Lake City medical centers relied on national outreach efforts to provide program information. Without information on how participants learned of the program or knowledge of the potential universe of Persian Gulf spouses and children who believe their illnesses or disorders may be related to a family member's service in the Gulf, it is difficult to assess the effectiveness of national or local outreach efforts. However, VA estimated that, on the basis of the $2 million authorized for the program, it could provide about 4,500 examinations, based on an average cost of $400 per examination, and have a reserve of $200,000 to cover the cost of additional diagnostic tests. Examinations were offered on a first come, first served basis. As of January 1998, coordinating medical centers reported they had received 2,802 requests for examinations. By January 1998, about 7 percent ($148,916) had been expended from the $2 million allocated for the program. Eight hundred seventy-two examinations of spouses and children, 31 percent of examinations requested, had been completed as of January 1998. Forty-one percent of family members who requested examinations did not report for appointments, refused examinations, or had not yet responded to requests to schedule examinations, as shown in table 1. Several factors contribute to the low completion rate for requested examinations. For example, obtaining an examination requires several steps in a lengthy and cumbersome process. Individuals cannot contact a VA medical center to request an examination. Instead, requests for examinations are made by calling (toll free) the Persian Gulf War Veterans' Helpline. Next, Helpline staff forward requests to VA headquarters, which checks the VA and DOD Persian Gulf registries or the DOD Persian Gulf Deployment Listing to see if the veteran served in the Persian Gulf. VA headquarters then refers requests to one of the 36 coordinating VA medical centers to further establish eligibility. The medical center contacts the individual requesting the examination and asks him or her to provide a marriage certificate (for a spouse) or a birth certificate (for a child). Finally, the medical center sends the validated request to the affiliated medical school or provider, whose representative schedules an examination appointment with the requester. Our analysis showed that the process from requesting an examination to completion of the examination takes an average of over 15 weeks. According to a VA program official, the process for scheduling examinations was established as an efficient way to control, verify, and forward requests to the nearest coordinating medical center. Because the Persian Gulf Helpline already existed and operated 24 hours a day, it offered a means to monitor the number of requests received nationally. Also, Helpline staff were knowledgeable about a range of Persian Gulf issues and services available for veterans. Verification of veterans' service in the Persian Gulf is centrally administered because VA headquarters staff have access to the VA and DOD Persian Gulf registries and the Persian Gulf Deployment Listing. Verification of the child or spousal relationship is assigned to medical center staff who also provide a local VA contact and forward verified requests to examination providers to schedule appointments. Another major deterrent to obtaining examinations is the distance to examination sites or the accessibility of sites. VA implemented the program through 36 of its 172 medical centers. VA's Office of Public Health and Environmental Hazards issued a directive through the Chief Network VISN Office for each network to identify at least one medical center to participate in the program. All VISNs identified at least one coordinating medical center, 12 networks established two coordinating centers, and one VISN established three coordinating medical centers. A VA official stated that medical center decisions to participate in the program were based on the demographics of the Persian Gulf veteran population and the medical centers' ability to obtain contracts with their affiliated medical schools. Our analysis of the median distance between requesters' residences and the designated coordinating medical center showed that 48 requesters from Arizona were required to travel a median distance of 326 miles to the Albuquerque medical center to receive an examination. Our analysis also showed that 44 requesters from North Dakota, South Dakota, and Minnesota traveled a median distance of 219 miles for an examination in Minneapolis. According to a Washington, D.C., medical center official, family members considered the Georgetown University site to be inconvenient because it is not easily accessible by public transportation. Additional deterrents to obtaining examinations are lost income when taking time off from work and lack of reimbursement for travel and overnight lodging expenses. According to VA headquarters officials, enabling legislation would be necessary for VA to pay these expenses. VA decided to contract with affiliated medical schools where possible because established working relationships facilitated starting a program that had already been delayed. Program officials told us they were being flexible in also allowing medical centers to enter into agreements with managed care organizations or local physicians to examine family members in the absence of contracts with an affiliated medical school. However, no examinations were provided by 3 of the 16 coordinating medical centers we contacted--Augusta, Dayton, and Philadelphia--because they had not entered into agreements with their affiliated medical schools or other health care providers. Because Philadelphia was the only medical center participating in the program in VISN 4, no examinations had been given, as of January 1998, to the 88 family members who had requested examinations in the network. (See app. III for a table of coordinating medical centers and their affiliated medical schools.) VA headquarters officials were not aware that two of the three centers had not provided any examinations until we inquired about the program's status in January 1998. Because of turnover in key medical center positions, including program coordinators, VA officials indicated that they were unaware of the status of some requests for examinations. Also, VA did not require monthly activity reports from coordinating medical centers until October 1997--1-1/2 years after the start of the program. In addition, the headquarters program office lacks the capacity to validate information reported by medical center staff and has no line authority over field units that implement the program. In the December 1997 activity report, six of the coordinating medical centers had not submitted their information to headquarters. As a result, VA headquarters did not know the status of the program in terms of the number of applicants contacted, number of examinations given, and the number of coordinating medical centers that had active programs. After our inquiries, coordinating medical centers without active contracts with their affiliated medical schools were attempting to establish contracts with managed care organizations or private physicians, or were providing examinations in-house. For example, the Minneapolis VA medical center plans to provide examinations to women by using VA medical center staff from the Women's Clinic and to children by contracting with a local pediatrician. Additionally, the San Diego medical center contracted with a doctor with pediatric experience to conduct all of its examinations at a VA outpatient clinic. Women applicants receive additional tests from a VA nurse practitioner. Medical schools affiliated with the Denver and Minneapolis VA medical centers did not renew their contracts with VA because the volume of examinations was lower than expected and they were not paid in a timely manner. Other affiliated medical schools that still have contracts made similar complaints. For example, the Denver medical center told its affiliated medical school to anticipate conducting 200 examinations. However, only 54 requests for examinations were received, and the affiliated medical school ultimately performed only 16 examinations. In January 1998, the medical school received payment for 10 completed examinations that had been initially submitted for payment 9 months earlier in April 1997. We found that payment delays are caused, in part, because code sheets, which capture medical information for entry into the registry database, are rejected by VA's Austin, Texas, processing center when they are not properly completed. VA headquarters' guidance for establishing contracts stipulates that payment should be made only after satisfactory completion and submission to VA of all forms and code sheets. Staff from VA medical centers and affiliated medical schools complained that code sheets were difficult and time consuming to complete and lacked clear instructions. In addition, VA attempted to enter data into the registry using scannable code sheets. However, at one point, the program experienced a 100-percent rejection rate for code sheets because of problems with the scanning system. As a result, VA staff had to spend additional time correcting rejected code sheets. VA has since resorted to manually inputting the data. According to VA medical center officials, additional reasons for delayed payment include affiliated medical schools completing paperwork incorrectly, submitting untimely bills, and billing the wrong party. As of January 1998, of the 872 examinations completed, 541 examinations had been approved for payment. To conduct the examinations for spouses and children, VA developed a protocol that defines the standard tests and medical information collected during examinations. VA officials characterized the examination as a basic but complete physical. Adults receive diagnostic laboratory tests including blood count, blood chemistries, urinalysis, and, for women, a Pap smear. Children receive a physical examination and a medical history, including details on the development of symptoms. The children's protocol does not require routine diagnostic testing. Examination results are conveyed to family members with a form letter from the examining physician. If physicians determine that a referral to a medical specialist for additional diagnostic testing would be helpful to understanding a patient's symptoms, VA headquarters must give written approval if total examination and additional diagnostic testing costs exceed $400. At the locations we visited, examination costs ranged from $140 to $473. VA headquarters officials told us they approved all requests received for referrals to medical specialists--about 20. But officials at the Houston medical center said that although their examining physician requested only two referrals, she wanted to refer about 20 percent of those examined (47 patients) for additional diagnostic tests. However, these officials did not ask for additional referrals because they believed resources were constrained and the approval process would take additional time and require participants to make another trip to the medical school. On the other hand, the medical school affiliated with the Minneapolis medical center performed additional diagnostic tests without requesting approval. This strained the contractual relationship with the medical center because the medical school was not reimbursed for these additional tests. After more than 1-1/2 years of operation, VA has yet to fully implement the program to provide medical examinations to spouses and children of Persian Gulf veterans. Only 872 of the 2,802 requested examinations have been completed as of January 1998. Although a program of clinical examinations may not resolve issues related to whether illnesses among Persian Gulf family members are related to illnesses of veterans, the clinical examination approach provides Persian Gulf family members an opportunity to visit with a physician and to receive a free medical examination. Standardized examinations also give VA a health surveillance tool for cataloging prominent symptoms among Persian Gulf family members. The Persian Gulf Spouse and Children Program is scheduled to expire in December 1998. At the current rate of examinations, it is not likely that significant numbers of additional examinations will be completed by that date. If the Congress gives Persian Gulf family members the opportunity to be examined beyond December 1998, VA will need to seek ways to reduce barriers to participation, ensure that the necessary health care providers are available to provide examinations, and improve its capacity to monitor program implementation. If the Congress gives Persian Gulf family members the opportunity to be examined beyond December 1998, we recommend that the Secretary-designate of Veterans Affairs direct the Under Secretary for Health to simplify the process for requesting and scheduling examinations, offer examinations in more locations and seek approval to reimburse participants who are required to travel long distances to receive examinations, and enhance the capacity of the Office of Public Health and Environmental Hazards to monitor program implementation by field personnel. We provided a draft of this report to VA for comment, but VA did not provide comments in time to be included in this report. However, VA provided technical comments on March 19, 1998, which we incorporated where appropriate. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time we will send copies of this report to the Secretary-designate of Veterans Affairs and interested congressional committees. We will also make copies available to others upon request. Please contact me on (202) 512-7101 if you or your staff have any questions concerning this report. Major contributors included George Poindexter, Brian Eddington, Jean Harker, Mike Gorin, and Alan Wernz. We obtained information for our review by visiting 8 of the 36 coordinating VA medical centers for the Persian Gulf Spouse and Children Examination Program in Chicago, Denver, East Orange, Houston, Minneapolis, Salt Lake City, Seattle, and Washington, D.C. We also contacted by telephone eight additional coordinating medical centers--Augusta, Birmingham, Dayton, Honolulu, Palo Alto, Philadelphia, San Diego, and Tampa. We selected these sites on the basis of their geographic mix, volume of examinations, and recommendations from VA and the Senate Committee on Veterans' Affairs. In some instances, medical school or clinic representatives were present during our visits. We telephoned some medical school representatives who were not present during site visits to obtain their views on the program and its implementation. Because of time constraints, we did not contact individual veterans or their family members. We interviewed officials at VA headquarters and the VA payment center located in Denver and also contacted the Office of Public Affairs concerning its outreach efforts. We reviewed reports on the status of contractual agreements, the number of examinations scheduled and completed, and the amount of funds disbursed for examinations. We analyzed data from VA's Austin data center (all 321 completed code sheets) and corresponding data from the Persian Gulf War Veterans' Helpline (requests for examinations that included the date the veteran or family member called) to determine the average length of time required to schedule and obtain an examination. We also analyzed data from the Persian Gulf Helpline to determine the distance to the nearest coordinating medical center for selected areas. We did not verify the accuracy of data received from either the Austin data center or the Persian Gulf Helpline. As agreed with your staffs, we did not evaluate the appropriateness of the survey instruments or medical evaluations used in the program. Initiated in July 1994, the National Health Survey of Persian Gulf Veterans is an epidemiological research study designed to estimate the prevalence of various symptoms and other health outcomes for Persian Gulf veterans and their families. The study is being conducted in three phases. In phase I, a questionnaire was mailed to each of 30,000 veterans (15,000 Persian Gulf veterans and 15,000 non-Persian Gulf veterans). In phase II, a sample of 8,000 nonrespondents was randomly selected for follow-up telephone calls to assess potential nonrespondent bias and to supplement the mailed survey data. In addition, during phase II, selected self-reported data collected during phase I was validated through records reviews for 2,000 veterans from each group. VA has completed the first two phases of this survey. In phase III, the same 2,000 veteran respondents and family members from each group will be invited to participate in a physical examination under a uniform comprehensive clinical examination protocol. VA is currently identifying 15 of its medical centers to examine veterans and family members over an 18-month period. The medical centers will be selected in a way that ensures a medical center will be within 3 to 4 hours driving time of the majority of the families sampled. Veterans will be examined at VA medical centers. The requested budget also permits up to half of the spouses and all of the children to be examined at affiliated medical schools. Veterans and spouses will be paid $200 per adult examination and $100 per child examination to compensate them for their time and inconvenience. Mileage or airfare, per diem, and lodging costs will be paid for families who live far enough away to require overnight stays. According to a VA official, these payments are allowable costs as part of this research project. The estimated report date for the survey is December 2000. Spouse: Evans Medical Foundation, Boston Medical Center Children: Child Health Foundation of Boston Spouse: Syracuse VA Medical Center Children: SUNY Health Science Center New Jersey University of Medicine and Dentistry No affiliated medical school contract No affiliated medical school contract University of Puerto Rico School of Medicine University of Tennessee Medical Group The Wilson Group, Vanderbilt University No affiliated medical school contract Wayne State University Medical School No affiliated medical school contract University of Missouri Health Science Center (continued) The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the Department of Veterans Affairs' (VA) implementation of the Persian Gulf Spouse and Children Examination Program, focusing on: (1) outreach efforts; (2) obstacles to family members' participation; and (3) contracting issues. GAO noted that: (1) the Persian Gulf Spouse and Children Examination Program has faced numerous implementation problems that have limited its effectiveness in providing medical examinations; (2) to inform Persian Gulf veterans and their family members about the program, VA approached outreach in two ways--with a national campaign supplemented by local efforts at coordinating VA medical centers; (3) GAO found that some medical centers made efforts to contact Persian Gulf veterans and their families, while others relied on headquarters' outreach efforts; (4) however, GAO could not assess the effectiveness of these efforts because of a lack of information on the potential number of Persian Gulf family members who believe their illnesses are related to a family member's service in the Gulf War; (5) although as of January 1998 coordinating medical centers had received 2,802 requests for examinations, VA has completed only 872; (6) forty-one percent of applicants either failed to report for appointments, refused examinations, or had not yet answered requests to schedule examinations; (7) program participants face a lengthy and cumbersome scheduling process carried out through VA offices other than the local VA medical centers; (8) GAO's analysis showed that it takes an average of over 15 weeks for a participant to get an examination; (9) in addition, because VA chose to administer the program through only 36 of its 172 medical centers, examination sites are not always easily accessible to participants; (10) three of the 16 coordinating medical centers GAO contacted have not conducted any examinations because they have not contracted with their affiliated medical schools or other providers; (11) VA headquarters officials were unaware that examinations had not been conducted in two of the centers because of turnover in key center positions, and because VA did not start requiring monthly activity reports, which give the cumulative status of examination requests, from coordinating medical centers until October 1997; (12) GAO found that payment delays are caused in part by contractors incorrectly completing required paperwork, which staff from VA medical centers and affiliated medical schools told GAO is time consuming to complete and lacks clear instructions; and (13) although VA reserved $200,000 of authorized funds to cover the costs of tests, medical center officials told GAO they would have requested more referrals but believed resources were limited and the approval process would require additional time and travel for participants.
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There is no single definition for financial literacy, which is sometimes also referred to as financial capability, but it has previously been described as the ability to make informed judgments and to take effective actions regarding current and future use and management of money. Financial literacy encompasses financial education--the processes whereby individuals improve their knowledge and understanding of financial products, services, and concepts. However, being financially literate refers to more than simply being knowledgeable about financial matters; it also entails utilizing that knowledge to make informed decisions, avoid pitfalls, and take other actions to improve one's present and long-term financial well-being. Federal, state, and local government agencies, nonprofits, the private sector, and academia all play important roles in providing financial education resources, which can include print and online materials, broadcast media, individual counseling, and classroom instruction. Evidence indicates that many U.S. consumers could benefit from improved financial literacy efforts. In a 2010 survey of U.S. consumers prepared for the National Foundation for Credit Counseling, a majority of consumers reported they did not have a budget and about one-third were not saving for retirement. In a 2009 survey of U.S. consumers by the FINRA Investor Education Foundation, a majority believed themselves to be good at dealing with day-to-day financial matters, but the survey also revealed that many had difficulty with basic financial concepts. Further, about 25 percent of U.S. households either have no checking or savings account or rely on alternative financial products or services that are likely to have less favorable terms or conditions, such as nonbank money orders, nonbank check-cashing services, or payday loans. As a result, many Americans may not be managing their finances in the most effective manner for maintaining or improving their financial well-being. In addition, individuals today have more responsibility for their own retirement savings because traditional defined-benefit pension plans have increasingly been replaced by defined-contribution pension plans over the past two decades. As a result, financial skills are increasingly important for those individuals in or planning for retirement to help ensure that retirees can enjoy a comfortable standard of living. Efforts to improve financial literacy in the United States involve a range of public, nonprofit, and private participants. Among those participants, the federal government is distinctive for its size and reach, and for the diversity of its components, which address a wide array of issues and populations. At our forum last year on financial literacy, many participants said that the federal government had a unique role to play in promoting greater financial capability. They noted that the federal government has a built-in "bully pulpit" that can be used to draw attention to this issue. Participants also highlighted the federal government's ability to convene the numerous agencies and entities involved in financial literacy, noting that the government has a powerful ability to bring people together. In addition, some participants noted the federal government's ability to take advantage of existing distribution channels and points of contact between the government and citizens to distribute messages about financial literacy. In our ongoing work, we have found examples of federal agencies acting on such opportunities--for example, the Securities and Exchange Commission has worked with the Internal Revenue Service to include an insert about its investor education resources, including its "Investor.gov" education website, in the mailing of tax refund checks. At our first forum on financial literacy in 2004, participants noted that the federal government can serve as an objective and unbiased source of information, particularly in terms of helping consumers make wise decisions about the selection of financial products and services. Some participants expressed the belief that while the private sector offers a number of good financial literacy initiatives, it is ultimately motivated by its own financial interests, while the federal government may be in a better position to offer broad-based, noncommercial financial education. In preliminary results from an ongoing review, we have identified that, in fiscal year 2010, there were 16 significant financial literacy programs or activities among 14 federal agencies, as well as 4 housing counseling programs among 2 federal agencies and a federally chartered nonprofit corporation. We defined "significant" financial literacy programs or activities as those that were relatively comprehensive in scope or scale and included financial literacy as a key objective rather than a tangential In prior work, we cited a 2009 report that had identified 56 federal goal.financial literacy programs among 20 agencies. That report, conducted by the RAND Corporation, was based on a survey that had asked federal agencies to self-identify their financial literacy efforts. However, our subsequent analysis of these 56 programs found that there was a high degree of inconsistency in how different agencies defined financial literacy programs or efforts and whether they counted related efforts as one or multiple programs. We believe that our count of 16 significant federal financial literacy programs or activities and 4 housing counseling programs is based on a more consistent set of criteria. During his confirmation hearing, Comptroller General Dodaro noted that financial literacy was an area of priority for him, and he has initiated a multi-pronged strategy for GAO to address financial literacy issues. First, we will continue to evaluate federal efforts that directly promote financial literacy. In addition to our recent financial literacy forum, we have ongoing work that focuses on, among other things, the cost of federal financial literacy activities, the federal government's coordination of these activities, and what is known about their effectiveness. Second, we will encourage research of the various financial literacy initiatives to evaluate the relative effectiveness of different financial literacy approaches. Third, we will look for opportunities to enhance financial literacy as an integral component of certain regular federal interactions with the public. Finally, we have recently instituted a program to empower GAO's own employees. This program includes a distinguished speaker series, as well as an internal website with information on personal financial matters and links to information on pay and benefits and referral services through GAO's counseling services office. Having multiple federal agencies involved in financial literacy efforts can have certain advantages. In particular, providing information from multiple sources can increase consumer access and the likelihood of educating more people. Moreover, certain agencies may have deep and long- standing expertise and experience addressing specific issue areas or serving specific populations. For example, the Securities and Exchange Commission has efforts in place to protect securities investors from fraudulent schemes, while the Department of Housing and Urban Development (HUD) oversees most, but not all, federally supported housing counseling. Similarly, the Department of Defense (DOD) may be the agency most able to efficiently and effectively deliver financial literacy programs and products to servicemembers and their families. However, as we stated in a June 2011 report, relatively few evidence-based evaluations of financial literacy programs have been conducted, limiting what is known about which specific methods and strategies--and which federal financial literacy activities--are most effective. Further, the participation of multiple agencies highlights the need for strong coordination of their activities. In general, we have found that the coordination and collaboration among federal agencies with regard to financial literacy have improved in recent years, in large part due to the multiagency Financial Literacy and Education Commission. The commission was created by Congress in 2003 and charged, among other things, with developing a national strategy to promote financial literacy and education, coordinating federal efforts, and identifying areas of overlap and duplication. Among other things, the commission, in concert with the Department of the Treasury, which provides its primary staff support, has served as a central clearinghouse for federal financial literacy resources--for example, it created a centralized federal website and has an ongoing effort to develop a catalog of federal research on financial literacy. The commission's 2011 national strategy identified five action areas, one of which was to further emphasize the role of the commission in coordination. The strategy's accompanying Implementation Plan lays out plans to coordinate communication among federal agencies, improve strategic partnerships, and develop channels of communication with other entities, including the President's Advisory Council on Financial Capability and the National Financial Education Network of State and Local Governments. The Financial Literacy and Education Commission's success in implementing these elements of the national strategy is key, given the inherently challenging task of coordinating the work of the commission's many member agencies--each of which has its own set of interests, resources, and constituencies. Further, the addition of the Bureau of Consumer Financial Protection, whose director serves as the Vice Chair of the commission, adds a new player to the mix. In our recent and ongoing work, we have found instances in which multiple agencies or programs share similar goals and activities, which raises questions about the efficiency of some federal financial literacy efforts. For example, four federal agencies and one government- chartered nonprofit corporation provide or support various forms of housing counseling to consumers--DOD, HUD, the Department of Veterans Affairs, the Department of the Treasury, and NeighborWorks America. Other examples of overlap lie in the financial literacy responsibilities of the Bureau of Consumer Financial Protection, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The act established within the bureau an Office of Financial Education and charged this office with developing and implementing a strategy to improve financial literacy through activities including opportunities for consumers to access, among other things, financial counseling; information to assist consumers with understanding credit products, histories, and scores; information about saving and borrowing tools; and assistance in developing long-term savings strategies. This office presents an opportunity to further promote awareness, coordinate efforts, and fill gaps related to financial literacy. At the same time, the duties this office is charged with fulfilling are in some ways similar to those of a separate Office of Financial Education and Financial Access within the Department of the Treasury, a small office that also seeks to broadly improve Americans' financial literacy. In addition, the Dodd-Frank Act charges the Bureau of Consumer Financial Protection with developing and implementing a strategy on improving the financial literacy of consumers, even though the multiagency Financial Literacy and Education Commission already has its own statutory mandate to develop, and update as necessary, a national strategy for financial literacy. As the bureau has been staffing up and planning its financial education activities, it has been in regular communication with the Department of the Treasury and with other members of the Financial Literacy and Education Commission, and agency staff say they are seeking to coordinate their respective roles and activities. The Dodd-Frank Act also creates within the bureau an Office of Financial Protection for Older Americans, which is charged with helping seniors recognize warning signs of unfair, deceptive, or abusive practices and protect themselves from such practices; providing one-on-one financial counseling on issues including long-term savings and later-life economic security; and monitoring the legitimacy of certifications of financial advisers who advise seniors. These activities may overlap with those of the Federal Trade Commission, which also plays a role in helping seniors avoid unfair and deceptive practices. Further, the Department of Labor and the Social Security Administration both have initiatives in place to help consumers plan for retirement, and the Securities and Exchange Commission has addressed concerns about the designations and certifications used by financial advisers, who often play a role in retirement planning. Officials at the Bureau of Consumer Financial Protection told us that they have been coordinating their financial literacy roles and activities with those of other federal agencies to avoid duplication of effort. In prior work we have noted the importance of program evaluation and the need to focus federal financial literacy efforts on initiatives that work. Relatively few evidence-based evaluations of financial literacy programs have been conducted, limiting what is known about which specific methods and strategies are most effective. Financial literacy program evaluations are most reliable and definitive when they track participants over time, include a control group, and measure the program's impact on consumers' behavior. However, such evaluations are typically expensive, time-consuming, and methodologically challenging. Based on our previous work, it appears that no single approach, delivery mechanism, or technology constitutes best practice, but there is some consensus on key common elements for successful financial education programs, such as timely and relevant content, accessibility, cultural sensitivity, and an evaluation component. There are several efforts under way that seek to enhance evaluation of federal financial literacy programs. For example, the Financial Literacy and Education Commission has begun to establish a clearinghouse of evidence-based research and evaluation studies, current financial topics and trends of interest to consumers, innovative approaches, and best practices. In addition, the Bureau of Consumer Protection recently contracted with the Urban Institute for a financial education program evaluation project, which will assess the effectiveness of two existing financial education programs and seeks to identify program elements that improve consumers' confidence about financial matters. We believe these measures are positive steps because federal agencies could potentially make the most of scarce resources by consolidating financial literacy efforts into the activities and agencies that are most effective. The Bureau of Consumer Financial Protection was charged by statute with a key role in improving Americans' financial literacy and is being provided with resources to do so. As such, the bureau offers potential in enhancing the federal government's role in financial literacy. At the same time, as we have seen, some of its responsibilities overlap with those of other agencies, which highlights the need for coordination and may offer opportunities for consolidation. As the bureau's financial literacy activities evolve and are implemented, it will be important to evaluate how those efforts are working and make appropriate adjustments that might promote greater efficiency and effectiveness. In addition, the overlap we have identified among programs and activities increases the risk of inefficiency and emphasizes the importance of coordination among financial participants. This underscores the importance of steps the Bureau of Consumer Financial Protection has been taking to delineate its roles and responsibilities related to financial literacy vis-a-vis those of other federal agencies, which we believe is critical in order to minimize overlap and the potential for duplication. Chairman Akaka, Ranking Member Johnson, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For future contacts about this testimony, please contact Alicia Puente Cackley at (202) 512-8678 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Jason Bromberg, Mary Coyle, Roberto Pinero, Rhonda Rose, Jennifer Schwartz, and Andrew Stavisky also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Financial literacy plays an important role in helping to promote the financial health and stability of individuals and families. Economic changes in recent years have further highlighted the need to empower all Americans to make informed financial decisions. In addition to the important roles played by states, nonprofits, the private sector, and academia, federal agencies promote financial literacy through activities including print and online materials, broadcast media, individual counseling, and classroom instruction. This testimony discusses (1) the federal government's role in promoting financial literacy, including GAO's role; (2) the advantages and risks of financial literacy efforts being spread across multiple federal agencies; and (3) opportunities to enhance the effectiveness of federal financial literacy education efforts going forward. This testimony is based on prior and ongoing work, for which GAO reviewed agency budget documents, strategic plans, performance reports, websites, and other materials; convened forums of financial literacy experts; and interviewed representatives of federal agencies and selected private and nonprofit organizations. While this statement includes no new recommendations, in the past GAO has made a number of recommendations aimed at improving financial literacy efforts. The federal government plays a wide-ranging role in promoting financial literacy. Efforts to improve financial literacy in the United States involve an array of public, nonprofit, and private participants, but among those participants, the federal government is distinctive for its size and reach and for the diversity of its components, which address a wide range of issues and populations. At forums of financial literacy experts that GAO held in 2004 and 2011, participants noted that the federal government can use its "bully pulpit," convening power, and other tools to draw attention to the issue, and serve as an objective and unbiased source of information about the selection of financial products and services. In prior work, GAO cited a 2009 report by the RAND Corporation in which 20 federal agencies self-identified as having 56 federal financial literacy programs, but GAO's subsequent analysis found substantial inconsistency in how different agencies defined and counted financial literacy programs. Based on a more consistent set of criteria, GAO identified 16 significant financial literacy programs or activities among 14 federal agencies, as well as 4 housing counseling programs among 3 federally supported entities, in fiscal year 2010. The Comptroller General has initiated a multi-pronged strategy to address financial literacy issues. First, GAO will continue to evaluate federal efforts that directly promote financial literacy. Second, it will encourage research of the various financial literacy initiatives to evaluate the relative effectiveness of different approaches. Third, GAO will look for opportunities to enhance financial literacy as an integral component of certain regular federal interactions with the public. Finally, GAO has recently instituted a program to empower its own employees, which includes an internal website with information on personal financial matters and links to information on pay and benefits and referral services through its counseling services office and a distinguished speaker series. Having multiple federal agencies involved in financial literacy offers advantages as well as risks. Some agencies have long-standing expertise and experience addressing specific issue areas or populations, and providing information from multiple sources can increase consumer access and the likelihood of educating more people. However, the participation of multiple agencies also highlights the risk of inefficiency and the need for strong coordination of their activities. GAO has found that the coordination and collaboration among federal agencies with regard to financial literacy has improved in recent years, in large part as a result of the Financial Literacy and Education Commission. At the same time, GAO has found instances of overlap, in which multiple agencies or programs, including the new Bureau of Consumer Financial Protection, share similar goals and activities, underscoring the need for careful monitoring of the bureau's efforts. In prior work GAO has noted the importance of program evaluation and the need to focus federal financial literacy efforts on initiatives that work. Federal agencies could potentially make the most of scarce resources by consolidating financial literacy efforts into the activities and agencies that are most effective. In addition, the Bureau of Consumer Financial Protection offers potential for enhancing the federal government's role in financial literacy, but avoiding duplication will require that it continue its efforts to delineate its financial literacy roles and responsibilities vis-a-vis those of other federal agencies with overlapping responsibilities.
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During the last decade, a new kind of entity has emerged in public education: the for-profit provider of education and management services. Historically, school districts have contracted with private companies for noninstructional services, such as transportation and food service, and have also relied on contractors in some cases to provide limited instructional services to specified populations. Until recently, public schools have generally not contracted for the comprehensive programs of educational and management services that these companies typically offer. In recent years, the options available to public schools considering contracting with private companies have steadily grown. Today, approximately 20 major companies manage public schools. Nationally, it is estimated that these companies as well as other smaller companies serve over 300 schools out of the nation's approximately 92,000 public schools. Although these companies manage public schools at all grade levels, most such privately managed public schools are elementary and middle schools. In these public schools, companies generally provide the same kinds of educational and management services that school districts do for traditional public schools. Educational services typically include a curriculum as well as a range of services designed to enhance or support student achievement, such as professional development opportunities for teachers, opportunities for parental involvement and school environments that aim to facilitate student support. Management services typically include personnel, payroll, and facilities management. Although these are the services that are typically offered to schools, companies also may adapt their services to respond to the preferences or needs of individual schools. For example, while some companies offer a particular curriculum or educational approach, others appear more willing to work with the curriculum the school or school district has already adopted. Typically, companies provide their services to public schools in one of two ways. First, they can contract directly with school districts to manage traditional public schools; such schools are known as "contract schools." Second, they can manage charter schools, which are public schools that receive a degree of autonomy and freedom from certain school district requirements in exchange for enhanced accountability. Generally, charter schools are run by individual boards of trustees, which in most states and the District of Columbia have the authority to decide whether to contract with a private company. Both contract schools and charter schools remain public schools, however, and are generally subject to federal and state requirements for public schools in areas such as the application of standardized tests and special education. While the reasons public schools turn to private companies vary, the potential to increase student achievement appears to be one factor. In particular, according to certain experts and company officials we spoke to, school districts that seek a company's help often do so with the expectation of raising achievement in struggling or failing schools. While management services appear to be especially important for charter schools that contract with such companies, charter schools also consider the potential to raise student achievement or a particular educational approach consistent with the school's mission, according to school officials and experts we spoke with. Both types of schools that seek these companies' assistance--struggling schools and charter schools--appear concentrated in urban areas. Further, several of the major companies reportedly serve a predominantly disadvantaged urban and minority student population. Recent changes in federal law have implications for the role played by these companies in public schools. The No Child Left Behind Act of 2001requires that schools that fail to meet state student achievement standards for 5 consecutive years must be restructured by implementing one or more alternative governance actions. One of the alternatives available to states and districts is to contract with an education management company. Three companies currently operate in the District of Columbia: Edison Schools, Mosaica Education, and Chancellor Beacon Academies. Edison began operating its first District school in 1998, and Mosaica and Chancellor Beacon first contracted with the District schools they manage in 2001. Throughout this report, these companies will generally be discussed in this order. Mergers and acquisitions are common among such companies. In 2001, Edison acquired nine schools nationwide through a merger with LearnNow. In the same year, Mosaica acquired nine schools nationwide through its acquisition of Advantage Schools. In addition, Chancellor and Beacon merged into a single company. Such changes can have several outcomes: in some cases, the company may operate schools that continue to use the educational program of another company; in other cases, the school may consider adopting the educational program of the new company or terminating the contract. The companies that operate public schools in the District of Columbia offer management and educational services as part of their programs; the extent to which District schools managed by these companies implemented all of the components of the companies' programs varied. All of these companies offer programs that include management and educational services, such as curricula that integrate technology and professional development opportunities for teachers. Of the 10 District schools managed by these companies, 4 had completely implemented their company's program. In school year 2001-02, all 10 District schools managed by these companies were charter schools with predominantly poor and minority student populations; most enrolled elementary and middle school students. Similar to traditional public schools, the District schools managed by these companies were required to be open to all students, up to their enrollment limits, and to meet District standards in areas such as health, safety, standardized testing, and compliance with federal special education requirements. The three for-profit companies that operate in the District of Columbia-- Edison, Mosaica, and Chancellor Beacon--share common elements in terms of the management and educational services they offer to schools nationwide as well as those company officials described as distinctive. Each of the three companies generally offers similar management services. For example, all three offer management services such as personnel, payroll and facilities management, services that can be important for charter schools. In addition, the three companies employ some common approaches designed to improve student achievement. All three companies offer an extended school day and year. All three integrate technology in their educational programs. For example, all three offer students access to classroom computers. Similarly, all organize schools into smaller units to facilitate their tracking of students' progress. All three provide summer training to teachers as well as other forms of professional development. Additionally, all have activities designed to involve and support parents and students. For example, each company uses parent satisfaction surveys. Experts we spoke to noted that these same approaches were being used in some other public schools. Finally, officials of all three companies stated that their companies contributed positively to school climate--a sense of mission and an environment conducive to learning--and cited aspects of school climate such as a safe and orderly school environment and teacher motivation. In addition to the characteristics they had in common, company officials identified others they believed were distinctive. These include, for example, their programs' curriculum and instruction as well as the ability to provide economies of scale, develop community partnerships, and provide strong administrative support. As Table 1 shows, all three companies provided their services to schools in multiple states in 2001-02. According to Edison officials, its program has a number of distinctive characteristics. The first of these is its curriculum, which emphasizes basic skills, especially reading as the basis for future learning. It also includes enrichment in areas such as world languages (e.g., Spanish) and art. Edison's basic skills curriculum includes components developed by Edison, such as a remedial reading program, and other components that Edison states are supported by research, such as Chicago Math and the Success for All reading program. Instructional methods are a second characteristic of Edison's program. Edison schools use a variety of instructional methods. One of these, direct instruction, relies on repetition and drill. Other methods use projects, small groups, and individualized lessons. A third characteristic of Edison schools is their use of assessments. According to Edison officials, their program uses frequent assessments and the results of these assessments are promptly provided to teachers to assess student needs and provide appropriate additional help. "Systems and scale" is another key characteristic of Edison schools according to company officials. The company views its schools as part of a national system linked by a common purpose, and because of the system's size, the company says it is able to purchase supplies at lower costs. Mosaica officials also identified certain distinctive characteristics of their company's program. The first is the program's curriculum, which has two parts. According to Mosaica officials, its morning program features instruction in traditional subjects such as reading and math. In the afternoon, students use Paragon--Mosaica's own curriculum. According to company officials, Paragon stresses multidisciplinary learning, uses projects to emphasize the humanities, and recognizes students' different learning styles. For example, students may use their reading, math, and social studies learning to build a pyramid or a Viking ship and thus study a period of history. According to company officials, projects accommodate a variety of learning styles--for example, some students learn visually, others by performing. Community involvement is a second key characteristic of Mosaica's program. Company officials say that Mosaica brings community support into the school by networking with various community organizations. According to company officials, this provides its schools with access to additional resources. Chancellor Beacon officials also identified distinctive characteristics of their program. One is their willingness to customize their educational program to meet the needs and preferences of local schools. For example, in response to community interest, some Chancellor Beacon schools feature a cultural heritage element in the curriculum while one of its schools emphasizes the environment. Chancellor Beacon's own curriculum was recently finalized in July 2002 and is based on an integration of the curricula of Chancellor and Beacon before they merged. One component of its curriculum is Core Knowledge--a program that expects students to master specific content in language arts, history, geography, math, science and fine arts. Other components emphasize ethics, morality and community volunteerism. A second key characteristic of Chancellor Beacon's program is its operational support, according to company officials. These officials told us that in focusing on operational support, Chancellor Beacon allows schools to focus on academics. While the Chancellor Beacon program emphasizes customization as a key characteristic, the other two companies also allow schools to modify their programs. For example, in its reading program, Edison allows schools some flexibility regarding what books to read and in what order. In addition, up to one-fourth of its curriculum can be determined by the local school. Similarly, Mosaica allows its schools to use different approaches or materials in their morning session. While all of the 10 District schools managed by the companies during the 2001-02 school year obtained management services from these companies, the schools were more selective in implementing the companies' educational programs. Of the 10 District schools, 4 have completely implemented the companies' educational programs and 6 have adopted selected elements of their companies' programs or chosen other programs, typically those of a previous company. A key factor that helps explain the difference between the programs the companies offer and what has been implemented by District schools is that recent mergers and acquisitions have led to changes in management companies in these 6 schools; these schools have generally left in place the educational programs of the companies that formerly managed them. Four schools, all managed by Edison, implemented the company's educational program completely, according to company officials. These 4 schools all opened in 1998 as the result of a partnership between Friendship House, a nonprofit community organization serving District children and youth since 1904, and Edison. According to a Friendship House official, these schools completely implemented Edison's program because they saw it as complementing their own goals. One of these schools--a high school--has supplemented the Edison program by developing a program to expose certain students to college through campus visits and workshops for parents. Six District schools adopted selected elements of their companies' educational programs or chose other educational programs. These 6 schools include 2 schools managed by Edison, 2 by Mosaica, and 2 by Chancellor Beacon. All 6 schools have had recent changes in management companies as a result of mergers or acquisitions. The 2 schools that received services from Edison have opted to retain the curriculum already in place at the schools, rather than adopt the Edison program. In 2001, Edison bought LearnNow, the company that formerly provided services to the 2 schools. According to an Edison official knowledgeable about the schools formerly managed by LearnNow, the primary difference between the companies' curricula was in elementary language arts, for which LearnNow preferred a different reading program than Success for All, which the Edison program uses in its other schools. The 2 schools managed by Mosaica have adopted some elements of the company's educational program, and have plans to adopt more by 2003. In 2001, Mosaica bought Advantage, the company that formerly managed these schools. Both schools retained an instructional approach put in place by the previous company. This approach--direct instruction-- emphasizes drill and repetition. By school year 2003, both schools expect to use direct instruction during the morning session and Paragon in the afternoon. The 2 schools managed by Chancellor Beacon both had distinct curricula in place before being managed by this company; one has combined its existing curriculum with elements of Chancellor Beacon's, and the other has left its existing curriculum in place. The school that has adopted elements of Chancellor Beacon's curriculum has done so by integrating the company's language arts and math curriculum with the school's existing curriculum, according to company officials. This school, which serves at-risk youth, had a curriculum called expeditionary learning, which focuses on learning through field trips and experiences. The other Chancellor Beacon school opted to retain its existing basic-skills curriculum, relying instead on the company's management services and selected educational services, such as assessments. Chancellor Beacon officials support the schools' choices regarding what company components to adopt. Company and school officials identified several reasons why these 6 schools did not completely implement the current company's educational program, opting instead to continue with an existing curriculum. These included continuity for students, the company's flexibility with regard to local customization, and the right of charter school boards to make broad curriculum decisions. The 10 schools in the District managed by these companies shared certain characteristics and served similar student populations in 2001-02. All were public charter schools governed by their own boards and accountable to District oversight authorities. Most (9) were combined schools spanning elementary and middle school grades. As public schools, they were required to accept any student who applied, up to their enrollment limit. Their student populations were substantially minority and poor: 92 to 100 percent African American and 48 to 95 percent receiving free or reduced school lunch. All served some students with special needs, such as learning disabilities: in 9 of the schools, the percentage ranged from 5 to 13 percent, and in one school, 32 percent of the student population had special needs. All but one served no or very few students with limited English proficiency; at the remaining school, students with limited English proficiency represented about 12 percent of all students enrolled. Little rigorous research exists on the effectiveness of the three educational management companies--Edison, Mosaica, and Chancellor Beacon--in the schools they manage across the country; as a result, we cannot draw conclusions about the effect that these companies' programs have on student achievement, parental satisfaction, parental involvement, or school climate. Students in company managed schools have demonstrated academic progress, but more research is needed to determine if this improvement is directly the result of the companies' programs and if this progress is different from that of comparable students in traditional public schools. We reviewed five studies that addressed student achievement, but only one was conducted in a way that allows an assessment of the effect the company's program had on student achievement in one school. The remaining studies had methodological limitations that precluded such assessments. In an effort to learn more about effectiveness, Edison has recently commissioned RAND, a nonprofit research organization that has evaluated educational reforms, to complete a study to assess its program's impact. Determining the effect of an educational company's program can be challenging for researchers. Ideally, evaluations of program effectiveness should involve a comparison of outcomes for one group exposed to a particular program with outcomes of a second group not exposed to the program. Some evaluations assign participants randomly to one group or the other to increase the likelihood that the two groups are roughly equivalent on all characteristics that could affect outcomes. This technique of random assignment is often problematic in educational research because public school enrollment is generally based on residency requirements. Therefore the most common way to compare student achievement results from two different groups of students is to ensure the groups are similar in a number of ways, including socioeconomic status, ethnicity, and performance on prior academic assessments. In addition to controlling for the effects of these background characteristics, it is critical to follow the performance of students over time, preferably before any group has been exposed to the program, and at least one point thereafter.It is also beneficial to analyze individual student data, rather than grade or school-level averages, to account for individual differences and to factor in the effects of missing data. Within the context of rigorous educational program evaluations, various measurements can be used to capture a student's performance on standardized tests. According to several experts, it is important to examine both the percent of students in a particular grade or school making yearly gains and the distribution of these gains across ability levels to ensure that students of all achievement levels are demonstrating academic growth. Another point of interest relates to the length of time students participate in a particular program. Some experts claim that students will exhibit greater gains the longer they participate in a program. However, it is particularly challenging to design studies that address this claim, because educational companies are still a relatively new phenomenon. We identified five studies concerning the three companies operating in the District that met the criteria for our review: inclusion of comparison groups, measurement over time, and focus on academic achievement, parental satisfaction, parental involvement, or school climate. All of the studies addressed the effectiveness of schools managed by Edison. One study also addressed the effectiveness of schools managed by all three private companies-- Edison, Mosaica, and Chancellor Beacon. We were unable to identify any rigorous studies that included analysis of District public schools managed by any of these three companies. Of the studies included in our review, four studies addressed only outcomes related to student achievement, while one study addressed student achievement and other outcomes such as parental satisfaction and school climate. Only one of the studies, A Longitudinal Study of Achievement Outcomes in a Privatized Public School: A Growth Curve Analysis, based on one Edison school in Miami-Dade County, Florida, was conducted in a way that allows an assessment of the program's effect on student achievement. This study followed individual student standardized test scores over a 3-year period and found that Edison students progressed at similar rates to those in the traditional Miami-Dade County Public Schools (MDCPS); this finding is not generalizable to other schools managed by Edison or any other private company. The study was designed to ensure that the Edison students were similar to the random sample of students drawn from MDCPS in terms of school grade, socioeconomic status, as indicated by the percent eligible for free/reduced price lunch, ethnicity, and achievement levels, as indicated by comparability in test scores prior to students enrolling in the Edison school. The study employed two different analytical techniques and both resulted in the finding that the Edison students progressed at similar rates to the traditional public school students. Several methodological techniques that would have strengthened its overall findings could have been employed. These include controlling more specifically for school-level differences between the participating students as well as better ensuring the two groups of students remained equivalent despite study dropouts (subsequently referred to as attrition). Differences in the composition of these groups, after attrition, could affect the test score results. This study did not examine the effect of this company's program on parental satisfaction, parental involvement, or school climate. Significant limitations in the other four studies preclude our making assessments of the effectiveness of schools managed by Edison, Chancellor Beacon, or Mosaica that were included in the studies. These limitations included use of comparison groups that did not adequately control for differences between the students in the company's schools and the students in traditional public schools, instances where achievement data were not available for all students, and lack of adjustment for high attrition rates. Company officials report that one way to determine if their programs are effective is to assess whether students demonstrate academic growth as evidenced by improvement on standardized tests. There is evidence to support the assertion that students enrolled in schools managed by Chancellor Beacon, Mosaica, and Edison have demonstrated academic improvement from one point in time to another, but it is important to determine if these gains are specifically the result of company programs. Additional research is in progress. Edison commissioned RAND to evaluate Edison schools across the country. Where possible, RAND plans to compare the scores of individual Edison students to those of traditional public schools students with similar characteristics. Since it is often difficult to gather individual level student data, RAND will also compare Edison data, either at the grade or school level, to publicly available state data at that same level. RAND expects to publish its findings in 2004. We received written comments on a draft report from the Department of Education. These comments are presented in appendix III. Education stated that there are insufficient data on the effectiveness of private education companies. Education also stated that it encourages others' evaluation efforts. We also received comments from an expert on private education companies, the authors of the MDCPS study that we assessed, the District of Columbia Board of Education, the District of Columbia Public Charter School Board, as well as Edison Schools, Mosaica Education, and Chancellor Beacon Academies. These comments were also incorporated where appropriate. We are sending a copy of this report to the Secretary of Education, the District of Columbia Board of Education, the District of Columbia Public Charter School Board, Edison Schools, Mosaica Education, and Chancellor Beacon Academies. We will make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please call me at (202) 512-7215. Other contacts and contributors to this report are listed in appendix IV. The objectives of our review were to (1) identify the characteristics of the for-profit educational management companies operating in the District and determine the extent to which District schools managed by these companies have used their programs and (2) determine what is known about the effectiveness of these programs, as measured primarily by student achievement. We conducted our work between January and September 2002, in accordance with generally accepted government auditing standards. To identify the characteristics of the programs offered by for-profit companies operating in the District, and determine the extent to which District public schools managed by them have used their programs, we interviewed company officials, representatives of the 10 schools, as well as officials of the District's chartering authorities. We collected information on the companies from their Web sites and obtained technical comments from the companies on the descriptions of their programs. We also contacted education experts and advocates to obtain both their recommendations on research regarding the three for-profit companies and information on any research they might have conducted on the companies. We also acquired information on the companies by reviewing relevant research summaries. We also observed an on-site review of one school's program conducted for District oversight authorities. To determine what is known about the effectiveness of these programs, we collected, reviewed, and analyzed information from available published and unpublished research on the effect on student achievement, parental satisfaction, parental involvement, and school climate of the three companies managing schools in the District. We also spoke with RAND officials about the design and methods of their current evaluation of Edison Schools. To identify relevant research, we followed three procedures: (1) interviewed experts to find out what studies were completed or in the process of being completed on the effectiveness of company programs; (2) conducted library and Internet searches; and (3) reviewed bibliographies of studies that focused on the effectiveness of company programs. We reviewed studies concerning the three companies operating in the District that met the following criteria: included comparison groups and measurement over time, and focused on academic achievement, parental satisfaction, parental involvement, or school climate. Our final list of studies for review consisted of five studies, as listed in appendix II. We did not identify any studies that evaluated the effect of these three programs in District schools. Two GAO social scientists examined each study to assess the adequacy of the samples and measures employed, the reasonableness and rigor of the statistical techniques used to analyze them, and the validity of the results and conclusions that were drawn from the analyses. For selected studies, we contacted the researchers directly when we had questions about their studies. In order to identify research that explicitly addresses the effect on student achievement, parental satisfaction, parental involvement, or school climate of the three companies managing schools in the District, we interviewed experts to determine what studies were completed or in the process of being completed, conducted library and Internet searches, and reviewed bibliographies of studies that focused on the effect of these companies' programs on student achievement. Although five studies met our criteria for review (inclusion of comparison groups, measurement over time, and focus on academic achievement, parental satisfaction, parental involvement, or school climate), we cannot draw conclusions, due to methodological weaknesses, from the four studies listed below.Conclusions from A Longitudinal Study of Achievement Outcomes in a Privatized Public School: A Growth Curve Analysis were presented in the text. Miron, Gary and Brooks Applegate. An Evaluation of Student Achievement in Edison Schools Opened in 1995 and 1996. Kalamazoo, Michigan: The Evaluation Center, Western Michigan University, December 2000. Miron and Applegate analyzed both individual and aggregate level data and compared improvements in the test scores of 10 Edison schools with those of comparison schools, districts, states, and national norms, where applicable. However, significant weaknesses prevented conclusive statements on the effects of Edison schools. These weaknesses included limitations in the available data, such as incompleteness and inconsistency, high attrition rates, and the lack of corresponding adjustments for attrition. Horn, Jerry and Gary Miron. An Evaluation of the Michigan Charter School Initiative: Performance, Accountability, and Impact. Kalamazoo, Michigan: The Evaluation Center, Western Michigan University, July 2000. Horn and Miron examined the percentage of students earning a passing grade on achievement tests in individual charter schools in Michigan in comparison with the percentage passing in the districts where these schools were located. The analysis included schools managed by Edison, Mosaica, and Beacon. Weaknesses included inadequate controls for differences between the students in charter schools and their host districts, no consideration of attrition rates, and the likelihood that analyses were often based on a small number of students. American Federation of Teachers. Trends in Student Achievement for Edison Schools, Inc.: The Emerging Track Record. Washington, D.C.: October 2000. Researchers examined school and grade-level achievement data from 40 Edison schools in eight states and compared it to data gathered from school districts and other schools. Weaknesses included insufficient information about the methodology employed by the states, including construction of comparison groups and matching techniques, and a lack of analysis of attrition rates. Gomez. Ph.D., Joseph and Sally Shay, Ph.D. Evaluation of the Edison Project School. Final Report, 1999-00 (portions related to parental satisfaction and involvement, and school climate). Office of Evaluation and Research, Miami-Dade County Public Schools (MDCPS), April 2001. Gomez and Shay examined responses from surveys MDCPS had administered to parents and teachers from both the Edison school and the control group. However, the outcomes related to parental satisfaction and involvement were measured with single-item survey questions that do not seem to capture the full context of the concepts. School climate was measured with a single-item question on a teacher survey and with school archival data. Shay and Gomez did not report whether any differences are statistically significant, in part because they acknowledged it would be inappropriate to conduct tests of significance on single-item questions. Therefore, there is no evidence to determine whether Edison school parents were more satisfied or involved than those in the control group, or whether the Edison school improved school climate. We are aware of other studies and reports that address the effect of Chancellor Beacon Academies, Mosaica Education, and Edison Schools on academic achievement, parental satisfaction, parental involvement, or school climate; however, the following are examples that did not meet the criteria for inclusion in our review. District of Columbia Public Charter School Board. School Performance Reports. Washington, D.C.: August 2001. Department of Research, Evaluation, and Assessment, Minneapolis Public Schools. Edison/PPL School Information Report 2000-2001. Minneapolis, Minnesota: 2001. Department of Administration, Counseling, Educational and School Psychology, Wichita State University. An Independent Program Evaluation for the Dodge-Edison Partnership School: First Year Interim Report. Wichita, Kansas: 1996. Missouri Department of Elementary and Secondary Education. Charter School Performance Study: Kansas City Charter Schools. Jefferson City, Missouri: 2001. Company-provided information such as annual reports and school performance reports. Other sources of general information included school district websites and other educational services, such as Standard and Poor's School Evaluation Services and the National Association of Charter School Authorizers' Educational Service Provider Information Clearinghouse. In addition to those named above, Rebecca Ackley and N. Kim Scotten made key contributions to this report. Jay Smale, Michele Fejfar, Kevin Jackson, Sara Ann Moessbauer, and Shana Wallace provided important methodological contributions to the review of research. Patrick Dibattista and Jim Rebbe also provided key technical assistance. School Vouchers: Characteristics of Privately Funded Programs. GAO-02- 752. Washington, D.C.: September 26, 2002. School Vouchers: Publicly Funded Programs in Cleveland and Milwaukee. GAO-01-914. Washington, D.C.: August 31, 2001. Charter Schools: Limited Access to Facility Financing. GAO/HEHS-00- 163. Washington, D.C.: September 12, 2000) Charter Schools: Federal Funding Available but Barriers Exist. HEHS-98- 84. Washington, D.C.: April 30, 1998. Charter Schools: Recent Experiences in Accessing Federal Funds. T-HEHS-98-129. Washington, D.C.: March 31, 1998. Charter Schools: Issues Affecting Access to Federal Funds. T-HEHS-97- 216. Washington, D.C.: September 16, 1997. Private Management of Public Schools: Early Experiences in Four School Districts. GAO/HEHS-96-3. Washington, D.C.: April 19, 1996. Charter Schools: New Model for Public Schools Provides Opportunities and Challenges. GAO/HEHS-95-42. Washington, D.C.: January 18, 1995. School-Linked Human Services: A Comprehensive Strategy for Aiding Students At Risk of School Failure. GAO/HRD-94-21. Washington, D.C.: December 30, 1993.
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In recent years, local school districts and traditional public schools have taken various initiatives to improve failing schools. School districts and charter schools are increasingly contracting with private, for-profit companies to provide a range of education and management services to schools. In the District of Columbia, some public schools contract with three such companies: Edison Schools, Mosaica Education, and Chancellor Beacon Academies. These three companies have programs that consist of both management services, such as personnel, and educational services, which they offer to schools across the nation; in the District, most of the schools managed by these companies have either adopted selected elements of their companies' programs or chosen other educational programs. Each company provides services such as curriculum, assessments, parental involvement opportunities, and student and family support. Little is known about the effectiveness of these companies' programs on student achievement, parental satisfaction, parental involvement, or school climate because few rigorous studies have been conducted. Although the companies publish year-to-year comparisons of standardized test scores to indicate that students in schools they manage are making academic gains, they do not present data on comparable students who are not in their programs, a necessary component of a program effectiveness study.
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The QDR was required by the Military Force Structure Review Act, which was included in the National Defense Authorization Act for Fiscal Year 1997 (P.L. 104-201). The act directed the Secretary of Defense, in consultation with the Chairman, Joint Chiefs of Staff, to conduct a review of the defense needs from 1997 to 2015. Since its bottom-up review in 1993, DOD has repeatedly stated that it must reduce its infrastructure to offset the cost of future modern weapon systems. Our analysis of DOD's FYDPs and infrastructure activities over the past several years showed that the infrastructure portion of DOD's budget had not decreased as DOD planned. Further, planned funding increases for modern weapon systems have repeatedly been shifted further into the future with each succeeding FYDP. In May 1997, under the balanced budget agreement, the President and Congress set forth a budget blueprint for the national defense budget function. As part of the agreement, national defense funding levels were established for 1999-2002. The FYDP is an authoritative record of current and projected force structure, costs, and personnel levels that has been approved by the Secretary of Defense. In addition, it is used extensively throughout DOD for analytical purposes and for making programming and budgeting decisions. The 1998 FYDP supported the President's 1998 budget and included budget estimates for 1998-2003. The 1999 FYDP supports the President's 1999 budget and includes budget estimates for 1999-2003. A principal objective of the QDR was to understand and devise ways to manage the financial risk in DOD's program. In the QDR, the Department acknowledges that it has a historic, serious problem--the postponement of procurement modernization plans to pay for current operating and support costs. DOD refers to this as migration of funds. According to DOD, the chronic erosion of procurement funding has three general sources: underestimated day-to-day operating costs, unrealized savings from initiatives such as outsourcing or business process reengineering, and new program demands. The QDR concluded that as much as $10 billion to $12 billion per year in future procurement funding could be redirected as a result of these three general sources. The QDR also identifies other areas of significant future cost risks. To address this financial instability, the QDR directed DOD to cut some force structure and personnel, eliminate additional excess facilities through more base closures and realignments, streamline infrastructure, and reduce quantities of some new weapon systems. By taking these actions, the Secretary of Defense intended that the 1999 budget and FYDP would be fiscally executable, modernization targets would be met, the overall defense program would be rebalanced, and the program would become more stable. During the QDR, DOD identified initiatives to reduce infrastructure costs and personnel. However, even as the QDR report was released, the Department acknowledged that more could be done. The Department's November 1997 Defense Reform Initiative Report provided a second set of initiatives to streamline and improve DOD's infrastructure and support activities. Money saved by these initiatives is to help fund weapons modernization. The Defense Management Council, chaired by the Deputy Secretary of Defense, was charged by the Secretary to ensure implementation of the reform decisions. The Council also was directed to examine similar reforms for each of the services and to negotiate an annual performance contract with the director of each defense agency. The 1999 FYDP reflects the budget blueprint outlined in the balanced budget agreement, and therefore, its total budget does not vary greatly from that in the 1998 FYDP. The common 5-year period of both FYDPs (1999-2003) shows that the 1998 FYDP totaled $1,355 billion and the 1999 FYDP totaled $1,356 billion. Table 1 compares the two plans, by primary appropriation account. As shown in table 1, DOD adjusted its three largest appropriations substantially in the 1999 FYDP. Specifically, DOD added $24.9 billion to operation and maintenance (O&M) accounts and decreased the procurement and military personnel accounts by $16.4 billion and $6.4 billion, respectively. (App. I shows the differences between accounts in the 1998 and 1999 FYDPs for each appropriation.) DOD made other adjustments in the 1999 FYDP to (1) meet unplanned operating expenses, such as medical care, or new program demands, such as the National Missile Defense System and (2) avoid disrupting or displacing other investment plans. In the 1999 FYDP, the Defense Health Program, which accounts for about 11 percent of annual O&M spending, is projected to receive higher funding in every year (1999-2003) when compared with the 1998 FYDP. The cumulative projected increase from the 1998 FYDP is $1.6 billion. According to a Defense Health Affairs official, the projected increase would adequately fund the core medical mission, which is comprised of 2 parts, direct care and managed care contracts. However, significant cost-saving initiatives will be necessary in the non-patient care areas of the program. The 1999 FYDP includes an acquisition program stability reserve to address unforeseeable cost growth that can result from technical risk and uncertainty associated with developing advanced technology for weapons systems, for example, unexpected engineering problems. Currently, cost growth in one program requires offsets from other programs, which in turn can disrupt the overall modernization program. DOD's plan is to distribute the reserve among programs for the budget year before a President's budget is submitted to Congress. The service acquisition executives centrally will manage the reserves, and the Under Secretary of Defense for Acquisition and Technology will provide oversight. These reserve funds total $2.4 billion for 2000-2003. Between 2000 and 2003, approximately $2.3 billion, or 97 percent, of the funding is programmed in procurement accounts for the Army, Air Force, Navy, and Marine Corps. The remaining 3 percent is programmed in the defense-wide research, development, test, and evaluation account. Table 2 shows the allocation of these funds, by year. As stated in a recent report on weapon acquisitions, we have not evaluated the program stability reserve or the way DOD plans to implement it. Nonetheless, DOD's use of the reserve has the potential for communicating to program managers which practices will be encouraged and which ones will not. For example, if the reserve funds are used primarily to pay for problems that are revealed in late product development or early production, the fund could reinforce existing incentives for not dealing with problems until they occur. Conversely, if the fund is used to resolve and preclude problems, the fund could encourage problems to be revealed earlier in programs. The 1999 FYDP increased National Missile Defense System research, development, test, and evaluation funding by $1.4 billion, or 75 percent ($1.8 billion to $3.2 billion), from the 1998 FYDP. The program is to provide protection against a limited ballistic missile attack. DOD's approach, commonly referred to as "3+3," is to develop, within 3 years, elements of an initial system that can be deployed within 3 years of a deployment decision. The initial deployment decision review is scheduled for 2000. According to DOD, if a sufficient missile threat to the United States has not materialized at that time, development will continue, and the program will maintain a capability to deploy within 3 years. The QDR directed that some planned procurement be cut, in part to address overall affordability concerns. In the 1999 FYDP, DOD reduced quantities of some weapon systems from the 1998 FYDP. For example, DOD reduced the planned purchase of Joint Surveillance Target Attack Radar Systems' aircraft from 8 to 2, F-22 fighters from 70 to 58, and F/A-18E/F fighters from 228 to 204. When comparing the 1999 FYDP with the 1998 FYDP, substantial planned funding appears in the 1999 FYDP outyears. OSD has programmed funds in two appropriation accounts without distributing the amounts to a DOD organization. Within the revolving and management funds, DOD working capital funds are anticipated to receive $450 million in 2000 to reduce advance billings. Moreover, in 2003, $700 million is programmed for potential purchases of war reserve materials. According to an Army official, the Army and an outside study group have verified requirement shortages in Army war reserve materials. If future DOD programming and budgeting cycles reveal that the programmed funds are needed, then the amounts would be requested in the applicable President's budget. Accordingly, trade-offs within other DOD programs would not have to be made. Estimated costs associated with DOD's request for the base closure and realignment round in 2001 appear in the defense-wide contingencies account. Net costs of $832 million and $1.45 billion are programmed in fiscal years 2002 and 2003, respectively. The costs represent a net amount, since DOD anticipates savings from the avoidance of military construction and the cessation of some O&M activities. If Congress does not give DOD new base closure authority, DOD could budget these funds for other activities. In 1997, infrastructure spending was 59 percent of DOD's total budget, the same percentage that was reported in DOD's bottom-up review report for 1994. Both the 1998 and the 1999 FYDPs projected that infrastructure spending would decline to 54 percent of DOD's budget in 2003. To modernize the force, DOD plans to increase procurement funding to $60 billion per year. If DOD is to achieve a $60 billion budget goal, it must reduce funding for its infrastructure activities from the military personnel and O&M accounts. As explained in our previous reports and reflected in the 1999 FYDP, about 80 percent of DOD's infrastructure activities are funded from these appropriation accounts. However, as discussed in the next section, our review of the 1999 FYDP found substantial risks that DOD's plans may not occur, thereby jeopardizing DOD's attempts at fixing the migration of funds problem and adhering to procurement plans. Although DOD made adjustments in the 1999 FYDP to decrease the risk that funds would migrate from procurement to unplanned operating expenses, we continue to see risks that DOD's program may not be executable as planned. These risks involve unrealized savings and other program needs. We reported in May 1998 that as a result of lower projected inflation rates by the executive branch, DOD calculated that its goods and services over the 1999-2003 period would cost about $21.3 billion less than projected 1 year ago. In addition, DOD projected savings of about $2.8 billion as a result of lower projected fuel costs and favorable foreign currency exchange rates. DOD said that with these assumed savings, it can fund additional procurement items and civilian and military pay raises, which account for $15 billion of the $24.1 billion. The executive branch's projection of DOD's inflation rate for 1999 is 1.5 percent, which is a historically low rate of inflation. If the projected savings from lower inflation, lower fuel costs, and favorable foreign currency exchange rates materialize, DOD can fund the additional programs. However, if those savings do not materialize, DOD will have to adjust its future budgets by cutting programs and/or requesting additional budget authority from the President and Congress. DOD's decision to reduce personnel as part of the QDR was driven largely by the objective of identifying dollar savings that could be used to increase modernization funding. We reported in April 1998 that considerable risk remains in some of the services' plans to cut 175,000 personnel and save $3.7 billion annually by 2003. The projected cuts and savings are as a result of the QDR and are in addition to those previously planned. The 1999 FYDP does not include all the personnel cuts directed by the QDR. With the exception of the Air Force, the services have plans that should enable them to achieve the majority of their active military cuts by the end of 1999. OSD determined that some of the Air Force's active military cuts announced in May 1997 to restructure fighter squadrons and consolidate bomber squadrons should not be included in the 1999 FYDP because the plans were not executable at this time. In addition, plans for some cuts included in the 1999 FYDP are still incomplete or based on optimistic assumptions. For example, there is no agreement within the Army on how 25,000 of the 45,000 reserve cuts will be allocated. This decision on how to allocate the reserve cuts will not be made before the next force structure review. Moreover, plans to achieve savings through outsourcing and reengineering may not be implemented by 2003 as originally anticipated. For example, the Army plans to compete 48,000 positions to achieve the majority of its civilian reductions. However, according to an Army official, those reductions cannot be completed by 2003. Although it announced studies covering about 14,000 positions, it has not identified the specific functions or location of the remaining positions to be studied. In addition, the Army's plan to eliminate about 5,300 civilian personnel in the Army Materiel Command through reengineering efforts involves risk because the Command does not have specific plans to achieve these reductions. Although outsourcing is only a small part of the Navy's QDR cuts, the Navy has an aggressive outsourcing program that involves risk. Specifically, the Navy has programmed savings of $2.5 billion in the 1999 FYDP based on plans to study 80,500 positions--10,000 military and 70,500 civilian--by 2003. Moreover, the Navy has not identified the majority of the specific functions that will be studied to achieve the expected savings. According to a Navy acquisition official, the Navy's ambitious projected outsourcing savings may not materialize, thereby jeopardizing its long-term O&M and procurement plans. OSD recognizes that personnel cuts and the planned savings from those cuts have not always been achieved, which contribute to the migration of procurement funding. Therefore, OSD has established two principal mechanisms for monitoring the services' progress in reducing personnel positions. First, it expects to review the services' plans for reducing personnel positions during annual reviews of the services' budgets. Second, the Defense Management Council will monitor the services' progress in meeting outsourcing goals. DOD's plans are based on the assumption that Congress will modify the permanent statutory minimum end-strength levels. These personnel levels, or floors, require the services to collectively employ at least 1,414,590 active duty military personnel. This assumption risks the execution of DOD plans. If Congress does not lower the floors, costs for military personnel will be substantially higher. Currently, DOD plans to have 1,396,000 active duty military personnel in 1999, but if the services must retain about 19,000 personnel to meet the floors, they would need about $1.1 billion more in 1999 military personnel funds. Furthermore, costs to meet the floors in 2000-2003 would be higher because DOD projects lower end-strength levels than currently permitted by law. Notably, in 2003, DOD projects 1,366,000 personnel--about 49,000 below current statutory floors. If DOD is precluded from implementing its planned personnel reductions, it would have to make other compensating adjustments to its overall program. The QDR reported that unprogrammed expenses arise that displace funding previously planned for procurement. The most predictable of these expenses are underestimated costs in day-to-day operations, especially for depot maintenance, real property maintenance, and medical care. The least predictable are unplanned deployments and smaller-scale contingencies. The services and defense agencies plan to obligate $73 billion for depot maintenance between 1999 and 2003. This estimate, despite its magnitude, does not allow the defense agencies and services to achieve OSD's goal of funding 85 percent of their maintenance requirements during 1999-2003. According to DOD, the potential liability of unfunded depot maintenance in the 1999 FYDP is $300 million per year. For example, the Army--which added $362 million between 1999 and 2003--is projected to meet only 68 percent of its depot maintenance requirements in 1999 and 79 percent by 2003. Despite four base realignment and closure rounds, DOD still has excess, aging facilities and has not programmed sufficient funds for maintenance, repair, and upgrades. Each service has risk embedded in its real property maintenance program to the extent that validated real property needs are not met. For example, in the 1999 President's budget submission, the Air Force plans to fund real property maintenance at the preventive or preservation maintenance level in 1999, which allows only for day-to-day recurring maintenance. This results in risk because the physical plant is degraded and the backlog of maintenance and repair requirements increases. Also, while the Marine Corps added funds during 1999-2003, the Commandant of the Marine Corps determined that the planned funding would merely minimize deterioration of its facilities. Further, although the Army added approximately $1 billion for real property maintenance in the 1999 FYDP, it was not projected to meet its funding goal until 2002. According to a Defense Health Affairs official, the cumulative O&M funding increase of $1.6 billion over the 1998 FYDP adequately funds the core medical mission, which is comprised of 2 parts, direct care and managed care contracts. However, the 1999 FYDP funding is contingent on several assumptions that contain risk. First, the Defense Health Program assumes program-related personnel reductions due to outsourcing and privatization initiatives. Estimated savings for these efforts grow to $131 million by 2003. Second, the program assumes a 1-percent savings from utilization management, such as reducing the length of hospital stays from 4 days to 3 days. Third, population adjustments due to force structure reductions play a pivotal role. The projected program assumes that Congress will authorize QDR recommended reductions of 61,700 active military personnel and the reductions will be a mix of retirements and nonretirement attrition. If end-strength reductions are not authorized or a higher percentage of the reduction stems from retirements than originally planned, the program will experience higher costs than estimated. Without the authority to reduce active duty end strengths, the beneficiary population of service personnel and their dependents will not decrease. In addition, retirements do not reduce costs because retirees and their dependents remain part of the beneficiary population. According to a Defense Health Affairs official, the funded program does not include an allowance for the impact of advances in medical technology and the intensity of treatment that was identified in a previous GAO report as a risk factor. Our recent work raises questions about whether cost savings and efficiencies in defense health care will materialize. In August 1997, we reported that a key cost-saving initiative of TRICARE, DOD's new managed health care system, was returning substantially less savings than anticipated and the situation was not likely to improve. In our February 1998 testimony to Congress, we stated that implementation of TRICARE was proving complicated and difficult and that delays had occurred and may continue. Notwithstanding the historical costs of several, often overlapping contingency operations, the 1999 FYDP provides funds only for the projected "steady state" costs of Southwest Asia operations--$800 million in 1999. According to OSD officials, by design the FYDP does not include funds for (1) the sustainment of increased operations in the Persian Gulf to counter Iraq's intransigence on United Nations inspections, (2) the President's extension of the mission in Bosnia, or (3) unknown contingency operations. DOD's position is that costs for the mission in Bosnia should be financed separately from planned DOD funding for 1999-2003. Further, the QDR concluded that contingency operations will likely occur frequently over the next 15 to 20 years and may require significant forces, given the national security strategy of engagement and the probable future international environment. Thus, it is likely that DOD will continue to have unplanned expenses to meet contingency operations. In reporting on lessons learned from prior base closure rounds, we noted that savings, though not well documented, are expected to be substantial.However, the precise amount and timing of net recurring savings realized from base closure actions is uncertain. For example, when compared with the 1998 FYDP, the Air Force has revised its 1999 FYDP O&M savings for the fourth round of base closures. In the 1998 FYDP, the Air Force estimated net savings at $253 million, whereas in the 1999 FYDP it projects net savings at $85 million--a difference of $167 million. This is the second consecutive FYDP that the Air Force has lowered its expectations of near-term savings. In our comparison of the 1997 and 1998 FYDPs, we reported that the Navy's savings estimates for the fourth round of base closures were incorrect in that the savings were for outsourcing and competition initiatives. In the 1999 FYDP, the Navy continues to report estimated outsourcing savings incorrectly as base closure savings. According to a Chief of Naval Operations official, the Navy will work with appropriate budget and programming offices to correct the reported FYDP information. We reported that, since 1965, O&M spending has increased consistently with increases in procurement spending. However, in its 1998 FYDP, DOD was optimistic in projecting increases in procurement together with decreases in O&M. In the 1999 FYDP, DOD takes a more moderate position, projecting that O&M spending in real terms will remain relatively flat while procurement increases at a moderate rate. Figure 3 shows the historical relationship between O&M and procurement spending and compares the projections of the 1998 and the 1999 FYDPs. We reported that DOD's plans for procurement spending also run counter to another historical trend. Specifically, DOD procurement spending rises and falls in nearly direct proportion to movements in its total budget; however, in the 1998 FYDP, DOD projected an increase in procurement of about 43 percent but a relatively flat total DOD budget. The 1999 FYDP procurement projections continue to run counter to the historical trend, although DOD has moderated its position. Specifically, DOD projects that procurement funding will rise in real terms during 1998-2003 by approximately 29 percent while the total DOD budget will remain relatively flat. Figure 4 shows the historical relationship between the total DOD budget and procurement spending and DOD's 1999 FYDP projections. Over the 1995-98 FYDPs, DOD did not meet its plans to increase procurement. For example, since 1995, DOD has lowered the estimated funding for 1998 procurement from about $57 billion in the 1995 FYDP to about $43 billion in the 1998 FYDP. The 1999 FYDP continues this trend, as table 3 shows. In its QDR report, DOD recognized that these trends have longer-term implications. Specifically, "some of these reductions have accumulated into long-term projections, creating a so-called 'bow wave' of demand for procurement funding in the middle of the next decade." The QDR report concludes that "this bow wave would tend to disrupt planned modernization programs unless additional investment resources are made available in future years." The bow wave is particularly evident when considering DOD's aircraft modernization plans. In September 1997, we reported that DOD's aircraft investment strategy involved the purchase or significant modification of at least 8,499 aircraft in 17 aircraft programs at a total procurement cost of $334.8 billion (in 1997 dollars) through the aircrafts' planned completions.DOD's planned funding for the 17 aircraft programs exceeds, in all but 1 year between fiscal year 2000 and 2015, the long-term historical average percentage of the budget devoted to aircraft purchases. Compounding these funding difficulties is the fact that these projections are very conservative. The projections do not allow for real program cost growth, which historically has averaged at least 20 percent, nor do the projections allow for the procurement of additional systems. However, as a result of the QDR, the 1999 FYDP service aircraft procurement accounts have been moderated. Compared with the 1998 FYDP, the 1999 FYDP reduces projected funding by $3.9 billion, or 4 percent. The QDR report cited cost growth of complex, technologically advanced programs and new program demands as two areas contributing to the migration of funds from procurement. For years, we have reported on the impact of cost growth in weapon systems and other programs such as environmental restoration. Specifically, we reported in 1994 that program cost increases of 20 to 40 percent have been common for major weapon programs and that numerous programs experienced increases much greater than that. We continue to find programs with optimistic cost projections. For example, we reported in June 1997 that we were skeptical the Air Force could achieve planned production cost reductions of $13 billion in its F-22 fighter aircraft program. Other DOD programs have also experienced cost growth. For example, DOD estimated in December 1997 that the projected life-cycle cost of the Chemical Demilitarization Program had increased by 27 percent over the previous year's estimate. As stated earlier, DOD has established a reserve fund that can be used to help alleviate disruptions caused by cost growth in weapon systems and other programs due to technological problems. However, it remains to be seen whether the need will exceed available reserve funds. Policy decisions and new program demands can also cause perturbations in DOD's funding plans, according to the QDR report. DOD has programmed $1.4 billion more for the National Missile Defense System in the 1999 FYDP than the 1998 FYDP. Despite the increase, considerable risk remains with the program's funding. For example, technical and schedule risks are very high, according to the QDR, our analysis, and an independent panel. The panel noted that based on its experience, high technical risk is likely to cause increased costs and program delays and could cause program failure. In addition to the technical and schedule risks, the 1999 FYDP does not include funds to procure the missile system. If the decision is made in 2000 to deploy an initial missile system by 2003, billions of dollars of procurement funds would be required to augment the currently programmed research and development funds. As another example, the 1999 FYDP was predicated on the U.S. shifting to a Strategic Arms Reduction Treaty (START) II nuclear force posture. START II calls for further reductions in aggregate force levels, the elimination of multiple-warhead intercontinental ballistic missile launchers, the elimination of heavy intercontinental ballistic missiles, and a limit on the number of submarine-launched ballistic missile warheads. START II was approved by the U.S. Senate in January 1996 but is pending enforcement until ratification by Russia's parliament. In the absence of START II enforcement, the United States may decide to sustain the option of continuing START I force levels. According to the Secretary of Defense's 1998 Annual Report to the President and the Congress, the 1999 budget request includes an additional $57 million beyond what otherwise would have been requested to sustain the START I level. However, maintaining this force beyond 1999 will result in additional unplanned costs. Recently, DOD has found itself in a counterproductive cycle. Past attempts at streamlining infrastructure and/or reengineering business practices have not produced the anticipated savings programmed in recent FYDPs. Money saved from these initiatives was to help fund modernization. For the past 5 years, projected procurement funding has slipped with each succeeding FYDP. Moreover, unanticipated contingency costs, higher day-to-day operating expenses, and new program demands also have caused the migration of funds from procurement to operating and support costs. In the QDR, DOD specified this problem, identified its causes, and directed measures to make the program more stable. In the 1999 FYDP, DOD has taken a step toward abating this chronic migration of funds. However, even with a rebalanced program, DOD faces substantial risk in its execution of this first, post-QDR plan. We found that several of DOD's projections are questionable and/or contain risk. Furthermore, as long as the national defense funding levels agreed to in the balanced budget agreement remain unaltered, solutions to DOD's funding issues must be found within its current and projected budget. Therefore, it is critical that DOD continues to strive for realistic assumptions and plans in its future budget cycles. In commenting on a draft of this report, DOD took issue with some of our characterizations. DOD stated that the 1999 FYDP represents considerable progress toward the objectives of funding readiness-related O&M requirements, implementing plans to streamline and reduce infrastructure, and reducing the risk of migrating funds. DOD noted that our report does not acknowledge that the risks in achieving these objectives have been substantially reduced in the 1999 FYDP and the Department's program is on a sounder financial footing. Moreover, DOD acknowledges that all risks have not been eliminated and intends to pursue future initiatives to address the remaining risks. We agree, as stated in our report, that DOD made adjustments from the 1998 FYDP to the 1999 FYDP to increase O&M and decrease the risk that funds would migrate from procurement to operating expenses. Moreover, it has plans to reduce infrastructure. However, as explained in this report, we continue to see risks that DOD's program may not be executable as planned in part because the services' plans to reduce military and civilian personnel are incomplete or based on optimistic assumptions. DOD said that it has been able to reduce the proportion of resources devoted to infrastructure activities from 47 percent in 1994 to 45 percent in 1997, as a percent of total obligation authority. Moreover, DOD states that we are inaccurate in reporting that infrastructure in 1997 remains at 59 percent of DOD's total budget, the same percentage as in 1994. Our method of calculating the infrastructure in DOD's budget is based on the methodology prescribed by OSD's Office of Program Analysis and Evaluation (PA&E) in late 1995. We have consistently used this methodology since then to report on DOD's progress in reducing its infrastructure and DOD has agreed with our prior reports, findings, and analysis. The methodology includes both direct infrastructure (that which can be clearly identified in the FYDP) and a percentage of the defense working capital funds that represents the infrastructure portion of these funds. In discussing DOD's comments with PA&E officials, they stated that for a number of reasons, including the difficulty of estimating the infrastructure portion of defense working capital funds, PA&E is evaluating different methodologies to estimate infrastructure in its budget. One such measure, which DOD used to derive the percentages discussed in its letter, is to estimate only the direct infrastructure. However, there are important limitations in this methodology. While it is a simpler methodology, it excludes a significant part of the infrastructure, which PA&E previously considered important to capture. Moreover, DOD established an important baseline in its October 1993 bottom-up review report when it said that infrastructure activities in 1994 would account for approximately 59 percent of DOD's total obligational authority (including revolving funds) and that it needed to reduce that infrastructure. We strongly believe that it is important to maintain a consistent baseline to measure changes in infrastructure over time. DOD believes that its assumptions of the savings rates for outsourcing personnel are conservative. According to DOD, the estimated savings reflected in the 1999 FYDP assume that the Department successfully executes the currently projected schedule of competitions. Moreover, DOD emphasizes that it needs to closely monitor implementation of projected competition schedules through the programming and budgeting cycles. We believe DOD has taken a step in the right direction to monitor implementation of the outsourcing process. However, considerable risk remains in the services' plans to cut planned personnel by 2003 because the plans are still incomplete or based on optimistic assumptions. DOD suggested several technical changes for clarification and accuracy, which we incorporated in the report where appropriate. DOD's comments are reprinted in their entirety in appendix II. To determine the major program adjustments in DOD's fiscal year 1999 FYDP, we interviewed officials in the Office of Under Secretary of Defense (Comptroller); the Office of Program Analysis and Evaluation; the Army, Navy, and Air Force program and budget offices; and Office of the Assistant Secretary of Defense (Health Affairs). We examined a variety of DOD planning and budget documents, including the 1998 and 1999 FYDPs and the QDR report. We also reviewed the President's fiscal year 1999 budget submission; our prior reports; and pertinent reports by the Congressional Budget Office, the Congressional Research Service, and others. To determine the implications of program changes and underlying planning assumptions, we discussed the changes with DOD officials. We compared DOD's automated data with published documents provided by DOD. Specifically, we compared total budget estimates, appropriation totals, military and civilian force levels, force structure levels, and some specific program information. Based on our comparisons, we were satisfied that DOD's automated FYDP data and published data were in agreement. We did not test DOD's management controls of the FYDP data. Our review was conducted from November 1997 through June 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to other appropriate Senate and House Committees; the Secretaries of Defense, the Air Force, the Army, and the Navy; and the Director, Office of Management and Budget. We will also provide copies to others upon request. If you have any questions concerning this report, please call me on (202) 512-3504. Major contributors to this report are listed in appendix III. The following tables show the differences between accounts in the 1998 and 1999 Future Years Defense Programs (FYDP) for each appropriation. Totals may not add due to rounding. In the 1998 FYDP for 1999, $965 million was programmed for the modernization reserve. Robert Pelletier Deborah Colantonio William Crocker Douglas Horner Shawn Bates Bob Kenyon Robert Henke The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) Future Years Defense Program (FYDP) for fiscal year 1999, focusing on: (1) DOD's plans to address the financial and programmatic risk areas that the Quadrennial Defense Review (QDR) found in DOD's program; (2) comparing DOD's 1999 FYDP with its 1998 FYDP to identify major changes and adjustments to address these risks areas; and (3) whether there were risk areas in DOD's 1999 program. GAO noted that: (1) although DOD has reduced military and civilian personnel, force structure, and facilities over several years, DOD has been unable to shift funds from infrastructure to modernization; (2) in 1997, infrastructure spending was 59 percent of DOD's total budget, the same percentage as in 1994; (3) DOD acknowledged in the QDR that it has postponed procurement plans because funds were redirected to pay for underestimated operating costs and new program demands, and projected savings from outsourcing and other initiatives had not materialized; (4) to address this diversion of funds, the QDR directed DOD to cut some force structure and personnel, eliminate additional excess facilities through more base closures and realignments, streamline infrastructure, and reduce quantities of some new weapon systems; (5) DOD made adjustments in the 1999 FYDP to decrease the risk that funds would migrate from procurement to unplanned operating expenses; (6) DOD has programmed additional funds for new programs and has moderated its procurement plans; (7) as a result of these and other changes, DOD believes that its 1999 program is on a sounder financial footing; (8) although DOD made adjustments to the 1999 FYDP, GAO continues to see risks that DOD's program may not be executable as planned; (9) for example, DOD projects savings of $24.1 billion as a result of lower projected inflation rates and fuel costs and favorable foreign currency exchange rates; (10) if these rates and costs do not hold true to DOD's assumptions, projected savings will not materialize, and DOD will have to adjust future budgets by cutting programs and/or requesting additional budget authority; (11) further indication of risk can be found in DOD's procurement plans and additional proposed initiatives to reduce facilities; (12) DOD's estimates for procurement spending, in relation to DOD's total budget, run counter to DOD's experience over the last 32 years; (13) DOD procurement spending rises and falls in nearly direct proportion to movements in its total budget; (14) DOD projects that procurement funding will rise in real terms during 1998-2003 by approximately 29 percent while the total DOD budget will remain relatively flat; (15) on some important proposed initiatives, DOD will need congressional approval; and (16) as long as the funding levels agreed to in the balanced budget agreement for national defense remain unaltered, DOD must solve its funding issues within its current and projected total budget.
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Since the early 1990s, the unprecedented growth in computer interconnectivity, most notably growth in use of the Internet, has revolutionized the way our government, our nation, and much of the world communicate and conduct business. The benefits have been enormous in terms of facilitating communications, business processes, and access to information. However, without proper safeguards, this widespread interconnectivity poses enormous risks to our computer systems and, more importantly, to the critical operations and infrastructures they support. While attacks to date have not caused widespread or devastating disruptions, the potential for more catastrophic damage is significant. Official estimates show that over 100 countries already have or are developing computer attack capabilities. Hostile nations or terrorists could use cyber-based tools and techniques to disrupt military operations, communications networks, and other information systems or networks. The National Security Agency has determined that potential adversaries are developing a body of knowledge about U.S. systems and about methods to attack these systems. According to Defense officials, these methods, which include sophisticated computer viruses and automated attack routines, allow adversaries to launch untraceable attacks from anywhere in the world. According to a leading security software designer, viruses in particular are becoming more disruptive for computer users. In 1993 only about 10 percent of known viruses were considered destructive, harming files and hard drives. But now about 35 percent are regarded as harmful. Information sharing and coordination among organizations are central to producing comprehensive and practical approaches and solutions to these threats. First, having information on threats and on actual incidents experienced by others can help an organization better understand the risks it faces and determine what preventative measures should be implemented. Second, more urgent, real-time warnings can help an organization take immediate steps to mitigate an imminent attack. Lastly, information sharing and coordination are important after an attack has occurred to facilitate criminal investigations, which may cross jurisdictional boundaries. Such after-the-fact coordination could also be useful in recovering from a devastating attack, should such an attack ever occur. The recent episode of the ILOVEYOU computer virus in May 2000, which affected governments, corporations, media outlets, and other institutions worldwide, highlighted the need for greater information sharing and coordination. Because information sharing mechanisms were not able to provide timely enough warnings against the impending attack, many entities were caught off guard and forced to take their networks off-line for hours. Getting the word out within some federal agencies themselves also proved difficult. At the Department of Defense, for example, the lack of teleconferencing capability slowed the response effort because Defense components had to be called individually. The National Aeronautics and Space Administration (NASA) had difficulty communicating warnings when e-mail services disappeared, and while backup communication mechanisms are in place, NASA officials told us that they are rarely tested. We also found that the few federal components that either discovered or were alerted to the virus early did not effectively warn others. For example, officials at the Department of the Treasury told us that the U.S. Customs Service received an Air Force Computer Emergency Response Team (AFCERT) advisory early in the morning of May 4, but that Customs did not share this information with other Treasury bureaus. The federal government recognized several years ago that addressing computer-based risks to our nation's critical infrastructures required coordination and cooperation across federal agencies and among public- and private-sector entities and other nations. In May 1998, following a report by the President's Commission on Critical Infrastructure Protection that described the potential devastating implications of poor information security from a national perspective, the government issued Presidential Decision Directive (PDD) 63. Among other things, this directive tasked federal agencies with developing critical infrastructure protection plans and establishing related links with private industry sectors. It also required that certain executive branch agencies assess the cyber vulnerabilities of the nation's critical infrastructures--information and communications; energy; banking and finance; transportation; water supply; emergency services; law enforcement; and public health, as well as those authorities responsible for continuity of federal, state, and local governments. A variety of activities have been undertaken in response to PDD 63, including development and review of individual agency critical infrastructure protection plans, identification and evaluation of information security standards and best practices, and efforts to build communication links. In January 2000 the White House released its NationalPlanforInformationSystemsProtectionas a first major element of a more comprehensive effort to protect the nation's information systems and critical assets from future attacks. The plan focuses largely on federal efforts being undertaken to protect the nation's critical cyber- based infrastructure. Subsequent versions are to address protecting other elements of the nation's infrastructure, including those pertaining to the physical infrastructure and specific roles and responsibilities of state and local governments and the private sector. Moreover, a number of government and private sector organizations have already been established to facilitate information sharing and coordination. These range from groups that disseminate information on immediate threats and vulnerabilities, to those that seek to facilitate public-private sector information sharing on threats pertaining to individual infrastructure sectors, and those that promote coordination on an international scale. At the federal level, for example, the National Infrastructure Protection Center (NIPC), located at the Federal Bureau of Investigation (FBI), is to serve as a focal point in the federal government for gathering information on threats as well as facilitating and coordinating the federal government's response to incidents impacting key infrastructures. It is also charged with issuing attack warnings to private sector and government entities as well as alerts to increases in threat conditions. The Federal Computer Incident Response Capability (FedCIRC) is a collaborative partnership of computer security and law enforcement professionals established to handle computer security incidents and to provide both proactive and reactive security services for the federal government. In addition, the National Institute of Standards and Technology (NIST) is working to facilitate information sharing in the security community by building a database containing detailed information on computer attacks and the Critical Infrastructure Assurance Office (CIAO) is working to coordinate private sector participation in information gathering in the area of cyber assurance. The Administration is also undertaking efforts to facilitate information sharing with other nations. Examples of other organizations focusing on information sharing and coordination include the following: Carnegie Mellon University's CERT Coordination Center,which is charged with establishing a capability to quickly and effectively coordinate communication among experts in order to limit damage, respond to incidents, build awareness of security issues across the Internet community. The System Administration, Networking, and Security (SANS) Institute, which is a cooperative research and education organization through which more than 96,000 system administrators, security professionals, and network administrators share the lessons they are learning and find solutions for challenges they face. The National Coordinating Center for Telecommunications, which is a joint industry/government organization that is focusing on facilitating information sharing between the telecommunications industry and government. The Financial Services Information Sharing and Analysis Center, which is a similar organization that exclusively serves the banking, securities, and insurance industries. Agora, which is a forum that is composed more than 300 people from approximately 100 companies and 45 government agencies, including Microsoft, Blue Shield, the FBI, U.S. Secret Service, U.S. Customs Service agents, and the Royal Canadian Mounted Police as well as local police, county prosecutors, and computer professionals from the Pacific Northwest. Members voluntarily share information on common computer security problems, best practices to counter them, protecting electronic infrastructures, and educational opportunities. The Forum of Incident Response and Security Teams (FIRST), which provides a closed forum for incident response and security teams from 19 countries to share experiences, exchange information related to incidents, and promote preventative activities. The International Organization on Computer Evidence, which provides an international forum for law enforcement agencies to exchange information concerning computer crime investigation and related forensic issues. Developing the information sharing and coordination capabilities needed to effectively deal with computer threats and actual incidents is complex and challenging but essential. Data on possible threats-ranging from viruses, to hoaxes, to random threats, to news events, and computer intrusions-must be continually collected and analyzed from a wide spectrum of globally distributed sources. Moreover, once an imminent threat is identified, appropriate warnings and response actions must be effectively coordinated among government agencies, the private sector, and, when appropriate, other nations. It is important that this function be carried out as effectively, efficiently, and quickly as possible in order to ensure continuity of operations as well as minimize disruptions. At the same time, it is not possible to build an overall, comprehensive picture of activity on the global information infrastructure. Networks themselves are too big, they are growing too quickly, and they are continually being reconfigured and reengineered. As a result, it is essential that strong partnerships be developed between a wide range of stakeholders in order to ensure that the right data are at the right place at the right time. Creating partnerships for information sharing and coordination is a formidable task. Trust needs to be established among a broad range of parties with varying interests and expectations, procedures for gathering and sharing information need to be developed, and technical issues need to be addressed. Moreover, if the federal government itself is going to be a credible player in response coordination, it needs to have its own systems and assets well protected. This means overcoming significant and pervasive security weaknesses at each of the major federal agencies and instituting governmentwide controls and mechanisms needed to provide effective oversight, guidance, and leadership. Perhaps most importantly, this activity needs to be guided by a comprehensive strategy to ensure that it is effective, to avoid unnecessary duplication of effort, and to maintain continuity. I would like to discuss each of these challenges in more detail as successfully addressing them is essential to getting the most from information sharing mechanisms currently operating as well as establishing new ones. A key element to the success of information sharing partnerships is developing trusted relationships among the broad range of stakeholders involved with critical infrastructure protection. (See figure 1 for examples of these stakeholders). Jointly-designed, built, and staffed mechanisms among involved parties is most likely to obtain critical buy-in and acceptance by industry and others. Each partner must ensure the sharing activity is equitable and that it provides a value added to the cost of information sharing. However, this can be difficult in the face of varying interests, concerns, and expectations. The private sector, for example, is motivated by business concerns and profits, whereas the government is driven by national and economic security concerns. These disparate interests can lead to profoundly different views and perceptions about threats, vulnerabilities, and risks, and they can affect the level of risk each party is willing to accept and the costs each is willing to bear. Moreover, as we testified before this Subcommittee in June,concerns have been raised that industry could potentially face antitrust violations for sharing information with other industry partners, subject their information the Freedom of Information Act (FOIA) disclosures or face potential liability concerns for information shared in good faith. Further, there is a concern that an inadvertent release of confidential business material, such as trade secrets or proprietary information, could damage reputations, lower consumer confidence, hurt competitiveness, and decrease market shares of firms. Some of these concerns are addressed by this Subcommittee's proposed Cyber Security Information Act of 2000 (H.R. 4246). Specifically, the bill would protect information being provided by the private sector from disclosure by federal entities under FOIA or disclosure to or by any third party. It would prohibit the use of information by any federal and state organization or any third party in any civil actions. And it would enable the President to establish and terminate working groups composed of federal employees for the purposes of engaging outside organizations in discussions to address and share information about cyber security. By removing these concerns about sharing information on critical infrastructure threats, H.R. 4246 can facilitate private-public partnerships and help spark the dialogue needed to identify threats and vulnerabilities and to develop response strategies. For several reasons, the private sector may also have reservations about sharing information with law enforcement agencies. For example, law enforcement entities have strict rules regarding evidence in order to preserve its integrity for prosecuting cases. Yet, complying with law enforcement procedures can be costly because it requires training, implementing proper auditing and control mechanisms, and following proper procedures. Additionally, a business may not wish to report an incident if it believes that its image might be tarnished. For national security reasons, the government itself may be reluctant to share classified information that could be of value to the private sector in deterring or thwarting electronic intrusions and information attacks. Moreover, declassifying and sanitizing such data takes time, which could affect time-critical operations. Nevertheless, until the government provides detailed information on specific threats and vulnerabilities, the private sector will not be able to build a business case to justify information sharing and will likely remain reluctant to share its own information. A significant amount of work still needs to be done just in terms of ensuring that the right type of information is being collected and that there are effective and secure mechanisms for collecting, analyzing, and sharing it. This requires agreeing, in advance, on the types of data to be collected and reported as well as on the level of detail. Again, this can be difficult given varying interests and expectations. The private sector, for example, may want specific threat or vulnerability information so that immediate actions can be taken to avert an intrusion. Law enforcement agencies may want specific information on perpetrators and particular aspects of the attack, as well as the intent of the attack and the consequences of or damages due to the attack. At the same time, many computer security professionals may want the technical details that enable a user to compromise a computer system in order to determine how to detect such actions. After determining what types of information to collect and report, guidelines and procedures need to be established to effectively collect and disseminate data and contact others during an incident. Among other things, this involves identifying the best mechanisms for disseminating advisories and urgent notices, such as e-mail, fax, voice messages, pagers, or cell phones; designating points-of-contact; identifying the specific responsibilities of information-sharing partners; and deciding whether and how information should be shared with outside organizations. Working through these and other issues has already proven to be a formidable task for some information-sharing organizations. According to the CERT Coordination Center, for example, it has taken years for incident response and security teams to develop comprehensive policies and procedures for their own internal operations because there is little or no experience on which to draw from. Moreover, the incident response team community as a whole is lacking in policies and procedures to support operations among teams. According to the Center, progress typically comes to a halt when teams become overwhelmed by the number of issues that need to be addressed before they can reach agreement on basic factors such as terminology, definitions, and priorities. Significant resources, knowledge, skills, and abilities clearly need to be brought together to develop mechanisms that can quickly and accurately collect, correlate, and analyze information and coordinate response efforts. But presently, there is a shortage of such expertise. At the federal level, for example, we have observed a number of instances where agency staff did not even have the skills needed to carry out their own computer security responsibilities or to oversee contractor activities. Additionally, according to the CERT Coordination Center, there are not enough suitably trained staff in the incident response community to implement any effective and reliable global incident response infrastructure. The President's NationalPlanforInformationSystemsProtectionrecognizes this dilemma and proposes a program to develop a cadre of highly skilled computer science and information security personnel. As this program is implemented, it will be important for the federal government to ensure that capabilities are developed for information sharing and response mechanisms in addition to individual agency computer security programs. At the federal level, there is also a pressing need for better computer network intrusion detection monitoring systems to detect unauthorized and possible criminal activity both within and across government agencies. Under the President's NationalPlanforInformationSystems Protection, the federal government is working to design and implement highly automated security and intrusion detection capabilities for federal systems. Such systems are to provide (1) intrusion detection monitors on key nodes of agency systems, (2) access and activity rules for authorized users and a scanning program to identify anomalous or suspicious activity, (3) enterprise-wide management programs that can identify what systems are on the network, determine what they are doing, enforce access and activity rules, and potentially apply security upgrades, and (4) techniques to analyze operating system code and other software to determine if malicious code, such as logic bombs, has been installed. As we testified in February,available tools and methods for analyzing and correlating network traffic are still evolving and cannot yet be relied on to serve as an effective "burglar alarm," as envisioned by the plan. While holding promise for the future, such tools and methods raise many questions regarding technical feasibility, cost-effectiveness, and the appropriate extent of centralized federal oversight. Accordingly, these efforts will merit close congressional oversight as they are implemented. If our government is going to play a key role in overcoming these challenges and spurring effective information sharing and coordination, it must be a model for information security and critical infrastructure protection, which means having its own systems and assets adequately protected. Unfortunately, we have a long way to go before we can point to our government as a model for others to emulate. As noted in previous testimonies and reports, virtually every major federal agency has poor computer security. Federal agencies are at risk of having their key systems and information assets compromised or damaged from both computer hackers as well as unauthorized activity by insiders. Recent audits conducted by GAO and agency inspectors general show that 22 of the largest federal agencies have significant computer security weaknesses, ranging from poor controls over access to sensitive systems and data, to poor control over software development and changes, and nonexistent or weak continuity of service plans. While a number of factors have contributed to weak federal information security, such as insufficient understanding of risks, technical staff shortages, and a lack of system and security architectures, the fundamental underlying problem is poor security program management. Agencies have not established the basic management framework needed to effectively protect their systems. Based on our 1998 studyof organizations with superior security programs, such a framework involves managing information security risks through a cycle of risk management activities that include (1) assessing risk and determining protection needs, (2) selecting and implementing cost-effective policies and controls to meet these needs, (3) promoting awareness of policies and controls and of the risks that prompted their adoption, and (4) implementing a program of routine tests and examinations for evaluating the effectiveness of policies and related controls. Additionally, a strong central focal point can help ensure that the major elements of the risk management cycle are carried out and can serve as a communications link among organizational units. While individual agencies bear primary responsibility for the information security associated with their own operations and assets, there are several areas where governmentwide criteria and requirements also need to be strengthened. Specifically, there is a need for routine, periodic independent audits of agency security programs to provide a basis for measuring agency performance and information for strengthened oversight. There is also a need for more prescriptive guidance regarding the level of protection that is appropriate for agency systems. Additionally, as mentioned earlier, gaps in technical expertise should be addressed. A comprehensive, cohesive strategy is needed to ensure that our information security and critical infrastructure protection efforts are effective and that we build on efforts already underway. However, developing and implementing such a strategy will require strong federal leadership. Such leadership will be needed to press individual federal agencies to institute the basic management framework needed to make the federal government a model for critical infrastructure protection and to foster the governmentwide mechanisms needed to facilitate oversight and guidance. In addition, leadership will be needed to ensure that the other challenges discussed today are met. The NationalPlanforInformationSystemsProtectionis a move towards developing such a framework. However, it does not address a broad range of concerns that go beyond federal efforts to protect the nation's critical cyber-based infrastructures. In particular, the plan does not address the international aspects of critical infrastructure protection or the specific roles industry and state and local governments will play. The Administration is working toward issuing a new version of the plan this fall that addresses these issues. However, there is no guarantee that this version will be completed by then or that it will be implemented in a timely manner. Additionally, a sound long-term strategy to protect U.S. critical infrastructures depends not only on implementation of our national plan, but on appropriately coordinating our plans with those of other nations, establishing and maintaining a dialogue on issues of mutual importance, and cooperating with other nations and infrastructure owners. An important element of such a plan will be defining and clarifying the roles and responsibilities of organizations--especially federal entities- serving as central repositories of information or as coordination focal points. As discussed earlier, there are numerous organizations currently collecting, analyzing, and disseminating data or guidance on computer security vulnerabilities and incidents, including NIST, the NIPC, FedCIRC, the Critical Information Assurance Office, the federal CIO Council, and various units within the Department of Defense. The varying types of information and analysis that these organizations provide can be useful. However, especially in emergency situations, it is important that federal agencies and others clearly understand the roles of these organizations, which ones they should contact if they want to report a computer-based attack, and which ones they can rely on for information and assistance. Clarifying organizational responsibilities can also ensure a common understanding of how the activities of these many organizations interrelate, who should be held accountable for their success or failure, and whether they will effectively and efficiently support national goals. Moreover, the need for such clear delineation of responsibilities will be even more important as international cooperative relationships in this area mature. If such roles and responsibilities are not clearly defined and coordinated under a comprehensive plan, there is a risk that these efforts will be unfocused, inefficient, and ineffective. In conclusion, a number of positive actions have already been taken to provide a coordinated response to computer security threats. In particular, the federal government is in the process of establishing mechanisms for gathering information on threats, facilitating and coordinating response efforts, sharing information with the private sector, and working to build collaborative partnerships. Other stakeholders are also working to facilitate public-private information sharing on threats in individual sectors and to promote international coordination. Nevertheless, there are formidable challenges that need to be overcome to strengthen ongoing efforts and to work toward building a more comprehensive and effective information-sharing and coordination infrastructure. In particular, trust needs to be established among a broad range of stakeholders, questions on the mechanics of information sharing and coordination need to be resolved, roles and responsibilities need to be clarified, and technical expertise needs to be developed. Addressing these challenges will require concerted efforts by senior executives--both public and private--as well as technical specialists, law enforcement and national security officials, and providers of network services and other key infrastructure services, among others. Moreover, it will require stronger leadership by the federal government to develop a comprehensive strategy for critical infrastructure protection, work through concerns and barriers to sharing information, and institute the basic management framework needed to make the federal government a model of critical infrastructure protection. Mr. Chairman, this concludes my statement. I would be happy to answer any questions you or other Members of the Subcommittee may have. We performed our review from July 10 through July 24, 2000, in accordance with generally accepted government auditing standards. For information about this testimony, please contact Jack L. Brock, Jr., at (202) 512-6240. Jean Boltz, Cristina Chaplain, Mike Gilmore, Danielle Hollomon, Paul Nicholas, and Alicia Sommers made key contributions to this testimony. (512012)
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Pursuant to a congressional request, GAO discussed the challenges of developing effective information sharing and coordination strategies needed to deal with computer security threats. GAO noted that: (1) developing the information sharing and coordination capabilities needed to effectively deal with computer threats and actual incidents is complex and challenging but essential; (2) data on possible threats--ranging from viruses, to hoaxes, to random threats, to news events, and computer intrusions--must be continually collected and analyzed from a wide spectrum of globally distributed sources; (3) once an imminent threat is identified, appropriate warnings and response actions must be effectively coordinated among government agencies, the private sector, and, when appropriate, other nations; (4) it is important that this function be carried out as effectively, efficiently, and quickly as possible in order to ensure continuity of operations as well as minimize disruptions; (5) at the same time, it is not possible to build an overall, comprehensive picture of activity on the global infrastructure; (6) networks themselves are too big, they are growing too quickly, and they are continually being reconfigured and reengineered; (7) as a result, it is essential that strong partnerships be developed between a wide range of stakeholders in order to ensure that the right data are at the right place at the right time; (8) creating partnerships for information sharing and coordination is a formidable task; (9) trust needs to be established among a broad range of parties with varying interests and expectations, procedures for gathering and sharing information need to be developed, and technical issues need to be addressed; (10) if the federal government itself is going to be a credible player in response coordination, it needs to have its own systems and assets well protected; (11) this means overcoming significant and pervasive security weaknesses at each of the major federal agencies and instituting governmentwide controls and mechanisms needed to provide effective oversight, guidance, and leadership; and (12) perhaps most importantly, this activity needs to be guided by a comprehensive strategy to ensure that it is effective, to avoid unnecessary duplication of effort, and to maintain continuity.
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VA pays basic compensation benefits to veterans incurring disabilities from injuries or diseases that were incurred or aggravated while on active military duty. VA rates the severity of all service-connected disabilities by using its Schedule for Rating Disabilities. The schedule lists types of disabilities and assigns each disability a percentage rating, which is intended to represent an average earning impairment the veteran would experience in civilian occupations because of the disability. All veterans awarded service-connected disabilities are assigned single or combined (in case of multiple disabilities) ratings ranging from 0 to 100 percent, in increments of 10 percent, based on the rating schedule; such a rating is known as a schedular rating. Diseases and injuries incurred or aggravated while on active duty are called service-connected disabilities. Disability compensation can be increased if VA determines that the veteran is unemployable (not able to engage in substantially gainful employment) because of the service-connected disability. Under VA's unemployability regulations, the agency can assign a total disability rating of 100 percent to veterans who cannot perform substantial gainful employment because of service-connected disabilities, even though their schedular rating is less than 100 percent. To qualify for unemployability benefits, a veteran must have a single service-connected disability of 60 percent or more or multiple disabilities with a combined rating of 70 percent or more, with at least one of the disabilities rated 40 percent or more. VA can waive the minimum ratings requirement and grant unemployability benefits to a veteran with a lower rating; this is known as an extra-schedular rating. Staff at VA's regional offices make virtually all eligibility decisions for disability compensation benefits, including IU benefits. The 57 VA regional offices use nonmedical rating specialists to evaluate veterans' eligibility for these benefits. Upon receipt of an application for compensation benefits, the rating specialist would typically refer the veteran to a VA medical center or clinic for an exam. Based on the medical examination and other information available to the rater, the rater must first determine which of the veteran's conditions are or are not service-connected. For service-connected conditions, the rater compares the diagnosis with the rating schedule to assign a disability rating. Along with medical records, raters may also obtain other records to evaluate an IU claim. VA may require veterans to furnish an employment history for the 5-year period preceding the date on which the veteran claims to have become too disabled to work and for the entire time after that date. VA guidance also requires that raters request basic employment information from each employer during the 12-month period prior to the date the veteran last worked. In addition, if the veteran has received services from VA's VR&E program or Social Security disability benefits, the rater may also request and review related information from these organizations. Once VA grants unemployability benefits, a veteran may continue to receive the benefits while working if VA determines that the work is only marginal employment rather than substantially gainful employment. Marginal employment exists when a veteran's annual earned income does not exceed the annual poverty threshold for one person as determined by the U.S. Census Bureau--$ 9,827 for 2004. Furthermore, if veterans are unable to maintain employment for 12 continuous months due to their service-connected disabilities they may retain their IU benefits, regardless of the amount earned. After more than a decade of research, GAO has determined that federal disability programs were in urgent need of attention and transformation and placed modernizing federal disability programs on its high-risk list in January 2003. Specifically, our research showed that the disability programs administered by VA and the Social Security Administration (SSA) lagged behind the scientific advances and economic and social changes that have redefined the relationship between impairments and work. For example, advances in medicine and technology have reduced the severity of some medical conditions and have allowed individuals to live with greater independence and function in work settings. Moreover, the nature of work has changed in recent decades as the national economy has moved away from manufacturing-based jobs to service- and knowledge-based employment. Yet VA's and SSA's disability programs remain mired in concepts from the past--particularly the concept that impairment equates to an inability to work--and as such, we found that these programs are poorly positioned to provide meaningful and timely support for Americans with disabilities. In contrast, we found that a growing number of U.S. private insurance companies had modernized their programs to enable people with disabilities to return to work. In general, private insurer disability plans can provide short- or long-term disability insurance coverage, or both, to replace income lost by employees because of injuries and illnesses. Employers may choose to sponsor private disability insurance plans for employees either by self-insuring or by purchasing a plan through a private disability insurer. The three private disability insurers we reviewed recognized the potential for reducing disability costs through an increased focus on returning people with disabilities to productive activity. To accomplish this comprehensive shift in orientation, these insurers have begun developing and implementing strategies for helping people with disabilities return to work as soon as possible, when appropriate. The three private insurers we studied incorporate return-to-work considerations early in the assessment process to assist claimants in their recovery and in returning to work as soon as possible. With the initial reporting of a disability claim, these insurers immediately set up the expectation that claimants with the potential to do so will return to work. Identifying and providing services intended to enhance the claimants' capacity to work are central to their process of deciding eligibility for benefits. Further, the insurers continue to periodically monitor work potential and provide return-to-work assistance to claimants as needed throughout the duration of the claim. Their ongoing assessment process is closely linked to a definition of disability that shifts over time from less to more restrictive--that is, from an inability to perform one's own occupation to an inability to perform any occupation. After a claim is received, the private insurers' assessment process begins with determining whether the claimant meets the initial definition of disability. In general, for the three private sector insurers we studied, claimants are considered disabled when, because of injury or sickness, they are limited in performing the essential duties of their own occupation and they earn less than 60 to 80 percent of their predisability earnings, depending upon the particular insurer. As part of determining whether the claimant meets this definition, the insurers compare the claimant's capabilities and limitations with the demands of his or her own occupation and identify and pursue possible opportunities for accommodation-- including alternative jobs or job modifications--that would allow a quick and safe return to work. A claimant may receive benefits under this definition of disability for up to 2 years. As part of the process of assessing eligibility according to the "own occupation" definition, insurers directly contact the claimant, the treating physician, and the employer to collect medical and vocational information and initiate return-to-work efforts, as needed. Insurers' contacts with the claimant's treating physician are aimed at ensuring that the claimant has an appropriate treatment plan focused, in many cases, on timely recovery and return to work. Similarly, insurers use early contact with employers to encourage them to provide workplace accommodations for claimants with the capacity to work. If the insurers find the claimant initially unable to return to his or her own occupation, they provide cash benefits and continue to assess the claimant to determine if he or she has any work potential. For those with work potential, the insurers focus on return to work before the end of the 2-year period, when, for all the private insurers we studied, the definition of disability becomes more restrictive. After 2 years, the definition shifts from an inability to perform one's own occupation to an inability to perform any occupation for which the claimant is qualified by education, training, or experience. Claimants initially found eligible for benefits may be found ineligible under the more restrictive definition. The private insurers' shift from a less to a more restrictive disability definition after 2 years reflects the changing nature of disability and allows a transitional period for insurers to provide financial and other assistance, as needed, to help claimants with work potential return to the workforce. During this 2-year period, the insurer attempts to determine the best strategy for managing the claim. Such strategies can include, for example, helping plan medical care or providing vocational services to help claimants acquire new skills, adapt to assistive devices to increase functioning, or find new positions. For those requiring vocational intervention to return to work, the insurers develop an individualized return-to-work plan, as needed. Basing the continuing receipt of benefits upon a more restrictive definition after 2 years provides the insurer with leverage to encourage the claimant to participate in a rehabilitation and return-to-work program. Indeed, the insurers told us they find that claimants tend to increase their efforts to return to work as they near the end of the 2-year period. If the insurer initially determines that the claimant has no work potential, it regularly monitors the claimant's condition for changes that could increase the potential to work and reassesses after 2 years the claimant's eligibility under the more restrictive definition of disability. The insurer continues to look for opportunities to assist claimants who qualify under this definition of disability in returning to work. Such opportunities may occur, for example, when changes in medical technology--such as new treatments for cancer or AIDS--may enable claimants to work, or when claimants are motivated to work. The private insurers that we reviewed told us that throughout the duration of the claim, they tailor the assessment of work potential and development of a return-to-work plan to the specific situation of each individual claimant. To do this, disability insurers use a wide variety of tools and methods when needed. Some of these tools, as shown in tables 1 and 2, are used to help ensure that medical and vocational information is complete and as objective as possible. For example, insurers consult medical staff and other resources to evaluate whether the treating physician's diagnosis and the expected duration of the disability are in line with the claimant's reported symptoms and test results. Insurers may also use an independent medical examination or a test of basic skills, interests, and aptitudes to clarify the medical or vocational limitations and capabilities of a claimant. In addition, insurers identify transferable skills to compare the claimant's capabilities and limitations with the demands of the claimant's own occupation. This method is also used to help identify other suitable occupations and the specific skills needed for these new occupations when the claimant's limitations prevent him or her from returning to a prior occupation. Included in these tools and methods are services to help the claimant return to work, such as job placement, job modification, and retraining. To facilitate return to work, the private insurers we studied employment incentives both for claimants to participate in vocational activities and receive appropriate medical treatment, and for employers to accommodate claimants. The insurers require claimants who could benefit from vocational rehabilitation to participate in an individualized return-to- work program. They also provide financial incentives to promote claimants' efforts to become rehabilitated and return to work. To better ensure that medical needs are met, the insurers we studied require that claimants receive appropriate medical treatment and assist them in obtaining this treatment. In addition, they provide financial incentives to employers to encourage them to provide work opportunities for claimants. The three private insurers we reviewed require claimants who could benefit from vocational rehabilitation to participate in a customized rehabilitation program or risk loss of benefits. As part of this program, a return-to-work plan for each claimant can include, for example, adaptive equipment, modifications to the work site, or other accommodations. These private insurers mandate the participation of claimants whom they believe could benefit from rehabilitation because they believe that voluntary compliance has not encouraged sufficient claimant participation in these plans. The insurers told us that they encourage rehabilitation and return to work by allowing claimants who work to supplement their disability benefit payments with earned income. During the first 12 or 24 months of receiving benefits, depending upon the particular insurer, claimants who are able to work can do so to supplement their benefit payments and thereby receive total income of up to 100 percent of predisability earnings. After this period, if the claimant is still working, the insurers decrease the benefit amount so that the total income a claimant is allowed to retain is less than 100 percent of predisability income. When a private insurer, however, determines that a claimant is able, but unwilling, to work, the insurer may reduce or terminate the claimant's benefits. To encourage claimants to work to the extent they can, even if only part-time, two of the insurers told us they may reduce a claimant's benefit by the amount the claimant would have earned if he or she had worked to maximum capacity. The other insurer may reduce a claimant's monthly benefit by the amount that the claimant could have earned if he or she had not refused a reasonable job offer--that is, a job that was consistent with the claimant's background, education, and training. Claimants' benefits may also be terminated if claimants refuse to accept a reasonable accommodation that would enable them to work. Since medical improvement or recovery can also enhance claimants' ability to work, the private insurers we studied not only require, but also help, claimants to obtain appropriate medical treatment. To maximize medical improvement, these private insurers require that the claimant's physician be qualified to treat the particular impairment. Additionally, two insurers require that treatment be provided in conformance with medical standards for treatment type and frequency. Moreover, the insurers' medical staff work with the treating physician as needed to ensure that the claimant has an appropriate treatment plan. The insurers told us they may also provide funding for those who cannot otherwise afford treatment. The three private sector insurers we studied may also provide financial incentives to employers to encourage them to provide work opportunities for claimants. By offering lower insurance premiums to employers and paying for accommodations, these private insurers encourage employers to become partners in returning disabled workers to productive employment. For example, to encourage employers to adopt a disability policy with return-to-work incentives, the three insurers offer employers a discounted insurance premium. If their disability caseload declines to the level expected for those companies that assist claimants in returning to work, the employers may continue to pay the discounted premium amount. These insurers also fund accommodations, as needed, for disabled workers at the employer's work site. The private disability insurers we studied have developed techniques for using the right staff to assess eligibility for benefits and return those who can to work. Officials of the three private insurers told us that they have access to individuals with a range of skills and expertise, including medical experts and vocational rehabilitation experts. They also told us that they apply this expertise as appropriate to cost effectively assess and enhance claimants' capacity to work. The three private disability insurers that we studied have access to multidisciplinary staff with a wide variety of skills and experience who can assess claimants' eligibility for benefits and provide needed return-to-work services to enhance the work capacity of claimants with severe impairments. The private insurers' core staff generally includes claims managers, medical experts, vocational rehabilitation experts, and team supervisors. The insurers explained that they set hiring standards to ensure that the multidisciplinary staff is highly qualified. Such qualifications are particularly important because assessments of benefit eligibility and work capacity can involve a significant amount of professional judgment when, for example, a disability cannot be objectively verified on the basis of medical tests or procedures or clinical examinations alone. Table 3 describes the responsibilities of this core staff of experts employed by private disability insurers, as well as its general qualifications and training. The three disability insurers we reviewed use various strategies for organizing their staff to focus on return to work, with teams organized to manage claims associated either with a specific impairment type or with a specific employer (that is, the group disability insurance policyholder). One insurer organizes its staff by the claimant's impairment type--for example, cardiac/respiratory, orthopedic, or general medical--to develop in-depth staff expertise in the medical treatments and accommodations targeted at overcoming the work limitations associated with a particular impairment. The other two insurers organize their staff by the claimant's employer because they believe that this enables them to better assess a claimant's job-specific work limitations and pursue workplace accommodations, including alternative job arrangements, to eliminate these limitations. Regardless of the overall type of staff organization, each of the three insurers facilitates the interaction of its core staff-- claims managers, medical experts, and vocational rehabilitation experts-- by pulling these experts together into small, multidisciplinary teams responsible for managing claims. Additionally, one insurer engenders team interaction by physically colocating core team members in a single working area. To provide a wide array of needed experts, the three disability insurers expand their core staff through agreements or contracts with subsidiaries or other companies. These experts--deployed both at the insurer's work site and in the field--provide specialized services to support the eligibility assessment process and to help return claimants to work. For instance, these insurers contract with medical experts beyond their core employee staff--such as physicians, psychologists, psychiatrists, nurses, and physical therapists--to help test and evaluate the claimant's medical condition and level of functioning. In addition, the insurers contract with vocational rehabilitation counselors and service providers for various vocational services, such as training, employment services, and vocational testing. The private insurers we examined told us that they strive to apply the appropriate type and intensity of staff resources to cost-effectively return to work claimants with work capacity. The insurers described various techniques that they use to route claims to the appropriate claims management staff, which include separating (or triaging) different types of claims and directing them to staff with the appropriate expertise. According to one insurer, the critical factor in increasing return-to-work rates and, at the same time, reducing overall disability costs is proper triaging of claims. In general, the private insurers separate claims by those who are likely to return to work and those who are not expected to return to work. The insurers told us that they assign the type and level of staff necessary to manage claims of people who are likely to return to work on the basis of the particular needs and complexity of the specific case (see table 4). As shown in table 4, claimants expected to need medical assistance, such as those requiring more than a year for medical stabilization, are likely to receive an intensive medical claims management strategy. A medical strategy involves, for example, ensuring that the claimant receives appropriate medical treatment. Claimants who need less than a year to stabilize medically are managed much less intensively. For these claims, a claims manager primarily monitors the claimant's medical condition to assess whether it is stable enough to begin vocational rehabilitation, if appropriate. Alternatively, a claimant with a more stable, albeit serious, medical condition who is expected to need vocational rehabilitation, job accommodations, or both to return to work might warrant an intensive vocational strategy. The private disability insurers generally apply their most resource-intensive, and therefore most expensive, multidisciplinary team approach to these claimants. Working closely with the employer and the attending physician, the team actively pursues return-to-work opportunities for claimants with work potential. Finally, claimants who are likely not to return to work (or "stable and mature" claims) are generally managed using a minimum level of resources, with a single claims manager responsible for regularly reviewing a claimant's medical condition and level of functioning. The managers of these claims carry much larger caseloads than managers of claims that receive an intensive vocational strategy. For example, one insurer's average claims manager's caseload for these stable and mature claims is about 2,200 claims, compared with an average caseload of 80 claims in the same company for claims managed more actively. Unlike disability compensation programs in the private sector, VA has not drawn on vocational experts for IU assessments to examine the claimant's work potential and identify the services and accommodations needed to help those who could work to realize their full potential. In our 1987 report, we found that VA had not routinely obtained all vocational information needed to determine a veteran's ability to engage in substantially gainful employment before it granted IU benefits. Without understanding how key vocational factors, such as the veteran's education, training, earnings, and prior work history, affect the veteran's work capacity, VA cannot adequately assess the veteran's ability to work. To perform this analysis, VA officials told us that the agency has vocational specialists who are specially trained to perform this difficult analysis. Skilled vocational staff can determine veterans' vocational history, their ability to perform past or other work, and their need for retraining. By not collecting sufficient information and including the expertise of vocational specialists in the assessment, VA did not have an adequate basis for awarding or denying a veteran's claim for unemployability benefits. Preliminary findings from our ongoing work indicate that VA still does not have procedures in place to fully assess veterans' work potential. In addition, the IU decision-making process lacks sufficient incentives to encourage return to work. In considering whether to grant IU benefits, VA does not have procedures to include vocational specialists from its VR&E services to help evaluate a veteran's work potential. By not using these specialists, VA also misses an opportunity to have the specialist develop a return-to-work plan, in collaboration with the veteran, and identify and provide needed accommodations or services for those who can work. Instead, VA's IU assessment is focused on the veterans' inabilities and providing cash benefits to those labeled as "unemployable," rather than providing opportunities to help them return to work. Return-to-work practices used in the U.S. private sector reflect the understanding that people with disabilities can and do return to work. The continuing deployment of our military forces to armed conflict has focused national attention on ensuring that those who incur disabilities while serving in the military are provided the services needed to help them reach their full work potential. Approaches from the private sector demonstrate the importance of using the appropriate medical and vocational expertise to assess the claimant's condition and provide appropriate medical treatment, vocational services, and work incentives. Applying these approaches to VA's IU assessment process would raise a number of important policy issues. For example, to what extent should the VA require veterans seeking IU benefits to accept vocational assistance or appropriate medical treatment? Such policy questions will be answered through the national policymaking process involving the Congress, VA, veterans' organizations, and other key stakeholders. Nevertheless, we believe that including vocational expertise in the IU decision-making process could provide VA with a more adequate basis to make decisions and thereby better ensure program integrity. Moreover, incorporating return-to-work practices could help VA modernize its disability program to enable veterans to realize their full productive potential without jeopardizing the availability of benefits for people who cannot work. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or members of the committee may have. For future contacts regarding this testimony, please call Cynthia Bascetta at (202) 512-7215. Carol Dawn Petersen, Julie DeVault, and Joseph Natalicchio also made key contributions to this testimony. 21st Century Challenges: Reexamining the Base of the Federal Government, GAO-05-325SP (Washington, D.C.: February 2005). High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003). SSA and VA Disability Programs: Re-Examination of Disability Criteria Needed to Help Ensure Program Integrity, GAO-02-597 (Washington, D.C.: Aug. 9, 2002). SSA Disability: Other Programs May Provide Lessons for Improving Return-to-Work Efforts, GAO-01-153 (Washington, D.C.: Jan. 12, 2001). SSA Disability: Return-to-Work Strategies May Improve Federal Programs, GAO/HEHS-96-133 (Washington, D.C.: July 11, 1996). Veterans' Benefits: Improving the Integrity of VA's Unemployability Compensation Program, GAO/HRD-87-62 (Washington, D.C.: Sept. 21, 1987). This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Veterans Affairs (VA) provides disability compensation to veterans disabled by injuries or diseases that were incurred or aggravated while on active military duty. Under Individual Unemployability (IU) benefit regulations, a veteran can receive increased compensation at the total disability compensation rate if VA determines that the veteran is unemployable because of service-connected disabilities. GAO has reported that numerous technological and medical advances, combined with changes in society and the nature of work, have increased the potential for people with disabilities to work. Yet VA has seen substantial growth of IU benefit awards to veterans over the last five years. In 2001 GAO reported that a growing number of private insurance companies in the United States have focused their programs on developing and implementing strategies to enable people with disabilities to return to work. Our testimony will describe how U.S. private insurers facilitate return to work in three key areas: (1) the eligibility assessment process, (2) work incentives, and (3) staffing practices. It will also compare these practices with those of VA's IU eligibility assessment process. The disability programs of the three private insurers we reported on in 2001 included three common return-to-work practices in their disability assessment process. Incorporate return-to-work considerations from the beginning of the assessment process: Private insurers integrated return-to-work considerations early and throughout the eligibility assessment process. Their assessment process both evaluated a person's potential to work and assisted those with work potential to return to the labor force. Provide incentives for claimants and employers to encourage and facilitate return to work: These incentives included requirements for obtaining appropriate medical treatment and participating in a return-to-work program, if such a program would benefit the individual. In addition, they provided financial incentives to employers to encourage them to provide work opportunities for claimants. Strive to use appropriate staff to achieve accurate disability decisions and successful return-to-work outcomes: Private insurers have access to staff with a wide range of expertise not only in making eligibility decisions, but also in providing return-to-work assistance. The three private disability insurers told us that they selected the appropriate type and intensity of staff resources to assess and return individuals with work capacity to employment cost-effectively. In comparison, VA's Individual Unemployability decision-making practices lag behind those used in the private sector. As we have reported in the past, a key weakness in VA's decision-making process is that the agency has not routinely included a vocational specialist in the evaluation to fully evaluate the applicant's ability to work. Preliminary findings from our ongoing work indicate that VA still does not have procedures in place to fully assess veterans' work potential. In addition, the IU decision-making process lacks sufficient incentives to encourage return to work. In considering whether to grant IU benefits, VA does not have procedures to include vocational specialists from its Vocational Rehabilitation and Education (VR&E) services to help evaluate a veteran's work potential. By not using these specialists, VA also misses an opportunity to have the specialist develop a return-to-work plan, in collaboration with the veteran, and identify and provide needed accommodations or services for those who can work. Instead, VA's IU assessment is focused on the veterans' inabilities and providing cash benefits to those labeled as "unemployable," rather than providing opportunities to help them return to work. Incorporating return-to-work practices could help VA modernize its disability program to enable veterans to realize their full productive potential without jeopardizing the availability of benefits for people who cannot work.
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HUBZone program fraud and abuse continues to be problematic for the federal government. We identified 19 firms in Texas, Alabama, and California participating in the HUBZone program even though they clearly do not meet program requirements (i.e., principal office location or percentage of employees residing in the HUBZone and subcontracting limitations). Although we cannot conclude whether this is a systemic problem based on these cases, the issue of misrepresentation clearly extends beyond the Washington, D.C., metropolitan area where we conducted our initial investigation. In fiscal years 2006 and 2007, federal agencies had obligated nearly $30 million to these 19 firms for performance as the prime contractor on federal HUBZone contracts. HUBZone regulations also place restrictions on the amount of work that can be subcontracted to non-HUBZone firms. Specifically, HUBZone regulations generally require a firm to expend at least 50 percent of the personnel costs of a contract on its own employees. As part of our investigative work, we found examples of service firms that subcontracted most HUBZone contract work to other non-HUBZone firms and thus did not meet this program requirement. When a firm subcontracts the majority of its work to other non-HUBZone firms, it is undermining the HUBZone program's stated purpose of stimulating development in economically distressed areas, as well as evading eligibility requirements for principal office and 35 percent residency requirement. Examples of firms that did not meet HUBZone requirements included the following: An environmental consulting firm located in Fort Worth, Texas, that violated HUBZone program requirements because it did not expend at least 50 percent of personnel costs on its own employees or use personnel from other HUBZone firms. From fiscal year 2006 through fiscal year 2007, the Department of the Army obligated more than $2.3 million in HUBZone contracts to this firm. At the time of our investigation, company documents showed that the company was subcontracting from 71 to 89 percent of its total contract obligations to other non-HUBZone firms--in some cases, large firms. The principal admitted that her firm was not meeting the subcontracting performance requirement of HUBZone regulations. Further, the principal stated that the firm made bids on HUBZone contracts knowing that the company would have to subcontract work to other firms after the award. The principal added that other large firms use HUBZone firms in this manner, referring to these HUBZone firms as "contract vehicles." A ground maintenance services company located in Jacksonville, Alabama, failed to meet both principal office and 35 percent residency requirements. From fiscal year 2006 through fiscal year 2007, this firm received more than $900,000 in HUBZone set-aside obligations. However, our investigation found that the purported principal office was in fact a residential trailer occupied by someone not associated with the company. The company had represented its office as located in "suite 19," when in reality, the address was associated with trailer 19 in a residential trailer park. The two employees of the firm--a father and a son--lived in non- HUBZone areas that are located about 90 miles from the trailer park. This firm also subcontracted most of its HUBZone work to non-HUBZone firms. An information technology firm in Huntsville, Alabama, failed to meet both principal office and 35 percent residency requirements. From fiscal year 2006 through fiscal year 2007, federal agencies obligated over $5 million in HUBZone awards to this firm, consisting mainly of two HUBZone set-aside contracts. Based on our review of payroll records and written correspondence that we received from the firm, we determined that only 18 of 116 of the firm's employees (16 percent) who were employed in December 2007 lived in HUBZone-designated areas. In addition, our investigation found that no employees were located at the location listed as a principal office. The firm's president acknowledged that he "had recently become aware" that he was not in compliance with HUBZone requirements and was taking "corrective actions." However, the firm continued to represent itself as a HUBZone firm even after this acknowledgment. According to HUBZone regulations, persons or firms are subject to criminal penalties for knowingly making false statements or misrepresentations in connection with the HUBZone program, including failure to correct "continuing representations" that are no longer true. During the application process, applicants are not only reminded of the program eligibility requirements, but are required to agree to the statement that anyone failing to correct "continuing representations" shall be subject to fines, imprisonment, and penalties. Further, the Federal Acquisition Regulation (FAR) requires all prospective contractors to update the government's Online Representations and Certifications Application, which includes a statement certifying whether the firm is currently a HUBZone firm and that there have been "no material changes in ownership and control, principal office, or HUBZone employee percentage since it was certified by the SBA." Of the 19 firms that did not meet HUBZone eligibility requirements, we found that all of them continued to represent themselves as eligible HUBZone interests to SBA. Because the 19 case examples clearly are not eligible, we consider each firm's continued representation indicative of fraud, abuse, or both related to this program. Our June 2008 report and July 2008 testimony clearly showed that SBA did not have effective internal controls related to the HUBZone program. In response to our findings and recommendations, SBA initiated a process of reengineering the HUBZone program. SBA officials stated that this process is intended to make improvements to the program that are necessary for making the program more effective while also minimizing fraud and abuse. To that end, SBA has hired business consultants and reached out to GAO in an attempt to identify control weaknesses in the HUBZone program and to strengthen its fraud prevention controls. As of the end of our fieldwork, SBA did not have in place the key elements of an effective fraud prevention system. A well-designed fraud prevention system (which can also be used to prevent waste and abuse) should consist of three crucial elements: (1) up-front preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions. For the HUBZone program this would mean (1) front-end controls at the application stage, (2) fraud detection and monitoring of firms already in the program, and (3) decertification from the program of ineligible firms and the aggressive pursuit and prosecution of individuals committing fraud. Preventive controls. We have previously reported that fraud prevention is the most efficient and effective means to minimize fraud, waste, and abuse. Thus, controls that prevent fraudulent firms and individuals from entering the program in the first place are the most important element in an effective fraud prevention program. SBA officials stated that as part of their interim process they are now requesting from all firms that apply to the HUBZone program documentation that demonstrates their eligibility. While requiring additional documentation has some value as a deterrent, the most effective preventive controls involve the verification of information, such as verifying a principal office location through an unannounced site visit. Moreover, SBA did not adequately field-test its interim process for processing applications. If it had done so, SBA would have known that it did not have the resources to effectively carry out its review of applications in a timely manner. As a result, SBA had a backlog of about 800 HUBZone applications as of January 2009. At that time, SBA officials stated that it would take about 6 months to process each HUBZone application--well over the 1 month goal set forth in SBA regulations. Detection and monitoring. Although preventive controls are the most effective way to prevent fraud, continual monitoring is an important component in detecting and deterring fraud. We reported in June 2008 that the mechanisms SBA used to monitor HUBZone firms provided limited assurance that only eligible firms participate in the program. SBA officials stated that during this fiscal year, they will be conducting program examinations on all HUBZone firms that received contracts in fiscal year 2007 to determine whether they still meet HUBZone requirements. In addition, SBA officials stated that as of September 2008, SBA had eliminated its backlog of recertifications. Although SBA has initiated several positive steps, SBA will need to make further progress to achieve an effective fraud monitoring program, including steps to (1) verify the validity of a stated principal office during its recertification and application processes; (2) establish a streamlined and risk-based methodology for selecting firms for program examinations going forward; (3) incorporate an "element of surprise" into its program examinations, such as using random, unannounced site visits; and (4) review whether HUBZone firms are expending at least 50 percent of the personnel costs of a contract on their own personnel. Investigation and prosecution. The final element of an effective fraud prevention system is the aggressive investigation and prosecution of individuals who commit fraud against the federal government. However, SBA currently does not have an effective process for investigating fraud and abuse within the HUBZone program. To date, other than the firms identified by our prior investigation, the SBA program office has never referred any firms for debarment and/or suspension proceedings based on findings from its program eligibility reviews. By failing to hold firms accountable, SBA has sent a message to the contracting community that there is no punishment or consequences for committing fraud or abusing the intent of the HUBZone program. SBA has taken some enforcement steps on the 10 firms that we found did not meet HUBZone program requirements as of July 2008. According to SBA, as of January 2009, 2 of the firms have been removed from the program and 2 others are in the process of being removed. However, SBA's failure to examine some of the most egregious cases we previously identified has resulted in an additional $7.2 million in HUBZone obligations and about $25 million in HUBZone set-aside or price preference contracts to these firms. In the written statement for the July 2008 hearing, the Acting Administrator of SBA stated that SBA would take "immediate steps to require site visits for those HUBZone firms that have received HUBZone contracts and will be instituting suspension and debarment proceedings against firms that have intentionally misrepresented their HUBZone status." However, as of February 2009, according to SBA's Dynamic Small Business Web site, 7 of the 10 firms that we investigated were still HUBZone certified. SBA has removed 2 firms from the HUBZone program and is in the process of providing due process to 2 additional firms to determine whether they should be removed. SBA officials stated that no action will be taken on 3 firms because SBA's program evaluations concluded that these firms met all the eligibility requirements of the HUBZone program. We attempted to verify SBA's work, but were not provided with the requested documentation to support its conclusion that the firms moved into compliance after our July 2008 testimony. SBA officials said that they have not yet performed program evaluations for 3 of the most egregious firms because they are experiencing technical problems with SBA's caseload system. As such, these 3 firms remain eligible to receive HUBZone set-aside contracts. SBA is also pursuing suspension and debarment actions for 7 of these firms, and the Department of Justice is considering civil actions in 5 of the 10 cases. We will be referring all the cases we identified to SBA for further action. In our report, we also recommended that the Administrator of SBA expeditiously implement our June 2008 recommendations and take the following four actions: Consider incorporating a risk-based mechanism for conducting unannounced site visits as part of the screening and monitoring process. Consider incorporating policies and procedures into SBA's program examinations for evaluating if a HUBZone firm is expending at least 50 percent of the personnel costs of a contract using its own employees. Ensure appropriate policies and procedures are in place for the prompt reporting and referral of fraud and abuse to SBA's Office of Inspector General as well as SBA's Suspension and Debarment Official. Take appropriate enforcement actions on the 19 HUBZone firms we found to violate HUBZone program requirements to include, where applicable, immediate removal or decertification from the program, and coordination with SBA's Office of Inspector General as well as SBA's Suspension and Debarment Official. In written comments on a draft of our report, SBA agreed with three of our four recommendations. SBA disagreed with our recommendation to consider incorporating policies and procedures into SBA's program examinations for evaluating if a HUBZone firm is complying with the performance of work requirements by expending at least 50 percent of the personnel costs of a contract on its own employees. SBA stated that although this requirement is included in SBA HUBZone regulations, it is not a criterion for HUBZone program eligibility but rather a mandatory contract term. SBA stated that contracting officers are required by the FAR to insert such clauses regarding subcontracting limitations. While we recognize that contracting officers have a responsibility for monitoring the subcontracting limitation, SBA also has this responsibility. In order to receive HUBZone certification, a firm must certify to SBA that it will abide by this performance requirement, and SBA is required by statute to establish procedures to verify such certifications. Therefore, we continue to believe that SBA should consider incorporating policies and procedures into its program examinations for evaluating if a HUBZone firm is meeting the performance of work requirements. Madam Chairwoman, this concludes my statement. I would be pleased to answer any questions that you or other members of the committee may have at this time. For further information about this testimony, please contact Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. In addition to the individual named above, Bruce Causseaux, Senior Level Contract and Procurement Fraud Specialist; Matt Valenta, Assistant Director; Erika Axelson; Gary Bianchi; Donald Brown; Bruce Causseaux; Eric Eskew; Dennis Fauber; Craig Fischer; Robert Graves; Betsy Isom; Jason Kelly; Julia Kennon; Barbara Lewis; Olivia Lopez; Jeff McDermott; Andrew McIntosh; John Mingus; Andy O'Connell; Mary Osorno; and Chris Rodgers also provided assistance on this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Created in 1997, the HUBZone program provides federal contracting assistance to small businesses in economically distressed communities, or HUBZone areas, with the intent of stimulating economic development in those areas. On July 17, 2008, we testified before Congress that SBA's lack of controls over the HUBZone program exposed the government to fraud and abuse and that SBA's mechanisms to certify and monitor HUBZone firms provide limited assurance that only eligible firms participate in the program. In our testimony, we identified 10 firms from the Washington, D.C., metropolitan area that were participating in the HUBZone program even though they clearly did not meet eligibility requirements. Of the 10 firms, 6 did not meet both principal office and employee residency requirements while 4 met the principal office requirement but significantly failed the employee residency requirement. We reported in our July 2008 testimony that federal agencies had obligated a total of nearly $26 million in HUBZone contract obligations to these 10 firms since 2006. After the hearing, Congress requested that we perform a follow-on investigation. We describe the results of this investigation and further background about the HUBZone program in a companion report that is being made public today. This testimony will summarize our overall findings. Specifically, this testimony will address (1) whether cases of fraud and abuse in the program exist outside of the Washington, D.C., metro area; (2) what actions, if any, SBA has taken to establish an effective fraud prevention system for the HUBZone program; and (3) what actions, if any, SBA has taken on the 10 firms that we found misrepresented their HUBZone status in July 2008. In summary, we found that fraud and abuse in the HUBZone program extends beyond the Washington, D.C., area. We identified 19 firms in Texas, Alabama, and California participating in the HUBZone program that clearly do not meet program requirements (i.e., principal office location or percentage of employees in HUBZone and subcontracting limitations). In fiscal years 2006 and 2007, federal agencies obligated nearly $30 million to these 19 firms for performance as the prime contractor on HUBZone contracts and a total of $187 million on all federal contracts. Although SBA has initiated steps to strengthen its internal controls as a result of our 2008 testimonies and report, substantial work remains for incorporating a fraud prevention system that includes effective fraud controls consisting of (1) front-end controls at the application stage, (2) fraud detection and monitoring of firms already in the program, and (3) the aggressive pursuit and prosecution of individuals committing fraud. SBA has taken some enforcement steps on the 10 firms previously identified by GAO that knowingly did not meet HUBZone program requirements. However, as of February 2009, according to SBA's Dynamic Small Business Web site, 7 of the 10 firms that we investigated were still HUBZone certified. SBA's failure to promptly remove firms from the HUBZone program and examine some of the most egregious cases from our testimony has resulted in an additional $7.2 million in HUBZone obligations and about $25 million in HUBZone contracts to these firms.
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In general, federal housing assistance is available only to people or households that have low incomes. Consequently, income, not age, is the single biggest factor in deciding on an elderly person's need and eligibility for federal housing assistance. HUD also identifies problems that, regardless of age, exacerbate a person's need for assisted housing. These problems include housing that costs more than 30 percent of a person's income or is inadequate or substandard. Figure 1 shows the magnitude of the housing needs among low-income elderly households in each state. According to HUD, the need for housing assistance, for the elderly as for the general population, far outstrips the federal resources available to address that need. As a result, federal housing assistance, which is provided through a variety of programs, reaches just over one-third of the elderly households that need assistance. Furthermore, most of the programs are maintaining, rather than increasing, the level of assistance they provide. Only two of these programs--Section 202 and HOME--are under HUD's jurisdiction and are receiving annual appropriations for the sole purpose of increasing housing assistance for elderly and other households. Under the Section 202 program, HUD provides funding to private nonprofit organizations to expand the supply of housing for the elderly by constructing or rehabilitating buildings or by acquiring existing structures from the Federal Deposit Insurance Corporation. Since it was first created in 1959, the Section 202 program has provided over $10 billion to the sponsors of 4,854 projects containing 266,270 housing units. At the same time that HUD awards Section 202 funds, it enters into contracts with these nonprofit organizations to provide them with project-based rental assistance. This assistance subsidizes the rents that elderly residents with very low incomes will pay when they move into the building. In addition to having a very low income, each household in a Section 202 project must have at least one resident who is at least 62 years old. Finally, sponsoring organizations must identify how they will ensure that their residents have access to appropriate supportive services, such as subsidized meals programs or transportation to health care facilities. When HUD evaluates sponsors' applications, it awards more points to, and is thus more likely to fund, applicants who have experience providing such services or have shown that they will readily be able to do so. The purpose of the HOME program is to address the affordable housing needs of individual communities. As a result, the day-to-day responsibility for implementing the program rests not with HUD, but with over 570 participating jurisdictions. These participating jurisdictions can be states, metropolitan cities, urban counties, or consortia made up of contiguous units of general local government. HUD requires these jurisdictions to develop consolidated plans in which they identify their communities' most pressing housing needs and describe how they plan to address these needs. Each year, HUD allocates HOME program funds to these jurisdictions and expects them to use the funds according to the needs they have identified in their consolidated plans. The legislation that created the HOME program allows--but does not require--those receiving its funds to construct multifamily rental housing for the elderly. Although the legislation authorizing the HOME program directs that its funds address the housing needs of low-income people, it allows local communities to choose from a variety of ways of doing so. These include the acquisition, construction, and rehabilitation of rental housing; the rehabilitation of owner-occupied homes; the provision of homeownership assistance; and the provision of rental assistance to lower-income tenants who rent their homes from private landlords. Finally, the legislation requires that communities target the rental assistance they choose to provide. Specifically, jurisdictions must ensure that for each multifamily rental project with at least five HOME-assisted units, at least 20 percent of the residents in the HOME-assisted units have incomes at or below 50 percent of the area's median income; the remaining residents may have incomes up to 80 per cent of the area's median. The Section 202 program, far more often than the HOME program, is the source of funds for increasing the supply of multifamily rental housing for low-income elderly people. In comparison, through fiscal year 1996, participating jurisdictions have seldom chosen to use HOME funds to produce multifamily housing almost exclusively for the low-income elderly. This result is linked to differences in the purposes for which each program was created and the persons each was intended to serve. The Congress designed the Section 202 program to serve only low-income elderly households. In creating the HOME program, however, the Congress sought to give states and local communities the means and the flexibility to identify their most pressing low-income housing needs and to decide which needs to address through the HOME program. As is consistent with each program's intent, the Section 202 program focuses its benefits on the elderly, while the HOME program benefits those whom local communities choose to serve--regardless of age--through various kinds of housing assistance. From fiscal year 1992 through fiscal year 1996, over 1,400 Section 202 and HOME program multifamily rental housing projects for the elderly opened nationwide. These projects included 1,400 Section 202 projects with 51,838 rental units, providing homes for at least 47,823 elderly individuals, and 30 comparable HOME projects with 681 rental units, providing homes for at least 675 elderly individuals. On average, the Section 202 projects had 37 units, while the HOME projects had 23 units. Figure 2 illustrates the proportion of the total number of projects attributable to each program. Although only a small portion of the HOME projects were comparable to Section 202 projects, participating jurisdictions used HOME funds to assist low-income elderly people in other ways. Most of the elderly households that obtained assistance from the HOME program--over 70 percent--used that assistance to rehabilitate the homes they already owned and in which they still lived. The remaining HOME assistance benefiting the elderly did so by providing tenant-based rental assistance; helping new homebuyers make down payments and pay the closing costs associated with purchasing homes; and acquiring, constructing, or rehabilitating single-family and multifamily rental housing. In total, the HOME program assisted 21,457 elderly households, approximately 40 percent as many as the Section 202 program assisted during the same 5-year period. Figure 3 illustrates how the HOME program assisted the elderly during fiscal years 1992 through 1996. In nearly all cases, Section 202 projects rely solely on HUD to pay the costs of construction and subsidize the rents of the low-income elderly tenants who occupy the buildings. In contrast, HOME-assisted multifamily rental housing projects rely on multiple sources of funding, including private financing, such as bank mortgages and equity from developers. At the HOME-funded projects we visited, the use of HOME funds reduced the amount that the projects' sponsors had to borrow for construction or made borrowing unnecessary. Reducing or eliminating the need to go into debt to build HOME projects enables the projects to be affordable to households with lower incomes than would be the case otherwise. For the Section 202 projects that became occupied during fiscal years 1992 though 1996, HUD provided over $2.9 billion in capital advances and direct loans. The average cost of these projects was about $2.1 million. HUD expects this assistance to be the only significant source of funds for the development of Section 202 projects. Furthermore, when HUD awards Section 202 funds, it also enters into contracts with the sponsoring organizations to provide project-based rental assistance to the tenants who will occupy the buildings once they open. As a result, HUD expects that successful sponsors will be able to develop and build multifamily housing projects that will be affordable to low-income elderly households. The nonprofit sponsors of two of the eight Section 202 projects we visited said that the Section 202 funds were not sufficient to cover all of the costs associated with building their projects. HUD officials told us that this is usually the case when a sponsor (1) includes amenities in a project, such as balconies, for which HUD does not allow the use of Section 202 funds; (2) incurs costs not associated with the site on which the project is being built, such as costs to make the site more accessible to public transportation; or (3) incurs costs that exceed the amount HUD will allow, which can happen when a sponsor pays more for land than HUD subsequently determines the land is worth. Consequently, in some cases, sponsors of the projects we visited sought funding from other sources to make up for the shortfall. Those that found HUD's funding insufficient primarily cited the high cost of land in their area or factors unique to the site on which they planned to build as the reason for the higher costs. For example, one sponsor in California said that the Section 202 funding was not sufficient to cover the high cost of land and of designing a project that was compatible with local design preferences. Several of the Section 202 projects we visited received additional financial support from their nonprofit sponsors or in-kind contributions from local governments (such as zoning waivers or infrastructure improvements). However, this added support was typically a very small portion of a project's total costs. For example, the Section 202 funding for the construction of a project in Cleveland was nearly $3 million. However, Cleveland used $150,000 of its Community Development Block Grant (CDBG) funds to help the sponsor defray costs incurred in acquiring the land on which the project was built. Another nonprofit sponsor in California estimated that the development fee waivers and other concessions the city government made for its project were worth over $160,000. The total cost for this project was over $4 million. However, attempts to use other funds have not always been successful. For example, one of the Section 202 projects we visited obtained HOME and CDBG funds from the local county government, but officials from the HUD regional office subsequently reduced the final amount of the project's capital advance to offset most of these funds. The project's nonprofit sponsor had sought additional funding because the costs of land exceeded the appraised value that HUD had determined (and would thus agree to pay) and because the sponsor incurred additional costs to extend utility service onto the property where the project was being built. According to the sponsor, HUD reduced the project's Section 202 capital advance because the sponsor was using other federal funds to meet expenses for which HUD had granted the Section 202 funding. The HOME program is not meant be a participating jurisdiction's sole source of funds for the development of affordable housing. By statute, the local or state government must contribute funds to match at least 25 percent of the HOME funds the jurisdiction uses to provide affordable housing each year. Additionally, one of the purposes of the HOME program is to encourage public-private partnerships by providing incentives for state and local governments to work with private and nonprofit developers to produce affordable housing. As a result, HOME projects typically attract significant levels of additional public and private funding from sources such as other federal programs, state or local housing initiatives, low-income housing tax credit proceeds, and donations or equity contributions from nonprofit groups. While a participating jurisdiction could conceivably develop new multifamily rental housing using only its allocation of HOME funds, HUD officials questioned why any jurisdiction might choose to do so. Multifamily rental housing is costly to build, and one such project could easily consume a community's entire allocation of HOME funds in a given year if no other funding were used. Furthermore, using HOME funds to leverage other funds can not only significantly increase the total funding available for housing assistance but also allow communities to offer more types of housing assistance than if they devoted their entire HOME allocation to a single multifamily rental project. Overall, with its current funding of $1.4 billion (for fiscal year 1997), the HOME program is a significant source of federal housing assistance. However, it has not been a major source of funds for new multifamily rental housing designed primarily or exclusively to serve the low-income elderly. From fiscal year 1992 through fiscal year 1996, such projects received a small percentage of the total HOME funds allocated to participating jurisdictions. During these 5 years, the jurisdictions built or provided financial support for 30 multifamily rental projects with 681 units, of which the elderly occupied at least 90 percent. These projects were financed with over $12 million in HOME funds. According to HUD's data, these funds leveraged an additional $65 million in other public and private financing. Figure 4 illustrates the multiple funding sources used for these HOME projects. Six of the eight HOME projects we visited had received funding from multiple public and private financing sources, reflecting the national pattern at the local level. These projects' developers and/or sponsors told us that using HOME funds in conjunction with other funding sources enabled them to reduce the amount of debt service on their projects (or eliminate the need for borrowing altogether) so that they could charge lower rents and be affordable to more people with lower incomes. Two of the projects we visited were quite unlike the other projects we visited because they did not use the federal Low-Income Housing Tax Credit program and did not have a conventional mortgage or other bank financing. The same participating jurisdiction developed both projects using only public resources, including HOME and CDBG funds, donations of city-owned land, and interior and exterior labor provided by the city's work force. HUD does not pay for supportive services through the HOME program but does, under limited circumstances, do so through the Section 202 program. Information on the provision of services is generally not available because neither program collects nationwide data on the availability of such services at the projects each has funded. For most of the Section 202 and HOME projects we visited, some supportive services, such as group social activities or subsidized meals programs, were available to the residents on-site, but usually only to the extent that the projects could generate operating income to pay for them. Rather than provide such services themselves, the projects tapped into and availed themselves of various supportive, educational, social, or recreational services in their communities. Furthermore, most of the projects that we visited included common areas and activity rooms that gave the residents places to socialize and provided space for hosting community-based and other services. All eight of the Section 202 and seven of the HOME projects we visited ensured that their residents had access to supportive services. The range and nature of the services depended on the amount of operating income that was available to pay for the services and/or the proximity of community-based services to the projects. In addition, one of the Section 202 projects had a grant from HUD to hire a part-time service coordinator;the remaining Section 202 projects paid for a service coordinator from the project's operating revenues, expected their on-site resident managers to serve as service coordinators, or provided services at nearby facilities. None of the HOME projects received outside support through grants from HUD and/or project-based rental assistance to pay for supportive services. Six of the eight HOME projects and all but one of the Section 202 projects that we visited expected an on-site manager to coordinate the provision of supportive services to elderly residents or relied on rent revenue to pay for a service coordinator. The costs of having on-site managers, like the costs of providing most of the service coordinators, were covered by the projects' operating incomes. One of the Section 202 projects that relied on rent revenue provided few services on-site, but its residents had access to a wide variety of services, including a subsidized meals program, at another nearby Section 202 project developed by the same sponsor. In another case, the nonprofit sponsor of the Section 202 project consulted a nonprofit affiliate that has developed services for various housing projects developed by the sponsor. In addition to keeping up to date with the needs of their residents, the sponsors or management companies of the Section 202 projects we visited expected their service coordinators or resident managers to refer residents to community-based services as needed or to bring community-based services to their facilities on a regular or occasional basis. One of the Section 202 projects we visited had hired a part-time service coordinator using a grant from HUD's Service Coordinator Program. According to HUD, resident managers cannot always provide supportive services because they may lack the resources to do so and/or the experience needed to provide such services. As a result, the Congress began funding the Service Coordinator Program in 1992 to help meet the increasing needs of elderly and disabled residents in HUD-assisted housing and to bridge the gap between these needs and resident managers' resources and experience. The program awarded 5-year grants to selected housing projects to pay for the salaries of their service coordinators and related expenses. The managers of this Section 202 project doubted that their operating revenues would be sufficient to continue paying for the coordinator when their HUD grant expires. One Section 202 project that we visited was unique in that it did not have a service coordinator, but the project's management company had structured the duties of the resident manager to include activities that a service coordinator performs. The project's management company could do so because it manages over 40 Section 202 projects nationwide and handles nearly all financial, administrative, and recordkeeping duties in one central location so that its resident managers have time to become more involved with their residents. The two HOME projects we visited that had neither a service coordinator nor an expectation that a resident manager would fill this role were the two projects that housed both the low-income elderly and families. At one of these projects, a nearby city adult center offered numerous opportunities for supportive services similar to those other projects provided on-site. At the second project, a social worker from the city visited the project on a part-time basis to provide information about and referrals to community-based services. All of the Section 202 projects we visited had common or congregate areas for group activities, socializing, and supportive services. Six of the eight HOME projects we visited had similar common areas. At both the Section 202 and the HOME projects, these common areas were often the places in which residents could take advantage of the supportive services the project's manager or service coordinator had provided directly or, in the case of community-based services, had arranged to come to the project on a regular or occasional basis. The only projects that did not have common or congregate areas were the two HOME projects that housed a mixture of low-income families and elderly residents. One was a traditional multifamily apartment building in which 19 of the 29 units were set aside for the elderly. Although this project had no congregate space, it was near one of the city's adult centers that provides adult education, recreational classes, and other services for seniors and others from the community. The second was a single-room-occupancy project in which about 20 percent of the tenants were elderly, although the project did not set aside a specific number or percentage of the units for the elderly. This project had more limited common areas, parts of which were devoted to kitchen facilities on each floor because single-room-occupancy units do not have full kitchens themselves. We provided a draft of this report to HUD for its review and comment. HUD generally agreed with the information presented in this report but said that the report (1) understates the contributions of the HOME program in providing assistance to the elderly and (2) assumes that the Section 202 model is the preferred way of providing housing for the elderly, without giving sufficient recognition to the other kinds of assistance the elderly receive from the HOME program. In discussing the relative contributions of the HOME and the Section 202 programs, HUD said that comparable production of multifamily rental projects for the elderly could not have occurred in the first few years of the HOME program (which was first funded in fiscal year 1992) because of the lead time necessary for planning, selecting, and constructing projects. HUD also questioned whether our data included all HOME projects that might be comparable to Section 202 projects by taking into account the (1) projects developed through the substantial rehabilitation of existing buildings (as opposed to new construction), (2) projects in which vacant units might later be occupied by the elderly in sufficient numbers to achieve comparability with Section 202 projects, (3) projects in which 50 percent or more of the residents were elderly, and (4) projects that were under way but had not been completed at the close of fiscal year 1996. We agree that our review probably would have identified more comparable HOME projects if the program had been funded before fiscal year 1992, and we have added language to this effect in the report. Our analysis and the data we present include projects from the Section 202 and HOME programs that were substantial rehabilitations of existing buildings. We agree that filling vacant units with elderly residents could increase the number of comparable HOME projects in the future, but any such units in our analysis were vacant as of the close of fiscal year 1996, and our report discusses each program's activity only through that date. Data on the HOME projects in which 50 percent or more of the residents were elderly are reflected in figure 3 of this report, which illustrates the different types of HOME assistance the elderly received. We did not compare these data with Section 202 data because, as we note, comparable HOME projects are those in which 90 percent or more of the households have one elderly resident. We agree that some HOME projects that were under way but had not been completed at the close of fiscal year 1996 might in the future be comparable to Section 202 projects, but we note that the number of comparable Section 202 projects would also be greater because projects funded by the Section 202 program were also under way but had not opened as of this date. In stating its belief that this report assumes the Section 202 model is the preferred way of providing housing for the elderly, HUD expressed concern that we did not give sufficient recognition to the assistance the HOME program provides the elderly by other means. HUD noted, for example, that the HOME program provides a viable alternative to multifamily rental housing by offering assistance to the elderly to rehabilitate the homes they own with special features that allow them to continue to live independently. HUD also noted that smaller rental projects than those we compared with the Section 202 program (projects with 1-4 units) also present a viable alternative to multifamily rental housing, provided adequate supportive services are available if needed. We disagree with HUD's comment that this report assumes the Section 202 model is the preferred way of providing housing assistance for the elderly. In this report, we have described the operations of the two programs and presented data on the assistance each has provided nationally and at selected projects. We have not evaluated the manner in which either program provides assistance, and we have not expressed a preference for either approach to delivering housing assistance to elderly households. We have added statements to this effect to the report to address HUD's concern. We acknowledge that the HOME program provides housing assistance to the elderly in several ways other than through the production of new multifamily rental housing that is set aside almost exclusively for the elderly. However, because this report describes comparable Section 202 and HOME-funded housing assistance and because the Section 202 program provides only one kind of housing assistance, we focused on the multifamily rental projects funded by the HOME program that are comparable to those funded by the Section 202 program. To address HUD's concerns and to provide further recognition of the HOME program's other types of housing assistance, we have revised the sections of the report cited by HUD to more prominently reflect the complete range of HOME-funded activities benefiting the elderly. HUD also provided several technical and editorial corrections to the report, which we have incorporated as appropriate. HUD's comments are reproduced in appendix II of this report. The information we present in this report describes the need for assisted housing, discusses the operations of the Section 202 and HOME programs, and presents data on the assistance each program has provided. We did not evaluate the manner in which either program provides assistance, and we did not express a preference in the report for either one of the approaches to delivering assistance to elderly households. To determine the amount and types of new assisted housing that the Section 202 and HOME programs have provided for the elderly, we obtained and analyzed data from HUD headquarters on the Section 202 and HOME projects completed from fiscal year 1992 through fiscal year 1996. Fiscal year 1992 was the first year in which the HOME program received funding, and fiscal year 1996 was the most recently completed fiscal year for which data from the programs were available when we began our review. Our analysis of the HOME data also provided information on the amount and sources of funding for multifamily projects developed under the HOME program. The Section 202 data did not include information on any other federal or nonfederal funding these projects may have received because a Section 202 allocation is intended to cover 100 percent of a project's development costs. In addition to using these data, we analyzed special HUD tabulations of Census data to identify the level of need among the elderly for housing assistance in each state. We examined HUD's data on the HOME program to identify all types of housing assistance that the program has provided for elderly households, but we also analyzed these data by the type of assistance in order to obtain information on the HOME projects that are comparable to Section 202 projects. To do so, we focused our analysis on the HOME multifamily projects in which 90 percent or more of the residents are elderly because, at a minimum, 90 percent of the residents of Section 202 projects must be elderly (before 1991, 10 percent could be persons at least 18 years old with a handicap). Throughout our review, we also discussed housing assistance for the elderly with officials from HUD's Section 202 and HOME programs, HUD's Office of Policy Development and Research, and the Bureau of the Census. In addition, we reviewed relevant documents from each program and prior HUD and Census reports on housing needs of the elderly. We supplemented this national information on each program by visiting a total of 16 projects to obtain more detailed data than HUD collects centrally on the use of other federal and nonfederal funding and the presence or availability of supportive services for elderly residents. Using Section 202 and HOME program data, we judgmentally selected two Section 202 and two HOME projects in each of four states--California, Florida, North Carolina, and Ohio. We selected these states because they have relatively high concentrations of low-income elderly residents and numbers of Section 202 and HOME-funded projects. In each state, we selected individual Section 202 and HOME projects that were in the same vicinity and were roughly comparable in size. Nearly all of these projects were reserved exclusively for the elderly or had a portion of their units set aside for the elderly. In one case, about 20 percent of a HOME-funded project's residents were elderly, although neither the project nor any portion of its units was explicitly reserved for elderly residents. At each project we visited, we discussed the project's history and financing and the availability of supportive services with the sponsor or developer and relevant local and HUD officials. The observations we make about the individual projects we visited are not generalizable to all Section 202 or HOME-funded projects because we judgmentally selected these projects and did not visit a sufficient number from each program to draw conclusions about the universe of such projects. We did not assess the reliability of the data we obtained and analyzed from HUD's Section 202 and HOME program databases. However, throughout our review we consulted with the appropriate HUD officials to ensure we were analyzing the relevant data elements for the purposes of this report. Furthermore, the information we obtained from these databases was generally consistent with our observations during our site visits to the projects we selected using these databases. We conducted our work from April through October 1997 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees, the Secretary of Housing and Urban Development, and the Director of the Office of Management and Budget. We will make copies available to others on request. Please call me at (202) 512-7631 if you or your staff have any questions about the material in this report. Major contributors to this report are listed in appendix III. As part of our review, we visited 16 low-income, multifamily rental projects--4 each in California, Florida, North Carolina, and Ohio--to obtain information that the Department of Housing and Urban Development (HUD) does not collect centrally and to discuss with program participants their experience in applying for, developing, and operating these projects. In each state, two of the projects we visited were funded by the Section 202 program and two received funds from the HOME Investment Partnership (HOME) program. As we noted in the Scope and Methodology section of this report, we judgmentally selected these states because, compared with other states, they had relatively high concentrations of low-income elderly residents and numbers of Section 202 and HOME-funded projects. We selected individual Section 202 and HOME projects that were in the same vicinity and were roughly comparable in size. During each site visit, we discussed the history, financing, and availability of supportive services with the sponsor or developer of the project. We also discussed these issues with on-site management agents, local officials administering the HOME program, and HUD Section 202 and HOME field office officials. At each project, we walked through the grounds, selected residential units, and any common areas available to the residents for group activities. Typically, the Section 202 projects we visited were high- or mid-rise apartment buildings with elevators, laundry facilities, and one or more community rooms in which residents participated in group activities and, in some cases, meals programs. In one project, which consisted of more traditional garden apartments on a single level, each apartment had its own outdoor entrance and front porch. Ranging in size from 42 to 155 units, most of the projects (5 of 8) had a resident manager. Current Section 202 regulations require that all residents of these projects have very low incomes--that is, the must earn less than 50 percent of the median income for their area. The HOME projects we visited, ranging in size from 20 to 120 units, were more varied than the Section 202 projects. Several were high- or mid-rise buildings, although one of these was a single-room-occupancy hotel. In the single-room-occupancy hotel, the units were smaller than in a typical apartment building and much of the common space consisted of kitchen facilities, which were not included in the units themselves. At another project, the ground floor of the building housed a city-operated adult center offering a variety of educational and recreational programs. Other HOME projects we visited were multi-unit cottages or detached structures, each of whose units had its own outdoor entrance; one such project consisted of buildings scattered over three different sites. Unlike the Section 202 projects, two of the HOME projects housed both families and the elderly. As we noted earlier in this report, at a minimum, in each multifamily rental project with at least five HOME-assisted units, at least 20 percent of the residents in the HOME-assisted units must have very low incomes (at or below 50 percent of the area's median income); the remaining units may be occupied by households with low-incomes (up to 80 percent of the area's median income). At the HOME projects we visited, half designated all of their units as HOME-assisted, meaning that the HOME program's regulations about tenants' incomes applied to those units; the other half designated some but not all of their units as HOME-assisted, meaning that the remaining units in these projects were subject either to the rules associated with other sources of funding or to those established by the local jurisdiction. Gwenetta Blackwell The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the similarities and differences between the Department of Housing and Urban Development's (HUD) Section 202 Supportive Housing for the Elderly Program and HOME Investment Partnership Program, focusing on: (1) the amount and types of new multifamily rental housing that each program has provided for the elderly; (2) the sources of each program's funding for multifamily rental projects; and (3) the availability of supportive services for elderly residents. GAO noted that: (1) during fiscal year (FY) 1992 through FY 1996, the Section 202 program substantially exceeded the HOME program in providing multifamily rental housing that was set aside for elderly households; (2) over 1,400 Section 202 projects opened during this time, providing homes for nearly 48,000 elderly residents; (3) at the same time, the HOME program provided housing assistance to 21,457 elderly households, including 675 elderly residents in 30 multifamily rental projects comparable to those developed under the Section 202 program; (4) the Section 202 program produced new multifamily rental housing for low-income elderly households through new construction, rehabilitation of existing buildings, and acquisition of existing properties that the Federal Deposit Insurance Corporation obtained through foreclosure; (5) the HOME program provided housing assistance to address the most pressing housing needs that local communities and states identified among low-income people of all ages; (6) for the elderly, HOME assistance helped rehabilitate the homes they already owned and in which they still lived, provided tenant-based rental assistance, helped new homebuyers make down payments and pay closing costs, and made funds available to acquire, construct, or rehabilitate single-family and multifamily rental housing; (8) in the Section 202 program, the capital advance, which HUD provides to a project's sponsor, is the only significant source of funds for developing the project; (9) in general, a HOME project typically attracts significant levels of additional public and private funding; (10) HOME multifamily housing that is similar to Section 202 projects is usually financed with a combination of HOME funds and other federal and nonfederal funds; (11) HUD does not pay for supportive services, such as transportation or subsidized meals programs, through the HOME program but does do so under limited circumstances through the Section 202 program; (12) the extent to which the Section 202 and HOME projects provided these services on-site for their residents usually depended on each project's ability to generate the operating income needed to pay for the services; (13) these projects often depended on and referred their residents to community-based supportive services; (14) five of the eight Section 202 projects that GAO visited employed a staff person or expected their on-site resident manager to coordinate services; and (15) both projects in many cases had common areas or activity rooms that service providers or residents could use for community-based services, group social or educational activities, and dining.
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Medicare is the national health insurance program for those aged 65 and older and certain disabled individuals. In 1998, Medicare insured approximately 39 million people. All beneficiaries can receive health care through Medicare's traditional fee-for-service arrangement, and many beneficiaries live in areas where they also have the option of receiving their health care through a managed care plan. Of the almost 7 million Medicare beneficiaries enrolled in managed care as of March 1999, nearly all were enrolled in plans whose MCOs receive a fixed monthly fee from Medicare for each beneficiary they serve. Total Medicare spending is expected to reach about $216 billion in fiscal year 1999, with managed care's portion reaching approximately $37 billion. The Balanced Budget Act of 1997 (BBA) established the Medicare+Choice program as a replacement for Medicare's previous managed care program. Medicare+Choice was intended to expand beneficiaries' health plan options by permitting new types of plans, such as preferred provider organizations and provider-sponsored organizations, to participate in Medicare. BBA also established an annual, coordinated enrollment period to begin in 1999 during which beneficiaries may enroll or change enrollment in a Medicare+Choice plan. Previously, MCOs were required to have at least one 30-day period each year when they accepted new members, but most MCOs accepted new members throughout the entire year. Also, before BBA, Medicare beneficiaries could join or leave a plan on a monthly basis. Beginning in January 2002, Medicare beneficiaries will no longer be able to enroll and disenroll on a monthly basis. If they experience problems with a plan, identify a better enrollment option, or simply have second thoughts, beneficiaries will have a limited time each year to change the election they made during the coordinated enrollment period. Afterwards, they will be "locked into" their health plan decision for the remainder of the year. Each plan's benefit package is defined through a contracting process that establishes the minimum benefits a plan must offer and the maximum fees it may charge during a calendar year. After a benefit package is approved by HCFA, a plan may not reduce benefits or increase fees until the next contract cycle. A BIF, which is included in an MCO's contract as an exhibit, describes in detail the services, copayments, and monthly premiums associated with each plan. HCFA's central and regional offices are involved in reviewing plans' marketing materials, which include member literature. The central office negotiates contracts and establishes national policy regarding marketing material review. HCFA's regional offices review marketing materials when submitted throughout the year and require MCOs to change the materials when they omit required information or are inaccurate, misleading, or unclear. While some regional offices may review materials that certain organizations distribute nationwide, generally each regional office is responsible for reviewing the materials to be distributed within its geographic jurisdiction. To verify the accuracy of benefit information, regional staff are instructed to check plan materials against the BIF. HCFA staff also verify that MCOs have included certain information in their materials, such as explanations of provider restrictions and beneficiary appeal rights. HCFA provides guidance for both developing and reviewing marketing materials through its contract manual, marketing guidelines, and operational policy letters. Despite HCFA's authority to do so, the agency does not require MCOs to use standard formats or terminology in their marketing materials. According to HCFA regulations, if HCFA staff do not disapprove submitted materials within 45 days, the materials are deemed approved, and MCOs may distribute the materials to beneficiaries. Review procedures established by several regional offices allow "contingent approval"; that is, the materials are approved on the condition that the MCOs make specific corrections. When contingent approval is given, procedures in three regions call for HCFA staff to verify that the MCOs have made the required corrections before the materials are published and distributed to beneficiaries. (See fig. 1.) Historically, HCFA has done little to address beneficiaries' need for comparable and unbiased information about Medicare managed care plans. In 1996, we reported that beneficiaries received little or no comparable information on Medicare health maintenance organizations and that the lack of information standards made it difficult for beneficiaries to compare plans' member literature. At that time, we recommended that HCFA produce plan comparison charts and require plans to use standard formats and terminology in key aspects of their marketing materials. BBA mandated that HCFA undertake a number of activities to provide Medicare beneficiaries with information about their health plan options. Beginning in November 1998, HCFA was required to provide an annual national educational and publicity campaign to inform beneficiaries about the availability of Medicare+Choice plans and the enrollment process. Also, each fall starting in 1999, HCFA must distribute to beneficiaries an array of general information about the traditional Medicare program, supplemental insurance, appeal and other rights, the process for enrolling in a Medicare+Choice plan, and the potential for Medicare+Choice contract termination. At the same time, HCFA must provide each Medicare beneficiary with a list of available Medicare+Choice plans and a comparison of plan options. All of these activities are designed to coincide with and support the coordinated open enrollment period slated to occur each November starting in 1999. HCFA's goal is to make beneficiaries aware of their health plan options and to provide some summary information to help beneficiaries compare those options. According to HCFA officials, in 1999 each beneficiary will receive a Medicare handbook that contains some comparable information about available health plans. Beneficiaries who want more information may call HCFA's toll-free telephone number (1-800-MEDICAR) or log onto the Internet Web site (www.medicare.gov). All of these resources--the Medicare handbook, toll-free telephone number, and Web site--are designed to help beneficiaries identify enrollment options and compare selected aspects of benefits. To obtain detailed information about specific plans, however, beneficiaries must continue to rely on MCOs' sales agents and member materials. (See fig. 2.) Our investigation of 16 MCOs uncovered flaws in their plans' member literature, beneficiaries' only source of detailed benefit information. Much of the MCOs' plan literature contained errors or omissions about mammography and prescription drug benefits, ranging from minor oversights to major discrepancies. While we found no errors about ambulance services, some MCOs' member literature omitted information about the benefit. Moreover, beneficiaries frequently did not receive important information until after enrollment. Even then, beneficiaries in some plans received member literature that was incomplete and did not fully disclose plan benefits, exclusions, and fees. The lack of full disclosure in member literature leaves the beneficiary vulnerable to unexpected service denials and additional out-of-pocket fees. Making comparisons among health plans' benefits remains challenging because of the use of nonstandard formats and terminology. In contrast, FEHBP participants received plan brochures that contained relatively complete benefit descriptions presented in a standard format. We found significant errors and omissions in the plans' member literature that MCOs distributed to beneficiaries. For example, effective January 1998, HCFA required organizations to cover annual screening mammograms and to permit beneficiaries to obtain this service without a physician's referral. Also, MCOs were required to notify beneficiaries of this new Medicare benefit. Materials from five MCOs, however, explicitly stated that beneficiaries must obtain physician referrals to obtain screening mammograms. (See fig. 3 for three examples.) Member literature from five other organizations failed to inform beneficiaries of their right to self-refer for this service. Much of the MCOs' member literature provided incorrect or inconsistent information about prescription drug coverage. For example, the member literature for a large, experienced Medicare MCO specified an annual dollar limit for prescription drugs that was lower than the amount required by the organization's Medicare contract. The contract required the provision of unlimited generic drugs and coverage of at least $1,200 for brand-name drugs. This MCO's materials, which varied by county, understated the brand-name drug coverage, listing annual dollar limits as low as $600. When we contacted the MCO officials, they confirmed that they were providing the lower benefit coverage. On the basis of the MCO's enrollment for 1998, we estimated that about 130,000 members could have been denied part of the benefit that Medicare paid for and to which they were entitled under the MCO's contract. Another MCO provided conflicting information about its prescription drug benefit. In one document, the MCO alternately described its prescription drug benefit as having a $200 monthly limit and a $300 monthly limit. (The correct limit was $300.) In another case, an MCO used the same member literature for four separate plans, emphasizing that all members were entitled to prescription drug benefits. Actually, however, only two of the four plans offered a prescription drug benefit. The member literature we reviewed did not contain errors regarding ambulance services, but the documents often omitted important information about the benefit. One MCO did not include any reference to the benefit in its preenrollment member literature. Three other MCOs stated that ambulance services were covered "per Medicare regulations" but did not define Medicare's coverage. Most of the remaining MCOs provided general descriptions of their ambulance coverage but did not give details of the extent of the coverage, such as whether the MCOs would pay for out-of-area ambulance service in an emergency. Officials from several MCOs told us that their organizations typically issue a member policy booklet--a document that discloses the details of a plan's benefit coverage, benefit restrictions, and beneficiary rights--after a beneficiary enrolls. Moreover, MCOs often provided enrollees with outdated member policy documents. For example, one MCO failed to provide enrollees with a current member policy document until August 1998--8 months after the start of the new benefits year. Distributing outdated information can be misleading. HCFA allows MCOs to use outdated plan member materials as long as the organizations attach an addendum indicating any changes to the benefit package. HCFA officials believe that this policy is reasonable because beneficiaries can determine a plan's coverage by comparing the changes cited in the addendum with the prior year's literature. However, some MCOs distributed outdated literature without the required addendum. When MCOs did include the addendum, the document did not always clearly indicate that its information superseded the information contained in other documents. In addition, some MCOs did not provide dates on their literature, which obscured the fact that the literature was outdated. Adequate preenrollment benefit information will become even more crucial in 2001, as BBA's annual enrollment provisions begin to take effect in 2002 and Medicare beneficiaries are no longer able to disenroll on a monthly basis. To help beneficiaries make informed choices, BBA requires HCFA to provide beneficiaries with summary plan information before the annual November enrollment period. Furthermore, new regulations now require MCOs to issue letters by mid-October each year describing benefit changes that will be effective January 1 of the following year. MCOs must send these annual notification letters to all enrollees, and to any prospective enrollees upon request. However, HCFA has not required MCOs to provide more complete member literature prior to enrollment. As a result, beneficiaries still might not have the information they need to make sound enrollment choices. Additionally, beneficiaries enrolling in plans before 2002 may be unaware that their plans may be terminating services shortly after the beneficiaries have enrolled. A plan must notify its members at least 60 to 90 days before it ends services. However, there is no requirement that a terminating plan stop advertising and enrolling new members, with the result that in 1998, some beneficiaries unknowingly joined plans that soon exited the Medicare program. For example, one MCO notified its members in May 1998 of its intent to end services in several Ohio counties. The MCO continued to advertise and enroll new beneficiaries without informing them that plan services would end on December 31, 1998. After inquiries from beneficiaries, the MCO ceased marketing activities in July. Although these marketing activities angered many beneficiaries, the MCO was operating within HCFA's notification requirements. Some beneficiaries do not receive important information about plan benefits and restrictions even after they have enrolled in a plan. Because HCFA's instructions regarding benefit disclosure are vague, MCOs vary in the amount of information they provide to beneficiaries. Some organizations we reviewed provided relatively complete descriptions of plan coverage in a member policy booklet or similar document. However, other MCOs did not disclose important restrictions in any member literature. In fact, MCOs that adopt HCFA's suggested disclosure language will send beneficiaries to an information dead end. In the guidelines it provides to MCOs, HCFA suggests that a plan's "evidence of coverage," a document frequently referred to as a member policy booklet, direct beneficiaries to the MCO's Medicare contract to obtain full details on the benefit package. According to HCFA, a member policy booklet should state that " constitutes only a summary of the . . . . The contract between HCFA and the [MCO] must be consulted to determine the exact terms and conditions of coverage." HCFA officials responsible for Medicare contracts, however, said that if a beneficiary requested a contract, the agency would not provide it because of the proprietary information included in an MCO's adjusted community rate proposal. Furthermore, an MCO is not required, according to HCFA officials, to provide beneficiaries with copies of its Medicare contract. MCO officials we spoke with differed on whether their organization would distribute copies of its contract to beneficiaries. By establishing an MCO's Medicare contract--a document that is not usually available to beneficiaries--as the only document required to fully explain the plan's benefit coverage, HCFA cannot ensure that beneficiaries are aware of the benefits to which they are entitled. Vague or incomplete benefit descriptions leave beneficiaries vulnerable to unexpected service denials. For example, disputes sometimes arise when beneficiaries are told they do not have the coverage they believed they would have when they enrolled. An official from the Center for Health Dispute Resolution (CHDR), HCFA's contractor that adjudicates managed care appeal cases, told us that CHDR uses the information in MCOs' member literature to determine whether plan members are entitled to specific benefits that are not covered by Medicare fee-for-service. When an MCO's literature is vague, CHDR allows the MCO to submit internal plan memorandums that clarify its benefit coverage. But beneficiaries generally do not receive these internal memorandums. Consequently, beneficiaries who must rely on incomplete member literature and sales agents' verbal interpretations of this literature are likely to be unaware of important benefit limitations or restrictions. Inconsistent formats and terminology made comparisons among plans' benefit packages difficult. We generally had to read multiple documents to determine each plan's benefit coverage for mammography, prescription drugs, and ambulance services. Answering a set of basic questions about three plans' prescription drug benefits, for example, required a detailed review of twelve documents: two from plan A, five from plan B, and five from plan C (see fig. 4). It was not easy to know where to look for the information. For example, we found the answer to the question of whether a plan used a formulary in plan A's summary of benefits, plan B's Medicare prescription drug rider, and plan C's contract amendment. Plan C's materials required more careful review to answer the question because the membership contract indicated the plan did not provide drug coverage. However, an amendment--included in the member contract as a loose insert--indicated coverage for prescription drugs and the use of a formulary. As in previous studies, we found plans' materials did not use comparable terms or formats. For example, it was difficult to determine whether the three plans offered by one MCO covered nonemergency ambulance transportation, because each plan's materials used different terms to describe the benefit. The lack of clear and uniform benefit information almost certainly impedes informed decision-making. HCFA officials in almost every region noted that a standard format for key member literature, along with clear and standard terminology, would help beneficiaries compare their health plan options. FEHBP, administered by the Office of Personnel Management (OPM), is similar to the new Medicare+Choice program in that it serves a large and diverse population, allows participation of different types of health care organizations, and allows plans' benefit packages to vary. Unlike HCFA, however, OPM requires FEHBP plan materials to follow standard formats and terms. OPM officials believe this requirement helps FEHBP members make informed decisions. FEHBP health care organizations produce a single, standard brochure for each plan that is the "contractual document" between the member and the organization. This brochure is a complete description of the plan's benefits, limitations, and exclusions. The 1999 FEHBP brochure explicitly states the following objective: "This brochure is the official statement of benefits on which you can rely. A person enrolled in the Plan is entitled to the benefits stated in this brochure." OPM officials said that the brochures must describe what each plan's coverage includes, as well as what it excludes, so that there is less chance for misunderstanding. The benefit information must be listed in a prescribed format and language to facilitate members' comparisons among plan options, but OPM's standards allow variation in some language to accommodate differences in plans' benefits and procedures. Each plan's brochure must include a benefit summary presented in OPM's prescribed format. OPM officials update the mandatory brochure language every year to reflect changes in the FEHBP's requirements and organizations' requests for improvements to the language. Finally, OPM requires organizations to distribute plan brochures prior to the FEHBP annual open enrollment period so that prospective enrollees have complete information on which to base their decisions. OPM officials told us that all participating organizations publish brochures that adhere to OPM's standards. Although OPM's process for reviewing and approving member literature is generally similar to HCFA's, it differs in important ways. The process begins when FEHBP organizations submit benefit coverage information to OPM in standard brochure format. OPM contract specialists then review the brochures to verify compliance with mandatory terminology and format requirements and to ensure that nonstandard information is presented appropriately, given the plans' benefit packages and organizational structures. For example, organizations offering fee-for-service (indemnity) plans would use different language in describing plan procedures and restrictions than MCOs would. Organizations are then responsible for printing and distributing the brochures. To verify the accuracy of the final documents, OPM obtains 20 brochures from each plan's first print run. According to an OPM official, if OPM contract reviewers identify errors, they can require organizations to attach an addendum, reprint the brochures, or pay a fine. The official said that any errors identified are generally minor and are corrected through an addendum attached to the brochures. Although HCFA approved all the member literature we reviewed, weaknesses in three critical elements of the agency's review process allowed errors to go uncorrected and important information to be omitted. Our review showed that the structure of HCFA's contracting documents has created problems in determining the accuracy of plan materials and has resulted in the omission of important benefit details by several organizations. Additionally, HCFA's lack of consistent standards has contributed to inconsistent reviews and extra work and may have increased the chance of errors slipping through the review process undetected. Moreover, MCOs have failed to correct plan materials as required by HCFA staff. HCFA has begun to address some, but not all, of the issues we have identified. MCOs' Medicare contracts, which include the BIF, establish the foundation for HCFA's review of marketing materials. HCFA reviewers are instructed to use the BIF to check that plan member literature accurately reflects the contracted benefits and member fees. Reviewers told us, however, that the BIFs often do not provide the required detail, and our work revealed that the BIFs did not provide consistent or complete benefit descriptions. For instance, the BIFs did not always specify whether a plan's prescription drug benefit covered only specific drugs. Restricting coverage to a list of specific drugs, or a formulary, is a common element of plans' benefit packages. Yet of our sample of 16 MCOs, 14 used formularies in one or more of the plans they offered, but only 8 disclosed this restriction in their BIFs. Because BIFs are often incomplete, reviewers sometimes rely on benefit summary sheets provided by MCOs to verify the accuracy of plan materials. This practice is contrary to HCFA policy, which requires an independent review of the MCOs' plan literature. The reviewers who approved the erroneous materials cited earlier explained that some of the errors might have occurred because the MCOs' summary sheets incorrectly described plans' benefits. This was the explanation given by the reviewer who approved the plan member literature advertising a $600 annual benefit limit for brand-name prescription drugs instead of the contracted $1,200 annual limit. The lack of detailed standards for plans' member literature can result in misleading comparisons and put some MCOs at a competitive disadvantage. Without detailed standards, HCFA reviewers have wide discretion in approving or rejecting plan materials. The MCO representatives and HCFA officials we spoke with said that this latitude leads to inconsistent HCFA decisions. An MCO official told us that, while several plans in a market area required a copayment for ambulance services if a beneficiary was not admitted to a hospital, not all plans were required to disclose that fact. The HCFA reviewer responsible for one plan's materials required the plan to disclose the fee, yet different HCFA staff in the same regional office who reviewed other plans' materials did not require similar disclosure. These inconsistent review practices caused one plan's benefits to appear less generous, even though several other plans had similar benefit restrictions. The lack of mandatory format and terminology standards for key member literature, such as benefit summary brochures and member policy booklets, increases the amount of time and effort needed to review and approve plans' member literature. Moreover, unlike many government programs, Medicare does not require MCOs to use standard forms for such typical administrative functions as enrollment, disenrollment, and appeals. Instead, each organization creates its own forms. Consequently, HCFA staff spend a great deal of time reviewing disparate documents that could be routine forms. Several reviewers commented that the volume and complexity of MCOs' member literature contributed to the likelihood that errors would pass through the review process undetected. Agency staff said that they could spend more time reviewing important member documents, such as member policy booklets, if HCFA required the use of standard forms for administrative functions. HCFA officials recognize that standardizing key documents and terms would facilitate their review of plans' marketing materials and reduce the administrative burden on both HCFA and MCOs. Some agency officials expressed concern, however, that MCOs might resist efforts to standardize the way information is presented. In fact, many of the MCO officials we spoke with said they would welcome some standardization because it could save them time and money. One MCO official commented that MCOs may not be using HCFA's current guidelines and suggested standards because they are voluntary and use language that is legalistic and confusing to beneficiaries. Several MCO officials stressed that any mandatory standards should be developed with industry input and with the advice of professional marketing specialists. MCOs are responsible for correcting errors in their marketing materials and distributing accurate information. Some HCFA reviewers told us that they do not approve marketing materials until the MCO has corrected all identified errors. Other HCFA reviewers told us that they give contingent approval--that is, they approve the material if the MCO agrees to make specific corrections. The MCO is required to send a copy of the print-ready document to HCFA so the reviewer can verify that the corrections were made. Reviewers often did not have copies of the print-ready or final documents in their files, however. Several reviewers admitted that it was difficult to get the final documents from MCOs and that they generally trust the organizations to publish materials as approved or to make the corrections outlined in approval letters. Moreover, reviewers noted that the contingent approval practice was adopted to expedite reviews when materials required only minor corrections. However, MCOs did not always correct the errors HCFA identified during the review process. We reviewed one plan's summary of benefits that incorrectly commingled 1997 and 1998 benefit information. The document we received from the MCO official contained several handwritten notations correcting inaccurate benefit information. For example, the copayment for prescription drugs was listed as $5, but a handwritten note indicated that there was no copayment for generic drugs. The HCFA staff member responsible for approving the material showed us a working copy of the document on which she had indicated the need for numerous changes. The published document we observed, however, did not incorporate many of these corrections. The reviewer had been unaware that the published document contained errors because she had never received a print-ready copy from the MCO. HCFA has undertaken several efforts to address some of the problems we identified during our review. The agency is developing a new plan benefit package (PBP) that it hopes will replace the BIF. The PBP's new format improves upon the BIF by standardizing the information collected from each plan. The PBP includes detailed checklists that make it easier to obtain consistent benefit information from plans. However, the PBP is flexible enough to capture benefit features that do not fit neatly into a predetermined checklist. Using the PBP should also facilitate efforts to standardize member literature. HCFA intends to pilot test the PBP with a few MCOs this year for contract submissions effective in 2000. HCFA officials estimate that the PBP proposal will need to begin the Office of Management and Budget's clearance process no later than August 1999 to achieve full implementation by 2000. Otherwise, full implementation could be delayed. Agency officials also recognize the importance of more uniform member literature and have articulated their intent to standardize key documents in future years. As a first step, HCFA established a work group to develop a standard format and common language for all plans' benefit summaries. HCFA hopes to establish the benefit summary by May and plans to use it in the fall 1999 benefit summary brochures. Achieving this goal will require HCFA's work group to reach consensus on standards for clear and accurate information and to avoid imposing burdensome requirements on MCOs. HCFA's long-term goals include establishing standards for other key documents, but the agency has not yet developed a coordinated strategy for its long-term efforts or decided whether such standards will be voluntary or mandatory. Beneficiaries who enrolled or considered enrolling in the plans we reviewed were not well-served by plans' efforts to produce member materials or HCFA's review of them. The information that plans distributed was often confusing and hard to compare. Some plans distributed inaccurate or incomplete information or provided the information after beneficiaries had made their enrollment decisions, when it was less useful. These problems significantly limited beneficiaries' ability to make informed decisions about their health plan options. Moreover, some beneficiaries may have been denied health care coverage to which they were entitled or required to pay unexpected out-of-pocket fees. In contrast, each FEHBP plan must provide prospective enrollees with a single, comprehensive brochure to facilitate comparisons and informed enrollment choices. Revisions to HCFA's current review process and procedures could greatly improve the quality of plans' member literature. For example, full implementation of HCFA's new contract form for describing plans' benefit coverage, the PBP, could help ensure that approved member literature is accurate and fully discloses important plan information. Similarly, standard terminology and formats for key member literature would facilitate full disclosure and provide beneficiaries with comparable plan information. Moreover, new standards for the distribution of key member literature would enable beneficiaries to have the information they need when they need it. The required use of standard forms for routine administrative functions, such as member enrollment, could reduce HCFA's workload and allow staff to spend more time reviewing important member literature. Finally, efforts to standardize review procedures would help ensure consistent application of the agency's marketing material review policy. In October 1996, we recommended that the Secretary of Health and Human Services direct the HCFA Administrator to (1) require standard formats and terminology for important aspects of MCOs' marketing materials, including benefits descriptions, and (2) require that all literature distributed by organizations follow these standards. Although HCFA has taken initial steps toward this end, significant work remains. Therefore, we are both renewing our previous recommendations and recommending that the HCFA Administrator take the following additional actions to help Medicare beneficiaries make informed health care decisions and reduce the administrative burden on agency staff and MCOs. Require MCOs to produce one standard, FEHBP-like document for each plan that completely describes plan benefit coverage and limitations, and require MCOs to distribute this document during sales presentations and upon request. Fully implement HCFA's new contract form for describing plans' benefit coverage, the PBP, for the 2001 contract submissions to facilitate the collection of comparable benefit information and help ensure full disclosure of plans' benefits. Develop standard forms for appeals and enrollment. Take steps to ensure consistent application of the agency's marketing material review policy. HCFA agreed with our findings that the agency's review process and procedures need to be strengthened in order to ensure that beneficiaries receive accurate and useful information. The agency also concurred with our recommendations to improve the oversight of Medicare+Choice organizations' marketing materials and to require the use of standardized formats and language in plans' member materials. HCFA has steps under way that may help correct some of the problems we found. For example, the agency is developing a standardized summary of benefits document and intends to require Medicare+Choice organizations to use the document beginning in November 1999. While HCFA's efforts may standardize important aspects of plans' materials, such as information about appeal rights, these efforts stop short of requiring Medicare+Choice organizations to provide a single standard and comprehensive document that describes plan benefits and beneficiaries' rights and responsibilities as plan members. HCFA believes that Medicare+Choice organizations should retain the flexibility to develop materials that differentiate their services from those provided by other Medicare+Choice organizations. We agree that MCOs should be able to differentiate their plans. However, requiring MCOs to provide an FEHBP-like brochure, in addition to other plan materials, would preserve the MCOs' flexibility and provide Medicare beneficiaries with more complete and comparable information than they may currently receive. In fact, these standard brochures may encourage plans to compete on real differences in plan features. The full text of HCFA's comments appears in appendix II. As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 1 day after the date of this letter. At that time, we will send copies of this report to the Honorable Donna E. Shalala, Secretary of Health and Human Services; the Honorable Jacob Lew, Director, Office of Management and Budget; the Honorable Nancy-Ann Min DeParle, Administrator of the Health Care Financing Administration; and other interested parties. We will also make copies available to others upon request. This report was prepared under the direction of James Cosgrove, Assistant Director, by Marie James, Keith Steck, and George Duncan. If you or your staff have any questions about this report, please contact Mr. Cosgrove at (202) 512-7029 or me at (202) 512-7114. To do this work, we reviewed relevant policies and procedures at Health Care Financing Administration (HCFA) headquarters and regional offices. We also interviewed HCFA officials at headquarters and at all regional offices and spoke with representatives of industry and beneficiary groups. We visited four regional offices (Atlanta, Chicago, Philadelphia, and San Francisco) that cover high managed care penetration areas. In addition, we analyzed 1998 member literature and Medicare contracts for 16 of the 346 MCO contracts effective in 1998 (4 from each region we visited). Our sample included MCOs that varied in enrollment levels, structure, location, and years of Medicare experience. Because each MCO can offer more than one plan--for example, a standard option and a high option--we reviewed key materials for a total of 26 plans. We considered key member literature to include benefit summary brochures, member policy booklets, member handbooks, and plan letters related to benefit changes. The plans we reviewed used various combinations of these key documents to disclose the details of their benefit packages, including benefit restrictions and members' rights. Finally, we compared the Federal Employees Health Benefits Program and Medicare's standards for plans' member literature. Our analysis focused on three benefits that vary in complexity: ambulance transportation, annual screening mammography, and outpatient prescription drugs. We selected ambulance transportation and screening mammography because these benefits must be provided by all Medicare plans and are relatively simple to describe and understand. We selected the outpatient prescription drug benefit because it is complex, not covered by traditional Medicare, and an important consideration in many beneficiaries' enrollment decisions. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO provided information on the Medicare Choice program, focusing on: (1) the extent to which managed care organizations' (MCO) member literature provides beneficiaries with accurate and useful plan information; and (2) whether the Health Care Financing Administration's (HCFA) review process ensures that beneficiaries can rely on MCOs' member literature to make informed enrollment decisions. GAO noted that: (1) although HCFA had reviewed and approved the materials GAO examined, all 16 MCOs in GAO's sample from four HCFA regions had distributed materials containing inaccurate or incomplete benefit information; (2) almost half of the organizations distributed materials that incorrectly described benefit coverage and the need for provider referrals; (3) one MCO marketed (and provided) a prescription drug benefit that was substantially less generous than the plan had agreed to provide in its Medicare contract; (4) moreover, some MCOs did not furnish complete information on plan benefits and restrictions until after a beneficiary had enrolled; (5) other MCOs never provided full descriptions of plan benefits and restrictions; (6) although not fully disclosing benefit coverage may hamper beneficiaries' decisionmaking, neither practice violates HCFA policy; (7) as GAO has reported previously, it was difficult to compare available options using member literature because each MCO independently chose the format and terms it used to describe its plan's benefit package; (8) in contrast, the Federal Employees Health Benefits Program's (FEHBP) plans are required to provide prospective enrollees with a single comprehensive and comparable brochure to facilitate informed enrollment choices; (9) the errors GAO identified in MCO's member literature went uncorrected because of weaknesses in three major elements of HCFA's review process; (10) limitations in the benefit information form (BIF), the contract form that HCFA reviewers use to determine whether plan materials are accurate, led some reviewers to rely on the MCOs themselves to help verify the accuracy of plan materials; (11) additionally, HCFA's lack of required format, terminology, and content standards for member literature created opportunities for inconsistent review practices; (12) according to some regional office staff, the lack of standards also increased the amount of time needed to review materials, which contributed to the likelihood that errors could slip through undetected; (13) HCFA's failure to ensure that MCOs corrected errors identified during the review process caused some beneficiaries to receive inaccurate information; and (14) HCFA is working to revise the BIF and develop a standard summary of benefits for plans to use--steps that will likely improve the agency's ability to review member literature and other marketing materials--but other steps could be taken to improve the usefulness and accuracy of plan information.
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USPS has a vast mail processing network consisting of multiple facilities with different functions, as shown in figure 2. In fiscal year 2011, according to USPS, it had a nationwide mail processing network that included 461 facilities, 154,325 full-time employees, and about 8,000 pieces of mail processing equipment. This network transports mail from where it is entered into USPS's network, sorts it for carriers to deliver, and distributes it to a location near its destination in accordance with specific delivery standards. USPS receives mail into its processing network from different sources such as mail carriers, post offices, and commercial entities. Once USPS receives mail from the public and commercial entities, it uses automated equipment to sort and prepare mail for distribution. The mail is then transported between processing facilities where it will be further processed for mail carriers to pick up for delivery. Trends in mail use underscore the need for fundamental changes to USPS's business model. First-Class Mail volume peaked in fiscal year 2001 at nearly 104 billion pieces and has fallen about 29 percent, or 30 billion pieces, as of fiscal year 2011. Although First-Class Mail volume accounted for 44 percent of total mail volume in fiscal year 2011, it generated about 49 percent of USPS's revenue. In comparison, Standard Mail (primarily advertising) accounted for 51 percent of total mail volume but generated only about 27 percent of USPS's revenue. Further, it takes about three pieces of Standard Mail, on average, to equal the financial contribution from one piece of First-Class Mail. Looking forward, USPS projects that First-Class Mail will decline significantly between now and 2020. For the first time, in 2010, less than 50 percent of all bills were paid by mail as consumers continue to switch to electronic alternatives. USPS projects that Standard Mail volume will remain roughly flat between now and 2020, thereby increasing its share of revenues generated. Almost 60 percent of mail received by households in 2010 was advertising. USPS has said that its mail processing network is configured primarily so that it can meet the First-Class Mail delivery standards within a 1- to 5-day window, depending on where the mail is entered into the postal system and where it will be delivered. Most First-Class Mail is to be delivered in 1 day when it is sent within the local area served by the destinating mail processing center; 2 days when it is sent within reasonable driving distance, which USPS considers within a 12-hour drive time; 3 days for other mail, such as mail transported over long distances by air; and 4 to 5 days if delivery is from the 48 contiguous states to the noncontiguous states, Puerto Rico, the U.S. Virgin Islands, or Guam. Delivery service standards within the contiguous 48 states generally range from 1 to 10 days for other types of mail. Delivery service standards help USPS, mailers, and customers set realistic expectations for the number of days mail takes to be delivered, and to plan their activities accordingly. USPS requires a certain level of facilities, staff, equipment, and transportation resources to consistently meet First-Class Mail and other delivery service standards as expected by its customers. The USPS processing and transportation networks were developed during a time of growing mail volume, largely to achieve service standards for First-Class Mail and Periodicals, particularly the overnight service standards. To revise service standards, USPS can propose changes, such as elimination of overnight delivery for First-Class Mail, through a regulatory proceeding that includes the consideration of public comments. Further, whenever USPS proposes a change in the nature of postal services that affects service on a nationwide basis, USPS must request an advisory opinion on the change from PRC. In addition, USPS annual appropriations have mandated 6-day delivery and rural mail delivery at certain levels. USPS has asked Congress to allow it to change the delivery standard from 6- to 5-day-a-week delivery. USPS and other stakeholders have long recognized the need for USPS to reduce excess capacity in its mail processing network. In 2002, USPS released a Transformation Plan that provided a comprehensive strategy to adapt the mail processing and delivery networks to changing customer demands, eroding mail volumes, and rising costs. One key goal cited in the plan was for USPS to become more efficient by standardizing operations and reducing excess capacity in its mail processing and distribution infrastructure. In 2003, a presidential commission examining USPS's future issued a report recommending several actions that would facilitate USPS efforts to consolidate its mail processing network. The commission determined that USPS had far more facilities than it needed and those facilities that it did require often were not used in the most efficient manner. The commission recommended that Congress create a Postal Network Optimization Commission modeled in part on the Department of Defense's Base Realignment and Closure (BRAC) Commission, to make recommendations relating to the consolidation and rationalization of USPS's mail processing and distribution infrastructure. We reported in 2010 that Congress has considered BRAC-type approaches to assist in restructuring organizations that are facing key financial challenges. These commissions have gained consensus and developed proposed legislative or other changes to address difficult public policy issues. The 2003 presidential commission also recommended that USPS exercise discipline in its hiring practices to "rightsize" and realign its workforce with minimal displacement. The Postal Accountability and Enhancement Act (PAEA), enacted in 2006, encouraged USPS to expeditiously move forward in its streamlining efforts and required USPS to develop a network plan describing its long-term vision for rationalizing its infrastructure and workforce. The plan was to include a strategy to consolidate its mail processing network by eliminating excess capacity and identifying cost savings.Congress, which we describe in more detail later in the report. In June 2008, USPS provided its Network Plan to In 2009, GAO added USPS to its list of high-risk areas needing attention by Congress and the executive branch to achieve broad- based transformation. Given the decline in mail volume and revenue, we suggested that USPS develop and implement a broad restructuring plan--with input from PRC and other stakeholders and approval by Congress and the administration. We added that this plan should address how USPS plans to realign postal services (such as delivery frequency and delivery standards); better align its costs and revenues; optimize its operations, network, and workforce; increase mail volume and revenue; and retain earnings so that it can finance needed capital investments and repay its growing debt. In 2009, we testified that maintaining USPS's financial viability as the provider of affordable, high-quality universal postal services would require actions in a number of areas, such as rightsizing its retail and mail processing networks by consolidating operations and closing unnecessary facilities. Furthermore, in 2010 we provided strategies and options that Congress could consider to better align USPS costs with revenues and address constraints and legal restrictions that limit USPS's ability to reduce costs and improve efficiency. We reported that USPS could close major mail processing facilities and relax delivery standards to facilitate consolidations and closures of mail processing facilities as options for reducing network costs. From fiscal years 2006 through 2011, USPS data showed that it reduced mail processing and transportation costs by $2.4 billion--or 16 percent-- by reducing the number of mail processing work hours, facilities, and employees as shown in table 1. Specifically, USPS data show that it eliminated about 35 percent of its total mail processing work hours, 32 percent of its mail processing facilities, and 20 percent of its full-time mail processing employees. USPS's OIG report determined that a valid business case existed for 31 of the 32 implemented AMP studies (97 percent) reviewed, and that those cases were supported by adequate capacity, increased efficiency, reduced work hours, and mail processing costs, and improved service standards. United States Postal Service, Office of Inspector General, U.S. Postal Service Past Network Optimization Initiatives, CI-AR-12-003 (Arlington, VA: Jan. 9, 2012). not to approve the AMP study.savings of $167 million from AMP consolidations in fiscal years 2010 and 2011. According to USPS data, it achieved Transformed the Bulk Mail Center network: In the past, mailers dropped their bulk mail at a network of 21 Bulk Mail Centers. USPS would then process and transport the bulk mail to its final destinations. By 2007, however, a significant portion of this mail bypassed the Bulk Mail Center network and was dropped at a processing plant closer to its final delivery point. In fiscal year 2009, USPS reported that it had begun transforming its 21 Bulk Mail Centers into Network Distribution Centers and completed the transformation in fiscal year 2010. According to USPS, this was designed to better align work hours with workload and improve transportation utilization, resulting in cost savings of $129 million. Even after taking these actions to reduce excess capacity, USPS stated that excess capacity continues and structural changes are necessary to eliminate it. Three major reasons for continued excess capacity include the following: Accelerating declines in mail volume: Since 2006, declines in mail volume have continued to worsen. For example, single-piece First- Class Mail has dropped by almost 19 billion pieces. Furthermore, USPS's volume forecasts to 2020 indicate that the decline in First- Class Mail volume will not abate going forward but instead will continue--from 73 billion pieces in 2011 to 39 billion pieces in 2020-- further exacerbating the problem of costly excess capacity (see fig. 3). Declining First-Class Mail volume is primarily attributed to the increasing number of electronic communications and transactions. The recent recession and other economic difficulties have further accelerated mail volume decline. Continuing automation improvements: These improvements have enabled USPS to sort mail faster and more efficiently. For example, USPS's Flats Sequencing System machines automatically sort larger mail pieces (e.g., magazines and catalogs) into the order that they will be delivered. At the end of fiscal year 2011, USPS reported that it had deployed 100 flats sequencing machines to 46 sites and the Flats Sequencing System covered nearly 43,000 delivery routes and processed an average of almost 60 percent of flats at more than half of those sites. Increasing mail preparation and transportation by mailers: While most First-Class Mail goes through USPS's entire mail processing network, around 83 percent of Standard Mail is destination entered--that is, business mailers enter mail within a local area where it will be delivered, bypassing most of USPS's mail processing network and long-distance transportation.destination entered has increased 16 percent over the last decade. On December 15, 2011, USPS asked PRC to review and provide an advisory opinion on its proposal to change its delivery service standards, primarily by changing its delivery standards to eliminate overnight delivery service for most First-Class Mail and Periodicals. USPS has stated that these changes in delivery service standards are a necessary part of its plan to consolidate its mail processing operations, workforce, and facilities. Under this plan, the 42 percent of First-Class Mail that is currently delivered within 1 day would be delivered within 2 to 3 days. See table 2 for the percentage of First-Class Mail volume that is intended to be delivered within the current and proposed delivery service standards. USPS's plan included details on facilities, staff, equipment, and transportation that USPS would eliminate as a result of the change in delivery service standards and the estimated cost savings from these changes. On the basis of an analysis of fiscal year 2010 costs, USPS estimated that service standard changes centered on eliminating overnight service for significant portions of First-Class Mail and Periodicals could save approximately $2 billion annually when fully implemented. To save this amount, USPS stated that it plans to use the already established AMP study process, which was designed to achieve cost savings through the consolidation of operations and facilities with excess capacity. USPS has stated that the AMP process provides opportunities for USPS to reduce costs, improve service, and operate as a leaner, more efficient organization by making better use of resources, space, staffing, processing equipment, and transportation. In a February 2012 press release, USPS announced that it would begin consolidating or closing 223 processing facilities during the summer and fall of 2012-- contingent on a final decision to change service standards, which it said it expects to complete sometime in March. USPS added that it will not close any facilities prior to May 15, 2012, as agreed upon with some Members of Congress. PRC is currently reviewing the details of USPS's proposal to revise service standards, the estimated cost savings, the potential impacts on both senders and recipients, and USPS's justification for the change to advise USPS and Congress on the merits of USPS's proposal. PRC procedures enable interested stakeholders, including the public, to file questions and comments to PRC regarding USPS's proposal.after the time for obtaining public input is concluded in July 2012. PRC expects to issue its advisory opinion on USPS's proposal USPS has stated that consolidating its networks is unachievable without relaxing delivery service standards. The Postmaster General testified last September that such a change would allow for a longer operating window to process mail, which would enable USPS to reduce unneeded facilities, work hours, workforce positions, and equipment. USPS identified scenarios looking at how constraints within the mail processing network affected excess capacity and found that if the current standard for overnight First-Class Mail service was relaxed, plant consolidation could occur, which would more fully maximize the use of facilities, labor, and equipment. USPS estimates of excess capacity it wants to eliminate based on proposed changes to its overnight delivery service standards are shown in table 3. USPS estimated that it could consolidate, all or in part, 223 processing facilities based on its proposed changes in First-Class and Periodical delivery service standards. USPS has also specified that changing delivery service standards would enable it to remove up to 35,000 mail processing positions as it consolidates operations into fewer facilities. The number of employees per facility ranges from 50 to 2,000. Reducing work hours and the size and cost of its workforce will be key for USPS, since its workforce generates about 80 percent of its costs. In addition, USPS entered into a collective bargaining agreement with the American Postal Workers Union in April 2011 that established a two-tier career pay schedule for new employees that is 10.2 percent lower than the existing pay schedule. This labor agreement also allowed USPS to increase its use of noncareer employees from 5.9 percent to 20 percent, thereby enabling USPS to hire more lower-paid noncareer employees when replacing full-time career employees. USPS has also pointed out that it has about 8,000 pieces of equipment used for processing mail, but could function with as few as 5,000 pieces if it adopts the proposed delivery service standards. Declining mail volume has resulted in a reduced need for machines that sort mail using Delivery Point Sequencing (DPS) programs, on a national level, by approximately one-half.Sequencing machinery use would allow for greater reliance on machinery that incurs lower maintenance costs. In addition, much of this equipment According to USPS, however, a reduction of Delivery Point is currently used to sort mail only 4 to 6 hours per day. USPS plans to optimize the use of its remaining equipment to sort mail by increasing its maximum usage up to 20 hours per day. USPS estimates that it makes more transportation trips than are currently necessary. USPS's transportation network includes the movement of mail between origin and destination processing plants. USPS, however, has estimated that changing its delivery service standards as proposed in December 2011 would enable it to reduce these facility-to-facility trips by about 25 percent, or 376 million trips. Relaxing delivery standards and consolidating its mail processing network is just one part of USPS's overall strategy to achieve financial stability. On the revenue side, USPS has noted that it cannot increase mail prices beyond the Consumer Price Index cap, and price increases cannot remedy the revenue loss resulting from First-Class Mail volume loss. USPS has also reported that it faces restrictions on entering new lines of business and does not see any revenue growth solution to its current financial problems. In February 2012, USPS announced a 5-year business plan to achieve financial stability that included a goal of achieving $22.5 billion in annual cost savings by the end of fiscal year 2016. USPS's proposed changes in its mail processing and transportation networks are included in its 5-year business plan, as are initiatives to save 1. $9 billion in network operations, of which $4 billion would come from consolidating its mail processing and transportation networks; 2. $5 billion in compensation and benefits; and 3. $8.5 billion through legislative changes, such as moving to a 5-day delivery schedule, and resolving funding issues associated with USPS's retiree health benefits. At the same time, USPS's 5-year plan would also reduce the overall size of the postal workforce by roughly 155,000 career employees, of which up to 35,000 would come from consolidating the mail processing network, with many of those reductions expected to result from attrition. According to the 5-year plan, half of USPS's career employees--283,000 employees--will be retirement eligible by 2016. In March 2010, USPS presented a detailed proposal to PRC to move from a 6-day to a 5-day delivery schedule to achieve its workforce and cost savings reduction goals. USPS projected that its proposal to move to 5-day delivery by ending Saturday delivery would save about $3 billion annually and would reduce mail volume by less than 1 percent. However, on the basis of its review, PRC estimated a lower annual net savings--about $1.7 billion after a 3-year phase-in period--as it noted that higher revenue losses were possible. In February 2012, USPS updated its projected net savings to $2.7 billion after a 3-year implementation period. Implementing 5-day delivery would require USPS to realign its operations network to increase efficiency, maintain service, and address operational issues. Some business mailers have expressed concern that reducing processing facilities as a result of eliminating overnight delivery service could increase costs for business mailers who will have to travel farther to drop off their mail. In addition, business mailers have expressed concern that service could decline as USPS plans to close an unprecedented number of processing facilities in a short period. USPS employee associations have said that the proposed changes would reduce mail volume and revenue, thus making USPS's financial condition worse. Business mailers have commented that such a change in delivery service standards and postal facility locations could shift mail processing costs to them and reduce the value of mail for their businesses. While many of USPS's customers who are business mailers indicated they would be willing to accept the service standard changes and understood the need for such a change, several mailers noted that it is never good when an organization reduces services. As a result of USPS's plan, businesses using bulk First-Class Mail, Standard Mail, or Periodicals may have fewer locations where mail can be entered and may therefore need to transport it to locations different from those now in use. Furthermore, businesses using Standard Mail may have to transport their bulk mail to other locations to take advantage of discounts. USPS officials told business mailers in February 2012, when it announced the facilities it planned to close, that it did not plan immediate changes to the locations where business mailers drop off their mail or to the associated discounts. USPS officials told us that they plan to retain business mail locations at their current locations or in close proximity. Additionally, businesses that publish Periodicals, like daily or weekly news magazines, have expressed concern over the elimination of overnight delivery leading to deliveries not being made in a timely fashion. Delivery delays could result in customers canceling their subscriptions, thereby reducing the value of mail. These business mailers have indicated that they will most likely accelerate shifting their hard copy mail to electronic communications or otherwise stop using USPS if it is unable to provide reliable service as a result of these changes. Business mailers have also stated their concern that service could be significantly disrupted as a result of closing an unprecedented number of processing facilities by 2016. If service declines, mail users stated they are likely to lose confidence in the medium and choose to move volume and revenue from the mail to other media. Business mailers have stressed the need for USPS to put forward and share with stakeholders a comprehensive, detailed plan for consolidating its network and changes in service standards that explains to mail users what it intends to do, what changes will occur, and milestones and timelines for measuring progress in how it is achieving its plans. In sum, a key message from USPS customers is that while many support efforts to consolidate the mail processing network, it is imperative for USPS to provide consistent mail delivery and work with mailers to keep their costs down. Employee associations have expressed concern that USPS's proposed changes may result in even greater losses in mail volume and revenue, which would further harm USPS financially. The National Association of Letter Carriers commented that downgrading service would serve only to drive customers away, reduce revenue and compromise potential growth. Further, the American Postal Workers Union and the National Rural Letter Carriers' Association commented that USPS's proposal would degrade existing USPS products, limit USPS's ability to introduce new products, place the USPS at a distinct competitive disadvantage, and severely hamper its ability to accommodate growth. USPS responded to these comments by acknowledging that its proposal would, to some degree, reduce the value of the mail to customers, but on balance is in the long- term interests of USPS to help maintain its viability for all customers into the future. USPS estimated that its proposal would result in additional volume decline of almost 2 percent, revenue decline of about $1.3 billion, with a net annual benefit of about $2 billion. USPS faces major challenges in two areas related to consolidating its mail processing network and has told Congress that it needs legislative action to address them. Specifically, these challenges include the following: Lack of flexibility to consolidate its workforce: USPS stated it must be able to reduce the size of its workforce in order to ensure that its costs are less than revenue. Action in this area is important since USPS's workforce accounts for about 80 percent of its costs. The Postmaster General testified last September, however, that current collective bargaining agreements prevent USPS from moving swiftly enough to achieve its planned workforce reductions. In addition, USPS has requested legislative action to eliminate the layoff protections in its collective bargaining agreements. The key challenges in this area include the following: No-layoff clauses: About 85 percent of USPS's 557,000 employees are covered by collective bargaining agreements that contain, among other provisions, employment protections such as no-layoff provisions. Currently, USPS's collective bargaining agreements with three of its major unions contain a provision stating that postal bargaining unit employees who were employed as of September 15, 1978, or, if hired after that date, have completed 6 years of continuous service are protected against any involuntary layoff or reduction in force. Furthermore, USPS's memorandum of understanding with the American Postal Workers Union extends this no-layoff protection to cover those employed as of November 20, 2010--even if those employees were not otherwise eligible for no-layoff protection. The collective bargaining agreement with its fourth major union--the National Rural Letter Carriers' Association--states that that no bargaining unit employees employed in the career workforce will be laid off on an involuntary basis during the period of the agreement. The no-layoff clauses will be a challenge to USPS primarily if it cannot achieve its workforce reductions through attrition. With the large number of employees eligible for retirement, USPS has a window of opportunity to avoid layoffs of non-bargaining unit employees who are not eligible for no-layoff protection. Fifty-mile limits on employee transfers: In 2011, the American Postal Workers Union (which represents USPS clerks, maintenance employees, and motor vehicle service workers) and USPS management negotiated a 4-year agreement that limits transferring employees of an installation or craft to no more than 50 miles away. If USPS management cannot place employees within 50 miles, the parties are to jointly determine what steps may be taken, which includes putting postal employees on "standby," which occurs when workers are idled but paid their full salary because of reassignments and reorganization efforts. USPS may face challenges in capturing cost savings as a result of its initiatives to reduce excess capacity because of its limited ability to move mail processing clerks from a facility where workloads no longer support the number of clerk positions needed to facilities with vacant positions. Collective bargaining agreements have expired for three of the four major postal unions, and because of impasses in negotiations, USPS has moved to arbitration with these unions. In 2011, USPS reported that it had no assurance that it would be able to negotiate collective bargaining agreements with its unions that would result in a cost structure that is sustainable within current and projected future mail revenue levels. It noted that there is no current mandate requiring an arbitrator to consider the financial health of USPS in its decision and an unfavorable arbitration decision could have significant adverse consequences on its ability to meet future financial obligations. Resistance to facility closures: USPS is facing resistance to its plans to consolidate or close postal facilities from Members of Congress, affected communities, and its employees and has requested congressional action to enable it to consolidate and close facilities. We reviewed numerous comments from Members of Congress, affected communities, and employee organizations that have expressed opposition to closing facilities. Such concerns are particularly heightened for postal facilities identified for closure that may consolidate functions to another state, causing political leaders to oppose and potentially prevent such consolidations. For example, Members of Congress have resisted a recent proposal to move certain processing functions from its Rockford, Illinois, Processing and Distribution Center to a processing facility in Madison, Wisconsin. This proposal would eliminate the need for 82 employees (77 bargaining unit and 5 management staff) in Rockford that USPS would need to transfer into new roles or to another facility. The president of the Springfield Chamber of Commerce sent a letter to PRC to protest USPS's planned consolidation of the Springfield, Illinois, processing facility into St. Louis, Missouri, stating that this move would reduce service quality and increase costs, affecting its members' profitability and operations. He added that Springfield would lose up to 300 jobs in an area of the community that qualifies as an "Area of Greatest Need," according to the U.S. Department of Housing and Urban Development. In contrast, however, other business mailers and Members of Congress have expressed support for consolidating the mail processing network to reduce costs. Some business mailers have stated that USPS needs to take cost-saving action to reduce the need for significant postal rate increases. A significant postal increase would have a detrimental financial impact on mailers by decreasing mail's return on investment and may also accelerate mailers' shift toward electronic communication. In addition, as we discuss below, some Members of Congress have proposed legislation supporting USPS efforts to consolidate its mail processing network. Other stakeholders, including USPS's employee associations, have questioned whether USPS needs to make drastic changes by reducing service and the size of its networks and workforce, since they believe that USPS's financial crisis is, at least in part, artificial. They point out that most of USPS's losses since fiscal year 2006 are due to the requirement to prefund its future retiree health benefits. In 2006, PAEA established a 10-year schedule of USPS payments into a fund (the Postal Service Retiree Health Benefits Fund) that averaged $5.6 billion per year through fiscal year 2016. Employee associations have stated that such a requirement is exceptional and unfair, since no other federal agency is forced to prefund its employees' health benefits at this level and no company has such a mandate. They have suggested that instead of reducing costs, Congress should eliminate the prefunding requirements, return surpluses in its retirement accounts, and allow USPS to earn additional revenue by offering new services. USPS responded that given the multibillion-dollar deficits that it has experienced in each of the last 5 years, and given the over $14 billion loss it expects in fiscal year 2012, capturing cost savings wherever possible will be vital to USPS's financial viability. If USPS cannot increase revenues enough to eliminate its net losses, it will have to do more to reduce costs. To address USPS prefunding issues, we testified that deferring some prefunding of USPS's retiree health benefits would serve as short-term fiscal relief. However, deferrals also increase the risk that USPS will not be able to make future payments as its core business declines. Therefore, we concluded that it is important for USPS to continue funding its retiree health benefit obligations-- including prefunding these obligations--to the maximum extent that its finances permit. USPS has stated that it needs action from Congress to address restrictions that limit its ability to consolidate its mail processing network, including annual appropriations provisions that mandate 6-day delivery,and granting USPS authority to determine delivery frequency. Some Members have asked USPS to postpone actions to consolidate mail processing facilities so it would not preempt Congress on postal reform. In response to the Members' request, USPS agreed last December to place a moratorium on closing facilities until May 15, 2012. As of April 2012, the House of Representatives and Senate committees with USPS oversight responsibility have passed bills to help USPS achieve financial viability. These bills, as well as other postal reform bills, include provisions that could affect USPS's ability to consolidate its mail processing network. Table 4 summarizes the key provisions of the House of Representatives bill--H.R. 2309, the Postal Reform Act of 2011---and Senate bill--S. 1789, the 21st Century Postal Service Act. Pending legislation originating in the Senate (S.1789) includes provisions that would affect USPS's ability to consolidate its networks by delaying USPS's move to 5-day delivery by 2 years and requiring USPS to consider downsizing rather than closing facilities. Delaying USPS's move to a 5-day delivery schedule could make it difficult for USPS to save $22.5 billion by 2016. On the other hand, the Senate bill includes a requirement for arbitrators to consider USPS's financial condition and could facilitate attrition by allowing USPS to use surplus pension funds to pay for employee buyouts of up to $25,000 for as many as 100,000 eligible postal workers. Such buyouts may make it easier to reduce USPS's workforce in facilities targeted for closure. Another legislative proposal, originating in the House of Representatives, (H.R. 2309) includes provisions that would enhance USPS's ability to consolidate its mail processing network by allowing changes in service standards and using a BRAC framework to approve a consolidation plan, address some of the political resistance to closing postal facilities, and potentially reform the collective bargaining process. The proposed Commission on Postal Reorganization could broaden the current focus on individual facility closures--which are often contentious, time-consuming, and inefficient--to a broader networkwide restructuring, similar to the BRAC approach. In other restructuring efforts where this approach has been used, expert panels have successfully informed and permitted difficult restructuring decisions, helping to provide consensus on intractable decisions. As previously noted, the 2003 Report of the President's Commission on the USPS also recommended such an approach relating to the consolidation and rationalization of USPS's mail processing and distribution infrastructure. We also reported in 2010 that Congress may want to consider this approach to assist in restructuring organizations that are facing key financial challenges. In addition, the House bill authorizes USPS to declare up to 12 non-mail delivery days annually so long as USPS is required to deliver mail 6 days per week and reforms the collective bargaining process, including requiring arbitrators to consider USPS's financial condition. Developing an optimal mail processing network will require both congressional support and USPS leadership. Moreover, we have previously reported that Congress and USPS need to reach agreement on a comprehensive package of actions to improve USPS's financial viability. In these previous reports, we provided strategies and options that Congress could consider to better align USPS costs with revenues and address constraints and legal restrictions that limit USPS's ability to reduce costs and improve efficiency. Consequently, we are not making new recommendations or presenting a matter for Congress to consider at this time. Without congressional action to help USPS address its financial problems, USPS will be limited in the amount of rate increase it may seek and may fall even further into debt. USPS had $2 billion remaining on its $15 billion statutory borrowing limit at the end of fiscal year 2011. It is now abundantly clear that the postal business model must be fixed given the dramatic and estimated decline in volume, particularly for First-Class Mail. If Congress prefers to retain the current delivery service standards and associated network, decisions will be needed about how USPS's costs for providing these services will be paid, including additional cost reductions or revenue sources. We provided a draft of this report to USPS for review and comment. USPS had no comments, but provided technical clarifications, which we incorporated into the report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Postmaster General, and other interested parties. In addition, the report is available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions on this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contact information and key contributors to the report are listed in appendix II. This report addresses (1) past actions the U.S. Postal Service (USPS) has taken to reduce excess capacity, (2) USPS's plans to consolidate its mail processing network, and (3) key stakeholder issues and challenges USPS faces in consolidating its mail processing network. To describe what actions USPS has taken to reduce excess capacity, we obtained data from USPS related to changes in its mail processing network, workforce, and costs as well as an updated 10-year volume forecast for First-Class Mail. To calculate the 5-year cost savings that USPS achieved, we took the difference of the network costs for fiscal years 2006 and 2011 that USPS reported to us. We also obtained data from USPS and USPS Office of Inspector General (OIG) reports regarding cost savings related to USPS initiatives to reduce excess capacity. Further, we reviewed USPS annual reports to Congress and its network plans as section 302 of the Postal Accountability and Enhancement Act of 2006 requires USPS to submit; related GAO and USPS OIG reports, as well as other relevant studies relating to reducing excess capacity in USPS's mail processing network. To examine USPS's future plans to consolidate its mail processing network, we reviewed USPS's December 2011 proposal to change delivery service standards and its plan to consolidate its mail processing network by reducing facilities, staff, equipment, and transportation resources. We also reviewed USPS's 5-year business plan to profitability issued in February 2012. We interviewed USPS senior management and local facility mangers in Illinois about the current processing network and future plans for that network. We also reviewed documents in the ongoing Postal Regulatory Commission (PRC) review of USPS's proposed changes in service standards and its plan for consolidating its mail processing network. PRC is reviewing USPS's estimated cost savings, service impacts, and public input on the proposed service standard changes and expects to complete its review sometime after July 2012. To determine key issues and challenges USPS faces in consolidating its mail processing network, we reviewed and summarized concerns from postal stakeholders responding to the USPS's September 2011 Federal Register notice on its proposed changes to service standards for First- Class Mail, Periodicals, and Standard Mail. We also interviewed USPS officials, and reviewed stakeholder testimonies and published letters from Members of Congress commenting on USPS plans to change delivery service standards and close facilities. We further reviewed pending legislative proposals that could affect USPS's efforts to address excess capacity and consolidate its mail processing network. We conducted this performance audit from April 2011 through April 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the individual named above, Teresa Anderson (Assistant Director), Samer Abbas, Joshua Bartzen, Erin R. Cohen, Sara Ann Moessbauer, Amy Rosewarne, and Crystal Wesco made key contributions to this report.
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Since 2006, the U.S. Postal Service has taken actions to reduce its excess capacity. Such actions have made progress toward consolidating the mail processing network to increase efficiency and reduce costs while meeting delivery standards. However, since 2006, the gap between USPS expenses and revenues has grown significantly. In February 2012, USPS projected that its net losses would reach $21 billion by 2016. As requested, this report addresses (1) actions USPS has taken since 2006 to reduce excess capacity-- in facilities, staff, equipment, and transportation; (2) USPS plans to consolidate its mail processing network; and (3) key stakeholder issues and challenges related to USPS's plans. GAO reviewed relevant documents and data, interviewed USPS officials, reviewed proposed legislation, and reviewed stakeholder comments to USPS plans for changing delivery service standards. Since 2006, the U.S. Postal Service (USPS) has closed redundant facilities and consolidated mail processing operations and transportation to reduce excess capacity in its network, resulting in reported cost savings of about $2.4 billion. Excess capacity remains, however, because of continuing and accelerating declines in First-Class Mail volume, automation improvements that sort mail faster and more efficiently, and increasing mail preparation and transportation by business mailers, much of whose mail now bypasses most of USPS's processing network. In December 2011, USPS issued a proposal for consolidating its mail processing network, which is based on proposed changes to overnight delivery service standards for First-Class Mail and Periodicals. Consolidating its network is one of several initiatives, including moving from a 6-day to a 5-day delivery schedule and reducing compensation and benefits, that USPS has proposed to meet a savings goal of $22.5 billion by 2016. This goal includes saving $4 billion by consolidating its mail processing and transportation network and reducing excess capacity as indicated in the table below. The Postal Regulatory Commission is currently reviewing USPS's proposal to change delivery service standards. Stakeholder issues and other challenges could prevent USPS from implementing its plan for consolidating its mail processing network or achieving its cost savings goals. Although some business mailers and Members of Congress have expressed support for consolidating mail processing facilities, other mailers, Members of Congress, affected communities, and employee organizations have raised issues. Key issues raised by business mailers are that closing facilities could increase their transportation costs and decrease service. Employee associations are concerned that reducing service could result in a greater loss of mail volume and revenue that could worsen USPS's financial condition. USPS has said that given its huge deficits, capturing cost savings wherever possible will be vital. USPS has asked Congress to address its challenges, and Congress is considering legislation that would include different approaches to addressing USPS's financial problems. A bill originating in the Senate provides for employee buyouts but delays moving to 5-day delivery, while a House bill creates a commission to make operational decisions such as facility closures and permits USPS to reduce delivery days. If Congress prefers to retain the current delivery service standards and associated network, decisions will need to be made about how USPS's costs for providing these services will be paid, including additional cost reductions or revenue sources. GAO is not making new recommendations in this report, as it has previously reported to Congress on the urgent need for a comprehensive package of actions to improve USPS's financial viability and has provided Congress with strategies and options to consider. USPS had no comments on a draft of this report.
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Spare parts are defined as repair parts and components, including kits, assemblies, and subassemblies required for the maintenance of all equipment. Repair parts and components can include (1) reparable items, which are returned to the supply system to be repaired when they are no longer in working condition, and (2) nonreparable items, also called consumables, which are often used in repairing the reparable items because they cannot be economically repaired themselves. For example, a screw (a consumable) may be used in repairing a landing gear component (a reparable). The Defense Logistics Agency, headquartered at Fort Belvoir, Virginia, provides consumable supplies and spare parts to the military services, the Department of Defense, federal civilian agencies, and selected foreign governments. As part of its mission, the agency manages over 4.1 million consumable items. The vast majority of these items are considered consumable spare parts, and the remaining items include medicine, food, clothing, and fuel. Spare parts managed by the agency range from low-cost, commonly used items, such as fasteners and gaskets, to high-priced, sophisticated items, such as microswitches, miniature components, and precision valves vital to operating major weapon systems. The agency's supply management operations are funded through the Defense-Wide Working Capital Fund, which operates as a revolving fund. The agency buys and sells spare parts to customers, who use appropriated funds to pay the agency. Sales receipts are then used to purchase additional items to meet new customer demand. In principle, the agency should recover the acquisition cost of the spare parts it sells, as well as its own operating costs, so that over the long term the fund breaks even financially. The Defense Supply Center in Richmond, Virginia, is designated as the Defense Logistics Agency's lead center for air/aviation systems. The Defense Supply Center in Columbus, Ohio, is the designated lead center for land and sea/subsurface (maritime) systems. The Defense Supply Center in Philadelphia, Pennsylvania, is the lead center for troop support systems and general supply. Over the past 5 years, the number of spare parts the services purchased from the Defense Logistics Agency declined by about 24 percent, from 353 million in fiscal year 1996 to about 270 million in fiscal year 2000. However, the dollar value of spare parts obtained during the same period increased from $3.9 billion in fiscal year 1996 to $4.6 billion in fiscal year 2000 (about 18 percent). Electrical and electronic equipment components accounted for the highest proportion of total dollar value. The services acquired spare parts from 70 of the 78 federal stock groups. In commenting on a draft of this report, the department attributed the increased dollar value of sales to the increased value of items managed by the Defense Logistics Agency. This is clearly a contributing factor. However, at the same time as we recently reported, the Defense Logistics Agency has a number of actions underway to control spare part prices. Defense Logistics Agency data indicates that every year from 1996 to 2000, the agency supplied the services with smaller quantities of spare parts, from a total of about 353 million in fiscal year 1996 to about 270 million in fiscal year 2000, a decrease of about 24 percent (see fig. 1). The number of spare parts the services ordered also decreased about 19 percent during the period, from about 348 million to about 283 million. Defense Logistics Agency officials cited three main reasons for the decline: increased credit card usage, increased contractor maintenance support, and--primarily--military downsizing. The downsizing, which began in the early 1990s, continued through 2000. According to defense figures, the total number of active duty Navy fighter and attack aircraft declined from 504 in fiscal year 1996 to 432 in fiscal year 2000. Similarly, the number of ships (or ship battle forces) declined from 355 to 318. However, the number of Air Force fighter and attack aircraft remained steady at 936 during the period. As shown in figure 2, the number of spare parts sold by the Defense Logistics Agency to the Air Force dropped by about 23 million from about 137 million in fiscal year 1996 to about 114 million in fiscal year 2000, a 17 percent decrease. During this time, the Air Force increased the percentage of depot maintenance repair workload performed by the private sector. The other services also increased private sector depot maintenance performance, but to a lesser extent than the Air Force. Figure 3 shows that in fiscal year 1996, the Defense Logistics Agency sold the Army about 96 million spare parts, but by fiscal year 2000, that number had dropped to about 78 million, a decline of 18 million, or 19 percent. Figure 4 indicates that in fiscal year 1996, the Navy obtained about 110 million spare parts from the Defense Logistics Agency, but in fiscal year 2000 it bought only about 72 million spare parts, a decrease of about 38 million, or 35 percent. As shown in figure 5, the Marine Corps purchased about 6 million spare parts from the agency in fiscal year 2000, about 45 percent less than the approximately 11 million it had purchased in fiscal year 1996. The reported dollar value of the Defense Logistics Agency's annual sale of spare parts to the services rose about 18 percent over the past 5 years, increasing from about $3.9 billion in fiscal year 1996 to about $4.6 billion in fiscal year 2000. The dollar value of ordered spare parts increased from about $3.9 billion to about $5.2 billion (about 25 percent). The reasons cited for the dollar value increase were (1) Defense Logistics Agency's shift to a mix of more expensive spare parts and (2) price increases due to inaccurate initial price estimates, long periods between procurements, and/or substantial changes in the quantity of spare parts purchased. When disaggregated by service, the agency's data indicates some variation in this trend. The dollar value of sales to the Air Force increased every year, while the annual sale value of spare parts to the Army, the Navy, and the Marine Corps fluctuated. Table 1 shows the overall increase as well as the annual fluctuations. During the 1996-2000 period, the Department of Defense transferred the management of more costly, complex, and sophisticated spare parts to the Defense Logistics Agency. Department officials indicated that the dollar value of the items transferred was significantly higher than the items being managed by the Defense Logistics Agency until that time. The items transferred from the services represented a higher percentage of the total inventory held by the agency, therefore contributing to the higher dollar value of spare parts sold to the services. Table 2 shows the average prices of the spare parts transferred as compared to those for spare parts not transferred and the prices for all spare parts sold to the services. The table also indicates the percentages of the total inventory that consisted of transferred spare parts during the 1996-2000 period. Although the price of some spare parts has increased significantly, for most spare parts it has not. In November 2000, we reported that prices of about 70 percent of spare parts requisitioned by the agency's customers increased less than 5 percent a year during the 1989-98 period. This trend applied to all requisitioned spare parts, including those in frequent demand and aircraft-related spare parts. However, the prices of a relatively small number of spare parts did increase significantly--by 50 percent or more. The spare part prices increased for a number of reasons. The majority of the agency's weapon system spare parts experienced a relatively low annual price change--less than 5 percent--from fiscal years 1989 through 1998. Most of the extreme price increases were due to inaccurate price estimates, outdated prices, or changes in quantities purchased. In other cases, prices increased significantly when long time periods--sometimes decades--passed between procurements. Agency purchasing officials cited other factors that can lead to price increases, including retooling of production lines between purchases, emergency procurements, and increases in the costs of raw materials. An Air Force official said that new technology also increased the cost as older aircraft were retrofitted with a new mix of more expensive spare parts to add capability. The services obtained spare parts from 70 of 78 federal stock groups over the past 5 years. In fiscal year 2000, electrical and electronic equipment components were the spare parts with the highest sales (in dollar value). However, different groups of spare parts led sales within each service during fiscal year 2000: Electrical and electronic equipment components led Defense Logistics Agency sales to the Navy; engine and turbine components led sales to the Air Force; and vehicular equipment components led sales to the Army and the Marine Corps. Although the same groups of spare parts remained among the top 10 (in terms of reported dollar value) over the 5-year period, the rankings of some groups and the amounts of money spent on each one varied. For example, engines, turbines, and components ranked fifth for the Air Force in fiscal year 1996 but moved to first place in fiscal year 2000. Table 3 shows the top 10 groups for fiscal years 1996 and 2000. The trends for aviation spare parts were consistent with those for the total spare parts supplied to the services. The Defense Logistics Agency's lead supply center for aviation reported that the dollar value of annual sales to the services increased about 54 percent from fiscal year 1996 to fiscal year 2000, even though the center sold 28 percent fewer spare parts. Officials stated that the increases were caused in part by the Defense Logistics Agency's shift to a mix of more expensive spare parts and increases in the price of aviation spare parts. Because our review covered only classes of spare parts, not individual items, we did not determine the extent to which the agency had changed the prices of individual spare parts. However, we recently reported on the Defense Logistics Agency's efforts to identify and address price increases of spare parts and their causes. Tables 4 and 5, respectively, show the number of spare parts supplied and the reported dollar value of sales by the agency's lead aviation supply center to each of the services from fiscal years 1996 through 2000. We judgmentally selected 10 aviation-related federal stock classes and found mixed purchasing trends during the study period: The Navy purchased substantially more spare parts in 3 of the 10 classes-- components for jet engines, airframes, and wheel and brake systems. Engine parts accounted for over 60 percent of total spare parts purchased in the 10 classes. The Navy purchased fewer parts in the other seven classes of which three decreased by one-third or more. Over one-third of the spare parts the Army purchased in the 10 classes were for aircraft structural components. Overall, the quantities purchased increased for seven classes and declined for the other three. Annual purchases fluctuated in all classes. Similarly to the Navy, the Air Force purchased over 64 percent of spare parts in the 10 selected classes for engine parts. Overall, the Air Force increased its purchases in eight classes and decreased purchases in the others. Spare parts purchased for wheel and brake systems increased by over 703 percent from fiscal year 1996 to fiscal year 2000. Spare parts for engines and fuel systems increased by about 95 percent. Yearly purchases fluctuated in all classes. The Marine Corps purchased fewer than 1,600 spare parts a year from the 10 classes. The total number of spare parts purchased fluctuated from a low of 612 in fiscal year 1999 to a high of 1,574 in fiscal year 2000. Over half of spare parts purchased in all 10 classes were for airframe structural components. The total amounts charged by the agency for spare parts generally increased, even in those classes where the number of spare parts purchased decreased. In written comments on a draft of this report, the Department of Defense generally concurred with its contents. The department also provided technical comments, which we have incorporated where appropriate. The department's written comments appear in appendix II. To obtain information on trends in the quantity, reported dollar value, demand, and kinds of spare parts, including aviation-related spare parts, which the services bought from the Defense Logistics Agency, we asked agency officials to supply the relevant data. The officials determined which items to include in the spare part category and developed the information for us by year, service, service center, and federal stock class. The officials provided data on the aggregate numbers of spare parts. We did not attempt to independently verify the agency's information, nor did we verify the reasons for changes in trends. Defense Logistics Agency officials told us that in compiling their data, they used how spare parts were defined in the Integrated Consumable Item Support Model and by the Army in purchasing parts. For sales data, they used the standard unit price, which includes the cost recovery rate (the Defense Logistics Agency surcharge) at the time of sale. We performed our review from July 2001 through April 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees, the secretary of defense, the secretary of the army, the secretary of the air force, the secretary of the navy, the commandant of the Marine Corps, the director of the Defense Logistics Agency, and the director of the Office of Management and Budget. Please contact me on (202) 512-8412 if you or your staff have any questions regarding this report. Key contributors to this report were Jeanett H. Reid, George Morse, and Lawson Gist, Jr. Army Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness. GAO-01-772. Washington, D.C.: July 31, 2001. Navy Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness. GAO-01-771. Washington, D.C.: July 31, 2001. Air Force Inventory: Parts Shortages Are Impacting Operations and Maintenance Effectiveness. GAO-01-587. Washington, D.C.: June 27, 2001. Defense Inventory: Information on the Use of Spare Parts Funding Is Lacking. GAO-01-472. Washington, D.C.: June 11, 2001. Defense Inventory: Army War Reserve Spare Parts Requirements Are Uncertain. GAO-01-425. Washington, D.C.: May 10, 2001. Major Management Challenges and Program Risks: Departments of Defense, State, and Veterans Affairs. GAO-01-492T. Washington, D.C.: March 7, 2001. Major Management Challenges and Program Risks: A Government-wide Perspective. GAO-01-241. Washington, D.C.: January 2001. High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January 2001. Defense Acquisitions: Prices of Navy Aviation Spare Parts Have Increased. GAO-01-23. Washington, D.C.: November 6, 2000. Defense Acquisitions: Price Trends for Defense Logistics Agency's Weapon System Parts. GAO-01-22. Washington, D.C.: November 3, 2000. Contingency Operations: Providing Critical Capabilities Poses Challenges. GAO/NSIAD-00-164. Washington, D.C.: July 6, 2000. Defense Inventory: Process for Canceling Inventory Orders Needs Improvement. GAO/NSIAD-00-160. Washington, D.C.: June 30, 2000. Defense Inventory: Opportunities Exist to Expand the Use of Defense Logistics Agency Best Practices. GAO/NSIAD-00-30. Washington, D.C.: January 26, 2000. Defense Inventory: Improvements Needed to Prevent Excess Purchases by the Air Force. NSIAD-00-5. Washington, D.C.: November 10, 1999. Defense Inventory: Management of Repair Parts Common to More Than One Military Service Can Be Improved. GAO/NSIAD-00-21. Washington, D.C.: October 20, 1999. Military Operations: Some Funds for Fiscal Year 1999 Contingency Operations Will Be Available for Future Needs. GAO/NSIAD-99-244BR. Washington, D.C.: September 21, 1999. Department of Defense: Status of Financial Management Weaknesses and Actions Needed to Correct Continuing Challenges. GAO/T-AIMD/NSIAD-99-171. Washington, D.C.: May 4, 1999. Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With Results Act Framework. GAO/NSIAD-99-40. Washington, D.C.: April 12, 1999. Defense Reform Initiative: Organization, Status, and Challenges. GAO/NSIAD-99-87. Washington, D.C.: April 21, 1999. Defense Inventory: Status of Inventory and Purchases and Their Relationship to Current Needs. GAO/NSIAD-99-60. Washington, D.C.: April 16, 1999. Defense Inventory: Continuing Challenges in Managing Inventories and Avoiding Adverse Operational Effects. GAO/T-NSIAD-99-83. Washington, D.C.: February 25, 1999. High-Risk Series: An Update. GAO/HR-99-1. Washington, D.C.: January 1999. Major Management Challenges and Program Risks: Department of Defense. GAO/OCG-99-4. Washington, D.C.: January 1999.
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The Defense Logistics Agency (DLA) reported that a shortage of spare parts has caused a decline in the military services' readiness, particularly in aviation readiness. In response, Congress provided $1.1 billion in additional funding to purchase spare parts. According to DLA, shortages are a result of aging systems and high operational tempo, which increase the total number of spare parts required. The number of spare parts the military services ordered declined between 1996 and 2000, but the dollar value increased by 18 percent. Further, spare parts purchased were drawn from 70 of 78 stock groups. Defense officials told GAO that military downsizing was the primary reason for the decline and that credit card usage and contractor maintenance support also contributed. The reasons cited for the increase were (1) DLA shifts to a mix of more expensive spare parts and (2) price increases due to inaccurate initial price estimates, long periods between procurements, and substantial changes in the quantity of spare parts purchased.
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In addition to processing approximately 150 million individual tax returns and issuing more than 100 million refunds during the filing season, IRS provides a range of taxpayer services, including through telephones, written correspondence, and on its website. Based on recent data from IRS, compared to last year, IRS's telephone service has improved in the 2016 filing season. From January 1 through March 26, 2016, IRS received about 38.2 million calls to its automated and live assistor telephone lines--a slight decrease compared to the same period last year. Of the 14.7 million calls seeking live assistance, IRS had answered 9.9 million calls--a 72 percent increase over the 5.7 million calls answered during the same period last year. Further, the average wait time to speak to an assistor also decreased from 24 to 10 minutes. IRS anticipated that 65 percent of callers seeking live assistance would receive it this filing season, which ended April 18. IRS's performance for telephone service during the filing season as of March 26, 2016 has exceeded IRS's anticipated level--74 percent of callers have received live assistance. IRS attributed this year's improvements to a number of factors. As noted above, of the additional $290 million IRS received in December 2015, it allocated $178.4 million (61.5 percent) for taxpayer services to make measurable improvements in its telephone level of service. With the funds, IRS hired 1,000 assistors who began answering taxpayer calls in March, in addition to the approximately 2,000 seasonal assistors it had hired in fall 2015. To help answer taxpayer calls before March, IRS officials told us that they detailed 275 staff from one of its compliance functions to answer telephone calls. IRS officials said they believe this step was necessary because the additional funding came too late in the year to hire and train assistors to fully cover the filing season. IRS also plans to use about 600 full-time equivalents of overtime for assistors to answer telephone calls and respond to correspondence in fiscal year 2016. This compares to fewer than 60 full-time equivalents of overtime used in fiscal year 2015. However, IRS expects that the telephone level of service will decline after the filing season. As a result, the telephone level of service for the entire 2016 fiscal year is expected to be at 47 percent. As we reported in March 2016, IRS's telephone level of service for the fiscal year has yet to reach the levels it had achieved in earlier years (see figure 1). In addition to answering telephone calls, IRS responds to millions of letters and other correspondence from taxpayers. In 2015, we reported that the percentage of correspondence cases in IRS's inventory classified as "overage"--cases generally not processed within 45 days of receipt by IRS--has stayed close to 50 percent since fiscal 2013. Minimizing overaged correspondence is important because delayed responses may prompt taxpayers to write again, call, or visit a walk-in site. Moreover, an increasing overage rate could lead to more interest paid to taxpayers who are owed refunds. In March 2016, IRS officials attributed improvements made this filing season, in part, to assistors working overtime. These officials reported that IRS's office that responds to taxpayer inquiries and handles adjustments had slightly more than 700,000 correspondence cases in inventory at the end of January and expect about 1 million cases in inventory by the end of April. They described IRS's correspondence inventory as manageable, but steadily increasing. Officials said that, after the filing deadline, assistors will turn their attention to correspondence. IRS also offers online services to millions of taxpayers through its website, including tax forms and interactive tax assistance features. According to IRS, the agency wants to expand online service to provide greater convenience to taxpayers which has the potential to reduce costs in other areas, such as its telephone operations. We have made recommendations to IRS and the Department of the Treasury (Treasury), as well as a matter for congressional consideration, to assist IRS in improving its customer service. Examples include: Telephone and Correspondence. In December 2012, we recommended that IRS define appropriate levels of service for telephones as well as correspondence. IRS neither agreed nor disagreed with this recommendation and, as of October 2015, the agency had not developed these customer service goals. While IRS has taken some steps to modify services provided to taxpayers, a strategy would help determine the resources needed to achieve customer service goals. Recognizing the importance of such as strategy, in December 2014, we recommended that IRS systematically and periodically compare its telephone service to the best in business to identify gaps between actual and desired performance. IRS disagreed with this recommendation, noting that it is difficult to identify comparable organizations. We do not agree with IRS's position; many organizations run call centers that would provide ample opportunities to benchmark IRS's performance. Recognizing the need to improve performance responding to taxpayer correspondence, in December 2015, we recommended to Treasury that it include overage rates for handling taxpayer correspondence as a part of Treasury's performance goals. Treasury neither agreed nor disagreed with this recommendation. Online Services. In April 2013, we recommended that IRS develop a long-term online strategy that should, for example, develop business cases for all new online services. In March 2016, IRS officials reported that IRS's Future State initiative is intended to provide better service to taxpayers through multiple channels of communication, including online. We have not yet assessed IRS's Future State initiative. However, a long- term comprehensive strategy for online services should help ensure that IRS is maximizing the benefit to taxpayers from this investment and reduce costs in other areas, such as for IRS's telephone operations. Comprehensive Customer Service Strategy. In fall 2015, Treasury and IRS officials said they had no plans to develop a comprehensive customer service strategy or specific goals for telephone service tied to the best in the business and customer expectations. These officials told us that the agencies' existing efforts were sufficient. However, we continue to believe that, without such a strategy, Treasury and IRS can neither measure nor effectively communicate to Congress the types and levels of customer service taxpayers should expect and the resources needed to reach those levels. Therefore, in December 2015, we suggested that Congress consider requiring that Treasury work with IRS to develop a comprehensive customer service strategy. In April 2016, IRS officials told us that the agency has established a team to consider our prior recommendations in developing a comprehensive customer service strategy or goals for telephone service. During the filing season many taxpayers learn that their private information has been stolen and they have been victims of IDT refund fraud. This generally occurs when the taxpayer attempts to file a tax return only to learn that one has already been filed under the taxpayer's name. For these taxpayers, IRS has taken action to improve customer service related to IDT refund fraud. As we reported in March 2016, between the 2011 and 2015 filing seasons, IRS experienced a 430 percent increase in the number of telephone calls to its Identity Theft Toll- Free Line. As of March 19, 2016, IRS had received more than 1.1 million calls to this line. During this time, 77 percent of callers seeking assistance on this telephone line received it compared to 54 percent during the same period last year. Average wait times during the same period have also decreased--taxpayers were waiting an average of 14 minutes to talk to an assistor, a decrease from 27 minutes last year. As we reported in April 2016, billions of dollars have been lost to IDT refund fraud and this crime continues to be an evolving threat. IRS develops estimates of the extent of IDT refund fraud to help direct its efforts to identify and prevent the crime. While its estimates have inherent uncertainty, IRS estimated that it prevented or recovered $22.5 billion in fraudulent IDT refunds in filing season 2014 (see figure 2). However, IRS also estimated, where data were available, that it paid $3.1 billion in fraudulent IDT refunds. Because of the difficulties in knowing the amount of undetectable fraud, the actual amount could differ from these estimates. IRS has taken steps to address IDT refund fraud; however, it remains a persistent and continually changing threat. IRS recognized the challenge of IDT refund fraud in its fiscal year 2014-2017 strategic plan and increased resources dedicated to combating IDT and other types of refund fraud. In fiscal year 2015, IRS reported that it staffed more than 4,000 full-time equivalents and spent about $470 million on all refund fraud and IDT activities. As described above, IRS received an additional $290 million in fiscal year 2016 to improve customer service, IDT identification and prevention, and cybersecurity efforts. The agency plans to use $16.1 million of this funding to help prevent IDT refund fraud, among other things. As we reported in April 2016, the administration requested an additional $90 million and an additional 491 full-time equivalents for fiscal year 2017 to help prevent IDT refund fraud and reduce other improper payments. IRS estimates that this $90 million investment in IDT refund fraud and other improper payment prevention would help it protect $612 million in revenue in fiscal year 2017, as well as protect revenue in future years. As we previously reported, IRS also works with third parties, such as tax preparation industry participants, states, and financial institutions to try to detect and prevent IDT refund fraud. In March 2015, the Commissioner of the IRS convened a Security Summit with industry and states to improve information sharing and authentication. IRS officials said that 40 state departments of revenue and 20 tax industry participants have officially signed a partnership agreement to enact recommendations developed and agreed to by summit participants. IRS plans to invest a portion of the $16.1 million it received in fiscal year 2016 into identity theft prevention and refund fraud mitigation actions from the Security Summit. These efforts include developing an Information Sharing and Analysis Center where IRS, states, and industry can share information to combat IDT refund fraud. Even though IRS has prioritized combating IDT refund fraud, fraudsters adapt their schemes to identify weaknesses in IDT defenses, such as gaining access to taxpayers' tax return transcripts through IRS's online Get Transcript service. According to IRS officials, with access to tax transcripts, fraudsters can create historically consistent returns that are hard to distinguish from a return filed by a legitimate taxpayer. This can make it more difficult for IRS to identify and detect IDT refund fraud. Because identity thieves are "adaptive adversaries" who are constantly learning and changing their tactics as IRS develops new IDT strategies, IRS will need stronger pre-refund and post-refund strategies to combat this persistent and evolving threat. While there are no simple solutions, our past work has highlighted ways IRS can combat this threat. Improved authentication. Improving authentication could help IRS prevent fraud before issuing refunds. In January 2015, we reported that IRS's authentication tools have limitations and recommended that IRS assess the costs, benefits and risks of its authentication tools. For example, individuals can obtain an e-file PIN by providing their name, Social Security number, date of birth, address, and filing status for IRS's e-file PIN application. Identity thieves can easily find this information, allowing them to bypass some, if not all, of IRS's automatic checks according to our analysis and interviews with tax software and return preparer associations and companies. After filing an IDT return using an e-file PIN, the fraudulent return would proceed through IRS's normal return processing. In response to our recommendation, in November 2015, IRS developed guidance for its Identity Assurance Office to assess costs, benefits, and risk. According to IRS officials, this analysis will inform decision-making on authentication-related issues. IRS also noted that the methods of analysis for the authentication tools will vary depending on the different costs and other factors for authenticating taxpayers in different channels, such as online, phone, or in-person. In February 2016, IRS officials told us that the Identity Assurance Office plans to complete a strategic plan for taxpayer authentication across the agency in September 2016. While IRS is taking steps, it will still be vulnerable until it completes and uses the results of its analysis of costs, benefits, and risks to inform decision- making. W-2 Pre-refund Matching. Another pre-refund strategy is earlier matching of employer-reported wage information to taxpayers' returns before issuing refunds. As we reported in August 2014, thieves committing IDT refund fraud take advantage of IRS's "look-back" compliance model. Under this model, rather than holding refunds until completing all compliance checks, IRS issues refunds after conducting selected reviews, such as verifying identity by matching names and Social Security numbers and filtering for indications of fraud. However, we found that the wage information that employers report on the Form W- 2, Wage and Tax Statement (W-2), has generally been unavailable to IRS until after it issues most refunds. According to IRS, pre-refund matching would potentially save a substantial part of the billions of taxpayer dollars currently lost to fraudsters. Increasing electronically-filed (e-file) W-2s. In December 2015, the Consolidated Appropriations Act, 2016 amended the tax code to accelerate W-2 filing deadlines to January 31. This represents important progress. Building on that, other policy changes may also be needed in concert with moving W-2 deadlines. Agency officials and third-party stakeholders told us that these changes include lowering the employee threshold requirement for employers to e-file W-2s. Because of the additional time and resources associated with processing paper W-2s submitted by employers, Social Security Administration officials told us that a change in the e-file threshold would be needed to sufficiently increase the number of e-filed W-2s. Backlogs in paper W-2s could result in IRS receiving W-2 data after the end of the filing season. Therefore, we have suggested that Congress should consider providing the Secretary of the Treasury with the regulatory authority to lower the threshold for electronic filing of W-2s from 250 returns annually to between 5 to 10 returns, as appropriate. Assessing the costs and benefits of pre-refund W-2 matching. In August 2014 we reported that the wage information that employers report on Form W-2 is unavailable to IRS until after it issues most refunds. Also, if IRS had access to W-2 data earlier, it could match such information to taxpayers' returns and identify discrepancies before issuing billions of dollars of fraudulent IDT refunds. We recommended that IRS assess the costs and benefits of accelerating W-2 deadlines. In response to our recommendation, IRS provided us with a report in September 2015 discussing (1) adjustments to IRS systems and work processes needed to use accelerated W-2 information, (2) the potential impacts on internal and external stakeholders, and (3) other changes needed to match W-2 data to tax returns prior to issuing refunds, such as delaying refunds until W-2 data are available. IRS's analysis for this report will help it determine how to best implement pre-refund W-2 matching, given the new January 31 deadline for filing W-2s. Improving feedback on external leads. A post-refund strategy to combat IDT refund fraud involves IRS's External Leads Program. This program involves financial institutions and other external parties providing information about emerging IDT refund trends and fraudulent returns that have passed through IRS detection systems. In August 2014, we reported that IRS provided limited feedback to external parties on IDT leads they submitted and offered external parties limited general information on IDT refund fraud trends. We recommended that IRS provide actionable feedback to all lead-generating third parties, and IRS neither agreed nor disagreed. However, in response to our recommendation, IRS took a number of steps. First, in November 2015, IRS reported that it had developed a database to track leads submitted by financial institutions and the results of those leads. IRS also stated that it had held two sessions with financial institutions to provide feedback on external leads provided to IRS. Second, in December 2015, IRS officials told us that the agency sent a customer satisfaction survey asking financial institutions for feedback on the external leads process. The agency was also considering other ways to provide feedback to financial institutions. Third, in April 2016, IRS officials told us that they plan to analyze preliminary survey results by mid-April 2016. Finally, IRS officials reported that the agency shared information with financial institutions in March 2016 and plans to do so on a quarterly basis. The next information sharing session is scheduled in June 2016. We are following up with IRS on these activities to determine the extent to which IRS has addressed our recommendation. In addition to securing taxpayer information to help prevent IDT refund fraud, there are additional concerns for maintaining security of taxpayer data. As we reported in March 2016, IRS has implemented numerous controls over key financial and tax processing systems; however, it had not always effectively implemented access and other controls, including elements of its information security program. Access controls are intended to prevent, limit, and detect unauthorized access to computing resources, programs, information, and facilities. These controls include identification and authentication, authorization, cryptography, audit and monitoring, and physical security controls, among others. In our most recent review in March 2016, we found that IRS had improved access controls, but some weaknesses remain. Examples include: Identifying and authenticating users--such as through user account-password combinations--provides the basis for establishing accountability and controlling access to a system. IRS established policies for identification and authentication, including requiring multifactor authentication for local and network access accounts, and establishing password complexity and expiration requirements. It also improved identification and authentication controls by, for example, expanding the use of an automated mechanism to centrally manage, apply, and verify password requirements. However, weaknesses in identification and authentication controls remained. For example, the agency used easily guessable passwords on servers supporting key systems. Authorization controls limit what actions users are able to perform after being allowed into a system. They should be based on the concept of "least privilege," granting users the least amount of rights and privileges necessary to perform their duties. While IRS established policies for authorizing access to its systems, we found that it continued to permit excessive access in some cases. For example, users were granted rights and permissions in excess of what they needed to perform their duties, including for an application used to process electronic tax payment information and a database on a human resources system. Cryptography controls protect sensitive data and computer programs by rendering data unintelligible to unauthorized users and protecting the integrity of transmitted or stored data. IRS policies require the use of encryption and it continued to expand its use of encryption to protect sensitive data. However, key systems we reviewed had not been configured to encrypt sensitive user authentication data. IRS also had weaknesses in configuration management controls, which are intended to prevent unauthorized changes to information system resources (e.g., software and hardware), and provide assurance that systems are configured and operating securely. Specifically, while IRS developed policies for managing the configuration of its information technology (IT) systems and improved some configuration management controls, it did not, for example, ensure security patch updates were applied in a timely manner to databases supporting two key systems we reviewed, including a patch that had been available since August 2012. To its credit, IRS had established contingency plans for the systems we reviewed, which help ensure that when unexpected events occur, critical operations can continue without interruption or can be promptly resumed, and that information resources are protected. Specifically, IRS had established policies for developing contingency plans for its information systems and for testing those plans, as well as for implementing and enforcing backup procedures. Moreover, the agency had documented and tested contingency plans for its systems and improved continuity of operations controls for several systems. Nevertheless, the control weaknesses we found can be attributed in part to IRS's inconsistent implementation of elements of its agency-wide information security program. The agency established a comprehensive framework for its program, including assessing risk for its systems, developing system security plans, and providing employees with security awareness and specialized training. However, IRS had not updated key mainframe policies and procedures to address issues such as comprehensively auditing and monitoring access. In addition, the agency had not fully addressed previously identified deficiencies or ensured that its corrective actions were effective. During our most recent review, IRS told us it had addressed 28 of our prior recommendations; however, we determined that 9 of these had not been effectively implemented. We concluded in our November 2015 report that the collective effect of the deficiencies in information security from prior years that continued to exist in fiscal year 2015, along with the new deficiencies we identified, were serious enough to merit the attention of those charged with governance of IRS and therefore represented a significant deficiency in IRS's internal control over financial reporting systems as of September 30, 2015. To assist IRS in fully implementing its agency-wide information security program, we made two new recommendations to more effectively implement security-related policies and plans. In addition, to assist IRS in strengthening security controls over the financial and tax processing systems we reviewed, we made 43 technical recommendations in a separate report with limited distribution to address 26 new weaknesses in access controls and configuration management. Implementing these recommendations--in addition to the 49 outstanding recommendations from previous audits--will help IRS improve its controls for identifying and authenticating users. This, in turn, will allow IRS to limit users' access to the minimum necessary to perform their job-related functions, protect sensitive data when they are stored or in transit, audit and monitor system activities, and physically secure its IT facilities and resources. In commenting on drafts of our reports presenting the results of our fiscal year 2015 audit, the IRS Commissioner stated that while the agency agreed with our new recommendations, it will review them to ensure that its actions include sustainable fixes that implement appropriate security controls balanced against IT and human capital resource limitations. In conclusion, this year's tax filing season has generally gone smoothly and IRS has improved customer service. While IRS has some initiatives to review customer service and consider improvements, it still needs to develop a comprehensive strategy for customer service that will meet the needs of taxpayers. This strategy could include setting customer service goals as well as benchmarking and monitoring performance. IRS also needs to strengthen its defenses for addressing IDT refund fraud that is informed by assessing the cost, benefits, and risks of IRS's various authentication options. Finally, weaknesses in information security can also increase the risk posed by IDT refund fraud. While IRS has made progress in implementing information security controls, it needs to continue to address weaknesses in access controls and configuration management and consistently implement all elements of its information security program. The risks to which the IRS and the public are exposed have been illustrated by recent incidents involving public-facing applications, highlighting the importance of securing systems that contain sensitive taxpayer and financial data. Chairman Roskam, Ranking Member Lewis, and Members of the Subcommittee, this concludes my statement. I look forward to answering any questions that you may have at this time. If you have any questions regarding this statement, please contact Jessica K. Lucas-Judy at (202) 512-9110 or [email protected], James R. McTigue, Jr. at (202) 512-9110 or [email protected], Gregory C. Wilshusen at (202) 512-6244 or [email protected], or Nancy Kingsbury at (202) 512-2928 or [email protected]. Other key contributors to this statement include Neil A. Pinney, Joanna M. Stamatiades, and Jeffrey Knott, (assistant directors); Dawn E. Bidne; Mark Canter; James Cook; Shannon J. Finnegan; Lee McCracken; Justin Palk; J. Daniel Paulk; Erin Saunders Rath; and Daniel Swartz. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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IRS provides service to tens of millions of taxpayers and processes most tax returns during the filing season. It is also a time when legitimate taxpayers may learn that they are a victim of IDT refund fraud, which occurs when a thief files a fraudulent return using a legitimate taxpayer's identity and claims a refund. In 2015, GAO added IDT refund fraud to its high-risk area on the enforcement of tax laws and expanded its government-wide high-risk area on federal information security to include the protection of personally identifiable information. With IRS's reliance on computerized systems, recent data breaches at IRS highlight the vulnerability of sensitive taxpayer information. This statement discusses IRS's efforts to address (1) customer service declines, (2) IDT refund fraud challenges, and (3) information security weaknesses. This statement is based on GAO reports issued between 2012 and 2016 and includes updates of selected data. The Internal Revenue Service (IRS) improved phone service to taxpayers during the 2016 filing season compared to last year. According to IRS, this is due in part to the additional $290 million in funding Congress provided to improve customer service, identity theft (IDT) refund fraud, and cybersecurity efforts. However, IRS expects its performance for the entire fiscal year will not reach the levels of earlier years. In 2012 and 2014, GAO made recommendations for IRS to improve customer service, which it has yet to implement. Consequently, in December 2015, GAO suggested that Congress require the Department of the Treasury (Treasury) to work with IRS to develop a comprehensive customer service strategy that incorporates elements of these prior recommendations. IDT refund fraud poses a significant challenge. Although the full extent of this fraud is unknown, IRS estimates it paid $3.1 billion in IDT fraudulent refunds in filing season 2014, while preventing the processing of $22.5 billion in fraudulent refunds (see figure). IRS has taken steps to combat IDT refund fraud, such as increasing resources dedicated to combating the problem. However, as GAO reported in August 2014 and January 2015, additional actions can further assist the agency, including assessing the costs, benefits, and risks of improving methods for authenticating taxpayers. In addition, the Consolidated Appropriations Act, 2016 included a provision to accelerate filings of W-2 information from employers to the IRS that would help IRS with pre-refund matching. GAO suggested that Congress provide Treasury with authority to lower the threshold for e-filing W-2s, which would further enhance pre-refund matching. In March 2016, GAO reported that IRS had instituted numerous controls over key financial and tax processing systems; however, it had not always effectively implemented other controls intended to properly restrict access to systems and information, among other security measures. While IRS had improved some of its access controls, weaknesses remained in controls over key systems for identifying and authenticating users, authorizing users' level of rights and privileges, and encrypting sensitive data. These weaknesses were due in part to IRS's inconsistent implementation of its agency-wide security program, including not fully implementing 49 prior GAO recommendations. GAO concluded that these weaknesses collectively constituted a significant deficiency for the purposes of financial reporting for fiscal year 2015. As a result, taxpayer and financial data continue to be exposed to increased risk. GAO previously suggested that Congress consider requiring that Treasury work with IRS to develop a customer service strategy, and providing Treasury with the authority to lower the annual threshold for e-filing W-2s. GAO made prior recommendations to IRS to combat IDT refund fraud, such as assessing the costs, benefits, and risks of taxpayer authentication options, and 45 new recommendations to further improve IRS's information security controls and the implementation of its agency-wide information security program.
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According to DOD, the department relies on over 2.5 million unclassified computer systems, 10,000 local area networks, and hundreds of long- distance networks for mission-critical operations. These systems and networks run on multiple hardware and software platforms consisting of interconnected mainframes, systems, and network operating systems that often operate over public, commercial telecommunication lines. Security over these systems and networks involves multiple DOD and private sector organizations and is a difficult undertaking because of the ever-increasing number of cyber threats and attacks occurring over the Internet. Daily, DOD identifies and records thousands of "cyber events," some of which are determined to be attacks against systems and networks. These attacks may be perpetrated by individuals inside or outside the organization, including hackers, foreign-sponsored entities, employees, former employees, and contractors or other service providers. Although historically DOD focused most of its security efforts on protecting the confidentiality of classified and sensitive information, this focus evolved as unclassified DOD systems and networks became increasingly exposed to cyber threats and attacks because of their connections with the public telecommunications infrastructure. After the "Morris Worm" attack crippled about 10 percent of the computers connected to the Internet in 1988, DOD acted--through the Defense Advanced Research Projects Agency--to establish the CERT Coordination Center at Carnegie Mellon University to address computer security threats. In 1992, the Air Force established the first military CERT to help address computer security threats and attacks internally. In 1994, a hacker from the United Kingdom raised concerns by launching a series of attacks against critical DOD research systems, demonstrating a need for better cyber defenses. Following these events, the Navy and Army established CERTs in 1995 and 1996, respectively. During the 1990s, incident response organizations were also gradually being established throughout other agencies of the federal government. In 1996, the Federal Computer Incident Response Capability (FedCIRC) was established to assist federal civilian agencies in their incident handling efforts. Like DOD, civilian agencies continue to evolve and mature in their incident response capabilities. Even as greater attention has been paid to incident response, cyber threats and attacks continue to affect the operations of DOD and other federal systems and networks. Since 1998, a number of federal systems have been subjected to a series of recurring, "stealth-like" attacks, code-named Moonlight Maze, that federal incident response officials have attributed to foreign entities and are still investigating. More recently, the "ILOVEYOU" virus attack affected electronic mail and other systems worldwide. According to DOD officials, thousands of potential cyber attacks are launched against DOD systems and networks daily, though very few are successful in accessing computer and information resources. In 1999 and 2000, the Air Force, Army, and Navy recorded a combined total of 600 and 715 cyber attacks respectively, during which intruders attacked DOD systems and networks in a variety of ways. Table 1 summarizes the numbers of recent documented cyber attacks reported by the military services. DOD and other organizations rely on a range of incident response activities to safeguard their systems, networks, and information from attack. These activities involve the use of various computer security tools and techniques as well as the support of systems and technical specialists. Incident response activities can be grouped into four broad categories: Preventive activities--such as conducting security reviews of major systems and networks and disseminating vulnerability notifications-- are used to identify and correct security vulnerabilities before they can be exploited. Detection activities rely on automated techniques, such as intrusion detection systems and the logging capabilities of firewalls, to systematically scan electronic messages and other data that traverse an organization's networks for signs of potential misuse. Investigative and diagnostic activities involve (1) technical specialists who research cyber events and develop countermeasures and (2) law enforcement personnel who investigate apparent attacks. Event handling and response activities--responding to actual events that could threaten an organization's systems and networks--involve technical and system specialists who review data generated by intrusion detection systems and determine what needs to be done. This includes providing appropriate internal and external officials with critical information on events under way and possible remedies for minimizing operational disruption. The objectives of our review were to (1) identify DOD's incident response capabilities and how these capabilities are being implemented and (2) identify challenges to improving these capabilities. To do this, we worked at the DOD organizations primarily responsible for incident response activities at the departmentwide level and within the four services. Specifically, we worked at the U.S. Space Command in Colorado Springs, Colorado; the Joint Task Force for Computer Network Defense (JTF-CND) in Arlington, Virginia; the Defense Information System Agency's DOD Computer Emergency Response Team (CERT) and Global Network Operations and Security Center in Arlington, Virginia; the Air Force's Information Warfare Center and CERT in San Antonio, Texas, and Communication and Information Center, Rosslyn, Virginia; the Army's Land Information Warfare Activity and CERT at Fort Belvoir, Virginia; the Marine Information Technology Operations Center in Quantico, Virginia; and the Navy's Fleet Information Warfare Center and Computer Incident Response Team in Norfolk, Virginia. At these locations, we obtained and analyzed information on (1) policies, procedures, roles, and responsibilities for incident response, (2) intrusion detection and other incident response tools and databases, and (3) key oversight and incident reporting procedures. Technical reports and database description documents were obtained and reviewed. We also reviewed operations and strategic planning documents and reports on computer security events, incidents, and intrusions for January 1999 through December 2000. Finally, we met with senior DOD officials in the Office of the Secretary of Defense to discuss departmentwide information security programs, strategies, and plans. Our work was performed in accordance with generally accepted government auditing standards from April 2000 through January 2001. We did not verify the effectiveness of DOD's incident response capabilities and did not evaluate incident response capabilities within DOD support agencies, such as DISA. We obtained written comments on a draft of this report from the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence. These comments are reprinted in appendix I. DOD has taken important steps to highlight the threat to its networks and systems and to enhance its ability to respond to computer incidents. For example, in 1997, DOD conducted a military exercise known as Eligible Receiver that demonstrated that hostile forces could penetrate DOD systems and networks and further highlighted the need for an organization to manage the defense of its systems and networks. A series of computer attacks against DOD systems in early 1998 further highlighted the need for a single departmentwide focal point for incident response. In December 1998, DOD established JTF-CND as the primary department- level agent to coordinate and direct internal activities aimed at preventing and detecting cyber attacks, containing damage, and restoring computer functionality. The services--Air Force, Army, Marine Corps, and Navy-- were directed to provide JTF-CND with tactical support through their CERTs and other supporting components. The U.S. Space Command assumed operational control over JTF-CND in October 1999. JTF-CND serves as the departmentwide focal point for incident response activities. In 1998, DOD also established the Defense-wide Information Assurance Program (DIAP) to promote integrated, comprehensive, and consistent information assurance activities across the department. "Information assurance" refers to the range of information security activities and functions needed to protect and defend DOD's information and systems. While JTF-CND coordinates and oversees incident response activities on a day-to-day operational basis, DIAP's responsibilities include coordinating DOD plans and policies related to incident response. DOD's network of CERTs, JTF-CND, and other related organizations engage in a variety of preventive, detective, investigative, and response activities, as described in further detail below. DOD's preventive activities are aimed at stopping cyber attacks or minimizing the likelihood that they will be successful in penetrating systems or networks through exploiting known vulnerabilities. These activities have included (1) vulnerability assessments of the security of DOD systems and networks, (2) using technical experts to try to surreptitiously gain access to systems and networks, thus exposing security weaknesses before adversaries can exploit them, and (3) alerting systems administrators to identified vulnerabilities. Conducting vulnerability assessments can help ensure that system and security software is properly installed and configured and that the proper configuration is maintained through any updates or other modifications. Upon request, the Air Force, Army, Navy, and National Security Agency conduct vulnerability assessments of DOD systems and networks using a variety of automated computer security assessment tools. These tools automatically check systems and networks for known security weaknesses and generate reports summarizing results. During 2000, the Air Force, Army, Navy, and National Security Agency completed over 150 assessments that identified hundreds of vulnerabilities for commands to address. Upon request, the services and the National Security Agency use groups of technical experts to play the role of hackers and attempt to penetrate DOD systems and networks by exploiting known security weaknesses in commonly used systems and software. These efforts help prepare military forces to defend against cyber attacks and are often conducted during military training exercises. In addition, DOD established a Joint Web Risk Assessment Cell (JWRAC), staffed by reservists, to continually review DOD web sites to identify sensitive information. According to DOD officials, during its first 6 months of operation, JWRAC reviewed about 10,000 Web pages and identified hundreds of discrepancies for corrective action. Even with these preventive efforts, new types of security vulnerabilities are being identified almost daily, and hackers are continually developing automated tools to take advantage of them. To keep its systems and networks current with the best available protection, such as up-to-date software patches, DOD depends on DISA's Information Assurance Vulnerability Alert (IAVA) process, which distributes alerts, bulletins, and advisories on security vulnerabilities, as well as recommendations for repairing security weaknesses, to the military services and Defense agencies. Since the program began in 1998, 27 alerts on potentially severe vulnerabilities and about 46 bulletins and advisories on lower risk cyber threats and attacks have been distributed to the services and Defense agencies for corrective action. Through their CERTs, the Air Force, Army, Marines, and Navy also disseminate to component commands hundreds of technical notifications on vulnerabilities that may require corrective action. In the area of incident detection, DOD relies largely on automated capabilities to identify significant cyber events--including attacks against systems and networks--as quickly as possible. Computer security technologies (such as intrusion detection systems and firewalls located at key network nodes) identify, track, and, if warranted, block inappropriate electronic traffic. Automated systems and tools are also used to collect, analyze, and display data on cyber events and to help establish a baseline of network activity to better identify anomalies and patterns that may indicate ongoing or imminent cyber attacks. Currently, DOD reports that about 445 host-based and 647 network-based intrusion detection systems are in operation to help safeguard its over 2.5 million unclassified host systems and the networks supporting them. Host-based intrusion detection systems monitor individual computers or other hardware devices and are used to automatically examine files, process accounting information, and monitor user activity. Network-based intrusion detection systems examine traffic or transmissions from host- based systems and other applications traversing key locations on the network. Nearly all of these safeguard systems are based on commercial products, except for the Air Force's 148 Automated Security Incident Measurement Systems and the Joint Intrusion Detection Systems managed by DISA. The Air Force is also developing the Common Intrusion Detection Director System to correlate data from its intrusion detection systems and other sources in near real time to better track network activity patterns and identify cyber attacks. The Army and Navy have similar initiatives under way to develop databases for correlating information from intrusion detection systems and other devices. In addition, the Defense Advanced Research Projects Agency is funding research to develop more sophisticated intrusion detection systems. Investigative and diagnostic activities involve the use of technical specialists to research cyber events and attacks, to develop appropriate technical countermeasures, and to coordinate information with law enforcement personnel responsible for investigating and prosecuting intruders. Several DOD organizations, including the National Security Agency and Air Force, have established teams to examine the software code used to execute viruses and other cyber attacks and to help identify technical countermeasures for stopping the attacks or preventing them from infiltrating systems and networks. The JTF-CND, Air Force, Army, Marines, and Navy also coordinate with law enforcement and counterintelligence agencies when investigating potential criminal activities associated with cyber incidents. In addition, JTF-CND is developing systems and procedures to better coordinate and exchange information with law enforcement and counterintelligence agencies. Finally, event handling and response activities involve disseminating information and providing technical assistance to system administrators so they can appropriately respond to cyber attacks. JTF-CND has been designated DOD's focal point for sharing critical information on cyber attacks and other computer security issues with internal and external partners. The military services also rely on CERTs to provide information on cyber attacks and immediate technical assistance to system administrators in the event of computer attacks. CERTs have the capability to deploy personnel to affected locations if system administrators need help implementing corrective measures or containing damage and restoring systems and networks that may have been compromised. JTF-CND also has developed standard tactics, techniques, and procedures for responding to cyber incidents and sharing critical information on cyber threats and attacks. Further, it is developing standard policies for sharing information with external partners, such as the National Infrastructure Protection Center (at the Federal Bureau of Investigation) and the Federal Computer Incident Response Capability (at the General Services Administration). JTF-CND is also developing procedures to exchange critical information with the intelligence community and other Defense agencies. Although DOD has progressed in developing its incident response capabilities, it faces challenges in several areas, including departmentwide planning, data collection and integration, vulnerability assessment procedures, compliance reporting, component-level response coordination, and performance management. Addressing these challenges would help DOD improve its incident response capabilities and keep up with the dynamic and ever-changing nature of cyber attacks. Because the risk of cyber attack is shared by all DOD systems that are interconnected with each other and the public telecommunications infrastructure, it is important that incident response activities be well coordinated across the department. An attacker who successfully penetrates one DOD system is likely to use that system's interconnections to attack other DOD computers and networks. Even if an attacker is at first unsuccessful in penetrating a particular system or network because it is well protected, such a person can go on to attack other systems and networks that may have vulnerabilities that are more easily exploited. For these reasons it is important that incident response activities be coordinated departmentwide to ensure that consistent and appropriate capabilities are available wherever they are needed. DOD incident response officials agreed that coordination was important and report that the department has begun coordinating activities of the military services as part of the Program, Planning, and Budgeting System process. However, DOD has not yet identified departmentwide priorities or funding requirements for incident response. Instead, each of the services annually determines its own incident response priorities and funding requirements; as a result, the resources committed to incident response vary substantially. For example, Air Force officials estimated that they would spend over $43 million for their Information Warfare Center and Computer Emergency Response Team in fiscal year 2000, whereas Navy officials estimated that they would spend less than $4 million on their corresponding activities. Given widely varying resource commitments and the lack of established departmentwide priorities, it is uncertain whether systems and networks are being consistently and appropriately protected from cyber attack across the department. According to DOD officials, it is difficult to identify departmentwide priorities, because no agreement has yet been reached on the core functions and characteristics of incident response teams among the multiple services and Defense agencies that currently field such teams. According to DOD officials, an effort is now under way at the department level to define those core functions and characteristics. Integrating critical data from heterogeneous systems throughout an organization is important for effective incident response because it helps to assess and address threats, attacks, and their impact on systems and networks. Sufficient information is needed to establish what events occurred and who or what caused them. As attacks become more sophisticated, obtaining this information can become more and more difficult, requiring more and better-integrated data. Attackers may go to great lengths to disguise their attacks by spreading them over long periods of time or going through many different network routes, so that it is harder for intrusion detection systems to notice that attacks are occurring. Because of the threat of these kinds of attacks, it is increasingly important to collect intrusion data from as many systems and sensors as possible. Although it has begun to develop several tools for tracking different kinds of incident data from across the department, DOD has only recently begun to implement key systems for integrating useful data from various intrusion detection systems and other heterogeneous systems, sensors, and devices for analysis. JTF-CND has taken steps to integrate intrusion data by sponsoring development of a Joint CERT Database to consolidate information on documented cyber attacks that have been collected individually by the services. According to DOD officials, the Joint CERT Database first became operational in January 2001. Work is also under way to develop a joint threat database as well as a database of law enforcement- related information. However, neither of these tools is yet operational. Integrating intrusion data from across the department is a significant challenge because many different systems are in use that collect different kinds of data. Each of the services has deployed different intrusion detection systems to track anomalous network activity, and databases designed to track different types of specific data elements have been developed to synthesize raw data for analysis. Further, key information, such as data on insider attacks, is not yet tracked departmentwide. To help overcome this difficulty, JTF-CND also launched a project to establish common terminology for incident response to help standardize reporting of cyber incidents and attacks throughout the department. However, the task force has not yet been able to bridge significant differences among the military services regarding how to classify and report computer incidents. For example, the Air Force currently does not report "probes" to JTF-CND because it does not consider these events harmful until its systems or networks are actually under attack. Internally, the Air Force identifies thousands of probes of its systems and networks daily and told us that reporting this information to JTF-CND would provide little insight on cyber attacks. However, the Army and Navy do report probes to JTF-CND. Experts believe data on probes can be used to assess the likelihood of an attack in the future. This is because potential intruders typically use a series of probes to gather technical information about systems so that they can tailor an attack to exploit the vulnerabilities most likely to be associated with those systems. Thus a series of probes against a system or systems may indicate that a more concerted attack against the same systems is likely in the near future. Although DOD has had procedures in place since 1986 for the military services to conduct vulnerability assessments of systems and networks and collect information on security weaknesses, no process has been developed, either at the department level or within the services, for prioritizing the conduct of vulnerability assessments. Instead, vulnerability assessments are generally conducted only when requested by component commanders or service-level audit agencies. Service officials agreed that there was no departmentwide process to identify which systems or networks faced the greatest risks and therefore should be assigned the highest priority for vulnerability assessments. Neither is there a mechanism to follow up on the results of these assessments to verify that security weaknesses have been corrected. Generally, the assessment teams do not verify that corrective action has been completed as recommended. The problem is compounded by the fact that, in some cases, component officials are not responsible for all the systems and network connections identified as having security vulnerabilities. No procedures are in place to ensure that the systems outside their responsibility are fixed. Furthermore, the information about vulnerabilities collected during these assessments is provided only to the affected components and not shared among the military services and Defense agencies. There is no process for ensuring that the results of these assessments are applied consistently and comprehensively to other similar systems and networks across the department. As a result, systems with the same vulnerabilities operating at other locations may not be addressed and thus may remain vulnerable. The DOD Office of the Inspector General (OIG) reported similar issues in 1997 and recommended that more be done to establish departmentwide priorities for conducting computer security reviews. Compliance with Information Assurance Vulnerability Alerts (IAVA) and other published guidance is critical because most successful attacks exploit well-known vulnerabilities. In 1999, for example, DOD reported that over 94 percent of its 118 confirmed cyber intrusions could have been prevented because they involved system access vulnerabilities that could have been remedied if organizations had followed recommendations already published through IAVAs and other security guidance. According to DOD officials, some of these fixes may have been completed but later inadvertently undone when systems were subsequently modified or upgraded. IAVAs are used to notify the military services and Defense agencies about significant computer security weaknesses that pose a potentially immediate threat and require corrective action. The services and Defense agencies are required to acknowledge receipt of the alerts and report on the status of compliance with recommended repairs within specified time frames. Also, DISA uses the IAVA process to disseminate technical bulletins and advisories about lower risk vulnerabilities and recommend ways to repair systems and networks. The military services, Defense agencies, and components are responsible for following recommendations in these notifications as they deem necessary. Although military components are required to report on the status of compliance with IAVAs, current status reports provide limited insight on the extent to which systems and networks are being repaired. The information provided by the military services is not complete and may not accurately reflect compliance across DOD. In December 2000, the OIG reported that the Marines and Navy were the only services providing required IAVA compliance information to DISA. In addition, based on information provided by the JTF-CND, corrective remedies specified in alerts, technical bulletins, and advisories issued as part of the IAVA process may not always be followed. Without full compliance and accurate reporting, DOD officials do not know whether critical systems remain vulnerable to known methods of attack. DOD officials are aware that the IAVA monitoring process as currently implemented is not adequate, and a draft revision to the existing IAVA policies and procedures is being developed. In December 2000, the U.S. Space Command hosted a conference to address compliance reporting problems and discuss possible ways to link IAVA compliance reporting with existing operational readiness reporting requirements. However, at the time of our review, no final action had been taken to improve the compliance reporting process. Coordinating responses to cyber attacks with internal and external partners, as well as law enforcement agencies, is important because it helps organizations respond to cyber attacks more promptly and efficiently, thus deterring cyber crime. Recognizing the need for this coordination, the Joint Chiefs of Staff established the Information Operations Condition (INFOCON) system in March 1999 as a structured, coordinated approach to react to and defend against attacks on DOD systems and networks. The INFOCON system defines five levels of threat and establishes procedures for protecting systems and networks at each level. These procedures were modeled after security requirements for bases, commands, and posts that require coordinated and heightened security when attacks are imminent or under way. The INFOCON system focuses on network-based protective measures and outlines countermeasures to unauthorized access, data browsing, and other suspicious activity, such as scanning and probing. Although the INFOCON system is a useful approach to standardizing incident response throughout DOD, the established measures provide only general guidance about the kinds of incident response activities that might be appropriate at each INFOCON level. Most decisions about what countermeasures to apply and how to apply them are left in the hands of systems administrators and other officials at individual DOD facilities. Lacking detailed guidance, the decision to apply countermeasures can be difficult for these officials in part because the countermeasures themselves may affect system performance. Inexperienced personnel may overreact and implement drastic countermeasures, resulting in self-inflicted problems, such as degraded system performance or communication disruptions. More detailed INFOCON guidance could outline operational priorities and other risk factors for consideration at each level to encourage consistent departmentwide responses to computer incidents. According to JTF-CND, the "ILOVEYOU" attack demonstrated problems in applying INFOCON procedures uniformly across the department and poor communications regarding the appropriate INFOCON level for responding to the cyber attack. Once the "ILOVEYOU" virus had emerged, it took DOD several hours to produce a departmentwide recommendation on the appropriate INFOCON level for responding to the attack. Individual commands independently chose a variety of different levels and responses. For example, some commands made few changes to their daily operational procedures, while others cut off all electronic mail communications and thus became isolated from outside contact regarding the status of the attack. The INFOCON system did not provide any specific guidance on the appropriate INFOCON level or procedures for responding to a virus attack. DOD recently organized a conference to examine ways to improve the INFOCON system, and DOD officials told us that revisions to the INFOCON procedures had been drafted that provide additional detail. However, at the time of our review, the revised procedures had not yet been issued. Further, according to a JTF-CND official, the revised procedures do not discuss the full range of system administrator actions that may be needed to address threats at each INFOCON level. The procedures also do not help systems administrators determine which systems are most in need of defensive actions to maintain support for critical operations. Establishing and monitoring performance measures for incident response is essential to assessing progress and determining whether security measures have effectively mitigated security risks. Leading organizations establish quantifiable performance measures to continually assess computer security program effectiveness and efficiency. DOD officials stated that some quantifiable measures have been established for incident response. For example, the Air Force, Army, Marines, and Navy identify the number and type of cyber incidents and attacks that occur annually and report this information to appropriate senior officials within DOD. In addition, the Deputy Secretary of Defense established a goal of sharing information on significant cyber incidents within 4 hours. Although progress has been made, DOD officials agreed that more could be done to improve incident response performance measures and goals. For example, DOD could track information on the time required to respond to cyber attacks and the costs associated with managing attacks. The Navy now collects some information on the staff hours used to manage cyber attacks, which could be helpful in establishing performance measures. This information also could be used to establish baselines for reporting and responding to various types of cyber attacks and could be linked to combat readiness and mission performance objectives. Space Command and JTF-CND officials indicated that some work was under way to establish performance parameters for incident response and to support joint military training requirements. Further, DOD conducts hundreds of computer security reviews of systems and networks annually but does not assess results from these evaluations to establish goals for improving computer security across the department. Information from these reviews could be used to identify patterns or security weaknesses across the Department and to establish targets to reduce security weaknesses within high-risk areas or for mission-critical systems and applications. DOD has established significant incident response capabilities at the military services and mechanisms for centrally coordinating information assurance activities and incident response capabilities through DIAP and JTF-CND, respectively. However, DOD faces challenges in improving the effectiveness of its incident response capabilities, including (1) coordinating resource planning and priorities for incident response across the department; (2) integrating critical data from heterogeneous systems, sensors, and other devices to better monitor cyber events and attacks; (3) establishing a departmentwide process to periodically and systematically review systems and networks on a priority basis for security weaknesses; (4) ensuring that components across the department consistently report compliance with vulnerability alerts; (5) improving the coordination of component-level incident response actions; and (6) developing departmentwide performance measures to assess incident response capabilities and thus better ensure mission readiness. Acting to address these challenges would help DOD better protect its systems and networks from cyber threats and attacks. We recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence and the U.S. Space Command to work through DIAP and JTF-CND to finalize a departmentwide incident response plan, including objectives, goals, priorities, and the resources needed to achieve those objectives; expedite the development and enhancement of a complete set of systems for integrating and analyzing useful data from intrusion detection systems and other systems used to monitor computer security weaknesses, including tracking data on insider attacks; standardize terminology for computer incidents to facilitate the integration of incident data across the department; establish a systematic, departmentwide process for prioritizing and conducting vulnerability assessments of high-risk systems and networks and capabilities needed to support mission-critical operations; evaluate and monitor results from vulnerability reviews to ensure that recommended repairs have been made and have been applied to all similar systems throughout DOD; establish procedures to ensure consistent and complete reporting on the status of repairs required in IAVAs across the department; link IAVA compliance reporting requirements to mission-critical systems and operations to increase awareness of the value of complying with technical bulletins and advisories distributed as part of the IAVA process; refine INFOCON procedures to clarify the kinds of actions that need to be taken at each INFOCON level, especially with regard to priority systems, such as mission-critical systems; and establish a performance-based management process for incident response activities to ensure that departmentwide goals as well as combat requirements are achieved, including establishing goals for (1) reducing the prevalence of known security vulnerabilities in systems and networks that support mission-critical operations and (2) timeliness in responding to known types of cyber attacks. In written comments on a draft of this report, which are reprinted in appendix I, the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence stated that the department concurred with our draft report. In response to our second recommendation, DOD stated that the Joint CERT Database is now operational. We have clarified that this recommendation is to speed the development and enhancement of a complete set of systems for integrating and analyzing incident data, not just the Joint CERT Database. The department also provided technical comments that we have addressed as appropriate throughout the report. We are sending copies of this report to Representative Ike Skelton, Ranking Minority Member, House Committee on Armed Services; to Representative Curt Weldon, Chairman, and Representative Solomon P. Ortiz, Ranking Minority Member, Subcommittee on Military Readiness, House Committee on Armed Services; and to other interested congressional committees. We are also sending copies to the Honorable Donald H. Rumsfeld, Secretary of Defense; the Honorable Paul Wolfowitz, Deputy Secretary of Defense; and the Honorable Arthur L. Money, Assistant Secretary of Defense for Command, Control, Communications, and Intelligence and Chief Information Officer. This letter will also be available on GAO's home page at http://www.gao.gov. If you or your staff have any questions about this report, please call me on (202) 512-3317. Major contributors to this report included John de Ferrari, Karl Seifert, John Spence, and Yvonne Vigil. The first copy of each GAO report is free. Additional copies of reports are $2 each. A check or money order should be made out to the Superintendent of Documents. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. Web site: http://www.gao.gov/fraudnet/fraudnet.htm e-mail: [email protected] 1-800-424-5454 (automated answering system)
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This report reviews the department of Defense's (DOD) implementation of computer incident response capabilities and identifies challenges to improving these. GAO found that during the last several years, DOD has taken several steps to build incident response capabilities and enhance computer defensive capabilities across the Department, including the creation of computer emergency response teams and incident response capabilities within each of the military services as well as the Defense Information Systems Agency and the Defense Logistics Agency. DOD also created the Joint Task Force-Computer Network Defense (JTF-CND) to coordinate and direct the full range of activities within the Department associated with incident response. GAO identified the following six areas in which DOD faces challenges in improving its incident response capabilities: (1) coordinating resource planning and prioritization activities; (2) integrating critical data from intrusion detection systems, sensors, and other devices to better monitor cyber events and attacks; (3) establishing departmentwide process to periodically review systems and networks for security weaknesses; (4) increasing individual unit compliance with departmentwide vulnerability alerts; (5) improving DOD's system for coordinating component-level incident response actions; and (6) developing departmentwide performance measures to assess incident response capabilities.
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VA's integrated health care delivery system is one of the largest in the United States and provides enrolled veterans, including women veterans, with a range of services including primary and preventive health care services, mental health services, inpatient hospital services, long-term care, and prescription drugs. VA's health care system is organized into 21 VISNs that include VAMCs and CBOCs. VAMCs offer outpatient, residential, and inpatient services. These services range from primary care to complex specialty care, such as cardiac and spinal cord injury care. VAMCs also offer a range of mental health services, including outpatient counseling services, residential programs--which provide intensive treatment and rehabilitation services, with supported housing, for treatment, for example, of PTSD, MST, or substance use disorders--and inpatient psychiatric treatment. CBOCs are an extension of VAMCs and provide outpatient primary care and general mental health services on site. VA also operates 232 Vet Centers, which offer readjustment and family counseling, employment services, bereavement counseling, and a range of social services to assist combat veterans in readjusting from wartime military service to civilian life. When VA facilities are unable to efficiently provide certain health care services on site, they are authorized to enter into agreements with non-VA providers to ensure veterans have access to medically necessary services. Specifically, VA facilities can make services available through referral of patients to other VA facilities or use of telehealth services, sharing agreements with university affiliates or Department of Defense contracts with providers in the local community, or allowing veterans to receive care from providers in the community who will accept VA payment (commonly referred to as fee-basis care). Federal law authorizes VA to provide medically necessary health care services to eligible veterans, including women veterans. Federal law also specifically requires VA to provide mental health screening, counseling, and treatment for eligible veterans who have experienced MST. Although the MST law applies to all veterans, it is of particular relevance to women veterans because among women veterans screened by VA for MST, 21 percent screened positive for experiencing MST. VA provides health care services to veterans through its medical benefits package--health care services required to be provided are broadly stated in a regulation and further specified in VA policies. Through policies, VA requires its health care facilities to make certain services, including gender-specific services and primary care services, available to eligible women veterans. Gender-specific services that are included in the VA medical benefits package include, for example, cervical cancer screening, breast examination, management of menopause, mammography, obstetric care, and infertility evaluation. See table 1 for a list of selected basic and specialized gender-specific services that VA is required to make available and others that VA may make available to women veterans. In November 2008, VA established a policy that requires all VAMCs and CBOCs to move toward making comprehensive primary care available for women veterans. VA defines comprehensive primary care for women veterans as the availability of complete primary care--including routine detection and management of acute and chronic illness, preventive care, basic gender-specific care, and basic mental health care--from one primary care provider at one site. VA did not establish a deadline by which VAMCs and CBOCs must meet this requirement. VA policies also outline a number of requirements specific to ensuring the privacy of women veterans in all settings of care at VAMCs and CBOCs. These include requirements related to ensuring auditory and visual privacy at check-in and in interview areas; the location of exam rooms, presence of privacy curtains, and the orientation of exam tables; access to private restrooms in outpatient, inpatient, and residential settings of care; and the availability of sanitary products in public restrooms at VA facilities. 1n 1991, VA established the position of Women Veteran Coordinator--now the WVPM--to ensure that each VAMC had an individual responsible for assessing the needs of women veterans and assisting in the planning and delivery of services and programs to meet those needs. Begun as a part- time collateral position, the WVPM is now a full-time position at all VAMCs. In July 2008, VA required VAMCs to establish the WVPM as a full- time position (no longer a collateral duty) no later than December 1, 2008. Clinicians in the role of WVPM would be allowed to perform clinical duties to maintain their professional certification, licensure, or privileges, but must limit the time to the minimum required, typically no more than 5 hours per week. In September 2008, VA issued the Uniform Mental Health Services in VA Medical Centers and Clinics, a policy that specifies the mental health services that must be provided at each VAMC and CBOC. The purpose of this policy is to ensure that all veterans, wherever they obtain care in VA's health care system, have access to needed mental health services. The policy lists the mental health care services that must be delivered on site or made available by each facility. To help ensure that mental health staff can provide these services, VA has developed and rolled out evidence- based psychotherapy training programs for VA staff that treat patients with PTSD, depression, and serious mental illness. VA's training programs cover five evidence-based psychotherapies: Cognitive Processing Therapy (CPT) and Prolonged Exposure (PE), which are recommended for PTSD; Cognitive Behavioral Therapy (CBT) and Acceptance and Commitment Therapy (ACT), which are recommended for depression; and Social Skills Training (SST), which is recommended for serious mental illness. The training programs involve two components: (1) attendance at an in-person, experientially-based, workshop (usually 3-4 days long), and (2) ongoing telephone-based small-group consultation on actual therapy cases with a consultant who is an expert in the psychotherapy. The VA facilities we visited provided basic gender-specific and outpatient mental health services to women veterans on site, and some facilities also provided specialized gender-specific or mental health services specifically designed for women on site. All of the VAMCs we visited offered at least some specialized gender-specific services on site, and six offered a broad array of these services. Among CBOCs, other than the two largest facilities we visited, most offered limited specialized gender-specific care on site. Women needing obstetric care were always referred to non-VA providers. Regarding mental health care, we found that outpatient services for women were widely available at the VAMCs and most Vet Centers we visited, but were more limited at some CBOCs. Eight of the VAMCs we visited offered mixed-gender inpatient or residential mental health services, and two VAMCs offered residential treatment programs specifically designed for women veterans. Basic gender-specific care services were available on site at all nine of the VAMCs and 8 of the 10 CBOCs that we visited. (See table 2.) These facilities offered a full array of basic gender-specific services for women-- such as pelvic examinations, and osteoporosis treatment--on site. One of the CBOCs we visited did not offer any basic gender-specific services on site and another offered a limited selection of these services. These CBOCs that provided limited basic gender-specific services referred patients to other VA facilities for this care, but had plans underway to offer these services on site once providers received needed training. In general, women veterans had access to female providers for their gender-specific care: of the 19 medical facilities we visited, all but 4 had one or more female providers available to deliver basic gender-specific care. The facilities we visited delivered basic gender-specific services in a variety of ways. Seven of the nine VAMCs and the two large CBOCs we visited had women's clinics. The physical setup of these clinics ranged from a physically separate dedicated clinical space (at five facilities) to one or more designated women's health providers with designated exam rooms within a mixed-gender primary care clinic. Generally, when women's clinics were available, most female patients received their basic gender-specific care in those clinics. When women's clinics were not available, female patients either received their gender-specific care through their primary care provider or were referred to another VA or non- VA facility for these services. Basic gender-specific services were typically available between 8:00 a.m. and 4:30 p.m. on weekdays. At one CBOC and one VAMC, however, basic gender-specific care was only available during limited time frames. At the CBOC, a provider from the affiliated VAMC traveled to the CBOC 2 days each month to perform cervical cancer screenings and pelvic examinations for the clinic's female patients. In general, medical facilities did not offer evening or weekend hours for basic gender-specific services. The provision of specialized gender-specific services for women, including treatment after abnormal cervical cancer screenings and breast cancer treatment, varied by service and by facility. (See table 3.) All VA medical facilities referred female patients to outside providers for obstetric care. Some of the VAMCs we visited offered a broad array of other specialized gender-specific services on site, but all contracted or fee-based at least some services. In particular, most VAMCs provided screening and diagnostic mammography through contracts with local providers or fee- based these services. In addition, less than half of the VAMCs provided reconstructive surgery after mastectomy on site, although six of the nine VAMCs we visited provided medical treatment for breast cancers and reproductive cancers on site. In general, the CBOCs we visited offered more limited specialized gender-specific services on site. For example, while most CBOCs offered pregnancy testing and sexually transmitted disease (STD) screening, counseling, and treatment, only the largest CBOCs offered IUD placement on site. Most CBOCs referred patients to VA medical facilities--sometimes as far as 130 miles away--for some specialized gender-specific services. Because the travel distance can be a barrier to treatment for some veterans, officials at some CBOCs said that they will fee-base services to local providers on a case-by-case basis. At both VAMCs and CBOCs, specialized gender-specific services were usually offered on site only during certain hours: for example, four medical facilities only offered these services 2 days per week or less. A range of outpatient mental health services was readily available at the VAMCs we visited. The types of outpatient mental health services available at most VAMCs included, for example, diagnosis and treatment of depression, substance use disorders, PTSD, and serious mental illness. All of the VAMCs we visited had one or more providers with training in evidence-based therapies for the treatment of PTSD and depression. All but one of the VAMCs we visited offered at least one women-only counseling group. Two VAMCs offered outpatient treatment programs specifically for women who have experienced MST or other traumas. In addition, several VAMCs offered services during evening hours at least 1 day a week. While most outpatient mental health services were available on site, facilities typically fee-based treatment for a veteran with an active eating disorder to non-VA providers. Similarly, the eight Vet Centers we visited offered a variety of outpatient mental health services, including counseling services for PTSD and depression, as well as individual or group counseling for victims of sexual trauma. Five of the eight Vet Centers we visited offered women-only groups, and six had counselors with training or experience in treating patients who have suffered sexual trauma. Vet Centers generally offered some counseling services in the evenings. The outpatient mental health services available in CBOCs were, in some cases, more limited. The two larger CBOCs offered women-only group counseling as well as intensive treatment programs specifically for women who had experienced MST or other traumas, and two other CBOCs offered women-only group counseling. The smaller CBOCs, however, tended to rely on staff from the affiliated VAMC, often through telehealth, to provide mental health services. Five CBOCs provided some mental health services through telehealth or using mental health providers from the VAMC that traveled to the CBOCs on specific days. While most VAMCs offer mixed-gender residential mental health treatment programs or inpatient psychiatric services, few have specialized programs for women veterans. Eight of the nine VAMCs we visited served women veterans in mixed-gender inpatient psychiatric units, mixed-gender residential treatment programs, or both. Two VAMCs had residential treatment programs specifically for women who have experienced MST and other traumas. (VA has ten of these programs nationally.) None of the VAMCs had dedicated inpatient psychiatric units for women. VA providers at some facilities expressed concerns about the privacy and safety of women veterans in mixed-gender inpatient and residential environments. For example, in the residential treatment programs, beds for women veterans were separated from other areas of the building by keyless entry systems. However, female residents in some of these programs shared common areas, such as the dinning room, with male residents, and providers expressed concerns that women who were victims of sexual trauma might not feel comfortable in such an environment. The extent to which VA medical facilities we visited were following VA policies that apply to the delivery of health care services for women veterans varied, but none of the facilities had fully implemented VA policies pertaining to women veterans' health care. In particular, none of the VAMCs or CBOCs we visited were fully compliant with VA policy requirements related to privacy for women veterans. In addition, the facilities we visited were in various stages of implementing VA's new initiative on comprehensive primary care: most medical facilities had at least one provider that could deliver comprehensive primary care services to women veterans, although not all of these facilities were routinely assigning women veterans to these providers. Officials at some VA facilities reported that they were unclear about the specific steps they would need to take to meet VA's definition of comprehensive primary care for women veterans. All facilities were fully compliant with at least some of VA's privacy requirements; however, we documented observations in many clinical settings where facilities were not following one or more requirements. Some common areas of noncompliance included the following: Visual and auditory privacy at check-in. None of the VAMCs or CBOCs we visited ensured adequate visual and auditory privacy at check-in in all clinical settings that are accessed by women veterans. In most clinical settings, check-in desks or windows were located in a mixed-gender waiting room or on a high-traffic public corridor. In some locations, the check-in area was located far enough away from the waiting room chairs that patients checking in for appointments could not easily be overheard. In a total of 12 outpatient clinical settings at six VAMCs and five CBOCs, however, check-in desks were located in close proximity to chairs where other patients waited for their appointments. At one CBOC, we observed a line forming at the check-in window, with several people waiting directly behind the patient checking in, demonstrating how privacy can be easily violated at check-in. Orientation of exam tables. In exam rooms where gynecological exams are conducted, only one of the nine VAMCs and two of the eight CBOCs we visited were fully compliant with VA's policy requiring exam tables to face away from the door. In many clinical settings that were not fully compliant at the remaining facilities, we observed that exam tables were oriented with the foot of the table facing the door, and in two CBOCs where exam tables were not properly oriented, there was no privacy curtain to help assure visual privacy during women veterans' exams. At one of these CBOCs, a noncompliant exam room was also located within view of a mixed-gender waiting room. Figure 1 shows the correct and incorrect orientation of exam tables in two gynecological exam rooms at two VA medical facilities. Restrooms adjacent to exam rooms. Only two of the nine VAMCs and one of the eight CBOCs we visited were fully compliant with VA's requirement that exam rooms where gynecological exams are conducted have immediately adjacent restrooms. In most of the outpatient clinics we toured, a woman veteran would have to walk down the hall to access a restroom, in some cases passing through a high-traffic public corridor or a mixed-gender waiting room. Access to private restrooms in inpatient and residential units. At four of the nine VAMCs we visited, proximity of private restrooms to women's rooms on inpatient or residential units was a concern. In one mixed-gender inpatient medical/surgical unit, two mixed-gender residential units, and one all-female residential unit, women veterans were not guaranteed access to a private bathing facility and may have had to use a shared or congregate facility. In two of these four settings, access to the shared restroom was not restricted by a lock or a keycard system, raising concerns about the possibility of intrusion by male patients or staff while a woman veteran is showering or using the restroom. Availability of sanitary products in public restrooms. At seven of the nine VAMCs and all 10 of the CBOCs we visited, we did not find sanitary napkins or tampons available in dispensers in any of the public restrooms. VA has not set a deadline by which all VAMCs and CBOCs are required to implement VA's new comprehensive primary care initiative for women veterans, which would allow women veterans to obtain both primary care and basic gender-specific services from one provider at one site. Officials at the VA medical facilities we visited since the comprehensive primary care for women veterans initiative was introduced reported that they were at various stages of implementing the new initiative. Officials at 6 of the 7 VAMCs and 6 of the 8 CBOCs we visited since November 2008--when VA adopted this initiative--reported that they had at least one provider who could deliver comprehensive primary care services to women veterans. However, some of the medical facilities we visited reported that they were not routinely assigning women veterans to comprehensive primary care providers. Officials at some medical facilities we visited were unclear about the steps needed to implement VA's new policy on comprehensive primary care for women veterans. For example, at one VAMC, primary care was offered in a mixed-gender primary care clinic and basic gender-specific services were offered by a separate appointment in the gynecology clinic, sometimes on the same day. The new comprehensive primary care initiative would require both primary care and basic gender specific services to be available on the same day, during the same appointment. Officials at this facility said that they were in the process of determining whether they can adapt their current model to meet VA's comprehensive primary care standard by placing additional primary care providers in the gynecology clinic so that both primary care services and basic gender- specific services could be offered during the same appointment, in one location. Facility officials were uncertain about whether it would meet VA's comprehensive primary care standard if primary care and basic gender-specific services were still delivered by two different providers. However, VA's comprehensive primary care policy is clear that the care is to be delivered by the same provider. Another area of uncertainty is the breadth of experience a provider would need to meet VA's comprehensive primary care standard. Officials from VA headquarters have made it clear that it is their expectation that comprehensive primary care providers have a broad understanding of basic women's health issues--including initial evaluation and treatment of pelvic and abdominal pain, menopause management, and the risks associated with prescribing certain drugs to pregnant or lactating women. However, in one location, we found that the only provider who was available to deliver comprehensive primary care may not have had the proficiency to deliver the broad array of services that are included in VA's definition, because the facility serves a very low volume of women veterans and opportunities to practice delivering some basic gender-specific services are limited. VA officials at medical facilities we visited identified a number of key challenges in providing health care services to women veterans. These challenges include physical space constraints that affect the provision of care, including problems complying with patient privacy requirements, and difficulties hiring providers that have specific experience and training in women's health, as well as hiring mental health providers with expertise in treating veterans with PTSD and who have experienced MST. Officials at some VA medical facilities also reported implementation issues in establishing the WVPM as a full-time position. Officials at VA medical facilities we visited reported that space constraints have raised issues affecting the provision of health care services to women veterans. In particular, officials at 7 of 9 VAMCs and 5 of 10 CBOCs we visited said that space issues, such as the number, size, or configuration of exam rooms or bathrooms at their facilities sometimes made it difficult for them to comply with some VA requirements related to privacy for women veterans. At some of the medical facilities we visited, officials raised concerns about busy waiting rooms and the limited space available to provide separate waiting rooms for patients who may not feel comfortable in a mixed-gender waiting room, particularly women veterans who have experienced MST. Officials at one CBOC said they received complaints from women veterans who preferred a separate waiting room. At this facility, space challenges that affected privacy were among the factors that led to the relocation of mental health services to a separate off-site clinic. VA facility officials told us that some of the patient bedrooms at two VAMC mixed-gender inpatient psychiatric units that were usually designated for female patients were located in space that could not be adequately monitored from the nursing station. VA policy requires that all inpatient care facilities provide separate and secured sleeping accommodations for women and that mixed-gender units must ensure safe and secure sleeping arrangements, including, but not limited to, the ability to monitor the patient bedrooms from the nursing station. VA facility officials also told us they have struggled with space constraints as they work to comply with VA's new policy on comprehensive primary care for women and the requirements in the September 2008 Uniform Mental Health Services in VA Medical Centers and Clinics, as well as the increasing numbers of women veterans requesting these services. For example, officials at a VAMC said that limitations in the number of primary care exam rooms at their facilities made it difficult for providers to deliver comprehensive primary care services in an efficient and timely manner. Providers explained that having only one exam room per primary care provider prevents them from "multitasking," or moving back and forth between exam rooms while patients are changing or completing intake interviews with nursing staff. Similarly, mental health providers at a medical facility said that they often shared offices, which limits the number of counseling appointments they could schedule, and primary care providers sometimes have two patients in a room at the same time separated by a curtain during the intake or screening process. In addition, at one VAMC, officials reported that the facility needed to be two to three times its current size to accommodate increasing patient demand. VA officials are aware of these challenges and VA is taking steps to address them, such as funding construction projects, moving to larger buildings, and opening additional CBOCs. However, some of these projects will not be finished for a few years. In the interim, officials said, some facilities are leasing additional space or contracting some services to community providers. VA facility officials reported difficulties hiring primary care providers with specific training and experience in women's health. VA's comprehensive primary care initiative requires that women veterans have access to a designated women's health primary care provider that is "proficient, interested, and engaged" in delivering services to women veterans. The new policy requires that this primary care provider fulfill a broad array of health care services including, but not limited to detection and management of acute and chronic illness, such as osteoporosis, thyroid disease, and cancer of the breast, cervix, and lung; gender-specific primary care such as sexuality, pharmacologic issues related to pregnancy and lactation, and vaginal infections; preventive care, such as cancer screening and weight management; mental health services such as screening and referrals for MST, as well as evaluation and treatment of uncomplicated mental health disorders and substance use disorders; and coordination of specialty care. Officials at some facilities we visited told us that they would like to hire more providers with the required knowledge and experience in women's health, but struggle to do so. For example, at one VAMC, officials reported that they had difficulty filling three vacancies for primary care providers, which they needed to meet the increasing demand for services and to replace staff who had retired. They said it took them a long time to find providers with the skills required to serve the needs of women veterans. Similarly, at one CBOC, officials reported that it takes them about 8 to 9 months to hire interested primary care physicians. Further, officials at some facilities we visited said that they rely on just one or two providers to deliver comprehensive primary care to women veterans. This is a concern to the officials because, should the provider retire or leave VA, the facility might not be able to replace them relatively quickly in order to continue to provide comprehensive primary care services to women veterans on site. VA officials have acknowledged some of the challenges involved in training additional primary care providers to meet their vision of delivering comprehensive primary care to women veterans. A November 2008 report on the provision of primary care to women veterans cites insufficient numbers of clinicians with specific training and experience in women's health issues among the challenges VA faces in implementing comprehensive primary care. To help address the knowledge gap, VA is using "mini-residency" training sessions on women's health. These training sessions--which VA designed to enhance the knowledge and skills of primary care providers--consist of two and one-half days of case-based learning and hands-on training in gender-specific health care for women. During the mini-residency, providers receive specific training in performing pelvic examinations, cervical cancer screenings, clinical breast examinations, and other relevant skills. VA medical facility and Vet Center officials reported challenges hiring psychiatrists, psychologists, and other mental health staff with specialized training or experience in treating PTSD and MST. Medical facility officials often noted that there is a limited pool of qualified psychiatrists and psychologists, and a high demand for these professionals both in the private sector and within VA. In addition, two officials reported that because it is difficult to attract and hire mental health professionals with experience in treating the veteran population, some medical facilities have hired younger, less experienced providers. These officials noted that while younger providers may have the appropriate education and training in some evidence-based psychotherapy treatment methods that are recommended for treating PTSD and MST, they often lack practical experience treating a challenging patient population. Some officials reported that staffing and training challenges limit the types of group or individual mental health treatment services that VA medical facilities and Vet Centers can offer. For example, officials at one VAMC said that they had problems attracting qualified mental health providers to work at its affiliated CBOCs. The facility posted announcements for psychiatrist and psychologist positions, but sometimes received no applications. Because the facility has not been able to recruit mental health providers, it relies on contract providers and fee-basing to deliver mental health services to veterans in its service area. At one Vet Center, officials told us that because none of their counselors have been trained to counsel veterans who have experienced MST, patients seeking counseling for MST are usually referred to the nearby CBOC or VAMC. At one CBOC, a licensed social worker reported that he provides individual counseling for about seven women who have experienced MST, even though he has limited training in this area. He said that this situation was not ideal, but said that he consults with mental health providers at the associated VAMC on some of these cases, and that without his services some of these women might not receive any counseling. VA officials told us that they are aware of the challenges involved in finding clinical staff with specialized training and experience in working with veterans who have PTSD or have experienced MST. A VA official told us that as part of a national effort to enhance mental health providers' knowledge of clinically effective treatment methods and make these methods available to veterans, VA has developed evidenced-based psychotherapy training for VA mental health staff. In particular, CPT, PE, and ACT are evidence-based treatment therapies for PTSD and also commonly used by providers who work with patients who have experienced MST. A VA headquarters official who is responsible for these training programs told us that as of May 4, 2009, 1,670 VA clinicians had completed VA-provided training in evidence-based therapies. Although VA is providing training in these evidence-based therapies, VA officials stated that this training is not mandatory for VA mental health providers who work with patients who have PTSD or have experienced M ST. Some VA officials expressed concerns that certain aspects of the new policy making the WVPM a full-time position may have the unintended consequence of discouraging clinicians from applying for or staying in the position, potentially leading to the loss of experienced WVPMs. One concern that some WVPMs raised during our interviews was that they were interested in performing clinical duties beyond the minimum required to maintain their professional certification, but would not be able to do so under the new policy. The new policy limits a WVPM's clinical duties to the minimum required to maintain professional certification, licensure, or privileges, typically no more than 5 hours per week. Another concern was that the change to full-time status could result in a reduction in salary for some clinicians because the position could be classified as an administrative position, depending on how the policy is implemented at the VAMC. At two VAMCs we visited, such concerns had discouraged the incumbent WVPM from accepting the full-time position. VA headquarters officials told us that they are aware of and have expressed their concerns to VA senior headquarters officials about unintended consequences of the new policy. VA headquarters officials provided VISN and VAMC leadership with some options that they could use to help avoid or minimize the potential loss of experienced WVPMs. For example, one option that could be approved on a case-by-case basis is to use a job-sharing arrangement that would allow the incumbent WVPM and another person to each dedicate 50 percent of their time to the WVPM position, performing clinical duties the other 50 percent, in order to transition staff into the full-time position or as a succession planning effort. VA headquarters officials said that action on this issue was important because VA does not have the time or resources to train new staff to replace experienced WVPMs who may leave their positions. Mr. Chairman, this completes my prepared remarks. I would be happy to respond to any questions you or other Members of the committee have at this time. For further information about this testimony, please contact Randall Williamson at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made major contributions to this testimony are listed in appendix II. We selected locations for our site visits using VA data on each VA medical center (VAMC) in the United States. Our goal was to identify a geographically diverse mix of facilities, including some facilities that provide services to a high volume of women veterans, particularly women veterans of Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF); some facilities that serve a high proportion of National Guard or Reserve veterans; and some facilities that serve rural veterans. We also considered whether VAMCs had programs specifically for women veterans, particularly treatment programs for post-traumatic stress disorder (PTSD) and for women who have experienced military sexual trauma (MST). For each of the factors listed below, we examined available facility- or market-level data to identify facilities of interest: total number of unique women veteran patients using the VAMC; total number of unique OEF/OIF women veteran patients using the VAMC; proportion of unique women veterans using the VAMC who are OEF/OIF proportion of unique OEF/OIF women veterans using the VAMC who were discharged from the National Guard or Reserves; within the VA-defined market area for the VAMC, the proportion of women veterans who use VA health care and live in rural or highly rural areas; and availability of on-site programs specific to women veterans, such as inpatient or residential treatment programs that offer specialized treatment for women veterans with PTSD or who have experienced MST, including programs that are for women only or have an admission cycle that includes only women; and outpatient treatment teams with a specialized focus on MST. We selected a judgmental sample of the VAMCs that fell into the top 25 facilities for at least two of these factors. Once we had selected these VAMCs, we also selected at least one community-based outpatient clinic (CBOC) affiliated with each of the VAMCs and one nearby Vet Center, which we also visited during our site visits. In selecting these CBOCs and Vet Centers, we focused on selecting facilities that represented a range of sizes, in terms of the number of women veterans they served. Tables 5 and 6 provide information on the unique number of women veterans served by each of the VAMCs and CBOCs we selected for site visits. In addition to the contact named above, Marcia A. Mann, Assistant Director; Susannah Bloch; Chad Davenport; Alexis MacDonald; and Carmen Rivera-Lowitt made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Historically, the vast majority of VA patients have been men, but that is changing. VA provided health care to over 281,000 women veterans in 2008--an increase of about 12 percent since 2006--and the number of women veterans in the United States is projected to increase by 17 percent between 2008 and 2033. Women veterans seeking care at VA medical facilities need access to a full range of health care services, including basic gender-specific services--such as cervical cancer screening--and specialized gender-specific services--such as treatment of reproductive cancers. This testimony, based on ongoing work, discusses GAO's preliminary findings on (1) the on-site availability of health care services for women veterans at VA facilities, (2) the extent to which VA facilities are following VA policies that apply to the delivery of health care services for women veterans, and (3) key challenges that VA facilities are experiencing in providing health care services for women veterans. GAO reviewed applicable VA policies, interviewed officials, and visited 19 medical facilities--9 VA medical centers (VAMC) and 10 community-based outpatient clinics (CBOC)--and 8 Vet Centers. These facilities were chosen based in part on the number of women using services and whether facilities offered specific programs for women. The results from these site visits cannot be generalized to all VA facilities. GAO shared this statement with VA officials, and they generally agreed with the information presented. The VA facilities GAO visited provided basic gender-specific and outpatient mental health services to women veterans on site, and some facilities also provided specialized gender-specific or mental health services specifically designed for women on site. Basic gender-specific services, including pelvic examinations, were available on site at all nine VAMCs and 8 of the 10 CBOCs GAO visited. Almost all of the medical facilities GAO visited offered women veterans access to one or more female providers for their gender-specific care. The availability of specialized gender-specific services for women, including treatments after abnormal cervical cancer screenings and breast cancer, varied by service and facility. All VA medical facilities refer female patients to non-VA providers for obstetric care. Some of the VAMCs GAO visited offered a broad array of other specialized gender-specific services on site, but all contracted or fee-based at least some services. Among CBOCs, the two largest facilities GAO visited offered an array of specialized gender-specific care on site; the other eight referred women to other VA or non-VA facilities for most of these services. Outpatient mental health services for women were widely available at the VAMCs and most Vet Centers GAO visited, but were more limited at some CBOCs. While the two larger CBOCs offered group counseling for women and services specifically for women who have experienced sexual trauma in the military, the smaller CBOCs tended to rely on VAMC staff, often through videoconferencing, to provide mental health services. The extent to which the VA medical facilities GAO visited were following VA policies that apply to the delivery of health care services for women veterans varied, but none of the facilities had fully implemented these policies. None of the VAMCs and CBOCs GAO visited were fully compliant with VA policy requirements related to privacy for women veterans in all clinical settings where those requirements applied. For example, many of the medical facilities GAO visited did not have adequate visual and auditory privacy in their check-in areas. Further, the facilities GAO visited were in various stages of implementing VA's new initiative to provide comprehensive primary care for women veterans, but officials at some VAMCs and CBOCs reported that they were unclear about the specific steps they would need to take to meet the goals of the new policy. Officials at facilities that GAO visited identified a number of challenges they face in providing health care services to the increasing numbers of women veterans seeking VA health care. One challenge was that space constraints have raised issues affecting the provision of health care services. For example, the number, size, or configuration of exam rooms or bathrooms sometimes made it difficult for facilities to comply with VA requirements related to privacy for women veterans. Officials also reported challenges hiring providers with specific training and experience in women's health care and in mental health care, such as treatment for women veterans with post-traumatic stress disorder or who had experienced military sexual trauma.
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The D.C. Family Court Act of 2001 fundamentally changed the way the Superior Court handled its family cases. One of the central organizing principles for establishing the Family Court was the one family/one judge case management concept, whereby the same judge handles all matters related to one family. To support the implementation of the Family Court a total of about $30 million in federal funds was budgeted to fund the Family Court's transition from fiscal years 2002 through 2004. Several federal and District laws set timeframes for handling abuse and neglect proceedings. The D.C. Family Court Act of 2001, which consolidated all abuse and neglect cases in the Family Court, required that all pending abuse and neglect cases assigned to judges outside the Family Court be transferred to the Family Court by October 2003. Additionally, ASFA requires each child to have a permanency hearing within 12 months of the child's entry into foster care, defined as the earlier of the following two dates: (1) the date of the first judicial finding that the child has been subjected to child abuse or neglect or (2) the date that is 60 days after the date on which the child is removed from the home. The purpose of the permanency hearing is to decide the goal for where the child will permanently reside and set a timetable for achieving the goal. Permanency may be accomplished through reunification with a parent, adoption, guardianship, or some other permanent placement arrangement. To ensure that abuse and neglect cases are properly managed, the Council for Court Excellence, at the request of Congress, evaluates Family Court data on these cases. It is important that District social service agencies and the Family Court receive and share information they need on the children and families they serve. For example, CFSA caseworkers need to know from the court the status of a child's case, when a hearing is scheduled, and a judge's ruling. The Family Court needs case history information from caseworkers, such as whether services have been provided and if there is evidence of abuse or neglect. According to District officials, current plans to exchange information between the Superior Court and District agencies and among District agencies are estimated to cost about $66 million, of which about $22 million would support initiatives outlined in the Mayor's plan issued in July 2002. According to District officials, about $36 million of the $66 million would come from capital funds that are currently available; however, they would need to seek additional funding for the remaining $30 million. The Superior Court's total cost for the system it is using to help the Court better manage its caseload and automate the exchange of data with District agencies--the Integrated Justice Information System (IJIS)-- is expected to be between $20 million and $25 million, depending on the availability of funds for project-related infrastructure improvements and other project initiatives. Funding for this project is being made available through the capital budget of the D.C. Courts, which is comprised of all components of the District's judiciary branch. The Family Court met established timeframes for transferring cases into the Family Court and decreased the timeframes for resolving abuse and neglect cases. While the D.C. Family Court Act of 2001 generally required the transfer of abuse and neglect cases to the Family Court by October 2003, it also permitted judges outside the Family Court to retain certain abuse and neglect cases provided that their retention of cases met criteria specified in the D.C. Family Court Act of 2001. Specifically, these cases were to remain at all times in full compliance with ASFA, and the Chief Judge of the Superior Court must determine that the retention of the case would lead to a child's placement in a permanent home more quickly than if the case were to be transferred to a judge in the Family Court. In its October 2003 progress report on the implementation of the Family Court, the Superior Court reported that it had transferred all abuse and neglect cases back to the Family Court, with the exception of 34 cases, as shown in table 1. The Chief Judge of the Superior Court said that, as of August 2003, a justification for retaining an abuse and neglect case outside the Family Court had been provided in all such cases. According to the Superior Court, the principal reason for retaining abuse and neglect cases outside the Family Court was a determination made by non-Family Court judges that the cases would close before December 31, 2002, either because the child would turn 21, and thus no longer be under court jurisdiction, or because the case would close with a final adoption, custody, or guardianship decree. In the court's October 2003 progress report, it stated that the cases remaining outside the Family Court involve children with emotional or educational disabilities. While the Superior Court reported that 4 of the 34 abuse and neglect cases remaining outside the Family Court had closed subsequent to its October 2003 progress report, children in the remaining 30 cases had not yet been placed in permanent living arrangements. On average, children in these 30 cases are 14 years of age and have been in foster care for 8 years, nearly three times the average number of years in care for a child in the District. Table 2 provides additional information on the characteristics of the 30 cases that remained outside the Family Court as of November 2003. The Superior Court also reported that the Family Court had closed 620 of the 3,255 transferred cases, or 19 percent. Among the transferred cases closed by the Family Court, 77 percent of the 620 cases closed when the permanency goal was achieved following reunification of the child with a parent, adoption, guardianship, or custody of the child by a designated family member or other individual. In most of the remaining transferred cases that had closed, the child had reached the age of majority, or 21 years of age in the District. Table 3 summarizes the reasons for closing abuse and neglect cases transferred to the Family Court, as of October 2003. In addition to transferred cases, the Family Court is responsible for the routine handling of all newly filed cases. For alleged cases of abuse and neglect, complainants file a petition with the Family Court requesting a review of the allegation. After the filing of the petition, the Family Court holds an initial hearing in which it hears and rules on the allegation. Following the initial hearing, the court may resolve the case through mediation or through a pretrial hearing. Depending on the course of action that is taken and its outcome, several different court proceedings may follow to achieve permanency for children, thereby terminating the court's jurisdiction. Family Court abuse and neglect proceedings include several key activities, such as adjudication, disposition, and permanency hearings. Figure 1 shows the flow of abuse and neglect cases through the various case activities handled by the D.C. Family Court. Data provided by the court show that in the last 2 years there has been a decrease in the amount of time to begin an adjudication hearing for children in abuse and neglect cases. Figure 2 shows median times to begin hearings for children removed from their homes and for children not removed from their homes. As required by District law, the court must begin the hearing within 105 days for children removed from their homes and within 45 days for children not removed from their homes. Between 2001 and 2003, the median time to begin adjudication hearings in cases when a child was removed from home declined by 140 days to 28 days, or about 83 percent. Similarly, the decline in timeframes to begin hearings was about as large in cases when children remained in their homes. In these cases, median timeframes declined by about 90 percent during this same period to 12 days. While the reduction in timeframes for these hearings began prior to the establishment of the Family Court, median days to begin hearings for children removed from their homes increased immediately following the court's establishment before declining again. According to two magistrate judges, the increase in timeframes immediately following establishment of the Family Court was attributable to the volume and complexity of cases initially transferred to it. Similarly, timeframes to begin disposition hearings, a proceeding that occurs after the adjudication hearing and prior to permanency hearings, declined between 2001 and 2003, as shown in figure 3. As required by District law, the court must begin disposition hearings within 105 days for children removed from their homes and within 45 days for children not removed from their homes. The median days to begin disposition hearings for children removed from their homes declined by 202 days to 39 days, or about 84 percent, between 2001 and 2003. The median days to begin disposition hearings for children not removed from their homes declined by 159 days to 42 days, or about 79 percent. Therefore, the Superior Court is also within the timeframes required by D.C. law for these hearings. While the decline in the timeframes for disposition hearings began prior to the Family Court, according to two magistrate judges we interviewed, the time required to begin these hearings increased in the 7-month period following the establishment of the Family Court because of the complexity of these cases. Despite declines in timeframes to begin adjudication and disposition hearings, the Family Court has not achieved full compliance with the ASFA requirement to hold permanency hearings within 12 months of a child's placement in foster care. The percentage of cases with timely permanency hearings increased from 25 percent in March 2001 to 55 percent in September 2002, as shown in figure 4. Although the presence of additional magistrate judges, primarily hired to handle cases transferred into the Family Court from other divisions and to improve the court's timeliness in handling its cases, has increased the Family Court's ability to process additional cases in a timelier manner, court officials said that other factors have also improved the court's timeliness. These factors included reminders to judges of upcoming permanency hearing deadlines and the use of uniform court order forms. However, other factors continue to impede the Family Court's full achievement of ASFA compliance. Some Family Court judges have questioned the adequacy of federal ASFA timelines for permanency, citing barriers external to the court, which increase the time required to achieve permanency. Among these external barriers are lengthy waits for housing, which might take up to a year, and the need for parents to receive mental health services or substance abuse treatment before they can reunite with the child. From January through May 2003, Family Court judges reported that parental disabilities, including emotional impairments and treatment needs, most often impeded children's reunification with their parents. In nearly half of these reported instances, the parent needed substance abuse treatment. Procedural impediments to achieving reunification included the lack of sufficient housing to fully accommodate the needs of the reunified family. With regard to adoption and guardianship, procedural impediments included the need to complete administrative requirements associated with placing children with adoptive families in locations other than the District. Financial impediments to permanency included insufficient adoption or guardianship subsidies. Table 4 provides additional details on impediments to achieving permanency goals. Associate judges we interviewed cited additional factors that impeded the achievement of the appropriate foster care placements and timely permanency goals. For example, one judge said that the District's Youth Services Administration inappropriately placed a 16-year old boy in the juvenile justice system because CFSA had not previously petitioned a neglect case before the Family Court. As a result, the child experienced a less appropriate and more injurious placement in the juvenile justice system than what the child would have experienced had he been appropriately placed in foster care. In other cases, an associate judge has had to mediate disputes among District agencies that did not agree with court orders to pay for services for abused and neglected children, further complicating and delaying the process for providing needed services and achieving established permanency goals. To assist the Family Court in its management of abuse and neglect cases, the Family Court transition plan required magistrate judges to preside over abuse and neglect cases transferred from judges in other divisions of the Superior Court, and these judges absorbed a large number of those cases. In addition, magistrate judges, teamed with associate judges under the one family/one judge concept, had responsibility for assisting the Family Court in resolving all new abuse and neglect cases. Both associate and magistrate judges cited other factors that have affected the court's ability to fully implement the one family/one judge concept and achieve the potential efficiency and effectiveness that could have resulted. For example, the Family Court's identification of all cases involving the same child depends on access to complete, timely, and accurate data in IJIS. In addition, Family Court judges said that improvements in the timeliness of the court's proceedings depends, in part, on the continuous assignment of the same caseworker from CFSA to a case and sufficient support of an assigned assistant corporation counsel from the District's Office of Corporation Counsel. Family Court judges said the lack of consistent support from a designated CFSA caseworker and lack of Assistant Corporation counsels, have in certain cases, prolonged the time required to conduct court proceedings. In addition, several judges and court officials told us that they do not have sufficient support personnel to allow the Family Court to manage its caseload more efficiently. For example, additional courtroom clerks and court aids could improve case flow and management in the Family Court. These personnel are needed to update automated data, prepare cases for the court, and process court documentation. Under contract with the Superior Court, Booz Allen Hamilton analyzed the Superior Court's staffing resources and needs; this evaluation found that the former Family Division, now designated as the Family Court, had the highest need for additional full-time positions to conduct its work. Specifically, the analysis found that the Family Court had 154 of the 175 full-time positions needed, or a shortfall of about 12 percent. Two branches--juvenile and neglect and domestic relations--had most of the identified shortfall in full- time positions. In commenting on a draft of the January 2004 report, the Superior Court said that the Family Court, subsequent to enactment of the D.C. Family Court Act of 2001, hired additional judges and support personnel in excess of the number identified as needed in the Booz Allen Hamilton study to meet the needs of the newly established Family Court. However, several branch chiefs and supervisors we interviewed said the Family Court still needed additional support personnel to better manage its caseload. The Superior Court has decided to conduct strategic planning efforts and re-engineer business processes in the various divisions prior to making the commitment to hire additional support personnel. According to the Chief Judge of the Superior Court, intervening activities, such as the initial implementation of IJIS and anticipated changes in the procurement of permanent physical space for the Family Court, have necessitated a reassessment of how the court performs its work and the related impact of its operations on needed staffing. In September 2003, the Superior Court entered into another contract with Booz Allen Hamilton to reassess resource needs in light of the implementation of the D.C. Family Court Act of 2001. According to the Chief Judge of the Superior Court as of April 19, 2004, a final report on these resource needs had not been issued. The working relationship between the Family Court and CFSA has improved; however, Family Court judges and CFSA officials noted several hindrances that constrain their working relationship. They have been working together to address some of these hindrances. For example, the Family Court and CFSA participate in various planning meetings. In addition, Family Court judges and CFSA caseworkers have participated in training sessions together. These sessions provide participants with information about case management responsibilities and various court proceedings, with the intent of improving and enhancing their mutual understanding about key issues. Also, since 2002, Office of Corporation Counsel attorneys have been located at CFSA and work closely with caseworkers--an arrangement that has improved the working relationship between CFSA and the Family Court because the caseworkers and the attorneys are better prepared for court appearances. Further, the Family Court and CFSA communicate frequently about day-to-day operations as well as long-range plans involving foster care case management and related court priorities, and on several occasions expressed their commitment to improving working relationships. To help resolve conflicts about ordering services, Family Court judges and CFSA caseworkers have participated in sessions during which they share information about their respective concerns, priorities, and responsibilities in meeting the needs of the District's foster care children and their families. Additionally, CFSA assigned a liaison representative to the Family Court who is responsible for working with other District agency liaison representatives to assist social workers and case managers in identifying and accessing court-ordered services for children and their families at the Family Court. The D.C. Family Court Act of 2001 required the District's Mayor to ensure that representatives of appropriate offices, which provide social services and other related services to individuals and families served by the Family Court, are available on-site at the Family Court to coordinate the provision of such services. A monthly schedule shows that CFSA, the D.C. Department of Health, the D.C. Housing Authority, the D.C. Department of Mental Health, Youth Services Administration, and the D.C. Public Schools have representatives on-site. However, the Department of Human Services, the Metropolitan Police Department, and the Income Maintenance Administration are not on-site but provide support from off- site locations. According to data compiled by the liaison office, from February 2003 to March 2004, the office made 781 referrals for services. Of these referrals, 300 were for special education services, 127 were for substance abuse services and 121 were related to housing needs. Hindrances that constrain the working relationship between the Family Court and CFSA include the need for caseworkers to balance court appearances with other case management duties, an insufficient number of caseworkers, caseworkers who are unfamiliar with cases that have been transferred to them, and differing opinions about the responsibilities of CFSA caseworkers and judges. For example, although CFSA caseworkers are responsible for identifying and arranging services needed for children and their families, some caseworkers said that some Family Court judges overruled their service recommendations. Family Court judges told us that they sometimes made decisions about services for children because they believe caseworkers did not always recommend appropriate ones or provide the court with timely and complete information on the facts and circumstances of the case. Furthermore, the Presiding Judge of the Family Court explained that it was the judges' role to listen to all parties and then make the best decisions by taking into account all points of view. The D.C. Courts, comprised of all components of the District's judiciary branch, has made progress in procuring permanent space for the Family Court, but all Family Court operations will not be consolidated under the current plan. To prepare space for the new Family Court, the D.C. Courts designated and redesigned space for the Family Court, constructed chambers for the new magistrate judges and their staff, and relocated certain non-Family Court-related components in other buildings, among other actions. The first phase of the Family Court construction project, scheduled for completion in July 2004, will consolidate Family Court support services and provide additional courtrooms, hearing rooms, and judges' chambers. In addition, the project will provide an expanded Mayor's Liaison Office, which coordinates Family Court services for families and provides families with information on such services, and a new family waiting area, among other facilities. However, completion of the entire Family Court construction project, scheduled for late 2009, will require the timely completion of renovations in several court buildings located on the Judiciary Square Campus. Because of the historic nature of some of these buildings, the Superior Court must obtain necessary approvals for exterior modifications from various regulatory authorities, including the National Capital Planning Commission. In addition, some actions may require environmental assessments and their related formal review process. While many of the Family Court operations will be consolidated in the new space, several court functions will remain in other areas. According to the Chief Judge of the Superior Court, the new space will consolidate all public functions of the Family Court and 76 percent of the support functions and associated personnel. The current Family Court space plan is an interim plan leading to a larger plan, intended to fully consolidate all Family Court and related operations in one location, for which the D.C. Courts has requested $6 million for fiscal year 2005 to design Family Court space and $57 million for fiscal year 2006 to construct court facilities. If the D.C. Courts does not receive funding for the larger Family Court space plan, it will continue with the current interim plan. The Superior Court and the District of Columbia are exchanging some data and making progress toward developing a broader capability to share data among their respective information systems. In August 2003, the Superior Court began using IJIS to automate the exchange of data with District agencies, such as providing CFSA and the Office of the Corporation Counsel with information on the date, time, and location of scheduled court proceedings. CFSA managers said that scheduling of court hearings has improved. Scheduling information allows caseworkers to plan their case management duties such that they do not conflict with court appearances. Further, the District's Office of the Chief Technology Officer (OCTO), responsible for leading the information technology development for the District's data exchange effort, has developed a prototype, or model, to enable the exchange of data among the police department, social service agencies, and the Superior Court. While the District has made progress, it has not yet fully addressed or resolved several critical issues we reported in August 2002. These issues include the need to specify the integration requirements of the Superior Court and District agencies and to resolve privacy restrictions and data quality issues among District agencies. The District is preparing plans and expects to begin developing a data sharing capability and data warehouses to enable data sharing among CFSA, the Department of Human Services' Youth Services Administration, the Department of Mental Health, and the Family Court in 2004. According to the Program Manager, OCTO will work to resolve the issues we raised in our August 2002 report and incorporate the solutions into its plans. While the Superior Court, the Family Court, and the District have made progress in implementing the D.C. Family Court Act of 2001, several issues continue to affect the court's progress in meeting all requirements of the act. Several barriers, such as a lack of substance abuse services, hinder the court's ability to more quickly process cases. While the Superior Court and the District have made progress in exchanging information and building a greater capability to perform this function, it remains paramount that their plans fully address several critical issues we previously reported and our prior recommendations. Finally, while progress has been made in enhancing the working relationship between the Family Court and CFSA, this is an area that requires continuous vigilance and improvement in order to ensure the safety and well being of the District's children and families. Mr. Chairman, this concludes my prepared statement. I will be happy to respond to any questions you or other members of the committee may have. For further information regarding this testimony, please contact Cornelia M. Ashby at (202) 512-8403. Individuals making key contributions to this testimony include Carolyn M. Taylor, Anjali Tekchandani, and Mark E. Ward. D.C. Family Court: Progress Has Been Made in Implementing Its Transition. GAO-04-234. Washington, D.C.: January 6, 2004. D.C. Child and Family Services: Better Policy Implementation and Documentation of Related Activities Would Help Improve Performance. GAO-03-646. Washington, D.C.: May 27, 2003. D.C. Child and Family Services: Key Issues Affecting the Management of Its Foster Care Cases. GAO-03-758T. Washington, D.C.: May 16, 2003. District of Columbia: Issues Associated with the Child and Family Services Agency's Performance and Policies. GAO-03-611T. Washington, D.C.: April 2, 2003. District of Columbia: More Details Needed on Plans to Integrate Computer Systems With the Family Court and Use Federal Funds. GAO- 02-948. Washington, D.C.: August 7, 2002. Foster Care: Recent Legislation Helps States Focus on Finding Permanent Homes for Children, but Long-Standing Barriers Remain. GAO-02-585. Washington, D.C.: June 28, 2002. D. C. Family Court: Progress Made Toward Planned Transition and Interagency Coordination, but Some Challenges Remain. GAO-02-797T. Washington, D.C.: June 5, 2002. D. C. Family Court: Additional Actions Should Be Taken to Fully Implement Its Transition. GAO-02-584. Washington, D.C.: May 6, 2002. D. C. Family Court: Progress Made Toward Planned Transition, but Some Challenges Remain. GAO-02-660T. Washington, D.C.: April 24, 2002. D. C. Courts: Disciplined Processes Critical to Successful System Acquisition. GAO-02-316. Washington, D.C.: February 28, 2002. District of Columbia Child Welfare: Long-Term Challenges to Ensuring Children's Well-Being. GAO-01-191. Washington, D.C.: December 29, 2000. Foster Care: Status of the District of Columbia's Child Welfare System Reform Efforts. GAO/T-HEHS-00-109. Washington, D.C.: May 5, 2000. Foster Care: States' Early Experiences Implementing the Adoption and Safe Families Act. GAO/HEHS-00-1. Washington, D.C.: December 22, 1999. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Family Court, established by the D.C. Family Court Act of 2001, was created in part to transition the former Family Division of the D.C. Superior Court into a court solely dedicated to matters concerning children and families. The act required the transfer of abuse and neglect cases by October 2003 and the implementation of case management practices to expedite their resolution in accordance with timeframes established by the Adoptions and Safe Families Act of 1997 (ASFA); a plan for space, equipment, and other needs; and that the Superior Court integrate its computer systems with those of other D.C. agencies. The act also reformed court practices and established procedures intended to improve interactions between the court and social service agencies in the District. One such agency, the Child and Family Services Agency (CFSA), is responsible for protecting children at risk of abuse and neglect and ensuring that services are provided for them and their families. Both social service agencies and the courts play an important role in addressing child welfare issues. Representative Tom Davis, Chairman of the House Committee on Government Reform, asked GAO to assess the Family Court's efforts to comply with ASFA requirements and the D.C. Family Court Act of 2001, and its efforts to improve communication with CFSA. The Family Court met timeframes for transferring cases and decreased the timeframes for resolving abuse and neglect cases. As of October 2003, only 34 of the approximately 3,500 cases that were to be transferred to the Family Court from other divisions of the Superior Court remained outside the Family Court. For children removed from their homes, the median days to begin disposition hearings declined by 202 days to 39 days, or about 84 percent between 2001 and 2003. However, the Family Court has not met the ASFA requirement to hold permanency hearings within 12 months of a child's placement in foster care for all cases. Timely permanency hearings were held for 25 percent of cases in March 2001 and 55 percent in September 2002. Support from Family Court judges and top CFSA management has been a key factor in improving the working relationship between CFSA and the Family Court. However, Family Court judges and CFSA officials noted several hindrances that constrain their working relationship. For example, some CFSA caseworkers said that some Family Court judges overruled their service recommendations. Progress has also been made in acquiring permanent space for the Family Court and exchanging data with District agencies. According to the Chief Judge of the Superior Court, all public functions of the Family Court and 76 percent of the support functions will be consolidated in the new space. The construction project is scheduled for completion in 2009 and will require timely renovations in existing court buildings. To comply with the D.C. Family Court Act of 2001, the Superior Court and the District are exchanging some data and making progress toward developing the ability to exchange other data. In August 2003, the Superior Court began using a new computer system and is providing CFSA with information on scheduled court proceedings. Further, the District has developed a model to enable the exchange of data among several District agencies, but it has not yet resolved many critical systems issues.
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Since 1955, the executive branch has encouraged federal agencies to obtain commercially available goods and services from the private sector when the agency determines it is cost-effective. However, in the past, both the private and public sectors expressed concern about the fairness with which these sourcing decisions were made. In response, Congress in 2000 mandated a study of government sourcing conducted by the Commercial Activities Panel and chaired by the Comptroller General. In April 2002, the panel released its report with recommendations that stressed the importance of linking sourcing policy with agency missions, promoting sourcing decisions that provide value to the taxpayer regardless of the service provider selected, and ensuring greater accountability for performance. For example, the panel found that federal sourcing policy should: support agency missions, goals, and objectives; be consistent with human-capital practices designed to attract, motivate, retain, and reward a high-performing federal workforce; recognize that inherently governmental functions and certain others should be performed by federal workers; avoid arbitrary full-time equivalent or other arbitrary numerical goals; and provide for accountability in all sourcing decisions. Government contracting has more than doubled to reach over $500 billion annually since the panel issued its report. This increased reliance on contractors to perform agency missions increases the risk that government decisions can be influenced by contractor employees, which can result in a loss of control and accountability. Agencies buy services that range from basic operational support, such as custodial and landscaping, to more complex professional and management support services, which may closely support inherently governmental functions. Such services include acquisition support, budget preparation, and intelligence services. Our work at DOD and the Department of Homeland Security (DHS) has found that it is now commonplace for agencies to use contractors to perform activities historically performed by government employees. Inherently governmental functions require discretion in applying government authority or value judgments in making decisions for the government, and as such they should be performed by government employees, not private contractors. The closer contractor services come to supporting inherently governmental functions, the greater this risk of influencing the government's control over and accountability for decisions that may be based, in part, on contractor work. In part to address the increased reliance on contractors, the Fiscal Year 2008 National Defense Authorization Act required DOD to develop and implement insourcing guidelines. In April 2008, DOD issued its initial insourcing guidelines, and on May 28, 2009, DOD issued implementing guidance for the insourcing of contracted services. The guidance is designed to assist DOD components as they develop and execute plans to decrease funding for contractor support and increase funding for new civilian manpower authorizations. Similarly, the Omnibus Appropriations Act of 2009, required the heads of executive branch agencies to devise and implement insourcing guidelines and procedures. The guidelines and procedures were to ensure that "consideration" was given to using, on a regular basis, federal employees to perform new functions and functions that are performed by contractors and could be performed by federal employees. In July 2009, OMB issued guidance for agencies to begin the process of developing and implementing policies, practices, and tools for managing the multisector workforce. This guidance included insourcing criteria intended to provide the civilian agencies with a framework for consistent and sound application of insourcing guidance, in accordance with statutory requirements. The criteria consisted of four sections: (1) general management responsibilities; (2) general consideration of federal employee performance; (3) special consideration of federal employee performance; and (4) restriction on the use of public-private competition. Each criterion addresses different aspects of the mandate for insourcing guidelines and procedures and describes circumstances and factors agencies should consider when identifying opportunities for insourcing. (See app. I for a more detailed description of OMB's insourcing criteria.) Additionally, the guidance, as part of a planning pilot, requires each agency to conduct a multisector human-capital analysis of an organization, program, project, or activity where there are concerns about reliance on contractors and report on the pilot by May 1, 2010. In response to the mandate in the 2009 Omnibus Appropriations Act, we reviewed the status of civilian agencies' efforts to develop and implement insourcing guidance. We reported in October 2009 that none of the nine civilian agencies we met with between July and October 2009 had met the statutory deadline to produce insourcing guidance. One agency had issued preliminary guidelines, and two others had drafted but not issued their guidelines as of our review, but most of the agencies' efforts were still in the early stages. For example, two of the nine agencies reviewed at the time had designated the offices responsible for leading the effort to develop the guidelines and were in the process of deciding what approach they would take. In contrast, two other agencies had drafted guidelines, with one waiting on management approval to issue them and the other planning to finalize its guidelines once OMB issued additional guidance regarding outsourcing and inherently governmental functions. Agency officials cited a number of reasons as to why they did not meet the statutory deadline and had not issued final insourcing guidelines. The reasons included, but were not limited to the following: Wanting to ensure their guidelines were consistent with OMB's guidance, issued in July 2009, which caused them to delay finalizing or drafting their guidelines. Waiting for additional OMB guidance and clarification regarding outsourcing and inherently governmental functions. Several officials stated that they anticipated this guidance would have a significant effect on their development and implementation of insourcing guidelines. Similarly, OMB indicated when it provided the insourcing criteria in July 2009 that it expected to refine the criteria as it developed guidance on when outsourcing is and is not appropriate. Intending to use the results, best practices, and lessons learned from the multisector workforce planning pilots to better inform their insourcing guidelines and procedures. For example, one agency told us it planned to use its experience with its planning pilot as the basis for its final guidelines, while another planned to issue initial guidelines to be used during the pilot and then revise the guidelines as appropriate based on the experiences during the pilot. Stressing that developing effective insourcing guidelines is complex and involves many agency functions, including human capital, acquisition, and finance and budget, all of which requires a great deal of coordination and takes time. They added that their ability to focus on the development of the guidelines has been constrained by their capacity to deal with multiple management initiatives in addition to their regular core duties. Although OMB and agencies have yet to issue insourcing guidance, OMB reported in December 2009 that 24 agencies had launched planning pilots to address the use of contractors in one or more of their organizations. Agencies were due to report the results of their pilots to OMB by May 1, 2010. Following the initiative of the March 2009 Presidential memo on government contracting and in response to a congressional mandate, OMB's Office of Federal Procurement Policy issued a public notice on March 31, 2010 that provides proposed policy for determining when work must be performed by, or reserved for, federal employees. The proposal provides the following guidance to executive branch agencies: Adopts the statutory definition in the Federal Activities Inventory Reform (FAIR) Act of 1998 as a single, governmentwide definition of inherently governmental functions. This definition classifies an activity as inherently governmental when it is so intimately related to the public interest that it must be performed by federal employees. Such activities include determining budget priorities and awarding and administering contracts, which are reserved exclusively for federal employees. Retains the illustrative list of examples of "closely associated with inherently governmental functions" from the Federal Acquisition Regulation, such as preparing budgets and developing agency regulations, and provides guidance to help agencies decide whether to use contractors to perform these functions. Unlike inherently governmental functions, agencies can determine whether contractor performance of these functions is appropriate. The proposed policy lays out the responsibilities agencies must perform, such as ensuring sufficient government capacity for oversight during the contract award and administration process, if they decide to use a contractor for these services. Introduces the category of "critical functions," as functions whose importance to the agency's mission and operation requires that at least a portion of the function must be reserved for federal employees to ensure the agency has sufficient internal capability to effectively perform and maintain control. Outlines a number of new management determinations and actions that federal agencies should employ to avoid allowing contractor performance of inherently governmental functions, including developing agency procedures, providing training and designating senior officials responsible for implementation of the proposed policy. Comments from agencies and the public on the proposed policy are due to OMB by June 1, 2010. Agency efforts to effectively insource certain functions now performed by contractors will in large part depend on their ability to assess their human- capital and mission requirements and develop and execute plans to fulfill those requirements so they have a workforce that possesses the necessary education, knowledge, skills, and competencies to accomplish their mission. We and others have shown that successful public and private organizations use strategic management approaches to prepare their workforces to meet present and future mission requirements. Strategic human-capital management--which includes workforce planning--helps ensure that agencies have the talent and skill mix they need to address their current and emerging human-capital and other challenges, such as long-term fiscal constraints and changing demographics. A strategic human-capital plan helps agency managers and stakeholders to systematically consider what is to be done, how it will be done, and how to gauge progress and results. Our prior work has identified workforce planning challenges that can affect an agency's ability to obtain the right mix of federal employees and contractor personnel. Strategic workforce planning is an iterative, systematic process that addresses two critical needs: (1) aligning an organization's human-capital program with its current and emerging mission and programmatic goals and (2) developing long-term strategies for acquiring, developing, and retaining an organization's workforce to achieve programmatic goals. These strategies should include contractor as well as federal personnel and link to the knowledge, skills, and abilities agencies need. As agencies develop workforce strategies, they also need to consider the extent to which contractors should be used and the appropriate mix of contractor and federal personnel. With the increased reliance on contractors, there has been an increased concern about the ability of agencies to ensure sufficient numbers of staff to perform some functions that should only be performed by government employees. Strategic workforce planning can position federal agencies to meet such workforce challenges. However, our prior work has found that the increased reliance on contractors to perform the work of government is in part attributed to difficulties in hiring for certain hard-to-staff positions, training and retaining government employees. For example, we have previously reported that federal agencies have relied increasingly on contractors to support the acquisition function due to the fact that the capacity and the capability of the federal government's acquisition workforce to oversee and manage contracts have not kept pace with increased spending for increasingly complex purchases. This pattern can also be found in other functions such as information technology and intelligence activities. Importantly, federal agencies also face competition in hiring and retaining government employees as contractors can offer higher salaries in some cases. In 2001, we first identified strategic human-capital management as a high- risk area because of the federal government's long-standing lack of a consistent approach to human-capital management. In 2010, while agencies and Congress have taken steps to address the federal government's human-capital shortfalls, strategic human-capital management remains a high-risk area because of the continuing need for a governmentwide framework to advance human-capital reform. We have reported that federal agencies have used varying approaches to develop their strategic workforce plans, depending on their particular circumstances. For example, an agency with a future workload that could rise or fall sharply may focus on identifying skills to manage a combined workforce of federal employees and contractors. We and the Office of Personnel Management (OPM) have identified the following six leading principles that agencies should incorporate in their workforce planning efforts: Align workforce planning with strategic planning and budget formulation; Involve managers, employees, and other stakeholders in planning; Identify critical occupations, skills, and competencies and analyze workforce gaps; Develop strategies to address workforce gaps; Build capability to support workforce strategies; and Monitor and evaluate progress. Furthermore agencies face other operational and administrative challenges as our 2009 review of civilian agency insourcing efforts identified with respect to implementing guidance to facilitate the conversion of contractor personnel to government positions, including the following: Infrastructure. The complex nature of insourcing and the many functional parts of an agency involved in the hiring process require managers to share responsibility and coordinate activities. The various functions involved in an agency's insourcing efforts--such as human capital, acquisition, finance and budget--must be identified, as well as the roles each will play. Culture. Insourcing represents a major shift in the focus and culture of the multisector workforce. Established processes and procedures are geared toward outsourcing and shifting to insourcing and a "total workforce" approach--that considers both contractors and federal employees--will take time and requires flexibility to meet the needs of an agency within an ever-changing environment. Data. Agencies face difficulties in gathering and analyzing certain types of service contracting data needed for making insourcing decisions. For example, information on the type of service contracts and the number of contractor-equivalent personnel may not be readily available, even though some officials indicated that such information may be needed to review contracted-out services and make insourcing decisions. The lack of reliable data on contractors has been a recurrent theme in our work over the past several years. For example, we have reported that agencies faced challenges with developing workforce inventories under the FAIR Act of 1998, especially as it relates to the classification of positions as inherently governmental or commercial. Our work on the acquisition workforces at DHS and DOD reported that the departments lacked sufficient data to fully assess total acquisition workforce needs including the use of contractors. And, more recently, our review of DOD service contractor inventories for fiscal year 2008 found that each of the military departments used different approaches and data sources to compile their inventory data and, as a result, DOD data on service contracts are inconsistent and incomplete. Resources. Limited budgets and resources may constrain insourcing efforts. For example, if after applying its guidelines, an agency determines that a function should be insourced and additional government employees need to be hired, the agency must ensure the funds are available to pay for them. Agency implementation of insourcing efforts could be facilitated by tools that we identified in prior work. These tools will allow agencies to capture information, make strategic decisions and implement those decisions for their multisector workforce. They include: inventories, business case analysis, and human capital flexibilities. Inventories. The inventories that federal agencies are required to develop under congressional mandate will be used to inform a variety of workforce decisions. For example, at DOD, the inventories are to contain a number of different elements for service contracts, including information on the functions and missions performed by the contractor, the funding source for the contract, and the number of contractor full-time equivalents working under the contract. Once compiled, the inventories may be used to inform a variety of workforce decisions, including how various agency functions should be sourced. Business Case Analysis. A balanced analytical approach, used by some agencies when deciding to outsource functions, could facilitate agency decisions in determining whether insourcing a particular function has the potential to achieve mission requirements. Such an analysis may consider questions such as the following: o How critical is the function's role in relationship to the agency's mission? o What is the risk to program integrity and control of sensitive information if the function is not insourced? o What is the long-term trend of demand for the function; is there periodic fluctuation in demand for the function (i.e. stability of demand)? o What is the current state of technology used by the function and what is the likelihood of the agency being able to acquire and sustain the technology if the function is brought in-house? o What are the number of staff and skill level of staff needed o What is the ability of the agency to recruit the workforce to perform the function? with the appropriate skills to continue to provide services the contractor currently provides? o What is the likelihood of contractor staff in the function applying to work for the agency? o What is the estimated cost to maintain an acceptable level of performance if the function is brought in-house? Human Capital Flexibilities. Once agencies determine which functions they want to have provided by federal employees, taking advantage of the variety of human-capital flexibilities is crucial to making improvements in agencies' efforts to recruit, hire, and manage their workforces. For example, monetary recruitment and retention incentives and special hiring authorities provide agencies with flexibility in helping them manage their human-capital strategically to fulfill insourcing needs. OMB's criteria for insourcing decisions provide a basis for agencies in establishing their insourcing plans and can be used to facilitate balancing the mix of federal employees and contractors to better assure government control over critical functions. However, it will be in the implementation of agency plans and in the individual sourcing decisions that federal agencies make that will determine the ultimate success of this effort. Making use of the full range of information and human-capital tools available to implement these plans will be important to assuring effective government control of critical functions, mitigating risks, and providing value to the taxpayer. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or the other members of the subcommittee may have at this time. For further information regarding this testimony, please contact John Needham at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this product. Staff making key contributions to this statement were Amelia Shachoy, Assistant Director; Brendan Culley; Noah Bleicher; Erin Carson; Lauren Heft; and John Krump.
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Federal agencies face a complicated set of decisions in finding the right mix of government and contractor personnel to conduct their missions. While contractors, when properly used, can play an important role in helping agencies accomplish their missions, GAO has found that agencies face challenges with increased reliance on contractors to perform core agency missions. Congress and the Executive branch also have expressed concern as to whether federal agencies have become over-reliant on contractors and have appropriately outsourced services. A March 2009 Presidential memorandum tasked the Office of Management and Budget (OMB) to take several actions in response to this concern. Based on GAO's prior work, this statement discusses (1) civilian agencies' development and implementation of guidelines to consider whether contracted functions should be brought in-house --a process known as insourcing; (2) OMB's proposed policy on work reserved for federal employees; (3) challenges agencies face in managing the federal workforce; and (4) key tools available for insourcing and related efforts. GAO reviewed the status of civilian agencies efforts to develop and implementinsourcing guidance and reported in October 2009 that none of the nine civilian agencies with whom we met had met the statutory deadline to produce insourcing guidance. Primarily, they were waiting to ensure their guidance was consistent with or receive additional OMB guidance, and to use the results, best practices, and lessons learned from their multisector workforce pilots to better inform their insourcing guidelines. Since the time of our review, OMB reported in December 2009 that 24 agencies had launched pilots to address overuse of contractors in one or more of their organizations. Agencies were due to report the results of their pilots to OMB by May 1, 2010. In response to a congressional mandate, OMB recently issued a public notice that provides proposed policy for determining when work must be performed by federal employees. Comments on the policy are due from federal agencies and the public by June 1, 2010. The proposed policy provides the following guidance to executive branch agencies: it adopts a single, governmentwide definition of inherently governmental functions in accordance with the definition in the Federal Activities Inventory Reform Act of 1998, which classifies an activity as inherently governmental when it is so intimately related to the public interest that it must be performed by federal employees; it provides guidance for determining functions "closely associated with inherently governmental;" and it introduces the category of "critical functions," as work that must be reserved for federal employees in order to ensure the agency has the internal capability to maintain control of its missions and operations. Agency efforts to effectively insource functions performed by contractors will in large part depend on the ability to assess mission and human capital requirements and develop and execute plans to fulfill those requirements so agencies have a workforce that possesses the necessary knowledge, skills, and competencies to accomplish their mission. Furthermore, GAO's 2009 review of civilian agency insourcing efforts identified operational and administrative challenges agencies face with respect to implementing the conversion of contractor personnel to government positions. For example, agencies face difficulties in gathering and analyzing certain types of service contracting data needed for making insourcing decisions. Agency implementation of insourcing efforts could be facilitated by tools that GAO has previously identified, including: (1) Inventories to identify inherently governmental functions; (2) Business case analysis to facilitate agency decisions in determining whether insourcing a particular function has potential to achieve mission requirements; and (3) Human-capital flexibilities to efficiently fill positions that should be brought in-house.
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The Military Selective Service Act requires virtually all male U.S. citizens worldwide and all other males residing in the United States ages 18 through 25 to register with the Selective Service System within 30 days of turning 18 years of age under procedures established by a presidential proclamation and other rules and regulations. The Selective Service System currently budgets for 130 full-time civilian positions and 175 part- time Reserve Force OfficersVirginia; its Data Management Center, in Chicago, Illinois; and its three regional headquarters, located in Chicago, Illinois; Smyrna, Georgia; and Denver, Colorado. In 2011, the Selective Service System's Data Management Center added 2.2 million records to its database and sent a series of letters to males reminding them of their obligation to register. According to Selective Service System officials, in calendar year 2010, their database contained approximately 16.4 million names, and the estimated registration compliance rate was 92 percent. The Selective Service System also carries out other peacetime activities such as conducting public registration awareness and outreach, responding to public inquiries about registration requirements, and providing training and support to volunteer local board members, state directors, and Reserve Force Officers. in its national headquarters in Arlington, The Military Selective Service Act does not currently authorize use of a draft for the induction of persons into the armed forces. Congress and the President would be required to enact a law authorizing a draft, were they to deem it necessary to supplement the existing force with additional military manpower. In the event of a draft, the Selective Service System would be tasked with conducting a lottery and sending induction notices to selected males to supply the personnel requested by the Secretary of Defense. A network of over 11,000 local, district, and national board volunteers, who are now managed by the Selective Service System, would be activated to review and process claims for exemption, deferment, or postponement of service. Selected males would be directed to report to Military Entrance Processing Stations, managed by DOD, to determine whether they are qualified for military service, and then sent to military training centers. In addition to drafting inductees, the Selective Service System would be responsible for providing options and managing the program for alternative civilian service to conscientious objectors and would also be required to induct health care specialists if necessary. The Selective Service System's time frames for mobilizing inductees are based on DOD's recommendations developed in accordance with its manpower requirements as defined in 1994; therefore, the appropriateness of these time frames to helping DOD meet its current manpower needs in excess of the current all-volunteer force is unclear. Even though DOD has not used the draft since 1973, DOD officials told us that the Selective Service System provides a low-cost insurance policy in case a draft is ever necessary and a structure and organization that would help ensure the equity and credibility of a draft should one be authorized and implemented. The Selective Service System also offers capabilities that are hard to quantify in terms of dollars, including its structure of unpaid volunteers who could be activated as soon as a draft is implemented and its no-cost agreements with civilian organizations that have agreed to supply jobs to conscientious objectors. Selective Service System officials expressed concern that, as currently resourced, they cannot meet DOD's requirements to deliver inductees without jeopardizing the fairness and equity of the draft. However, that requirement was based on the national security environment that existed in 1994. The lack of an updated requirement from DOD presents challenges to policymakers for determining whether the Selective Service System is properly resourced or necessary. DOD developed its manpower requirements for the Selective Service System in 1994 and has not reexamined these requirements in the context of recent military operations and changes in the security environment and national security strategy. In a 1994 memorandum to the Director of the Selective Service System, the Assistant Secretary of Defense for Force Management stated that DOD expected that its active and reserve forces would be sufficient for most conceivable scenarios involving two Major Regional Conflicts, citing two then-current documents, the 1993 Report on the Bottom-Up Review and the 1994 A National Security Strategy of Engagement and Enlargement. Because of this expectation, DOD recommended extending the time it would require the Selective Service System to provide the first inductees from 13 days to 193 days after mobilization (13 days plus 6 months) and to provide 100,000 inductees from 30 days to 210 days after mobilization (30 days plus 6 months). The Selective Service System considers this requirement to be its most recent and official requirement from DOD. The memorandum also stated that DOD's position was that an all-male draft remained valid and legal and that medical personnel continued to be the only skilled group that would be required in conceivable contingency scenarios. Specifically, the document states that DOD's Health Care Personnel Delivery System calls for the rapid postmobilization registration of up to 3.5 million health care personnel in more than 60 specialties. DOD also stated in its memorandum that the time for the Selective Service System to conduct a mass registration of medical personnel could be extended by 6 months, from 13 days to 193 days, with induction orders to follow 3 weeks later. DOD relies on its national defense strategy and the Quadrennial Defense Review to identify its priority mission areas and determine its overall force structure needs. The national defense strategy provides the foundation and strategic framework for the department's Quadrennial Defense Review, which is performed every 4 years. During this review, DOD is required to define a national defense strategy and the force structure and other elements necessary to successfully execute the range of missions identified in that national defense strategy. Changes in the security environment require the department and the services to reassess their force structure requirements, including how many and what types of units are necessary to carry out the national defense strategy. For example, as DOD stated in its January 2012 strategic guidance, even when U.S. forces are committed to a large-scale operation in one region, they will need to be capable of denying the objectives of--or imposing unacceptable costs on--an opportunistic aggressor in a second region. Specifically, the United States will need to be prepared for an increasingly complex set of challenges in South Asia, the Middle East, and the Asia- Pacific region. In prior work, we have emphasized the importance of agencies taking actions to ensure that their missions are current and that their organizations are structured to meet those missions. We have also reported that many agencies find themselves encumbered with structures and processes rooted in the past and designed to meet the demands of earlier times. Further, we have stated that high-performing organizations stay alert to emerging mission demands and remain open to reevaluating their human capital practices to meet emerging agency needs. Changes in the security environment and defense strategy represent junctures at which DOD can systematically reevaluate service personnel levels to determine whether they are consistent with strategic objectives. While DOD officials stated that the 1994 manpower requirement may still be valid, without an updated assessment of requirements for the Selective Service System, policymakers cannot be certain whether the resources to support the Selective Service System are necessary to meet DOD's manpower needs, whether the Selective Service System is prepared to supply the skills most critical to DOD in the 21st century, or whether the Selective Service System is necessary at all. In a letter to GAO dated April 16, 2012, the Deputy Assistant Secretary for Military Personnel Policy stated that determining the military necessity for the Selective Service System and its registration of young men is a complex issue that requires significant examination not possible during the period of GAO's review. However, DOD does recognize that such an examination is prudent. The Deputy Assistant Secretary noted that, while the military necessity of the Selective Service System in the 21st century has yet to be determined, the department recognizes that there are benefits to the continuation of the Selective Service System. According to official spokespersons for the Selective Service System, the agency is not currently resourced to meet DOD's requirement for it to deliver the first inductees in 193 days and 100,000 inductees in 210 days, without jeopardizing the fairness and equity of the draft. However, DOD officials believe that the Selective Service System provides a low-cost insurance policy in case a draft is ever necessary. The Selective Service System also provides benefits that would help to ensure a draft was fair and equitable. Specifically, Selective Service System officials stated that since fiscal year 1997, the agency has undergone various cuts and attained efficiencies in an attempt to meet DOD's manpower requirements. The Selective Service System officials said that due to reductions in the number of personnel available to set up area offices across the country, it now estimates it could not deliver the first inductees until 285 days after mobilization. In fiscal year 1997, the Selective Service System's budget was $22.9 million (in then-year dollars), or $31.5 million in fiscal year 2013 dollars. Since then, the agency's annual budget has declined steadily in constant dollars, and its requested budget for fiscal year 2013 was $24.4 million. Once a man reaches his 26th birthday, his name is dropped from the Selective Service System's list of possible draftees. 712,000 transactions each year, including manual registrations, registrant file updates, compliance additions and updates, post office returns, and miscellaneous forms. The Data Management Center also serves as the agency's national call center, which the public contacts to verify registrations that are needed to be eligible for benefits and programs linked to this registration, such as student loans and government jobs. In addition, the Selective Service System undertakes general national outreach and public awareness initiatives to publicize the requirement for males to register. These efforts have included convention exhibits, public service announcements, high school publicity kits, focus group studies, and outreach meetings. The Selective Service System also conducts outreach visits to areas of low registration compliance. In addition to registration, the Selective Service System structure helps to ensure that a draft would be fair and equitable. For example, it maintains a structure that could be activated as soon as a draft is implemented to conduct nationwide local review boards to determine draftees' eligibility for deferments. The Selective Service System's three regional offices are responsible for maintaining this board structure and making sure that personnel are trained to perform their assigned tasks. Each state and territory has a part-time state director who is compensated for an average of up to 12 duty days per year. In 2011, the Selective Service System also relied on 175 Reserve Force Officers from all branches of the military services. These part-time officers perform peacetime and preparedness tasks, such as training civilian board members, and function as field contacts for state and local agencies and the public. The largest component of the Selective Service System's workforce is approximately 11,000 uncompensated men and women. According to Selective Service System officials, these men and women are selected to be representatives of the geographic area in which they reside and are trained to serve as volunteer local, district, and national appeal board members. If a draft were to occur, these trained volunteers would decide the classification status of men seeking exceptions or deferments based on conscientious objection, hardship to dependents, their status as ministers or ministerial students, or any other reason. Selective Service System officials believe that having local board members representative of the geographic areas in which they reside helps to ensure that these board members would make fair and equitable decisions. If a draft occurred, the Selective Service System is also required to manage a 2-year program of alternative civilian service for conscientious objectors. The Selective Service System maintains no-cost agreements with civilian organizations that, in the event of a draft, have agreed to supply jobs to conscientious objectors who oppose any form of military service, even in a noncombat capacity. To be prepared to implement an alternative service program for registrants classified as conscientious objectors, the Selective Service System conducts outreach to various civilian employers, such as the Methuselah Foundation and the Mennonite Mission Network, to arrange memoranda of agreement for these organizations to be prepared to offer alternative service to up to 30,000 conscientious objectors should a draft be necessary. Restructuring or disestablishing the Selective Service System would require consideration of various fiscal and national security implications, some of which may be difficult to quantify. We reviewed estimated costs and savings for two alternatives to the current structure of the Selective Service System: (1) placing it in a deep standby mode where active registration is maintained and (2) disestablishing the agency. In addition to the potential costs and savings of these alternatives, other factors, with both tangible and intangible costs and benefits, may need to be considered if either alternative were pursued. We identified factors that may affect costs and various considerations and limitations that may affect whether another agency or database could perform the functions of the Selective Service System while maintaining the capability to perform a fair and equitable draft. Officials from the Selective Service System provided details on the personnel and resources required for each of the alternatives we reviewed, as well as their estimated cost savings (see table 1). The Selective Service System estimates were based on the assumption that either alternative would be fully implemented in fiscal year 2013, and officials based their estimates on their fiscal year 2013 requested budget. Most of the estimated cost savings result from reductions in the numbers of civilian and Reserve Force Officer personnel for the two alternatives we examined. As shown in table 1, if the Selective Service System were placed in a deep standby mode and maintained its registration program and database, Selective Service System officials estimated that the first-year cost savings would be approximately $4.8 million, with subsequent annual savings of approximately $6.6 million. Selective Service System officials estimated that costs for closing the regional offices, severance pay, and other termination costs would be $1.8 million. The Selective Service System estimates it would require a budget of $17.8 million and 93 full- time civilian personnel at the national headquarters and Data Management Center to continue inputting and processing registrations, maintain registration awareness and compliance, and facilitate plans to reconstitute the agency if needed. The estimates assume that the Selective Service System would reduce its civilian workforce by 37 positions, would no longer employ Reserve Force Officers or state directors, and would reduce its physical infrastructure costs by closing its three regional offices. According to Selective Service System officials, disestablishing the agency would produce first-year cost savings of approximately $17.9 million and subsequent annual savings of $24.4 million. This scenario assumes that all full-time civilians, Reserve Force Officers, and state directors would be terminated or dismissed, and the agency headquarters, three regional headquarters, and data management center would be closed. Selective Service System officials estimated that costs for closing the agency and terminating employees and contracts would total approximately $6.5 million in the first year. In both of the alternatives presented in table 1, the 11,000 civilian volunteer board members would be dismissed, eliminating the volunteer board infrastructure currently in place to review claims for deferring or postponing military service. Selective Service System officials also identified the estimated time and potential resources required to reestablish the agency to its current operations should either of these options be pursued. Selective Service System officials estimated that if the agency were in a deep standby mode or disestablished, it would cost approximately $6.6 and $28 million, respectively, to restore the agency to its current operating capacity. Officials estimated that if the agency were put in a deep standby mode with registration, it would take approximately 18 months to rehire and train essential civilian and Reserve Force Officer personnel, reestablish regional offices, and appoint state directors and civilian volunteer board members. If the agency were disestablished, officials estimated it would take an additional 6 months--or a total of approximately 2 years--to perform mass registrations, reconstitute the Data Management Center and regional offices, build the necessary information technology infrastructure, and rehire and train personnel. Selective Service System officials also provided estimates for the time and resources required to perform a draft from its current operations if the agency were in deep standby or disestablished. According to Selective Service System officials, they have no previous experience transitioning from disestablishment or a standby mode to draft operations. While their estimates are loosely based on the agency's mobilization plans, officials noted that their plans have not recently been updated and do not reflect their current staffing or budget. To perform a draft from its current operating status, Selective Service System officials said that they would require approximately $465 million to hire the full-time civilian personnel necessary to populate the field structure by staffing area and alternative service offices and district and local boards. If either deep standby or disestablishment were pursued and a draft became necessary, Selective Service System officials said they would need funds in addition to the $465 million it would currently require to perform a draft. Selective Service System officials estimated that if the agency were in a standby mode or disestablished, they would require approximately 830 days and 920 days, respectively, to provide DOD with inductees. In addition to the potential costs and savings for each option, officials from the Selective Service System and DOD identified other factors that would need to be considered if the agency were disestablished or placed in a deep standby mode. Officials reaffirmed several benefits that they stated had been previously identified in a 1994 National Security Council recommendation to maintain the Selective Service System and the registration program. For example, DOD and Selective Service System officials said that the presence of a registration system and the Selective Service System demonstrates a feeling of resolve on the part of the United States to potential adversaries. Officials also stated that, as fewer citizens have direct contact with military service, registering with the Selective Service System may be the only link some young men will have to military service and the all-volunteer force. Selective Service System officials noted that the Selective Service System and registration requirement provide a hedge against unforeseen threats. Officials from DOD also cited some secondary recruiting benefits they receive from the Selective Service System. DOD relies on the Selective Service System to mail out recruiting pamphlets in conjunction with the registration materials the agency routinely sends to new registrants. DOD officials told us that using the Selective Service System to mail these materials costs approximately $370,000 a year, which is significantly less than the department would spend on postage to mail the recruiting materials separately and which results in approximately 60,000 recruiting leads a year. In addition, DOD officials said that DOD relies heavily on the Selective Service System's database to help populate its recruiting and marketing database at no cost to the department. Other costs and considerations may need to be evaluated as well. A number of federal and state programs require registration as a prerequisite, such as state drivers' licenses and identification cards, federal student aid programs, U.S. citizenship, federally sponsored job training, and government employment. Selective Service System officials said there could be costs to remove language from forms and program materials stating that registering with the Selective Service System is a prerequisite to qualifying for these programs. Furthermore, Selective Service System officials said that agreements with civilian agencies to provide alternative civilian service for conscientious objectors would be terminated if registration were discontinued or the agency were disestablished, and reinstituting these agreements in the event of a draft would take time. Terminating the Selective Service System would also require amending the Military Selective Service Act and potentially other laws involving the Selective Service System. Selective Service System and DOD officials identified factors that should be considered if the functions of the Selective Service System were to be performed by another federal or state agency or with another database. We were unable to identify specific costs associated with these options because, according to officials from DOD and the Selective Service System, there is no database that is comparable to or as complete as the Selective Service System's database. However, officials did identify several factors and limitations that could affect the costs and feasibility of having the Selective Service System's functions performed by another entity. Officials from the Selective Service System identified several databases and agencies that currently help populate their registration database. For example, Selective Service System officials said they have agreements with the Social Security Administration and the American Association of Motor Vehicles to supply names of 18- through 25-year-olds who have registered social security numbers or who apply for drivers' licenses, at a cost of $14,200 and $42,177 a year, respectively. Selective Service System officials also said they rely on the U.S. Census Bureau to provide a breakdown of the total number of men aged 18 through 25 by state and county, which the Selective Service System uses to determine its overall registration compliance rate. Selective Service System officials agreed that other agencies' databases, like those of the Social Security Administration and the American Association of Motor Vehicles, could be used or combined to populate a registration database but noted that a draft using these systems might not be fair and equitable because these databases would target certain portions of the pool of possible inductees but not others. For example, if a draft were performed using only names in the Social Security Administration's database, immigrant men residing in the United States who do not have social security numbers would not have the same likelihood of being drafted as male U.S. citizens would. Selective Service System officials also stated that there could be costs associated with combining other databases to achieve the compliance rate of the Selective Service System's database. The Selective Service System database represents 92 percent of the eligible population, and Selective Service System officials said they rely on a number of sources to maintain a high registration compliance rate and have established a process that gives everyone an equal chance of being selected. The Selective Service System therefore believes it can perform a fair and equitable draft of the population and said that other databases, unless similarly combined, could not replicate the completeness of the Selective Service System database. DOD and Selective Service System officials also expressed concern with having another federal agency perform the Selective Service System's functions. Selective Service System officials said that any transfer of their responsibilities to DOD or another federal agency would raise independence concerns with respect to ensuring that a draft would be fair and equitable.officials, the independence of the agency helps to ensure that conscientious objector and pacifist communities will comply with registration requirements because the public trusts that the registration and induction process is performed fairly. DOD officials said that a significant evaluation would need to be performed to determine the costs and feasibility of the department taking on the Selective Service System's tasks and that they are unable to identify the potential costs for the department to assume the responsibilities of the Selective Service System. DOD officials were able to provide the approximate costs to maintain the department's recruiting and marketing database, but they emphasized that this database would be inappropriate to use as a replacement for the Selective Service System's database because the Joint Advertising Market Research and Studies office relies on third-party data to populate its database, which is used strictly for the purpose of performing recruiting and market research. Officials from DOD's Joint Advertising Market Research and Studies office indicated that their office currently spends approximately $2.8 million a year to operate and maintain their database of recruiting and marketing names and that it would cost an additional $3 million to replace the names it receives from the Selective Service System free of charge, more than doubling DOD's operating costs for this database. In addition, DOD and Selective Service System officials stated that they are uncertain whether any savings would be realized by transferring the Selective Service System's function to DOD or any other federal agency. Officials said the same number of personnel and resources would likely be required, and according to Selective Service System officials, there could be additional costs involved in having another agency learn how to recreate the components of the Selective Service System. While the Selective Service System states that it is not resourced to provide first inductees within 193 days of mobilization and 100,000 inductees within 210 days, DOD has not reevaluated this requirement since 1994. Since that time, the security environment and the national security strategy have changed significantly. Without an updated assessment by DOD of its specific requirements for the Selective Service System, it is unclear whether DOD would need 100,000 inductees in 210 days or even whether draftees would play any role in a military mobilization. Further, while DOD officials believe that the Selective Service System provides a low-cost insurance policy and benefits DOD in other ways--some that are hard to quantify--determining the value of these benefits is ultimately a policy decision for Congress, as is the determination of the cost and benefit trade-offs of the various alternatives to reducing the agency or transferring its functions. A reevaluation of the department's manpower needs for the Selective Service System in light of current national security plans would better position Congress to make an informed decision about the necessity of the Selective Service System or any other alternatives that might substitute for it. To help ensure that DOD and Congress have visibility over the necessity of the Selective Service System to meeting DOD's needs, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to take the following two actions: (1) evaluate DOD's requirements for the Selective Service System in light of recent strategic guidance and report the results of this evaluation to Congress and (2) establish a process of periodically reevaluating DOD's requirements for the Selective Service System in light of changing threats, operating environments, and strategic guidance. In commenting on a draft of this report, DOD agreed with our recommendations and noted its plans for implementation. Specifically, DOD concurred with our first recommendation--to evaluate DOD's requirements for the Selective Service System to reflect recent strategic guidance and report the results of its evaluation to Congress. The department stated that the Office of the Under Secretary of Defense for Personnel and Readiness, in coordination with the Joint Staff and the services, will perform an analysis of DOD's manpower requirements for the Selective Service System, with an anticipated completion date of December 1, 2012. DOD also concurred with our second recommendation--to establish a process to periodically reevaluate DOD's requirements for the Selective Service System in light of changing threats, operating environments, and strategic guidance. The department stated that it will establish a process to review the mission and requirements for the Selective Service System during its reevaluation of its current requirements for the Selective Service System. DOD's comments are reprinted in appendix II. We also provided a draft of this report to the Selective Service System for comment. In its written comments, the Selective Service System noted its support of DOD's views of the Selective Service System. Specifically, it cited the Secretary of Defense's 2011 testimony in support of maintaining registration as a mechanism to ensure the department is prepared for an unexpected event. The Selective Service System's comments are reprinted in appendix III. The Selective Service System also provided technical comments, which we incorporated as appropriate. We also provided the Office of Management and Budget a draft, but we did not receive any comments. We are sending copies of this report to appropriate congressional committees; the Secretary of Defense; the Under Secretary of Defense for Personnel and Readiness; and the Director of the Selective Service. We will also make copies available to other interested parties upon request. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-3604 or [email protected]. Major contributors to this report are listed in appendix IV. To determine the extent to which the Department of Defense (DOD) has evaluated the necessity of the Selective Service System to meeting DOD's future manpower requirements in excess of the all-volunteer force, we analyzed documentation and information obtained from interviews with relevant officials from the Office of the Under Secretary of Defense for Personnel and Readiness, Office of Management and Budget, and Selective Service System. To determine DOD's manpower requirements, we reviewed DOD guidance and documents, including guidance on wartime manpower mobilization procedures and mobilization requirements. We also analyzed Selective Service System annual reports and budget justification documents, as well as input provided by the Selective Service System to the Office of Management and Budget. We reviewed relevant legislation establishing the Selective Service System and registration requirements in title 50 of the United States Code. We obtained DOD and Selective Service System officials' perspectives on the role of the Selective Service System, as well as the Selective Service's ability to meet its current need for inductees as defined by DOD's manpower mobilization requirements. To obtain criteria for how frequently agencies should reevaluate their missions, we consulted our body of work on this subject. To review the fiscal and national security considerations of various alternatives to the Selective Service System, we obtained cost estimates from Selective Service System officials for two scenarios involving reducing or eliminating the Selective Service System: (1) disestablishing the Selective Service System and (2) placing the agency in a standby mode while having it continue to register potential draftees. We interviewed Selective Service System officials to identify their assumptions and sources for calculating the costs to implement these two scenarios. To assess the reliability of their cost estimates, we gathered and analyzed the agency's budget documents to verify their calculations and assumptions and provided updates to the estimates for the Selective Service System to review. To assess the reliability of computer-processed data used to estimate costs, we interviewed Selective Service System officials and obtained documentation from the Department of the Interior to confirm the data and internal controls used in the system. We determined that the data were sufficiently reliable for the purposes of this audit. We also interviewed DOD and Selective Service System officials to identify and describe federal or state agencies or comparable databases that could replace the Selective Service System's registration database. We obtained DOD and Selective Service System officials' perspectives about the considerations and potential limitations involved in using another agency or database, as well as factors that could affect the cost and feasibility of another agency or database being used to perform the functions of the Selective Service System. We also reviewed GAO's previous reports on the Selective Service System. We conducted this performance audit from February to June 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Brenda S. Farrell, (202) 512-3604 or [email protected]. In addition to the contact above, Margaret Best, Assistant Director, Melissa Blanco, Greg Marchand, Charles Perdue, Meghan Perez, Bev Schladt, and Erik Wilkins-McKee made key contributions to this report.
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The Selective Service System is an independent agency in the executive branch. Its responsibilities include maintaining a database that will enable it to provide manpower to DOD in a national emergency, managing a program for conscientious objectors to satisfy their obligations through a program of civilian service, and ensuring the capability to register and induct medical personnel if directed to do so. Section 597 of the National Defense Authorization Act for Fiscal Year 2012 (Pub. L. No. 112-81) requires that GAO assess the military necessity of the Selective Service System and examine alternatives to its current structure. Specifically, GAO (1) determined the extent to which DOD has evaluated the necessity of the Selective Service System to meeting DOD's future manpower requirements beyond the all-volunteer force and (2) reviewed the fiscal and national security considerations of various alternatives to the Selective Service System. GAO reviewed legislation, analyzed relevant documents, verified cost data provided by the Selective Service System, and interviewed DOD, Office of Management and Budget, and Selective Service System officials. The Department of Defense (DOD) has not recently evaluated the necessity of the Selective Service System to meeting DOD's future manpower requirements for carrying out the defense strategy or reexamined time frames for inducting personnel in the event of a draft. DOD officials told GAO that the Selective Service System provides a low-cost insurance policy in case a draft is ever necessary. The Selective Service System maintains a structure that would help ensure the equity and credibility of a draft. For example, the Selective Service System manages the registration of males aged 18 through 25 and maintains no-cost agreements with organizations that would offer alternative service to conscientious objectors. The Selective Service System also has unpaid volunteers who could be activated as soon as a draft is enacted to review claims for deferment. However, DOD has not used the draft since 1973, and because of its reliance and emphasis on the all-volunteer force, DOD has not reevaluated requirements for the Selective Service System since 1994, although significant changes to the national security environment have occurred since that time. Periodically reevaluating an agency's requirements is critical to helping ensure that resources are appropriately matched to requirements that represent today's environment. Selective Service System officials expressed concern that, as currently resourced, they cannot meet DOD's requirements to deliver inductees without jeopardizing the fairness and equity of the draft. However, the lack of an updated requirement from DOD presents challenges to policymakers for determining whether the Selective Service System is properly resourced or necessary. Restructuring or disestablishing the Selective Service System would require consideration of various fiscal and national security implications. GAO reviewed data on costs and savings associated with maintaining the Selective Service System's current operations, operating in a deep standby mode with active registration, and disestablishing the Selective Service System altogether. If Congress disestablishes the Selective Service System it would need to amend the Military Selective Service Act and potentially other laws involving the Selective Service System. There are also limitations that would need to be considered if Selective Service System functions were transferred to another agency. Selective Service System officials said that while other databases could be used for a registration database, these databases might not lead to a fair and equitable draft because they would not be as complete and would therefore put some portions of the population at a higher risk of being drafted than others. GAO recommends that DOD (1) evaluate its requirements for the Selective Service System in light of recent strategic guidance and (2) establish a process of periodically reevaluating these requirements. In written comments on a draft of this report, DOD agreed with the recommendations.
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Under a variety of statutes, federal employees, including postal workers, can file a complaint alleging unlawful employment discrimination. Each discrimination complaint contains two key elements that provide information about the nature of the conflict. The first of these two elements is the "basis" of the allegation under federal antidiscrimination law. An employee can allege discrimination on any of seven bases--race, color, national origin, sex, religion, age, and disability. In addition, federal employees can claim an eighth basis--reprisal--if they believe that they have been retaliated against for having filed a complaint, participated in an investigation of a complaint, or opposed a prohibited personnel practice. Depending upon the employee's situation, he or she can claim more than one basis when filing an EEO complaint. The second of the two elements that help define the nature of the conflict in a discrimination complaint is the "issue"--that is, the specific condition or event that is the subject of the complaint. Issues that employees can file complaints about include nonsexual and sexual harassment, nonselection for promotion, performance evaluations, duties that are assigned to them, and disciplinary actions (e.g., demotion, reprimand, suspension, and termination). (See app. I for a listing of categories of issues). As is true with respect to bases for complaints, an employee can raise multiple issues in a single complaint. Agencies are required by regulations (29 C.F.R. 1614.602) and the EEOC Federal Sector Complaint Processing Manual, Equal Employment Opportunity Management Directive (EEO MD)-110 to report annually to EEOC data about the bases and issues cited in complaints, along with other complaint-related statistics. EEOC compiles the data from the agencies for publication in the annual Federal Sector Report on EEO Complaints Processing and Appeals. According to the Management Directive, "The analyses of the data collected enable the EEOC to assist in refining the efficiency and effectiveness of the Federal EEO process." This objective conforms with one of the goals contained in EEOC's Annual Performance Plans for fiscal years 1999 and 2000. Likewise, as indicators of the nature and extent of workplace conflict, these data could be important to EEOC as it carries out its broader mission, which, as stated in the agency's Strategic Plan, "is to promote equal opportunity in employment by enforcing the federal civil rights employment laws through administrative and judicial actions, and education and technical assistance." In assessing why the data collected and reported by EEOC were not helpful in answering fundamental questions about the nature and extent of conflict in the federal workplace, we examined several sources. We reviewed instructions for EEOC Form 462, Annual Federal Equal Employment Opportunity Statistical Report of Discrimination Complaints, the form that agencies use to report complaint basis and issue data to EEOC, particularly part IV of the form, Summary of Bases and Issues in Complaints Filed (see app. I for a copy of part IV of EEOC Form 462.) We examined statistics on complaint bases and issues published in EEOC's Federal Sector Report on EEO Complaints Processing and Appeals for fiscal years 1991 to 1997. Because postal workers accounted for about half of the discrimination complaints federal workers filed in fiscal year 1997, we obtained and analyzed forms 462 covering fiscal years 1991 to 1997 that the Postal Service submitted to EEOC in order to compare statistics for the postal workforce with the nonpostal workforce. In addition, the Postal Service provided us additional data on bases and issues generated by its complaint information system. We did not examine forms 462 for nonpostal agencies as we did for the Postal Service. Although Form 462 data that each agency submits show the number of times the different issues were raised in each basis category, EEOC does not aggregate these data from all agencies to prepare a consolidated Form 462 (part IV). At our request, EEOC prepared a consolidated Form 462 (part IV). Because EEOC does not routinely compile data this way, we requested this information only for fiscal year 1997. EEOC provided data for all federal agencies and, by subtracting Postal Service data, also provided data for nonpostal agencies. Further, we spoke with officials at EEOC and the Postal Service and representatives of the Council of Federal EEO and Civil Rights Executives. These officials provided observations about trends in the bases for and issues cited in complaints. Their comments, they said, were based on their experiences, rather than on specific studies. In addition, Council members from the Departments of Treasury and the Army provided information on how their respective agencies report complaint basis and issue data. Finally, we reviewed sections of EEOC's Strategic Plan and its Annual Performance Plans for fiscal years 1999 and 2000 pertaining to the agency's federal sector operations. We requested comments on a draft of this report from the Chairwoman, EEOC, and the Postmaster General. Their comments are discussed near the end of this report. We did our work from October 1998 through March 1999 in accordance with generally accepted government auditing standards. EEOC does not collect relevant data in a way that would help answer some fundamental questions about the nature and extent of workplace conflict alleged in federal employees' discrimination complaints. Among the kinds of questions that cannot be answered are: How many individuals filed complaints? In how many complaints was each of the bases for discrimination alleged? What were the most frequently cited issues in employees' discrimination complaints and in how many complaints was each of the issues cited? Answers to such questions would help decisionmakers and program managers understand the extent to which different categories of employees are filing complaints and the conditions or events that are causing them to allege discrimination. One fundamental question that cannot be answered is the number of individual employees who have filed complaints. EEOC does not collect data on the number of employees who file complaints, nor on how often individual employees file complaints. These numbers would be crucial to an analysis of the extent to which the increase in the number of complaints in the 1990s (see p. 1) was due to individuals filing first-time complaints or included individuals who had filed other complaints in the past. Without data on the number of complainants and the frequency of their complaints, decisionmakers do not have a clear picture of the nature and extent of alleged discrimination in the workplace and the actions that may be necessary to deal with these allegations. For example, a number of factors indicate that the increase in the number of discrimination complaints does not necessarily signify an equivalent increase in the actual number of individuals filing complainants. First, an undetermined number of federal employees have filed multiple complaints. According to EEOC and Postal Service officials and representatives of the Council of EEO and Civil Rights Executives, while they could not readily provide figures, they said it has been their experience that a small number of employees--often referred to as "repeat filers"--account for a disproportionate share of complaints. Additionally, an EEOC workgroup that reviewed the federal employee discrimination complaint process reported that the number of cases in the system was "swollen" by employees filing "spin-off complaints"--new complaints challenging the processing of existing complaints. Further, the work group found that the number of complaints was "unnecessarily multiplied" by agencies fragmenting some claims involving a number of different allegations by the same employee into separate complaints rather than consolidating these claims into one complaint. In addition, there has been an increase in the number of complaints alleging reprisal, which, for the most part, involve claims of retaliation by employees who have previously participated in the complaint process. Questions about the prevalence of bases and issues in the universe of complaints are not answerable because of the manner in which EEOC collects these data. Accurate answers to such questions are necessary to help decisionmakers and program managers discern trends in workplace conflicts, understand the sources of conflict, and plan corrective actions. These data could give managers a clearer picture of the extent to which particular groups of employees may feel aggrieved and the conditions or events that trigger their complaints. For example, managers would be able to better discern trends in the numbers of black employees alleging racial discrimination and the issues they have raised most frequently. EEOC prescribes a format for agencies to report complaint bases and issues data (see app. I). The form is a matrix that, according to EEOC instructions, requires agencies to associate the basis or bases of an individual complaint with the issue or issues raised in that complaint. However, there are problems in counting bases and issues this way. Complaints with two or more bases and/or issues can result in the same basis and/or issue being counted more than once. For example, suppose an employee specifies that race, sex, age, and disability discrimination were the bases for his or her complaint, while nonselection for promotion, a poor performance evaluation, and an assignment to noncareer-enhancing duties were the issues. In preparing the report to EEOC, the agency would record each of the three issues in the columns corresponding with each of the four bases. Table 1 illustrates how this complaint would fit into the preparation of the overall report to EEOC. The table is a matrix with excerpts of similar rows and columns that appear on the form submitted to EEOC (see app. I). To determine the number of times each basis is alleged, EEOC instructs agencies to add the number of times each issue was recorded in each column of the matrix. In this illustration, the agency would count each basis three times--once for each of the three issues recorded in each of the columns. To determine the number of times each issue is alleged, EEOC instructs agencies to add each row of the matrix. In this illustration, the agency would count each issue four times--once for each of the four bases under which they were recorded. Overall, the agency would report that 12 bases and 12 issues were alleged in this single hypothetical complaint rather than the 4 bases and 3 issues actually cited. EEOC uses these data from agencies to compile the number of times each basis and each issue was alleged governmentwide, which it publishes in the annual Federal Sector Report on EEO Complaints Processing and Appeals. The figure reported for the number of times that a particular basis was alleged, however, represents the sum of the number of times that the various issues were recorded in the column under that basis, not the actual number of complaints in which that basis was alleged. Similarly, the figure reported for the number of times that a particular issue was cited represents the sum of the number of times the issue was recorded under each of the bases, not the actual number of complaints in which that issue was cited. EEOC does not know the extent to which bases and issues may be counted more than once for the same complaint. EEOC's Complaint Adjudication Division Director said that while the reporting procedures result in overreporting of the number of times the different bases and issues were alleged, he believes that the data provide a "fair approximation" of bases and issues included in complaints. He agreed, however, that recording data in a way that would establish the number of times the different bases and issues are cited in the universe of complaints would make sense. The way EEOC collects basis and issue data does, however, yield some insight into the importance of the different issues to the different categories of complainants. The form that each agency is to complete shows the issues raised under each basis and the number of times that a particular issue was raised. With these data, an agency manager can determine, for example, the issues that female employees alleging sex discrimination complained about and the number of times each of those issues was raised. The one essential statistic that is missing, however, is the actual number of complaints made by women alleging sex discrimination. Further, while EEOC collects information showing the extent to which specific issues are associated with specific bases at each agency, it does not aggregate this information for all federal agencies. The discrimination complaint data that EEOC has collected and reported are of questionable reliability because (1) agencies did not always report data consistently, completely, or accurately and (2) EEOC did not have procedures that ensured the data were reliable. Federal agencies take varying approaches to reporting data on complaint bases and issues to EEOC. We reviewed the Postal Service's data submissions to EEOC, as well as the process to prepare these submissions, and found that the agency did not follow EEOC's instructions to associate the issue or issues raised in each complaint with the basis or bases involved. For each complaint, regardless of the number of issues raised by the employee, the Postal Service identified and reported only one "primary" issue. In commenting on a draft of this report, the Postal Service's Manager, EEO Compliance and Appeals, said that the Postal Service adopted this approach to give the data more focus by identifying the primary issues driving postal workers' discrimination complaints. We did not review reports and reporting practices among nonpostal agencies for consistency and attention to completeness and accuracy. However, we spoke with officials from two large nonpostal agencies who indicated that they followed EEOC instructions, which, as discussed above, can result in an overcounting of bases and issues. EEOC's Complaints Adjudication Division Director said that agencies might be using different approaches to reporting the data. However, he said that he did not know the extent to which such variation may exist because EEOC had not examined how agencies complete their reports. The issue of incomplete or inaccurate reporting of data was evident in our analysis of the data that the Postal Service reported to EEOC for fiscal years 1992 and 1995 through 1997. We analyzed Postal Service statistics because postal workers accounted for about half of the discrimination complaints filed by federal employees in fiscal year 1997. In addition to not completely reporting all issues raised in complaints, we found that the Postal Service's statistical reports to EEOC for fiscal years 1996 and 1997 did not include data for certain categories of issues. Further, we found certain underreporting of bases for complaints and issues by the Postal Service in fiscal year 1995. Postal Service officials also told us that complaint statistics were incomplete for fiscal year 1992. Another, especially significant, reporting error we identified involved the number of race-based complaints. As a result of a computer programming error, the number of complaints reported by the Postal Service to contain allegations by white postal workers of discrimination based on race was overstated in fiscal years 1996 and 1997 by about 500 percent. After we brought these errors to the attention of Postal Service officials, they provided corrected data to us and EEOC for all errors except those relating to the fiscal year 1992 data. Postal Service officials said that because EEO-related staff had been reassigned during restructuring of the Postal Service that began in fiscal year 1992, not all complaints were properly accounted for that year. The officials also said that the computer program used to generate reports to EEOC had been modified to correct the fault in the way race-based complaints are to be counted. Errors in data reported to or by EEOC were a recurring problem in our work identifying trends in federal sector EEO complaints. In addition to the Postal Service data errors, during our prior work, we found errors for nonpostal agencies' data. EEOC does not audit or verify the data it receives from agencies and publishes in the annual Federal Sector Report on EEO Complaints Processing and Appeals because of time considerations and staff limitations, according to the Complaints Adjudication Division Director. He said, however, that EEOC staff review agencies' data to identify figures that appear unusual or inconsistent with other data reported. As we observed, this procedure did not ensure the reliability of the data EEOC collected and put in print. For example, in preparing the aggregated figures that it published in its federal sector report for fiscal year 1996, EEOC used the Postal Service's vastly overstated data on racial discrimination complaints by white employees, thereby skewing the portrayal of discrimination complaint trends governmentwide. Data about the bases for complaints and the issues giving rise to them can be valuable in gauging conflict in the federal workplace. However, EEOC does not collect or report relevant agency data in a way that would help answer fundamental questions about the number of complainants and the prevalence of bases and issues in the universe of complaints. In addition, some of the data collected and reported by EEOC have lacked the necessary reliability because agencies did not report their data consistently, completely, or accurately, and because EEOC did not have procedures that ensured the data were reliable. Consequently, the data do not provide a sound basis for decisionmakers, program managers, and EEOC to understand the nature and extent of workplace conflict, develop strategies to deal with conflict, and measure the results of interventions. To help ensure that relevant and reliable data are available to decisionmakers and program managers, we recommend that the Chairwoman, EEOC, take steps to enable EEOC to collect and publish data on complaint bases and issues in a manner that would allow fundamental questions about the number of complainants and the prevalence of bases and issues in the universe of complaints to be answered, and develop procedures to help ensure that agencies report data consistently, completely, and accurately. We received comments on a draft of this report from EEOC and the Postal Service. In its written comments (see app. II), EEOC agreed that the data collected from federal agencies could be more comprehensive and accurate. EEOC said that it would expedite its efforts to revise the instructions for data collection and that it would address the concerns we raised in this report. EEOC further stated that, given the required review and approval processes, including allowing time for federal agencies to comment, it would take about 8 months to issue the changes and an additional 12 months for the agencies to report complaint data to EEOC in accordance with the new instructions. Under EEOC's timetable, it will be several years before EEOC's annual federal sector reports reflect the results of the agency's efforts to revise instructions for data collection and to promote more comprehensive and reliable reporting. EEOC's revised instructions would be issued in the beginning of fiscal year 2000, and the first complete fiscal year for which the instructions would be applicable would be fiscal year 2001. Agencies' statistical reports for the fiscal year ending 2001 would not be submitted to EEOC until fiscal year 2002 for later publication in the Federal Sector Report on EEO Complaints Processing and Appeals. EEOC did not indicate, however, when the first federal sector report containing these data would be published. EEOC also said that that it would take action to address our concerns about data consistency, completeness, and accuracy. To deal with problems in the reliability of the data collected from agencies, EEOC said that it would urge agencies to give higher priority to the accuracy of their data. EEOC said it will ask agencies to certify the reliability of the data they provide and to explain how they ensure the quality of their data. In addition, EEOC said that if additional resources it has requested for fiscal year 2000 become available, it would be able to conduct on-site reviews to assess the reliability of agency data, more closely examine the nature of workplace disputes, and work with agencies to improve their EEO programs. We believe that the actions proposed by EEOC are generally responsive to our recommendation and would add some measure of reliability to the data it collects and reports. By urging agencies to give higher priority to data reliability, EEOC would be reiterating its current policy, as stated in Management Directive 110, that "Every effort should be made to ensure accurate recordkeeping and reporting of federal EEO data and that all data submissions are fully responsive and in compliance with information requests." By proposing that agencies certify the reliability of the their data and explain how they ensure data quality, EEOC will be providing a mechanism for holding agencies more accountable for producing reliable and accurate data and, if followed, would have some basis to assess the extent to which an agency's processes may ensure the data's reliability and accuracy. An assessment of agencies' quality control procedures and consideration of discrepancies contained in previous data submissions, among other factors, would enable EEOC to select agencies for any future on-site reviews based on the estimated risk of agencies submitting unreliable data. On April 9, 1999, the Postal Service's Manager, EEO Compliance and Appeals, provided oral comments on a draft of this report. He said that the report, in general, accurately describes the data shortcomings and opens the door for dialogue on how data could be collected in a manner that would better serve decisionmakers. He agreed with the recommendation that data be collected on the number of complainants. In addition, he suggested that data be collected on the number of repeat filers. The official said it has been his experience that between 60 and 70 individuals account for every 100 complaints in a fiscal year. He also suggested that EEOC collect data about the race and sex of complainants along basis and issue lines. He further suggested that similar data be collected for individuals seeking counseling. The official said that the Postal Service's complaint information system is capable of producing this kind of information because it tracks individuals by their Social Security number. For example, he said that his office has been able to provide Postal Service management with complaint data for each of the Service's 85 districts in order to identify the extent of workplace conflicts at the different locations and the primary issues driving the conflicts. He said, however, that the issues listed on EEOC Form 462 (see app. I) need to be revised to make them more relevant to the agencies reporting to EEOC. He suggested that EEOC convene a working group of federal agency representatives to deal with this and other data issues. We believe the Postal Service official's suggestion that EEOC develop a working group of federal agency representatives to participate in revising data collection requirements would allow stakeholders to be active partners in the development of data collection requirements that affect them. Although we did not identify all of the data that would be useful to decisionmakers and program managers, a working group would provide a forum for developing a consensus on data needs. It might be appropriate to include congressional stakeholders in any working group because of their oversight and policymaking responsibilities. It should be noted that other agencies that deal with redress and human capital issues--the Office of Personnel Management and the Merit Systems Protection Board--have working groups or panels to assist them in carrying out their missions. The Postal Service official also said it would be helpful if EEOC revised its system of collecting data to facilitate more timely collection and publication of federal sector EEO complaint data. He noted that the federal sector reports are published nearly 2 years after the fiscal year's end. More timely data, he said, would make data more useful to decisionmakers. We agree that more timely data are more likely to be useful to decisionmakers. Although timeliness is not an issue we reviewed, we did observe what appeared to be lengthy periods before data were made available. For example, EEOC published the fiscal year 1997 Federal Sector Report on EEO Complaints Processing and Appeals on April 27, 1999, 18 months after the end of fiscal year 1997. The working group proposed by the Postal Service official could be a forum for further exploring this issue. As agreed with your offices, we plan no further distribution of this report until 30 days after its issuance, unless you publicly release its contents earlier. We will then send copies of this report to Senators Daniel K. Akaka, Thad Cochran, Joseph I. Lieberman, and Fred Thompson; and Representatives Robert E. Andrews, John A. Boehner, Dan Burton, William L. Clay, Chaka Fattah, William F. Goodling, Steny H. Hoyer, Jim Kolbe, John M. McHugh, David Obey, Harold Rogers, Joe Scarborough, Jose E. Serrano, Henry A. Waxman, and C. W. Bill Young in their capacities as Chair or Ranking Minority Members of Senate and House Committees and Subcommittees. We will also send copies to The Honorable Ida L. Castro, Chairwoman, EEOC; The Honorable William J. Henderson, Postmaster General; The Honorable Janice R. Lachance, Director, Office of Personnel Management; The Honorable Jacob Lew, Director, Office of Management and Budget; and other interested parties. We will make copies of this report available to others on request. Major contributors to this report are listed in appendix III. Please contact me on (202) 512-8676 if you or your staff have any questions concerning this report. Stephen E. Altman, Assistant Director, Federal Management and Workforce Issues Anthony P. Lofaro, Evaluator-in-Charge Gary V. Lawson, Senior Evaluator Sharon T. Hogan, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touch-tone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO provided information on the nature and extent of workplace conflicts that underlie the rising number of discrimination cases, focusing on: (1) the statutory bases (e.g., race, sex, or disability discrimination) under which employees filed complaints; (2) the kinds of issues (e.g., nonselection for promotion, harassment) that were cited in these complaints; and (3) why the data collected and reported by the Equal Employment Opportunity Commission (EEOC) were not helpful in answering the questions raised. GAO noted that: (1) relevant and reliable data about the bases for federal employee discrimination complaints and the specific issues giving rise to these complaints would help decisionmakers and program managers understand the nature and extent of conflict in the federal workplace; (2) these data could also be used to help plan corrective actions and measure the results of interventions; (3) however, EEOC does not collect and report data about bases and issues in a way that would help answer some fundamental questions about the nature and extent of workplace conflicts, such as: (a) how many individuals filed complaints; (b) in how many complaints each of the bases for discrimination was alleged; and (c) the most frequently cited issues in employees' discrimination complaints and in how many complaints was each of the issues cited; (4) moreover, the reliability of the data that EEOC collects from agencies and reports is questionable; (5) GAO found that agencies reported basis and issue data to EEOC in an inconsistent manner; (6) GAO also found that agencies did not report to EEOC some of the data it requested and reported some other data incorrectly; and (7) in addition, because EEOC did not have procedures that ensured the reliability of the data it collected from agencies, it published some unreliable data in its annual Federal Sector Report on Equal Employment Opportunity Complaints Processing and Appeals.
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The Corporation for National and Community Service was created to help meet community needs in education, the environment, and public safety and to expand educational opportunity by rewarding individuals who participate in national service. The Corporation is part of USA Freedom Corps, a White House initiative to foster a culture of citizenship, service, and responsibility and help all Americans answer the President's call to service. The Corporation receives appropriations to fund program operations and the National Service Trust. The Corporation makes grants from its program appropriations to help grant recipients carry out national service programs. AmeriCorps is one of three national service programs the Corporation oversees. Most of the grant funding from the Corporation for AmeriCorps programs goes to state service commissions, which award subgrants to nonprofit groups and agencies that enroll the AmeriCorps' participants. Participants in the AmeriCorps program can receive a stipend as well as health benefits and childcare coverage. For example, about one-half of AmeriCorps' participants received an annual living allowance of $9,300 and health benefits. Those participants who successfully complete a required term of service earn an education award that can be used to pay for undergraduate school, or graduate school, or to pay back qualified student loans. In exchange for a term of service, full-time AmeriCorps participants earned an education award of $4,725 in program year 2002. Participants have up to 7 years from the date of completion of service to use the education award. AmeriCorps also enrolls participants on a part- time basis and as "education awards only" participants. Part-time participants who serve 900 or fewer hours annually earn education awards proportional to those earned by full-time participants. Under the "education awards only" program, AmeriCorps does not pay the participant a living allowance or other benefits, but provides grant funding for administrative purposes only, about $400 per full-time participant annually. However, each participant receives an education award equivalent to that earned by a paid AmeriCorps participant. The number of AmeriCorps participants increased by nearly 20,000 from 1998 to 2001. The program year 2002 data indicate the number of positions awarded will decrease by about 8,000. (See figure 1.) In November 2002, the Corporation suspended enrollments in AmeriCorps because total enrollments were potentially higher than the Corporation had expected. No new funds had been requested by and appropriated to the Trust for fiscal year 2002, and under the continuing resolution at the start of fiscal year 2003, no new funds would be deposited into the Trust until the Corporation's fiscal year 2003 appropriations were enacted. The Corporation concluded that if its grantees and subgrantees were to fully enroll new participants up to the maximum number of enrollments the Corporation had approved in its grants, the Trust would not have a sufficient amount to provide the educational awards to those participants. Enrollments in AmeriCorps were frozen from November 2002 through March 2003. Three factors contributed to the Corporation's need to suspend enrollments in AmeriCorps. Although the Corporation specified the maximum number of new participants in the grants it awarded, the Corporation did not recognize its obligation to fund participant education awards until it actually paid the benefits. Had the Corporation properly tracked and recorded its obligations in the Trust at the time of grant award when it approved new enrollments, it likely would not have needed to suspend enrollments. In addition, there was little, if any, communication among the AmeriCorps program office, the grants management office, and the Trust about the number of positions that the Trust could support. Furthermore, by allowing grantees various flexibilities and not requiring them to provide timely enrollment information, the Corporation and AmeriCorps managers could not be certain about the number of participants. The Corporation did not appropriately record or track its obligations for education awards to program participants. Generally, an agency incurs an obligation for the amount of the grant award with the execution of a grant agreement. The Corporation enters into grant agreements with state service commissions in which it specifies the budget and project period of the award, the total number of positions approved, the total amount awarded for program costs for the approved positions, and the terms of acceptance. The award for the program costs is used to pay participants' stipends and health and child care coverage. The Corporation incurs an obligation for these program costs at the time of grant award. While the costs of education awards for the new participants are not specified in the grants, in the grant agreements the Corporation commits to funding education awards for all of the qualified positions initially approved in a grant if the subgrantee enrolls all of the participants before the Corporation modifies the terms or conditions of the grant. In other words, upon award of the grant, the Corporation, at a minimum, has accepted " legal duty ... which could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States." However, the Corporation has concluded that it is not necessary to obligate funds until an individual actually enrolls in AmeriCorps. Therefore, the Corporation recorded education award obligations on an outlay basis. That is, obligations were recorded at the time of the quarterly drawdown of amounts for education awards from the Trust. By failing to recognize and record its obligations at the time of grant award, the Corporation had no assurance that the number of positions approved in grant awards did not exceed the amount of educational awards the Trust could support. Proper recording of obligations serves to protect the government by ensuring that it has adequate budget authority to cover all of its commitments and prevent agencies from over-obligating its budget authority. Corporation executives we interviewed said that there was little if any coordination between the AmeriCorps program office and officials responsible for the management of the Trust about the number of positions that the Trust could support. The AmeriCorps director said that she considered the grant budget independent from the Trust and she neither consulted with nor received direction from the Trust director when making decisions about the grants. In addition, in recent years, AmeriCorps has tried to increase the number of participants by enrolling them in the "education awards only" program. Under this program, which was an effort to lower the per participant program cost, AmeriCorps provides funding to grantees for administrative purposes only, currently about $400 per full-time participant annually. Increasing the number of participants in this way is at a low cost to the AmeriCorps program appropriation, but at full cost to the Trust, which funds the education awards, because each participant receives an education award equivalent to that earned by a paid AmeriCorps participant. Consequently, the number of positions funded by AmeriCorps grants was not reconciled with the number supportable by the Trust. According to Corporation officials we spoke with, the Trust's funding needs were based on an expected enrollment of 50,000, while the AmeriCorps program office approved grants for about 75,000 participants. Corporation officials also said that prior to suspending enrollments in AmeriCorps, the Trust was so well funded it did not warrant their attention. They told us that early in the AmeriCorps program, a goal of 50,000 participants annually was used for Trust budgeting purposes. However, it was found that fewer than that number of participants enrolled, and not all of those who participated earned education awards. Additionally, a Corporation budget official said that in the past those who earned education awards were not using them as quickly as expected. Even as the number of AmeriCorps participants grew, the Trust's accounting records showed an unobligated balance that was high enough for Congress to rescind $111 million over fiscal years 2000 and 2001, resulting in the deobligation of the Trust by this amount. Given this history, Corporation managers did not see the need to reconcile the number of positions created by grant funding with the number the Trust could support. The Trust balance was not viewed as a constraining factor. Because the number of positions approved in the grants was not reconciled with the Trust before grants were awarded, there was the potential for grantees to enroll more participants than the Trust could support. Two program management policies affected the number and type of participants and, therefore, the use of Trust funds. One policy permitted grantees to over enroll participants under certain circumstances with approval from their AmeriCorps program officer. Specifically, the policy allowed grantees to over enroll up to 20 percent. The program year 2002-03 data indicate that while only a few of the grantees increased their enrollment, some increased theirs by more than 20 percent. Another policy allowed grantees to convert positions from full-time to part-time as long as the total number of full-time equivalents supported by the grant did not change. While this practice did not affect the program funds, it did affect the Trust. After the enrollments were suspended, Corporation officials determined that part-time participants used their education awards at a higher rate than full-time participants and therefore the number of part- time participants resulted in a relatively higher level of use for the education award. The Corporation did not have reliable data on the number of AmeriCorps participants during the period leading up to the suspension. Enrollments are recorded by grantees through the Corporation's Web-Based Reporting System (WBRS). While the enrollment information in WBRS was uploaded into the Corporation's database and used to track education award obligations on a weekly basis, Corporation officials said that discrepancies existed between the number of participants enrolled and the number the Corporation was aware of, because of the length of time between when a participant started to serve and when the grantee entered information into WBRS. A Corporation official said that it was not unheard of for some grantees to be 60 to 90 days late in entering an enrollment into WBRS. By allowing grantees the flexibility to change the number and type of participants coupled with delays in receiving information on enrollments, the Corporation and AmeriCorps managers could not be certain about the number of participants. Corporation officials said that this resulting lack of confidence in the data was a contributing factor to the decision to suspend enrollments. In response to concerns that the AmeriCorps program may have enrolled participants without adequately providing for their education awards, the Corporation has developed several new policies. While the Corporation is modifying its practice of when it records obligations, the Corporation overlooks the legal duty it incurs at the time of grant award. Other policy changes are directed to improving communication among key executives, limiting grantees' flexibilities and requiring more timely information on participants. While these policies were only recently introduced, they could, if implemented, help the Corporation keep track of the day-to-day aspects of the AmeriCorps program and provide information needed to monitor the use of the Trust in order to determine whether the Corporation should make adjustments, such as deobligating excess funds. However, data integration problems between WBRS and the program the Corporation uses to track the education awards earned by AmeriCorps participants may hamper the effectiveness of the new procedures. The Corporation is in the process of modifying its practices regarding when it will record obligations. The Corporation's General Counsel explained that the Corporation will record obligations at the time of enrollment, instead of on a quarterly drawdown basis and that the obligations will be based on estimates of what these enrolled members will draw down in the future. The Corporation is of the opinion that it does not incur an obligation for an education award until the time of enrollment because it may modify the terms and conditions of a grant, including a reduction in the number of new participants the grantee may enroll, prior to the enrollment of all positions initially approved in a grant, to prevent a shortfall in the Trust. The General Counsel also said "...a binding agreement between the Government and an AmeriCorps member exists only upon the member's authorized enrollment in the Trust." While it may be true that the Corporation has no binding agreement with a participant until the participant enrolls in AmeriCorps, this is not the controlling consideration for fund control purposes. In our opinion, this view overlooks the legal duty the Corporation incurs at the time of grant award when it commits to funding a specified number of participants and the constraint imposed on the Corporation by the National and Community Service Act. Specifically, the act says "...he Corporation may not approve positions as national service positions...for a fiscal year in excess of the number of positions for which the Corporation has sufficient available funds in the National Service Trust for that fiscal year...". The Corporation, by its own admission, may modify the number of approved participants only if it amends the grant agreement to reduce the number of enrolled positions prior to enrollment. When a grant is awarded, the number of new participants approved in the grant establishes a legal duty that can mature into a legal liability for education awards by virtue of actions of the grantee, unless the Corporation modifies the grant prior to participant enrollment. While the Corporation may unilaterally reduce the number of authorized positions awarded to a grantee prior to participant enrollment, from the time of grant award until the Corporation acts to reduce the approved number of positions, the grantee and its subgrantee, not the Corporation, will control the number of participants who may enroll, up to the maximum number of participants the Corporation has approved in the grant agreement. It is also significant to note that the grantee and subgrantee, by their actions in enrolling participants, not the Corporation, control the amount, ultimately, of the Corporation's liability. If the amount of liability to the government is under the control of the grantee, not the Corporation, the government should obligate funds to cover the maximum amount of the liability. As more information is known, the Corporation should adjust the obligation--deobligate funds or increase the obligation level--as needed. The Corporation also said that at the time a member enrolls it would record its "...best estimate of the Government's ultimate liability of education awards provided to members enrolled in the National Service Trust." According to the Corporation's General Counsel, the Corporation's estimates of the amount that enrolled members will draw down is based on historical information, such as attrition rate and actual usage by participants who complete a term of service and earn an education award. It appears to us that the Corporation is confusing its accounting liability--projections booked in its accounting systems for financial statement purposes, with its legal liability--amounts to be recorded in its obligational accounting systems and tracked in order to ensure compliance with fiscal laws. One of the federal financial accounting standards states that a liability for proprietary accounting purposes is a probable and measurable future outflow or other sacrifice of resources as a result of past transactions or events. Traditionally, projections of accounting liability consider the same factors, such as historical trends, that are considered in the Corporation's model. To track its obligations, the Corporation should be recording its unmatured legal liability for the education awards, which is the total cost associated with the enrollment of all approved positions. The Corporation's obligation should be recorded as it is incurred and should be calculated by multiplying the number of approved positions in a grant by the total cost of a national service educational award. Policy changes at Corporation headquarters are designed to improve communication between several key offices and officials. A major change is that the Trust balance is to be a limiting factor on grant awards and, therefore, enrollment levels. In addition, beginning with the 2003 grant cycle, one new policy calls for the AmeriCorps director to work with the grants director, the Chief Financial Officer (CFO), and the Trust director to compare projections of positions to be approved in grants with those supported by actual appropriations, and the Chief Executive Officer (CEO) will only approve the number of positions the Trust can support. Additionally, the CEO will approve all AmeriCorps grants after consultation with the CFO on the number of education awards that can be supported by the Trust. Also, the policy states that the CEO, CFO, the Trust director, and the AmeriCorps director will meet at least monthly to review and reconcile enrollment data and Trust data. Through bi-weekly reports, the AmeriCorps director and the Trust director are to keep the CEO and CFO informed of the number of approved and filled positions. The Trust director is to monitor factors relevant to forecasting Trust liabilities and report regularly to the CFO, highlighting deviations from assumptions in the model. Each month the CFO is to use actual enrollment data to re-evaluate the model for forecasting Trust liabilities. If the revision results in a need to change enrollment targets, the CFO will notify the CEO and AmeriCorps director immediately. The CEO will take appropriate action and report any such action to Congress, the Corporation's Board, and the Office of Management and Budget. Regular meetings and attention to the enrollment data should help the Corporation keep track of the day-to-day aspects of the AmeriCorps program. Such updated information is an important step in monitoring the use of the Trust in order to determine whether the Corporation should make adjustments. For example, if the Corporation obligated the full cost for each of the positions approved at the time of grant award, and later determined that many of the positions will not be filled, it could reduce the number of approved positions and deobligate some of the funds. The policy changes and new procedures were announced in January. We will continue to monitor the implementation of these policy changes. The Corporation has changed policies regarding its grantees ability to over enroll participants, replace participants who leave with new enrollees and change positions from full-time to part-time. In a January 22, 2003, memorandum, the director of AmeriCorps cancelled the policy that allowed grantees to over enroll members by up to 20 percent over the ceiling established in the grant award in order to take account of attrition. Furthermore, an official said AmeriCorps now considers a position to be filled for the term of the grant once the grantee enrolls a participant, even if the participant later drops out of the program, whether or not an education award was earned. The official said that in the past, grantees could enroll a new member to serve out the balance of the term if grant funds were available. A Corporation official also said that there is a new policy that restricts grantees from converting full-time positions to part- time positions. Grantees must now request and receive approval from the Corporation before such changes can be made. Since grantees will not be permitted to modify the number and type of authorized positions, the Corporation's ability to manage the AmeriCorps program should improve. Most 2003 grant positions have not yet been awarded; therefore, it is too early to tell whether these new policies will be effective. We will monitor these policies and assess the extent to which they have been implemented as we complete our work. In January 2003 the Corporation informed all grantees that AmeriCorps will require timely reporting of participant information to ensure that the Trust database receives current information on the number of participants eligible for an education award. Grantees will be required to keep AmeriCorps informed of the number of participants offered positions and the number who accept and enroll and to document enrollment through WBRS no later than 30 days after participants start working. The memorandum warns grantees that failure to comply with this requirement could result in reductions in the number of positions or termination of the grant. Additionally, the memorandum directs state commissions and other AmeriCorps grantees--the organizations responsible for the oversight of subgrantees--to implement procedures to ensure that timely notification of participant commitments and enrollments is part of their review and oversight functions. Furthermore, the Corporation has made changes to WBRS, which is used to track participant, grant, and budget information. First, controls have been put in place to limit the number of positions listed in WBRS to no more than the number of approved positions. The Corporation's Biweekly Trust Enrollment Summary, as of March 2003, shows that award totals are being tracked and compared with the data estimates in the Trust. However, officials told us that there are some data reconciliation problems between WBRS and the program used by the Corporation to track the education awards earned by AmeriCorps participants. Corporation staff have had to make manual adjustments to reconcile the data. Accurate and timely information about enrollments should help the Corporation and AmeriCorps manage the program. As grants are awarded, we will be able to assess whether the policies have been fully implemented. The Corporation's new policies, if fully implemented, should help the Corporation manage the AmeriCorps program by providing better information on day-to-day operations. However, without obligating the full amount associated with all of the positions authorized in the grants, the Corporation remains at risk of having the actual number of enrollments exceed the estimated number the Trust can support. We will monitor the implementation of the Corporation's new policies as we continue our review. For further information regarding this statement, please call Cornelia M. Ashby at (202) 512-8403 or Susan A. Poling at 202-512-5644. Individuals making key contributions to this testimony included Carolyn M. Taylor, Tom Armstrong, Anthony DeFrank, Joel Marus, and Hannah Laufe. Appendix I: Obligational Practices of the Corporation for National and Community Service This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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In November 2002, the Corporation for National and Community Service suspended enrollments in the AmeriCorps program due to concern that the National Service Trust may not contain enough funds to meet the education award obligations resulting from AmeriCorps enrollments. This testimony reflects GAO's preliminary review of the factors that contributed to the need to suspend enrollments and GAO's preliminary assessment of the Corporation's proposed changes. The number of participants enrolled in AmeriCorps increased by about 20,000 from program year 1998 to program year 2001. However, the number of AmeriCorps participants was not reconciled with the number of education awards that the National Service Trust could support. GAO identified several factors that led the Corporation to suspend enrollments. The factors included inappropriate obligation practices, little or no communication among key Corporation executives, too much flexibility given to grantees regarding enrollments, and unreliable data on the number of AmeriCorps participants. The Corporation has established new policies that may improve the overall management of the National Service Trust if the policies are fully implemented. However, the Corporation has not made policy changes to correct a key factor--how it obligates funds for education awards.
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Because of a number of security incidents, Diplomatic Security's missions and resources have grown tremendously in the past decade. The growth in Diplomatic Security's mission includes key areas such as enhanced physical security and investigations. Following the 1998 attacks on U.S. Embassies in Kenya and Tanzania, Diplomatic Security determined that more than 85 percent of U.S. diplomatic facilities did not meet its security standards and were therefore vulnerable to terrorist attack; in response, Diplomatic Security added many of the physical security measures currently in place at most U.S. missions worldwide, such as additional barriers, alarms, public address systems, and enhanced access procedures. Since 1998, there have been 39 attacks aimed at U.S. Embassies, Consulates, or Chief of Mission personnel (not including regular attacks against the U.S. Embassy in Baghdad since 2004). The nature of some of these attacks has led Diplomatic Security to further adapt its security measures. Moreover, the attacks of September 11, 2001, underscored the importance of upgrading Diplomatic Security's domestic security programs and enhancing its investigative capacity. Furthermore, following the onset of U.S. operations in Iraq in 2003, Diplomatic Security has had to provide security in the Iraq and Afghanistan war zones and other increasingly hostile environments such as Pakistan. Diplomatic Security funding and personnel have also increased considerably in conjunction with its expanding missions. Diplomatic Security reports that its budget has increased from about $200 million in 1998 to $1.8 billion in 2008. In addition, the size of Diplomatic Security's direct-hire workforce has doubled since 1998. The number of direct-hire security specialists (special agents, engineers, technicians, and couriers) increased from under 1,000 in 1998 to over 2,000 in 2009, and the number of direct-hire civil service personnel increased from 258 to 592. At the same time, Diplomatic Security has increased its use of contractors to support its security operations worldwide, specifically through increases in the Diplomatic Security guard force and the use of contractors to provide protective details for American diplomats in high-threat environments. Diplomatic Security faces several policy and operational challenges. First, State is maintaining missions in increasingly dangerous locations, necessitating the use of more resources and making it more difficult to provide security in these locations. Second, although Diplomatic Security has grown considerably in staff over the last 10 years, staffing shortages in domestic offices, as well as other operational challenges further tax Diplomatic Security's ability to implement all of its missions. Finally, State has expanded Diplomatic Security without the benefit of solid strategic planning. Diplomatic Security officials stated that maintaining missions in dangerous environments such as Iraq and Afghanistan requires more resources and increases the difficulty for Diplomatic Security to provide a secure environment. Keeping staff secure, yet productive, in Iraq has been one of Diplomatic Security's greatest challenges since 2004, when security for the U.S. Embassy in Baghdad transferred from the U.S. Department of Defense to Diplomatic Security. The U.S. mission in Baghdad--with 1,300 authorized U.S. civilian personnel--is one of the largest in the world. Maintaining Diplomatic Security operations in Iraq has required approximately 36 percent of its entire budget each fiscal year since 2004 and, as of September 2008, required 81 special agents to manage security operations. To support security operations in Iraq, Diplomatic Security has had to draw staff and resources away from other programs. Earlier in 2009, we reported that Diplomatic Security's workload--and thus its resource requirements--will likely increase as the U.S. military transitions out of Iraq. U.S. policymakers' increased focus on Afghanistan poses another significant challenge for Diplomatic Security. The security situation in Afghanistan has deteriorated since 2005, and the number of attacks there increased from 2,388 in 2005 to 10,889 in 2008. Afghanistan is Diplomatic Security's second largest overseas post with a staff of 22 special agents in 2009. Diplomatic Security plans to add an additional 25 special agents in 2010, effectively doubling the number of agents in Afghanistan. In addition to operating in the Iraq and Afghanistan war zones, State is maintaining missions in an increasing number of other dangerous posts-- such as Peshawar, Pakistan, and Sana'a, Yemen--some of which State would have previously evacuated. Diplomatic Security's ability to fully carry out its mission of providing security worldwide is hindered by staffing shortages in domestic offices and other operational challenges such as inadequate facilities and pervasive language proficiency shortfalls. Despite Diplomatic Security's staff growth over the last 10 years, some offices have been operating with severe staffing shortages. In 2008, approximately one-third of Diplomatic Security's domestic suboffices operated with a 25 percent vacancy rate or higher. Several offices report that this shortage of staff affected their ability to conduct their work. For example: The Houston field office reported that, for 6 months of the year, it operated at 50 percent capacity of nonsupervisory agents or lower, and for 2 months during the summer, it dipped down to a low of 35 percent. This staffing gap happened while the field office was experiencing a significant increase in its caseload due to the Western Hemisphere Travel Initiative. As a result, the Houston field office management reported that this combination overwhelmed its capabilities and resulted in a significant backlog of cases. The New York field office reported that the number of special agents there dropped to 66 in 2008 from more than 110 agents in 2007. As a result, the office had to draw special agents from other field offices to cover its heavy dignitary protection load. In 2008, the Mobile Security Deployment (MSD) Office was authorized to have 94 special agent positions, but only 76 were filled. Furthermore, Diplomatic Security officials noted that not all staff in filled positions are available for duty. For example, in 2009, 22 agents assigned to MSD were in training. As a result of the low level of available staff, Diplomatic Security reported that many posts go for years without updating their security training. Officials noted that this lack of available agents is particularly problematic given the high number of critical threat posts that are only 1-year tours that would benefit from frequent training. State officials attributed these shortages to the following three factors: Staffing the Iraq mission: Staffing the Iraq mission in 2008 required 16 percent of Diplomatic Security's staff. In order to provide enough Diplomatic Security special agents in Iraq, we reported that Diplomatic Security had to move agents from other programs, and those moves have affected the agency's ability to perform other missions, including providing security for visiting dignitaries and visa, passport, and identity fraud investigations. Protection details: Diplomatic Security draws agents from field offices, headquarters, and overseas posts to participate in protective details and special events, such as the Olympics. Recently, Diplomatic Security's role in providing protection at such major events has grown and will require more staff. Normal rotations: Staff take home leave between postings and sometimes are required to take training before starting their next assignment. This rotation process regularly creates a labor shortage, which affects Diplomatic Security's ability to meet its increased security demands. In 2005, Diplomatic Security identified the need for a training float-- additional staff that would allow it to fill critical positions and still allow staff time for job training--but Diplomatic Security has not been able to implement one. This is consistent with our observation that State has been unable to create a training float because its staff increases have been absorbed by the demand for personnel in Iraq and Afghanistan. Diplomatic Security requested funding to add over 350 security positions in fiscal year 2010. However, new hires cannot be immediately deployed overseas because they must meet training requirements. In addition to hiring new special agents, Diplomatic Security established the Security Protection Specialist (SPS) position in February 2009 to create a cadre of professionals specifically trained in personnel protection who can provide oversight for the contractor-operated protective details in high-threat posts. Because of the more targeted training requirements, Diplomatic Security would be able to deploy the SPS staff more quickly than new hire special agents. However, Diplomatic Security has had difficulty recruiting and hiring a sufficient number of SPS candidates. According to senior Diplomatic Security officials, it may cancel the program if it cannot recruit enough qualified candidates. Diplomatic Security faces a number of other operational challenges that impede it from fully implementing its missions and activities, including: Inadequate buildings: State is in the process of updating and building many new facilities. However, we have previously identified many posts that do not meet all security standards delineated by the Overseas Security Policy Board and the Secure Embassy Construction and Counterterrorism Act of 1999. Foreign language deficiencies: Earlier this year, we found that 53 percent of Regional Security Officers do not speak and read at the level required by their positions, and we concluded that these foreign language shortfalls could be negatively affecting several aspects of U.S. diplomacy, including security operations. For example, an officer at a post of strategic interest said because she did not speak the language, she had transferred a sensitive telephone call from a local informant to a local employee, which could have compromised the informant's identity. Experience gaps: Thirty-four percent of Diplomatic Security's positions (not including those in Baghdad) are filled with officers below the position's grade. For example, several Assistant Regional Security Officers with whom we met were in their first overseas positions and stated that they did not feel adequately prepared for their job, particularly their responsibility to manage large security contracts. We previously reported that experience gaps can compromise diplomatic readiness. Host country laws: At times, host country laws prohibit Diplomatic Security from taking all the security precautions it would like outside an embassy. For example, Diplomatic Security officials said that they prefer to arm their local guard forces and their special agents; however, several countries prohibit this. In cases of attack, this prohibition limits Diplomatic Security's ability to protect an embassy or consulate. Balancing security with the diplomatic mission: Diplomatic Security's desire to provide the best security possible for State's diplomatic corps has, at times, been in tension with State's diplomatic mission. For example, Diplomatic Security has established strict policies concerning access to U.S. facilities that usually include both personal and vehicle screening. Some public affairs officials--whose job it is to foster relations with host country nationals--have expressed concerns that these security measures discourage visitors from attending U.S. Embassy events or exhibits. In addition, the new embassies and consulates, with their high walls, deep setbacks, and strict screening procedures, have evoked the nickname, "Fortress America." Although some planning initiatives have been undertaken, neither State's departmental strategic plan nor Diplomatic Security's bureau strategic plan specifically addresses its resource needs or its management challenges. Diplomatic Security's tremendous growth over the last 10 years has been reactive and has not benefited from adequate strategic guidance. State's strategic plan does not specifically address Diplomatic Security's resource needs or management challenges, as required by the Government Performance and Results Act (GPRA) and other standards. While State's strategic plan for 2007-2012 has a section identifying security priorities and goals, we found it did not identify the resources needed to meet these goals or address all of the management challenges we identified in this report. Diplomatic Security has undertaken some planning efforts at the bureau and office level, but these efforts also have limitations. First, Diplomatic Security creates an annual bureau strategic plan. While this plan lists priorities, goals, and indicators, these elements are not always linked together. Further, the plan does not identify what staff, equipment, or funding would be needed. Second, Diplomatic Security has created a Visa and Passport Security Strategic Plan to guide its efforts to disrupt individuals and organizations that attempt to compromise the integrity of U.S. travel documents. Third, Diplomatic Security reported that it is currently examining all of its security programs to determine how funding and personnel resources are distributed and support its goals. Finally, Diplomatic Security uses established security standards and staffing matrixes to determine what resources are needed for various activities. However, while these various tools help specific offices or missions plan their resource requests, they are not useful for determining overall bureau needs. Several senior Diplomatic Security officials noted that Diplomatic Security remains reactive in nature, stating several reasons for its lack of long-term strategic planning. First, Diplomatic Security provides a support function and must react to the needs of State; therefore, it cannot plan its own resources until State determines overall policy direction. Second, while State has a 5-year workforce plan that addresses all bureaus, officials stated that Diplomatic Security does not use this plan to determine its staffing needs. Finally, past efforts to strategically plan Diplomatic Security resources have gone unheeded. For example, Diplomatic Security's bureau strategic plan for fiscal year 2006 identified a need to (1) develop a workforce strategy to recruit and sustain a diverse and highly skilled security personnel base and (2) establish a training float to address recurring staffing problems. However, as of September 2009, Diplomatic Security had not addressed either of those needs. Diplomatic Security officials stated they hope to participate in a new State management initiative, the Quadrennial Diplomatic and Development Review (QDDR). This review, which will be managed by a senior leadership team under the direction of the Secretary of State, is designed to provide the short-, medium-, and long-term blueprints for State's diplomatic and development efforts and offer guidance on how State develops policies, allocates its resources, deploys its staff, and exercises its authorities. In our report, we recommended that the Secretary of State--as part of the QDDR or as a separate initiative--conduct a strategic review of the Bureau of Diplomatic Security to ensure that its missions and activities address State's priority needs. This review should also address key human capital and operational challenges faced by Diplomatic Security, such as operating domestic and international activities with adequate staff; providing security for facilities that do not meet all security standards; staffing foreign missions with officials who have appropriate language operating programs with experienced staff, at the commensurate grade balancing security needs with State's need to conduct its diplomatic mission. State agreed with our recommendation and noted that, although it is currently not planning to perform a strategic review of the full Diplomatic Security mission and capabilities in the QDDR, the Under Secretary for Management and the Assistant Secretary for Diplomatic Security are completely committed to ensuring that Diplomatic Security's mission will benefit from this initiative. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the Subcommittee may have at this time. For questions regarding this testimony, please contact Jess T. Ford at (202) 512-4128 or [email protected]. Individuals making key contributions to this testimony include Anthony Moran, Assistant Director; Miriam Carroll Fenton; Joseph Carney; Jonathan Fremont; and Antoine Clark. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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This testimony discusses the Department of State's (State) Bureau of Diplomatic Security (Diplomatic Security), which is responsible for the protection of people, information, and property at over 400 embassies, consulates, and domestic locations. Since the 1998 bombings of U.S. Embassies in East Africa, the scope and complexity of threats facing Americans abroad and at home has increased. Diplomatic Security must be prepared to counter threats such as crime, espionage, visa and passport fraud, technological intrusions, political violence, and terrorism. The statement today is based on a GAO report that was issued on November 12, 2009. It will discuss (1) the growth of Diplomatic Security's missions and resources and (2) the challenges Diplomatic Security faces in conducting its work. To address these objectives in our report, GAO (1) interviewed numerous officials at Diplomatic Security headquarters, several domestic facilities, and 18 international postings; (2) analyzed Diplomatic Security and State budget and personnel data; and (3) assessed challenges facing Diplomatic Security through analysis of interviews with personnel positioned domestically and internationally, budget and personnel data provided by State and Diplomatic Security, and planning and strategic documentation. GAO conducted this performance audit from September 2008 to November 2009, in accordance with generally accepted government auditing standards. Those standards require that GAO plans and performs the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. GAO believes that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Since 1998, Diplomatic Security's mission and activities--and, subsequently, its resources--have grown considerably in reaction to a number of security incidents. As a consequence of this growth, we identified several challenges. In particular (1) State is maintaining a presence in an increasing number of dangerous posts, which requires additional resources; (2) staffing shortages in domestic offices and other operational challenges--such as inadequate facilities, language deficiencies, experience gaps, and the difficulty of balancing security needs with State's diplomatic mission--further tax Diplomatic Security's ability to implement all of its missions; and (3) Diplomatic Security's considerable growth has not benefited from adequate strategic guidance. In our report, we recommend that the Secretary of State--as part of the agency's Quadrennial Diplomatic and Development Review (QDDR) or separately--conduct a strategic review of Diplomatic Security to ensure that its missions and activities address its priority needs.
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Eligibility for benefits under SSI, DI, Medicare, and Medicaid programs for individuals with disabilities is determined in part on whether an individual has a disability as defined in the Social Security Act. For purposes of these programs, a person is disabled if he or she has a medically determined physical or mental impairment that (1) has lasted or is expected to last at least 1 year or result in death and (2) prevents the person from engaging in substantial gainful activity (SGA). As of January 2003, SGA is defined as countable earnings--generally gross earnings less the cost of items that, because of the impairment, a person needs to work--of more than $800 per month. The Social Security Administration's (SSA) interpretation of disability specifies that for a person to be determined to be disabled, the impairment must be of such severity that the person not only is unable to do his or her previous work but, considering the person's age, education, and work experience, is unable to do any other kind of substantial work that exists in the national economy. The Ticket to Work and Work Incentives Improvement Act of 1999 allowed states to expand the availability of Medicaid coverage for individuals with disabilities who work, even though they earn more than the SGA level. States that implement Ticket to Work Buy-In programs may consider as disabled those individuals who, except for the fact that they are earning more than the SGA $800 monthly amount, otherwise would meet the Social Security Act definition of disabled. Individuals with disabilities become eligible for Medicaid in a variety of ways but primarily through SSI or DI eligibility (see table 1). Individuals with disabilities, however, must also meet Medicaid income and asset requirements in order to obtain Medicaid coverage. Both the SSI and DI programs contain work incentive provisions designed to assist individuals with disabilities to achieve gainful employment while retaining some eligibility for health care coverage. Individuals receiving SSI also are assured eligibility for Medicaid in 39 states and the District of Columbia. The remaining 11 states (known as 209(b) states) may use different standards for disability, income, or assets; thus, SSI beneficiaries in these 11 states may not have assured eligibility for Medicaid. Work incentives under SSI allow individuals to (1) have their SSI cash benefits gradually reduced as earnings increase, rather than having cash benefits removed entirely once earnings exceed the SGA limit, and (2) maintain their Medicaid coverage up to an income limit that varies across the states (from $15,049 (170 percent of the FPL) in Arizona to $39,228 (443 percent of the FPL) in New Hampshire as of 2002). Individuals receiving DI also may become eligible for Medicaid under certain circumstances. By virtue of their DI disability determination, they meet one of the categorical eligibility requirements for Medicaid. However, they must also meet Medicaid's income and asset requirements as defined by each state. DI beneficiaries can "spend down" their income on medical expenses in order to meet state-determined income limits for the medically needy eligibility category, if a state provides this optional coverage. While DI beneficiaries receive health care coverage through Medicare, eligibility for the medically needy category provides Medicaid- covered services that are not covered by Medicare, such as most outpatient prescription drugs. Work incentives under DI are structured such that if an individual's work activity increases to a level where he or she is no longer deemed disabled, the individual loses DI eligibility, and in turn, Medicaid eligibility. The Ticket to Work Medicaid Buy-In builds on an earlier effort to expand Medicaid eligibility for individuals with disabilities who desire to work. Through the Balanced Budget Act of 1997 (BBA) (Pub. L. No. 105-33, 111 Stat. 251), the Congress gave states the option of implementing a coverage category for working individuals with disabilities. For these individuals, the BBA authorized states to extend Medicaid coverage to those who meet the SSI definition of disability and exceed the SSI income eligibility limit but whose income remains under 250 percent of the FPL. States electing the BBA option may require beneficiaries to pay premiums or may use other cost-sharing provisions as long as they are set on a sliding scale based on income. As of December 2002, 12 states had implemented a BBA option for working individuals with disabilities. The Ticket to Work Medicaid Buy-In legislation expands the availability of Medicaid coverage for individuals with disabilities who desire to work by allowing them to gain or maintain Medicaid eligibility as they enter the workforce or to increase their earnings if they are in the workforce. The Ticket to Work Buy-In builds on the BBA option by giving states unlimited flexibility to set higher income and asset levels for two new eligibility groups--Basic Coverage Group and Medical Improvement Group--for working individuals with disabilities. (For a comparison of the two programs, see table 2.) The Basic Coverage Group allows states to cover people aged 16 to 64 who, except for the amount of their earned income, would be eligible to receive SSI benefits. States may establish their own income and asset standards or elect to have no standards at all. As with the BBA option, states electing the Basic Coverage Group may require participants to pay monthly premiums or may impose other cost-sharing mechanisms if they are set on an income-based sliding scale. However, for individuals with annual incomes less than 450 percent of the FPL, states may not impose premiums that exceed 7.5 percent of income. Additionally, if the individual's adjusted gross income for federal income tax purposes exceeds $75,000, the state must require the individual to pay the highest amount of premiums that an individual would be required to pay under the state's premium structure, although a state is allowed to subsidize this cost with its own funds. While the Basic Coverage Group Buy-In participants must have earnings, the Ticket to Work legislation does not specify a minimum level of employment for this group. Since states cannot adopt rules defining employment for this group that are more restrictive than those in federal law, states cannot establish requirements such as minimum earnings or hours worked. The Medical Improvement Group allows states to cover working individuals who lose Medicaid eligibility under the Basic Coverage Group because their conditions have improved to the point that they no longer meet the SSI definition of disability but still have "a severe, medically determinable impairment." The same premium requirements apply as for the Basic Coverage Group. If a state elects to cover the Medical Improvement Group, it must also cover the Basic Coverage Group. While the Ticket to Work legislation does not set an employment standard for the Basic Coverage Group, it provides a definition and also allows a state to define employment for the Medical Improvement Group. According to the legislation, an individual qualifying for the Medical Improvement Group is considered employed if the individual is earning at least the minimum wage and working at least 40 hours per month. Alternatively, a state may use hours of work, wage levels, or other measures to define employment if the Secretary of Health and Human Services approves the definition. Compared with the rest of the working-age population, the estimated 6.7 million working-age individuals with disabilities nationwide were more likely to be not working, have less education, and have incomes below the FPL. Specifically, 82 percent of working-age individuals with disabilities, or about 5.5 million individuals, reported that they were not working. (See fig. 1.) Nearly three-fourths of working-age individuals with disabilities reported they had a high school education or less. Furthermore, these individuals were nearly three times more likely than individuals without disabilities to have incomes below the FPL. At the same time, individuals with disabilities were less likely to be uninsured compared with the rest of the working-age U.S. population, with just 9 percent of those with disabilities reporting being uninsured, compared with 15 percent for the rest of the working-age population. Nearly half of individuals with disabilities who reported having health insurance obtained coverage through public sources, such as Medicaid and Medicare. Working-age individuals with disabilities were far more likely to have public health coverage than working-age individuals in the general population. Specifically, working-age individuals with disabilities were about eight times more likely to have public health insurance coverage than other working-age individuals. Generally, the lower the income level, the more likely an individual with disabilities was to have public health insurance coverage. For example, 75 percent of individuals with disabilities who had incomes below the FPL had public health insurance, while fewer than 20 percent of those with incomes at or exceeding 400 percent of the FPL had public coverage. The extent of their health care costs underscores the need for individuals with disabilities to maintain some type of health insurance coverage to help cover the costs of their care. Health care expenditures for working- age individuals with disabilities were about five times the expenditures for other working-age individuals, annually averaging about $7,600 and $1,500, respectively. The 12 states that opted to implement the Ticket to Work Medicaid Buy-In program as of December 2002 set income and asset levels for eligibility that provided new opportunities for working individuals with disabilities to secure and maintain Medicaid coverage. DI-eligible individuals benefited particularly because states' broader eligibility categories under the Buy-In allowed individuals to become eligible for Medicaid without spending down their incomes and to remain eligible when their incomes rose to higher levels. In addition to expanding income eligibility and asset limits, all states took advantage of the flexibility of the statute to charge premiums or copayments to ensure that Buy-In participants shared in the cost of their health care coverage. Across the 12 states that opted to implement Ticket to Work Medicaid Buy-In programs, all set eligibility requirements that expanded eligibility for working individuals with higher incomes or more assets than usually allowed under their Medicaid programs. As of December 2002, the number of Buy-In participants for the 12 states totaled 24,258, ranging from 3 participants in Wyoming to almost 8,500 participants in Missouri. (See table 3.) Eleven of the 12 states set Buy-In eligibility limits for income at twice the FPL or higher--or $17,720 per year for an individual in 2002-- thereby expanding opportunities for individuals to secure and maintain Medicaid coverage. Buy-In programs also allowed participants to retain more assets than usually allowed in states' Medicaid programs. Of the 12 states, 7 states set asset limits that ranged from $10,000 to $30,000 for individuals, couples, or both. Three states-- Missouri, Indiana, and Arkansas--opted for asset requirements of $4,000 or less for an individual, while the remaining two states--Washington and Wyoming-- imposed no asset limits. States generally allowed Ticket to Work participants to exclude certain assets from the asset limits. In addition to excluding the value of certain assets that applied to most individuals with disabilities in the Medicaid program when determining eligibility, 10 of the 12 states allowed Buy-In participants to save money in retirement accounts such as Individual Retirement Accounts, Keoghs, and 401(k)s; medical savings accounts; or special accounts that allow individuals to save for expenses such as modifications for job or home and education costs. These accounts are not considered when determining asset limits for participants. Two states-- Arkansas and Indiana--set $10,000 and $20,000 limits, respectively, on the amount of savings participants can accumulate in these accounts. State officials in a few states said allowing participants to exclude these retirement accounts and other assets helped support states' goals of affording working individuals with disabilities greater independence and self-sufficiency. For example, under these rules, participants can save to buy cars or homes and can set aside money for retirement. In most of the 12 states, the Buy-In programs were especially beneficial for DI-eligible individuals who, in contrast to most SSI individuals, were not always eligible for Medicaid coverage. Prior to the Ticket to Work legislation, DI individuals in 11 of the 12 states could qualify for Medicaid by spending down their incomes to specified levels (Wyoming did not offer a spend-down option). In these 11 states, the spend-down income eligibility levels ranged from 15 percent to 100 percent of the FPL. Under the new Buy-In programs, the income eligibility levels significantly exceeded those established under the spend-down categories (see fig. 2), thus allowing individuals to qualify for the Medicaid Buy-In directly-- rather than spending down their incomes to qualify for Medicaid coverage. For example, an individual receiving DI in Arkansas could obtain Medicaid coverage through the Buy-In program with an income up to 250 percent of the FPL; prior to the Buy-In, the individual would have had to incur medical expenses that reduced his or her income to approximately 15 percent of the FPL in order to qualify for the spend-down category of Medicaid. This allows an individual with disabilities in Arkansas to maintain an income of up to $22,150 per year under the Buy-In, whereas that person would have had to spend down to an income of $1,300 a year to qualify for Medicaid. Buy-In programs afforded DI beneficiaries more immediate--and sometimes expanded--Medicaid coverage. In addition to relieving individuals of the requirement to spend down their income to qualify for Medicaid, DI individuals, who are not entitled to receive Medicare coverage until they have been receiving DI cash benefits for 24 months, also received more immediate health insurance coverage through the Medicaid Buy-In. Buy-In participants may also have access to a more expanded benefit package than individuals who receive Medicaid through a state's medically needy program. However, when considering participation in the Buy-In program, DI beneficiaries must weigh the benefits of the higher earnings allowed under the program against the possible loss of DI cash benefits and Medicare coverage if their earnings increase beyond a certain threshold. Specifically, after a 9-month trial work period and a 36-month extended period of eligibility, if a DI beneficiary's earnings increase over the SGA limit in any month, the individual loses DI eligibility entirely. Additionally, DI beneficiaries who earn more than the SGA level after the initial 9-month trial period could lose Medicare coverage after 8-1/2 years. The loss of entitlement for Medicare may be of concern for those individuals with disabilities who would not reach age 65 by the end of the 8-1/2-year time period. To the extent that a state reduced its Medicaid Buy-In eligibility level, or discontinued its Buy-In program, these former DI-eligible Buy-In participants could potentially be without health care coverage until they reached age 65. In contrast, SSI beneficiaries have different considerations than those weighed by DI beneficiaries in deciding whether to enroll in the Medicaid Buy-In program. Most SSI beneficiaries were assured eligibility for Medicaid and thus did not need the Buy-In program or to spend down their incomes in order to qualify for Medicaid. SSI beneficiaries in Medicaid would receive the same benefit package as those in a Buy-In program. Even SSI beneficiaries who worked could remain eligible for Medicaid as participants in a work incentive program, which allowed individuals to increase their incomes while maintaining their Medicaid coverage. In 5 of the 12 states, Buy-In income eligibility levels were lower than the Medicaid eligibility levels for individuals in the SSI work incentive program, and Buy-In eligibility levels only slightly exceeded those for the SSI work incentive beneficiaries in another 5 states. Additionally, beneficiaries in SSI's work incentive program are not subject to premium payments in Medicaid, while Buy-In programs generally have imposed premium requirements for participants. States may require Buy-In participants to share in the cost of their health care coverage. All 12 states adopted cost-sharing mechanisms, primarily premiums or copayments, for Buy-In participants. States calculated premiums for Buy-In participants using various methods. For example, Pennsylvania and Washington set premiums as a percentage of allowable income, while Indiana and Kansas established varying premium levels for different incomes. (See table 4.) Generally, states assessed premiums when income was at 100 percent of the FPL or higher. Among states that charged premiums in 2002, the percentage of participants whose incomes were high enough to be charged premiums varied significantly across the states, from 12 percent of participants in Connecticut to all or nearly all participants in Illinois, Pennsylvania, Washington, and Wyoming. Average monthly premiums ranged from $26 to $82, with nearly half of the states setting premiums from $40 to $60. Two states--Arkansas and New Jersey--did not charge premiums as of December 2002. Stating that premiums were difficult to administer and collect, Arkansas chose not to impose a premium requirement. New Jersey has a premium requirement for participants with incomes greater than 150 percent of FPL; however, the state did not assess premiums because only about 5 percent of beneficiaries owed a payment. Three states--Connecticut, Indiana, and New Hampshire--reported discounting the Buy-In premium if participants also paid premiums for Medicare part B, for employer-sponsored insurance coverage, or for individual insurance coverage. For example, New Hampshire deducted the Medicare part B premium from a participant's total Buy-In premium. If a Buy-In participant were paying a Medicare part B premium of $54 a month, his or her Medicaid Buy-In premium would be discounted by that amount. Thus, if a participant's Buy-In premium were $80 a month, the monthly premium for the Buy-In program would be discounted to $26 a month. In Connecticut, any amount that participants pay for Medicare part B premiums, employer-sponsored coverage, or other out-of-pocket medical insurance is deducted from their premium liability. For example, if a participant owes a Buy-In premium of $100 a month and also is paying an employer $80 a month for private coverage, the individual's Buy-In premium liability would be reduced to $20. Participants in 8 of the 12 states also were required to pay copayments for health care services, such as $0.50 to $3 for an office visit or prescription drugs. Copayments for inpatient hospital care generally varied from $3 per day in Illinois to $48 per hospital stay in Kansas. In 7 of these states, copayments were the standard cost-sharing requirements for Medicaid. The remaining state--Arkansas--imposed a two-level copayment system for participants. Arkansas Buy-In participants with incomes below 100 percent of the FPL had the same copayment requirements and were charged the same amounts for pharmacy and inpatient hospital services as usually prescribed under the state's Medicaid program. Participants with incomes of 100 percent of the FPL or greater were charged additional copayments for services and equipment such as physician services ($10 per visit), outpatient mental and behavioral health services ($10 per visit), and prosthetic devices (10 percent of the maximum Medicaid payment). In the four states in which we conducted more detailed work-- Connecticut, Illinois, Minnesota, and New Jersey--Buy-In programs enrolled many individuals who previously were enrolled in Medicaid, often in eligibility categories with more restrictive income limits, such as the medically needy category. Buy-In participants in the four states generally also had Medicare coverage. Across the four states, few Buy-In participants had coverage from private insurance at the time of their enrollment in the Medicaid Buy-In programs. Based on the limited participation in private insurance, officials in several states did not believe that "crowd-out"--the substitution of newly available public coverage for private health insurance--was a concern for the Medicaid Buy-In programs. The limited employment information available for participants from two of the four states--Connecticut and Minnesota--showed that Buy-In participants generally were employed in low-wage jobs--many making less than the SGA threshold, which at the time was $780 per month. These four states, however, had little information regarding the extent to which the Buy-In programs fostered employment among individuals with disabilities. Across these four states, the share of Buy-In participants with previous Medicaid coverage was 53 percent in Connecticut, 81 percent in Illinois, 61 percent in Minnesota, and 58 percent in New Jersey. Whereas previous Medicaid coverage was largely due to eligibility through spend-down provisions, Buy-In participation allowed them to retain more of their income or assets and still qualify for Medicaid. Of those who switched from existing Medicaid coverage to the Buy-In program, Illinois and Minnesota estimated that 79 percent and 51 percent of participants, respectively, were beneficiaries who originally had spent down their income to qualify for Medicaid. While not offering a specific estimate, a New Jersey official indicated that most of the Buy-In participants who were enrolled in Medicaid before switching to the Buy-In category also had spent down their income to qualify for Medicaid. Buy-In eligibility was particularly beneficial for individuals in New Jersey because the state's Medicaid coverage for medically needy beneficiaries did not include prescription drugs or community-based long-term care services, both of which were covered under the Buy-In. In three of the four states--Connecticut, Minnesota, and New Jersey-- more than 80 percent of Buy-In participants also received health care coverage through Medicare. (See table 5.) State officials reported that those with Medicare relied on the Medicaid Buy-In for purposes of obtaining outpatient prescription drug coverage since Medicare generally does not cover this benefit. Few participants--less than 10 percent of participants in any of the four states--reported having employer- sponsored coverage at the time of their enrollment into the Medicaid Buy- In programs. For example, Connecticut, which requires Buy-In applicants who have access to employer-sponsored insurance coverage to apply for this coverage, found that less than 6 percent of Buy-In applicants had health care coverage through their workplace. For Buy-In participants with private health insurance coverage, which often has more limited benefits than those covered by Medicaid, the Buy-In can serve as a "wrap around" to private coverage by providing such services as home health and personal care, and items such as durable medical equipment. According to officials in several states, crowd-out was not a concern for Buy-In programs because most participants did not report having private health insurance coverage at the time of their enrollment into the Medicaid Buy-In programs. For example, Minnesota and New Jersey state officials said they did not view crowd-out as a significant issue for this population because many of the participants worked part-time and were rarely offered private insurance coverage. Additionally, both Minnesota and Connecticut required individuals to either enroll or remain enrolled in employer-sponsored coverage if it was offered. As of December 2002, these states had not formally analyzed whether Buy-In participants withdrew from private health insurance coverage prior to obtaining Medicaid coverage. New Jersey officials plan to monitor whether employees are deciding to or are being urged to pursue the Buy-In program rather than their employer-sponsored coverage. In the three states with data available, working individuals with disabilities who qualified for the Medicaid Buy-In program generally worked in low- wage jobs. (See table 6.) While one purpose of the Ticket to Work legislation was to enable individuals with disabilities to reduce their dependency on federal cash benefit programs through earnings from work, available data from Connecticut, Illinois, Minnesota showed that few participants earned more than the SGA limit, which was $780 in December 2002. Sixty-four percent of participants in Connecticut, 61 percent of participants in Illinois, and 77 percent of participants in Minnesota had earned income well below the SGA limit. None of these states had asked participants to identify their occupation or the industry in which they were employed on their Medicaid Buy-In applications; however, some states may conduct broader analyses of participants' employment as part of required evaluations under a related Ticket to Work grant program. Two of the four states we reviewed could identify whether participants had increased their earnings once enrolled in the Buy-In. Forty percent of Minnesota participants and 28 percent of Connecticut participants increased their earnings between the time of initial enrollment and December 2001, the most recent date for which these data were available. Average monthly increases over previous earnings were $306 in Minnesota and $332 in Connecticut. New Jersey and Illinois were not able to provide this information. Minnesota found that 64 percent of those in the state's Buy-In program as of December 2001 earned wages for at least one 3- month period in the 2-year period prior to enrollment. Minnesota officials cautioned that the analysis was limited by the lack of detail in the state database; for example, they did not know whether participants were disabled during this entire period, or whether individuals were consistently employed. We provided a draft of this report for comment to CMS and the 12 states in our sample. In its comments, CMS said that, in addition to the states with existing BBA and Ticket to Work Buy-In programs, at least three more states are planning to implement a Medicaid Buy-In program within the coming year, which would result in over half of the states offering health insurance to workers with disabilities. CMS noted that the expansion of Medicaid coverage to these individuals is encouraging particularly because states are experiencing fiscal budget constraints. CMS also said that it is collecting information on Medicaid Buy-In participants' earnings and Medicaid costs for the first 2 years of operation. In addition, CMS expects to complete an extensive study of states' experiences for 2001 and 2002 with the Buy-In programs authorized under both the BBA and the Ticket to Work and Work Incentives Improvement Act of 1999 in the fall of 2003 and to report its findings in 2004. CMS also suggested that, in view of general concerns over racial disparities and access to care in rural areas, it might be helpful for us to comment on these demographic factors as part of our findings. We did not include these factors in our scope of work, even for the four states where we did more detailed work, and therefore cannot comment on them. CMS provided technical comments, which we have incorporated as appropriate. The full text of CMS's written comments appears in appendix II. Eleven of the 12 states responded with technical comments, which we incorporated where appropriate. We will send copies of this report to the Administrator of the Centers for Medicare & Medicaid Services and other interested parties. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http//www.gao.gov. If you or members of your staffs have any questions regarding this report, please contact me on (202) 512-7118 or Carolyn Yocom at (202) 512-4931. Other major contributors to this report were Catina Bradley, Karen Doran, Kevin Milne, and Elizabeth T. Morrison. To develop a national estimate and compare the characteristics of working-age individuals with disabilities with those for working-age individuals in the rest of the population, we analyzed data available from the Medical Expenditure Panel Survey (MEPS) household component, which provides data on individuals' demographics, employment, health characteristics, and medical spending. MEPS, conducted by the Agency for Healthcare Research and Quality (AHRQ), consists of four surveys and is designed to provide nationally representative data on health care use and expenditures for U.S. civilian noninstitutionalized individuals. For our analysis, we used one of the four surveys--the Household Component. The Household Component is a survey of individuals regarding their demographic characteristics, health insurance coverage, and health care use and expenditures. The 1997 and 1998 versions of the MEPS Household Component were the most recently available at the time of our analysis that had both (1) a pooled estimation file published by AHRQ that allows pooling 2 or 3 years of data, and (2) complete demographic, health insurance, and health care expenditure data. We pooled data from 1997 and 1998 in order to increase our sample sizes for individuals with disabilities. Using the Medical Care Consumer Price Index from the Bureau of Labor Statistics, we inflated 1997 medical care expenditures to 1998 values. Our estimate of working-age individuals with disabilities includes individuals aged 16 to 64 with one or both of these conditions: (1) needing help or supervision in performing activities of daily living (ADL) or instrumental activities of daily living (IADL) because of an impairment or a physical or mental health problem or (2) being completely unable to work at a job, do housework, or go to school. Our analyses of working-age individuals with disabilities are based on a sample size of 1,680, representing a population of 6.68 million individuals with disabilities. Table 7 shows the unweighted and weighted sample sizes on which our analyses are based.
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Over 7 million individuals with disabilities rely on medical and supportive services covered by Medicaid. However, if working-age individuals with disabilities desire to increase their self-sufficiency through employment, they could jeopardize their eligibility for Medicaid coverage, possibly leaving them without an alternative for health insurance. In an effort to help extend Medicaid coverage to certain individuals with disabilities who desire to work, Congress passed the Ticket to Work and Work Incentives Improvement Act of 1999. This legislation authorizes states to raise their Medicaid income and asset eligibility limits for individuals with disabilities who work. States may require that working individuals with disabilities "buy in" to the program by sharing in the costs of their coverage--thus, these states' programs are referred to as a Medicaid Buy-In. The act also required that GAO report on states' progress in designing and implementing the Medicaid Buy-In. GAO identified states that operated Buy-In programs as of December 2002 and analyzed the income eligibility limits and cost-sharing provisions established by those states. GAO also assessed the characteristics of the Buy-In participants in four states that were among the most experienced in implementing the program. As of December 2002, 12 states had implemented Medicaid Buy-In programs under the authority of the Ticket to Work legislation, which was effective October 1, 2000, enrolling over 24,000 working individuals with disabilities. These states used the flexibility allowed by the legislation to raise income eligibility and asset limits as well as cost-sharing fees. Across the 12 states, income eligibility levels ranged from 100 percent of the federal poverty level (FPL) in Wyoming to no income limit in Minnesota, with 11 states setting income eligibility limits at twice the FPL or higher. In addition to increasing income and asset levels, these states required participants to buy in to the program by charging premiums, ranging from $26 to $82 a month, and co-payments, generally ranging from $0.50 to $3 for office visits and prescription drugs. In detailed analysis of four states--Connecticut, Illinois, Minnesota, and New Jersey--GAO found that most Buy-In participants had prior insurance coverage by Medicaid and Medicare, few had prior coverage by private health insurance, and many earned low wages--most making less than $800 per month. In commenting on a draft of this report, the Centers for Medicare & Medicaid Services noted that it expects to report in 2004 on its current study of states' experiences in 2001 and 2002 with the Medicaid Buy-In programs.
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Funded at $8 billion to nearly $10 billion annually, MDA's BMDS is the largest research development program in the Department of Defense's budget. Since the 1980s, DOD has spent more that $100 billion on the development and early fielding of this system and it estimates that continued development will require an additional $50 billion between fiscal years 2008 and 2013. Since 2002, MDA has worked to fulfill its mission through its development and fielding of a diverse collection of land-, air-, sea-, and space-based assets. These assets are developed and fielded through nine BMDS elements and include the Airborne Laser (ABL); Aegis Ballistic Missile Defense (Aegis BMD); BMDS Sensors; Command, Control, Battle Management, and Communications (C2BMC); Ground-based Midcourse Defense (GMD); Kinetic Energy Interceptors (KEI); Multiple Kill Vehicles (MKV); Space Tracking and Surveillance System (STSS); and Terminal High Altitude Area Defense (THAAD). To develop a system capable of carrying out its mission, MDA, until December 2007, executed an acquisition strategy in which the development of missile defense capabilities was organized in 2-year increments known as blocks. Each block was intended to provide the BMDS with capabilities that enhanced the development and overall performance of the system. The first 2-year block, known as Block 2004, fielded a limited initial capability that included early versions of the GMD, Aegis BMD, Patriot Advanced Capability-3, and C2BMC elements. The agency's second 2-year block- Block 2006- culminated on December 31, 2007 and fielded additional BMDS assets. This block also provided improved GMD interceptors, enhanced Aegis BMD missiles, upgraded Aegis BMD ships, a Forward-Based X-Band-Transportable radar, and enhancements to C2BMC software. On December 7, 2007, MDA's Director approved a new block construct that will be the basis for all future development and fielding, which I will discuss in more detail shortly. To assess progress during Block 2006, we examined the accomplishments of nine BMDS elements that MDA is developing and fielding. Our work included examining documents such as Program Execution Reviews, test plans and reports, production plans, and Contract Performance Reports. We also interviewed officials within each element program office and within MDA functional directorates. In addition, we discussed each element's test program and its results with DOD's Office of the Director, Operational Test and Evaluation. In following up on transparency, accountability, and oversight issues raised in our March 2007 report, we held discussions with officials in MDA's Directorate of Business Operations to determine whether its new block structure improved accountability and transparency of the BMDS. In addition, we reviewed pertinent sections of the U.S. Code to compare MDA's current level of accountability with federal acquisition laws. We also interviewed officials from the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and DOD's Joint Staff to discuss the oversight role of the new Missile Defense Executive Board (MDEB). Additionally, we reviewed the MDEB charter to identify the oversight responsibility of the board. MDA made progress in developing and fielding the BMDS during 2007. Additional assets were fielded and/or upgraded, several tests met planned objectives, and other development activities were conducted. On the other hand, fewer assets were fielded than originally planned, some tests were delayed, and the cost of the block increased by approximately $1 billion. To stay within the revised budget despite increasing contractor costs, MDA deferred some budgeted work to future blocks. Such deferrals, coupled with a planning methodology used by some contractors that could obscure cost reporting, prevent us from determining the full cost of Block 2006. MDA was able to meet most test objectives despite delays in several elements' test schedules. Neither we nor DOD could evaluate the aggregate performance of fielded assets because flight testing to date has not generated sufficient data. An evaluation of aggregate performance would also have to consider that (1) some parts in fielded interceptors identified as potentially problematic have not been replaced yet, and (2) tests done to date have been developmental in nature and do not provide sufficient realism for DOD to determine if the BMDS is suitable and effective for battle. During Block 2006, MDA increased its inventory of BMDS assets while enhancing the system's performance. It fielded 14 additional Ground-based interceptors, 12 Aegis BMD missiles designed to engage more advanced threats, 4 new Aegis BMD destroyers, 1 new Aegis BMD cruiser, and 8 Web browsers and 1 software suite for C2BMC. In addition, MDA upgraded half of its Aegis BMD ship fleet, successfully conducted four Aegis BMD and two GMD intercept tests, and completed a number of ground tests to demonstrate the capability of BMDS components. Although MDA fielded an increased capability, it was unable to deliver all assets originally planned for Block 2006. The Sensors element was the only Block 2006 element to meet all of its original goals set in March 2005 while the remaining elements--GMD, Aegis BMD, C2BMC--were unable to meet all of their original quantity goals. Sensors delivered a second FBX-T in January 2007 while the GMD element fielded 14 of 15 Ground- Based interceptors originally planned during Block 2006. Last year, we reported that MDA delayed the partial upgrade of the Thule early warning radar--one of GMD's original goals-- until a full upgrade could be accomplished. Additionally, the Aegis BMD element delivered 4 additional Destroyers and 1 new Cruiser as originally planned, but did not meet its original goal for missile deliveries--delivering 12 of 19 SM-3 missiles planned for the block. C2BMC also did not deliver two of the three software suites originally planned for Block 2006. MDA's Block 2006 program of work culminated with higher than anticipated costs. In March 2007, we reported that MDA's cost goal for Block 2006 increased by approximately $1 billion because of greater than expected GMD operations and sustainment costs and technical problems. If the contractors continue to perform as they did in fiscal year 2007, we estimate that at completion, the cumulative overrun in the contracts could be between about $1.9 billion and $2.8 billion. To stay within its revised budget, MDA deferred some work it expected to accomplish during the block. When work is deferred, its costs are no longer accounted for in the original block. In other words, if work planned and budgeted for Block 2006 was deferred to Block 2008, that work would be counted as a Block 2008 cost. Because MDA did not track the cost of the deferred work, the agency could not make an adjustment that would have matched the cost with the correct block. Consequently, we were unable to determine the full cost of Block 2006. Another reason why it is difficult to determine the actual cost of Block 2006 is a planning methodology employed by MDA prime contractors that can obscure the full cost of work. Contractors typically divide the total work of a contract into small efforts in order to define them more clearly and to ensure proper oversight. Work is planned into types of work packages including: (1) level of effort- work that contains tasks of a general or supportive nature and does not produce a definite end product and (2) discrete--work that has a definable end product or event. When work is discrete, delivery of the end product provides a sound basis for determining actual contractor performance. When discrete work is instead planned as level of effort, the contractor's performance becomes less transparent because work is considered complete when the time planned for it has expired, whether or not the intended product has been completed. Earned value management does not recognize such variances in completing scheduled work and to the extent more work has to be done to complete the product, additional costs could be incurred that are not yet recognized. Many of MDA's prime contractors plan a large percentage of their work as level of effort. MDA officials agree that its contractors have improperly planned discrete work as level of effort, and are taking steps to remedy the situation. We also observed that while several contractors had difficulty with controlling costs, during fiscal year 2007, MDA awarded approximately 90 percent or $579 million of available award fee to its prime contractors. In particular, contractors developing the ABL and Aegis BMD Weapon System were rated as performing very well in the cost and/or program management elements and received commensurate fees, even though earned value management data showed that their cost and schedule performance was declining. Although DOD guidance discourages the use of earned value performance metrics in award fee criteria, MDA includes this--one of many factors for consideration in rating contractors' performance--in several of its award fee plans. The agency recognizes that there is not always a good link between its intentions for award fees and the amount of fee being earned by its contractors. In an effort to rectify this problem, the agency has begun to revise its award fee policy to align agency practices more closely with DOD's current policy that better links performance with award fees. Most test objectives were achieved during 2007, although several BMDS programs experienced setbacks in their test schedules. The MKV, KEI, and Sensors elements were able to execute all scheduled activities as planned. The Aegis BMD, THAAD, ABL, STSS, and C2BMC elements experienced test delays, but all were able to achieve their primary test objectives. GMD successfully completed an intercept with an operationally representative interceptor and a radar characterization test. A second intercept test employing the SBX radar has been delayed because a target malfunction delayed the execution of the first intercept test. The SBX capability is important as it is a primary sensor to be used to engage ballistic missiles in the midcourse phase of flight. As of yet, this capability has not been verified through flight testing. As we reported in March 2007, MDA altered its original Block 2006 performance goals commensurate with the agency's reductions in the delivery of fielded assets. For several reasons, information is not sufficient to assess whether MDA achieved its revised performance goals. First, MDA uses a combination of simulations and flight tests to determine whether performance goals are met. However, too few flight tests have been completed to ensure the accuracy of the models and simulations predictions. Second, confidence in the performance of the BMDS is reduced because of unresolved technical and quality issues in the GMD element. For example, the GMD element has experienced the same anomaly during each of its flight tests since 2001. This anomaly has not yet prevented the program from achieving any of its primary test objectives, but to date neither its source nor solution has been clearly identified. Program officials plan to continue their assessment of test data to determine the anomaly's root cause. The performance of some fielded GMD assets is also questionable because they contain parts identified by auditors in MDA's Office of Quality, Safety, and Mission Assurance as less reliable or inappropriate for use in space that have not yet been replaced. MDA has begun to replace the questionable parts in the manufacturing process and to purchase the parts for retrofit into fielded interceptors. However, it will not complete the retrofit effort until 2012. Finally, tests of the GMD element have been of a developmental nature, and have not included operationally representative test geometries in which GMD will perform its mission. MDA has added operational test objectives to its developmental test program, but the objectives are mostly aimed at proving that military personnel can operate the equipment. The lack of data has limited the operational test and evaluation Director's annual BMDS assessment to commenting on aspects of tests that were operationally realistic and thus has prevented the Director from determining whether the system is suitable and effective for the battlefield. Since its initiation in 2002, MDA has been given a significant amount of flexibility. While this flexibility allows agile decision making, it lessens the transparency of MDA's acquisition processes, making it difficult to conduct oversight and hold the agency accountable for its planned outcomes and costs. As we reported in March 2007, MDA operates with considerable autonomy to change goals and plans, which makes it difficult to reconcile outcomes with original expectations and to determine the actual cost of each block and of individual operational assets. In the past year, MDA has begun implementing two initiatives--a new block construct and a new executive board--to improve transparency, accountability, and oversight. These initiatives represent improvements over current practices, although we see additional improvements MDA can make. In addition, Congress has directed that MDA begin buying certain assets with procurement funds like other programs, which should promote accountability for and transparency of the BMDS. In 2007, MDA redefined its block construct to better communicate its plans and goals to Congress. The agency's new construct is based on fielding capabilities that address particular threats as opposed to the previous biennial time periods. MDA's new block construct makes many positive changes. These include establishing unit cost for selected block assets, incorporating into a block only those elements or components that will be fielded during the block, and abandoning the practice of deferring work from block to block. These changes should improve the transparency of the BMDS program and make MDA more accountable for the investment being made in missile defense. For example, the actual cost of each block can be tracked because MDA will no longer defer work planned for one block, along with its cost, to a future block. In addition, MDA plans to develop unit cost for selected BMDS assets-- such as THAAD interceptors-- so that cost growth of those assets can be monitored. In addition, the agency plans to request an independent verification of these unit costs and report significant cost growth to Congress. However, MDA has not yet determined all of the assets that will report a unit cost or how much a unit cost must increase before it is reported to Congress. Although improvements are inherent in MDA's proposed block construct, the new construct does not resolve all transparency and accountability issues. For example, MDA officials told us that the agency does not plan to estimate the full cost of a block. Instead, the cost baseline reported to Congress will include all prior costs of the block and the expected budget for the block for the 6 years included in DOD's Future Years Defense Plan. Costs beyond the 6th year of the plan will not be estimated. Once baselined, if the budget for a block changes, MDA plans to report and explain those variations to Congress. Because the full cost of each block will not be known, it will be difficult for decision makers to compare the value of investing in each block to the value of investing in other DOD programs or to determine whether a block is affordable over the long term. Other DOD programs are required to provide the full cost estimate of developing and producing their weapon system, even if the costs extend beyond the Future Years Defense Plan. Another issue yet to be addressed is whether the concurrent development and fielding of BMDS assets will continue. Fully developing an asset and demonstrating its capability prior to production increases the likelihood that the product will perform as designed and can be produced at the cost estimated. To field an initial capability quickly, MDA accepted the risk of concurrent development and fielding during Block 2004. It continued to do so during Block 2006 as it fielded assets before they were fully tested. For example, by the end of Block 2004, the agency realized that the performance of some ground-based interceptors could be degraded because the interceptors included inappropriate or potentially unreliable parts. As noted earlier, MDA has begun the process of retrofitting these interceptors, but work will not be completed until 2012. Meanwhile, there is a risk that some interceptors might not perform as designed. MDA has not addressed whether it will accept similar performance risks under its new block construct or whether it will fully develop and demonstrate all elements/components prior to fielding. MDA has not addressed whether it will transfer assets produced during a block to a military service for production and operation at the block's completion. Officials representing multiple DOD organizations recognize that transfer criteria are neither complete nor clear given the BMDS's complexity. Without clear transfer criteria, MDA has transferred the management of only one element--the Patriot Advanced Capability-3--to the military for production and operation. For other elements, MDA and the military services have been negotiating the transition of responsibilities for the sustainment of fielded elements--a task that has proven to be time consuming. Although MDA documents show that under its new block construct the agency should be ready to deliver BMDS components that are fully mission-capable, MDA officials could not tell us whether at the end of a block MDA's Director will recommend when management of components, including production responsibilities, will be transferred to the military. Oversight improvement initiatives are also underway for MDA. In March 2007, the Deputy Secretary of Defense established a Missile Defense Executive Board (MDEB) to recommend and oversee implementation of strategic policies and plans, program priorities, and investment options for protecting the United States and its allies from missile attacks. The MDEB is also to replace existing groups and structures, such as the Missile Defense Support Group. The MDEB appears to be vested with more authority than the Missile Defense Support Group. When the Support Group was chartered in 2002, it was to provide constructive advice to MDA's Director. However, the Director was not required to follow the advice of the group. According to a DOD official, although the Support Group met many times initially, it did not meet after June 2005. This led to the formation of the MDEB. Its mission is to review and make recommendations on MDA's comprehensive acquisition strategy to the Deputy Secretary of Defense. It is also to provide the Under Secretary of Defense for Acquisition, Technology and Logistics, with a recommended strategic program plan and a feasible funding strategy based on business case analysis that considers the best approach to fielding integrated missile defense capabilities in support of joint MDA and warfighter objectives. The MDEB will be assisted by four standing committees. These committees, who are chaired by senior-level officials from the Office of the Secretary of Defense and the Joint Staff, could play an important oversight role as they are expected to make recommendations to the MDEB, which in turn, will recommend courses of action to the Under Secretary of Defense and the Director, MDA as appropriate. Although the MDEB is expected to exercise some oversight of MDA, it will not have access to all the information normally available to DOD oversight bodies. For other major defense acquisition programs, the Defense Acquisition Board has access to critical information because before a program can enter the System Development and Demonstration phase of the acquisition cycle, statute requires that certain information be developed. However, in 2002, the Secretary of Defense deferred application of DOD policy that, among other things, require major defense programs to obtain approval before advancing from one phase of the acquisition cycle to another. Because MDA does not yet follow this cycle, and has not yet entered System Development and Demonstration, it has not triggered certain statutes requiring the development of information that the Defense Acquisition Board uses to inform its decisions. For example, most major defense acquisition programs are required by statute to obtain an independent verification of life-cycle cost estimates prior to beginning system development and demonstration, and/or production and deployment. Independent life-cycle cost estimates provide confidence that a program is executable within estimated cost. Although MDA plans to develop unit cost for selected block assets and to request that DOD's Cost Analysis Improvement Group verify the unit costs, the agency does not yet plan to do so for a block cost estimate. Statute also requires an independent verification of a system's suitability for and effectiveness on the battlefield through operational testing before a program can proceed beyond low-rate initial production. After testing is completed, the Director for Operational Test and Evaluation assesses whether the test was adequate to support an evaluation of the system's suitability and effectiveness for the battlefield, whether the test showed the system to be acceptable, and whether any limitations in suitability and effectiveness were noted. However, a comparable assessment of the BMDS assets being fielded will not be available to the MDEB as MDA conducts primarily developmental tests of its assets with some operational test objectives. As noted earlier, developmental tests do not provide sufficient data for operational test officials to make such an assessment of BMDS. MDA will also make some decisions without needing approval from the MDEB or any higher level official. Although the charter of the MDEB includes the mission to make recommendations to MDA and the Under Secretary of Defense for Acquisition, Technology and Logistics on investment options, program priorities, and MDA's strategy for developing and fielding an operational missile defense capability, the MDEB will not necessarily have the opportunity to review and recommend changes to BMDS blocks. MDA documents show that the agency plans to continue to define each block of development without requiring input from the MDEB. According to a briefing on the business rules and processes for MDA's new block structure, the decision to initiate a new block of BMDS capability will be made by MDA's Director. Also cost, schedule, and performance parameters will be established by MDA when technologies that the block depends upon are mature, a credible cost estimate can be developed, funding is available, and the threat is both imminent and severe. The Director will inform the MDEB as well as Congress when a new block is initiated, but he will not seek the approval of either. Finally, there will be parts of the BMDS program that the MDEB will have difficulty overseeing because of the nature of the work being performed. MDA plans to place any program that is developing technology in a category known as Capability Development. These programs, such as ABL, KEI, and MKV, will not have a firm cost, schedule, or performance baseline. This is generally true for technology development programs in DOD because they are in a period of discovery, which makes schedule and cost difficult to estimate. On the other hand, the scale of the technology development in BMDS is unusually large, ranging from $2 billion to about $5 billion dollars a year--eventually comprising nearly half of MDA's budget by fiscal year 2012. The MDEB will have access to the budgets planned for these programs over the next five or six years, each program's focus, and whether the technology is meeting short term key events or knowledge points. But without some kind of baseline for gauging progress in these programs, the MDEB will not know how much more time or money will be needed to complete technology maturation. MDA's experience with the ABL program provides a good example of the difficulty in estimating the cost and schedule of technology development. In 1996, the ABL program believed that all ABL technology could be demonstrated by 2001 at a cost of about $1 billion. However, MDA now projects that this technology will not be demonstrated until 2009 and its cost has grown to over $5 billion. In an effort to further improve the transparency of MDA's acquisition processes, Congress has directed that MDA's budget materials delineate between funds needed for research, development, test and evaluation; procurement; operations and maintenance; and military construction. Congress gave MDA the flexibility to field certain assets using research, development, test and evaluation funding which allowed MDA to fund the purchase of assets over multiple years. Congress recently restricted MDA's authority and required MDA to purchase certain assets with procurement funds. Using procurement funds will mean that MDA will be required to ensure that assets are fully funded in the year of their purchase, rather than incrementally funded over several years. Additionally, our analysis of MDA data shows that incremental funding is usually more expensive than full-funding, in part, because inflation decreases the buying power of the dollar each year. For example, after reviewing MDA's incremental funding plan for THAAD fire units and Aegis BMD missiles, we analyzed the effect of fully funding these assets and found that the agency could save about $125 million by fully funding their purchase and purchasing them in an economical manner. Our annual report on missile defense is in draft and with DOD for comment. It will be issued in final by March 15, 2008. In that report, we are recommending additional steps that could build on efforts to further improve the transparency, accountability, and oversight of the missile defense program. Our recommendations include actions needed to improve cost reporting as well as testing and evaluation. DOD is in the process of preparing a formal response to the report and its recommendations. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions you or members of the subcommittee may have. For questions about this statement, please contact me at (202) 512-4841 or [email protected]. Individuals making key contributions to this statement include David Best, Assistant Director; LaTonya D. Miller; Steven B. Stern; Meredith Allen Kimmett; Kenneth E. Patton; and Alyssa Weir. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Funded at $8 billion to $10 billion per year, the Missile Defense Agency's (MDA) effort to develop and field a Ballistic Missile Defense System (BMDS) is the largest research and development program in the Department of Defense (DOD). The program has been managed in 2-year increments, known as blocks. Block 2006, the second BMDS block, was completed in December 2007. By law, GAO annually assesses MDA's progress. This testimony is based on GAO's assessment of MDA's progress in (1) meeting Block 2006 goals for fielding assets, completing work within estimated cost, conducting tests, and demonstrating the performance of the overall system in the field, and (2) making managerial improvements to transparency, accountability, and oversight. In conducting the assessment, GAO reviewed the assets fielded; contractor cost, schedule, and performance; and tests completed during 2007. GAO also reviewed pertinent sections of the U.S. code, acquisition policy, and the charter of a new missile defense board. We have previously made recommendations to improve oversight in the areas that MDA has recently taken action. We also have a draft report that is currently with DOD for comment that includes additional recommendations. In the past year, MDA has fielded additional and new assets, enhanced the capability of some existing assets, and achieved most test objectives. However, MDA did not meet the goals it originally set for the block. Ultimately, MDA fielded fewer assets, increased costs by about $1 billion and conducted fewer tests. Even with the cost increase, MDA deferred work to keep costs from increasing further, as some contractors overran their fiscal year 2007 budgets. Deferring work obscures the cost of the block because such work is no longer counted as part of Block 2006. The cost of the block may have been further obscured by a way of planning work used by several contractors that could underestimate the actual work completed. If more work has to be done, MDA could incur additional costs that are not yet recognized. MDA also sets goals for determining the overall performance of the BMDS. Similar to other DOD programs, MDA uses models and simulations to predict BMDS performance. We were unable to assess whether MDA met its overall performance goal because there have not been enough flight tests to provide a high confidence that the models and simulations accurately predict BMDS performance. Moreover, the tests done to date have been developmental in nature, and do not provide sufficient realism for DOD's test and evaluation Director to determine whether BMDS is suitable and effective for battle. GAO has previously reported that MDA has been given unprecedented funding and decision-making flexibility. While this flexibility has expedited BMDS fielding, it has also made MDA less accountable and transparent in its decisions than other major programs, making oversight more challenging. MDA, with some direction from Congress, has taken significant steps to address these concerns. MDA implemented a new way of defining blocks--its construct for developing and fielding BMDS increments--that should make costs more transparent. For example, under the newly-defined blocks, MDA will no longer defer work from one block to another. Accountability should also be improved as MDA will for the first time estimate unit costs for selected assets and report variances from those estimates. DOD also chartered a new executive board with more BMDS oversight responsibility than its predecessor. Finally, MDA will begin buying certain assets with procurement funds like other programs. This will benefit transparency and accountability, because to use procurement funding generally means that assets must be fully paid for in the year they are bought. Previously, MDA has been able to pay for assets incrementally using research and development funds. Some oversight concerns remain, however. For example, MDA does not plan to estimate the total cost of a block, nor to have a block's costs independently verified--actions required of other programs to inform decisions about affordability and investment choices. Also, the executive board faces a challenge in overseeing MDA's large technology development efforts and does not have approval authority for some key decisions made by MDA.
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FDA is responsible for overseeing the safety and effectiveness of human drugs that are marketed in the United States, whether they are manufactured in foreign or domestic establishments. Foreign establishments that market their drugs in the United States must register with FDA. As part of its efforts to ensure the safety and quality of imported drugs, FDA may inspect foreign establishments whose products are imported into the United States. Regular inspections of manufacturing establishments are an essential component of ensuring drug safety. Conducting testing of finished dosage form drug products cannot reliably determine drug quality. Therefore, FDA relies on inspections to determine an establishment's compliance with current good manufacturing practice regulations (GMP). These inspections are a critical mechanism in FDA's process of assuring that the safety and quality of drugs are not jeopardized by poor manufacturing practices. Requirements governing foreign and domestic inspections differ. Specifically, FDA is required to inspect every 2 years those domestic establishments that manufacture drugs marketed in the United States, but there is no comparable requirement for inspecting foreign establishments. FDA does not have authority to require foreign establishments to allow the agency to inspect their facilities. However, FDA has the authority to conduct physical examinations of products offered for import, and if there is sufficient evidence of a violation, prevent their entry at the border. Within FDA, CDER sets standards and evaluates the safety and effectiveness of prescription and over-the-counter drugs. Among other things, CDER requests that ORA inspect both foreign and domestic establishments to ensure that drugs are produced in conformance with federal statutes and regulations, including current GMPs. CDER requests that ORA conduct inspections of establishments that produce drugs in finished-dosage form as well as those that produce bulk drug substances, including APIs used in finished drug products. These inspections are performed by investigators and, on occasion, laboratory analysts. ORA conducts two primary types of drug manufacturing establishment inspections: Preapproval inspections of domestic and foreign establishments are conducted before FDA will approve a new drug to be marketed in the United States. These inspections occur following FDA's receipt of a new drug application (NDA) or an abbreviated new drug application (ANDA) and focus on the manufacture of a specific drug. Preapproval inspections are designed to verify the accuracy and authenticity of the data contained in these applications to determine that the manufacturer is following commitments made in the application. FDA also determines that the manufacturer of the finished drug product, as well as each manufacturer of a bulk drug substance used in the finished product, manufactures, processes, packs, and labels the drug adequately to preserve its identity, strength, quality, and purity. Postapproval GMP surveillance inspections are conducted to ensure ongoing compliance with the laws and regulations pertaining to the manufacturing processes used by domestic and foreign establishments in the manufacture of drug products marketed in the United States and bulk drug substances used in the manufacture of those products. These inspections focus on a manufacturer's systemwide controls for ensuring that drug products are of high quality. Systems examined during these inspections include those related to materials, quality control, production, facilities and equipment, packaging and labeling, and laboratory controls. These systems may be involved in the manufacture of multiple drug products. FDA has established arrangements with regulatory bodies in other countries to facilitate the sharing of information about drug inspections. FDA has entered into arrangements related to GMP inspections with Canada, Japan, the European Union, and others. The scope of such arrangements can vary. Some arrangements may allow FDA to obtain reports of inspections conducted by other countries, for informational purposes. Other arrangements may involve more than the exchange of information. For example, FDA and another country may enter into an arrangement to work towards the mutual recognition of each other's inspection standards or the acceptance of one another's inspections, in lieu of their own. CDER uses a risk-based process to select some foreign and domestic establishments for postapproval GMP surveillance inspections. The process uses a risk-based model to identify those establishments that, based on characteristics of the establishment and of the product being manufactured, have the greatest public health risk potential should they experience a manufacturing defect. For example, FDA considers the risk to public health from poor quality over-the-counter drugs to be lower than for prescription drugs. Consequently establishments manufacturing only over-the-counter drugs receive a lower score on this factor in the risk- based process than other manufacturers. Through this process, CDER annually prepares a prioritized list of domestic establishments and a separate, prioritized list of foreign establishments. FDA uses multiple databases to manage its foreign drug inspection program. DRLS contains information on foreign and domestic drug establishments that have registered with FDA to market their drugs in the United States. These establishments must also list any drugs they market in the United States. These establishments provide information, such as company name and address and the drug products they manufacture for commercial distribution in the United States, on paper forms, which are entered into DRLS by FDA staff. OASIS contains information on drugs and other FDA-regulated products offered for entry into the United States, including information on the establishment that manufactured the drug. The information in OASIS is automatically generated from data managed by Customs and Border Protection (CBP). The data are originally entered by customs brokers based on the information available from the importer. CBP specifies an algorithm by which customs brokers generate a manufacturer identification number from information about an establishment's name, address, and location. FACTS contains information on FDA's inspections of foreign and domestic drug establishments. FDA investigators and laboratory analysts enter information into FACTS following completion of an inspection. According to DRLS, in fiscal year 2007, foreign countries that had the largest number of registered establishments were Canada, China, France, Germany, India, Italy, Japan, and the United Kingdom. These countries are also listed in OASIS as having the largest number of manufacturers offering drugs for entry into the United States. Specifically, according to OASIS, China had more establishments manufacturing drugs that were offered for entry into the United States than any other country. According to OASIS, in fiscal year 2007, a wide variety of prescription and over-the- counter drug products manufactured in China were offered for entry into the United States, including pain killers, antibiotics, blood thinners, and hormones. In November 2007, we testified on preliminary findings that identified weaknesses in FDA's program for inspecting foreign establishments manufacturing drugs for the U.S. market. Specifically, we found that, as in 1998, FDA's effectiveness in managing the foreign drug inspection program continued to be hindered by weaknesses in its data on foreign establishments. FDA did not know how many foreign establishments were subject to inspection. FDA relied on databases that were designed for purposes other than managing the foreign drug inspection program. Further, these databases contained inaccuracies that FDA could not easily reconcile. DRLS indicated there were about 3,000 foreign establishments registered with FDA in fiscal year 2007, while OASIS indicated that about 6,800 foreign establishments actually offered drugs for entry in that year. FDA recognized these inconsistencies, but could not easily correct them partly because the databases could not exchange information. Any comparisons of the data must be performed manually, on a case-by-case basis. We also testified that FDA inspected relatively few foreign establishments. Data from FDA suggested that the agency may inspect about 8 percent of foreign establishments in a given year. At this rate, it would take FDA more than 13 years to inspect each foreign establishment once, assuming that no additional establishments require inspection. However, FDA could not provide an exact number of foreign establishments that had never been inspected. From fiscal year 2002 through fiscal year 2007, FDA conducted 1,479 inspections of foreign establishments, and three quarters of these inspections were concentrated in 10 countries. (See table 1.) Because some establishments were inspected more than once during this time period, FDA actually inspected 1,119 unique establishments. For example, of the 94 inspections that FDA conducted of Chinese establishments, it inspected 80 unique establishments across this six year period. The lowest rate of inspections in these 10 countries was in China, for which FDA inspected 80 of its estimated 714 establishments, or fewer than 14 establishments per year, on average. We testified that, while enforcing GMP compliance through surveillance inspections was FDA's most comprehensive program for monitoring the quality of marketed drugs, most of FDA's inspections of foreign manufacturers occurred when they were listed in an NDA or ANDA. The majority of these preapproval inspections were combined with a GMP surveillance inspection. Although FDA used a risk-based process to develop a prioritized list of foreign establishments for GMP surveillance inspections, few were completed in a given year--about 30 in fiscal year 2007. The usefulness of the process was weakened by the incomplete and possibly inaccurate information on those foreign establishments that FDA had not inspected recently, as well as those that had never been the subject of a GMP surveillance inspection. We also testified that FDA's foreign inspection process involves unique circumstances that are not encountered domestically. For example, FDA relies on staff that inspect domestic establishments to volunteer for foreign inspections. Unlike domestic inspections, FDA does not arrive unannounced at a foreign establishment. It also lacks the flexibility to easily extend foreign inspections if problems are encountered. Finally, language barriers can make foreign inspections more difficult than domestic ones. FDA does not generally provide translators to its inspection teams. Instead, they may have to rely on an English-speaking representative of the foreign establishment being inspected, rather than an independent translator. FDA has initiated several recent changes to its foreign drug inspection program, but the changes do not fully address the weaknesses that we previously identified. FDA has initiatives underway to reduce the inaccuracies in its registration and import databases that make it difficult to determine the number of foreign establishments subject to inspection, although to date these databases still do not provide an accurate count of such establishments. FDA has taken steps that could help it select foreign establishments for inspection by obtaining information from foreign regulatory bodies. However, the agency has not fully utilized arrangements with foreign regulatory bodies in the past that would allow it to obtain such information. FDA has made progress in conducting more foreign inspections, but it still inspects relatively few establishments. FDA is also pursuing initiatives that could address some of the challenges that we identified as being unique to foreign inspections, but implementation details and timeframes associated with these initiatives are unclear. FDA has initiatives underway to reduce inaccuracies in its databases, but actions taken thus far will not ensure that the agency has an accurate count of establishments subject to inspection. As we previously testified, DRLS does not provide FDA with an accurate count of foreign establishments manufacturing drugs for the U.S. market. For example, foreign establishments may register with FDA, whether or not they actually manufacture drugs for the U.S. market, and the agency does not routinely verify the information provided by the establishment. Beginning in late 2008, CDER plans to implement an electronic registration and listing system that could improve the accuracy of information the agency maintains on registered establishments. The new system will allow drug manufacturing establishments to submit registration and listing information electronically, rather than submitting it on paper forms. FDA hopes that electronic registration will result in efficiencies allowing the agency to shift resources from data entry to assuring the quality of the databases. However, electronic registration alone will not prevent foreign establishments that do not manufacture drugs for the U.S. market from registering, thus still presenting the problem of an inaccurate count. Recently, another FDA center implemented changes affecting the registration of medical device manufacturers, an activity for which we previously identified problems similar to those found in CDER. In fiscal year 2008, CDRH implemented, in addition to electronic registration, an annual user fee of $1,706 per registration for certain medical device establishments and an active re-registration process. According to CDRH, as of early April 2008, about half of the previously registered establishments have reregistered using the new system. While CDRH officials expect that this number will increase, they expect that the elimination of establishments that do not manufacture medical devices for the U.S. market--and thus should not be registered--will result in a smaller, more accurate database of medical device establishments. CDRH officials indicated that implementation of electronic registration and the annual user fee seems to have improved the data so CDRH can more accurately identify the type of establishment registered, the devices manufactured at an establishment, and whether or not an establishment should be registered. According to CDRH officials, the revenue from device registration user fees is applied to the process for the review of device applications, including establishment inspections undertaken as part of the application review process. CDER does not currently have the authority to assess a user fee for registration of drug establishments, but officials indicated that such a fee could discourage registrations of foreign manufacturers that are not ready, are not actively importing, or have not been approved to market drug products in the United States. Officials also suggested that such fees could be used to supplement the resources available for conducting inspections. FDA has proposed, but not yet implemented, the Foreign Vendor Registration Verification Program, which could help improve the accuracy of information FDA maintains on registered establishments. Through this program, FDA plans to contract with an external organization to conduct on-site verification of the registration data and product listing information of foreign establishments shipping drugs and other FDA-regulated products to the United States. As of April 2008, FDA had solicited proposals for this contract but was still developing the specifics of the program. For example, the agency had not yet established the criteria it would use to determine which establishments would be visited for verification purposes or determined how many establishments it would verify annually. FDA currently plans to award this contract in May 2008. Given the early stages of this process, it is too soon to determine whether this program will improve the accuracy of the data FDA maintains on foreign drug establishments. In addition to changes to improve DRLS, FDA has supported a proposal that has the potential to address weaknesses in OASIS, but FDA does not control the implementation of this change. As we previously testified, OASIS contains an inaccurate count of foreign establishments manufacturing drugs imported to the United States as a result of unreliable identification numbers generated by customs brokers when the product is offered for entry. FDA officials told us that these errors result in the creation of multiple records for a single establishment, which results in inflated counts of establishments offering drugs for entry into the U.S. market. FDA is pursuing the creation of a governmentwide unique establishment identifier, as part of the Shared Establishment Data Service (SEDS), to address these inaccuracies. Rather than relying on the creation and entry of an identifier at the time of import, SEDS would provide a unique establishment identifier and a centralized service to provide commercially verified information about establishments. The standard identifier would be submitted as part of import entry data where required by FDA or other government agencies. SEDS could thus eliminate the problem of having multiple identifiers associated with an individual establishment. The implementation of SEDS is dependent on action from multiple federal agencies, including the integration of the concept into a CBP import and export system currently under development and scheduled for implementation in 2010. In addition, once implemented by CBP, participating federal agencies would be responsible for bearing the cost of integrating SEDS with their own operations and systems. FDA officials are not aware of a specific timeline for the implementation of SEDS. Developing an implementation plan for SEDS is a recommendation of the Interagency Working Group on Import Safety's Action Plan for Import Safety: A Roadmap for Continual Improvement. Finally, FDA is in the process of implementing additional initiatives to improve the integration of its current data systems, which could make it easier for the agency to establish an accurate count of foreign drug manufacturing establishments subject to inspection. The agency's Mission Accomplishments and Regulatory Compliance Services (MARCS) is intended to help FDA electronically integrate data from multiple systems. It is specifically designed to give individual users a more complete picture of establishments. FDA officials estimate that MARCS, which is being implemented in stages, could be fully implemented by 2011 or 2012. However, FDA officials told us that implementation has been slow because the agency has been forced to shift resources away from MARCS and toward the maintenance of current systems that are still heavily used, such as FACTS and OASIS. Taken together, electronic registration, the Foreign Vendor Registration Verification Program, SEDS, and MARCS could provide the agency with more accurate information on the number of establishments subject to inspection. However, it is too early to tell. FDA has taken steps to help it select establishments for inspection by obtaining information on foreign establishments from regulatory bodies in other countries, despite encountering difficulties in fully utilizing these arrangements in the past. FDA has recognized the importance of receiving information about foreign establishments from other countries and has taken steps to develop new, or strengthen existing, information-sharing arrangements to do so. For example, according to FDA, the agency is enhancing an arrangement to exchange information with the Swiss drug regulatory agency. FDA officials have highlighted such arrangements as a means of improving the agency's oversight of drugs manufactured in foreign countries. For example, they told us that in selecting establishments for GMP surveillance inspections, they sometimes use the results of an establishment inspection conducted by a foreign government to determine whether to inspect an establishment. FDA told us that it received drug inspection information from foreign regulatory bodies six times in 2007. FDA has previously encountered difficulties which prevented it from taking full advantage of information-sharing arrangements with other countries. Obtaining inspection reports from other countries and using this information has proved challenging. In order for FDA to determine the value of inspection reports from a particular country, it must consider whether the scope of that country's inspections is sufficient for FDA's needs. Evaluation of inspections conducted by foreign regulatory bodies can be complex and may include on-site review of regulatory systems and audit inspections. Further, to obtain results of inspections conducted by its foreign counterparts, FDA must specifically request them--they are not automatically provided. While FDA has provided certain foreign regulatory bodies access to its Compliance Status Information System--which provides information from the results of FDA's inspections--foreign regulatory bodies have not established similar systems to provide FDA access to data about their inspections. FDA indicated that such systems are under development in some countries and FDA has been promised access when they are available. However, currently, FDA cannot routinely incorporate the results of inspections conducted by foreign regulatory authorities into its risk-based selection process. FDA officials stated that, in the past, they encountered difficulties using inspection reports from other countries that were not readily available in English. Consequently, the existence of such information-sharing arrangements alone may not help FDA systematically address identified weaknesses in its foreign inspection program. Arrangements that have the potential to allow FDA to formally accept the results of inspections conducted by other countries have been prohibitively challenging to implement. Although these arrangements allow countries to leverage their own inspection resources, according to FDA officials, assessing the equivalence of other countries' inspections and the relevance of the information available is difficult. They added that complete reliance on another country's inspection results is risky. The activities associated with establishing these agreements may be resource intensive, which may slow FDA's implementation of them. For example, FDA told us that a lack of funding for establishing such an arrangement with the European Union effectively stopped progress. Although FDA has completed preliminary work associated with this arrangement, the agency has concluded that it will be more beneficial to pursue other methods of cooperating with the European Union. The agency has no plans at this time to enter into other such arrangements. FDA's current efforts to obtain more information from foreign regulatory bodies may help it better assess the risk of foreign establishments when prioritizing establishments for GMP surveillance inspections. However, most foreign inspections are conducted to examine an establishment referenced in an NDA or ANDA. The agency conducts relatively few foreign GMP surveillance inspections selected through its risk-based process. Therefore, these efforts may be of limited value to the foreign inspection program if the agency does not increase the number of such inspections. FDA has made progress in conducting more foreign inspections, but it still inspects relatively few establishments. FDA conducted more foreign establishment inspections in fiscal year 2007 than it had in each of the 5 previous fiscal years. However, the agency still inspected less than 11 percent of the foreign establishments on the prioritized list that it used to plan its fiscal year 2007 GMP surveillance inspections. The agency also still conducts far fewer inspections of foreign establishments than domestic establishments. Its budget calls for incremental increases in funding for foreign inspections. FDA officials told us that, for fiscal year 2008, the agency plans to conduct more GMP surveillance inspections based on its prioritized list of foreign establishments. FDA officials estimated that the agency conducted about 30 such inspections in fiscal year 2007 and plans to conduct at least 50 in fiscal year 2008. If FDA were to inspect foreign establishments biennially, as is required for domestic establishments, this would require FDA to dedicate substantially more funding than it has dedicated to such inspections in the past. In fiscal year 2007, FDA dedicated about $10 million to inspections of foreign establishments. FDA estimates that, based on the time spent conducting inspections of foreign drug manufacturing establishments in fiscal year 2007, the average cost of such an inspection ranges from approximately $41,000 to $44,000. Our analysis suggests that it could cost the agency $67 million to $71 million each year to biennially inspect each of the 3,249 foreign drug establishments on the list that FDA used to plan its fiscal year 2007 GMP surveillance inspections. Based on these same estimates, it would take the agency $15 million to $16 million each year to inspect the estimated 714 drug manufacturing establishments in China every 2 years. According to FDA budget documents, the agency estimates that it will dedicate a total of about $11 million in fiscal year 2008 and $13 million in fiscal year 2009 to all foreign inspections. In its fiscal year 2009 budget, FDA proposed instituting a reinspection user fee. Reinspections are conducted to verify that corrective actions the agency has required establishments to take in response to previously identified violations have been implemented. FDA's proposal to institute a reinspection user fee would allow it to charge establishments a fee when the agency determines a reinspection is warranted. However, as proposed, the reinspection user fee would be budget neutral, meaning that the other appropriated funds the agency receives would be offset by the amount of collected reinspection fees. As a result, this proposal would not provide the agency with an increase in funds that could be used to pay for additional foreign inspections. FDA has recently announced proposals to address some of the challenges unique to conducting foreign inspections, but specific implementation steps and associated time frames are unclear. We previously identified the lack of a dedicated staff devoted to conducting foreign inspections as a challenge for the agency. FDA noted in its report on the revitalization of ORA that it is exploring the creation of a cadre of investigators who would be dedicated to conducting foreign inspections. However, the report does not provide any additional details or timeframes about this proposal. In addition, FDA recently announced plans to establish a permanent foreign presence overseas, although little information about these plans is available. Through an initiative known as "Beyond our Borders," FDA intends that its foreign offices will improve cooperation and information exchange with foreign regulatory bodies, improve procedures for expanded inspections, allow it to inspect facilities quickly in an emergency, and facilitate work with private and government agencies to assure standards for quality. FDA's proposed foreign offices are intended to expand the agency's capacity for regulating, among other things, drugs, medical devices, and food. The extent to which the activities conducted by foreign offices are relevant to FDA's foreign drug inspection program is uncertain. Initially, FDA plans to establish a foreign office in China with three locations--Beijing, Shanghai, and Guangzhou--comprised of a total of eight FDA employees and five Chinese nationals. The Beijing office, which the agency expects will be partially staffed by the end of 2008, will be responsible for coordination between FDA and the Chinese regulatory agencies. FDA staff located in Shanghai and Guangzhou, who will be hired in 2009, will be focused on conducting inspections and working with Chinese inspectors to provide training as necessary. FDA has noted that the Chinese nationals will primarily provide support to FDA staff including translation and interpretation. The agency is also considering setting up offices in other locations, such as India, the Middle East, Latin America, and Europe, but no dates have been specified. While the establishment of both a foreign inspection cadre and offices overseas have the potential for improving FDA's oversight of foreign establishments and providing the agency with better data on foreign establishments, it is too early to tell whether these steps will be effective or will increase the number of foreign drug inspections. Agreements with foreign governments, such as one recently reached with China's State Food and Drug Administration, may help the agency address certain logistical issues unique to conducting inspections of foreign establishments. We previously testified that one challenge faced by FDA involved the need for its staff to obtain a visa or letter of invitation to enter a foreign country to conduct an inspection. However, FDA officials told us that their agreement with China recently helped FDA expedite this process when it learned of the adverse events associated with a Chinese heparin manufacturer. According to these officials, the agreement with China greatly facilitated its inspection of this manufacturer by helping FDA send investigators much more quickly than was previously possible. Americans depend on FDA to ensure the safety and effectiveness of the drugs they take. The recent incident involving heparin underscores the importance of FDA's initiatives and its steps to obtain more information about foreign drug establishments, conduct more inspections overseas, and improve its overall management of its foreign drug inspection program. FDA has identified actions that, if fully implemented, could address some, but not all, of the concerns we first identified 10 years ago and reiterated 5 months ago in our testimony before this subcommittee. Given the growth in foreign drug manufacturing for the U.S. market and the current large gaps in FDA's foreign drug inspections, FDA will need to devote considerable resources to this area if it is to increase the rate of inspections. However, FDA's plans currently call for incremental increases that will have little impact in the near future to reduce the interval between inspections for these establishments. In addition, many of FDA's initiatives will take several years to implement and require funding and certain interagency or intergovernmental agreements that are not yet in place. Taken together, FDA's plans represent a step forward in filling the large gaps in FDA's foreign drug inspection program, but do little to accomplish short-term change. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or the other Members of the subcommittee may have at this time. For further information about this testimony, please contact Marcia Crosse at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Geraldine Redican-Bigott, Assistant Director; Katherine Clark; William Hadley; Cathleen Hamann; Julian Klazkin; Lisa Motley; Daniel Ries; and Monique B. Williams made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Food and Drug Administration (FDA) is responsible for overseeing the safety and effectiveness of human drugs that are marketed in the United States, whether they are manufactured in foreign or domestic establishments. FDA inspects foreign establishments to ensure that they meet the same standards required of domestic establishments. Ongoing concerns regarding FDA's foreign drug inspection program recently were heightened when FDA learned that contaminated doses of a common blood thinner had been manufactured at a Chinese establishment that the agency had never inspected. FDA has announced initiatives to improve its foreign drug inspection program. In November 2007, GAO testified on weaknesses in FDA's foreign drug inspection program (GAO-08-224T). This statement presents preliminary findings on how FDA's initiatives address the weaknesses GAO identified. GAO interviewed FDA officials and analyzed FDA's initiatives. GAO examined reports and proposals prepared by the agency, as well as its plans to improve databases it uses to manage its foreign drug inspection program. Recent FDA initiatives--some of which have been implemented and others proposed--could strengthen FDA's foreign drug inspection program, but these initiatives do not fully address the weaknesses that GAO previously identified. GAO testified in November 2007 that FDA's databases do not provide an accurate count of foreign establishments subject to inspection and do provide widely divergent counts. Through one recent initiative, FDA has taken steps to improve its database intended to include foreign establishments registered to market drugs in the United States. This initiative may reduce inaccuracies in FDA's count of foreign establishments. However, these steps will not prevent foreign establishments that do not manufacture drugs for the U.S. market from erroneously registering with FDA. Further, to reduce duplication in its import database, FDA has supported a proposal that would change the data it receives on products entering the United States. However, the implementation of this proposal is not certain and would require action from multiple federal agencies, in addition to FDA. Efforts to integrate these databases have the potential to provide FDA with a more accurate count of establishments subject to inspection, but it is too early to tell. GAO testified that gaps in information weaken FDA's processes for prioritizing the inspection of foreign establishments that pose the greatest risk to public health. While FDA recently expressed interest in obtaining useful information from foreign regulatory bodies that could help it prioritize foreign establishments for inspections, the agency has faced difficulties fully utilizing these arrangements in the past. For example, FDA had difficulties in determining whether the scope of other countries' inspection reports met its needs and these reports were not always readily available in English. GAO also testified that FDA inspected relatively few foreign establishments each year. FDA made progress in inspecting more foreign establishments in fiscal year 2007, but the agency still inspects far fewer of them than domestic establishments. FDA dedicated about $10 million to foreign drug inspections in fiscal year 2007 and plans to dedicate about $11 million to such inspections in fiscal year 2008. Finally, GAO testified that FDA faced certain logistical and staffing challenges unique to conducting foreign inspections. FDA is pursuing initiatives that could address some of the challenges that we identified as being unique to foreign inspections, such as volunteer inspection staff and lack of translators. FDA has proposed establishing a dedicated cadre of staff to conduct foreign inspections, but the timeframe associated with this initiative is unclear. FDA plans to open an office in China and is considering establishing offices in other countries, but the impact that this will have on the foreign drug inspection program is unknown.
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Overall, NTSB has fully implemented or made significant progress in following leading management practices in all eight areas that our recommendations addressed in 2006 and 2008--communication, strategic planning, IT, knowledge management, organizational structure, human capital management, training, and financial management. We made 15 management recommendations in these areas based on leading agency management practices that we identified through our governmentwide work. Although NTSB is a relatively small agency, such practices remain relevant. Figure 1 summarizes NTSB's progress in implementing our management recommendations. NTBS had fully implemented three of our management recommendations as of our last report in April 2008--our recommendations to (1) facilitate communication from staff to management, (2) align organizational structure to implement a strategic plan, and (3) correct an Antideficiency Act violation related to purchasing accidental death and dismemberment insurance for employees on official travel. In addition, NTSB has made further progress on seven of our management recommendations since 2008. First, it started reporting to Congress on the status of our recommendations by including the actions it has taken to address them in its Annual Report to Congress. In addition, NTSB has taken steps to implement all three of our IT-related recommendations: NTSB has fully implemented an IT strategic plan that addresses our comments. Moreover, in compliance with the Federal Information Security Management Act of 2002 (FISMA), NTSB has undergone annual independent audits, hiring outside contractors to perform security testing and evaluation of its computer systems. We performed limited testing to verify that NTSB has implemented our recommendation to install encryption software. Agency officials confirmed, however, that while encryption software is operational on 410 of the agency's approximately 420 laptop computers, the remaining laptops do not have encryption software installed because they do not include sensitive information and are not removed from the headquarters building. NTSB has made significant progress in limiting local administrator privileges while allowing for employees to add software and print from offsite locations as necessary. NTSB has also drafted a strategic training plan that, when finalized, would address GAO guidance on federal strategic training and development efforts and establish the core competencies needed for investigators and other staff. In addition, two modal offices have developed core curricula that relate specifically to their investigators. In addition, NTSB obligated $1.3 million in September 2009 to the National Business Center--an arm of the Department of the Interior that provides for-fee payroll services to federal agencies--to develop a full cost accounting system for NTSB based on a statement of work. NTSB officials said that the first phase of the cost accounting system will be implemented late in fiscal year 2010. When completed to permit recording time and costing of investigations and other activities, including training, this action will fully implement our recommendation. The remaining five management recommendations have not yet been fully implemented. However, NTSB has initiated actions that could lead to the full implementation of the remainder of the recommendations. For example, GAO offered suggestions in 2008 for improving NTSB's agencywide strategic plan, and NTSB is in the final stages of updating its strategic plan, which may address our comments by incorporating all five agency mission areas in its goals and objectives and obtaining comments from Congress or other external stakeholders potentially affected by or interested in the plan. In addition, NTSB has continued to improve its knowledge management by developing a plan to capture, create, share, and revise knowledge, and the agency is deploying Microsoft SharePoint®️ to facilitate sharing useful information within NTSB. In April 2008, we reported that NTSB had made significant progress in implementing our human capital planning recommendation by issuing a human capital plan that incorporated several strategies on enhancing the recruitment process but was limited in some areas of diversity management. As we have previously reported, diversity management is a key aspect of strategic human capital management. Developing a workforce that includes and takes advantage of the nation's diversity is a significant part of an agency's transformation of its organization to meet the challenges of the 21st century. The most recent version of NTSB's human capital plan establishes goals for recruiting, developing, and retaining a diverse workforce, and NTSB provided diversity training to 32 of its senior managers and office directors in May 2009. Table 1 compares the diversity of NTSB's fiscal year 2008 workforce with that of the federal government and the civilian labor force. As the table shows, the percentages of NTSB's fiscal year 2008 workforce that were women and minorities were lower than those of the federal government. Under the Office of Personnel Management's regulations implementing the Federal Equal Opportunity Recruitment Program, agencies are required to determine where representation levels for covered groups are lower than for the civilian labor force and take steps to address those differences. Additionally, as of fiscal year 2008, 9 percent of NSTB's managers and supervisors are minorities and 24 percent are women (see fig. 2). Furthermore, according to NTSB, none of NTSB's current 15-member career Senior Executive Service (SES) staff were members of minority groups, and only 2 of them were women. As we have previously reported, diversity in SES, which generally represents the most experienced segment of the federal workforce, can strengthen an organization by bringing a wider variety of perspectives and approaches to policy development and decision making. NTSB has undertaken several initiatives to create a stronger, more diverse pool of candidates for external positions. These initiatives include the establishment of a Management Candidate Program that has attracted a diverse pool of minority and female candidates at the GS 13/14 level. NTSB's Executive Development Program focuses on identifying candidates for current and future SES positions at the agency. Despite these efforts, NTSB has not been able to appreciably change its diversity profile for minority group members and women. NTSB's current workforce demographics may present the agency with an opportunity to increase the diversity of its workforce and management. According to NTSB, in 3 years, more than 50 percent of its current supervisors and managers will be eligible to retire, as will over 25 percent of its general workforce. Furthermore, 53 percent of its investigators and 71 percent of those filling critical leadership positions are at least 50 years of age. Although actual retirement rates may be lower than retirement eligibility rates, especially in the present economic environment, consideration of retirement eligibility is important to workforce planning. We previously made four recommendations to NTSB to improve the efficiency of its activities related to investigating accidents, such as selecting accidents to investigate and tracking the status of its recommendations, and increasing its use of safety studies (see fig. 3). NTSB is required by statute to investigate all civil aviation accidents and selected accidents in other modes--highway, marine, railroad, pipeline, and hazardous materials. Since our April 2008 report, NTSB has fully implemented our recommendation to develop transparent policies containing risk-based criteria for selecting which accidents to investigate. The recently completed highway policy assigns priority to accidents based on the number of fatalities, whether the accident conditions are on NTSB's "Watch List" or whether the accidents might have significant safety issues, among other factors (see fig. 4). For marine accidents, NTSB has a memorandum of understanding (MOU) with the U.S. Coast Guard that includes criteria for selecting which accidents to investigate. In addition, NTSB has now developed an internal policy on selecting marine accidents for investigation. This policy enhances the MOU by providing criteria to assess whether to launch an investigation when the Coast Guard, not NTSB, would have the lead. In April 2008, we reported that NTSB had also developed a transparent, risk-based policy explaining which aviation, rail, pipeline, and hazardous materials accidents to investigate. The remaining three recommendations have not yet been fully implemented. However, NTSB has initiated actions that could lead to closure of the recommendations. NTSB is deploying an agencywide electronic information system based on Microsoft SharePoint that will streamline and increase NTSB's use of technology in closing out its recommendations and in developing reports. When fully implemented, this system should serve to close these two recommendations. NTSB has also made significant progress in implementing our recommendation to increase its use of safety studies, which are multiyear efforts that result in recommendations. They are intended to improve transportation safety by effecting changes to policies, programs, and activities of agencies that regulate transportation safety. While we, the Department of Transportation, and nongovernmental groups, like universities, also conduct research designed to improve transportation safety, NTSB is mandated to carry out special studies and investigations about transportation safety, including studies about how to avoid personal injury. Although NTSB has not completed any safety studies since we made our recommendation in 2006, it has three studies in progress, one of which is in final draft, and it has established a goal of developing two safety study proposals and submitting them to its board for approval each year. NTSB officials told us that because the agency has a small number of staff, it has difficulty producing large studies in addition to processing many other reports and data inquiries. NTSB officials told us they would like to broaden the term "safety studies" to include not only the current studies of multiple accidents, but the research done for the other smaller safety-related reports and data inquiries. Such a term, they said, would better characterize the scope of their efforts to report safety information to the public. NTSB also developed new guidelines to address its completion of safety studies. Congressional reauthorization is an ideal time to obtain stakeholder input on whether a change in terminology like this would meet NTSB's legislative requirement. We made two recommendations for NTSB to increase its own and other agencies' use of the Training Center and to decrease the center's overall operating deficit (see fig. 5). The agency increased use of the center's classroom space from 10 percent in fiscal year 2006 to 80 percent in fiscal year 2009. According to NTSB, it has sublease agreements with agencies of the Department of Homeland Security (DHS) to rent approximately three- quarters of the classroom space located on the first and second floors. The warehouse portion of the Training Center houses reconstructed wreckage from TWA Flight 800, damaged aircraft, and other wreckage. The Training Center provides core training for NTSB investigators and trains others from the transportation community to improve their practice of accident investigation. Furthermore, NTSB has hired a Management Support Specialist whose job duties include maximizing the Training Center's use and marketing its use to other agencies or organizations. The agency's actions to increase the center's use also helped increase total Training Center revenues from about $635,000 in fiscal year 2005 to about $1,771,000 in fiscal year 2009. By reducing the center's leasing expenses-- for example, by subleasing classrooms and office space at the center to other agencies--NTSB reduced the Training Center's annual deficit from about $3.9 million to about $1.9 million over the same time period. NTSB has made significant progress in achieving the intent of our recommendation to maximize the delivery of its core investigator curriculum at the Training Center by increasing the number of NTSB- related courses taught at the Training Center (fig. 6). For example in 2008, 49 of the 68 courses offered at the Training Center were solely for NTSB employees. NTSB has fully implemented our recommendation to increase use of the Training Center. NTSB subleased all available office space at its Training Center to the Federal Air Marshal Service (a DHS agency) at an annual fee of $479,000. NTSB also increased use of the Training Center's classroom space and thereby increased the revenues it receives from course fees and rents for classroom and conference space. From fiscal year 2006 through fiscal year 2009, NTSB increased other agencies' and its own use of classroom space from 10 to 80 percent, and increased revenues by over $1.1 million. For example, according to NTSB it has a sublease agreement with DHS to rent approximately one-third of the classroom space. NTSB considered moving certain staff from headquarters to the Training Center, but halted these considerations after subleasing all of the Training Center's available office space. NTSB decreased personnel expenses related to the Training Center from about $980,000 in fiscal year 2005 to $507,000 in fiscal year 2009 by reducing the center's full-time equivalent positions from 8.5 to 3.0 over the same period. As a result of these efforts, from fiscal year 2005 through fiscal year 2009, Training Center revenues increased 179 percent while the center's overall deficit decreased by 51 percent. (Table 2 shows direct expenses and revenues for the Training Center in fiscal years 2004 through 2009.) However, the salaries and other personnel-related expenses associated with NTSB investigators and managers teaching at the Training Center, which would be appropriate to include in the Training Center's costs, are not included. NTSB officials told us that they believe the investigators and managers teaching at the Training Center would be teaching at another location even if the Training Center did not exist. Once NTSB has fully implemented its cost accounting system, it should be able to track and report these expenses. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For further information on this testimony, please contact Gerald L. Dillingham, Ph.D. at (202) 512-2834 or by e-mail at [email protected] or Gregory C. Wilshusen at (202) 512-6244 or [email protected]. Individuals making key contributions to this testimony include Keith Cunningham, Assistant Director; Lauren Calhoun; Peter Del Toro; George Depaoli; Elizabeth Eisenstadt; Fred Evans; Steven Lozano; Mary Marshall; Kiki Theodoropoulos; Charles Vrable; Jack Warner; and Sarah Wood. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The National Transportation Safety Board (NTSB), whose reauthorization is the subject of today's hearing, plays a vital role in advancing transportation safety by investigating accidents, determining their causes, issuing safety recommendations, and conducting safety studies. To support the agency's mission, NTSB's Training Center provides training to NTSB investigators and others. From 2006 through 2008, GAO made 21 recommendations to NTSB that address management, information technology (IT), accident investigation criteria, safety studies, and Training Center use. This testimony addresses NTSB's progress in implementing recommendations that it (1) follow leading management practices, (2) conduct aspects of its accident investigations and safety studies more efficiently, and (3) increase the use of its Training Center. This testimony is based on GAO's assessment from July 2009 to October 2009 of plans and procedures NTSB developed to address these recommendations. NTSB provided technical comments that GAO incorporated as appropriate. NTSB hasfully implemented or made significant progress in adopting leading management practices in all areas in which GAO made prior recommendations. For example, as GAO recommended in 2006, NTSB issued agencywide plans for human capital management and IT management, as well as a strategic plan. In 2008, GAO identified opportunities for improvement in those plans, and NTSB has since issued revised human capital and IT plans and drafted a revised agencywide strategic plan and a new strategic training plan. NTBS has taken steps to improve its diversity management. However, the percentages of NTSB's fiscal year 2008 workforce that were women and minorities were lower than those of the federal government. In addition, no members of a minority group are part of NTSB's 15-member career Senior Executive Service. Since GAO's 2008 report, NTSB has continued to improve information security by installing encryption software on agency laptops and appropriately restricting users' access privileges. NTSB has obligated money to implement a full cost accounting system consistent with a prior GAO recommendation, but NTSB officials said that the system will not be implemented until late in fiscal year 2010. In 2008, GAO reported that NTSB had made significant progress in articulating risk-based criteria for selecting which accidents to investigate. Specifically, NTSB had established such criteria for identifying which rail, pipeline, hazardous materials, and aviation accidents to investigate at the scene. Since then, NTSB has adopted the remaining highway and marine criteria, and NTSB is streamlining and increasing it use of technology in closing-out recommendations. NTSB has three safety studies in progress and would like to broaden the term "safety studies" to include not only its current studies of multiple accidents, but also the research it does for other smaller safety-related reports and data inquiries. NTSB has continued to increase the use of its Training Center--from 10 percent in fiscal year 2006 to 80 percent in fiscal year 2009. As a result, revenues have increased and the center's overall deficit has declined from about $3.9 million in fiscal year 2005 to about $1.9 million in fiscal year 2009.
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The decision to provide substantial amounts of funding to the auto industry--more than 12 percent of all authorized TARP funds--and to accept equity in the companies in return for some of the assistance reflects Treasury's view of the automotive industry's importance to the U.S. economy. According to Treasury officials, Treasury provided assistance not simply because of the industry's importance, but because of the severity of the crisis and the desire to prevent significant disruption to the economy that would have resulted from uncontrolled liquidations of Chrysler and GM. To help stabilize the industry and avoid economic disruptions, Treasury disbursed $79.7 billion through AIFP from December 2008 through June 2009. The majority of the assistance was used to support two automakers, Chrysler and GM, during restructuring, along with their automotive finance companies, Chrysler Financial and GMAC. In July 2009, Treasury outlined guiding principles for the investments made to the auto industry, including: exiting its investments as soon as practicable in a timely and orderly manner that minimizes financial market and economic impact; protecting taxpayer investment and maximizing overall investment returns within competing constraints; improving the strength and viability of GM and Chrysler so that they can contribute to economic growth and jobs without government involvement; and managing its ownership stake in a hands-off, commercial manner, including voting its shares only on core governance issues, such as the selection of a company's board of directors and major corporation events or transactions. GM is one of the world's largest automotive companies and does business in more than 120 countries worldwide. As of December 31, 2012, it employed 213,000 workers worldwide and marketed vehicles through a network of independent retailers totaling 20,754 dealers. In North America, GM manufactures and markets the following brands: Buick, Cadillac, Chevrolet, and GMC. Treasury provided a $13.4 billion loan in December 2008 to the Old GM to fund working capital.the purchase of additional ownership interests in a rights offering by GMAC. In April 2009, Treasury loaned an additional $6 billion to fund Old GM as it worked to submit a viable restructuring plan (working capital loan). These funds, along with loans from the Canadian government and concessions from nearly every stakeholder, including the company's primary labor union--the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW)--were intended to give the companies time to restructure to improve their competitiveness and long-term viability. Treasury also lent $884 million to the Old GM for As a condition of receiving this assistance, Old GM was required to submit a plan to Treasury that would, among other things, identify how it intended to achieve and sustain long-term financial viability. GM's initial viability plan submitted in February 2009 was rejected. The plan established targets for addressing some of the company's key challenges to achieving viability, including reducing debt, numbers of brands and models, dealership networks, and production costs and capacity. In 2009, Old GM filed a voluntary petition for reorganization under Chapter 11 of the U.S. bankruptcy code. Subsequently, in June 2009, Treasury provided Old GM with $30.1 billion under a debtor-in-possession financing agreement to assist during the restructuring. The newly organized GM was able to purchase most of the operating assets of the former company through a sale under Section 363 of the bankruptcy code. When the sale was completed on July 10, 2009, Treasury converted most of its loans into 60.8 percent of the common equity in GM and $2.1 billion in preferred stock. In addition, $6.7 billion of the TARP loans remained outstanding after the bankruptcy. In spring 2011, the bankruptcy was completed, and Old GM's remaining assets and liabilities were transferred to liquidating trusts. As we concluded in our past work, the federal assistance allowed GM to restructure its balance sheets and obligations through the bankruptcy code and tackle key challenges to achieving viability. Ally Financial, previously known as GMAC, formerly served as GM's captive auto finance company. The primary purpose of auto financing is to provide credit to consumers so that they can purchase automobiles. In determining how to finance their purchases, consumers have many financial institutions from which to choose, including banks, credit unions, and auto finance companies, all of which may offer loans or other credit accommodations for the purchase of new and used automobiles. In addition to consumer financing, auto dealers have also traditionally used manufacturers' finance companies to finance their purchase of the automobile inventory that they sell (known as floor-plan financing). Prior to the financial crisis, GMAC's subsidiaries expanded into other areas of financial services, such as auto insurance and residential mortgages, but GMAC remained a wholly owned subsidiary of the Old GM. In 2006, Cerberus Capital Management purchased 51 percent of the company. GM retained a 49 percent ownership stake. As the housing market declined in the late 2000s, the previously profitable GMAC mortgage business unit began producing significant losses. For example, the company's Residential Capital LLC (ResCap) subsidiary--which by 2006 had grown to be the country's sixth-largest mortgage originator and fifth-largest mortgage servicer--lost approximately $17 billion from 2007 through 2009. During the same time period, automobile sales in the U.S. dropped from 16.4 million to 10.4 million, negatively affecting the company's core auto financing business. According to Treasury, Treasury determined that without government assistance GMAC would be forced to deny or suspend financing to creditworthy dealerships, leaving them unable to purchase automobile inventory for their lots. Without orders for automobiles from dealerships, GM would have been forced to slow or shut down its factories indefinitely to match the drop in demand. Given its significant overhead, a slow-down or stoppage of this magnitude would have caused GM to topple, according to Treasury. However, GMAC was not initially eligible for assistance under the TARP Capital Purchase Program (CPP). To become eligible for federal financial assistance, GMAC sought to convert GMAC Bank's charter from an industrial loan company into a commercial bank in 2008 and applied to the Federal Reserve for bank holding company status. GMAC also submitted an application to participate in the Capital Purchase Program, conditional upon becoming a bank holding company. The Federal Reserve approved GMAC's bank holding company application in December 2008. Although GMAC originally applied for participation in CPP, in late December 2008, as a part of AIFP, Treasury agreed to purchase $5 billion in senior preferred equity from GMAC and received an additional $250 million in preferred shares through warrants that Treasury exercised immediately. Treasury subsequently provided GMAC with additional assistance through TARP. In May 2009, Treasury purchased $7.5 billion of mandatory convertible preferred shares from GMAC. In December 2009, Treasury purchased additional shares--$2.5 billion of trust preferred securities and approximately $1.3 billion of mandatory convertible preferred shares. Also, in December 2009, Treasury converted $3 billion of existing mandatory convertible preferred shares into common stock, increasing its common equity stake from 35 percent to 56.3 percent. In December 2010, Treasury converted preferred stock in Ally Financial that had a liquidation preference of $5.5 billion into common stock. This stock conversion resulted in Treasury's owning approximately 74 percent of Ally Financial. In addition, as of September 2013, Treasury continues to hold $5.9 billion of Ally Financial's mandatory convertible preferred shares. Ally Financial pays a 9.0 percent fixed dividend annually to Treasury on these preferred shares. As will be discussed later in this report, Ally Financial has entered into an agreement with Treasury to repurchase the mandatory convertible preferred shares with possible completion of the transaction sometime later this year. As of June 2013, Ally Financial was the 20th largest U.S. bank holding company, with total assets of $150.6 billion. Its primary line of business is auto financing--both consumer financing and leasing and dealer floor- plan financing. As a bank holding company, Ally Financial is regulated and supervised by the Federal Reserve. Ally Bank, an Internet and-telephone-based, state-chartered nonmember bank that is supervised by the FDIC and the Utah Department of Financial Institutions. Ally Bank has over $92 billion in assets and $50.8 billion in total deposits, as of June 30, 2013. 12 U.S.C. SS 1844(b)-(c). Since receiving federal assistance, GM has shown increasingly positive financial results. For each of the last 3 years, GM has reported profits, a positive and growing operating cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM's credit ratings, with each of the three largest credit rating agencies increasing GM's long-term credit rating. Although Moody's upgraded GM's rating to investment grade on September 23, 2013, Standard and Poor's and Fitch Ratings rate GM as below investment grade as of the same month. Furthermore, GM's market share of vehicles sold in North America was smaller than in 2008, and it continued to carry large pension liabilities. Based on our analysis of GM's reported financial data, the company's financial performance has improved since 2008. We assessed GM's financial performance by examining its reported net income, operating income, and operating cash flow. Net income (loss): Net income (net profit or loss) is the difference between total revenues and expenses and represents the company's income after all expenses and taxes have been deducted. For 2010, 2011, and 2012, GM reported net income of $6.5 billion, $9.3 billion, and $6.1 billion, respectively (see table 1). In 2008, prior to the federal government's assistance and Old GM's bankruptcy, GM reported a net loss of $30.9 billion. As we found in our prior work, a key result of the restructuring was that GM lowered its fixed costs by reducing the number of employees, plants, and dealerships, among other things. Reduced fixed costs allow GM to be profitable with fewer sales, thereby lowering its "break-even" level. Operating income (loss): Operating income (loss) describes a company's profit and loss from its core operations. It is the difference between the revenues of a business and the related costs and expenses, excluding income from sources other than its core business (e.g., income derived from investments). GM reported operating income of $5.1 billion and $5.7 billion in 2010 and 2011, respectively (see table 1). In 2012, GM took an approximate $27 billion goodwill impairment charge that significantly reduced its operating income, contributing to a $30.4 billion operating loss. Operating cash flow: Operating cash flow refers to the amount of cash generated by a company's core business operations. Operating cash flow is important because it indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or requires external financing. In its 2010, 2011, and 2012 annual reports, GM reported operating cash flow of $6.6 billion, $7.4 billion, and $9.6 billion, respectively. Further, in 2010 GM reported total available liquidity from automotive operations of $32.5 billion, including $5.9 billion from credit facilities. This amount had increased slightly by 2012, when GM reported total available liquidity of $37.2 billion, including $11.1 billion from credit facilities. Finally, GM reported current assets greater than current liabilities from 2010 through 2012, indicating that it could meet all current liabilities without additional financing. These improvements in GM's financial performance have been reflected in its credit ratings. A credit rating is an assessment of the credit worthiness of an obligor as an entity or with respect to specific securities or money market instruments. Credit ratings are important because investors and financial institutions may consider them when making investment and lending decisions. The three largest credit rating agencies have each increased GM's long-term credit rating two steps in the past 3 years. Fitch Ratings and Standard and Poor's raised their long-term rating on GM from BB- to BB+. Moody's raised its long-term corporate family rating on GM from Ba2 to Baa3, an investment grade rating (i.e., the issuer or bond has a relatively low risk of default). Comparatively, Standard and Poor's also rates Ford Motor Company as one step below investment grade, with a positive outlook. Fitch and Moody's upgraded Ford to an investment grade rating in April and May 2012, respectively. Toyota, another competitor of GM, maintains an investment grade rating with all three of these credit rating agencies. Although GM's financial performance has improved significantly since the company initially received federal assistance, questions remain about competitiveness and costs. One of the factors in GM's improved financial condition has been increased sales of automobiles generally, including GM's, over the last 3 years. Overall, North American vehicle sales increased more than 23 percent from 2010 to 2012, rising from 14.4 million to 17.8 million. Over this same period, sales of GM automobiles in North America increased 15 percent, from 2.6 million to 3 million. However, GM's North American market share generally has declined over the past 5 years (see fig. 1).percent of the North American market, compared with 16.9 percent in 2012. GM reported that its North American market share was 17.2 percent through the second quarter of 2013. Treasury invested over $51 billion in GM through AIFP. In exchange for this assistance, Treasury received 60.8 percent of the common equity in GM, $2.1 billion in preferred stock, and $7.1 billion in notes from GM. Through September 18, 2013, Treasury had recovered about $35.21 billion of its investments in GM and reduced its ownership stake to 7.32 percent through three major actions. As of September 18, 2013, Treasury has recouped $37.75 billion from its GM and Ally Financial investment. First, Treasury participated in GM's IPO in November 2010, selling about 412.3 million shares at an average price per share of approximately $32.75. This sale generated $13.5 billion for Treasury and reduced its ownership share to 32 percent. As we found in our 2011 report, by participating in GM's IPO, Treasury tried to fulfill two goals--to maximize taxpayers' return and to exit the company as soon as practicable. Second, GM and Treasury entered into an agreement that allowed GM to repurchase 200 million shares in December 2012. According to GM, as a general matter, GM was interested in reducing Treasury's interest in GM and facilitating Treasury's eventual complete exit from GM ownership. GM purchased the shares at $27.50 per share, about 7.8 percent over the market price of about $25.50. This generated about $5.5 billion in revenue for Treasury and further reduced its ownership interest to just over 22 percent. GM officials said that they determined the premium price based on an arms-length negotiation between GM and Treasury. According to GM officials, the decision to agree to a premium price reflected the benefits GM and other stakeholders received from the transaction, including increased knowledge as to when and how Treasury was going to exit its holdings thereby eliminating the perceived "overhang" on GM's common stock price; mitigation of the stigma associated with the "Government Motors" moniker that negatively impacted customer perceptions; and the fact that the transaction was accretive to earnings. Furthermore, as part of the transaction, Treasury agreed to remove certain governance and reporting requirements. Treasury announced in December 2012 that it planned to divest fully of its GM common equity stake within 12-15 months, subject to market conditions. Third, to achieve its goal of fully divesting by 2014, Treasury has developed and is implementing an exit strategy to sell its shares in tranches. Similar to the process Treasury used to divest its ownership in Citigroup, Treasury began placing its GM shares on the market in tranches, or "dribbles," for a specific time period, beginning in January 2013. Treasury reports these sales after the end of each period for selling a particular tranche. According to Treasury officials, in the case of GM, the dribble approach is a better divestment method than discrete large offerings given the remaining size of its equity holdings and time frame in which it is planning to exit. Furthermore, the dribble approach helps (1) secure the highest possible prevailing market price for taxpayers, (2) limit the impact of additional supply in the market, and (3) ensures that Treasury has flexibility to average the proceeds over time and make adjustments if necessary. As of September 2013, Treasury has sold over 811 million shares for more than $25 billion, leaving it with 101,336,666 shares which represent a 7.32 percent ownership stake in GM. On September 26, 2013, Treasury announced it was launching a third pre-defined written trading plan for its GM common stock. Although Treasury has implemented a plan to divest itself of its ownership stake in GM, it does not anticipate fully recouping its investments. In September 2013, Treasury projected approximately at least a 19 percent loss on its GM investment. The extent of the loss, however, will depend on GM's stock price. As shown in figure 6, the price of GM's stock is not at the level needed for Treasury to fully recoup its investment. Nevertheless, according to Treasury officials, Treasury has continued to sell its shares in line with its guiding principle of exiting its TARP investments as soon as practicable while maximizing return to taxpayers. Doing so, however, has increased the break-even price--that is, the price the stock must reach for Treasury to fully recoup its investment--for its remaining shares. Based on our analysis, we estimate that GM's stock price would have to reach $156 per share for Treasury to fully recoup its investment as of September 16, 2013. At the beginning of September 2013, GM's stock was trading at around $36 per share. Although Treasury's ownership stake in Ally Financial has remained unchanged for the last 3 years at about 74 percent, the company has recently announced planned actions that will facilitate Treasury's exit, pending regulatory approval. As of September 2, 2013, Treasury has recovered about $2.5 billion of the $16.3 billion invested in Ally Financial from a sale of trust preferred shares. Treasury's remaining investment in Ally Financial consists of common stock and $5.9 billion in mandatory convertible preferred shares. In August 2013, Ally Financial announced plans, discussed below, to repurchase the mandatory convertible preferred shares. Treasury has stated that it would like to divest itself of its ownership stake in Ally Financial in a manner that balances the speed of recovery with maximizing returns for taxpayers. Furthermore, Treasury has stated that it will unwind its remaining common stock investment through a sale of stock (either public or private sale) or through future sales of assets. As of September 2013, Treasury has announced the plan for unwinding its preferred stock investments in Ally Financial, though not for its common stock investment. According to Treasury officials, Treasury will announce its precise plans for the common stock investment once it is ready to take action. To accelerate repayment of Treasury's investment and strengthen its longer term financial profile, Ally Financial announced in May 2012 that it was undertaking two strategic initiatives. These initiatives were (1) the discontinuation of providing financial support to its subsidiary ResCap pursuant to the ResCap bankruptcy and (2) the sale of its international auto finance business. ResCap's mortgage business created significant uncertainty for Ally Financial and thus an impediment to Ally Financial's ability to repay Treasury's investment. Also, Ally Financial sought to sell its international operations as a means to accelerate repayment plans to Treasury. At the same time as Ally Financial's announcement last year, Treasury stated that the company's two strategic initiatives would put taxpayers in a stronger position to continue recovering their investment in Ally Financial. As previously noted, Ally Financial achieved a settlement agreement with the ResCap creditors, which was approved by the bankruptcy court in June 2013. In addition, during the second quarter of 2013, Ally Financial completed the sale of its international auto finance business in Europe and the majority of its finance operations in Latin America. Ally Financial plans to complete the sale of its remaining international assets--its operations in Brazil and its joint venture in China--in late 2013 and 2014, respectively. However, in exiting its Ally Financial investment, Treasury faces challenges and considerations, including Ally Financial's failure to meet Federal Reserve capital requirements and competition from other institutions, which may ultimately affect the price of Ally Financial stock once the company is publicly traded. In contrast to GM, Ally Financial is a regulated bank holding company that must receive the Federal Reserve's approval before it can repurchase its preferred shares from Treasury. However, Ally Financial's initial plan to repurchase the mandatory convertible preferred shares stalled after the Federal Reserve objected to its proposed capital plan in the spring 2013 Comprehensive Capital Analysis and Review (CCAR). The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Federal Reserve to conduct an annual supervisory stress test of bank holding companies with $50 billion or more in total consolidated assets to evaluate whether the companies have sufficient capital to absorb losses resulting from adverse economic conditions. As part of the stress test for each company, the Federal Reserve projects revenue, expenses, losses, and resulting post-stress test capital levels, regulatory capital ratios, and the tier 1 common ratio under three scenarios (baseline, adverse, and severely adverse). In March 2013, the Federal Reserve reported the results of its most recent supervisory stress test and of the CCAR exercise. The Federal Reserve found that Ally Financial's tier 1 common capital ratio fell below the required 5 percent under the severely adverse scenario. Ally Financial was the only one of the 18 bank holding companies tested that fell below this required level. Further, as previously indicated, the Federal Reserve objected to Ally Financial's capital plans during the 2013 CCAR. CCAR is an annual exercise the Federal Reserve conducts to help ensure that financial institutions have robust, forward-looking capital planning processes that take into account their unique risks and sufficient capital to continue operating during periods of economic and financial stress. As part of the CCAR process, the Federal Reserve evaluates institutions' capital adequacy; internal processes for assessing capital adequacy; plans to make capital distributions, such as dividend payments or stock repurchases; and other actions that affect capital. The Federal Reserve may object to a capital plan because of significant deficiencies in the capital planning process or because one or more relevant capital ratios would fall below required levels under the assumption of stress and planned capital distributions. If the Federal Reserve objects to the proposed capital plan, the bank holding company is only permitted to make capital distributions if the Federal Reserve indicates in writing that it does not object and must resubmit the capital plan to the Federal Reserve following remediation of these deficiencies. Of the 18 bank holding companies reviewed in 2013, the Federal Reserve objected to Ally Financial's and one other company's capital plans. According to the Federal Reserve, Ally Financial's capital ratios did not meet the required minimums under the proposed capital plan. Specifically, the Federal Reserve reported that under stress conditions Ally Financial's plan resulted in a tier 1 ratio of common capital of 1.52 percent, which is below the required level of 5 percent under the capital plan rule. According to the Federal Reserve report, these results assumed that Ally Financial remained subject to contingent liabilities associated with ResCap. The Federal Reserve required Ally Financial to resubmit a capital plan. Ally Financial resubmitted its new capital plan to the Federal Reserve in September 2013, and in accordance with federal regulation, the Federal Reserve will have 75 days to review the plan. On August 19, 2013, Ally Financial announced that it had entered into agreements with certain accredited investors to issue and to sell to them an aggregate of 166,667 shares of its common stock (private placement securities) for an aggregate purchase price of $1 billion. Ally Financial did not identify the investors. According to Ally Financial, the agreement would strengthen the company's common equity base and support its capital plan resubmission to the Federal Reserve. The agreement requires that the private placement close no later than November 30, 2013. Also on August 19, Ally Financial and Treasury entered into an agreement under which Ally Financial is to repurchase all of the mandatory convertible preferred shares. The agreement is conditioned on Ally Financial receiving a non-objection by the Federal Reserve on its resubmitted CCAR capital plan and the closing of the private placement securities transaction. Ally Financial faces growing competition in both consumer lending and dealer financing from Chrysler Capital, GM Financial, and other large bank holding companies. This competition may affect the future profitability of Ally Financial, which could influence the share price of Ally Financial once the company becomes publicly traded and thus the timing of Treasury's exit. Similar to its GM investment, the eventual amount of Treasury's recoupment on its Ally Financial investment will be determined by the share price of Ally Financial stock. Chrysler Capital: In February 2013, Chrysler announced that it had entered into an agreement with Santander Consumer USA Inc., a subsidiary of Banco Santander, S.A., that specializes in subprime auto lending, to provide a full spectrum of auto financing services to Chrysler Group customers and dealers under the name of Chrysler Capital. Under the 10-year, private-label agreement, Santander Consumer USA was to establish a separate lending operation dedicated to providing financial services under the Chrysler Capital name, including financing for retail loans and leases, new and used vehicle inventory, dealership construction, real estate, working capital, and revolving lines of credit. The agreement grants Santander Consumer USA the right to a minimum percentage of Chrysler's subvention volume and the right to use the Chrysler Capital name for its auto loan and lease offerings. Santander Consumer USA will also provide loans to Chrysler dealers to finance inventory, working capital, and capital improvements. On May 1, 2013, Chrysler Capital started its lending operations. GM Financial: In 2009, GM acquired AmeriCredit Corporation (AmeriCredit), a subprime automobile finance company, to serve its subprime customers. AmeriCredit was renamed GM Financial and made a wholly owned subsidiary of GM. Its target lending market is lending to consumers who have difficulty securing auto financing from banks and credit unions. According to GM officials, the purpose of GM Financial is to drive incremental GM automobile sales by providing solid and stable funding for GM dealers and consumers. GM Financial would serve as a captive lender for GM, much as GMAC did. This year, GM Financial increased its overall assets by purchasing Ally Financial's international assets in Europe and Latin America, including the dealer financing arrangements in these countries. Other bank holding companies: We compared the amount of Ally Financial consumer auto lending with four large bank holding companies (Bank of America Corporation, Capital One Financial Corporation, JPMorgan Chase & Company, and Wells Fargo & Company) that reported consumer automobile loans. These data do not include all types of automobile financing, such as automobile leasing and dealer financing, only retail consumer automobile loans for the time period. As shown in figure 7, the dollar amount of consumer auto loans Wells Fargo & Company and Capital One Financial Corporation made increased from March 2011 through June 2013. However, Ally Financial remained the leader among the four institutions for the same time period. Treasury officials noted that such competition could also be a benefit because Ally Financial's assets could be viewed as valuable to the other competitors. Treasury officials noted that the value of Ally Financial can be demonstrated by the recent private placement agreement. Specifically, if Treasury sells its Ally Financial common stock at the share price agreed to in the private placement agreement--$6,000 per share--Treasury would receive a significant profit on its Ally Financial investment. We provided a draft of this report to FDIC, the Federal Reserve and Treasury for their review and comment. In addition, we provided excerpts of the draft report to Ally Financial, GM, and Chrysler Capital to help ensure the accuracy of our report. Treasury provided written comments which are reprinted in appendix II. Treasury agreed with the report's overall findings. In its written comments, Treasury describes the auto industry's recovery and the progress Treasury has made in unwinding its investments in Ally Financial and GM. Treasury also noted that it expects to complete the exit from GM by the first quarter of 2014 and wind down the remaining Ally Financial investment either by selling stock in a public or private offering, or through future asset sales. The Federal Reserve, Treasury, Ally Financial, GM, and Chrysler Capital provided technical comments that we incorporated as appropriate. In its technical comments, GM highlighted what third parties have suggested could have happened had Treasury not provided assistance to the auto industry, including the potential adverse effects on unemployment levels and tax receipts of all levels of government. FDIC did not provide any comments. We are sending copies of this report to the appropriate congressional committees. This report will also be available at no charge on our website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. This report is based on our continuing analysis and monitoring of the U.S. Department of the Treasury's (Treasury) activities in implementing the Emergency Economic Stabilization Act of 2008 (EESA), which provided GAO with broad oversight authorities for actions taken under the Troubled Asset Relief Program (TARP). Under TARP, Treasury established the Automotive Industry Financing Program, through which Treasury committed $51 billion to help General Motors Company (GM) and $16.3 billion to GMAC LLC, a financial services company that provides automotive financing and that later became Ally Financial, Inc. (Ally Financial). This report examines (1) the financial condition of GM and Ally Financial and (2) the status of Treasury's investments in the companies as well as its plans to wind down those investments. To assess the financial conditions of GM, we analyzed net income, operating income, operating cash flow, operating income, sales of automobiles, GM's share of the North American market, credit ratings, and pension obligations and pension plan funding for GM's U.S. employees from 2008 through the second quarter (June 30) of 2013. For Ally Financial, we reviewed the institution's capital ratios, net income, operating income, net interest spread, return on assets, nonperforming assets ratio, liquidity ratio, bank deposits, operating cash flow, and credit ratings, generally from 2008 through the second quarter (June 30) of 2013. To obtain information on the financial ratios and indicators used in their analyses of GM's or Ally Financial's financial condition, we interviewed staff from Treasury, the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), GM, Ally Financial, and analysts from the three largest credit rating agencies as well as investment firms. To select analysts from investment firms to interview, we identified analysts who covered GM. We identified them using GM's investor relations webpage (http://www.gm.com/company/investors/analyst-coverage.html) and selected four to contact based on an electronic search for automotive equity analysts cited in reputable trade and business publications. We reached out to four analysts and interviewed two. We also interviewed analysts responsible for covering GM from one of the credit rating agencies and analysts responsible for covering Ally from all three of the credit rating agencies. The views of these analysts cannot be generalized to all analysts from investment firms and credit rating agencies. We reviewed past GAO reports, information from GM's and Ally Financial's annual 10-K filings with the Securities and Exchange Commission, reports and documentation from Treasury and the companies, and data from SNL Financial from 2008 through the second quarter (June 30) of 2013. For both GM and Ally Financial, we collected information, generally from 2008 through the second quarter (June 30) of 2013, the most recent information that was publicly available. We have relied on SNL Financial data for past reports, and we reviewed past GAO data reliability assessments to ensure that we, in all material respects, used the data in a similar manner and for similar purposes. For each data source we reviewed the data for completeness and obvious errors, such as outliers, and determined that these data were sufficiently reliable for our purposes. We also reviewed the credit ratings from three rating agencies for each of these companies. Although we have reported on actions needed to improve the oversight of rating agencies, we included these ratings because they are widely used by GM, Ally Financial, Treasury, and market participants. To examine the status of Treasury's investments and its plans to wind down those investments, we reviewed Treasury's TARP reports, which included monthly 105(a) and daily TARP updates on AIFP program data for the time period from 2008 through September 2013. We have used Treasury's data on AIFP in previous GAO reports. We determined that the AIFP program data from Treasury were sufficiently reliable to assess the status of the program. For example, we tested the Office of Financial Stability's internal controls over financial reporting as they related to our annual audit of the office's financial statements and found the information to be sufficiently reliable based on the results of our audit of the TARP financial statements for fiscal years 2009, 2010, 2011, and 2012. AIFP was included in these financial audits. Using the AIFP program data, we analyzed Treasury's equity ownership and recovery of funds in GM and Ally Financial for the time period from January 2009 to September 2013. We reviewed the data for completeness and obvious errors, such as outliers, and determined that these data were sufficiently reliable for our purposes. For the divestment of GM equity, we interviewed Treasury and GM officials on the December 2012 repurchase of GM shares and the "dribble" strategy developed by Treasury. For analyzing Treasury's exit from Ally Financial, we reviewed Treasury and Federal Reserve documentation, such as Treasury's monthly reports to Congress, Treasury's contractual agreements for the mandatory convertible preferred shares, and the proposed capital plan that Ally submitted to the Federal Reserve. We also reviewed two publicly available reports from the Federal Reserve on the Dodd-Frank Wall Street Reform and Consumer Protection Act and capital plan analysis, Dodd-Frank Act Stress Test 2013: Supervisory Stress Test Methodology and Results and Comprehensive Capital Analysis and Review 2013: Assessment Framework and Results.Treasury's Office of Financial Stability, Federal Reserve, Federal Reserve Bank of Chicago, FDIC, GM, and Ally Financial. In addition, we interviewed officials from We conducted this performance audit from March 2013 to October 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objectives. In addition to the individual named above, Raymond Sendejas (Assistant Director), Bethany Benitez, Emily Chalmers, Nancy Eibeck, Matthew Keeler, Risto Laboski, Sara Ann Moessbauer, Marc Molino, and Roberto Pinero made key contributions to this report.
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As part of its Auto Industry Financing Program (AIFP), funded through the Troubled Asset Relief Program (TARP), Treasury committed $67.3 billion to automaker GM and to Ally Financial, a large bank holding company whose primary business is auto lending. TARP's authorizing legislation mandates that GAO report every 60 days on TARP activities. This report examines (1) the current financial condition of the two companies and (2) the status of Treasury's investments in the companies and its plans to sell those investments. To examine the financial condition of GM and Ally Financial, GAO reviewed industry, financial, and regulatory data for the time period from the beginning of 2008 through the second quarter of 2013. GAO also reviewed Treasury reports and documentation detailing Treasury's investments in GM and Ally Financial and its proposed strategies for divesting itself of the investments, as well as both companies' financial filings and reports. In addition, GAO interviewed officials from Treasury, the Board of Governors of the Federal Reserve (Federal Reserve), GM, Ally Financial, and financial analysts who study GM and Ally Financial. In its written comments on a draft of this report, Treasury describes the auto industry's recovery and the progress Treasury has made in unwinding its investments in GM and Ally Financial. Treasury, the Federal Reserve, GM, and Ally Financial also provided technical clarifications, which were incorporated, as appropriate. Since receiving federal assistance, General Motors Company (GM) has shown increasingly positive financial results. For each of the past 3 years, GM has reported profits, positive and growing operational cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM's credit rating, as each of the three largest credit rating agencies has increased GM's long-term credit rating. However, GM faces continued challenges to its competitiveness. For instance, its market share of vehicles sold in North America remains smaller today than in 2008. Furthermore, GM continues to carry large pension liabilities. With Treasury's investments in Ally Financial, the company's condition has stabilized. For example, Ally Financial's capital and liquidity positions have stabilized or improved over the last 4 years. Such improvements have been noted by the three largest credit rating agencies, each of which has upgraded Ally Financial's credit rating. However, Ally Financial's credit rating remains below investment grade and its mortgage unit--Residential Capital LLC--impacted the company's financial performance. The mortgage unit filed for bankruptcy in May 2012, and these proceedings are ongoing. Analysts with whom GAO spoke indicated that the resolution of its mortgage unit's bankruptcy will be a positive development for Ally Financial's future financial performance. As of September 18, 2013, the Department of the Treasury (Treasury) has recovered about $35.21 billion of its $51 billion investment in GM and reduced its ownership stake from 60.8 percent to 7.32 percent. By early 2014, Treasury plans to fully divest its GM common shares through installments and estimates that it will lose at least 19 percent of its original investment. Treasury is working to exit from Ally Financial with a recent agreement to sell all of its preferred stock to the company for approximately $6 billion, but Treasury faces challenges. As a regulated bank holding company, Ally Financial must be well capitalized to receive its regulator's approval to repurchase shares from Treasury. Earlier this spring, Ally Financial's tier 1 common ratio fell below the required 5 percent in the Federal Reserve's "stress test," and the Federal Reserve objected to the company's capital plan. Ally Financial also faces growing competition in the consumer lending and dealer financing sectors that could impact its financial performance in the future. The extent of Treasury's recoupment on its Ally Financial investment will depend on the ongoing financial health of the company.
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The demonstration program affords opportunities to collect new and increased fees to the major agencies that provide the public with recreational opportunities on federal land--the Park Service, Bureau of Land Management, and Fish and Wildlife Service (all within the Department of the Interior), and the Forest Service (within the Department of Agriculture). Each agency can experiment with new or increased fees at up to 100 sites. By September 1998, such fees were in place at 312 sites--100 administered by the Park Service, 77 by the Fish and Wildlife Service, 68 by the Bureau of Land Management, and 67 by the Forest Service. The four agencies reported that, because of the program, their combined recreational fee revenues have nearly doubled, from about $93 million in fiscal year 1996 (the last year before the demonstration program was implemented) to about $180 million in fiscal year 1998. The Park Service collected 80 percent of the fee revenue in fiscal year 1998, the Forest Service 15 percent, the Bureau of Land Management 3 percent, and the Fish and Wildlife Service about 2 percent. Visitation appears largely unaffected by the new and increased fees, according to surveys conducted by the four agencies. In fiscal year 1997, visitation at the demonstration sites increased overall by 5 percent compared with 4 percent at other sites. Effects varied somewhat from location to location. Of the 206 sites in the demonstration program in fiscal year 1997, 58 percent had increases in visitation, 41 percent had decreases, and 1 percent were unchanged. However, with data from only 1 year, it is difficult to draw definitive conclusions, either about the lack of a negative effect on visitation at most sites or about whether fees had an impact at sites where visitation declined. Now, I would like to discuss several areas in which we think improvements can be made to the demonstration program. The demonstration program was authorized with the expectation that the four agencies would coordinate their fee collection efforts, both among themselves and with state and local agencies, where it made sense to do so. During our review, we did find examples of such coordination, with demonstrated benefits for the public. In Utah, for example, where the Park Service's Timpanogos Cave National Monument is surrounded by a recreation area in the Forest Service's Uinta National Forest, the two agencies decided to charge a single entrance fee for both. Such coordination can reduce agencies' operating costs, strengthen resource management activities, and provide more agency personnel to assist visitors. We also found, however, that agencies were not taking full advantage of this flexibility. For example, the Park Service and the Fish and Wildlife Service manage sites with a common border on the same island in Maryland and Virginia. The two sites are Assateague Island National Seashore and Chincoteague National Wildlife Refuge. Administratively, the two agencies cooperate on law enforcement matters and run a joint permit program for off-road vehicles, and the Park Service provides staff to operate and maintain a ranger station and bathing facilities on refuge land. However, when the agencies selected the two sites for the demonstration program, they decided to charge separate, nonreciprocal entrance fees of $5 per vehicle. Officials at the refuge told us that visitors are sometimes confused by this lack of reciprocity. Our report discusses other cases in which greater coordination among the agencies would either improve the service to the public or permit greater efficiency in implementing a fee program. These cases included (1) backcountry fees in Olympic National Park and Olympic National Forest in Washington State, and (2) a proposed fee at Park Service and BLM lands located in the El Malpais area of New Mexico. Demonstration sites may be reluctant to coordinate fees partly because the program's incentives are geared towards increasing their revenues. By contrast, because joint fee arrangements may potentially reduce revenues to specific sites, there may be a disincentive among these sites to coordinate. However, at sites such as Assateague and Chincoteague, the increase in service to the public may be worth a small reduction in revenues. That is why our report recommends that the agencies perform a site-by-site review of their demonstration sites to identify opportunities for greater coordination. In commenting on our report, the agencies generally agreed that more could be done in this area. The demonstration program also encouraged the four agencies to be innovative in setting and collecting their own fees. Such improvements take two main forms: making it as convenient as possible for visitors to pay and making fees more equitable. We found many examples of agencies experimenting with ways to make payment more convenient, including selling entrance passes using machines like automated tellers, selling hiking permits over the Internet, and selling entrance or user permits through vendors such as gas stations, grocery stores, and convenience stores. However, we found fewer examples of the agencies experimenting with different pricing structures that could make the fees more equitable, such as basing fees on (1) the extent of use or (2) whether the visit occurred during a peak visitation period. Most of the experiments with pricing have been done by the Forest Service or the Bureau of Land Management. These two agencies have experimented with setting fees that vary on the basis of (1) how long the visitor will stay or (2) whether the visit occurs during a peak period (such as a weekend) or an off-peak period (such as midweek or during the off season). For example, a 3-day visit to a recreational area might cost $3 per car, compared with $10 per car for a 2-week visit. Such pricing has resulted in greater equity to the visitors, in that visitors who use the area for greater lengths of time pay higher fees. It would appear to have broader applicability in the other agencies as well. By contrast, the Park Service has done little to experiment with different pricing structures. Visitors generally pay the same fee whether they are visiting during a peak period (such as a weekend in the summer) or an off-peak period (such as midweek during the winter) or whether they are staying for several hours or several days. A more innovative fee system would make fees more equitable for visitors and might change visitation patterns somewhat to enhance economic efficiency and reduce overcrowding and its effects on parks' resources. Furthermore, according to the four agencies, reducing visitation during peak periods can lower the costs of operating recreation sites by reducing (1) the staff needed to operate a site, (2) the size of facilities, (3) the need for maintenance and future capital investments, and (4) the extent of damage to a site's resources. Because it was one of the goals of the program, and because it could result in more equitable fees to the public, our report recommends that two agencies--the Park Service and Fish and Wildlife Service--look for further opportunities to experiment and innovate with new and existing fees. The demonstration program required the agencies to spend at least 80 percent of the fee revenues at the site where these revenues were generated. However, some demonstration sites are generating so much revenue as to raise questions about their long-term ability to spend these revenues on high-priority items. By contrast, sites outside the demonstration program, as well as demonstration sites that do not collect much in fee revenues, may have high-priority needs that remain unmet. As a result, some of the agencies' highest-priority needs may not be addressed. For many sites in the demonstration program--particularly in the Park Service--the increased fee revenues equal 20 percent or more of the sites' annual operating budgets. This large amount of new revenue allows such sites to address past unmet needs in maintenance, resource protection, and visitor services. The Park Service has set a priority on using fee revenues to address its repair and maintenance needs. Some sites with high fee revenues may be able to address these needs within a few years. However, the 80-percent requirement could, over time, preclude the agencies from using fee revenues for more pressing needs at other sites. Two of the sites we visited--Zion and Shenandoah National Parks--are examples of how this issue may surface in the near future. At Zion, park officials told us that the park expected to receive so much new fee revenue in fiscal year 1998 (about $4.5 million) that the park's budget would be doubled. The park's current plans call for using this additional money to begin a $20 million alternative transportation system. However, park officials said that if for some reason this particular project did not move forward, they might have difficulty preparing and implementing enough projects to use the available funds in a manner consistent with the program's objectives. At Shenandoah, fee revenues for fiscal year 1998 were expected to be about $2.9 million--enough money, the park superintendent said, to eliminate the park's estimated $15 million repair and maintenance backlog in a few years. This is a significant and sensitive issue that involves balancing important features of the program. Specifically, the increased efficiency that would be achieved by allowing the agencies more spending flexibility needs to be balanced with the continued need to demonstrate to the visitors that improvements are being made with the new or increased fees and the need to maintain incentives to collect fees. Our report stated that as the Congress decides on the future of the fee demonstration program, it might wish to consider modifying the current requirement. Providing some further flexibility in the spending of fee revenues would give agencies more opportunities to address their highest-priority needs among all of their field units. If this is not done, undesirable inequities could occur within agencies if and when the current legislation is made permanent. At the same time, however, any change in the requirement would need to be done in such a way that (1) fee-collecting sites would continue to have an incentive to collect fees and (2) visitors who pay the fees will continue to support the program. Visitor surveys show that putting fees to work where they are collected is a popular idea. Through the first 2 fiscal years of the program, the Park Service retained about $182 million in recreational fee revenue, which represents over 80 percent of the total amount of revenue generated by all four of the participating agencies. However, by the end of fiscal year 1998, the agency had obligated only about $56 million, or about 31 percent, of this revenue.This spending rate was by far the lowest among the four agencies participating in the program. Specifically, by the end of fiscal year 1998, the Forest Service had spent about 63 percent of its revenues; the Fish and Wildlife Service about 56 percent; and the Bureau of Land Management about 72 percent. (See app. I for more specific revenue and spending information.) In order to understand why the rate of spending in the Park Service is so far behind the other agencies, we visited four parks. For these parks, the percentages of revenue available to them that was obligated through September 30, 1998, varied from a low of 10 percent at Golden Gate National Recreation Area to a high of 48 percent at Olympic National Park. The other two parks we visited were Rocky Mountain National Park and Grand Canyon National Park, which obligated 41 and 20 percent, respectively. In total, these parks had proposed 101 projects for funding under the demonstration fee program. Projects at the four parks ranged from the planning and construction of major facilities, like a visitor transportation and orientation center at the south rim of the Grand Canyon for $18 million, to small projects, like the rehabilitation of trail signs in Golden Gate for $11,000. They also included other projects, like the replacement of outhouses and campground rehabilitation. Our work indicates that there are two main factors that have contributed to the Park Service's low rate of spending over the program's first 2 years. These factors are that (1) the project review and approval process has delayed the start of construction and maintenance projects and (2) the capacity of the agency to handle the large number of projects planned under the program is limited. The large size of some of the projects being funded by the demonstration fee program also contributes to slowing the agency's spending rate. In 1997, this Subcommittee and others heavily criticized the Park Service because of spending abuses involving an outhouse costing over $300,000 at one park and employee residences costing over $500,000 at another. In response to these criticisms, and in order to avoid similar abuses in the future, the Park Service and the Department of the Interior are paying particularly close attention to how individual park units are using the revenues provided by the demonstration fee program. Park Service headquarters officials review all projects approved by regions before individual parks are permitted to proceed with construction. As of March 1998, the Park Service also required an additional review by top agency officials of all projects costing $500,000 or more. Furthermore, another level of review was added when Department of the Interior officials decided that they too would review all of the projects that the Park Service proposed for its recreational fee revenue. The implementation of this Departmental-level review added more time to the project approval process. Adding these layers of review specifically for Park Service projects helps explain why the rate of spending for the agency has been the lowest among the agencies participating in the program. However, in light of the spending abuses noted earlier, in our opinion, the additional Park Service and Departmental reviews appear prudent. In contrast, the projects being done by the other three agencies--the Bureau of Land Management, the Fish and Wildlife Service, and the Forest Service--have not had these additional levels of scrutiny. In those agencies, determining how the fee money will be spent has been left to on-site and regional managers. Not surprisingly, the spending rates for these other agencies have been substantially higher than for the Park Service. Another factor limiting the pace of the Park Service's spending relative to the other agencies in the program has been the agency's ability to handle the large volume of projects that are now in the pipeline. All of the parks we visited have had substantial funding increases in recent years to help them address maintenance and other needs. These increases were due to not only to the increased funding made available from the demonstration fee program but also from appropriated funds such as those for repair and rehabilitation and line item construction projects. This large inflow of funding from a variety of sources has, according to some park managers we interviewed, exceeded their ability to get projects initiated and completed. At most of the parks and regional offices we visited, officials said there was a bottleneck of projects that were both approved and funded but waiting to be initiated. For example, Golden Gate National Recreation Area has 14 projects costing about $4.7 million that have been approved as part of the fee demonstration program. Managers at the site said they have spent little to date on these projects because the current staff cannot prepare plans and manage the large volume of projects now funded. Two of the other parks we visited, Rocky Mountain and Grand Canyon, have similar explanations about why their spending was relatively slow. Another factor that has some impact on the spending rate for the Park Service is the large scale of some of the projects being undertaken by the agency. Some parks must accumulate a substantial amount of funds before they could proceed with these large projects. For example, while Grand Canyon has very high revenue under the program, over $20 million annually, it also has some of the largest projects planned, like a new, multimillion-dollar visitor orientation and transportation center. To begin this project, the park has had to set aside millions of dollars during the first years of the program in order to fund the construction contracts for the new facility in later years. Setting funds aside for later use has the effect of lowering the rate of expenditures in the initial years of the program. Given the substantial increase in funding that the Park Service will receive under the demonstration fee program, now more than ever the agency will have to be accountable for demonstrating its accomplishments in improving the maintenance of Park Service facilities with these additional resources. The agency cannot now do this. The Park Service will need to develop more accurate and reliable information on its deferred maintenance needs (as well as its other park operating needs) and to track progress in addressing them. In administering its recreational fee demonstration program, the Park Service decided that using the revenue to address its maintenance needs is a high priority. However, during hearings before this Subcommittee last year, we reported that the Park Service did not have a common definition of what should be included in its backlog of maintenance needs and did not have a routine, systematic process for determining these needs. As a result, the agency was unable to provide us with a reliable estimate of its deferred maintenance needs. At the same hearing, Interior's Assistant Secretary for Policy, Management, and Budget made several commitments to address these problems. The commitments were to (1) establish common definitions for deferred maintenance and other key maintenance and construction terms; (2) develop improved data collection processes for accumulating data about annual and deferred maintenance needs, among other things; (3) provide guidance for preparing a 5-year priority maintenance and construction plan for the fiscal year 2000 budget; and (4) issue instructions for reporting deferred maintenance in agency financial statements. To date, the Department of the Interior has made some progress in meeting these commitments. In February 1998, common definitions were developed for deferred maintenance. The Department has also provided guidance for the agencies to use to develop priority maintenance plans. In addition, the Department has issued instructions on how agencies should report deferred maintenance in their financial statements. These are all positive steps that should, if implemented properly, help the Park Service as well as other Interior agencies manage their maintenance activities. Nonetheless, the Park Service still does not have accurate information on its maintenance needs. This is evident from a February 1998 Interior report, which states, among other things, that the deferred maintenance needs of Interior agencies, including the Park Service, have never been adequately documented. To remedy this situation, Interior and its agencies, including the Park Service, are beginning to develop a maintenance management system that can generate consistent maintenance data for all Interior agencies. Interior expects to identify the systems needed to generate better maintenance data needs by June 1999. However, this is just a first step. Interior and its agencies are also in the process of obtaining better information on the condition of their facilities. Any data improvements resulting from this effort will likely be several years away. The Congress has attempted to help the Park Service address its deferred maintenance and other program needs in recent years by providing additional appropriations and revenue from the recreational fee program. Given this substantial increase in funds, the Park Service needs to be held accountable for demonstrating what is being accomplished with these financial resources. To date, however, the agency is not yet able to determine how much these additional funds are helping because it does not know the size of the problem. Accordingly, while we and others have frequently reported on the deteriorating conditions of the agency's facilities, until accurate, reliable and useful data are developed about the size and scope of the agency's maintenance needs, the agency will be unable to determine how much progress is being made to address these needs and resolution of the deferred maintenance problem will continue to elude the agency. In closing Mr. Chairman, while our testimony today has focused on improvements that could be made to the fee demonstration program, it is important to remember that this program appears to be working well and meeting many of the law's intended objectives. So far, the demonstration program has brought over $200 million in additional revenue to recreation areas across the country with no apparent impact on visitation patterns. It has created opportunities for the agencies--particularly the Park Service--to address, and in some cases resolve, their past unmet repair and maintenance needs. There are now more than 2 years remaining in this demonstration program. These 2 years represent an opportunity for the agencies to further the program's goals by coordinating their efforts more, developing innovative fee structures, and understanding the reactions of the visitors. This concludes my statement. I would be happy to answer any questions you or the other Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO discussed the National Park Service's Recreational Fee Demonstration Program, focusing on the: (1) rate at which the Park Service spends revenue collected under the program in comparison with the Fish and Wildlife Service, the Bureau of Land Management, and the Forest Service; and (2) impact of the fee program on the Park Service's maintenance needs. GAO noted that: (1) the overall message about the demonstration program is positive; (2) the program is providing hundreds of millions of dollars to improve visitor services and address the backlogs of unmet needs in the four land management agencies; (3) in addition, those who pay the fees generally support the program, and it has not appeared to have adversely affected visitation rates; (4) nonetheless, it is appropriate to focus on several areas in which changes or improvements may be needed; (5) specifically, these issues include the need for greater coordination of fees by the agencies, greater innovation, and flexibility in revenue distribution; (6) these issues are important because the demonstration program is still at a stage where experimentation is encouraged; (7) most of GAO's observations relate to doing just that--experimenting more to determine what works best; (8) regarding the Park Service, GAO found that the agency's spending of demonstration program revenue has lagged substantially behind the other three agencies in the first 2 years of the program; (9) this has been due primarily to the larger number and scale of Park Service projects and additional scrutiny these projects are receiving within the agency and the Department of the Interior; (10) further, the Park Service has not yet developed accurate and reliable information on its total deferred maintenance needs; and (11) until this is done, determining the impact that the revenue from the fee program is having on these needs is not possible.
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In their efforts to modernize their health information systems and share medical information, VA and DOD begin from different positions. As shown in table 1, VA has one integrated medical information system, VistA (Veterans Health Information Systems and Technology Architecture), which uses all electronic records. All 128 VA medical sites thus have access to all VistA information. (Table 1 also shows, for completeness, VA's planned modernized system and its associated data repository.) In contrast, DOD has multiple medical information systems (see table 2). DOD's various systems are not integrated, and its 138 sites do not necessarily communicate with each other. In addition, not all of DOD's medical information is electronic: some records are paper- based. For almost a decade, VA and DOD have been pursuing ways to share data in their health information systems and create comprehensive electronic records. However, the departments have faced considerable challenges, leading to repeated changes in the focus of their initiatives and target dates for accomplishment. As shown in figure 1, the departments' efforts have involved a number of distinct initiatives, both long-term initiatives to develop future modernized solutions, and short-term initiatives to respond to more immediate needs to share information in existing systems. As the figure shows, these initiatives often proceeded in parallel. The departments' first initiative, known as the Government Computer-Based Patient Record (GCPR) project, aimed to develop an electronic interface that would let physicians and other authorized users at VA and DOD health facilities access data from each other's health information systems. The interface was expected to compile requested patient information in a virtual record (that is, electronic as opposed to paper) that could be displayed on a user's computer screen. In 2001 and 2002, we reviewed the GCPR project and noted disappointing progress, exacerbated in large part by inadequate accountability and poor planning and oversight, which raised doubts about the departments' ability to achieve a virtual medical record. We determined that the lack of a lead entity, clear mission, and detailed planning to achieve that mission made it difficult to monitor progress, identify project risks, and develop appropriate contingency plans. We made recommendations in both years that the departments enhance the project's overall management and accountability. In particular, we recommended that the departments designate a lead entity and a clear line of authority for the project; create comprehensive and coordinated plans that include an agreed- upon mission and clear goals, objectives, and performance measures; revise the project's original goals and objectives to align with the current strategy; commit the executive support necessary to adequately manage the project; and ensure that it followed sound project management principles. In response, the two departments revised their strategy in July 2002, refocusing the project and dividing it into two initiatives. A short- term initiative (the Federal Health Information Exchange or FHIE) was to enable DOD, when service members left the military, to electronically transfer their health information to VA. VA was designated as the lead entity for implementing FHIE, which was successfully completed in 2004. A longer term initiative was to develop a common health information architecture that would allow the two-way exchange of health information. The common architecture is to include standardized, computable data, communications, security, and high-performance health information systems (these systems, DOD's CHCS II and VA's HealtheVet VistA, were already in development, as shown in the figure). The departments' modernized systems are to store information (in standardized, computable form) in separate data repositories: DOD's Clinical Data Repository (CDR) and VA's Health Data Repository (HDR). The two repositories are to exchange information through an interface named CHDR. In March 2004, the departments began to develop the CHDR interface, and they planned to begin implementation by October 2005. However, implementation of the first release of the interface (at one site) occurred in September 2006, almost a year later. In a review in June 2004, we identified a number of management weaknesses that could have contributed to this delay and made a number of recommendations, including creation of a comprehensive and coordinated project management plan. In response, the departments agreed to our recommendations and improved the management of the CHDR program by designating a lead entity with final decision-making authority and establishing a project management structure. As we noted in later testimony, however, the program did not develop a project management plan that would give a detailed description of the technical and managerial processes necessary to satisfy project requirements (including a work breakdown structure and schedule for all development, testing, and implementation tasks), as we had recommended. In October 2004, the two departments established two more short- term initiatives in response to a congressional mandate. These were two demonstration projects: the Laboratory Data Sharing Interface, aimed at allowing VA and DOD facilities to share laboratory resources, and the Bidirectional Health Information Exchange (BHIE), aimed at allowing both departments' clinicians access to records on shared patients (that is, those who receive care from both departments). As demonstration projects, both initiatives were limited in scope, with the intention of providing interim solutions to the departments' need for more immediate health information sharing. However, because BHIE provided access to up-to-date information, the departments' clinicians expressed strong interest in increasing its use. As a result, the departments began planning to broaden BHIE's capabilities and expand its implementation considerably. Until the departments' modernized systems are fully developed and implemented, extending BHIE connectivity could provide each department with access to most data in the other's legacy systems. According to a VA/DOD annual report and program officials, the departments now consider BHIE an interim step in their overall strategy to create a two-way exchange of electronic medical records. Most recently, the departments have announced a further change to their information-sharing strategy. In January 2007, they announced their intention to jointly develop a new inpatient medical record system. According to the departments, adopting this joint solution will facilitate the seamless transition of active-duty service members to veteran status, as well as making inpatient health-care data on shared patients immediately accessible to both DOD and VA. In addition, the departments consider that a joint development effort could allow them to realize significant cost savings. We have not evaluated the departments' plans or strategy in this area. Throughout the history of these initiatives, evaluations beyond ours have also found deficiencies in the departments' efforts, especially with regard to the need for comprehensive planning. For example, in fiscal year 2006, the Congress did not provide all the funding requested for HealtheVet VistA because it did not consider that the funding had been adequately justified. In addition, a recent presidential task force identified the need for VA and DOD to improve their long-term planning. This task force, reporting on gaps in services provided to returning veterans, noted problems with regard to sharing information on wounded service members, including the inability of VA providers to access paper DOD inpatient health records. According to the report, although significant progress has been made on sharing electronic information, more needs to be done. The task force recommended that VA and DOD continue to identify long-term initiatives and define scope and elements of a joint inpatient electronic health record. VA and DOD have made progress in both their long-term and short- term initiatives to share health information. In the long-term project to develop modernized health information systems, the departments have begun to implement the first release of the interface between their modernized data repositories, among other things. The two departments have also made progress in their short-term projects to share information in existing systems, having completed two initiatives and making important progress on another. In addition, the two departments have undertaken ad hoc activities to accelerate the transmission of health information on severely wounded patients from DOD to VA's four polytrauma centers. However, despite the progress made and the sharing achieved, the tasks remaining to achieve the goal of a shared electronic medical record remain substantial. In their long-term effort to share health information, VA and DOD have completed the development of their modernized data repositories, agreed on standards for various types of data, and begun to populate the repositories with these data. In addition, they have now implemented the first release of the CHDR interface, which links the two departments' repositories, at seven sites. The first release has enabled the seven sites to share limited medical information: specifically, computable outpatient pharmacy and drug allergy information for shared patients. According to DOD officials, in the third quarter of 2007 the department will send out instructions to its remaining sites so that they can all begin using CHDR. According to VA officials, the interface will be available across the department when necessary software updates are released, which is expected this July. Besides being a milestone in the development of the departments' modernized systems, the interface implementation provides benefits to the departments' current systems. Data transmitted by CHDR are permanently stored in the modernized data repositories, CDR and HDR. Once in the repositories, these computable data can be used by DOD and VA at all sites through their existing systems. CHDR also provides terminology mediation (translation of one agency's terminology into the other's). VA and DOD plans call for developing the capability to exchange computable laboratory results data through CHDR during fiscal year 2008. Although implementing this interface is an important accomplishment, the departments are still a long way from completion of the modernized health information systems and comprehensive longitudinal health records. While DOD and VA had originally projected completion dates for their modernized systems of 2011 and 2012, respectively, department officials told us that there is currently no scheduled completion date for either system. Further, both departments have still to identify the next types of data to be stored in the repositories. The two departments will then have to populate the repositories with the standardized data, which involves different tasks for each department. Specifically, although VA's medical records are already electronic, it still has to convert these into the interoperable format appropriate for its repository. DOD, in addition to converting current records from its multiple systems, must also address medical records that are not automated. As pointed out by a recent Army Inspector General's report, some DOD facilities are having problems with hard-copy records. In the same report, inaccurate and incomplete health data were identified as a problem to be addressed. Before the departments can achieve the long-term goal of seamless sharing of medical information, all these tasks and challenges will have to be addressed. Consequently, it is essential for the departments to develop a comprehensive project plan to guide these efforts to completion, as we have previously recommended. In addition to the long-term effort described above, the two departments have made some progress in meeting immediate needs to share information in their respective legacy systems by setting up short-term projects, as mentioned earlier, which are in various stages of completion. In addition, the departments have set up special processes to transfer data from DOD facilities to VA's polytrauma centers, which treat traumatic brain injuries and other especially severe injuries. DOD has been using FHIE to transfer information to VA since 2002. According to department officials, over 184 million clinical messages on more than 3.8 million veterans had been transferred to the FHIE data repository as of March 2007. Data elements transferred are laboratory results, radiology results, outpatient pharmacy data, allergy information, consultation reports, elements of the standard ambulatory data record, and demographic data. Further, since July 2005, FHIE has been used to transfer pre- and post-deployment health assessment and reassessment data; as of March 2007, VA had access to data for more than 681,000 separated service members and demobilized Reserve and National Guard members who had been deployed. Transfers are done in batches once a month, or weekly for veterans who have been referred to VA treatment facilities. According to a joint DOD/VA report, FHIE has made a significant contribution to the delivery and continuity of care of separated service members as they transition to veteran status, as well as to the adjudication of disability claims. One of the departments' demonstration projects, the Laboratory Data Sharing Interface (LDSI), is now fully operational and is deployed when local agencies have a business case for its use and sign an agreement. It requires customization for each locality and is currently deployed at nine locations. LDSI currently supports a variety of chemistry and hematology tests, and work is under way to include microbiology and anatomic pathology. Once LDSI is implemented at a facility, the only nonautomated action needed for a laboratory test is transporting the specimens. If a test is not performed at a VA or DOD doctor's home facility, the doctor can order the test, the order is transmitted electronically to the appropriate lab (the other department's facility or in some cases a local commercial lab), and the results are returned electronically. Among the benefits of LDSI, according to VA and DOD, are increased speed in receiving laboratory results and decreased errors from manual entry of orders. The LDSI project manager in San Antonio stated that another benefit of the project is the time saved by eliminating the need to rekey orders at processing labs to input the information into the laboratories' systems. Additionally, the San Antonio VA facility no longer has to contract out some of its laboratory work to private companies, but instead uses the DOD laboratory. Developed under a second demonstration project, the BHIE interface is now available throughout VA and partially deployed at DOD. It is currently deployed at 25 DOD sites, providing access to 15 medical centers, 18 hospitals, and over 190 outpatient clinics associated with these sites. DOD planned to make current BHIE capabilities available departmentwide by June 2007. The interface permits a medical care provider to query patient data from all VA sites and any DOD site where it is installed and to view that data onscreen almost immediately. It not only allows DOD and VA to view each other's information, it also allows DOD sites to see previously inaccessible data at other DOD sites. As initially developed, the BHIE interface provides access to information in VA's VistA and DOD's CHCS, but it is currently being expanded to query data in other DOD databases (in addition to CHCS). In particular, DOD has developed an interface to the Clinical Information System (CIS), an inpatient system used by many DOD facilities, which will provide bidirectional views of discharge summaries. The BHIE-CIS interface is currently deployed at five DOD sites and planned for eight others. Further, interfaces to two additional systems are planned for June and July 2007: An interface to DOD's modernized data repository, CDR, will give access to outpatient data from combat theaters. An interface to another DOD database, the Theater Medical Data Store, will give access to inpatient information from combat theaters. The departments also plan to make more data elements available. Currently, BHIE enables text-only viewing of patient identification, outpatient pharmacy, microbiology, cytology, radiology, laboratory orders, and allergy data from its interface with DOD's CHCS. Where it interfaces with CIS, it also allows viewing of discharge summaries from VA and the five DOD sites. DOD staff told us that in early fiscal year 2008, they plan to add provider notes, procedures, and problem lists. Later in fiscal year 2008, they plan to add vital signs, scanned images and documents, family history, social history, and other history questionnaires. In addition, at the VA/DOD site in El Paso, a trial is under way of a process for exchanging radiological images using the BHIE/FHIE infrastructure. Some images have successfully been exchanged. Through their efforts on these long- and short-term initiatives, VA and DOD are achieving exchanges of various types of health information (see attachment 1 for a summary of all the types of data currently being shared and those planned for the future, as well as cost data on the initiatives). However, these exchanges are as yet limited, and significant work remains to be done to expand the data shared and integrate the various initiatives. In addition to the information technology initiatives described, DOD and VA have set up special activities to transfer medical information to VA's four polytrauma centers, which are treating active-duty service members severely wounded in combat. Polytrauma centers care for veterans and returning service members with injuries to more than one physical region or organ system, one of which may be life threatening, and which results in physical, cognitive, psychological, or psychosocial impairments and functional disability. Some examples of polytrauma include traumatic brain injury (TBI), amputations, and loss of hearing or vision. When service members are seriously injured in a combat theater overseas, they are first treated locally. They are then generally evacuated to Landstuhl Medical Center in Germany, after which they are transferred to a military treatment facility in the United States, usually Walter Reed Army Medical Center in Washington, D.C.; the National Naval Medical Center in Bethesda, Maryland; or Brooke Army Medical Center, at Fort Sam Houston, Texas. From these facilities, service members suffering from polytrauma may be transferred to one of VA's four polytrauma centers for treatment. At each of these locations, the injured service members will accumulate medical records, in addition to medical records already in existence before they were injured. However, the DOD medical information is currently collected in many different systems and is not easily accessible to VA polytrauma centers. Specifically: 1. In the combat theater, electronic medical information may be collected for a variety of reasons, including routine outpatient care, as well as serious injuries. These data are stored in the Theater Medical Data Store, which can be accessed by unit commanders and others. (As mentioned earlier, the departments have plans to develop a BHIE interface to this system by July 2007. Until then, VA cannot access these data.) In addition, both inpatient and outpatient medical data for patients who are evacuated are entered into the Joint Patient Tracking Application. (A few VA polytrauma center staff have been given access to this application.) 2. At Landstuhl, inpatient medical records are paper-based (except for discharge summaries). The paper records are sent with a patient as the individual is transferred for treatment in the United States. 3. At the DOD treatment facility (Walter Reed, Bethesda, or Brooke), additional information will be recorded in CIS and CHCS/CDR. When service members are transferred to a VA polytrauma center, VA and DOD have several ad hoc processes in place to electronically transfer the patients' medical information: * DOD has set up secure links to enable a limited number of clinicians at the polytrauma centers to log directly into CIS at Walter Reed and Bethesda Naval Hospital to access patient data. * Staff at Walter Reed collect paper records, print records from CIS, scan all these, and transmit the scanned data to three of the four polytrauma centers. DOD staff said that they are working on establishing this capability at the Brooke and Bethesda medical centers, as well as the fourth VA polytrauma center. According to VA staff, although the initiative began several months ago, it has only recently begun running smoothly as the contractor became more skilled at assembling the records. DOD staff also pointed out that this laborious process is feasible only because the number of polytrauma patients is small (about 350 in all to date); it would not be practical on a large scale. * Staff at Walter Reed and Bethesda are transmitting radiology images electronically to three polytrauma centers. (A fourth has this capability, but at this time no radiology images have been transferred there.) Access to radiology images is a high priority for polytrauma center doctors, but like scanning paper records, transmitting these images requires manual intervention: when each image is received at VA, it must be individually uploaded to VistA's imagery viewing capability. This process would not be practical for large volumes of images. * VA has access to outpatient data (via BHIE) from 25 DOD sites, including Landstuhl. Although these various efforts to transfer medical information on seriously wounded patients are working, and the departments are to be commended on their efforts, the multiple processes and laborious manual tasks illustrate the effects of the lack of integrated health information systems and the difficulties of exchanging information in their absence. In summary, through the long- and short-term initiatives described, as well as efforts such as those at the polytrauma centers, VA and DOD are achieving exchanges of health information. However, these exchanges are as yet limited, and significant work remains to be done to fully achieve the goal of exchanging interoperable, computable data, including agreeing to standards for the remaining categories of medical information, populating the data repositories with all this information, completing the development of HealtheVet VistA and AHLTA, and transitioning from the legacy systems. To complete these tasks, a detailed project management plan continues to be of vital importance to the ultimate success of the effort to develop a lifelong virtual medical record. We have previously recommended that the departments develop a clearly defined project management plan that describes the technical and managerial processes necessary to satisfy project requirements, including a work breakdown structure and schedule for all development, testing, and implementation tasks. Without a plan of sufficient detail, VA and DOD increase the risk that the long-term project will not deliver the planned capabilities in the time and at the cost expected. Further, it is not clear how all the initiatives we have described today are to be incorporated into an overall strategy toward achieving the departments' goal of comprehensive, seamless exchange of health information. This concludes my statement. I would be pleased to respond to any questions that you may have. If you have any questions concerning this testimony, please contact Valerie C. Melvin, Director, Human Capital and Management Information Systems Issues, at (202) 512-6304 or [email protected]. Other individuals who made key contributions to this testimony are Barbara Oliver, Assistant Director; Barbara Collier; and Glenn Spiegel. Table 3 summarizes the types of health data currently shared through the long- and short-term initiatives we have described, as well as types of data that are currently planned for addition. While this gives some indication of the scale of the tasks involved in sharing medical information, it does not depict the full extent of information that is currently being captured in health information systems and that remains to be addressed. Table 4 shows costs expended on these information sharing initiatives since their inception. Computer-Based Patient Records: Better Planning and Oversight by VA, DOD, and IHS Would Enhance Health Data Sharing. GAO- 01-459. Washington, D.C.: April 30, 2001. Veterans Affairs: Sustained Management Attention Is Key to Achieving Information Technology Results. GAO-02-703. Washington, D.C.: June 12, 2002. Computer-Based Patient Records: Short-Term Progress Made, but Much Work Remains to Achieve a Two-Way Data Exchange Between VA and DOD Health Systems. GAO-04-271T. Washington, D.C.: November 19, 2003. Computer-Based Patient Records: Sound Planning and Project Management Are Needed to Achieve a Two-Way Exchange of VA and DOD Health Data. GAO-04-402T. Washington, D.C.: March 17, 2004. Computer-Based Patient Records: VA and DOD Efforts to Exchange Health Data Could Benefit from Improved Planning and Project Management. GAO-04-687. Washington, D.C.: June 7, 2004. Computer-Based Patient Records: VA and DOD Made Progress, but Much Work Remains to Fully Share Medical Information. GAO-05- 1051T. Washington, D.C.: September 28, 2005. Information Technology: VA and DOD Face Challenges in Completing Key Efforts. GAO-06-905T. Washington, D.C.: June 22, 2006. DOD and VA Exchange of Computable Pharmacy Data. GAO-07- 554R. Washington, D.C.: April 30, 2007. Information Technology: VA and DOD Are Making Progress in Sharing Medical Information, but Are Far from Comprehensive Electronic Medical Records, GAO-07-852T. Washington, D.C.: May 8, 2007. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Veterans Affairs (VA) and the Department of Defense (DOD) are engaged in ongoing efforts to share medical information, which is important in helping to ensure high-quality health care for active-duty military personnel and veterans. These efforts include a long-term program to develop modernized health information systems based on computable data: that is, data in a format that a computer application can act on--for example, to provide alerts to clinicians of drug allergies. In addition, the departments are engaged in short-term initiatives involving existing systems. GAO was asked to summarize its recent testimony on the history and current status of these long- and short-term efforts to share health information. To develop that testimony, GAO reviewed its previous work, analyzed documents, and interviewed VA and DOD officials about current status and future plans. For almost a decade, VA and DOD have been pursuing ways to share health information and create comprehensive electronic medical records. However, they have faced considerable challenges in these efforts, leading to repeated changes in the focus of their initiatives and target dates. In prior reviews of the departments' efforts, GAO noted management weaknesses, including the lack of a detailed project management plan to guide their efforts. Currently, the two departments are pursuing both long- and short-term initiatives to share health information. Under their long-term initiative, the modern health information systems being developed by each department are to share standardized computable data through an interface between data repositories associated with each system. The repositories have now been developed, and the departments have begun to populate them with limited types of health information. In addition, the interface between the repositories has been implemented at seven VA and DOD sites, allowing computable outpatient pharmacy and drug allergy data to be exchanged. Implementing this interface is a milestone toward the departments' long-term goal, but more remains to be done. Besides extending the current capability throughout VA and DOD, the departments must still agree to standards for the remaining categories of medical information, populate the data repositories with this information, complete the development of the two modernized health information systems, and transition from their existing systems. While pursuing their long-term effort to develop modernized systems, the two departments have also been working to share information in their existing systems. Among various short-term initiatives are a completed effort to allow the one-way transfer of health information from DOD to VA when service members leave the military, as well as ongoing demonstration projects to exchange limited data at selected sites. One of these projects, building on the one-way transfer capability, developed an interface between certain existing systems that allows a two-way view of current data on patients receiving care from both departments. VA and DOD are now working to link other systems via this interface and extend its capabilities. The departments have also established ad hoc processes to meet the immediate need to provide data on severely wounded service members to VA's polytrauma centers, which specialize in treating such patients. These processes include manual workarounds (such as scanning paper records) that are generally feasible only because the number of polytrauma patients is small. These multiple initiatives and ad hoc processes highlight the need for continued efforts to integrate information systems and automate information exchange. However, it is not clear how all the initiatives are to be incorporated into an overall strategy focused on achieving the departments' goal of comprehensive, seamless exchange of health information.
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The data that we are reporting today provide a demographic snapshot of the career SES as well as the levels that serve as the SES developmental pool for October 2000 and September 2007. Table 1 shows the number of career SES as well as those in the developmental pool, including the percentages of women and minorities. For more information on demographic data governmentwide, see appendix I. Table 2 shows a further breakdown of the number of SES members, including the percentages of women and minorities, by Chief Financial Officers (CFO) Act agency. For more information on demographic data by CFO Act agency, see appendix I. As we reported in 2003, the gender, racial, and ethnic profiles of the career SES at the 24 CFO Act agencies varied significantly in October 2000. The representation of women ranged from 13.7 percent to 41.7 percent, with half of the agencies having 27 percent or fewer women. For minority representation, rates varied even more and ranged from 3.1 percent to 35.6 percent, with half of the agencies having less than 15 percent minorities in the SES. In 2007, the representation of women and minorities, both overall and for most individual agencies, was higher than it was in October 2000. The representation of women ranged from 19.9 percent to 45.5, percent with more than half of the agencies having 30 percent or more women. For minority representation, rates ranged from 6.1 percent to 43.8 percent, with more than half of the agencies having over 16 percent minority representation, and more than 90 percent of the agencies having more than 13 percent minority representation in the SES. For this testimony, we did not analyze the factors that contributed to the changes from October 2000 through September 2007 in representation. OPM and the Equal Employment Opportunity Commission (EEOC), in their oversight roles, require federal agencies to analyze their workforces, and both agencies also report on governmentwide representation levels. Under OPM's regulations implementing the Federal Equal Opportunity Recruitment Program (FEORP), agencies are required to determine where representation levels for covered groups are lower than the civilian labor force and take steps to address those differences. Agencies are also required to submit annual FEORP reports to OPM in the form prescribed by OPM. EEOC's Management Directive 715 (MD-715) provides guidance and standards to federal agencies for establishing and maintaining effective equal employment opportunity programs, including a framework for executive branch agencies to help ensure effective management, accountability, and self-analysis to determine whether barriers to equal employment opportunity exist and to identify and develop strategies to mitigate or eliminate the barriers to participation. Specifically EEOC's MD-715 states that agency personnel programs and policies should be evaluated regularly to ascertain whether such programs have any barriers that tend to limit or restrict equitable opportunities for open competition in the workplace. The initial step is for agencies to analyze their workforce data with designated benchmarks, including the civilian labor force. If analysis of their workforce profiles identifies potential barriers, agencies are to examine all related policies, procedures, and practices to determine whether an actual barrier exists. EEOC requires agencies to report the results of their analyses annually. In our 2003 report, we (1) reviewed actual appointment trends from fiscal years 1995 to 2000 and actual separation experience from fiscal years 1996 to 2000; (2) estimated by race, ethnicity, and gender the number of career SES who would leave government service from October 2000 through October 2007; and (3) projected what the profile of the SES would be if appointment and separation trends did not change. We estimated that more than half of the career SES members employed in October 2000 will have left service by October 2007. Assuming then-current career SES appointment trends, we projected that (1) the only significant changes in diversity would be an increase in the number of white women with an essentially equal decrease in white men and (2) the proportions of minority women and men would remain virtually unchanged in the SES corps, although we projected slight increases among most racial and ethnic minorities. Table 3 shows SES representation as of October 2000, our 2003 projections of what representation would be at the end of fiscal year 2007, and actual fiscal year 2007 data. We projected increases in representation among both minorities and women. Fiscal year 2007 data show that increases did take place among those groups and that those increases generally exceed the increases we projected. The only decrease among minorities occurred in African American men, whose representation declined from 5.5 percent in 2000 to 5.0 percent at the end of fiscal year 2007. For more information on our projections, see appendix II. Table 4 shows developmental pool representation as of October 2000, our 2003 projections of what representation would be at the end of fiscal year 2007, and actual fiscal year 2007 data. We projected increases in representation among both minorities and women. Fiscal year 2007 data show that increases did generally take place among those groups. For more information on our projections, see appendix II. As stated earlier, we have not analyzed the factors contributing to changes in representation; therefore care must be taken when comparing changes in demographic data since fiscal year 2000 to the projections we made in 2003, as we do in tables 3 and 4. For example, we have not determined whether estimated retirement trends materialized or appointment and separation trends used in our projections continued and the impact these factors may have had on the diversity of the SES and its developmental pool. Considering retirement eligibility and actual retirement rates of the SES is important because individuals normally do not enter the SES until well into their careers; thus SES retirement eligibility is much higher than for the workforce in general. As we have said before, as part of a strategic human capital planning approach, agencies need to develop long-term strategies for acquiring, developing, motivating, and retaining staff. An agency's human capital plan should address the demographic trends that the agency faces with its workforce, especially retirements. In 2006, OPM reported that approximately 60 percent of the executive branch's 1.6 million white-collar employees and 90 percent of about 6,000 federal executives will be eligible for retirement over the next 10 years. If a significant number of SES members were to retire, it could result in a loss of leadership continuity, institutional knowledge, and expertise among the SES corps, with the degree of loss varying among agencies and occupations. This has important implications for government management and emphasizes the need for good succession planning for this leadership group. Rather than simply recreating the existing organization, effective succession planning and management, linked to the strategic human capital plan, can help an organization become what it needs to be. Leading organizations go beyond a "replacement" approach that focuses on identifying particular individuals as possible successors for specific top- ranking positions. Rather, they typically engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future capacity, anticipating the need for leaders and other key employees with the necessary competencies to successfully meet the complex challenges of the 21st century. Succession planning also is tied to the federal government's opportunity to affect the diversity of the executive corps through new appointments. In September 2003, we reported that agencies in other countries use succession planning and management to achieve a more diverse workforce, maintain their leadership capacity, and increase the retention of high-potential staff. Racial, ethnic, and gender diversity in the SES is an important component for the effective operation of the government. As we have testified before the House Subcommittee on Federal Workforce, Postal Service, and the District of Columbia, Committee on Oversight and Government Reform, the Postal Service expects nearly half of its executives to retire within the next 5 years, which has important implications and underscores the need for effective succession planning. This presents the Postal Service with substantial challenges for ensuring an able cadre of postal executives and also presents opportunities for the Postal Service to affect the composition of the PCES. Table 5 updates information we provided last year for the PCES and EAS levels 22 and above, from September 1999 to September 2007, showing increases in the representation of women and minorities. Since last year's testimony, we have studied the pools of potential successors that the Postal Service can draw from in selecting PCES promotions. The Service's policy encourages selecting employees from the CSP program when it promotes employees to the PCES. The current CSP program--which first accepted participants in 2004--is intended to identify pools of potential successors for PCES positions and develop these employees so that they can promptly and successfully assume PCES positions as these positions become available. Nearly 87 percent of postal employees promoted to the PCES in fiscal years 2004 through 2007 were participating in the CSP program, and nearly 7 in 10 promotions were drawn from CSP program participants in EAS levels 25 and above. Table 6 shows increases in the representation of women and minorities in the CSP program from September 2004 to September 2007 among program participants at EAS level 25 and above. We also have not analyzed factors that contributed to changes in the representation levels in the PCES, EAS, or CSP program. The Postal Service, like executive branch agencies, has responsibility for analyzing its workforce to determine (1) where representation levels for covered groups are lower than the civilian labor force and take steps to address those differences and (2) whether barriers to equal employment opportunity exist and to identify and develop strategies to mitigate or eliminate the barriers to participation. The Postal Accountability and Enhancement Act, enacted in 2006, expressed Congress's interest in diversity in the Postal Service. It required the Postal Service Board of Governors to report on the representation of women and minorities in supervisory and management positions, which is a different focus from this statement on the PCES, EAS, and CSP program. This Board of Governors' report provided trend data for supervisory and management positions for fiscal years 2004 through 2007, as well as for the career workforce as a whole. In this regard, the report highlighted data for all career employees in the Service's workforce, noting that from fiscal years 2004 through 2007 the percentage of women increased from 38.3 percent to 39.7 percent, while the percentage of minorities increased from 36.8 percent to 38.3 percent over the same period. Executive branch agencies have processes for selecting members into the SES and developmental programs that are designed to create pools of candidates for senior positions. The Postal Service also has processes for selecting PCES members and participants in its CSP program from which potential successors to the PCES could come. OPM regulations require federal executive agencies to follow competitive merit staffing requirements for initial career appointments to the SES or for appointment to formal SES candidate development programs, which are competitive programs designed to create pools of candidates for SES positions. Each agency head is to appoint one or more Executive Resources Boards (ERB) to conduct the merit staffing process for initial SES career appointments. ERBs review the executive and technical qualifications of each eligible candidate and make written recommendations to the appointing official concerning the candidates. The appointing official selects from among those candidates identified by the ERB as best qualified and certifies the executive and technical qualifications of those candidates selected. Candidates who are selected must have their executive qualifications certified by an OPM-administered Qualifications Review Board (QRB) before being appointed to the SES. According to OPM, it convenes weekly QRBs to review the applications of candidates for initial career appointment to the SES. QRBs are independent boards of three senior executives that assess the executive qualifications of all new SES candidates. Two criteria exist for membership on a QRB: at least two of three members must be career appointees, and each member must be from a different agency. In addition, OPM guidance states that QRB members cannot review candidates from their own agencies. An OPM official stated that an OPM official acts as administrator, attending each QRB to answer questions, moderate, and offer technical guidance but does not vote or influence voting. OPM guidance states that the QRB does not rate, rank, or compare a candidate's qualifications against those of other candidates. Instead, QRB members judge the overall scope, quality, and depth of a candidate's executive qualifications within the context of five executive core qualifications--leading change, leading people, results driven, business acumen, and building coalitions--to certify that the candidate's demonstrated experience meets the executive core qualifications. To staff QRBs, an OPM official said that OPM sends a quarterly letter to the heads of agencies' human capital offices seeking volunteers for specific QRBs and encourages agencies to identify women and minority participants. Agencies then inform OPM of scheduled QRB participants, without a stipulation as to the profession of the participants. OPM solicits agencies once a year for an assigned quarter and requests QRB members on a proportional basis. The OPM official said that OPM uses a rotating schedule, so that the same agencies are not contacted each quarter. Although QRBs generally meet on a weekly basis, an OPM official said that QRBs can meet more than once a week, depending on caseload. The official said that because of the caseload of recruitment for SES positions recently, OPM had been convening a second "ad hoc" QRB. According to another OPM official, after QRB certification, candidates are officially approved and can be placed. In addition to certification based on demonstrated executive experience and another form of certification based on special or unique qualities, OPM regulations permit the certification of the executive qualifications of graduates of candidate development programs by a QRB and selection for the SES without further competition. OPM regulations state that for agency candidate development programs, agencies must have a written policy describing how their programs will operate and must have OPM approval before conducting them. According to OPM, candidate development programs typically run from 18 to 24 months and are open to GS-15s and GS-14s or employees at equivalent levels from within or outside the federal government. Agencies are to use merit staffing procedures to select participants for their programs, and most program vacancies are announced governmentwide. OPM regulations provide that candidates who compete governmentwide for participation in a candidate development program, successfully complete the program, and obtain QRB certification are eligible for noncompetitive appointment to the SES. OPM guidance states that candidate development program graduates are not guaranteed placement in the SES. Agencies' ERB chairs must certify that candidates have successfully completed all program activities, and OPM staff and an ad hoc QRB review candidates' training and development experience to ensure that it provides the basis for certification of executive qualifications. OPM also periodically sponsors a centrally administered federal candidate development program. According to an OPM official, the OPM-sponsored federal candidate development program can be attractive to smaller agencies that may not have their own candidate development program, and OPM administers the federal program for them. According to OPM officials, 12 candidates graduated from the first OPM-sponsored federal candidate development program in September 2006. Of those, 8 individuals have been placed; 1 is about to be placed, and 3 are awaiting placement. In January 2008, OPM advertised the second OPM-sponsored federal candidate development program, and selections for the second program are pending. With respect to oversight of and selection into the SES, we note that the Chairmen of the two Subcommittees represented here today introduced legislation in October 2007, which would create a Senior Executive Service Resource Office within OPM to improve policy direction and oversight of, among other things, the structure, management, and diversity of the SES. In addition, this legislation would require agencies to establish SES Evaluation Panels of diverse composition to review the qualifications of candidates. Because the Postal Service has specific statutory authority to establish procedures for appointments and promotions, it does not fall under the jurisdiction of the OPM QRB and its certification activities. Instead, the Postal Service promotes EAS and other employees to the PCES when these employees are selected to fill PCES vacancies. Promotions generally involve EAS employees in levels 25 and above who are CSP program participants and who were identified as potential PCES successors through a nomination and evaluation process (either through self- nomination or nomination by a PCES "sponsor"). As previously noted, the CSP program is intended to identify and develop these employees so that they can promptly and successfully assume PCES positions as these positions become available. The selecting official for a PCES-I position (i.e., the relevant officer) is required to obtain approval for the selection decision from the relevant member of the Service's Executive Committee. Postal Service policy notes that employees promoted to the PCES should be CSP participants except in rare cases. However, participation in the CSP program does not trigger any promotion decision, and any employee can be promoted to the PCES, regardless of whether that person is participating in CSP. Further, there are no requirements for PCES vacancies to be advertised, nor are selecting officials required to interview candidates for such vacancies. According to postal officials, selecting officials use a variety of methods to fill PCES-I vacancies, which may involve interviews and discussion among officers regarding candidates or potential candidates, or which may involve considering employees who have had developmental assignments. Such discussions may happen when the vacancy is in one area of the country and potential candidates are in other areas, or when potential candidates are in CSP program position pools outside the jurisdiction of the selecting official. The Postal Service has implemented a structured process to select nominees to participate in up to 5 of the approximately 400 CSP program position pools. First, the Service conducts a range of preparatory activities for the 2-year CSP program cycle, including a needs assessment for the program, such as determining what PCES positions have been created or eliminated and any CSP position pools where succession planning is shallow. The Service's Employee Development and Diversity Office, which is responsible for the CSP program, coordinates activities with CSP program liaisons throughout the Service, who provide administrative support and information about the program. Second, the Postal Service receives nominations for each 2-year CSP program cycle, including self-nominations and other nominations from PCES sponsors. Nominees complete applications that include self- assessments against the eight competencies in the Service's Executive Competency Model. PCES sponsors and the relevant PCES-I executives also evaluate each nominee and make recommendations to the CSP program committees to either support or not support each nominee. Third, each of the Service's 43 officers convenes a CSP program committee of three or more executives to consider nominees for each position pool under each officer's jurisdiction. Each CSP program committee reviews nominees for pools under its jurisdiction and makes recommendations regarding each nominee. Officers then select participants for their pools, subject to review and approval by the responsible member of the Executive Committee. The Postmaster General and Chief Human Resources Officer also review some selections for "critical" position pools that are so designated by each officer. Fourth, once selected, CSP participants develop an individual development plan (IDP) that outlines planned developmental activities and assignments for the 2-year CSP program cycle. IDPs are reviewed and approved by the CSP program committees and by the relevant executives. Chairman Davis, Chairman Akaka, and Members of the Subcommittees, this concludes our prepared statement. We would be pleased to respond to any questions that you may have. For further information regarding this statement, please contact Kate Siggerud, Director, Physical Infrastructure Issues, on (202) 512-2834 or at [email protected]; or George Stalcup, Director, Strategic Issues, on (202) 512-6806 or at [email protected]. Individuals making key contributions to this statement included Gerald P. Barnes and Belva Martin, Assistant Directors; Karin Fangman; Kenneth E. John; Kiki Theodoropoulos; and Greg Wilmoth.
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A diverse Senior Executive Service (SES), which generally represents the most experienced segment of the federal workforce, can be an organizational strength by bringing a wider variety of perspectives and approaches to policy development and decision making. In January 2003, GAO provided data on the diversity of career SES members as of October 2000 (GAO-03-34). In March 2000, GAO reported similar data for the Postal Career Executive Service (PCES) as of September 1999 (GAO/GGD-00-76). In its 2003 report, GAO also projected what the profile of the SES would be in October 2007 if appointment and separation trends did not change. In response to a request for updated information on diversity in the SES and the senior ranks of the U.S. Postal Service, GAO is providing data on race, ethnicity, and gender obtained from the Office of Personnel Management's (OPM) Central Personnel Data File and the Postal Service for (1) career SES positions as of the end of fiscal year 2007 and the SES developmental pool (i.e., GS-15 and GS-14 positions) as well as a comparison of actual fiscal year 2007 data to projections for fiscal year 2007 that GAO made in its 2003 report, and (2) the PCES, the Executive Administrative Schedule (EAS), and EAS participants in the Corporate Succession Planning (CSP) program. GAO also describes the process that executive agencies and the Postal Service use to select members into their senior ranks. Data in the Central Personnel Data File and provided by the U.S. Postal Service show that as of the end of fiscal year 2007, the overall percentages of women and minorities have increased in the federal career SES and its developmental pool for potential successors since 2000 as well as in the PCES and EAS levels 22 and above, from which PCES potential successors could come, since 1999. Actual fiscal year 2007 SES data show that representation increased from October 2000 among minorities and women and that those increases generally exceed the increases we projected in our 2003 report. The only decrease among minorities occurred in African American men, whose fiscal year 2007 actual representation (5.0 percent) was less than the October 2000 baseline (5.5 percent). For the developmental pool (GS-15s and GS-14s), fiscal year 2007 data show that increases also occurred generally among minorities and women since October 2000. Both executive branch agencies and the Postal Service have processes for selecting members into their senior ranks. Executive agencies use Executive Resources Boards to review the executive and technical qualifications of eligible candidates for initial SES career appointments and make recommendations on the best qualified. An OPM-administered board reviews candidates' qualifications before appointment to the SES. The Postal Service does not fall under the jurisdiction of OPM's board for promoting employees to the PCES. Instead, it promotes EAS and other employees to the PCES when they are selected to fill PCES vacancies. Most employees promoted to the PCES have been CSP program participants, consistent with Postal Service policy encouraging this practice. The CSP program is intended to identify and develop employees so that they can promptly and successfully assume PCES positions as these positions become available.
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The Immigration and Nationality Act of 1990 established special immigrant and nonimmigrant categories for religious workers, religious professionals, and ministers. The act authorizes special immigrants to be admitted to the United States as religious workers if, for 2 years prior to admission, they have been members of a religious denomination having a bona fide, nonprofit, religious organization in the United States; they intend to enter the United States to work for the organization at the organization's request in a religious vocation or occupation; and they have been carrying on the religious work continuously for at least 2 years immediately preceding their application for admission. The act established a limit of 5,000 on the number of special immigrant religious workers and religious professionals that can be admitted in any one year. Although the special immigrant provisions for religious workers and religious professionals were to expire on October 1, 1994, they have been amended twice and extended to October 1, 2000. Applying for an immigrant religious worker visa is a two-step process. First, a petition must be filed with INS. A petition is the form the sponsoring individual or organization must file on behalf of an alien to demonstrate that the alien meets the requirements of a specific immigration category. The petition must include supporting documentation showing that the religious worker will be working for a religious organization and how the religious worker will be paid or remunerated. The documentation should also clearly indicate that the religious worker will not be solely dependent on supplemental employment or solicitation of funds for support. INS reviewers examine the petitions and supporting documentation to determine if the alien meets the program requirements. If INS approves the petition, the alien files an application for an adjustment of status with INS if he or she is already in the United States or an application for a visa with a State overseas post if he or she is abroad. If the alien does not meet the requirements, INS denies the petition. About 85 percent of those admitted for permanent residence as religious workers in fiscal years 1996 and 1997 were already in the United States. Nonimmigrant religious workers can be admitted under the same conditions as special immigrant religious workers, except that there is no requirement for prior religious work experience, and the maximum period of stay for nonimmigrant religious workers is 5 years. The authorization for admission of nonimmigrant religious workers did not contain sunset restrictions nor any limit on the number that can be admitted. To obtain a nonimmigrant visa, the alien files an application, but no petition is required. Documentation required in support of the visa application must establish the arrangements made, if any, for remuneration, including the amount and source of any salary, a description of any other type of remuneration, and a statement indicating whether the remuneration will be in exchange for services rendered. The majority of nonimmigrant religious workers applies and receives their visas abroad through State's overseas posts. (See app. I for more information on immigrant and nonimmigrant religious worker visa issuance.) Both INS and State have expressed concern about fraud in the religious worker visa program, but they do not have data or analysis to firmly establish the extent of the problem. Their knowledge of program fraud is based on information developed primarily from fraud investigations and through the visa screening process. INS has conducted several fraud investigations since 1994 involving hundreds of applicants. In addition, fraud has been identified through INS' and State's visa screening processes. The agencies' reviewers generally deny petitions and visas to unqualified applicants, but according to the agencies' officials, it is difficult to prove willful intent to commit fraud. The types of fraud the agencies have encountered often involved petitioners making false statements about the length of time that the applicant was a member of the religious organization and the nature of the qualifying work experience. Some of the investigations involved religious organizations petitioning for more workers than they can reasonably support. Evidence uncovered by INS suggests that some of these organizations exist solely as a means to carry out immigration fraud. INS and State have uncovered incidents of fraud in the religious worker visa program, but they do not routinely investigate questionable visa petitions and applications or report fraud information by type of visa. State's Bureau of Diplomatic Security, the office responsible for investigating the use of counterfeit U.S. passports and visas, has not conducted any investigations of religious worker visa fraud. State's antifraud units at overseas posts sometimes review suspicious applications to screen out ineligible applicants, but they do not routinely report the results to State's headquarters. Individual cases of suspected fraud are generally not investigated, unless the suspected fraud is part of a larger scheme to systematically circumvent immigration laws. Moreover, INS does not routinely follow up on recipients of employment-based visas, including religious visas, to determine whether they comply with the law. The agencies generally deny questionable visa petitions and applications they receive. Most are not denied for fraud, but for other reasons, such as failing to comply with statutory requirements and regulations, including failure to provide requested documents. They give fraud as the reason for the denial when they have sufficient evidence that the applicant or petitioner willfully misrepresented a material fact. An INS workload report on immigrant petitions received, approved, and denied, showed that of the approximately 8,400 petitions for religious workers processed in fiscal year 1998, 3 percent were denied for suspected fraud. The reported 3-percent fraud denial rate for religious worker petitions was the third highest fraud denial rate among the 44 different immigrant petition categories listed. The fraud denial rate for most of the other categories was less than 1 percent. State Department statistics on visa denials do not identify denials by type of visa. However, a 1998 State survey of 83 overseas posts identified instances of fraud uncovered during visa processing. At our request, the Fraud Branch at INS' Office of Investigations in Washington, D.C., surveyed fraud units in INS' district and suboffices to identify the number of active and closed fraud investigations involving religious worker visas since 1994. The units identified 54 such investigations involving about 1,700 petitions during the 5-year period. The 54 INS investigations, of which about 40 are closed, ranged from cases involving individual fraud schemes to organized fraud rings. For example, the fraud unit in the Chicago District Office investigated 30 cases involving individuals who failed to meet the 2-year experience requirement. At least five investigations performed by INS since 1994 have involved individuals or organizations filing petitions for hundreds of religious workers. For example, in 1995, INS investigated a pastor who filed 450 immigrant religious worker petitions covering over 900 individuals, falsifying the number of years the aliens had been a member of the church. The pastor died of natural causes before an indictment could be returned, and the petitions were denied or allowed to expire. INS recently completed an investigation it started in 1994 involving suspects who provided false supporting documents to INS to show that the aliens met the 2-year work experience requirement. This investigation, which involved over 400 petitions, ultimately led to the arrests of six individuals, guilty pleas to charges of conspiracy to commit visa fraud, and additional investigations of several similar schemes. In another recent case, reviewers at INS' Vermont Service Center became suspicious when one organization, which had filed about 100 petitions for immigrant visas the previous 2 years combined, filed over 200 petitions the third year. The reviewers doubted that the organization could support so many full-time workers and referred the case to an INS district office fraud unit where it is currently under investigation. Some investigations were initiated because of suspicious activity identified by State Department consular officials. For example, consular officers at the U.S. embassy in Suva, Fiji, became suspicious of a church that filed petitions on behalf of 30 individuals from Fiji who were in the United States on expired visitors' visas. The information was forwarded to INS for investigation. The investigation revealed that only 1 of the 30 petitions met the requirements for a religious worker visa. The post suspected that this scheme was related to a larger one involving petitions on behalf of Tonga residents to stay in the United States illegally. Also, the U.S. embassy in Bogota uncovered a fraud scheme in which the local church was providing applicants with false documents to demonstrate that the applicants had been members of the church for the required 2-year period. The embassy's antifraud unit discovered that in some cases the applicants had recently joined the church, and in other cases, they had no membership affiliation at all. INS and State reviewers stated that they are not confident that the agencies' screening process is identifying all unqualified applicants and sponsoring organizations. They attributed the problem to the lack of sufficient information to determine the eligibility of visa applicants and their sponsors. INS, with State's support, is considering a number of steps to address this problem. INS requires the petitioner to provide evidence that (1) the organization qualifies as a nonprofit organization, (2) the alien meets the qualifications for an immigrant religious worker visa, and (3) the alien will be paid or otherwise remunerated by the religious organization. INS and State reviewers have asserted that sometimes the required supporting evidence, although minimally acceptable, consists of little more than a letter from the sponsoring organization and does not adequately establish an applicant's eligibility as a religious worker or the sponsoring organization's ability to pay the worker. The reviewer can deny the application or petition pending the receipt of additional information, but such actions take more time. The INS reviewers stated that more specific information about the applicant's training and qualifications and the exact nature of the position to be filled, including the number of petitions previously filed, should be provided up front, similar to other employment-based visa categories. In addition, unlike most other employment-based visas, the applicant can file a petition on his or her own behalf and, although supporting documentation from the sponsoring organization is still required, all of it can be submitted by the applicant. For most other employment-based visa categories, the petition and supporting documentation must be submitted by the potential employer. The reviewers believe INS should require information from independently verifiable sources. The reviewers also stated that the documents should be current. They said that sometimes the sponsoring organizations submit copies of their original tax-exemption form, which may no longer be valid. A related issue raised by State's overseas posts concerns the definition of a "religious worker." They believe that the definition of religious worker is too broad, making the religious worker visa program an attractive vehicle for fraud and abuse. According to the survey, posts sometimes struggled with what they considered to be the "marginal" nature of some of the religious positions used by the applicants. A common sentiment was that almost anyone involved with a church, aside from those occupations that were not intended to be covered by the 1990 religious worker visa legislation, for example, maintenance and cleaning staff, could qualify as a religious worker. INS is developing a number of initiatives to improve its visa screening process and to detect and deter fraud. Most of these initiatives are focused on requiring petitions to include more comprehensive information to allow reviewers to make better informed decisions. Some of the service centers are using the capabilities of commercial software to enhance their ability to identify patterns and trends that may indicate fraud. State officials said they would support INS' efforts to increase evidentiary standards. Further, State is consulting with the Internal Revenue Service and the Department of Labor to develop more comprehensive information on religious occupations and organizations to help the overseas posts better understand the definition of "religious worker" and "traditional" religious functions. INS is in the process of implementing a proposed regulatory change to expressly require that the prior work experience specified for immigrant religious worker visa applicants be full-time work. The proposed rule also states that the documentation supporting an applicant's petition must indicate that the religious worker will be working for the religious organization in the United States on a full-time basis. INS officials stated that INS is changing the regulation to address the problem of individuals doing part-time voluntary work for a religious organization while working full-time in a secular occupation. They said an applicant's ability to demonstrate 2 years of prior full-time, paid religious work experience is a good indication that the individual is a committed religious worker. They also believe such experience is a good indicator that the individual will be doing full-time religious work for which the organization will pay a salary. The proposed changes were initially published for comment in June 1995. According to INS, it plans to finalize the regulatory change in October 1999. INS is also considering revising its requirements for the documents that must be initially submitted by the petitioner for an immigrant visa. Such documents could include pay stubs to show that the worker was compensated for full-time work and bank statements to demonstrate that the organizations have sufficient financial resources to support their worker or workers. INS has the authority to ask for additional evidence to verify information in the petitions, and some INS reviewers will defer making a final decision until the organization furnishes this type of supplemental information. The suggested change involving additional documentation would increase the amount of information that all organizations must initially submit and that all adjudicators would use to review petitions. By initially requiring more specific documents and by clarifying the full-time religious work requirements, INS may also reduce the number of filings by unqualified applicants. INS has no timetable for implementing the changes to the requirements for supporting documents. However, INS officials stated that they might revise the documentary requirements after the agency redrafts or finalizes its proposed rule change on the full-time work experience requirement. According to a State official, State would participate in any changes to the requirements for immigrant visas and publish visa regulations jointly with INS. He said that, if appropriate, State would revise its documentary requirements for nonimmigrant visas to correspond with INS' suggested revisions for immigrant visas. Until recently, reviewers could not quickly and efficiently determine how many filings had been made by a petitioning organization. As previously discussed, organizations petitioning for numbers of workers that appear to be inconsistent with the organization's membership size and financial resources to support the workers sometimes indicates fraud. However, until a pattern had been identified, the reviewers could not know if the petitions were potentially fraudulent. For example, one organization currently under investigation had 37 petitions approved in fiscal year 1996 and 76 petitions approved in fiscal year 1997 before the pattern was detected. While all service centers now have the capability to identify multiple filers, the California and Vermont Service Centers have developed their own systems using commercial off-the-shelf software (Microsoft SQL for California and Oracle and Access for Vermont), which they believe provides more efficient inquiry and reporting capability than the system provided by INS headquarters. In addition, the two service centers are in the process of consolidating their databases so that they can share data. We visited 12 religious organizations in California, New York, Maryland, and the District of Columbia to discuss their experience with the religious worker visa program. The religious organizations generally believed that the program met their needs. For example, several of the organizations use the program to meet the needs of growing ethnic congregations. One church with 7,000 members uses the program to provide workers to minister to its separate Filipino, Korean, Hispanic, and French- and English-speaking African congregations. A religious organization with a worldwide membership uses the program to recruit native speakers familiar with the religion to serve as religious translators and broadcasters. Another religious organization with 3 million members in more than 120 countries uses nonimmigrant religious workers to participate in church-sponsored community service programs. We asked representatives of the organizations for their opinions of INS' proposed changes to the program. Of the seven commenting on the full-time work experience requirement, four stated that the proposal would not negatively affect their organization, because the majority of the applicants they sponsor for immigrant religious worker visas have already been serving in full-time capacities. However, three expressed reservations. For example, the representative of one religious organization stated that the requirement might adversely affect applicants who work for congregations in which ministerial duties are shared. The representative of another organization stated that the full-time work experience requirement could be problematic for those engaged in religious vocations if proof of paid full-time work was required, because some individuals are often not paid a salary. He said the requirement could also cause problems for some individuals who perform their religious duties part-time while studying for the priesthood or ministry. Three of the four religious organizations commenting on the proposed change in documentary evidence requirements stated that the change would not pose a problem. However, the one opposed to the proposed change pointed out that INS already has the discretion to ask for additional documents when required and does not believe that religious employers and applicants should routinely be required to assume additional documentary burdens. Some representatives also stated that INS should avoid the appearance of deciding for a religious organization what constitutes religious work. In addition to asking for their opinions on the potential modifications proposed by INS, we also asked the religious organizations for their suggestions for improving the program. Three of the organizations suggested making the special immigrant religious worker visa category permanent. The representative of one of the religious organizations said this would eliminate the glut of petitions that are filed before the "sunset" date. One organization that was familiar with student visas suggested that a sponsoring organization could submit to INS an annual status report on each of its nonimmigrant religious workers, much like academic institutions that must annually certify the status of foreign students. Another organization suggested that INS provide some materials concerning the religious worker visa program in some foreign languages to help ensure that organizations fully understand the regulations and requirements of the program. Both INS and State are attempting to balance the need to screen out unqualified applicants with the religious worker visa program's original purpose of facilitating the entry of qualified religious workers. The program modifications that INS is undertaking or plans to undertake to verify the accuracy of petitions for immigrant religious worker visas are reasonable steps to improve program integrity. If implemented, the modifications should help to better screen visa applicants and religious organizations. In oral comments on a draft of this report, INS and State concurred with the report's findings and conclusions. INS noted that its planned regulatory change and other steps underway to improve its screening process should help reduce the incidence of fraud. INS and State also provided technical comments, which we have incorporated as appropriate. To determine whether INS and State have data on any fraud in the religious worker visa program and to determine the nature of any abuse, we met with INS and State headquarters officials and visited three of the four INS service centers responsible for processing and approving religious worker visas. We also analyzed information from about 700 religious worker visa petitions denied by the California Service Center between January 1, 1996, and August 18, 1997, and data from about 83 responses to a State Department survey of 100 of its overseas posts in February 1998. We met with officials at INS' New York District Office responsible for interviewing visa applicants, and other officials to discuss INS' efforts to identify patterns and trends in the use of the program that could indicate fraud. We also met with officials of State's Fraud Prevention Program and Office of Diplomatic Security to discuss State's efforts to identify and investigate religious worker visa fraud. In addition, we met with fraud investigators from INS' Los Angeles District Office to discuss specific fraud investigations and INS' processes for accepting, investigating, and resolving fraud cases. We interviewed INS and State officials to discuss their agencies' processes and procedures for determining if visa applicants and sponsoring organizations met program requirements. We reviewed the relevant law and related legislative history, the INS regulations, State's Foreign Affairs Manual, advisory cables to the overseas posts, and other guidance to determine what criteria the agencies use to judge petitions and applications. We observed the process for reviewing and approving visa petitions at three INS service centers in California, Texas, and Vermont and discussed with service center staff how petitions are evaluated and the limitations of the process. We also queried by telephone consular posts in India, Korea, Mexico, and the Philippines about their processes and procedures for reviewing and approving visa applications. We chose those posts because they process relatively large numbers of applications for nonimmigrant religious worker visas. To identify any steps INS and State had taken or planned to take to address identified problems, we met with INS and State officials. We discussed the potential effect of any proposed changes with representatives of the U.S. Catholic Conference, the General Conference of the Seventh-Day Adventist Church, the Christian Science Church, Agudath Israel of America, and the Lutheran Immigration and Refugee Service. We selected these organizations because they have testified in support of the special visa for religious workers or are otherwise considered knowledgeable about the program. We also discussed the proposed changes with churches and other religious institutions that use the program. We selected these organizations by extracting information from the California and Vermont Service Centers' databases of religious worker visa petitions approved in fiscal year 1997 to identify the churches using the program. We selected an illustrative sample of large, medium, and small users based on the number of each organization's approved petitions. We interviewed representatives of seven churches from this group. We conducted our review from February 1998 to November 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to interested congressional committees. We are also sending copies to the Honorable Madeleine Albright, Secretary of State, and the Honorable Doris Meissner, Commissioner, INS. We will also make copies available to others upon request. Please contact me at (202) 512-4128 if you or any of your staff have any questions concerning this report. The major contributors to this report are listed in appendix II. This appendix shows the number of religious worker visas issued from fiscal years 1992 to 1998 and the major countries of origin of visa recipients in fiscal year 1998. Figure I.1 shows that the number of immigrant religious worker visas issued since fiscal year 1992 has fluctuated, reaching the annual limit of 5,000 in fiscal years 1994 and 1997, when the program was scheduled to expire. Meanwhile, issuances of nonimmigrant visas have steadily increased since fiscal year 1992. Figure I.2 shows that South Korea and India were the top countries of origin of immigrant and nonimmigrant religious worker visas, respectively. Richard Seldin The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary, VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Pursuant to a congressional request, GAO provided information on: (1) the extent and nature of any fraud the Immigration and Naturalization Service (INS) and the Department of State have identified in the religious worker visa program; and (2) any steps INS and State have taken or plan to take to change the visa screening process. GAO noted that: (1) although INS and State have identified some program fraud through the visa screening process and investigations, they do not have data or analysis to firmly establish the extent of fraud in the religious worker visa program; (2) the nature of the fraud uncovered typically involved: (a) applicants making false statements about their qualifications as religious workers or their exact plans in the United States; or (b) conspiracy between an applicant and a sponsoring organization to misrepresent material facts about the applicant's qualifications or the nature of the position to be filled; (3) INS and State sometimes detect fraud schemes when a sponsoring organization petitions INS for hundreds of religious workers at a time; (4) in order to increase the availability of information necessary to allow reviewers to determine the eligibility of visa applicants and sponsors, INS, with State's support, is considering changes to the visa screening process; (5) these changes include: (a) having an applicant submit additional evidence of his or her qualifications; (b) having the sponsoring organization submit additional evidence regarding its ability to financially support the applicant; and (c) incorporating new software applications that alert reviewers to organizations filing petitions for numerous workers; (6) INS is also proposing a regulatory change to expressly require that the prior work experience specified for immigrant religious worker visa applicants be full-time and that the individuals work for the religious organization in the United States on a full-time basis; (7) the religious organizations GAO met with believe the program meets their needs; and (8) of the seven organizations commenting on the proposed regulatory change, three opposed it because some part-time religious workers that are eligible may no longer qualify.
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In 2001, the President announced his management agenda for making the government more focused on citizens and results, which included expanding Electronic Government (E-Government). The President's E- Government Strategy identified several governmentwide initiatives with a goal of eliminating redundant systems and significantly improving the government's quality of customer service for citizens and businesses. The expected results of the E-Government initiative include providing high- quality customer service regardless of whether a citizen contacts an agency by phone, in person, or on the worldwide Web. The E-Government Act of 2002 codified the President's E-Government initiatives and expanded OMB's leadership role by establishing the Office of E- Government and Information Technology within OMB. The act also requires that agencies comply with OMB E-Guidance. One of the 24 presidential E-Government initiatives is developing and deploying governmentwide citizen customer service using industry best practices that will provide citizens with timely, consistent responses about government information and services via e-mail, telephone, Internet, and publications. By congressional direction, OMB also is responsible for establishing and issuing governmentwide guidelines to federal agencies for ensuring the quality of the information disseminated to the public. In response to this direction, OMB issued guidance to agencies in February 2002 that defined the quality of information to include accuracy as one of its fundamental elements and directed agencies to develop procedures for reviewing and substantiating the quality of their information before dissemination. Contact centers are one method agencies use to disseminate information to the public. In the past, public inquiries to the government were often made by telephone and thus federal agencies began establishing call centers. With evolving technology, citizen inquiries to the government now come through various channels such as e-mails, Web-based forms, facsimiles, Web chat rooms, and traditional postal mail. As a result, agencies have established multichannel contact centers to handle these inquiries. Contact centers rely on automated and live telephone response systems, Web site technologies, and trained customer service representatives to provide information to the public. For contractor- operated contact centers, the agency typically provides either scripted responses or the content from which the contractor creates its own scripted responses. The scripts are used for the prerecorded telephone response systems, Web pages, and preformatted responses given by the customer service representatives. Contact centers are staffed in tiers by generalist or specialist representatives or a combination of both. Usually, Tier 1 staff handle general information inquiries and direct more complex or personal issues to specialized Tier 2 or Tier 3 staff or to the agency's subject matter experts. One method for obtaining information on the contact centers that are operated by contractors on behalf of the government is to review data from FPDS. FPDS is used to report individual procurement transactions, which include the industrial classification of the goods and services procured by the federal government. FPDS was implemented by OMB's Office of Federal Procurement Policy (OFPP) in 1978 in response to the Office of Federal Procurement Policy Act of 1974 requirement of establishing a system for collecting and developing information about federal procurement contracts. Since 1982, GSA has administered FPDS on OFPP's behalf. In 2003, the system was revised and is now called FPDS- Next Generation. A wide range of users, including those with the executive and legislative branches, rely on FPDS data for information on agency contracting actions, governmentwide procurement trends, and achievement of goals related to small business. The six agencies we reviewed emphasized accuracy of contact center information to varying degrees through the quality assurance mechanisms of their contracts and various oversight practices. Four of the six included a specific metric to measure contractor performance related to providing accurate information to the public, but only one of the six used all four of the oversight practices we identified--such as actively monitoring contacts--to ensure that accurate information is provided to the public. Each of the six agencies we reviewed specified key performance metrics that its contractor is required to meet. These performance metrics define the minimum level of quality acceptable to the agency and provide the basis against which the contractor is to be evaluated. We found that four of the six agencies' contracts included accuracy of information in one or more of the key performance metrics. The remaining two agencies did not have specific metrics that addressed the need to provide accurate information to the public. Table 2 summarizes the key performance metrics specified in the contracts we reviewed and indicates through shading those that specifically address providing accurate information. The Federal Acquisition Regulation requires agencies to perform and document oversight of their contractors' performance to ensure the government receives high-quality services as specified in the contract. Agency oversight provides quality assurance independent of the contractors' own quality control processes. Although each agency employed some oversight practices, only two of the six agencies we reviewed used all four of the oversight practices we identified for ensuring that accurate information is provided to the public. Each agency emphasized accuracy of information to varying degrees within its practices. On the basis of our review of industry contact center practices and the practices employed by the agencies considered leaders in government contact centers, we identified four agency oversight practices related to ensuring that accurate information is provided to the public via a contractor-operated contact center. Table 3 describes the four accuracy- related oversight practices. The first two practices, knowledge database management and agency contact monitoring, provide direct oversight regarding accuracy of information, because they focus on detecting inaccuracies in the source information used to provide responses to the public and in the actual responses provided by the customer service representatives. The remaining two practices, customer satisfaction surveys and validation of contractor-prepared reports, are more indirect methods of ensuring accuracy in that they review customers' reactions to the information provided and independent agency corroboration of the contractor's reporting on its own quality procedures. The agencies we reviewed varied with respect to how they implemented these practices. This variance was due to a number of factors, such as differences among the agencies in staffing levels, funding, and the use of guidance specific to the agency. Table 4 shows the extent to which the six agencies we reviewed employ each of the accuracy-related oversight practices. Most of the agencies we reviewed had a structured process for ensuring accurate information is maintained in the knowledge database. DOL, Education, GSA, and USPS approve contractor-developed information that is created based on government-provided materials. These agencies then perform periodic reviews of the information in the knowledge database. CDC currently prepares all scripted responses and Web site information, which the contractor is required to use, and plans to implement annual reviews of the knowledge database, starting at the first anniversary of operation in February 2006. TMA allows the contractor to develop information based on material TMA provides, but does not review the information used by the contractor to respond to public inquires. DOD said that TMA relies on the expertise and skills of its contractor to provide the required services. Almost all of the agencies we reviewed perform regular monitoring of the contractor's responses to the public to help assess whether accurate information is provided. CDC, DOL, Education, GSA, and USPS each monitor a number of contacts on a regular basis, although accuracy of information is addressed to varying degrees in the score sheets. For example, accuracy is clearly weighted as an important aspect of the call in CDC's score sheet. Therefore if an inaccurate answer is provided, the contractor "fails" for that call and the customer service representative is counseled. On the other hand, Education's score sheet does not clearly weight accuracy of information. Education and its contractor staff could not explain how providing inaccurate information on a call would be indicated on the monitoring score sheet. In addition to giving different weights to accuracy, the five agencies also vary in terms of the frequency with which they monitor their contacts. Education and USPS each employ one full-time staff to monitor a selection of the contact centers' contacts. CDC has a third-party contractor monitor the contact center on a daily basis and uses this assessment in the determination of the contractor's award fee. GSA staff monitor a sample of calls on a weekly basis and started performing quarterly audits of the contractor's monitoring efforts in November 2005. The sixth center, TMA, only monitors calls on an ad hoc basis when officials visit the contact center. Three of the agencies we reviewed conduct customer satisfaction surveys subsequent to the initial contact from an individual. GSA, TMA, and USPS conduct customer satisfaction surveys, which ask, to limited degrees, questions that address the accuracy of information provided. While providing some level of insight regarding accuracy, customer surveys may not always provide a valid basis for oversight of the accuracy of information, since they usually ask the individual's opinion on the service provided. If the survey is conducted too closely to the time of the inquiry, the individual may not have had time to act upon the information to know whether it is accurate or not. CDC plans to implement three types of postcontact customer satisfaction surveys through a third-party contractor beginning in June 2006. DOL does not conduct postcontact surveys because it does not maintain personal information on the individuals that contact the agency. Three of the six agencies we reviewed take steps to validate the information in the contractor-prepared reports related to contact center performance. These reports generally include some aspects related to accuracy of information provided to the public, such as the contractor's results of its monitoring of contacts. CDC and USPS validate to some degree the reports provided by the contractor. GSA conducts quarterly audits of its contractor's supporting data. Although DOL, Education, and TMA review their contractor reports, they rely upon the reports without validation. According to GAO's standards for internal control in the federal government, good internal control practices require that agencies validate the performance reports provided by the contractor to ensure the information is valid. The federal government does not have comprehensive, centralized guidance for operating a contact center or for overseeing a contractor- operated center. Although operation and oversight of contact centers are the responsibility of individual agencies, GSA, in consultation with OMB, determined that governmentwide standards would be useful. GSA sponsored an interagency committee that recently provided draft guidelines for operating federal contact centers to OMB and other federal agencies. However, OMB told us it does not plan to issue any governmentwide guidance based on the committee's recommended guidelines at this time, because OMB has not identified the operation of contact centers as an area of concern. Furthermore, until recently, no governmentwide information specific to contact centers has been collected. Initial attempts to gather governmentwide information about the number and type of activities that agencies use to provide public information proved to be inadequate for providing a comprehensive governmentwide view of contact centers. In addition, officials from the agencies we reviewed told us that no industry classification code in FPDS currently covers the full range of services provided by a contact center. In its 2004 report on the electronic government initiative, OMB highlighted the importance of delivering timely and accurate information to the public and stated that there are opportunities to apply existing and emerging best practices to achieve increases in productivity and delivery of services and information. To date, however, OMB has established only limited guidance on preferred practices at contact centers. The only OMB guidance we found that specifically related to contact centers is focused on the use of performance-based contracting for such services. This guidance is dated and limited in its coverage and does not provide guidance on performance metrics for contact centers or oversight practices. Because of the need for governmentwide standards for operating contact centers, GSA in consultation with OMB, took the initiative to form an interagency working group to propose guidelines to OMB and other federal agencies. Formed in March 2005, the Citizen Service Levels Interagency Committee is composed of 58 contact service representatives from 33 executive branch agencies. In addition to relying on their knowledge in running contact centers, the committee also had a contractor perform two studies to provide insight on citizens' expectations when contacting government agencies for information and current industry metrics, benchmarks, and best practices for operating contact centers. The committee submitted a report with 37 proposed standards for operating contact centers to OMB in September 2005, including four standards specifically related to ensuring accuracy. The committee plans to continue to work on additional contact center issues and to help agencies implement any contact center standards that OMB might endorse. In October 2005, OMB officials stated that they had reviewed the committee's report but did not plan to issue any governmentwide guidance based on the committee's recommended guidelines at this time, because OMB has not identified the operation of contact centers as an area of concern. OMB stated further that if agencies need additional guidance in developing their standards, they can refer to the committee's report. The agencies we reviewed each performed independent research to develop their contracts and formulate a management strategy for operating their contact centers. Performing independent research resulted in duplication of efforts across agencies, using limited resources and taking valuable time. For example, to develop guidance, the Department of Education performed market research, worked with a contractor on customer services and related standards, and studied industry best practices on a limited basis. Similarly, CDC sent out a request for information to industry to gain insight on the technology available for operating contact centers before it developed its contract. CDC then performed market research, reviewed industry practices, and visited other government contact centers, such as that of the Social Security Administration and the Centers for Medicare and Medicaid Services, to learn about the practices of government- and contractor-operated centers. In 2004, GSA created a multiple-award contract called FirstContact to assist agencies in contracting for contact center services. Under this multiple-award contract, agencies can issue a task order to any of five preapproved contractors to operate a contact center. Using FirstContact will minimize the time and effort required of agencies to locate a contractor to manage their centers. To date, the Department of Homeland Security's Federal Emergency Management Agency, GSA, and the Department of Health and Human Services have placed six task orders against this contract, and three other agencies are looking to place orders as well. For example, the Federal Emergency Management Agency recently used this contract vehicle to quickly provide contact center services for the influx of calls and applications for government assistance in the aftermath of Hurricane Katrina. Although agencies now have this multiple-award contract as a mechanism to assist them in contracting for contact center service, they still must develop specific performance metrics and oversight practices specific to their center. Given the lack of governmentwide information on the activities that provide information to the public, OMB made an initial attempt to collect such data in 2004. For this effort, OMB issued a data request to all executive branch agencies to obtain basic data, such as the contact center name, volume of contacts, and whether performance and cost metrics are collected, for every activity that provides information directly to the public. OMB normally uses data requests as a census tool to acquire a snapshot of the current budget environment of the government. Agencies responded by self-identifying over 1,800 activities that currently provide information to citizens using various communication channels such as telephone, e-mail, and Internet Web sites. The individual activities identified ranged in size from a couple of employees who answer telephone calls as part of their duties to contact centers with staffs of several hundred employees who handle millions of inquiries through several channels. Of the 1,800 activities identified, over 500 categorized themselves as contact centers. Since it was making a nonstandard data request, OMB performed little follow-up on nonresponding agencies and did not verify reported results. We noted that some large agencies, such as DOD, did not report any activities that provide information to the public. In an effort to expand on the information collected through the OMB data request, GSA surveyed 360 activities--approximately a quarter of those who responded to the data request--to develop a baseline snapshot of governmentwide activities providing information to the public. However, GSA's survey methodology was flawed because the agency selected its sample from an incomplete universe, had a low survey response rate, and did not perform a nonresponder analysis. Thus, the survey results did not provide a representative view of activities across the government. GSA plans to conduct a follow-up survey of government activities in 2007. While OMB and GSA information regarding the universe of federal contact centers is incomplete, another potential source of information on those contact centers that are contracted out by the government is the FPDS. Since its inception in 1978, the FPDS has served as the governmentwide system for collecting federal procurement data. Five of the six agencies we reviewed, however, each used a different code to report their contact center procurement actions to FPDS. Officials from agencies we reviewed told us that no current North American Industry Classification System (NAICS) code covers the full range of services provided by a contact center. Table 5 lists the NAICS codes used by the five agencies reporting data to FPDS. The five agencies that reported to FPDS chose different NAICS codes for different reasons. Officials from DOL and GSA stated that they chose alternative NAICS codes because the definition provided for telephone call center does not cover all of the activities handled in a contact center. Education and DOD-TMA officials explained that they chose NAICS codes that encompassed the main work of the contract, since the contact center is only a portion of the work in a contract for a larger program. CDC chose its NAICS code based upon the information technology services required for creating its contact center. No governmentwide procurement information was reported to FPDS using the NAICS codes for telephone call centers in fiscal years 2000 through 2004. This category of NAICS codes--56142--is defined as establishments primarily engaged in answering telephone calls and relaying messages or in telemarketing activities. Although officials from three of the agencies we reviewed expressed the opinion that the definition for telephone call centers is too narrow to encompass all the work performed by a contact center, OMB told us that the telephone call center code is the correct code to use. Specifically, OMB stated that the subcode of 561422-- telemarketing bureaus--was written with the intent to cover all the functions of a contact center. OMB is considering issuing a clarification to the description of the 56142 codes to explain that these codes include more than telephones--such as Web sites, e-mails, facsimiles, and so forth--in its next update to the NAICS manual in 2012. Providing timely and accurate information is a key result area for the federal government. Federal agencies that use contractor-operated contact centers to meet the public's demand for information assume the burden of assuring that the information provided by the contractors is accurate. While the agencies we reviewed have taken a variety of steps to ensure that their contractor-operated contact centers address accuracy, at some agencies accuracy clearly does not have the same priority as other objectives, such as timeliness. Although agencies need flexibility in meeting the needs of the individuals that contact them, they also can benefit from the experience gained by their peers operating other government contact centers. Short of mandating specific guidance, increased sharing among agencies of successful practices for managing contact centers may help improve their abilities to write and oversee contracts for these centers and may avoid needless duplication of effort. The guidelines proposed by the Citizen Service Levels Interagency Committee are a step in this direction. However, whether this effort will result in information sharing across agencies is uncertain. Leveraging knowledge gained by other agencies through the sharing of effective practices could be enhanced by governmentwide leadership. OMB's leadership of the electronic government initiative, its role in guiding agency dissemination of public information, as well as its procurement policy role, put it in an ideal position to facilitate the exchange of information among agencies to ensure effective oversight of contractors in meeting the public's need for timely and accurate information. While OMB and GSA have taken initial steps to enhance the oversight of federal contact centers by gathering some information on the universe of these centers, it is not clear whether the data collected provide enough information for governmentwide oversight of contact center operations or whether GSA's planned data collection efforts will do so either. With additional reliable information, OMB may be able to more quickly identify and act on emerging problems and opportunities. In addition, FPDS can also be more effective in identifying the number of contracts and dollars obligated for contact centers across the government, but only if the agencies consistently use the appropriate NAICS code for these services. To facilitate the sharing of sound oversight practices for the operation of contact centers, to help ensure that providing accurate information to the public by contact centers is a priority outcome, and to improve the quality of information gathered about these centers, we recommend that the Director of the Office of Management and Budget take the following actions: Building on efforts begun by the GSA-sponsored interagency committee, work with agencies to develop a mechanism for sharing performance metrics and oversight practices for contact centers. Continued efforts should stress that providing accurate information to the public needs to be a key factor in the oversight of federal contact centers. Take steps to ensure consistent reporting on contact centers by developing an industry category or specific code definition in NAICS that encompasses all the services provided by contact centers or by providing further instruction to agencies regarding the appropriate NAICS code to use for contact centers. To improve the quality of information about federal contact centers, we recommend that the Administrator of General Services take the following action: Ensure that further efforts to develop governmentwide data on contact center operations--such as the survey planned for next year--employ sound methodologies to ensure that the resulting information is representative of the activities across the government. We requested comments on a draft of this report from the Office of Management and Budget and each of the six agencies we reviewed-- Department of Defense, Department of Education, Department of Health and Human Services, Department of Labor, General Services Administration, and U.S. Postal Service. The Office of Management and Budget provided oral comments in which they concurred with our findings and recommendations. The Department of Defense, Department of Health and Human Services, and the General Services Administration provided written comments that are reproduced in appendices III, IV, and V, respectively. OMB and most of the agencies also provided technical comments, which we incorporated as appropriate. The Department of Health and Human Services and the General Services Administration also concurred with our findings and recommendations. The Department of Defense did not concur with our draft report because it believes the report does not fully reflect all the metrics and practices DOD and its contractor use to ensure the accuracy of information provided to TRICARE beneficiaries. In its comments, DOD emphasizes that its approach to contracting for contact center operations relies on the contractor to use industry standards for ensuring information accuracy. DOD states that standards exist in its contract related to the accuracy of information provided by telephone. DOD also cites additional metrics it uses for monitoring contractor performance. In addition, DOD requires the contractor to have a quality management program which must be validated by a nationally recognized third-party organization. DOD points out that it receives monthly briefings on the operation of the contractor's quality management program and observes call center operations during site visits. Finally, DOD explained that it monitors the expertise and skills of the contractor staff that perform the knowledge management function. We recognize that DOD has decided to use what it calls the "audit the auditor" approach to quality assurance. It was not our objective, however, to assess the merits of any particular approach to ensuring quality, but rather to determine the extent to which contract terms and agency oversight practices emphasize the importance of providing accurate information to the public. In this regard, while the contractor may use specific standards for accuracy in its quality management program, we found no specific metric related to accuracy in the TRICARE contact center contract itself or in the additional metrics cited in DOD's comments. For the most part, the additional quality control activities listed by the Department are those of its contractor, not oversight activities performed by the agency, which was the focus of our review. While independent validation of the contractor's quality control program helps to ensure the contractor has a quality process in place for monitoring its responses to the public, this does not substitute for DOD oversight activities such as validating the contractor's reports of its monitoring efforts. In addition, while DOD performs site visits to oversee the contractor's operations, it does so only on an ad hoc basis. Based on DOD's comments, we added additional language to the report regarding DOD's approach to knowledge management. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this report. We will then send copies of this report to the Director of the Office of Management and Budget, the Administrator of General Services, the Postmaster General, and the Secretaries of the Department of Defense, Department of Education, Department of Health and Human Services, and Department of Labor. We will also make copies available to others upon request. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. This report is available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions about this report, please call me at (202) 512-4841. An additional GAO contact and staff who made contributions to this report are listed in appendix VI. To assess the guidance provided to federal agencies and the information gathered by the federal government about contact centers, we conducted interviews with Office of Management and Budget (OMB) and General Services Administration (GSA) officials, and reviewed related guidance and results of their initial data collection efforts. We researched and discussed with OMB the absence of guidance related to the operation and oversight of contact centers. We also discussed the results of OMB's 2004 request for information to federal agencies that asked for self- identification of any activities that provide information to the public. In addition, we reviewed and discussed the results of GSA's survey of a sample of agency activities that responded to OMB's request. We did not assess the validity of the data gathered by OMB and GSA. However, a GAO methodologist reviewed the GSA survey methodology and identified its weaknesses. In addition, we monitored the progress of the GSA-sponsored working group--the Citizen Service Levels Interagency Committee--as it developed and recommended standards to OMB for federal contact centers. We did not assess the committee's recommendations as a whole, but rather reviewed how accuracy of information was addressed within its proposed standards. We reviewed data from the Federal Procurement Data System for the past 5 fiscal years to determine if any contract actions were reported using the code for telephone call center services. To describe federal agencies' efforts to ensure accurate information is provided to the public by contractor-operated centers, we reviewed the contract terms and oversight activities for one center at each of six agencies. We selected centers that handle over 1 million inquiries annually and provide information to citizens that could significantly affect their finances, health, or safety. The contact centers selected for our review are Department of Defense TriCare Management Activity (TMA) North region--Healthnet's contact center: provides general and personalized medical benefit and coverage information and processes enrollments and claims for military families in the North region; Department of Education (Education)--Federal Student Aid Information Center: provides general information about applications and loan issues and personalized information on the status of applications and loans to the public and academic community; Department of Health and Human Services' Centers for Disease Control and Prevention (CDC)--CDC INFO contact center: provides information about health and safety issues--including prevention, detection, and outbreak control--to the public and medical professionals; Department of Labor (DOL)--National Contact Center: provides general information and referrals regarding job issues, workplace safety, and pension and health benefits to the public and employers; General Services Administration--National Contact Center: provides general information and referrals related to any agency or government program; and U.S. Postal Service (USPS)--National Contact Center: provides general and individualized information on mail delivery and shipping issues to the public and businesses. To complete our review, we interviewed management and staff responsible for oversight of the contractor-operated contact center at each agency. We reviewed the performance metrics specified in the agency's contract as well as the related reports used to oversee and evaluate the contractors' operation of the contact centers. In addition to conducting discussions with the agencies, we visited four contractor-operated centers to observe their operations and quality control procedures. Specifically, we visited locations for the GSA center operated by ICT Group, CDC and Education centers operated by Pearson Government Solutions, and the DOL center operated by Datatrac Information Services. At each center we interviewed management and customer service representatives regarding the oversight practices used to monitor the accuracy of information. We did not test the contractors' internal control procedures or validate any data from their sample reports. We identified industry practices for ensuring the accuracy of information provided by contact centers, interviewed representatives from two major contact center industry groups--the Society of Consumer Affairs Professionals and the Incoming Calls Management Institute--and attended the 2005 Government Customer Support Conference. In addition, we reviewed prior GAO reports concerning contact centers. We also discussed contact center issues with other GAO teams that were currently reviewing or had recently reviewed other federal contact centers. Our work was conducted from February through November 2005 in accordance with generally accepted government auditing standards. Medical benefits and coverage issues, enrollment, and claims processing Daily 7:00 a.m. to 7:00 p.m. (eastern time) Languages supported (beyond English) Fiscal year 2005 call volume from February to September 2005 (estimated at 2.7 million calls when fully operational) Total value of contract at award (in millions of dollars) (the contact center is only a portion of this contract) Monday-Friday 8:00 a.m. to midnight; Saturday 9:00 a.m. to 6:00 p.m. (eastern) Monday-Friday 8:00 a.m. to 8:00 p.m. (eastern) Monday-Friday 8:00 a.m. to 8:30 p.m.; Saturday 8:00 a.m. to 6:00 p.m. (eastern time) 1-year base plus 9 1-year options 1-year base plus 4 1-year options 4-year base plus 6 1-year options $254.6 (for 4-year base only) (the contact center is only a portion of this contract) Firm fixed price plus award fee3 DOL provides service 24 hours a day for the Occupational Safety and Health Administration toll-free number and provided service 24 hours a day during hurricane relief efforts; Education extends its hours during student aid application season; GSA provides service 24 hours a day under emergency situations. The CDC contact center is in its second year of operation and is consolidating the work for 40 different toll-free numbers over a total period of 4 years. The contact center is a portion of a larger service contract. The value shown here is for the entire contract, as the agency could not provide a breakdown of the cost for the contact center alone. In addition to the contact named above, Ruth Eli DeVan, William McPhail, Jean Lee, David Schilling, Nyankor Matthews, Robert Swierczek, John Krump, Monica Wolford, and Karen O'Conor made key contributions to this report. Improvements Needed to the Federal Procurement Data System-Next Generation. GAO-05-960R. Washington, D.C.: September 27, 2005. Social Security Administration: Additional Actions Needed in Ongoing Efforts to Improve 800-Number Service. GAO-05-735. Washington, D.C.: August 8, 2005. Immigration Services: Better Contracting Practices Needed at Call Centers. GAO-05-526. Washington, D.C.: June 30, 2005. Federal Thrift Savings Plan: Customer Service Practices Adopted by Private Sector Plan Managers Should be Considered. GAO-05-38. Washington, D.C.: January 18, 2005. Medicare: Accuracy of Responses from the 1-800-MEDICARE Help Line Should Be Improved. GAO-05-130. Washington, D.C.: December 8, 2004. Medicare: Call Centers Need to Improve Responses to Policy-Oriented Questions from Providers. GAO-04-669. Washington, D.C.: July 16, 2004. Reliability of Federal Procurement Data, GAO-04-295R. Washington, D.C.: December 30, 2003. Medicare: Communications with Physicians Can Be Improved. GAO-02-249. Washington, D.C.: February 27, 2002. IRS Telephone Assistance: Limited Progress and Missed Opportunities to Analyze Performance in the 2001 Filing Season. GAO-02-212. Washington, D.C.: December 7, 2001. IRS Telephone Assistance: Quality of Service Mixed in the 2000 Filing Season and below IRS' Long-Term Goal. GAO-01-189. Washington, D.C.: April 6, 2001. IRS Telephone Assistance: Opportunities to Improve Human Capital Management. GAO-01-144. Washington, D.C.: January 30, 2001. Customer Service: Human Capital Management at Selected Public and Private Call Centers. GAO/GGD-00-161. Washington, D.C.: August 22, 2000. Social Security Administration: Information on Monitoring 800 Number Telephone Calls. GAO/HEHS-98-56R. Washington, D.C.: December 8, 1997. Social Security Administration: More Cost-Effective Approaches Exist to Further Improve 800-Number Service. GAO/HEHS-97-79. Washington, D.C.: June 11, 1997. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Federal agencies have increasingly relied on contact centers--centers handling inquiries via multiple channels such as telephone, Web page, e-mail, and postal mail--as a key means of communicating with the public. Many of these centers are contractor-operated. Concerns exist about the accuracy of responses provided through contractor-operated centers. This report examines (1) the extent to which the contract terms and oversight practices for contact centers at selected agencies emphasize the importance of providing accurate information to the public, and (2) whether guidance for the operation of contact centers and basic information needed to provide general oversight exist. GAO reviewed one contractor-operated contact center at each of six agencies: the Centers for Disease Control and Prevention (CDC), General Services Administration (GSA), U.S. Postal Service (USPS), and the Departments of Defense, Labor, and Education (DOD, DOL, and Education). The contracts and oversight practices for the contact centers of the six agencies reviewed, which handle millions of inquiries annually, varied significantly regarding the emphasis they placed on providing accurate information to the public. Although federal policy for disseminating information to the public specifically emphasizes accuracy, only four of the six agencies include accuracy as a performance metric in their contracts. With respect to oversight, only two of the six agencies used all four of the accuracy-related oversight practices we identified--regular knowledge database reviews, regular contact monitoring, postcontact customer satisfaction surveys, and validation of contractor reports. Although each agency used some form of oversight to assess the accuracy of the information provided by its contact center, each agency differed regarding how it implemented these practices. There is no governmentwide guidance or standards for operating contact centers--including guidance on specifying accuracy as a contract performance metric or as a key focus for oversight. Some agencies indicated that had federal guidance been available, it would have helped them establish performance indicators and develop oversight policies and practices. Recognizing the need for operational standards for contact centers, an interagency working group recently proposed draft guidelines to OMB and other federal agencies, but OMB has no plans to issue these guidelines or any standards for use by agencies. Additionally, until recently the federal government had not collected data on the universe of federal contact centers. OMB and GSA attempted to collect data on the number, types, and costs of federal contact centers in 2004, but the data collected were incomplete. In addition, no governmentwide procurement information was reported to the Federal Procurement Data System (FPDS) in fiscal years 2000 through 2004 using the reporting code for telephone call centers, which OMB said is the appropriate code for contact centers. The five agencies we reviewed that report data to FPDS used a variety of different codes, some because they believe that the telephone call center code is too narrow to cover the services of their multichannel contact centers.
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Our work has identified several challenges related to U.S. efforts in Afghanistan. Among those we highlighted in our 2013 key issues report are a dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor funded projects. Dangerous security environment. Afghanistan's security environment continues to challenge the efforts of the Afghan government and international community. This is a key issue that we noted in 2007 when we reported that deteriorating security was an obstacle to the U.S. government's major areas of focus in Afghanistan.2009, the U.S. and coalition partners deployed additional troops to disrupt and defeat extremists in Afghanistan. While the security situation in Afghanistan has improved, as measured by enemy- In December initiated attacks on U.S. and coalition forces, Afghan security forces, and non-combatants, including Afghan civilians, the number of daily enemy-initiated attacks remains relatively high compared to the number of such attacks before 2009. In 2012, attacks on ANSF surpassed attacks on U.S. and coalition forces (see fig. 2). Prevalence of corruption in Afghanistan. Corruption in Afghanistan continues to undermine security and Afghan citizens' belief in their government and has raised concerns about the effective and efficient use of U.S. funds. We noted in 2009 that according to the Afghan National Development Strategy pervasive corruption exacerbated the Afghan government's capacity problems and that the sudden influx of donor money into a system already suffering from poor procurement practices had increased the risk of corruption and waste of resources. According to Transparency International's 2013 Corruption Perception Index, Afghanistan is ranked at the bottom of countries worldwide. In February 2014, the Afghan President dissolved the Afghan Public Protection Force which was responsible for providing security intended to protect people, infrastructure, facilities, and construction projects. DOD had reported major corruption concerns within the Afghan Public Protection Force. Limited Afghan capacity. While we have reported that the Afghan government has increased its generation of revenue, it remains heavily reliant on the United States and other international donors to fund its public expenditures and continued reconstruction efforts. In 2011, we reported that Afghanistan's domestic revenues funded only about 10 percent of its estimated total public expenditures. We have repeatedly raised concerns about Afghanistan's inability to sustain and maintain donor funded projects and programs, putting U.S. investments over the last decade at risk. DOD reported in November 2013 that Afghanistan remains donor dependent. These persistent challenges are likely to play an even larger role in U.S. efforts within Afghanistan as combat forces continue to withdraw through the end of 2014. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan's infrastructure and economy, and developing and sustaining ANSF. In multiple reviews of these efforts, we have identified numerous shortcomings and have made recommendations to the agencies to take corrective actions related to (1) mitigating against the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of ANSF. In 2010, the United States pledged to provide at least 50 percent of its development aid directly through the Afghan government budget within 2 years. This direct assistance was intended to help develop the capacity of Afghan government ministries to manage programs and funds. In the first year of the pledge, through bilateral agreements and multilateral trust funds, the United States more than tripled its direct assistance awards to Afghanistan, growing from over $470 million in fiscal year 2009 to over $1.4 billion in fiscal year 2010. For fiscal year 2013 USAID provided about $900 million of its Afghanistan mission funds in direct assistance. In 2011 and 2013, we reported that while USAID had established and generally complied with various financial and other controls in its direct assistance agreements, it had not always assessed the risks in providing direct assistance before awarding funds. Although USAID has taken some steps in response to our recommendations to help ensure the accountability of direct assistance funds provided to the Afghan government, we have subsequently learned from a Special Inspector General for Afghanistan Reconstruction (SIGAR) report that USAID may have approved direct assistance to some Afghan ministries without mitigating all identified risks. Since 2002, U.S. agencies have allocated over $23 billion dollars towards governance and development projects in Afghanistan through USAID, DOD, and State. The agencies have undertaken thousands of development activities in Afghanistan through multiple programs and funding accounts. We have previously reported on systemic weaknesses in the monitoring and evaluation of U.S. development projects as well as the need for a comprehensive shared database that would account for all U.S. development efforts in Afghanistan (see table 1). With respect to monitoring and evaluation, although USAID collected progress reports from implementing partners for agriculture and water projects, our past work found that it did not always analyze and interpret project performance data to inform future decisions. USAID has undertaken some efforts in response to our recommendations to improve its monitoring and evaluation of the billions of dollars invested toward development projects in Afghanistan. We and other oversight agencies, however, have learned that USAID continued to apply performance management procedures inconsistently, fell short in maintaining institutional knowledge, and still needed to strengthen its oversight of contractors. For example, in February 2014, we reported that USAID identified improvements needed in its oversight and management of contractors in Afghanistan, including increasing the submission of contractor performance evaluations. We also found that USAID may have missed opportunities to leverage its institutional knowledge, and have recently recommended that USAID further assess its procedures and practices related to contingency contracting. GAO, Afghanistan Reconstruction: Progress Made in Constructing Roads, but Assessments for Determining Impact and a Sustainable Maintenance Program Are Needed, GAO-08-689 (Washington, D.C.: July 8, 2008). comprehensive database of U.S. development projects in Afghanistan in 2012, we suggested that Congress consider requiring U.S. agencies to report information in a shared comprehensive database. Since 2002, the United States, with assistance from coalition nations, has worked to build, train, and equip ANSF so that the Afghan government could lead the security effort in Afghanistan. U.S. agencies have allocated over $62 billion to support Afghanistan's security, including efforts to build and sustain ANSF, from fiscal years 2002 through 2013. This has been the largest portion of U.S. assistance in Afghanistan. The United States and the international community have pledged to continue to assist in financing the sustainment of ANSF beyond 2014. In April 2012, we reported concerns regarding the need to be transparent in disclosing the long-term cost of sustaining ANSF beyond 2014. DOD initially objected to such disclosure noting that ANSF cost estimates depend on a constantly changing operational environment and that it provided annual cost information to Congress through briefings and testimonies. Our analysis of DOD data estimates that the cost of continuing to support ANSF from 2014 through 2017 will be over $18 billion, raising concerns about ANSF's sustainability. Furthermore, we reported that on the basis of projections of U.S. and other donor support for ANSF, that there will be an estimated gap each year of $600 million from 2015 through 2017 between ANSF costs and donor pledges if additional contributions are not made. We previously noted in 2005 and 2008 that DOD should report to Congress about the estimated long-term cost to sustain ANSF.Congress mandated that DOD take such steps. In 2012, we once again In 2008, reported that DOD had not provided estimates of the long-term ANSF costs to Congress. Subsequently, in a November 2013 report to Congress on its efforts in Afghanistan, DOD included a section on the budget for ANSF and reported the expected size of ANSF to be 230,000 with an estimated annual budget of $4.1 billion. In February 2013, we reported that while the circumstances in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military to civilian-led presence to avoid possible missteps and better utilize resources. As we have reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan.particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and post-2014 presence. While the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons can be learned from the transition from a military to civilian-led presence in Iraq and applied to Afghanistan to avoid possible missteps and better utilize resources. In Iraq, State and DOD had to revise their plans for the U.S. presence from more than 16,000 personnel at 14 sites down to 11,500 personnel at 11 sites after the transition had begun--in part because the United States did not obtain the Government of Iraq's commitment to the planned U.S. presence. Given these reductions, we found that State was projected to have an unobligated balance of between about $1.7 billion and about $2.3 billion in its Iraq operations budget at the end of fiscal year 2013, which we brought to the attention of Congressional appropriators. As a result, $1.1 billion was rescinded from State's Diplomatic and Consular Programs account. According to DOD officials, U.S. Forces-Iraq planning assumed that a follow-on U.S. military force would be approved by both governments. The decision not to have a follow-on force led to a reassessment of State and DOD's plans and presence. In April 2014, we reported that State planned for the U.S. footprint in Afghanistan to consist of the U.S. Embassy in Kabul, with additional representation at other locations as security and resources allow. In a review still under way, we are examining the status of U.S. civilian agencies' plans for their presence in Afghanistan after the scheduled end of the U.S. combat mission on December 31, 2014, and how changes to the military presence will affect the post-2014 U.S. civilian presence. We have found that State plans to provide some critical support services to U.S. civilian personnel after the transition, but is planning to rely on DOD for certain other services. We plan to report in July 2014 on the anticipated size, locations, and cost of the post-2014 U.S. civilian presence, the planned division of critical support responsibilities between State and DOD, and how pending decisions regarding the post-2014 U.S. and coalition military presence will affect the U.S. civilian presence. In closing, the President announced in May 2014 that the United States intends to maintain a military presence in Afghanistan through the end of 2016, stationing about 10,000 military personnel in Afghanistan with two narrow missions: to continue supporting ANSF training efforts and to continue supporting counterterrorism operations against the remnants of al Qaeda. Simultaneously, the President announced that the embassy would be reduced to a "normal" presence. At the same time, the United States has made commitments to continue providing billions of dollars to Afghanistan over the next 2 years. These recently announced plans underscore the bottom line of my message today: continued oversight of U.S. agencies is required to ensure the challenges they face are properly mitigated in Afghanistan and that there is oversight and accountability of U.S. taxpayer funds. Chairman Ros-Lehtinen, Ranking Member Deutch, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information on this statement, please contact me at (202) 512- 7331 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Hynek Kalkus (Assistant Director), David Dayton, Anne DeCecco, Mark Dowling, Brandon Hunt, Christopher J. Mulkins, Kendal Robinson, and Amie Steele. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The U.S. government has engaged in multiple efforts in Afghanistan since declaring a global war on terrorism that targeted al Qaeda, its affiliates, and other violent extremists, including certain elements of the Taliban. These efforts have focused on a whole-of-government approach that calls for the use of all elements of U.S. national power to disrupt, dismantle, and defeat al Qaeda and its affiliates and prevent their return to Afghanistan. This approach, in addition to security assistance, provided billions toward governance and development, diplomatic operations, and humanitarian assistance. To assist Congress in its oversight, GAO has issued over 70 products since 2003 including key oversight issues related to U.S. efforts in Afghanistan. This testimony summarizes the key findings from those products and discusses: (1) the challenges associated with operating in Afghanistan, (2) key oversight and accountability issues regarding U.S. efforts in Afghanistan, and (3) the need for contingency planning as the U.S. transitions to a civilian-led presence in Afghanistan. Since 2003, GAO has identified numerous challenges related to U.S. efforts in Afghanistan. Among the various challenges that GAO and others have identified, are the following: the dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor-funded projects. As illustrated in the figure below, between fiscal years 2002 and 2013, U.S. agencies allocated nearly $100 billion toward U.S. efforts in Afghanistan. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan's infrastructure and economy, and developing and sustaining the Afghan National Security Forces. In multiple reviews of these efforts, GAO has identified numerous shortcomings and has made recommendations to the agencies to take corrective actions related to (1) mitigating the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of sustaining Afghanistan's security forces which the United States and international community have pledged to support. In February 2013, GAO reported that while the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military- to a civilian-led presence to avoid possible missteps and better utilize resources. As GAO has reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan. This is particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and the ultimate size of the post-2014 U.S. presence in Afghanistan. While GAO is not making new recommendations it has made numerous recommendations in prior reports aimed at improving U.S. agencies' oversight and accountability of U.S. funds in Afghanistan. U.S. agencies have generally concurred with these recommendations and have taken or plan to take steps to address them.
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NRC is an independent agency of over 3,200 employees established by the Energy Reorganization Act of 1974 to regulate civilian--that is, commercial, industrial, academic, and medical--use of nuclear materials. NRC is headed by a five-member Commission. The President appoints the Commission members, who are confirmed by the Senate, and designates one of them to serve as Chairman and official spokesperson. The Commission as a whole formulates policies and regulations governing nuclear reactor and materials safety, issues orders to licensees, and adjudicates legal matters brought before it. NRC and the licensees of nuclear power plants share the responsibility for ensuring that commercial nuclear power reactors are operated safely. NRC is responsible for issuing regulations, licensing and inspecting plants, and requiring action, as necessary, to protect public health and safety. Plant licensees have the primary responsibility for safely operating their plants in accordance with their licenses and NRC regulations. NRC has the authority to take actions, up to and including shutting down a plant, if licensing conditions are not being met and the plant poses an undue risk to public health and safety. Nuclear power plants have many physical structures, systems, and components, and licensees have numerous activities under way, 24-hours a day, to ensure that plants operate safely. NRC relies on, among other things, its on-site resident inspectors to assess plant conditions and the licensees' quality assurance programs such as those required for maintenance and problem identification and resolution. With its current resources, NRC can inspect only a relatively small sample of the numerous activities going on during complex plant operations. According to NRC, its focus on the more safety significant activities is made possible by the fact that safety performance at plants has improved as a result of more than 25 years of operating experience. Commercial nuclear power plants are designed according to a "defense in depth" philosophy revolving around redundant, diverse, and reliable safety systems. For example, two or more key components are put in place so that if one fails, there is another to back it up. Plants have numerous built- in sensors to monitor important indicators such as water temperature and pressure. Plants also have physical barriers to contain the radiation and provide emergency protection. For example, the nuclear fuel is contained in a ceramic pellet to lock in the radioactive byproducts and then the fuel pellets are sealed inside rods made of special material designed to contain fission products, and the fuel rods are placed in reactors housed in containment buildings made of several feet of concrete and steel. Furthermore, the nuclear power industry formed an organization, the Institute of Nuclear Power Operations (INPO) with the mission to "promote the highest levels of safety and reliability-to promote excellence- in the operation of nuclear electric generating plants." INPO provides a system of personnel training and qualification for all key positions at nuclear power plants and workers undergo both periodic training and assessment. INPO also conducts periodic evaluations of operating nuclear plants, focusing on plant safety and reliability, in the areas of operations, maintenance, engineering, radiological protection, chemistry, and training. Licensees make these evaluations available to the NRC for review, and the NRC staff uses the evaluations as a means to determine whether its oversight process has missed any performance issues. NRC uses various tools to oversee the safe operation of nuclear power plants, generally consisting of physical plant inspections of equipment and records and objective indicators of plant performance. These tools are risk-informed in that they are focused on the issues considered most important to plant safety. Based on the results of the information it collects through these efforts, NRC takes a graded approach to its oversight, increasing the level of regulatory attention to plants based on the severity of identified performance issues. NRC bases its regulatory oversight process on the principle and requirement that plant licensees routinely identify and address performance issues without NRC's direct involvement. An important aspect of NRC's inspections is ensuring the effectiveness of licensee quality assurance programs. NRC assesses overall plant performance and communicates these results to licensees on a semi- annual basis. During fiscal year 2005, NRC inspectors spent a total of 411,490 hours on plant inspection activities (an average of 77 hours per week at each plant). The majority of these inspection efforts were spent on baseline inspections, which all plants receive on an almost continuous basis. Baseline inspections, which are mostly conducted by the two to three NRC inspectors located at each nuclear power plant site, evaluate the safety performance of plant operations and review plant effectiveness at identifying and resolving its safety problems. There are more than 30 baseline inspection procedures, conducted at varying intervals, ranging from quarterly to triennially, and involving both physical observation of plant activities and reviews of plant reports and data. The inspection procedures are risk-informed to focus inspectors' efforts on the most important areas of plant safety in four ways: 1) areas of inspection are included in the set of baseline procedures based on, in part, their risk importance, 2) risk information is used to help determine the frequency and scope of inspections, 3) the selection of activities to inspect within each procedure is informed with plant-specific risk information, and 4) the inspectors are trained in the use of risk information in planning their inspections. For inspection findings found to be more than minor, NRC uses its significance determination process (SDP) to assign each finding one of four colors to reflect its risk significance. Green findings equate to very low risk significance, while white, yellow, and red colors represent increasing levels of risk, respectively. Throughout its application of the SDP, NRC incorporates information from the licensee, and the licensee has the opportunity to formally appeal the final determination that is made. In addition to assigning each finding a color based on its risk significance, all findings are evaluated to determine if certain aspects of plant performance, referred to as cross-cutting issues, were a contributing cause to the performance problem. The cross-cutting issues are comprised of (1) problem identification and resolution, (2) human performance, and (3) safety consciousness in the work environment. To illustrate, in analyzing the failure of a valve to operate properly, NRC inspectors determined that the plant licensee had not followed the correct procedures when performing maintenance on the valve, and thus NRC concluded the finding was associated with the human performance cross-cutting area. If NRC determines that there are multiple findings during the 12-month assessment period with documented cross-cutting aspects, more than three findings with the same causal theme, and NRC has a concern about the licensee's progress in addressing these areas, it may determine that the licensee has a "substantive" cross-cutting issue. Opening a substantive cross-cutting issue serves as a way for NRC to notify the plant licensee that problems have been identified in one of the areas and that NRC will focus its inspection efforts in the cross-cutting area of concern. When NRC becomes aware of one or more performance problems at a plant that are assigned a risk color greater-than-green (white, yellow, or red), it conducts supplemental inspections. Supplemental inspections, which are performed by regional staff, expand the scope beyond baseline inspection procedures and are designed to focus on diagnosing the cause of the specific performance deficiency. NRC increases the scope of its supplemental inspection procedures based on the number of greater-than- green findings identified, the area where the performance problem was identified, and the risk color assigned. For example, if one white finding is identified, NRC conducts a follow-up inspection directed at assessing the licensee's corrective actions to ensure they were sufficient in both correcting the specific problem identified and identifying and addressing the root and contributing causes to prevent recurrence of a similar problem. If multiple yellow findings or a single red finding is identified, NRC conducts a much more comprehensive inspection which includes obtaining information to determine whether continued operation of the plant is acceptable and whether additional regulatory actions are necessary to address declining plant performance. This type of more extensive inspection is usually conducted by a multi-disciplinary team of NRC inspectors and may take place over a period of several months. NRC inspectors assess the adequacy of the licensee's programs and processes such as those for identifying, evaluating, and correcting performance issues and the overall root and contributing causes of identified performance deficiencies. NRC conducts special inspections when specific events occur at plants that are of particular interest to NRC because of their potential safety significance. Special inspections are conducted to determine the cause of the event and assess the licensee's response. For special inspections, a team of experts is formed and an inspection charter issued that describes the scope of the inspection efforts. At one plant we reviewed, for example, a special inspection was conducted to investigate the circumstances surrounding the discovery of leakage from a spent fuel storage pool. Among the objectives of this inspection were to assess the adequacy of the plant licensee's determination of the source and cause of the leak, the risk significance of the leakage, and the proposed strategies to mitigate leakage that had already occurred and repair the problem to prevent further leakage. In addition to its various inspections, NRC also collects plant performance information through a performance indicator program, which it maintains in cooperation with the nuclear power industry. On a quarterly basis, each plant submits data for 15 separate performance indicators. These objective numeric measures of plant operations are designed to measure plant performance related to safety in various aspects of plant operations. For example, one indicator measures the number of unplanned reactor shutdowns during the previous four quarters while another measures the capability of alert and notification system sirens, which notify residents living near the plant in the event of an accident. Working with the nuclear power industry, NRC established specific criteria for acceptable performance with thresholds set and assigned colors to reflect increasing risk according to established safety margins for each of the indicators. Green indicators reflect performance within the acceptable range while white, yellow, and red colors represent decreasing plant performance, respectively. NRC inspectors review and verify the data submitted for each performance indicator annually through the baseline inspection process. If questions arise about how to calculate a particular indicator or what the correct value should be, there is a formal feedback process in place to resolve the issue. When performance indicator thresholds are exceeded, NRC responds in a graded fashion by performing supplemental inspections that range in scope depending on the significance of the performance issue. Under the ROP, NRC places each plant into a performance category on the agency's action matrix, which corresponds to increasing levels of oversight based on the number and risk significance of inspection findings and performance indicators. The action matrix is NRC's formal method of determining what additional oversight procedures--mostly supplemental inspections--are required. Greater-than-green inspection findings are included in the action matrix for a minimum of four quarters to allow sufficient time for additional findings to accumulate that may indicate more pervasive performance problems requiring additional NRC oversight. If a licensee fails to correct the performance problems within the initial four quarters, the finding may be held open and considered for additional oversight for more than the minimum four quarters. At the end of each 6-month period, NRC issues an assessment letter to each plant licensee. This letter describes what level of oversight the plant will receive according to its placement in the action matrix performance categories, what actions NRC is expecting the plant licensee to take as a result of the performance issues identified, and any documented substantive cross-cutting issues. NRC also holds an annual public meeting at or near each plant site to review performance and address questions about the plant's performance from members of the public and other interested stakeholders. Most inspection reports, assessment letters and other materials related to NRC's oversight processes are made publicly available through a NRC website devoted to the ROP. The website also includes plant-specific quarterly summaries of green or greater inspection findings and all the performance indicators. The ROP has identified numerous performance deficiencies as inspection findings at nuclear power plants since it was first implemented, but most of these were considered to be of very low risk to safe plant operations. Similarly, there have been very few instances in which performance indicator data exceeded acceptable standards. As a result, few plants have been subjected to high levels of oversight. Of more than 4,000 inspection findings identified between 2001 and 2005, 97 percent were green. While green findings are considered to be of "very low" safety significance, they represent a performance deficiency on the part of the plant licensee and thus are important to correct. Green findings consist of such things as finding that a worker failed to wear the proper radiation detector or finding that a licensee did not properly evaluate and approve the storage of flammable materials in the vicinity of safety-related equipment. NRC does not follow-up on the corrective action taken for every green finding identified; rather, it relies on the licensee to address and track their resolution through the plant's corrective action program. NRC does, however, periodically follow-up on some of the actions taken by the licensee to address green findings through an inspection specifically designed to evaluate the effectiveness of the licensee's corrective action program. NRC officials stated that green findings provide useful information on plant performance and NRC inspectors use the findings to identify performance trends in certain areas and help inform their selection of areas to focus on during future inspections. In contrast to the many green findings, NRC has identified 12 findings of the highest risk significance (7 yellow and 5 red), accounting for less than 1 percent of the findings since 2001. For example, one plant was issued a red finding-- the highest risk significance--after a steam generator tube failed, causing an increased risk in the release of radioactive material. Similar to the inspection findings, most performance indicator reports have shown the indicators to be within the acceptable levels of performance. Only 156, or less than one percent of over 30,000 indicator reports from 2001 to 2005, exceeded the acceptable performance threshold. Four of the 15 performance indicators have always been reported to be within acceptable performance levels. In addition, 46 plants have never had a performance indicator fall outside of the acceptable level and only three plants reported having a yellow indicator for one performance measure; no red indicators have ever been reported. On the basis of its inspection findings and performance indicators, NRC has subjected more than three quarters of the 103 operating plants to at least some level of increased oversight (beyond the baseline inspections) for varying amounts of time. Most of these plants received the lowest level of increased oversight, consisting of a supplemental inspection, to follow- up on the identification of one or two white inspection findings or performance indicators. Five plants have received the highest level of plant oversight for which NRC allows plants to continue operations, due to the identification of multiple white or yellow findings and/or the identification of a red finding. One plant received this level of oversight because NRC determined that the licensee failed to address the common causes of two white findings and held them open for more than four quarters. One of these findings involved the recurrent failure of a service water pump because the licensee failed to take adequate corrective action after the first failure. NRC inspectors at the plants we reviewed indicated that, when plant performance declines, it is often the result of ineffective corrective action programs, problems related to human performance, or complacent management, which often results in deficiencies in one or more of the cross-cutting areas. In assessing the results of the ROP data, we found that all plants subjected to NRC's highest level of oversight also had a substantive cross-cutting issue open either prior to or during the time that it was subjected to increased oversight inspections. Overall, NRC's oversight process shows mostly consistent results from 2001 to 2005. For example, the total number of green findings at all plants ranged from 657 to 889 per year and the total number of other findings ranged from 10 to 30 per year with no strong trend (see fig. 1). Only in the area of cross-cutting issues--or inspection findings for which one or more cross-cutting issues was associated--is an increasing trend evident (see fig. 2). According to NRC, the reason for this increase is due in part to the development of guidance on the identification and documentation of cross-cutting issues and its increased emphasis in more recent years. According to NRC officials, the results of its oversight process at an industry or summary level serve as an indicator of industry performance, which to date indicates good safety performance. On an annual basis, NRC analyzes the overall results of its inspection and performance indicator programs and compares them with industry level performance metrics to ensure all metrics are consistent and takes action if adverse trends are identified. While NRC communicates the results of its oversight process on a plant-specific basis to plant managers, members of the public, and other government agencies through annual public meetings held at or near each site and an internet Web site, it does not publicly summarize the overall results of its oversight process, such as the total number and types of inspection findings and performance indicators falling outside of acceptable performance categories, on a regular basis. NRC has taken a proactive approach to improving its reactor oversight process. It has several mechanisms in place to incorporate feedback from both external and internal stakeholders and is currently working on improvements in key areas of the process, including better focusing inspections on areas most important to safety, improving its timeliness in determining the risk significance of its inspection findings, and modifying the way that it measures some performance indicators. NRC is also working to address what we believe is a significant shortcoming in its oversight process by improving its ability to address plants' safety culture, allowing it to better identify and address early indications of deteriorating safety at plants before performance problems develop. According to NRC officials, the ROP was implemented with the understanding that it would be an evolving process and improvements would be made as lessons-learned were identified. Each fall NRC solicits feedback from external stakeholders, including industry organizations, public interest groups, and state and local officials, through a survey published in the Federal Register. NRC also conducts an internal survey of its site, regional, and headquarters program and management staff every other year to obtain their opinions on the effectiveness of the ROP. Additionally, NRC has in place a formal feedback mechanism whereby NRC staff can submit recommendations for improving various oversight components and NRC staff meet with industry officials on a monthly basis--in addition to various meetings, workshops, and conferences--to discuss oversight implementation issues and concerns. NRC staff also incorporates direction provided by the NRC Commissioners and recommendations from independent evaluations such as from GAO and the NRC Inspector General. The results of these efforts are pulled together in the form of an annual self-assessment report, which outlines the overall results of its outreach and the changes it intends to make in the year ahead. According to NRC officials, the changes made to the ROP since its implementation in 2000--including those made in response to the Davis- Besse incident--have generally been refinements to the existing process rather than significant changes to how it conducts its oversight. In the case of Davis-Besse, NRC formed a task force to review the agency's regulatory processes. The task force's report, issued in September 2002, contained more than 50 recommendations, many associated with the ROP. Among the more significant ROP-related recommendations were those to enhance the performance indicator that monitors unidentified leakage to be more accurate, develop specific guidance to inspect boric acid control programs and vessel head penetration nozzles, modify the inspection program to provide for better follow-up of longstanding issues, and enhance the guidance for managing plants that are in an extended shutdown condition as a result of significant performance problems. NRC program officials told us that the task force's most significant recommendations were in areas outside of the ROP, such as improving the agency's operating experience program. According to NRC, it has implemented almost all of the task force's recommendations. Other modifications that NRC has recently made or is in the process of making include the following: NRC recently revised seven of its baseline inspection procedures to better focus the level and scope of its inspection efforts on those areas most important to safety. These revisions resulted from a detailed analysis in 2005 of its more than 30 baseline inspection procedures. The effort involved analyzing the number of findings resulting from each of its inspection procedures and the time spent directly observing plant activities or reviewing licensee paperwork, among other things. NRC has efforts underway to improve what it refers to as its significance determination process (SDP). An audit by the NRC Inspector General, a review by a special task group formed by NRC, and feedback from other stakeholders have pointed to several significant weaknesses with the SDP. For example, internal and external stakeholders raised concerns about the amount of time, level of effort, and knowledge and resources required to determine the risk significance of some findings. Industry officials commented that because most inspection findings are green, one white finding at a plant can place it in the "bottom quartile" of plants from a performance perspective. Therefore, industry officials explained, licensees try to avoid this placement and will expend a great deal of effort and resources to provide additional data to NRC to ensure the risk level of a finding is appropriately characterized. This can add significant time to the process because different technical tools may be used that then must be incorporated with NRC's tools and processes. The delay in assigning a color to a finding while the new information is being considered could also affect a plant's placement on NRC's action matrix, essentially delaying the increased oversight called for if the finding is determined to be greater- than-green. NRC developed a SDP Improvement Plan in order to address these and other concerns and track its progress in implementing key changes. For example, NRC introduced a new process aimed at improving timeliness by engaging decision-makers earlier in the process to more quickly identify the scope of the evaluation, the resources needed, and the schedule to complete the evaluation. NRC is also taking actions to improve its performance indicators. These actions are partly to address concerns that the indicators have not contributed to the early identification of poorly performing plants to the degree originally envisioned as they are almost always within acceptable performance levels (green). There have been several cases where plants reported an acceptable performance indicator and performance problems were subsequently identified. For example, NRC inspectors at one plant noted that while performance indicator data related to its alert and notification system in place for emergency preparedness had always been reported green, the system had not always been verified to be functioning properly. On the other hand, industry officials believe that the high percentage of indicators that are green is indicative of plants' good performance. Several plant managers told us that they closely monitor and manage to the acceptable performance thresholds established for each indicator, and will often take action to address performance issues well before the indicator crosses the acceptable performance threshold. Because NRC inspectors verify indicator data once a year, a potential disagreement over the data might not surface for up to a year after it is reported, and it may take even longer to resolve the disagreement with the licensee. Similar to delays with the SDP, a delay in assigning a color while the disagreement is resolved could affect a plant's placement on NRC's action matrix, and delay the increased oversight called for if the indicator is determined to be greater-than-green. NRC plans to work with the industry to review selected indicator definitions to make interpretation more concise and reduce the number of discrepancies. To date, NRC has focused significant effort on developing a key indicator to address known problems with the performance indicators measuring the unavailability of safety systems. NRC is also in the process of changing the definition for several other indicators, in addition to considering the feasibility of new indicators. I would now like to discuss what we believe is one of NRC's most important efforts to improve its oversight process by increasing its ability to identify and address deteriorating safety culture at plants. NRC and others have long recognized that safety culture and the attributes that make up safety culture, such as attention to detail, adherence to procedures, and effective corrective and preventative action, have a significant impact on a plant's performance. Despite this recognition and several external groups' recommendations to better incorporate safety culture aspects into its oversight process, it did not include specific measures to explicitly address plant safety culture when it developed the ROP in 2000. The 2002 Davis-Besse reactor vessel head incident highlighted that this was a significant weakness in the ROP. In investigating this event, we and others found that NRC did not have an effective means to identify and address early indications of deteriorating safety at plants before performance problems develop. Largely as a result of this event, in August 2004, the NRC Commission directed the NRC staff to enhance the ROP by more fully addressing safety culture. In response to the Commission's directive, the NRC staff formed a safety culture working group in early 2005. The working group incorporated the input of its stakeholders through a series of public meetings held in late 2005 and early 2006. In February 2006, NRC issued its proposed approach to better incorporate safety culture into the ROP. NRC officials expect to fully implement all changes effective in July 2006. NRC's proposed safety culture changes largely consist of two main approaches: first, clarifying the identification and treatment of cross- cutting issues in its inspection processes and second, developing a structured way for NRC to determine the need for a safety culture evaluation of plants. NRC has developed new definitions for each of its cross-cutting issues to more fully address safety culture aspects and additional guidance on their treatment once they are identified. For example, the problem identification and resolution cross-cutting area is now comprised of several components--corrective action program, self and independent assessments, and operating experience. NRC inspectors are to assess every inspection finding to determine if it is associated with one or more of the components that make up each of the cross-cutting areas. Inspectors then determine, on a semi-annual basis, if a substantive cross-cutting issue exists on the basis of the number and areas of cross- cutting components identified. If the same substantive cross-cutting issue is identified in three consecutive assessment periods, NRC may request that the licensee perform an assessment of its safety culture. The intent is to provide an opportunity to diagnose a potentially declining safety culture before significant safety performance problems occur. Under its approach, NRC would expect the licensees of plants with more than one white color finding or one yellow finding to evaluate whether the performance issues were in any way caused by any safety culture components, and NRC might request the licensee to complete an independent assessment of its safety culture, if the licensee did not identify an important safety culture component. For plants where more significant or multiple findings have been identified, the NRC would not only independently evaluate the adequacy of the independent assessment of the licensee's safety culture, but it might also conduct its own independent assessment of the licensee's safety culture. Some of NRC's proposed actions regarding safety culture have been controversial, and not all stakeholders completely agree with the agency's approach. For example, the nuclear power industry has expressed concern that the changes could introduce undue subjectivity to NRC's oversight, given the difficulty in measuring these often intangible and complex concepts. Several of the nuclear power plant managers at the sites we reviewed said that it is not always clear why a cross-cutting issue was associated with finding, or what it will take to clear themselves once they've been identified as having a substantive cross-cutting issue open. Some industry officials worry that this initiative will further increase the number of findings that have cross-cutting elements associated with them and if all of the findings have them they will lose their value. Industry officials also warn that if it is not implemented carefully, it could divert resources away from other important safety issues. Other external stakeholders, on the other hand, suggest that this effort is an important step in improving NRC's ability to identify performance issues at plants before they result in performance problems. Importantly, there will be additional tools in place for NRC to use when it identifies potential safety culture concerns. NRC officials view this effort as the beginning step in an incremental approach and acknowledge that continual monitoring, improvements, and oversight will be needed in order to better allow inspectors to detect deteriorating safety conditions at plants before events occur. NRC plans to evaluate stakeholder feedback and make changes based on lessons learned from its initial implementation of its changes as part of its annual self-assessment process for calendar year 2007. Mr. Chairman, this completes my prepared statement, I would be happy to respond to any questions you or the other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 (or at [email protected]). Raymond H. Smith, Jr. (Assistant Director), Alyssa M. Hundrup, Alison O'Neill, and Dave Stikkers made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Nuclear Regulatory Commission (NRC) has the responsibility to provide oversight to ensure that the nation's 103 commercial nuclear power plants are operated safely. While the safety of these plants has always been important, since radioactive release could harm the public and the environment, NRC's oversight has become even more critical as the Congress and the nation consider the potential resurgence of nuclear power in helping to meet the nation's growing energy needs. Prior to 2000, NRC was criticized for having a safety oversight process that was not always focused on the most important safety issues and in some cases, was overly subjective. To address these and other concerns, NRC implemented a new oversight process--the Reactor Oversight Process (ROP). NRC continues to modify the ROP to incorporate feedback from stakeholders and in response to other external events. This testimony summarizes information on (1) how NRC oversees nuclear power plants, (2) the results of the ROP over the past several years, and (3) the aspects of the ROP that need improvement and the status of NRC's efforts to improve them. This testimony discusses preliminary results of GAO's work. GAO will report in full at a later date. GAO analyzed program-wide information, inspection results covering 5 years of ROP operations, and detailed findings from a sample of 11 plants. NRC uses various tools to oversee the safe operation of nuclear power plants, including physical plant inspections and quantitative measures or indicators of plant performance. To apply these tools, NRC uses a riskinformed and graded approach--that is, one considering safety significance in deciding on the equipment and operating procedures to be inspected and employing increasing levels of regulatory attention to plants based on the severity of identified performance problems. The tools include three types of inspections--baseline, supplemental, and special. All plants receive baseline inspections of plant operations almost continuously by NRC inspectors. When NRC becomes aware of a performance problem at a plant, it conducts supplemental inspections, which expand the scope of baseline inspections. NRC conducts special inspections to investigate specific safety incidents or events that are of particular interest to NRC because of their potential significance to safety. The plants also self-report on their safety performance using performance indicators for plant operations related to safety, such as the number of unplanned reactor shutdowns. Since 2001, NRC's ROP has resulted in more than 4,000 inspection findings concerning nuclear power plant licensees' failure to comply with regulations or other safe operating procedures. About 97 percent of these findings were for actions or failures NRC considered important to correct but of low significance to overall safe operation of the plants. In contrast, 12 of the inspection findings, or less than 1 percent, were of the highest levels of significance to safety. On the basis of its findings and the performance indicators, NRC has subjected more than three-quarters of the 103 operating plants to oversight beyond the baseline inspections for varying amounts of time. NRC has improved several key areas of the ROP, largely in response to independent reviews and feedback from stakeholders. These improvements include better focusing its inspections on those areas most important to safety, reducing the time needed to determine the risk significance of inspection findings, and modifying the way that some performance indicators are measured. NRC also recently undertook a major initiative to improve its ability to address plants' safety culture--that is, the organizational characteristics that ensure that issues affecting nuclear plant safety receive the attention their significance warrants. GAO and others have found this to be a significant shortcoming in the ROP. Although some industry officials have expressed concern that its changes could introduce undue subjectivity to NRC's oversight, given the difficulty in measuring these often intangible and complex concepts, other stakeholders believe its approach will provide NRC better tools to address safety culture issues at plants. NRC officials acknowledge that its effort is only a step in an incremental approach and that continual monitoring, improvements, and oversight will be needed to fully detect deteriorating safety conditions before an event occurs.
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Since DHS began operations in March 2003, it has developed and implemented key policies, programs, and activities for implementing its homeland security missions and functions that have created and strengthened a foundation for achieving its potential as it continues to mature. However, the department's efforts have been hindered by challenges faced in leading and coordinating the homeland security enterprise; implementing and integrating its management functions for results; and strategically managing risk and assessing, and adjusting as necessary, its homeland security efforts. DHS has made progress in these three areas, but needs to take additional action, moving forward, to help it achieve its full potential. DHS has made important progress in implementing and strengthening its mission functions over the past 8 years, including implementing key homeland security operations and achieving important goals and milestones in many areas. The department's accomplishments include developing strategic and operational plans across its range of missions; hiring, deploying and training workforces; establishing new, or expanding existing, offices and programs; and developing and issuing policies, procedures, and regulations to govern its homeland security operations. For example: DHS issued the QHSR, which provides a strategic framework for homeland security, and the National Response Framework, which outlines guiding principles for disaster response. DHS successfully hired, trained, and deployed workforces, such as a federal screening workforce which assumed security screening responsibilities at airports nationwide, and the department has about 20,000 agents to patrol U.S. land borders. DHS created new programs and offices, or expanded existing ones, to implement key homeland security responsibilities, such as establishing the United States Computer Emergency Readiness Team to, among other things, coordinate the nation's efforts to prepare for, prevent, and respond to cyber threats to systems and communications networks. DHS also expanded programs for identifying and removing aliens subject to removal from the United States and for preventing unauthorized aliens from entering the country. DHS issued policies and procedures addressing, among other things, the screening of passengers at airport checkpoints, inspecting travelers seeking entry into the United States, and assessing immigration benefit applications and processes for detecting possible fraud. Establishing these elements and others are important accomplishments and have been critical for the department to position and equip itself for fulfilling its homeland security missions and functions. However, more work remains for DHS to address gaps and weaknesses in its current operational and implementation efforts, and to strengthen the efficiency and effectiveness of those efforts to achieve its full potential. For example, we have reported that many DHS programs and investments have experienced cost overruns, schedule delays, and performance problems, including, for instance, DHS's recently cancelled technology program for securing U.S. borders, known as the Secure Border Initiative Network, and some technologies for screening passengers at airport checkpoints. Further, with respect to the cargo advanced automated radiography system to detect certain nuclear materials in vehicles and containers at ports DHS pursued the acquisition and deployment of the system without fully understanding that it would not fit within existing inspection lanes at ports of entry. DHS subsequently canceled the program. DHS also has not yet fully implemented its roles and responsibilities for developing and implementing key homeland security programs and initiatives. For example, DHS has not yet developed a set of target capabilities for disaster preparedness or established metrics for assessing those capabilities to provide a framework for evaluating preparedness, as required by the Post-Katrina Emergency Management Reform Act. Our work has shown that DHS should take additional action to improve the efficiency and effectiveness of a number of its programs and activities by, for example, improving program management and oversight, and better assessing homeland security requirements, needs, costs, and benefits, such as those for key acquisition and technology programs. Table 1 provides examples of key progress and work remaining in DHS's functional mission areas, with an emphasis on work we completed since 2008. Impacting the department's ability to efficiently and effectively satisfy its missions are: (1) the need to integrate and strengthen its management functions; (2) the need for increased utilization of performance assessments; (3) the need for an enhanced use of risk information to inform planning, programming, and investment decision-making; (4) limitations in effective sharing and use of terrorism-related information; (5) partnerships that are not sustained or fully leveraged; and (6) limitations in developing and deploying technologies to meet mission needs. DHS made progress in addressing these areas, but more work is needed, going forward, to further mitigate these challenges and their impact on DHS's mission implementation. For instance, DHS strengthened its performance measures in recent years and linked its measures to the QHSR's missions and goals. However, DHS and its components have not yet developed measures for assessing the effectiveness of key homeland security programs, such as programs for securing the border and preparing the nation for emergency incidents. For example, with regard to checkpoints DHS operates on U.S. roads to screen vehicles for unauthorized aliens and contraband, DHS established three performance measures to report the results of checkpoint operations. However, the measures did not indicate if checkpoints were operating efficiently and effectively and data reporting and collection challenges hindered the use of results to inform Congress and the public on checkpoint performance. Moreover, DHS has not yet established performance measures to assess the effectiveness of its programs for investigating alien smuggling operations and foreign nationals who overstay their authorized periods of admission to the United States, making it difficult for these agencies to determine progress made in these areas and evaluate possible improvements. Further, DHS and its component agencies developed strategies and tools for conducting risk assessments. For example, DHS has conducted risk assessments of various surface transportation modes, such as freight rail, passenger rail, and pipelines. However, the department needs to strengthen its use of risk information to inform its planning and investment decision-making. For example, DHS could better use risk information to plan and prioritize security measures and investments within and across its mission areas, as the department cannot secure the nation against every conceivable threat. In addition, DHS took action to develop and deploy new technologies to help meet its homeland security missions. However, in a number of instances DHS pursued acquisitions without ensuring that the technologies met defined requirements, conducting and documenting appropriate testing and evaluation, and performing cost-benefit analyses, resulting in important technology programs not meeting performance expectations. For example, in 2006, we recommended that DHS's decision to deploy next-generation radiation-detection equipment, or advanced spectroscopic portals, used to detect smuggled nuclear or radiological materials, be based on an analysis of both the benefits and costs and a determination of whether any additional detection capability provided by the portals was worth their additional cost. DHS subsequently issued a cost-benefit analysis, but we reported that this analysis did not provide a sound analytical basis for DHS's decision to deploy the portals. In June 2009, we also reported that an updated cost-benefit analysis might show that DHS's plan to replace existing equipment with advanced spectroscopic portals was not justified, particularly given the marginal improvement in detection of certain nuclear materials required of advanced spectroscopic portals and the potential to improve the current- generation portal monitors' sensitivity to nuclear materials, most likely at a lower cost. In July 2011, DHS announced that it would end the advanced spectroscopic portal project as originally conceived given the challenges the program faced. As we have previously reported, while it is important that DHS continue to work to strengthen each of its functional areas, it is equally important that these areas be addressed from a comprehensive, departmentwide perspective to help mitigate longstanding issues that have impacted the department's progress. Our work at DHS has identified several key themes--leading and coordinating the homeland security enterprise, implementing and integrating management functions for results, and strategically managing risks and assessing homeland security efforts--that have impacted the department's progress since it began operations. These themes provide insights that can inform DHS's efforts, moving forward, as it works to implement its missions within a dynamic and evolving homeland security environment. DHS made progress and has had successes in all of these areas, but our work found that these themes have been at the foundation of DHS's implementation challenges, and need to be addressed from a departmentwide perspective to position DHS for the future and enable it to satisfy the expectations set for it by the Congress, the administration, and the country. Leading and coordinating the homeland security enterprise. While DHS is one of a number of entities with a role in securing the homeland, it has significant leadership and coordination responsibilities for managing efforts across the homeland security enterprise. To satisfy these responsibilities, it is critically important that DHS develop, maintain and leverage effective partnerships with its stakeholders, while at the same time addressing DHS-specific responsibilities in satisfying its missions. Before DHS began operations, we reported that the quality and continuity of the new department's leadership would be critical to building and sustaining the long-term effectiveness of DHS and achieving homeland security goals and objectives. We further reported that to secure the nation, DHS must form effective and sustained partnerships between components and also with a range of other entities, including federal agencies, state and local governments, the private and nonprofit sectors, and international partners. DHS has made important strides in providing leadership and coordinating efforts. For example, it has improved coordination and clarified roles with state and local governments for emergency management. DHS also strengthened its partnerships and collaboration with foreign governments to coordinate and standardize security practices for aviation security. However, DHS needs to take additional action to forge effective partnerships and strengthen the sharing and utilization of information, which has affected its ability to effectively satisfy its missions. For example, we reported that the expectations of private sector stakeholders have not been met by DHS and its federal partners in areas related to sharing information about cyber-based threats to critical infrastructure. Without improvements in meeting private and public sector expectations for sharing cyber threat information, private-public partnerships will remain less than optimal, and there is a risk that owners of critical infrastructure will not have the information and mechanisms needed to thwart sophisticated cyber attacks that could have catastrophic effects on our nation's cyber-reliant critical infrastructure. Moreover, we reported that DHS needs to continue to streamline its mechanisms for sharing information with public transit agencies to reduce the volume of similar information these agencies receive from DHS, making it easier for them to discern relevant information and take appropriate actions to enhance security. In 2005, we designated information sharing for homeland security as high risk because the federal government faced serious challenges in analyzing information and sharing it among partners in a timely, accurate, and useful way. Gaps in sharing, such as agencies' failure to link information about the individual who attempted to conduct the December 25, 2009, airline bombing, prevented the individual from being included on the federal government's consolidated terrorist watchlist, a tool used by DHS to screen for persons who pose a security risk. The federal government and DHS have made progress, but more work remains for DHS to streamline its information sharing mechanisms and better meet partners' needs. Moving forward, it will be important that DHS continue to enhance its focus and efforts to strengthen and leverage the broader homeland security enterprise, and build off the important progress that it has made thus far. In addressing ever-changing and complex threats, and with the vast array of partners with which DHS must coordinate, continued leadership and stewardship will be critical in achieving this end. Implementing and integrating management functions for results. Following its establishment, the department focused its efforts primarily on implementing its various missions to meet pressing homeland security needs and threats, and less on creating and integrating a fully and effectively functioning department from 22 disparate agencies. This initial focus on mission implementation was understandable given the critical homeland security needs facing the nation after the department's establishment, and the enormous challenge posed by creating, integrating, and transforming a department as large and complex as DHS. As the department matured, it has put into place management policies and processes and made a range of other enhancements to its management functions--acquisition, information technology, financial, and human capital management. However, DHS has not always effectively executed or integrated these functions. In 2003, we designated the transformation and integration of DHS as high risk because DHS had to transform 22 agencies into one department, and failure to effectively address DHS's management and mission risks could have serious consequences for U.S. national and economic security. Eight years later, DHS remains on our high-risk list. DHS has demonstrated strong leadership commitment to addressing its management challenges and has begun to implement a strategy to do so. Further, DHS developed various management policies, directives, and governance structures, such as acquisition and information technology management policies and controls, to provide enhanced guidance on investment decision making. DHS also reduced its financial management material weaknesses in internal control over financial reporting and developed strategies to strengthen human capital management, such as its Workforce Strategy for Fiscal Years 2011-2016. However, DHS needs to continue to demonstrate sustainable progress in addressing its challenges, as these issues have contributed to schedule delays, cost increases, and performance problems in major programs aimed at delivering important mission capabilities. For example, in September 2010, we reported that the Science and Technology Directorate's master plans for conducting operational testing of container security technologies did not reflect all of the operational scenarios that U.S. Customs and Border Protection was considering for implementation. In addition, when it developed the US-VISIT program, DHS did not sufficiently define what capabilities and benefits would be delivered, by when, and at what cost, and the department has not yet determined how to deploy a biometric exit capability under the program. Moreover, DHS does not yet have enough skilled personnel to carry out activities in various areas, such as acquisition management; and has not yet implemented an integrated financial management system, impacting its ability to have ready access to reliable, useful, and timely information for informed decision making. Moving forward, addressing these management challenges will be critical for DHS's success, as will be the integration of these functions across the department to achieve efficiencies and effectiveness. Strategically managing risks and assessing homeland security efforts. Forming a new department while working to implement statutorily mandated and department-initiated programs and responding to evolving threats, was, and is, a significant challenge facing DHS. Key threats, such as attempted attacks against the aviation sector, have impacted and altered DHS's approaches and investments, such as changes DHS made to its processes and technology investments for screening passengers and baggage at airports. It is understandable that these threats had to be addressed immediately as they arose. However, limited strategic and program planning by DHS and limited assessment to inform approaches and investment decisions have contributed to programs not meeting strategic needs or not doing so in an efficient manner. For example, as we reported in July 2011, the Coast Guard's planned acquisitions through its Deepwater Program, which began before DHS's creation and includes efforts to build or modernize ships and aircraft and supporting capabilities that are critical to meeting the Coast Guard's core missions in the future, is unachievable due to cost growth, schedule delays and affordability issues. In addition, because FEMA has not yet developed a set of target disaster preparedness capabilities and a systematic means of assessing those capabilities, as required by the Post-Katrina Emergency Management Reform Act and Presidential Policy Directive 8, it cannot effectively evaluate and identify key capability gaps and target limited resources to fill those gaps. Further, DHS has made important progress in analyzing risk across sectors, but it has more work to do in using this information to inform planning and resource allocation decisions. Risk management has been widely supported by Congress and DHS as a management approach for homeland security, enhancing the department's ability to make informed decisions and prioritize resource investments. Since DHS does not have unlimited resources and cannot protect the nation from every conceivable threat, it must make risk-informed decisions regarding its homeland security approaches and strategies. Moreover, we have reported on the need for enhanced performance assessment, that is, evaluating existing programs and operations to determine whether they are operating as intended or are in need of change, across DHS's missions. Information on the performance of programs is critical for helping the department, Congress, and other stakeholders more systematically assess strengths and weaknesses and inform decision making. In recent years, DHS has placed an increased emphasis on strengthening its mechanisms for assessing the performance and effectiveness of its homeland security programs. For example, DHS established new performance measures, and modified existing ones, to better assess many of its programs and efforts. However, our work has found that DHS continues to miss opportunities to optimize performance across its missions because of a lack of reliable performance information or assessment of existing information; evaluation among feasible alternatives; and, as appropriate, adjustment of programs or operations that are not meeting mission needs. For example, DHS's program for research, development, and deployment of passenger checkpoint screening technologies lacked a risk-based plan and performance measures to assess the extent to which checkpoint screening technologies were achieving the program's security goals, and thereby reducing or mitigating the risk of terrorist attacks. As a result, DHS had limited assurance that its strategy targeted the most critical risks and that it was investing in the most cost-effective new technologies or other protective measures. As the department further matures and seeks to optimize its operations, DHS will need to look beyond immediate requirements; assess programs' sustainability across the long term, particularly in light of constrained budgets; and evaluate tradeoffs within and among programs across the homeland security enterprise. Doing so should better equip DHS to adapt and respond to new threats in a sustainable manner as it works to address existing ones. Given DHS's role and leadership responsibilities in securing the homeland, it is critical that the department's programs and activities are operating as efficiently and effectively as possible, are sustainable, and continue to mature, evolve and adapt to address pressing security needs. DHS has made significant progress throughout its missions since its creation, but more work is needed to further transform the department into a more integrated and effective organization. DHS has also made important progress in strengthening partnerships with stakeholders, improving its management processes and sharing of information, and enhancing its risk management and performance measurement efforts. These accomplishments are especially noteworthy given that the department has had to work to transform itself into a fully functioning cabinet department while implementing its missions--a difficult undertaking for any organization and one that can take years to achieve even under less daunting circumstances. Impacting the department's efforts have been a variety of factors and events, such as attempted terrorist attacks and natural disasters, as well as new responsibilities and authorities provided by Congress and the administration. These events collectively have forced DHS to continually reassess its priorities and reallocate resources as needed, and have impacted its continued integration and transformation. Given the nature of DHS's mission, the need to remain nimble and adaptable to respond to evolving threats, as well as to work to anticipate new ones, will not change and may become even more complex and challenging as domestic and world events unfold, particularly in light of reduced budgets and constrained resources. To better position itself to address these challenges, our work has shown that DHS should place an increased emphasis and take additional action in supporting and leveraging the homeland security enterprise, managing its operations to achieve needed results, and strategically planning for the future while assessing and adjusting, as needed, what exists today. Addressing these issues will be critically important for the department to strengthen its homeland security programs and operations. Eight years after its establishment and 10 years after the September 11, 2001, terrorist attacks, DHS has indeed made significant strides in protecting the nation, but has yet to reach its full potential. Chairman King, Ranking Member Thompson, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. For further information regarding this testimony, please contact Cathleen A. Berrick at (202) 512-3404 or [email protected]. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Rebecca Gambler, Assistant Director; Melissa Bogar; Susan Czachor; Sarah Kaczmarek; Tracey King; Taylor Matheson; Jessica Orr; and Meghan Squires. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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The terrorist attacks of September 11, 2001, led to profound changes in government agendas, policies and structures to confront homeland security threats facing the nation. Most notably, the Department of Homeland Security (DHS) began operations in 2003 with key missions that included preventing terrorist attacks from occurring in the United States, reducing the country's vulnerability to terrorism, and minimizing the damages from any attacks that may occur. DHS is now the third-largest federal department, with more than 200,000 employees and an annual budget of more than $50 billion. Since 2003, GAO has issued over 1,000 products on DHS's operations in such areas as transportation security and emergency management, among others. As requested, this testimony addresses DHS's progress and challenges in implementing its homeland security missions since it began operations, and issues affecting implementation efforts. This testimony is based on a report GAO issued in September 2011, which assessed DHS's progress in implementing its homeland security functions and work remaining. Since it began operations in 2003, DHS has implemented key homeland security operations and achieved important goals and milestones in many areas to create and strengthen a foundation to reach its potential. As it continues to mature, however, more work remains for DHS to address gaps and weaknesses in its current operational and implementation efforts, and to strengthen the efficiency and effectiveness of those efforts to achieve its full potential. DHS's accomplishments include developing strategic and operational plans; deploying workforces; and establishing new, or expanding existing, offices and programs. For example, DHS (1) issued plans to guide its efforts, such as the Quadrennial Homeland Security Review, which provides a framework for homeland security, and the National Response Framework, which outlines disaster response guiding principles; (2) successfully hired, trained, and deployed workforces, such as a federal screening workforce to assume security screening responsibilities at airports nationwide; and (3) created new programs and offices to implement its homeland security responsibilities, such as establishing the U.S. Computer Emergency Readiness Team to help coordinate efforts to address cybersecurity threats. Such accomplishments are noteworthy given that DHS has had to work to transform itself into a fully functioning department while implementing its missions--a difficult undertaking that can take years to achieve. While DHS has made progress, its transformation remains high risk due to its management challenges. Examples of progress made and work remaining include: Border security. DHS implemented the U.S. Visitor and Immigrant Status Indicator Technology program to verify the identities of foreign visitors entering and exiting the country by processing biometric and biographic information. However, DHS has not yet determined how to implement a biometric exit capability and has taken action to address a small portion of the estimated overstay population in the United States (individuals who legally entered the country but then overstayed their authorized periods of admission). Aviation security. DHS developed and implemented Secure Flight, a program for screening airline passengers against terrorist watchlist records. DHS also developed new programs and technologies to screen passengers, checked baggage, and air cargo. However, DHS does not yet have a plan for deploying checked baggage screening technologies to meet recently enhanced explosive detection requirements, a mechanism to verify the accuracy of data to help ensure that air cargo screening is being conducted at reported levels, or approved technology to screen cargo once it is loaded onto a pallet or container. Emergency preparedness and response. DHS issued the National Preparedness Guidelines that describe a national framework for capabilities-based preparedness, and a Target Capabilities List to provide a national-level generic model of capabilities defining all-hazards preparedness. DHS is also finalizing a National Disaster Recovery Framework. However, DHS needs to strengthen its efforts to assess capabilities for all-hazards preparedness, and develop a long-term recovery structure to better align timing and involvement with state and local governments' capacity. Chemical, biological, radiological and nuclear (CBRN) threats. DHS assessed risks posed by CBRN threats and deployed capabilities to detect CBRN threats. However, DHS should work to improve its coordination of CBRN risk assessments, and identify monitoring mechanisms for determining progress made in implementing the global nuclear detection strategy. GAO's work identified three themes at the foundation of DHS's challenges: Leading and coordinating the homeland security enterprise; Implementing and integrating management functions for results; and Strategically managing risks and assessing homeland security efforts. This testimony contains no new recommendations.
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The objective of the Navy's ship maintenance program is to perform all necessary maintenance consistent with available funding and provide reasonable assurance that ships will be available for required operations. Ship maintenance, conducted during periods the Navy calls availabilities, includes three types of requirements: time-directed, condition-based, and modernization. Time-directed requirements include those that are periodic in nature and are based on elapsed time or recurrent operations. Condition-based requirements, which are based on the physical condition of the ship, are usually identified by the ship's crew or inspection teams. Lastly, modernization requirements include changes that either add new capability or improve reliability and maintainability of existing systems. Officials of the Shipbuilders Council of America, the South Tidewater Association of Ship Repairers, private shipyards, and ship repair companies in the Norfolk area have expressed concern that the Navy's implementation of its policies and procedures favored the Norfolk Naval Shipyard, contributing to the private sectors' declining ship maintenance workload in the Norfolk area during fiscal year 1998. The Navy's allocation of ship maintenance workload in the Norfolk, Virginia, area is guided by legislative requirements and established Navy policy objectives, such as (1) retaining a certain level of public sector capability, (2) allowing sailors to remain at their home ports when shorter repairs are being done, and (3) achieving economic and efficient public depot maintenance operations. Historically, large ship dry-dockings and nuclear ship maintenance projects in the Norfolk, Virginia, area are usually allocated to either Newport News or the Norfolk Naval Shipyard and maintenance projects for conventional surface ships are usually contracted with private ship repair companies or allocated to Norfolk Naval Shipyard. In addition, Newport News performs some medium to small conventional ship maintenance work for the Navy. Further, in making workload allocation decisions, Navy officials stated they also consider: The statutory requirement of 10 U.S.C. 2466, more commonly called the 50-50 rule, wherein the Department of the Navy is required to contract not more than 50 percent of funds made available for depot-level maintenance with the private sector. This requirement is for the whole Navy and applies to all types of depot maintenance at all locations. The 50-50 requirement excludes funds obligated for the (1) procurement of major modifications or upgrades of weapon systems that are designed to improve performance or (2) nuclear refueling of an aircraft carrier. To more fully identify all sources of funding for ship maintenance and repair work in the Norfolk area, we included obligated funds for these activities in our analysis for this report. The Navy's home port policy is to, where possible, do ship repair and maintenance work of 6 months or less at the ship's home port, thus improving the ship crew's quality of life by reducing time away from home. If the estimated project is to take 6 months or less, the Navy solicits proposals for maintenance contracts from private shipyards and ship repair companies located near the ship's home port. If the estimate is more than 6 months, the Navy expands the solicitation to include additional ship repair companies operating on the coast--the Atlantic coast for the Atlantic Fleet. Core work requirements, where the Navy tries to maintain the required capabilities within organic Navy shipyards to meet readiness and sustainability requirements of the weapon systems that support the wartime and contingency scenarios. According to Navy documents, core capabilities consist of the minimum facilities, equipment, and skilled personnel necessary to meet these readiness and sustainability requirements. The Navy's guaranteed manday policy, where Navy officials try to match the workload to Norfolk Naval Shipyard workforce because the shipyard's workforce and related costs have already been committed in the Navy's budget. In terms of reported obligations for ship maintenance work in the Norfolk area during fiscal years 1994 through 1998, the largest amount of ship maintenance funding went to the private shipyards and repair companies.Among the private sector activities, Newport News received the largest portion of the obligated funds. Reported obligations for the smaller private shipyards and repair companies fluctuated from year to year but, for a variety of reasons, were proportionately much less in fiscal year 1998 than in other recent years and were also less than the Navy initially scheduled for fiscal year 1998. During fiscal years 1994 through 1998, the Navy reported obligating nearly $6.9 billion for the ship maintenance work in the Norfolk area. It provided Norfolk Naval Shipyard with about 31.1 percent of this work and private shipyards and repair companies were allocated 68.9 percent. (See table 1.) Table 1 also shows that reported obligations for fiscal year 1998 were much higher than previous years, with the largest percentage obligated to private shipyards and repair companies. Most of the 1998 obligations went to Newport News to fund a complex overhaul and nuclear refueling of the U.S.S. Nimitz. In the years in which Newport News has such a large workload, major funding spikes occur. In contrast, there was no similar workload assigned to Newport News in fiscal year 1996. Navy officials told us that funding to Newport News was smaller in 1996 because (1) there was less nuclear ship maintenance work--work historically allocated to either Newport News or Norfolk Naval Shipyard and (2) Newport News was already operating near full capacity. Newport News is a large nuclear-capable yard and is capable of doing ship repair work that other smaller shipyards and repair companies in the Norfolk area are not. Smaller private shipyards and repair companies in the area do repair work on conventional ships and are not qualified to do nuclear-related work. Therefore, to make our private sector analysis more meaningful, we separated the Navy's reported obligations according to whether they were provided to Norfolk Naval Shipyard, Newport News, or other smaller shipyards and repair companies. As shown in table 2, Newport News received the largest obligations in all but 1 year between fiscal year 1994 and 1998. Table 2 also shows that the smaller private shipyards and repair companies received a much lower percentage of the total obligations in fiscal year 1998 than in other years. There was less conventional ship maintenance work--work historically allocated to smaller shipyards and repair companies or to the Norfolk Naval Shipyard. For example, the Navy reported that the total number of ships in the Atlantic Fleet decreased from 191 in fiscal year 1994 to 165 in fiscal year 1998. Similarly, the reported number of conventional steam-powered ships, maintenance-intensive ships that smaller ship repair companies have historically worked on, decreased in the Atlantic Fleet from 38 to 26 between fiscal year 1994 and 1997, and was projected to decrease to 23 ships during fiscal year 1998. According to Navy officials, conventional steam-powered ships require more maintenance than other ships because they are older and contain more mechanical parts than newer ships, which have more reliable component systems that are easier to remove, replace with new component systems, and repair elsewhere. During fiscal year 1998, the Navy provided the smaller private shipyards and repair companies in the Norfolk area less conventional maintenance work than initially scheduled in its private sector planning report dated September 23, 1996. This change occurred largely for operational reasons and requirement changes and because four conventional maintenance projects originally scheduled to go to the private sector were reassigned to the Norfolk Naval Shipyard to meet workload targets established for the public shipyard under the Navy's guaranteed manday policy. Appendix III details the final distribution of the CNO projects scheduled for fiscal year 1998. In September 1996, Naval Sea Systems Command (NAVSEA) issued the Navy's private sector depot-level planning report for fiscal years 1997 and 1998. The report contained CNO conventional maintenance projects that were not yet funded but were tentatively planned for allocation to the private shipyards and repair companies in the Norfolk area in fiscal years 1997 and 1998. Navy officials told us that the unfunded schedule was recognized as being subject to change and changes did subsequently occur. Nonetheless, some private shipyards and repair companies expected to receive larger amounts of work than they ultimately obtained because of the information in the report. In fiscal year 1998, the Navy reduced the size of the maintenance package for seven CNO maintenance projects and deferred one CNO project to fiscal year 1999 because several ships scheduled for maintenance needed less maintenance than expected and other Atlantic Fleet ships needed more maintenance than scheduled, requiring the Navy to transfer additional ship maintenance funds to those projects. In addition, the Navy canceled three scheduled projects: the U.S.S. Roberts project was canceled because the ship needed less maintenance than expected, the U.S.S. Radford project was canceled because the ship had operational commitments, and the U.S.S. Guam project was canceled because the ship was decommissioned in August 1998. During fiscal year 1998, the Navy also assigned the Norfolk Naval Shipyard four CNO maintenance projects, initially scheduled for competition in the private sector. This was done to meet workload targets established for Norfolk Naval Shipyard under the Navy's guaranteed manday policy. The objective of the Navy's guaranteed manday policy is to match the workload to Norfolk Naval Shipyard's workforce during the budget execution year since the shipyard's workforce figures and related costs have already been committed in the Navy's budget and workload reductions would result in losses. Based on previous work, we believe that the guaranteed manday policy is generally sound from a cost and operational standpoint because, without it, the Norfolk Naval Shipyard would lose money as a result of having work below the level required to support its budgeted workforce. Prior to fiscal year 1995, the Navy's shipyards reported significant operating losses. These losses were partly due to (1) fleet and system commanders' operational and administrative decisions that resulted in less work being assigned to the public shipyards than was projected and budgeted for and (2) the Navy's lack of flexibility to quickly deviate from the budgeted workforce because of Federal Civil Service requirements that require workers be notified before they can be separated. To minimize future departures from the budgeted workload, the Navy implemented the guaranteed manday program. When it is determined that the number of mandays originally budgeted for the Norfolk Naval Shipyard will not be utilized, officials of CNO, NAVSEA, the Atlantic Fleet, and Norfolk Naval Shipyard work together to identify alternatives for realigning the maintenance workload to better utilize the Norfolk Naval Shipyard budgeted workforce. These alternatives include adjusting the scope of work for selected maintenance projects, shifting funding from other Navy programs to ship maintenance, and moving planned workload from private shipyards and repair companies to Norfolk Naval Shipyard. We believe these initiatives are consistent with Navy policies and without them the Norfolk Naval Shipyard would lose money as a result of having work below the level required to support its budgeted workforce. During fiscal years 1994 through 1998, the Navy transferred or reprogrammed appropriated funds into and out of its ship depot maintenance program. However, the amounts transferred or reprogrammed out of the Navy-wide ship depot maintenance program generally did not adversely affect the Atlantic Fleet's ship depot maintenance program, where more funds were transferred or reprogrammed into the program than were moved out. During fiscal years 1994 through 1998, the Navy transferred or reprogrammed about $1.2 billion (about 10 percent of the total) appropriated for its ship depot maintenance program to other Navy programs. The majority of the transfers or reprogrammings were due to one-time adjustments--changes that reflected the Navy's decisions to move funds to and from various Navy accounts based on emerging or unforeseen requirements. The Navy made these adjustments because of (1) force structure reductions, (2) operations tempo increases, (3) increased recruiting goals, and (4) administrative support needs. Although there was a Navy-wide reduction in appropriated ship depot maintenance funds due to program transfers or reprogrammings, the reverse occurred in the Atlantic Fleet. During fiscal years 1994 through 1998, these transfers produced a net increase in the Atlantic Fleet's ship maintenance funding. An analysis of the Fleet's data by fiscal year shows only 1 year where a net decrease to the program occurred--during fiscal year 1998 when the Navy moved $7.1 million (less than 1 percent) of the Atlantic Fleet's ship maintenance funds to other programs. (See table 3.) The allocation of ship maintenance workload in the Norfolk, Virginia, area is guided by legislative requirements and established Navy policy objectives. During fiscal years 1994 through 1998, the majority of ship maintenance funding allocated in the Norfolk area went to the private sector. While Newport News received the largest portion of that private funding, obligations to other smaller shipyards and repair companies have fluctuated from year to year. The greatest change occurred in fiscal year 1998, when these smaller companies received less than in other years and less than the Navy initially scheduled. This was largely because the conventional workload that traditionally goes to these companies is declining, scheduled maintenance and operational requirements changed during fiscal year 1998, and four conventional maintenance projects originally scheduled to go to the private sector were reassigned to the Norfolk Naval Shipyard to stabilize and achieve more efficient operations at the public shipyard. Lastly, while the Navy did reprogram ship depot maintenance funds to meet other priorities, the Atlantic Fleet's ship depot maintenance program was not adversely affected because it received a slight increase over the amount budgeted during fiscal years 1994 through 1998. We requested comments on a draft of this report from the Secretary of Defense. On January 21, 1999, DOD and NAVSEA officials said that they concurred with the report. Additionally, on February 1, 1999, Atlantic Fleet officials stated that the Fleet concurred with the report. We are sending copies of this report to the Chairmen and Ranking Members, Senate Committees on Armed Services and on Appropriations, and the House Committees on National Security and on Appropriations; the Secretaries of Defense and the Navy; and Director, Office of Management and Budget. We will also make copies available to others upon request. Please contact me on (202) 512-8412 if you or your staff have any questions concerning the report. Major contributors to this report are listed in appendix IV. During our review, we interviewed and obtained data from Department of Navy officials, including from the Office of the Assistant Secretary of the Navy for Research, Development, and Acquisition; Office of the Assistant Secretary of Navy for Financial Management and Comptroller; Office of the Deputy Chief of Naval Operations for Logistics; the Naval Sea Systems Command (NAVSEA); the Supervisor of Shipbuilding (SUPSHIP) Portsmouth; SUPSHIP-Newport News; the Atlantic Fleet; the Military Sealift Command (MSC); and the Norfolk Naval Shipyard. We also obtained data from the Department of Defense (DOD) Inspector General. In the private shipbuilding and repair industry, we interviewed industry officials of the Shipbuilders Council of America; the South Tidewater Association of Ship Repairers; Master Ship Repair Agreement (Master Ship Repair) shipyards; and Agreement for Boat Repair (Boat Repair) companies in the Norfolk area. Table I.1 lists the master ship repair and boat repair companies we visited. Colonna's Shipyard, Inc. Earl Industries, Inc. Atlantic Ordnance and Gyro, Inc. Marine Hydraulics International, Inc. Davis Boat Works, Inc. Holmes Brothers Enterprises, Inc. Lyon Shipyard, Inc. Newport News Shipbuilding and Drydock Company (Newport News) Pure Water Technologies, Inc. We identified and reviewed DOD and Navy policies and instructions that influence the allocation of ship maintenance work to public and private ship repair facilities. Additionally, we interviewed Navy officials to identify how the Navy actually implemented its policies and procedures in the Norfolk area during fiscal years 1997 and 1998. We interviewed also Navy and industry officials to determine the reason for any variances, and concerns that may exist with the Navy's current policies and procedures. To identify the level of ship maintenance work allocated to the Norfolk Naval Shipyard and the private sector during fiscal years 1994 through 1998, we focused on identifying all sources of funding for ship maintenance work in the Norfolk area, including CNO maintenance projects, emergent and miscellaneous availabilities, modernization projects, and MSC projects. To identify obligations for these funding sources, we used funding data from Navy budget documents, program plans, and ship maintenance schedules. Using reported obligations to measure completed ship maintenance work, we performed two data analyses to provide a more effective comparison of the maintenance work done by Norfolk Naval Shipyard and private ship repair companies. First, we determined and analyzed reported obligations for ship maintenance work allocated to Norfolk Naval Shipyard and the private sector during fiscal years 1994 through 1998. Second, we separated reported obligations for Newport News from the other smaller shipyards and repair companies in the Norfolk area because Newport News, specializing in nuclear refueling and major overhauls, performs larger and different types of maintenance projects than the other shipyards and repair companies. For the purposes of this review, this separation provided a more meaningful comparison of maintenance workloads allocated to Norfolk Naval Shipyard, Newport News, and other smaller private shipyards and repair companies during fiscal years 1994 through 1998. We could not readily separate conventional ship work from nuclear ship work. We did not verify the validity of the Navy's ship maintenance and repair requirements in the Norfolk area. To contrast the level of scheduled and actual ship maintenance work completed by private shipyards and repair companies in the Norfolk area during fiscal year 1998, we focused on comparing the Navy's schedule of CNO maintenance projects with actual projects provided to the private sector. We examined Navy planning documents, including the Navy's schedule of CNO maintenance projects and the NAVSEA Notice 4710, entitled Private Sector Depot Level Planning Report for Fiscal Years 1997 and 1998. The 4710 notice contained the CNO availabilities scheduled for the private sector and specified solicitation area, contract type, solicitation method, and milestones for 1998 maintenance projects. We examined NAVSEA and Atlantic Fleet data that identified completed CNO maintenance projects during fiscal year 1998 and where the work was performed. We compared and analyzed the Navy's schedules of CNO maintenance projects with actual projects completed by the private shipyards and repair companies in the Norfolk area during this year to identify variances. We discussed variances with NAVSEA and Atlantic Fleet officials to determine the reasons some of these scheduled maintenance projects were descoped, canceled, or transferred. To identify the extent to which ship maintenance workloads in the Norfolk area were affected by the migration of funding from the ship depot maintenance program since fiscal year 1994, we examined a variety of Navy budget documents. We examined and analyzed the budget request, appropriated, current estimate, and actual obligated funding levels during fiscal years 1994 through 1998, for Navy-wide and Atlantic Fleet ship depot maintenance programs. We identified and analyzed the differences between the annual appropriated, current estimate, and actual obligated funding levels for ship depot maintenance. We interviewed Navy officials and examined Navy documents to determine the reasons for differences and their impact on the ship depot maintenance program in the Norfolk area. In performing this review, we used the same budget and accounting systems, reports, and statistics DOD and the Navy use to manage and monitor their ship depot maintenance program. Dollars amounts shown in the report are the Navy's reported obligations to ship repair and maintenance facilities in the Norfolk area and do not reflect actual distribution of funds. We did not independently determine the reliability of the reported obligation information. However, our recent audit of the federal government's financial statements, including DOD's and the Navy's statements, questioned the reliability of reported obligation information because not all obligations and expenditures are recorded to specific budgetary accounts. We conducted our review from June 1998 to January 1999 in accordance with generally accepted government auditing standards. Reported obligations for ship maintenance work provided to the Norfolk Naval Shipyard, Newport News, and other smaller private shipyards and repair facilities during fiscal years 1994 and 1998 are presented in the following tables. Table II.1: Reported Obligations for Ship Maintenance Work Provided to the Norfolk Naval Shipyard for Fiscal Years 1994 Through 1998 Less Norfolk Naval Shipyard work contracted to private ship repair companies($4.5) (7.7) (10.2) (11.4) (29.9) Table II.2: Reported Obligations for Ship Maintenance Work Provided to Newport News for Fiscal Years 1994 Through 1998 Norfolk Naval Shipyard maintenance work According to Navy officials, the Navy obligated Newport News less of the ship maintenance program in fiscal year 1996 than any other year during this period because there was less nuclear ship maintenance work, historically allocated to Newport News or Norfolk Naval Shipyard. Most of the reported obligations for ship maintenance work provided to Newport News in fiscal year 1998, nearly $1.3 billion, was for a complex overhaul and nuclear refueling of the U.S.S. Nimitz. Norfolk Naval Shipyard maintenance work Note 1: Obligations are for maintenance, modernization, and materials work provided to the smaller private ship repair companies in the Norfolk area. Dollar amounts do not include obligations for ship maintenance work performed outside the Norfolk, Virginia, area. Note 2: Smaller private shipyards and repair companies do repair work on conventional ships and are not qualified to do nuclear-related work. In discussing the previous data with Navy officials, we were told that: CNO maintenance projects declined significantly after peaking in fiscal year 1995. According to Navy officials, obligations for CNO maintenance projects provided to smaller ship repair companies declined significantly. They said that the decline in requirements since 1995 was due primarily to the decreasing numbers of ships in the Atlantic Fleet, including steam-powered ships, which have historically been allocated to smaller ship repair companies. The Navy also reduced the size of 19 CNO maintenance projects scheduled for private shipyards and repair companies in fiscal years 1997 and 1998. Further, during fiscal year 1998, the Navy deferred one and canceled three scheduled CNO projects due to changing maintenance requirements and priorities and transferred four projects to Norfolk Naval Shipyard to meet workload targets established under its guaranteed manday policy. According to Navy officials, obligations for ship maintenance projects fluctuated during the period because their requirements historically vary from year-to-year. Additionally, reported obligations for Fleet maintenance projects peaked in fiscal year 1998 because the Navy reduced the size of the maintenance package for several CNO projects that were reclassified as Fleet maintenance projects, thus increasing the number of Fleet projects and related obligations. Historically, maintenance workload requirements for MSC ships fluctuate from year-to-year and the variances between 1994 and 1998 were typical. Norfolk Naval Shipyard work contracted to ship repair companies increased steadily during fiscal years 1994 through 1998. Likewise, during this period, the Norfolk Naval Shipyard gradually increased its use of temporary contract workers to complete ship maintenance projects. According to Navy officials, in selected cases it is cost-effective for Norfolk Naval Shipyard to contract with private shipyards and repair companies for skilled workers during periods of need rather than employing them full-time as Norfolk Naval Shipyard employees. Additionally, decreased personnel ceilings in the Navy have limited the naval shipyards' workforce. Obligations for other ship maintenance work, which includes ship modernization projects, fluctuated during the period because the Navy contracted with smaller private shipyards and repair companies for installation of vertical launch systems in fiscal years 1994 and 1995 and pollution abatement systems in fiscal year 1997. Further, Navy officials said that funding requirements for the Navy's modernization program have gradually declined as older ships were decommissioned and newer ships deployed. Newport News won the maintenance contract for the U.S.S. Ashland. Rescheduled for fiscal year 1999. Maintenance projects for these ships were descoped before the Atlantic Fleet sent them to Norfolk Naval Shipyard. Defense Depot Maintenance: Public and Private Sector Workload Distribution Reporting Can Be Further Improved (GAO/NSIAD-98-175, July 23, 1998). Defense Depot Maintenance: Contracting Approaches Should Address Workload Characteristics (GAO/NSIAD-98-130, June 15, 1998). Defense Depot Maintenance: Use of Public-Private Partnership Arrangements (GAO/NSIAD-98-91, May 7, 1998). Navy Ship Maintenance: Temporary Duty Assignments of Temporarily Excess Shipyard Personnel Are Reasonable (GAO/NSIAD-98-93, Apr. 21, 1998). Public-Private Competitions: DOD's Additional Support for Combining Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998). Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998). Public-Private Competitions: DOD's Determination to Combine Depot Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998). Defense Depot Maintenance: Information on Public and Private Sector Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998). Navy Regional Maintenance: Substantial Opportunities Exist to Build on Infrastructure Streamlining Progress (GAO/NSIAD-98-4, Nov. 13, 1997). Navy Depot Maintenance: Privatizing Louisville Operations in Place Is Not Cost-Effective (GAO/NSIAD-97-52, July 31, 1997). Defense Depot Maintenance: Challenges Facing DOD in Managing Working Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997). Depot Maintenance: Uncertainties and Challenges DOD Faces in Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-112, May 1, 1997) and (GAO/T-NSIAD-97-111, Mar. 18, 1997). Navy Depot Maintenance: Cost and Savings Issues Related to Privatizing-in-Place at the Louisville, Kentucky, Depot (GAO/NSIAD-96-202, Sept. 18, 1996). Defense Depot Maintenance: More Comprehensive and Consistent Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21, 1996). Defense Depot Maintenance: Privatization and the Debate Over the Public-Private Mix (GAO/T-NSIAD-96-148, Apr. 17, 1996) and (GAO/T-NSIAD-96-146, Apr. 16, 1996). Depot Maintenance: Opportunities to Privatize Repair of Military Engines (GAO/NSIAD-96-33, Mar. 5, 1996). Closing Maintenance Depots: Savings, Personnel, and Workload, Redistribution Issues (GAO/NSIAD-96-29, Mar. 4, 1996). Navy Maintenance: Assessment of the Public and Private Shipyard Competition Program (GAO/NSIAD-94-184, May 25, 1994). Depot Maintenance: Issues in Allocating Workload Between the Public and Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the Navy's declining ship maintenance workload, focusing on: (1) the Navy's policies and procedures for allocating ship maintenance work to public and private facilities in the Norfolk area; (2) ship maintenance and modernization funding obligated to the Norfolk Naval Shipyard and private ship repair companies during the fiscal years (FY) 1994 through 1998; and (3) the extent to which the Atlantic Fleet's ship maintenance program has been affected by the movement of funds out of the ship depot maintenance program since FY 1994. GAO noted that: (1) the Navy's allocation of ship maintenance workload in the Norfolk, Virginia area, is guided by legislative requirements and established policy objectives, such as retaining a certain level of public sector capability, allowing sailors to remain at their home ports when shorter repairs are being done, and achieving economic and efficient public depot maintenance operations; (2) during FY 1994 through FY 1998, private shipyards and repair companies in the Norfolk, Virginia, area received proportionately more funding for ship maintenance work than the Navy's Norfolk Naval Shipyard; (3) among the private sector activities, Newport News Shipbuilding and Drydock Company has received the largest portion of ship maintenance funding in the Norfolk area; (4) funding obligated to other smaller shipyards and repair companies has fluctuated from year to year, with the greatest change occurring in FY 1998 when these companies received proportionately much less of the annual ship maintenance funding than in other years and also received less than initially scheduled by the Navy; (5) this was largely because: (a) the conventional workload that traditionally goes to these companies is declining; (b) scheduled maintenance and operational requirements changed during FY 1998; and (c) four conventional maintenance projects originally scheduled to go to the private sector were reassigned to the Norfolk Naval Shipyard to stabilize and achieve more economical and efficient operations at that public shipyard; (6) the Navy did move appropriated funds from its ship depot maintenance account during FY 1994 through FY 1998; (7) however, the Atlantic Fleet received a slight increase over the amount budgeted for its ship depot maintenance program during this period; and (8) consequently, the movement of ship depot maintenance funds did not reduce the amount of funds provided to the public and private sectors in the Norfolk, Virginia, area.
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In fiscal year 2000, VA's pharmacy benefit provided approximately 86 million prescriptions at a cost of approximately $2 billion--or about 12 percent of VA's total health care budget, compared to 6 percent of VA's total health care budget a decade ago. VA provides outpatient pharmacy services free to veterans receiving medications for treatment of service- connected conditions and to low-income veterans. Other veterans who have prescriptions filled by VA may be charged a copayment for each 30- day supply of medication. Like many health care organizations, VA uses several measures in an effort to improve quality of care and control pharmacy costs. These include (1) implementing a national formulary, which standardizes the list of drugs available; (2) developing clinical guidelines for prescribing drugs; and (3) using compliance programs, such as prior authorization, to encourage or require physicians to prescribe formulary drugs. VA medical centers individually began using formularies as early as 1955 to manage their pharmacy inventories. However, it was not until 40 years later in September 1995, that VA established a centralized group to manage its pharmacy benefit nationwide. In November 1995, when VISNs were established, VA's Under Secretary for Health directed each VISN to develop and implement a VISN-wide formulary. To develop their formularies, the VISNs generally combined existing medical center formularies and eliminated rarely prescribed drugs. In 1996, VA was required to improve veterans' access to care regardless of the region of the United States in which they live. As part of its response, VA implemented a national drug formulary on June 1, 1997, by combining the core set of drugs common to the newly developed VISN formularies. VA's formulary meets the Joint Commission for the Accreditation of Health Care Organizations' requirements for developing and maintaining an appropriate selection of medications for prescribers to use in treating their patient populations. VA's formulary lists more than 1,100 unique drugs in 254 drug classes-- groups of drugs similar in chemistry, method of action, or purpose of use. After performing reviews of drug classes representing the highest costs and volume of prescriptions, VA decided that some drugs in 4 of its 254 drug classes were therapeutically interchangeable--that is, essentially equivalent in terms of efficacy, safety, and outcomes. This determination allowed VA to select one or more of these drugs for its formulary so that it could seek better prices through competitively bid committed-use contracts. Other therapeutically equivalent drugs in these classes were then excluded from the formulary. These four classes are known as "closed" classes. VA has not made clinical decisions regarding therapeutic interchange in the remaining 250 drug classes, and it does not limit the number of drugs that can be added to these classes. These are known as "open" classes. To manage its pharmacy benefit nationwide, VA established the Pharmacy Benefits Management Strategic Healthcare Group (PBM). PBM is responsible for managing the national formulary list, maintaining databases that reflect drug use, and monitoring the use of certain drugs. PBM also facilitates the addition and deletion of drugs on the national formulary on the basis of safety and efficacy data, determines which drugs are therapeutically interchangeable in order to purchase drugs through competitive bidding, and develops safeguards to protect veterans from the inappropriate use of certain drugs. VISN directors are responsible for implementing and monitoring compliance with the national formulary and ensuring that a nonformulary drug approval process is functioning at each of their medical centers. Although VISN and medical center directors are held accountable in annual performance agreements for meeting certain national and local goals, attaining formulary goals has not been part of their performance standards. While VA has made significant progress in establishing a national formulary, its oversight has not been sufficient to ensure that it is fully achieving its national formulary goal of standardizing its drug benefit nationwide. In our January 2001 report, we found three factors that have impeded formulary standardization: (1) medical centers we visited omitted some national formulary drugs from their local formularies, (2) VISNs varied in the number of drugs they added to local formularies to supplement the national formulary without appropriate oversight, and (3) medical centers inappropriately added or deleted drugs in closed classes. Nevertheless, most prescribed drugs were on the national formulary, and prescribers and patients were generally satisfied with the national formulary. The first factor impeding standardization is that medical centers omitted some national formulary drugs from their local formularies. Almost 3 years after VA facilities were directed to make all national formulary drugs available locally, two of the three medical centers we visited in spring of 2000 omitted required drugs from the formularies used by their prescribers. At one medical center, about 25 percent (286 drugs) of the national formulary drugs were not available as formulary choices. These included drugs used to treat high blood pressure, mental disorders, and women's medical needs. At the second medical center, about 13 percent (147 drugs) of the national formulary drugs were omitted, including drugs used to treat certain types of cancer and others used to treat stomach conditions. From October 1999 through March 2000, health care providers at these two medical centers had to obtain nonformulary drug approvals for over 22,000 prescriptions for drugs that should have been available without question because they are on the national formulary. Our analysis showed that at the first center, over 14,000 prescriptions were filled as nonformulary drugs for 91 drugs that should have been on the formulary.At the other medical center, over 8,000 prescriptions for 23 national formulary drugs were filled as nonformulary drugs. If the national formulary had been properly implemented at these medical centers, prescribers would not have had to use extra time to request and obtain nonformulary drug approvals for these drugs, and patients could have started treatment earlier. The second factor impeding standardization is the wide variation in the number of drugs added by VISNs to their local formularies. VA's policy allowing VISNs to supplement the national formulary locally has the potential for conflicting with VA's goal of achieving standardization if it is not closely managed. From June 1997 through March 2000, the 22 VISNs added a total of 244 unique drugs to supplement the list of drugs on the national formulary. As figure 1 shows, the number of drugs added by each VISN varies widely, ranging from as many as 63 to as few as 5. Adding drugs to supplement the national formulary is intended to allow VISNs to be responsive to the unique needs of their patients and to allow quicker formulary designation of new drugs approved by the Food and Drug Administration (FDA). VA officials have acknowledged that this variation affects standardization and told us they plan to address it. For example, PBM plans to more quickly review new drugs when approved by FDA to determine if they should be added to the national formulary. The third factor is that medical centers we visited inappropriately modified the national formulary list of drugs in the closed classes. Contrary to VA formulary policy, two of three medical centers added two different drugs to two of the four closed classes, and one facility did not make a drug in a closed class available. Moreover, the Institute of Medicine (IOM) found broad nonconformity at the VISN level.Specifically, IOM reported that 16 of the 22 VISNs modified the list of national formulary drugs for the closed classes. This also undermines VA's ability to achieve cost savings through its committed-use contracts. While VA has not yet fully achieved national formulary standardization, most prescribed drugs were on the national formulary. From October 1999 through March 2000, 90 percent of VA outpatient prescriptions were written for national formulary drugs. The percentage of national formulary drug prescriptions filled by individual VISNs varied slightly, from 89 percent to 92 percent. We found wider variation among medical centers within VISNs--84 percent to 96 percent. Of the remaining 10 percent of prescriptions filled systemwide, VA's national database could not distinguish between nonformulary drugs and drugs added to local formularies by VISNs and medical centers to supplement the national formulary. VA's PBM and the IOM estimate that drugs added to supplement the national formulary probably account for about 7 percent of all prescriptions filled, and nonformulary drugs account for approximately 3 percent of all prescriptions filled. VA officials told us that they are modifying the database to enable them to identify which drugs are added to supplement the national formulary and which are nonformulary. This will allow them to better oversee the balance between local needs and national standardization. Prescribers we surveyed reported they were generally satisfied with the national formulary. Seventy percent of VA prescribers in our survey reported that the formulary includes the drugs their patients need either to a "great extent" or to a "very great extent." Approximately 27 percent reported that the formulary meets their patients' needs to a "moderate extent," with 4 percent reporting that it meets their patients' needs to a lesser extent. No VA prescribers reported that the formulary meets their patients' needs to "very little or no extent." This is consistent with IOM's conclusion that the VA formulary "is not overly restrictive." Veterans also appear satisfied with their ability to obtain the drugs they believe they need. At the VA medical centers we visited, patient advocates told us that veterans made very few complaints concerning their prescriptions. In its analysis of patient complaints, IOM found that less than one-half of 1 percent of veterans' complaints were related to drug access. IOM further reported that complaints involving specific identifiable drugs often involved drugs that are marketed directly to consumers, such as Viagra. Our review also indicated that the few prescription complaints made were often related to veterans trying to obtain "lifestyle" drugs or refusals by VA physicians and pharmacists to fill prescriptions written by non-VA health care providers. VA may fill prescriptions written by non-VA health care providers only under limited circumstances, for example, when the veteran is housebound and receives additional compensation because of a service-connected disability. While the national formulary directive requires certain criteria for approval of nonformulary drugs, it does not prescribe a specific nonformulary approval process. As a result, the processes health care providers must follow to obtain nonformulary drugs differ among VA facilities regarding how requests are made, who receives them, who approves them, and how long it takes to obtain approval. In addition, some VISNs have not established processes to collect and analyze data on nonformulary requests. As a result, VA does not know if approved requests meet its established criteria or if denied requests are appropriate. Both the people involved and the length of time to approve nonformulary drugs varied. The person who first receives a nonformulary drug approval request may not be the person who approves it. For example, 61 percent of prescribers reported that nonformulary drug requests must first be submitted to facility pharmacists, 14 percent said they must first be submitted to facility pharmacy and therapeutics (P&T) committees, and 8 percent said they must first be sent to service chiefs. In contrast, 31 percent of prescribers reported that facility pharmacists approve nonformulary drug requests, 26 percent said that facility P&T committees approve them, and 15 percent told us that facility chiefs of staff approve them. The remaining 28 percent reported that various other facility officials or members of the medical staff approve nonformulary drug requests. The time required to obtain approval for use of a nonformulary drug also varied depending on the local approval processes. The majority of prescribers we surveyed (60 percent) reported that it took an average of 9 days to obtain approval for use of nonformulary drugs. But many prescribers also reported that it took only a few hours (18 percent) or minutes (22 percent) to obtain such approvals. During our medical center visits, we observed that some medical center approval processes are less expeditious than others. For example, to obtain approval to use a nonformulary drug in one facility we visited, prescribers were required to submit a request in writing to the P&T committee for its review and approval. Because the P&T committee met only once a month, the final approval to use the requested drug was sometimes delayed as long as 30 days. The requesting prescriber, however, could write a prescription for an immediate 30-day supply if the medication need was urgent. In contrast, another medical center we visited assigned a clinical pharmacist to work directly with health care providers to help with drug selection, establish dose levels, and facilitate the approval of nonformulary drugs. In that facility, clinical pharmacists were allowed to approve the use of nonformulary drugs. If a health care provider believed that a patient should be prescribed a nonformulary drug, the physician and pharmacist could consult at the point of care and make a final decision with virtually no delay. Prescribers we surveyed were almost equally divided on the ease or difficulty of getting nonformulary drug requests approved. (See table 1.) Regardless of whether the nonformulary drug approval process was perceived as easy or difficult, the majority of prescribers told us that their requests were generally approved. According to our survey results, 65 percent of prescribers sought approval for nonformulary drugs in 1999. These prescribers reported that they made, on average, 25 such requests (the median was 10 requests). We estimated that 84 percent of all prescribers' nonformulary requests were approved. When a nonformulary drug request was disapproved, 60 percent of prescribers reported that they switched to a formulary drug. However, more than one-quarter of the prescribers who had nonformulary drug requests disapproved resubmitted their requests with additional information. For patients moving from one location to another, the majority of prescribers we surveyed told us that they were more likely to convert VA patients who were on a nonformulary drug obtained at another VA facility to a formulary drug than to request approval for the nonformulary drug. (See table 2.) Contrary to the national formulary policy, not all VISNs have established a process for collecting and analyzing data on nonformulary requests at the VISN and local levels. Twelve of VA's 22 VISNs reported that they do not collect information on approved and denied nonformulary drug requests. Three VISNs reported that they collect information only on approved nonformulary drug requests, and seven reported that they collect information for both approved and denied requests. Such information could help VA officials to determine the extent to which nonformulary drugs are being requested and whether medical center processes for approving these requests meet established criteria. In its report, IOM noted that inadequate documentation on such matters could diminish confidence in the nonformulary process. We are encouraged by VA's actions, but it is too early to tell how successful it will be in addressing our recommendations for improving its management and oversight of the national formulary. To improve standardization of its formulary, we recommended that VA establish (1) a mechanism to ensure that VISN directors comply with VA's national formulary policy and (2) criteria that VISNs should use to determine the appropriateness of adding drugs to supplement the national formulary and monitor the VISNs' application of these criteria. VA's PBM has developed changes to its database that will provide comparative national data on VISN, nonformulary, and national formulary drug use. PBM also plans to share these data, including identification of outliers, with all 22 VISNs and coordinate with VISN formulary leaders to facilitate consistent compliance with national formulary policy. In addition, VA (1) drafted criteria for VISNs to use to determine the appropriateness of adding drugs to supplement the national formulary list, which it intends to include in a directive; (2) is developing a template for VISNs to document all VISN formulary additions; and (3) intends to review more quickly all new FDA- approved drugs for inclusion in the national formulary. To improve its nonformulary drug approval process, we recommended that (1) VA establish a process to ensure timely and appropriate decisions by medical centers and (2) veterans be allowed continued access to previously approved nonformulary drugs, regardless of where they seek care in VA's health care system. In addressing these recommendations, VA plans to incorporate into its revised formulary directive the fundamental steps that all medical centers must take in establishing and reporting their nonformulary activities. VA also plans to include in its revised formulary directive a specific requirement that approved nonformulary medications will continue if a veteran changes his or her care to a different VA facility.
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Although the Department of Veterans Affairs (VA) has made significant progress establishing a national formulary that has generally met with acceptance by prescribers and patients, VA oversight has not fully ensured standardization of its drug benefit nationwide. The three medical centers GAO visited did not comply with the national formulary. Specifically, two of the three medical centers omitted more than 140 required national formulary drugs, and all three facilities inappropriately modified the national formulary list of required drugs for certain drug classes by adding or omitting some drugs. In addition, as VA policy allows, Veterans Integrated Service Networks (VISN) added drugs to supplement the national formulary ranging from five drugs at one VISN to 63 drugs at another. However, VA lacked criteria for determining the appropriateness of the actions networks took to add these drugs. In addition to problems standardizing the national formulary, GAO identified weaknesses in the nonformulary approval process. Although the national formulary directive requires certain criteria for approving nonformulary drugs, it does not prescribe a specific nonformulary approval process. As a result, the processes health care providers must follow to obtain nonformulary drugs differ among VA facilities on how requests are made, who receives them, who approves them, and how long it takes to obtain approval. GAO found that the length of time to approve nonformulary drugs averages nine days, but it can be as short as a few minutes in some medical centers. Some VISNs have not established processes to collect and analyze data on nonformulary requests. As a result, VA does not know if approved requests meet its established criteria or if denied requests are appropriate. This testimony summarizes the December 1999 report, HEHS-00-34 and the January 2001 report, GAO-01-183 .
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As I noted, known demographic trends and rising health care costs are major drivers of the nation's large and growing structural deficits. The nation cannot ignore this fiscal pressure--it is not a matter of whether the nation deals with the fiscal gap, but how and when. GAO's long-term budget simulations illustrate the magnitude of this fiscal challenge. Figures 1 and 2 show these simulations under two different sets of assumptions. Figure 1 uses the CBO January 2005 baseline through 2015. As required by law, that baseline assumes no changes in current law, that discretionary spending grows with inflation through 2015, and that all tax cuts currently scheduled to expire are permitted to expire. In Figure 2, two assumptions about that first 10 years are changed: (1) discretionary spending grows with the economy rather than with inflation and (2) all tax cuts currently scheduled to expire are made permanent. In both simulations discretionary spending is assumed to grow with the economy after 2015 and revenue is held constant as a share of Gross Domestic Product (GDP) at the 2015 level. Also in both simulations long-term Social Security and Medicare spending are based on the 2005 trustee's intermediate projections, and we assume that benefits continue to be paid in full after the trust funds are exhausted. Long-term Medicaid spending is based on CBO's December 2003 long-term projections under midrange assumptions. As these simulations illustrate, absent policy changes on the spending and/or revenue side of the budget, the growth in spending on federal retirement and health entitlements will encumber an escalating share of the government's resources. Indeed, when we assume that recent tax reductions are made permanent and discretionary spending keeps pace with the economy, our long-term simulations suggest that by 2040 federal revenues may be adequate to pay little more than interest on the federal debt. Neither slowing the growth in discretionary spending nor allowing the tax provisions to expire--nor both together--would eliminate the imbalance. Although federal tax policies will likely be part of any debate about our fiscal future, making no changes to Social Security, Medicare, Medicaid, and other drivers of the long-term fiscal gap would require at least a doubling of federal taxes in the future--and that seems both unrealistic and inappropriate. These challenges would be difficult enough if all we had to do is fund existing commitments. But as the nation continues to change in fundamental ways, a wide range of emerging needs and demands can be expected to compete for a share of the budget pie. Whether national security, transportation, education, or public health, a growing population will generate new claims for federal actions on both the spending and tax sides of the budget. Although demographic shifts and rising health care costs drive the long- term fiscal outlook, they are not the only forces at work that require the federal government to rethink its role and entire approach to policy design, priorities, and management. Other important forces are working to reshape American society, our place in the world, and the role of the federal government. These include evolving defense and homeland security policies, increasing global interdependence, and advances in science and technology. In addition, the federal government increasingly relies on new networks and partnerships to achieve critical results and develop public policy, often including multiple federal agencies, domestic and international non- or quasi-government organizations, for-profit and not- for-profit contractors, and state and local governments. If government is to effectively address these trends, it cannot accept all of its existing programs, policies, and activities as "givens." Many of our programs were designed decades ago to address earlier challenges. Outmoded commitments and operations constitute an encumbrance on the future that can erode the capacity of the nation to better align its government with the needs and demands of a changing world and society. Accordingly, reexamining the base of all major existing federal spending and tax programs, policies, and activities by reviewing their results and testing their continued relevance and relative priority for our changing society is an important step in the process of assuring fiscal responsibility and facilitating national renewal. A periodic reexamination offers the prospect of addressing emerging needs by weeding out programs and policies that are redundant, outdated, or ineffective. Those programs and policies that remain relevant could be updated and modernized by improving their targeting and efficiency through such actions as redesigning allocation and cost-sharing provisions, consolidating facilities and programs, and streamlining and reengineering operations and processes. The tax policies and programs financing the federal budget can also be reviewed with an eye toward both the overall level of revenues that should be raised as well as the mix of taxes that are used. We recognize that taking a hard look at existing programs and carefully reconsidering their goals and financing are challenging tasks. Reforming programs and activities leads to winners and losers, notwithstanding demonstrated shortfalls in performance and design. Moreover, given the wide range of programs and issues covered, the process of rethinking government programs and activities may take a generation to unfold. We are convinced, however, that reexamining the base offers compelling opportunities to both redress our current and projected fiscal imbalance while better positioning government to meet the new challenges and opportunities of this new century. In this regard, the management and performance reforms enacted by Congress in the past 15 years have provided new tools to gain insight into the financial, program, and management performance of federal agencies and activities. The information being produced as a result can provide a strong basis to support the needed review, reassessment, and reprioritization process. While this kind of oversight and reexamination is never easy, it is helped by the availability of credible performance information focusing on the outcomes achieved with budgetary resources and other tools. Performance budgeting can help enhance the government's capacity to assess competing claims in the budget by arming budgetary decision makers with better information on the results of both individual programs as well as entire portfolios of tools and programs addressing common outcomes. To facilitate application of performance budgeting in reexamination, it is useful to understand the current landscape. Going forward, decision makers need a road map--grounded in lessons learned from past initiatives--that defines what successful performance budgeting would look like and identifies the key elements and potential pitfalls on the critical path to success. Central to this is an understanding of what is meant by success in performance budgeting and the key factors that influence that success. Performance budgeting efforts are not new at the federal level. In the 1990s, Congress and the executive branch drew on lessons learned from 50 years of efforts to link resources to results to lay out a statutory and management framework that provides the foundation for strengthening government performance and accountability. With GPRA as its centerpiece, these reforms also laid the foundation for performance budgeting by establishing infrastructures in the agencies to improve the supply of information on performance and costs. GPRA is designed to inform congressional and executive decision making by providing objective information on the effectiveness and efficiency of federal programs and spending. A key purpose of GPRA is to create closer and clearer links between the process of allocating scarce resources and the expected results to be achieved with those resources. Importantly, GPRA requires both a connection to the structures used in congressional budget presentations and consultation between the executive and legislative branches on agency strategic plans. Because these requirements are grounded in statute, this gives Congress an oversight stake in GPRA's success. Over a decade after its enactment, GPRA has succeeded in expanding the supply of performance information and institutionalizing a culture of performance as well as providing a solid foundation for more recent budget and performance initiatives. In part, this success can be attributed to the fact that GPRA melds the best features, and avoids the worst, of its predecessors. Building on GPRA's foundation, the current administration has made the integration of performance and budget information one of five governmentwide management priorities under its PMA. PART is central to the Administration's budget and performance integration initiative. OMB describes PART as a diagnostic tool meant to provide a consistent approach to assessing federal programs as part of the executive budget formulation process. It applies 25 questions to all "programs" under four broad topics: (1) program purpose and design, (2) strategic planning, (3) program management, and (4) program results (i.e., whether a program is meeting its long-term and annual goals) as well as additional questions that are specific to one of seven mechanisms or approaches used to deliver the program. Drawing on available performance and evaluation information, the PART questionnaire attempts to determine the strengths and weaknesses of federal programs with a particular focus on individual program results and improving outcome measures. PART asks, for example, whether a program's long-term goals are specific, ambitious, and focused on outcomes, and whether annual goals demonstrate progress toward achieving long-term goals. It is designed to be evidence-based, drawing on a wide array of information, including authorizing legislation, GPRA strategic plans and performance plans and reports, financial statements, inspector general and GAO reports, and independent program evaluations. Since the fiscal year 2004 budget cycle, OMB has applied PART to 607 programs (about 60 percent of the federal budget) and given each program one of four overall ratings: (1) "effective," (2) "moderately effective," (3) "adequate," or (4) "ineffective" based on program design, strategic planning, management, and results. A fifth rating, "results not demonstrated," was given--independent of a program's numerical score-- if OMB decided that a program's performance information, performance measures, or both were insufficient or inadequate. During the next 2 years, the Administration plans to assess all remaining executive branch programs with limited exceptions. As I testified before this subcommittee in April, PMA and its related initiatives, including PART, demonstrate the Administration's commitment to improving federal management and performance. By calling attention to successes and needed improvements, the focus that these initiatives bring is certainly a step in the right direction, and our work shows that progress has been made in several important areas over the past several years. However, it is not clear that PART has had any significant impact on congressional authorization, appropriations, and oversight activities to date. In order for such efforts to hold appeal beyond the executive branch, developing credible performance information and garnering congressional buy-in on what to measure and how to present this information to them are critical. Otherwise, as some congressional subcommittees have noted, PART is unlikely to play a major role in the authorization, appropriations, and oversight processes. Prior initiatives have left us with some lessons about how to build a sustainable approach to linking resources to results. Before I discuss those critical factors let me touch briefly on the importance of realistic expectations. I say this because previous management reforms have been doomed by inflated and unrealistic expectations. Performance budgeting can do a great deal: it can help policymakers address important questions such as whether programs are contributing to their stated goals, are well- coordinated with related initiatives at the federal level or elsewhere, and are targeted to the intended beneficiaries. However, it should not be expected to provide the answers to all resource allocation questions in some automatic or formula-driven process. Performance problems may well prompt budget cuts, program consolidations, or eliminations, but they may also inspire enhanced investments and reforms in program design and management if the program is deemed to be of sufficiently high priority to the nation. Conversely, even a program that is found to be exceeding its performance expectations can be a candidate for budgetary cuts if it is a lower priority than other competing claims in the process. The determination of priorities is a function of competing values and interests that may be informed by performance information but also reflects other factors, such as the overall budget situation, the state of the economy, security needs, equity considerations, unmet societal needs, and the appropriate role of the federal government in addressing any such needs. Accordingly, we found that while PART scores for fiscal year 2004 were generally positively related to the Administration's proposed funding changes in discretionary programs, the scores did not automatically determine funding changes. That is, for some programs rated "effective" or "moderately effective" OMB recommended funding decreases, while for several programs judged to be "ineffective" OMB recommended additional funding in the President's budget request with which to implement changes. As we have noted, success in performance budgeting should not be defined only by its impact on funding decisions but also on the extent to which it helps inform Congress and executive branch policy decisions and improve program management. In this regard, for the fiscal year 2004 PART assessments we reported that over 80 percent of the PART recommendations focused on improving program management, assessment, and design; less than 20 percent related to funding. We also reported that OMB's ability to use PART to identify and address future program improvements and measure progress--a major purpose of PART--is predicated on its ability to oversee the implementation of PART recommendations. At the request of the Chairman of the House Subcommittee on Government Management, Finance, and Accountability, Committee on Government Reform, we are currently conducting a review of (1) OMB's and agencies' perspectives on the effects PART recommendations are having on agency operations and results and issues encountered in responding to PART recommendations; (2) OMB's leadership and direction in ensuring an integrated, complementary relationship between PART and GPRA, including how OMB is assessing performance when multiple programs or agencies are involved in meeting goals and objectives; and (3) steps OMB has taken to involve Congress in the PART process. Let me now turn to three factors we believe are critical to sustaining successful performance budgeting over time: 1. building a supply of credible performance information, 2. encouraging demand for that information and its use in congressional processes by garnering stakeholder buy-in, and 3. taking a comprehensive and crosscutting approach to assessing related programs and policies. The credibility of performance information, including related cost data, and the ability of federal agencies to produce credible evaluations of their programs' effectiveness are key to the success of performance budgeting. As I testified before this subcommittee in April, this type of information is critical for effective performance measurement to support decisions in areas ranging from program efficiency and effectiveness to sourcing and contract management. To be effective, this information must not only be timely and reliable, but also both useful and used. Agencies are expected to implement integrated financial and performance management systems that routinely produce information that is (1) timely--to measure and affect performance, (2) useful--to make more informed operational and investing decisions, and (3) reliable--to ensure consistent and comparable trend analysis over time and to facilitate better performance measurement and decision making. Producing timely, useful, and reliable information is critical for achieving the goals that Congress established in GPRA, the Chief Financial Officers (CFO) Act of 1990, and other federal financial management reform legislation. Unfortunately, as our work on PART and GPRA implementation shows, the credibility of performance data has been a long-standing weakness. Likewise, our work has noted limitations in the quality of agency evaluation information and in agency capacity to produce rigorous evaluations of program effectiveness. We have previously reported that agencies have had difficulty assessing many program outcomes that are not quickly achieved or readily observed and contributions to outcomes that are only partly influenced by federal funds. Furthermore, our work has shown that few agencies deployed the rigorous research methods required to attribute changes in underlying outcomes to program activities. Our 2003 review of agencies' evaluation capacity identified four main elements that can be used to develop and improve evaluation efforts. They are (1) an evaluation culture, (2) data quality, (3) analytic expertise, and (4) collaborative partnerships. OMB, through its development and use of PART, has provided agencies with a powerful incentive for improving data quality and availability. Agencies may make greater investments in improving their capacity to produce and procure quality information if agency program managers perceive that program performance and evaluation data will be used to make actual resource decisions throughout the resource allocation process and can help them get better results. Improvements in the quality of performance data and the capacity of federal agencies to perform program evaluations will require sustained commitment and investment of resources. Over the longer term, failing to discover and correct performance problems can be much more costly. More importantly, it is critical that budgetary investments in this area be viewed as part of a broader initiative to improve the accountability and management capacity of federal agencies and programs. Federal performance and accountability reforms have given much attention to increasing the supply of performance information over the past several decades. However, improving the supply of performance information is in and of itself insufficient to sustain performance management and achieve real improvements in management and program results. Rather, it needs to be accompanied by a demand for and use of that information by decision makers and managers alike. Key stakeholder outreach and involvement is critical to building demand and, therefore, success in performance budgeting. Lack of consensus by a community of interested parties on goals and measures and the way that they are presented can detract from the credibility of performance information and, subsequently, its use. Fifty years of past executive branch efforts to link resources with results have shown that any successful effort must involve Congress as a full partner. We have previously reported that past performance budgeting initiatives faltered in large part because they intentionally attempted to develop performance plans and measures in isolation from the congressional authorization, appropriations, and oversight processes. While congressional buy-in is critical to sustain any major management initiative, it is especially important for performance budgeting given Congress's constitutional role in setting national priorities and allocating the resources to achieve them. Obtaining buy-in on goals and measures from a community of interested parties is critical to facilitating use of performance information in resource allocation decisions. PART was designed for and is used in the executive branch budget preparation and review process; as such, the goals and measures used in PART must meet OMB's needs. However, the current statutory framework for strategic planning and reporting is GPRA--a broader process involving the development of strategic and performance goals and objectives to be reported in strategic and annual plans. OMB's desire to collect performance data that better align with budget decision units means that the fiscal year 2004 PART process became a parallel competing structure to the GPRA framework. Although OMB acknowledges that GPRA was the starting point for PART, the emphasis is shifting. Over time, as the performance measures developed for PART are used in the executive budget process, these measures may come to drive agencies' strategic planning processes. Opportunities exist to strengthen PART's integration with the broader GPRA planning process. Some tension about the amount of stakeholder involvement in the internal deliberations surrounding the development of PART measures and the broader consultations more common to the GPRA strategic planning process is inevitable. Compared to the relatively open- ended GPRA process, any budget formulation process is likely to seem closed. However, if PART is to be accepted as other than one element in the development of the President's budget proposal, congressional understanding and acceptance of the tool and its analysis will be critical. As part of the executive branch budget formulation process, PART must clearly serve the President's interests. However, measures developed solely by the executive branch for the purposes of executive budget formulation may discourage their use in other processes, such as internal agency management and the congressional budget process, especially if measures that serve these other processes are eliminated through the PART process. PART's focus on outcome measures may ignore stakeholders' needs for other types of measures, such as output and workload information. Our recent work examining performance budgeting efforts at both the state and federal levels revealed that appropriations committees consider workload and output measures important for making resource allocation decisions. Workload and output measures lend themselves to the budget process because workload measures, in combination with cost-per-unit information, can be used to help develop appropriation levels and legislators can more easily relate output information to a funding level to help define or support a desired level of service. Like PART, GPRA states a preference for outcome measures. However, in practice, GPRA also recognizes the need to develop a range of measures, including output and process measures. Since different stakeholders have different needs and no one set of goals and measures can serve all purposes, PART can and should complement GPRA but should not replace it. Moreover, as we have previously reported, several appropriations subcommittees have cited the need to link PART with congressional oversight. For example, the House Report accompanying the Transportation and Treasury Appropriations Bill for fiscal year 2004 included a statement in support of PART, but noted that the Administration's efforts must be linked with the oversight of Congress to maximize the utility of the PART process, and that if the Administration treats as privileged or confidential the details of its rating process, it is less likely that Congress will use those results in deciding which programs to fund. Moreover, the subcommittee said it expects OMB to involve the House and Senate Committees on Appropriations in the development of the PART ratings at all stages in the process. In our January 2004 report on PART, we suggested steps for both OMB and Congress to take to strengthen the dialogue between executive branch officials and key congressional stakeholders, and OMB generally agreed. We recommended that OMB reach out to key congressional committees early in the PART selection process to gain insight about which program areas and performance issues congressional officials consider warrant PART review. Engaging Congress early in the process may help target reviews with an eye toward those areas most likely to be on the agenda of Congress, thereby better ensuring the use of performance assessments in resource allocation processes throughout government. The importance of getting buy-in for successful performance budgeting can be seen in the experience of OMB's recent efforts to restructure budget accounts. While OMB staff and agency officials credited budget restructuring with supporting results-oriented management, the budget changes did not meet the needs of some congressional appropriations committees. While congressional appropriations subcommittee staff expressed general support for budget and performance integration, they objected to changes that substituted rather than supplemented information traditionally used for appropriations and oversight purposes. As we said in our February 2005 report on this issue, the greatest challenge of budget restructuring may be discovering ways to reflect both the broader planning perspective that can add value to budget deliberations and foster accountability in ways that Congress considers appropriate for meeting its authorizing, appropriations, and oversight objectives. Going forward, infusing a performance perspective into budget decisions may only be achieved when the underlying information becomes more credible, accepted, and used by all major decision makers. Thus, Congress must be considered a full partner in any efforts to infuse a performance budget perspective into budget structure and budget deliberations. In due course, once the goals and underlying data become more compelling and used by Congress, budget restructuring may become a more compelling tool to advance budget and performance integration. While existing performance budgeting initiatives provide a foundation for a baseline review of federal policies, programs, functions, and activities, several changes are in order to support the type of reexamination needed. For example, PART focuses on individual programs, but key outcome- oriented performance goals--ranging from low income housing to food safety to counterterrorism--are addressed by a wide range of discretionary, entitlement, tax, and regulatory approaches that cut across a number of agencies. While PART's program-by-program approach fits with OMB's agency-by-agency budget reviews, it is not well suited to addressing crosscutting issues or to looking at broad program areas in which several programs address a common goal. The evaluation of programs in isolation may be revealing, but a broader perspective is necessary for an effective overall reexamination effort. It is often critical to understand how each program fits with a broader portfolio of tools and strategies--such as regulations, direct loans, and tax expenditures--to accomplish federal missions and performance goals. Such an analysis is necessary to capture whether a program complements and supports other related programs, whether it is duplicative and redundant, or whether it actually works at cross-purposes to other initiatives. OMB reported on a few crosscutting PART assessments in the fiscal year 2006 budget and plans to conduct additional crosscutting reviews in 2005. However, we would urge a more comprehensive and consistent approach to evaluating all programs relevant to common goals. Such an approach would require assessing the performance of all programs related to a particular goal--including tax expenditures and regulatory programs--using a common framework. Our federal tax system includes hundreds of billions of dollars of annual expenditures--the same order of magnitude as total discretionary spending. Yet relatively little is known about the effectiveness of tax incentives in achieving the objectives intended by Congress. PART, OMB's current framework for assessing the performance of federal programs, has not been applied to tax expenditures. Assessing complete portfolios of tools related to key outcome-oriented goals is absolutely critical to the type of reexamination needed. The governmentwide performance plan required by GPRA could help address this issue. GPRA requires the President to include in his annual budget submission a federal government performance plan. Congress intended that this plan provide a "single cohesive picture of the annual performance goals for the fiscal year." The governmentwide performance plan could help Congress and the executive branch address critical federal performance and management issues, including redundancy and other inefficiencies in how we do business. It could also provide a framework for any restructuring efforts. Unfortunately, this provision has not been fully implemented. Instead, OMB has used the President's budget to present high-level information about agencies and certain program performance issues. The agency-by-agency focus of the budget does not provide the integrated perspective of government performance envisioned by GPRA. If the governmentwide performance plan were fully implemented, it could also provide a framework for congressional oversight and other activities. In that regard, we have also suggested that Congress consider the need to develop a more systematic vehicle for communicating its top performance concerns and priorities; develop a more structured oversight agenda to prompt a more coordinated congressional perspective on crosscutting performance issues; and use this agenda to inform its authorization, appropriations, and oversight processes. One possible approach would involve developing a congressional performance resolution identifying the key oversight and performance goals that Congress wishes to set for its own committees and for the government as a whole. Such a resolution could be developed by modifying the current congressional budget resolution, which is already organized by budget function. Initially, this may involve collecting the "views and estimates" of authorization and appropriations committees on priority performance issues for programs under their jurisdiction and working with such crosscutting committees as this committee, the House Committee on Government Reform, and the House Committee on Rules. In addition, we have previously recommended that Congress consider amending GPRA to require the President to develop a governmentwide strategic plan to provide a framework to identify long-term goals and strategies to address issues that cut across federal agencies. A strategic plan for the federal government, supported by key national outcome-based indicators to assess the government's performance, position, and progress, could be a valuable tool for governmentwide reexamination of existing programs, as well as proposals for new programs. Developing a strategic plan can help clarify priorities and unify stakeholders in the pursuit of shared goals. Therefore, developing a strategic plan for the federal government would be an important first step in articulating the role, goals, and objectives of the federal government. If fully developed, a governmentwide strategic plan can potentially provide a cohesive perspective on the long-term goals of the federal government and provide a much-needed basis for fully integrating, rather than merely coordinating, a wide array of federal activities. The development of a set of key national indicators could be used as a basis to inform the development of governmentwide strategic and annual performance plans. The indicators could also link to and provide information to support outcome-oriented goals and objectives in agency-level strategic and annual performance plans. Successful strategic planning requires the involvement of key stakeholders. Thus, it could serve as a mechanism for building consensus. Further, it could provide a vehicle for the President to articulate long-term goals and a road map for achieving them. In addition, a strategic plan can provide a more comprehensive framework for considering organizational changes and making resource decisions. The federal government is in a period of profound transition and faces an array of challenges and opportunities to enhance performance, ensure accountability, and position the nation for the future. In addition to the serious long-term fiscal challenges facing the nation, a number of overarching trends, such as defense and homeland security policies, increasing global interdependence, and advances in science and technology, drive the need to reconsider the proper role for the federal government in the 21st century, including what it does, how it does it, who does it, and how it gets financed. This will mean bringing a variety of tools and approaches to bear. In our February 2005 report on 21st century challenges, we outline a number of approaches that could facilitate a reexamination effort. Today, I've discussed several of these, as well as some additional steps that I believe are necessary for an effective reexamination effort. Much is at stake in the development of a collaborative performance budgeting process. This is an opportune time for the executive branch and Congress to consider and discuss how agencies and committees can best take advantage of and leverage the new information and perspectives coming from the reform agenda under way in the executive branch. Through PMA and its related initiatives, including PART, the Administration has taken important steps in the right direction by calling attention to successes and needed improvements in federal management and performance. Some program improvements can come solely through executive branch action, but for PART to meet its full potential the assessments it generates must also be meaningful to and used by Congress and other stakeholders. Successful integration of inherently separate but interrelated strategic planning and performance budgeting processes is predicated on (1) ensuring that the growing supply of performance information is credible, useful, reliable, and used (2) increasing the demand for this information by developing goals and measures relevant to the large and diverse community of stakeholders in the federal budget and planning processes, and (3) taking a comprehensive and crosscutting approach. It will only be through the continued attention of the executive branch and Congress that progress can be sustained and, more importantly, accelerated. This effort can both strengthen the budget process itself and provide a valuable tool to facilitate a fundamental reexamination of the base of government. We recognize that this process will not be easy. Given the wide range of programs and issues covered, the process of rethinking the full range of federal government programs, policies, and activities could take a generation or more to complete. Regardless of the specific combination of reexamination approaches adopted, success will require not only the factors listed above but also sustained leadership throughout the many stages of the policy process. In addition, for comprehensive reexamination of government programs and policies, clear and transparent processes for engaging the broader public in the debate are also needed. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions you or the other Members of the Subcommittee may have at this time. For future information on this testimony, please contact Paul L. Posner at (202) 512-9573 or [email protected]. Individuals making key contributions to this testimony include Jacqueline Nowicki, Tiffany Tanner, and Benjamin Licht. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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As part of its work to improve the management and performance of the federal government, GAO monitors progress and continuing challenges in performance budgeting and the Administration's related initiatives, such as the Program Assessment Rating Tool (PART). In light of the nation's long-term fiscal imbalance and other emerging 21st century challenges, we have also reported that performance budgeting can help facilitate a needed reexamination of what the federal government does, how it does it, who does it, and how it is financed in the future. GAO remains committed to working with Congress and the Administration to help address these important and complex issues. The federal government is in a period of profound transition and faces an array of challenges and opportunities to enhance performance, ensure accountability, and position the nation for the future. A number of overarching trends--including the nation's long-term fiscal imbalance--drive the need to reexamine what the federal government does, how it does it, who does it, and how it gets financed. This will mean bringing a variety of tools and approaches to bear on the situation. Performance budgeting holds promise as a means for facilitating a reexamination effort. It can help enhance the government's capacity to assess competing claims for federal dollars by arming decision makers with better information both on the results of individual programs as well as on entire portfolios of tools and programs addressing common goals. However, it is important to remember that in a political process, performance information should be one, but will not be the only, factor in decision making. Existing performance budgeting efforts, such as PART, provide a means for facilitating a baseline review of certain federal policies, programs, functions, and activities. Successful application of these initiatives in this reexamination process rests on building a supply of credible and reliable performance information, encouraging demand for that information by garnering congressional buy-in on what is measured and how it is presented, and developing a comprehensive and crosscutting approach to assessing the performance of all major federal programs and policies encompassing spending, tax expenditures, and regulatory actions. Through the President's Management Agenda and its related initiatives, including PART, the Administration has taken important steps in the right direction by calling attention to successes and needed improvements in federal management and performance. However, it is not clear that PART has had any significant impact on authorization, appropriations, and oversight activities to date. It will only be through the continued attention of the executive branch and Congress that progress can be accelerated and sustained. Such an effort can strengthen the budget process itself and provide a valuable tool to facilitate a fundamental reexamination of the base of government. We recognize that this process will not be easy. Furthermore, given the wide range of programs and issues covered, the process of rethinking government programs and activities could take a generation or more to complete.
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The U.S. government's economic assistance in Egypt focuses primarily on partnering with the Egyptian government to promote economic growth and development. This support has three core components: Traditional project assistance, managed by USAID, focuses on, among other things, private sector development, health and education, and the environment. The Development Support Program, or "cash transfer program," provides assistance funding conditioned on the Egyptian government's achievement of specific reform goals. The CIP supplies financing to Egyptian private sector importers of U.S. goods and funding to the Egyptian government that is not specifically conditioned on any reforms. Between 1975 and 1986, the CIP funded only public sector imports. In 1986, USAID established a private sector CIP, providing foreign exchange to finance imports of capital and noncapital goods from the United States. Since 1986, the CIP has facilitated more than $3.1 billion in loans to the private sector for the purchase of U.S. exports. In 1991, USAID ended the public sector CIP. In 1998, the U.S. and Egyptian governments agreed to reduce U.S. economic support from $815 million to $407 million per year in fiscal year 2009. Annual CIP appropriations are projected to remain constant until fiscal year 2007 and decline to $150 million by fiscal year 2009 (see fig. 1). CIP transactions have two main components (see fig. 2 for a depiction of the CIP transaction flow). First, USAID issues letters of commitment to participating U.S. banks (nine as of 2004). These letters authorize the banks to pay U.S. exporters that sell goods through the CIP. After the goods are shipped and the exporter provides the required documentation, the U.S. bank pays the exporter and requests reimbursement from USAID. Second, the Egyptian importer seeks a loan, denominated in Egyptian pounds, from 1 of 31 participating local banks (27 private and 4 public), which assumes the credit risk for the loan amount. The importer must document a reasonable number of bids and certify that the goods are new and unused; made in, and shipped from, the United States; and consistent with the U.S. government's list of eligible commodities. Before the Egyptian bank issues a letter of credit authorizing the transaction, USAID again reviews the application. Regardless of whether the importer repays the loan, the local bank is required to send the net proceeds in Egyptian pounds to a special account at the Central Bank of Egypt. The CIP provides favorable financing to importers of U.S. goods and, through the loan repayments, supplies funds to the Egyptian government. From fiscal years 1999-2003, about 650 Egyptian firms used the CIP to import just over $1 billion in U.S. products from approximately 670 U.S exporters. The program gives Egyptian importers access to foreign currency at fixed exchange rates and offers varying interest-free grace periods and repayment periods, as well as incentive programs that extend the grace periods. To ensure that all transactions comply with CIP rules and regulations, USAID has established several management controls. USAID and the Egyptian government mutually determine the uses of the local currency from CIP loan repayments, which are held in a special account at Egypt's Central Bank. In fiscal years 1999-2003, approximately 650 Egyptian firms used the CIP to import $1.1 billion worth of U.S. products. Midsized to large firms accounted for 75 percent, or about $850 million, of CIP transactions. During this period, an average of 90 new Egyptian importers used the CIP each year; the average and median loan values were $300,000 and $153,000, respectively (CIP loans can range from $10,000 to $8 million). Egypt's industrial sector accounted for about two-thirds of CIP loans, with most of the remaining loans used for agriculture, construction, and health care equipment imports. During fiscal years 1999-2003, commodities imported by Egyptian businesses included items such as computer systems, diesel engines, hydraulic pumps, irrigation equipment, and chick incubation systems. In addition, according to USAID, approximately 670 U.S. exporters from 43 states, plus the District of Columbia and Puerto Rico, used the CIP to export to Egypt in fiscal years 1999-2003. In a 2003 USAID-sponsored survey, 66 percent of Egyptian importers surveyed said that they would have imported U.S. goods without the CIP. However, 49 percent of survey respondents said that the CIP helped increase their firm's production capacity and 32 percent said that the program helped increase their firm's employment levels. The importers surveyed reported that they used the CIP chiefly because of three program features--the fixed exchange rate, interest-free grace periods, and the ability to repay loans in Egyptian pounds. Although three-quarters of the U.S. exporters surveyed indicated that they would have exported goods to Egypt without the CIP, almost half said that the CIP helped their firm increase its exports to Egypt. CIP financing helps Egyptian firms obtain from Egyptian banks the foreign currency loans needed to import goods. Representatives of several Egyptian firms told us that the CIP had helped them procure part or, in some cases, all of the foreign currency they needed for U.S. imports. Foreign currency can be difficult to obtain because, according to bank officials we interviewed, Egyptian banks often receive more requests for foreign currency loans than they can accommodate. In addition, Egypt's Central Bank instructed banks in 2003 not to make foreign currency loans unless their clients are able to repay the loans in foreign currency. The financing terms that the CIP offers Egyptian importers depend on the type of commodity and how and where it will be used. Under the program's standard terms, USAID allows participating Egyptian banks to extend the interest-free grace period to traders and end-users for noncapital goods for up to 2 and 4 months, respectively; for capital goods, the grace period may be extended for 9 and 18 months, respectively. Egyptian importers can take 6 months to 8 years to repay their loans after the grace period ends. The terms of CIP loans have been adjusted in response to changes in demand for the CIP. For example, when demand for the program has been high, USAID shortened the duration of the interest-free grace period to reduce distortions of the commercial trade finance market. USAID also offers three incentive programs extending the interest-free grace period to Egyptian firms that (1) are increasing their exports, (2) invest in Upper Egypt, or (3) invest in environmentally friendly equipment. According to USAID, during calendar years 1999-2003, about 12 percent of CIP's resources ($133 million) supported imports by firms that qualified for these programs. Over the last 5 years, nearly half of all loans related to the special incentive programs, or $60 million, went to importers who increased their exports, $45 million went to Upper Egyptian importers, and $28 million went to importers of environmentally friendly equipment. Officials from USAID's Office of the Inspector General told us that the percentage of fraud in the CIP is relatively low given the high volume of transactions in the program. To ensure that the CIP complies with the agency's rules and regulations, USAID uses a series of management controls. These include site visits and physical checks to ensure that goods are used for their intended purpose, as well as posttransaction reviews to detect overpayment for imported goods and noncompliance with program requirements. USAID conducts 25 end-use checks in Egypt annually to ensure that commodities purchased through the program meet these requirements--for example, that goods are used promptly for their intended purpose. Importers who have not complied with CIP requirements have been debarred from the program for 3 months to 3 years. According to USAID officials, seven importers have been debarred from the CIP since 1999. In addition, USAID requires that U.S. suppliers refund overcharges for transactions in which goods were not made in and shipped from the United States. From 1999 to 2003, USAID obtained 120 refunds totaling about $4.7 million. In an annual memorandum of understanding, USAID and Egypt's Ministry of Foreign Affairs jointly determine how much of the local currency from the repayment of loans in the special account will support Egypt's general and sector budgets and USAID's activities. (See fig. 3 for a depiction of the account's funding flow). The special account comprises multiple discrete accounts for the CIP as well as for the cash transfer program. For planning purposes, these are considered one large account, but USAID and the Egyptian Foreign Affairs Ministry can track the funding to a CIP or cash transfer deposit from a prior year. Although the Foreign Assistance Act and the annual memorandum give USAID a role in determining the uses of the funds in the account, the local currency belongs to the Egyptian government. For fiscal years 1999-2003, about three-quarters of the CIP-generated funds from the special account were used for general and sector budget support to help reduce Egypt's budget deficit. In addition, USAID used about 6 percent of CIP-generated funds in the special account for some of its operating expenses. USAID also used about 9 percent of this local currency to finance various projects, technical and feasibility studies, evaluations, and assessments, among other things; the remaining 8 percent covered other disbursements such as refunds for cancelled transactions. Over the years, congressional committee reports have encouraged USAID to use funds from the account to support specific projects, such as the construction of a new campus for the American University in Cairo. Table 1 lists examples of activities funded with CIP-generated funds from the special account during fiscal years 1999-2003. Various factors have limited the CIP's ability to foster a competitive private sector in Egypt. First, the CIP has been operating in a policy and economic climate not conducive to business activity. Although the government of Egypt took steps, beginning in 1991, to shift from a centrally planned economy to one more hospitable to private enterprise, the pace of reforms slowed in the late 1990s. For example: Subsidies and government spending. The budget deficit as a percentage of gross domestic product declined from more than 17 percent in the early 1990s to 3 percent at the end of the decade. However, the deficit subsequently increased steadily, reaching 6.3 percent in 2002-2003. The Economist Intelligence Unit forecasts that Egypt's budget deficit will widen to about 7 percent in fiscal years 2004 and 2005, mainly because of subsidies to protect citizens from price increases and slow private sector economic activity. According to the State Department, Egypt's real gross domestic product growth slowed from nearly 6 percent in fiscal year 1999 to roughly 3 percent in fiscal year 2003, and the private sector's share of this growth fell. Tariffs and custom duties. In the early 1990s, Egypt agreed with the World Trade Organization (WTO) that it would abide by multilateral trade rules and liberalize its trade policies. Accordingly, by the end of the 1990s, Egypt reduced the maximum tariffs for most imports from 50 percent to 40 percent and lifted a ban on fabric imports, among other actions. However, many high tariffs persist--for example, on products related to the automobile and poultry industries and on some textiles. The full implementation of the Egyptian government's WTO commitments is expected to take several more years. State-owned enterprises. The Egyptian government's pace in privatizing government-owned enterprises also slowed. According to Egypt's Ministry of Public Enterprise, 191 of more than 300 state-owned enterprises were privatized between 1993 and 2002. Although the number of entities privatized each year increased from 6 in 1993 to a high of 32 in 1998, it steadily declined to 6 in 2002. According to a September 2003 U.S. Embassy report, two privatization transactions took place in the first quarter of 2003. Further, according to a senior USAID official, there are concerns that the CIP may have eased pressure on the Egyptian government to speed the pace of economic reforms. Although the $200 million that the CIP brings into the country is relatively small--roughly 0.3 percent of the gross domestic product--the funds generated by the program represent, on average, 4.2 percent of the government's budget deficit in the last 5 years. Because CIP funding is not tied to specific conditions, the funding may ease the government's resource constraints without requiring it to reform. A second factor affecting the CIP's ability to strengthen the private sector has been the perceived inconsistency in the government's foreign exchange policy, according to several U.S. government studies and a senior Egyptian economist. For example, between 2000 and 2003, the government devalued the Egyptian pound several times; in 2003, it announced that it was adopting a free market exchange rate but subsequently continued to try to support the value of the pound. These actions have undermined the confidence of foreign and domestic investors and contributed to the persistence of a parallel "black" market for foreign currency and to foreign currency shortages, hampering firms' ability to do business in Egypt. In this context, the CIP can provide only limited relief to the country's foreign currency needs. A representative from the Egyptian Chamber of Commerce stated that the private sector requires about $15 billion in foreign exchange annually, but the CIP supplies less than 2 percent of this amount. A third factor limiting the CIP's effect on the private sector has been Egyptian banks' hesitancy to provide financing. Because of experience with bad loans, the recent economic slowdown, and the resulting increased risk of nonrepayment, Egyptian banks are reluctant to finance entrepreneurial activity, according to the Economist Intelligence Unit. Egyptian bank officials told us that they generally provide CIP funds to firms they deem creditworthy, usually well-established customers with proven credit records. Further, officials at one bank indicated that the bank is moving away from corporate lending in general, including use of the CIP, to concentrate on "less risky" activities such as consumer lending. Finally, the CIP's impact on the private sector has been constrained by Egypt's large number of informal businesses, which the program is not designed to reach. These businesses, which make up more than 80 percent of the country's 1.4 million firms, generally have no access to formal sources of credit such as the CIP, because they are unable to use their assets as collateral for loans. Until broader reforms bring the informal sector into the legal and economic mainstream, the CIP's ability to foster a competitive private sector in Egypt will likely remain limited. In conclusion, Mr. Chairman, while the CIP provides benefits to program participants and supports the Egyptian government's budget, several factors have affected its ability to foster a competitive private sector in Egypt. In this context, it is important that policymakers continue to evaluate whether this program offers the most effective means to achieve U.S. policy goals in Egypt. This completes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have at this time. For questions regarding this testimony, please contact David Gootnick at (202) 512-3149 or Phillip Herr at (202) 512-8509. Other key contributors to this statement were Martin De Alteriis, Kathryn Hartsburg, Julie Hirshen, Simin Ho, Reid Lowe, Seyda Wentworth, and Monica Wolford. At the request of the Chairman of the House International Relations Committee, we examined the Commodity Import Program (CIP) in Egypt. For fiscal years 1999-2003, we analyzed (1) program participants' use of the CIP and the Egyptian government and USAID's use of program funds and (2) factors that have affected the CIP's ability to foster a competitive private sector in Egypt. To determine the CIP's goals, we examined the U.S. Agency for International Development's (USAID) Congressional Budget Justifications for this timeframe. We reviewed various laws and congressional reports that mentioned the CIP as part of the overall mandate for economic support funds to Egypt, and we also reviewed applicable international agreements. We spoke with representatives from the Department of State, the Department of Agriculture's Foreign Agricultural Service, and the Department of Commerce's Foreign Commercial Service. We also reviewed and analyzed applicable USAID regulations, program documentation and descriptions, as well as USAID-sponsored reports and analyses. In addition, we interviewed USAID officials in Washington, D.C., and Cairo and Alexandria, Egypt, and officials of the Egyptian ministries of Foreign Affairs and Finance. We obtained from the Egyptian Ministry of Foreign Affairs data on Egyptian government projects and activities supported by CIP-generated local currency. To determine the reliability of the data provided by the Ministry of Foreign Affairs, we questioned officials at USAID in Egypt, who informed us that they had seen bank statements confirming deposits and releases of funds and that they had a sufficient level of confidence in the data. We determined that the data were sufficiently reliable to indicate the general purposes for which special account funds were used and to provide illustrations of the sums allotted to particular types of projects. We also interviewed eight Egyptian companies from various sectors (e.g., industry and agriculture) and 6 of the 31 participating Egyptian banks that used the CIP during fiscal years 1999-2003. Finally, we spoke with industry and bank representatives from the Egyptian Chamber of Commerce in Cairo who are familiar with the program. Specifically, to determine trends of the program's users and uses, we analyzed USAID data on CIP transactions during these 5 fiscal years. In addition, to obtain information about participants' experiences with, and opinions of, the CIP, we analyzed data from surveys, conducted by a USAID contractor, of (1) firms that export to Egypt from the United States and (2) Egyptian firms that import from the United States under the CIP. To calculate the number of firms that used the CIP in fiscal years 1999- 2003, the average and median value of the transactions, and the annual number of first-time CIP users, we analyzed USAID data on individual export and import transactions. To examine the internal controls that USAID uses to manage the CIP in Egypt, we reviewed reports of USAID's Office of the Inspector General from 1999 through 2003. We also interviewed officials from the Inspector General's office in Washington, D.C., and the Regional Inspector General's office in Cairo. In addition, we spoke with officials from USAID's Office of Management Planning and Innovation in Washington, D.C., regarding the actions that USAID had taken to address recommendations from the Inspector General's office during this time frame. To assess the reliability of the survey data, we reviewed the contractor's description of the methodology, queried the contractor and USAID officials in Egypt, and examined the data electronically. We determined that most of the survey responses were sufficiently reliable to report on respondents' opinions and experiences; however, we noted that we could not generalize from the survey respondents to all CIP participants. Furthermore, because the survey was designed to collect the opinions of firms that participated in fiscal years 1994-2002, we could not focus our analysis exclusively on 1999-2003. To assess the reliability of the transactions data, we performed basic reasonableness tests and queried USAID officials in Egypt. In the course of our assessment, we found a relatively small number of data entry errors. We were able to correct these errors in the importers' transaction data, and we were also able to combine data for firms that were clearly linked, such as firms with a parent-subsidiary relationship. However, we were not able to make these corrections for the exporters' database and, as a result, the figure reported likely includes a small number of duplicate firms. Nevertheless, we determined that the importers' and exporters' transactions data were sufficiently reliable for the purposes of this report. To gain a better understanding of Egypt's macroeconomic environment during fiscal years 1991-2003, we conducted a literature review and interviewed researchers in Egypt, Egyptian government officials from the Ministry of Finance, and officials from Egypt's private and public banks. For the statistical analysis, we used data from Egypt's Central Bank and other official sources, as well as country reports provided by the U.S. Embassy in Cairo and independent economic forecasting agencies. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Commodity Import Program (CIP), managed by the U.S. Agency for International Development (USAID), is intended to foster a competitive private sector in Egypt, in addition to assisting U.S. exporters. The program also supports the government of Egypt and USAID activities and expenses in Egypt. Since 1992, Congress has appropriated at least $200 million per year for the CIP. In 1998, the United States negotiated a reduction in its economic assistance to Egypt, including the CIP, through fiscal year 2009. In this context, GAO was asked to discuss its ongoing analysis of (1) program participants' use of the CIP and the Egyptian government's and USAID's use of program funds and (2) factors that have affected the CIP's ability to foster a competitive private sector in Egypt. We received comments on a draft of this statement from USAID, which we incorporated where appropriate. In general, USAID agreed with our observations. The CIP provides loans to Egyptian importers of U.S. goods and, through loan repayments, supplies funds to the government of Egypt. During fiscal years 1999-2003, about 650 Egyptian firms used the CIP to import $1.1 billion in U.S. products from approximately 670 U.S exporters. In a 2003 USAID survey, about two-thirds of CIP importers said that they would have imported U.S. goods without the program, but half said that it helped increase their firm's production capacity and one-third said that it helped increase their firm's employment levels. The Egyptian government and USAID jointly determine the uses of the funds from loan repayments. In fiscal years 1999-2003, about three-quarters of these funds supported Egypt's general and sector budgets and about 15 percent supported USAIDadministered activities and operating expenses in Egypt. Despite the positive results reported by some CIP users, various factors have limited the program's ability to foster a competitive private sector in Egypt. According to the State Department, the slow pace of Egypt's economic reforms has created a climate not conducive to private enterprise. Further, according to several U.S. government studies, the Egyptian government's inconsistent foreign exchange policies have hampered firms' ability to do business in Egypt, limiting the extent to which the CIP can relieve the country's foreign currency needs. In addition, because of experience with bad loans, the recent economic slowdown, and the resulting increased risk of nonrepayment, bank officials told us that they are generally reluctant to provide loans to entrepreneurs. Finally, because the CIP is not designed to reach firms in Egypt's large informal economy, the program's ability to foster a competitive private sector is necessarily limited.
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As computer technology has advanced, both government and private entities have become increasingly dependent on computerized information systems to carry out operations and to process, maintain, and report essential information. Public and private organizations rely on computer systems to transmit proprietary and other sensitive information, develop and maintain intellectual capital, conduct operations, process business transactions, transfer funds, and deliver services. In addition, the Internet has grown increasingly important to American businesses and consumers, serving as a medium for hundreds of billions of dollars of commerce each year, and has developed into an extended information and communications infrastructure that supports vital services such as power distribution, health care, law enforcement, and national defense. Ineffective protection of these information systems and networks can result in a failure to deliver these vital services, and result in loss or theft of computer resources, assets, and funds; inappropriate access to and disclosure, modification, or destruction of sensitive information, such as national security information, PII, and proprietary business information; disruption of essential operations supporting critical infrastructure, national defense, or emergency services; undermining of agency missions due to embarrassing incidents that erode the public's confidence in government; use of computer resources for unauthorized purposes or to launch attacks on other systems; damage to networks and equipment; and high costs for remediation. Recognizing the importance of these issues, Congress enacted laws intended to improve the protection of federal information and systems. These laws include the Federal Information Security Modernization Act of 2014 (FISMA), which, among other things, authorizes DHS to (1) assist the Office of Management and Budget (OMB) with overseeing and monitoring agencies' implementation of security requirements; (2) operate the federal information security incident center; and (3) provide agencies with operational and technical assistance, such as that for continuously diagnosing and mitigating cyber threats and vulnerabilities. The act also reiterated the 2002 FISMA requirement for the head of each agency to provide information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of the agency's information or information systems. In addition, the act continues the requirement for federal agencies to develop, document, and implement an agency-wide information security program. The program is to provide security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source. Risks to cyber-based assets can originate from unintentional or intentional threats. Unintentional threats can be caused by, among other things, natural disasters, defective computer or network equipment, and careless or poorly trained employees. Intentional threats include both targeted and untargeted attacks from a variety of sources, including criminal groups, hackers, disgruntled employees, foreign nations engaged in espionage and information warfare, and terrorists. These adversaries vary in terms of their capabilities, willingness to act, and motives, which can include seeking monetary gain or a political, economic, or military advantage. For example, adversaries possessing sophisticated levels of expertise and significant resources to pursue their objectives--sometimes referred to as "advanced persistent threats"-- pose increasing risks. Table 1 describes common cyber adversaries. These adversaries make use of various techniques-- or exploits--that may adversely affect federal information, computers, software, networks, and operations. Table 2 describes common types of cyber exploits. An adversary may employ multiple tactics, techniques, and exploits to conduct a cyber attack. The National Institute of Standards and Technology (NIST) has identified several representative events that may constitute a cyber attack: Perform reconnaissance and gather information: An adversary may gather information on a target by, for example, scanning its network perimeters or using publicly available information. Craft or create attack tools: An adversary prepares its means of attack by, for example, crafting a phishing attack or creating a counterfeit ("spoof") website. Deliver, insert, or install malicious capabilities: An adversary can use common delivery mechanisms, such as e-mail or downloadable software, to insert or install malware into its target's systems. Exploit and compromise: An adversary may exploit poorly configured, unauthorized, or otherwise vulnerable information systems to gain access. Conduct an attack: Attacks can include efforts to intercept information or disrupt operations (e.g., denial of service or physical attacks). Achieve results: Desired results include obtaining sensitive information via network "sniffing" or exfiltration, causing degradation or destruction of the target's capabilities; damaging the integrity of information through creating, deleting, or modifying data; or causing unauthorized disclosure of sensitive information. Maintain a presence or set of capabilities: An adversary may try to maintain an undetected presence on its target's systems by inhibiting the effectiveness of intrusion-detection capabilities or adapting behavior in response to the organization's surveillance and security measures. More generally, the nature of cyber-based attacks can vastly enhance their reach and impact. For example, cyber attacks do not require physical proximity to their victims, can be carried out at high speeds and directed at multiple victims simultaneously, and can more easily allow attackers to remain anonymous. These inherent advantages, combined with the increasing sophistication of cyber tools and techniques, allow threat actors to target government agencies and their contractors, potentially resulting in the disclosure, alteration, or loss of sensitive information, including PII; theft of intellectual property; destruction or disruption of critical systems; and damage to economic and national security. Since fiscal year 2006, the number of information security incidents affecting systems supporting the federal government has steadily increased each year: rising from 5,503 in fiscal year 2006 to 67,168 in fiscal year 2014, an increase of 1,121 percent. (See fig. 1.) Furthermore, the number of reported security incidents involving PII at federal agencies has more than doubled in recent years--from 10,481 incidents in fiscal year 2009 to 27,624 incidents in fiscal year 2014. Figure 2 shows the different types of incidents reported in fiscal year 2014. These incidents and others like them can adversely affect national security; damage public health and safety; and lead to inappropriate access to and disclosure, modification, or destruction of sensitive information. Recent examples highlight the impact of such incidents: In June 2015, OPM reported that an intrusion into its systems affected personnel records of about 4 million current and former federal employees. The Director of OPM also stated that a separate incident may have compromised OPM systems related to background investigations, but its scope and impact have not yet been determined. In June 2015, the Commissioner of the Internal Revenue Service (IRS) testified that unauthorized third parties had gained access to taxpayer information from its "Get Transcript" application. According to IRS, criminals used taxpayer-specific data acquired from non-IRS sources to gain unauthorized access to information on approximately 100,000 tax accounts. These data included Social Security information, dates of birth, and street addresses. In April 2015, the Department of Veterans Affairs (VA) Office of Inspector General reported that two VA contractors had improperly accessed the VA network from foreign countries using personally owned equipment. In February 2015, the Director of National Intelligence stated that unauthorized computer intrusions were detected in 2014 on OPM's networks and those of two of its contractors. The two contractors were involved in processing sensitive PII related to national security clearances for federal employees. In September 2014, a cyber-intrusion into the United States Postal Service's information systems may have compromised PII for more than 800,000 of its employees. Given the risks posed by cyber threats and the increasing number of incidents, it is crucial that federal agencies take appropriate steps to secure their systems and information. We and agency inspectors general have identified challenges in protecting federal information and systems, including those in the following key areas: Designing and implementing risk-based cybersecurity programs at federal agencies. Agencies continue to have shortcomings in assessing risks, developing and implementing security controls, and monitoring results. Specifically, for fiscal year 2014, 19 of the 24 federal agencies covered by the Chief Financial Officers (CFO) Actreported that information security control deficiencies were either a material weakness or a significant deficiency in internal controls over Moreover, inspectors general at 23 of the 24 their financial reporting.agencies cited information security as a major management challenge for their agency. As we testified in April 2015, for fiscal year 2014, most of the agencies had weaknesses in the five key security control categories. These control categories are (1) limiting, preventing, and detecting inappropriate access to computer resources; (2) managing the configuration of software and hardware; (3) segregating duties to ensure that a single individual does not have control over all key aspects of a computer-related operation; (4) planning for continuity of operations in the event of a disaster or disruption; and (5) implementing agency-wide security management programs that are critical to identifying control deficiencies, resolving problems, and managing risks on an ongoing basis. (See fig. 3.) Examples of these weaknesses include: (1) granting users access permissions that exceed the level required to perform their legitimate job-related functions; (2) not ensuring that only authorized users can access an agency's systems; (3) not using encryption to protect sensitive data from being intercepted and compromised; (4) not updating software with the current versions and latest security patches to protect against known vulnerabilities; and (5) not ensuring employees were trained commensurate with their responsibilities. We and agency inspectors general have made hundreds of recommendations to agencies aimed at improving their implementation of these information security controls. Enhancing oversight of contractors providing IT services. In August 2014, we reported that five of six agencies we reviewed were inconsistent in overseeing assessments of contractors' implementation of security controls. This was partly because agencies had not documented IT security procedures for effectively overseeing contractor performance. In addition, according to OMB, 16 of 24 agency inspectors general determined that their agency's program for managing contractor systems lacked at least one required element. We recommended that the reviewed agencies establish and implement IT security oversight procedures for such systems. The agencies generally concurred with our recommendations. We also made one recommendation to OPM and the agency concurred, but has not yet implemented this recommendation. Improving security incident response activities. In April 2014, we reported that the 24 agencies did not consistently demonstrate that they had effectively responded to cyber incidents. Specifically, we estimated that agencies had not completely documented actions taken in response to detected incidents reported in fiscal year 2012 in about 65 percent of cases. In addition, the 6 agencies we reviewed had not fully developed comprehensive policies, plans, and procedures to guide their incident response activities. We recommended that OMB address agency incident response practices government-wide and that the 6 agencies improve the effectiveness of their cyber incident response programs. The agencies generally agreed with these recommendations. Responding to breaches of PII. In December 2013, we reported that eight federal agencies had inconsistently implemented policies and procedures for responding to data breaches involving PII. In addition, OMB requirements for reporting PII-related data breaches were not always feasible or necessary. Thus, we concluded that agencies may not be consistently taking actions to limit the risk to individuals from PII-related data breaches and may be expending resources to meet OMB reporting requirements that provide little value. We recommended that OMB revise its guidance to agencies on responding to a PII-related data breach and that the reviewed agencies take specific actions to improve their response to PII-related data breaches. OMB neither agreed nor disagreed with our recommendation; four of the reviewed agencies agreed, two partially agreed, and two neither agreed nor disagreed. Implementing security programs at small agencies. In June 2014, we reported that six small agencies (i.e., agencies with 6,000 or fewer employees) had not implemented or not fully implemented their information security programs. For example, key elements of their plans, policies, and procedures were outdated, incomplete, or did not exist, and two of the agencies had not developed an information security program with the required elements. We recommended that OMB include a list of agencies that did not report on the implementation of their information security programs in its annual report to Congress on compliance with the requirements of FISMA, and include information on small agencies' programs. OMB generally concurred with our recommendations. We also recommended that DHS develop guidance and services targeted at small agencies. DHS agreed and has implemented this recommendation. Until federal agencies take actions to address these challenges-- including implementing the hundreds of recommendations we and inspectors general have made--federal systems and information will be at an increased risk of compromise from cyber-based attacks and other threats. In addition to the efforts of individual agencies, DHS and OMB have several initiatives under way to enhance cybersecurity across the federal government. While these initiatives all have potential benefits, they also have limitations. Personal Identity Verification: In August 2004, Homeland Security Presidential Directive 12 ordered the establishment of a mandatory, government-wide standard for secure and reliable forms of identification for federal government employees and contractor personnel who access government-controlled facilities and information systems. Subsequently, NIST defined requirements for such personal identity verification (PIV) credentials based on "smart cards"--plastic cards with integrated circuit chips to store and process data--and OMB directed federal agencies to issue and use PIV credentials to control access to federal facilities and systems. In September 2011, we reported that OMB and the eight agencies in our review had made mixed progress for using PIV credentials for controlling access to federal facilities and information systems.mixed progress to a number of obstacles, including logistical problems in issuing PIV credentials to all agency personnel and agencies not making this effort a priority. We made several recommendations to the eight agencies and to OMB to more fully implement PIV card capabilities. Although two agencies did not comment, seven agencies agreed with our recommendations or discussed actions they were taking to address them. For example, we made four recommendations to DHS. The department concurred and has taken action to implement them. In February 2015, OMB reported that, as of the end of fiscal year 2014, only 41 percent of agency user accounts at the 23 civilian CFO Act agencies required PIV cards for accessing agency systems. only 1 percent of user accounts required PIV cards for such access. Continuous Diagnostics and Mitigation (CDM): According to DHS, this program is intended to provide federal departments and agencies with capabilities and tools that identify cybersecurity risks on an ongoing basis, prioritize these risks based on potential impacts, and enable cybersecurity personnel to mitigate the most significant problems first. These tools include sensors that perform automated searches for known cyber vulnerabilities, the results of which feed into a dashboard that alerts network managers. These alerts can be prioritized, enabling agencies to allocate resources based on risk. DHS, in partnership with the General Services Administration, has established a government-wide contract that is intended to allow federal agencies (as well as state, local, and tribal governmental agencies) to acquire CDM tools at discounted rates. OMB, Annual Report to Congress: Federal Information Security Management Act (Washington, D.C.: Feb. 27, 2015). visibility over information security at the department and helped IT administrators identify, monitor, and mitigate information security weaknesses. However, we also noted limitations and challenges with State's approach, including ensuring that its risk-scoring program identified relevant risks and that iPost data were timely, complete, and accurate. We made several recommendations to improve the implementation of the iPost program, and State partially agreed. National Cybersecurity Protection System (NCPS): The National Cybersecurity Protection System, operationally known as "EINSTEIN," is a suite of capabilities intended to detect and prevent malicious network traffic from entering and exiting federal civilian government networks. The EINSTEIN capabilities of NCPS are described in table 3. In March 2010, we reported that while agencies that participated in EINSTEIN 1 improved their identification of incidents and mitigation of attacks, DHS lacked performance measures to understand if the initiative was meeting its objectives.the management of the EINSTEIN program, and DHS has since taken action to address them. We made four recommendations regarding Currently, we are reviewing NCPS in response to provisions of the Senate and House reports accompanying the Consolidated Appropriations Act, 2014. The objectives of our review are to determine the extent to which (1) NCPS meets stated objectives, (2) DHS has designed requirements for future stages of the system, and (3) federal agencies have adopted the system. Our final report is expected to be released later this year, and our preliminary observations include the following: DHS appears to have developed and deployed aspects of the intrusion detection and intrusion prevention capabilities, but potential weaknesses may limit their ability to detect and prevent computer intrusions. For example, NCPS detects signature anomalies using only one of three detection methodologies identified by NIST: signature-based, anomaly-based, and stateful protocol analysis. Further, the system has the ability to prevent intrusions, but is currently only able to proactively mitigate threats across a limited subset of network traffic (i.e., Domain Name System traffic and e- mail). DHS has identified a set of NCPS capabilities that are planned to be implemented in fiscal year 2016, but it does not appear to have developed formalized requirements for capabilities planned through fiscal year 2018. The NCPS intrusion detection capability appears to have been implemented at 23 CFO Act agencies.capability appears to have limited deployment at portions of only 5 of these agencies. Deployment may have been hampered by various implementation and policy challenges. In conclusion, the danger posed by the wide array of cyber threats facing the nation is heightened by weaknesses in the federal government's approach to protecting its systems and information. While recent government-wide initiatives hold promise for bolstering the federal cybersecurity posture, it is important to note that no single technology or set of practices is sufficient to protect against all these threats. A "defense in depth" strategy is required that includes well-trained personnel, effective and consistently applied processes, and appropriately implemented technologies. While agencies have elements of such a strategy in place, more needs to be done to fully implement it and to address existing weaknesses. In particular, implementing GAO and inspector general recommendations will strengthen agencies' ability to protect their systems and information, reducing the risk of a potentially devastating cyber attack. Chairwoman Comstock, Chairman Loudermilk, Ranking Members Lipinski and Beyer, and Members of the Subcommittees, this concludes my statement. I would be happy to answer your questions. If you have any questions about this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected]. Other staff members who contributed to this statement include Larry Crosland and Michael Gilmore (assistant directors), Bradley Becker, Christopher Businsky, Nancy Glover, Rosanna Guerrero, Kush Malhotra, and Lee McCracken. Cybersecurity: Recent Data Breaches Illustrate Need for Strong Controls across Federal Agencies. GAO-15-725T. June, 24, 2015. Cybersecurity: Actions Needed to Address Challenges Facing Federal Systems. GAO-15-573T. April 22, 2015. Information Security: IRS Needs to Continue Improving Controls over Financial and Taxpayer Data. GAO-15-337. March 19, 2015. Information Security: FAA Needs to Address Weaknesses in Air Traffic Control Systems. GAO-15-221. January 29, 2015. Information Security: Additional Actions Needed to Address Vulnerabilities That Put VA Data at Risk. GAO-15-220T. November 18, 2014. Information Security: VA Needs to Address Identified Vulnerabilities. GAO-15-117. November 13, 2014. Federal Facility Cybersecurity: DHS and GSA Should Address Cyber Risk to Building and Access Control Systems. GAO-15-6. December 12, 2014. Consumer Financial Protection Bureau: Some Privacy and Security Procedures for Data Collections Should Continue Being Enhanced. GAO-14-758. September 22, 2014. Healthcare.Gov: Information Security and Privacy Controls Should Be Enhanced to Address Weaknesses. GAO-14-871T. September 18, 2014. Healthcare.Gov: Actions Needed to Address Weaknesses in Information Security and Privacy Controls. GAO-14-730. September 16, 2014. Information Security: Agencies Need to Improve Oversight of Contractor Controls. GAO-14-612. August 8, 2014. Information Security: FDIC Made Progress in Securing Key Financial Systems, but Weaknesses Remain. GAO-14-674. July 17, 2014. Information Security: Additional Oversight Needed to Improve Programs at Small Agencies. GAO-14-344. June 25, 2014. Maritime Critical Infrastructure Protection: DHS Needs to Better Address Port Cybersecurity. GAO-14-459. June 5, 2014. Information Security: Agencies Need to Improve Cyber Incident Response Practices. GAO-14-354. April 30, 2014. Information Security: SEC Needs to Improve Controls over Financial Systems and Data. GAO-14-419. April 17, 2014. Information Security: IRS Needs to Address Control Weaknesses That Place Financial and Taxpayer Data at Risk. GAO-14-405. April 8, 2014. Information Security: Federal Agencies Need to Enhance Responses to Data Breaches. GAO-14-487T. April 2, 2014. Critical Infrastructure Protection: Observations on Key Factors in DHS's Implementation of Its Partnership Model. GAO-14-464T. March 26, 2014. Information Security: VA Needs to Address Long-Standing Challenges. GAO-14-469T. March 25, 2014. Critical Infrastructure Protection: More Comprehensive Planning Would Enhance the Cybersecurity of Public Safety Entities' Emerging Technology. GAO-14-125. January 28, 2014. Computer Matching Act: OMB and Selected Agencies Need to Ensure Consistent Implementation. GAO-14-44. January 13, 2014. Information Security: Agency Responses to Breaches of Personally Identifiable Information Need to Be More Consistent. GAO-14-34. December 9, 2013. Federal Information Security: Mixed Progress in Implementing Program Components; Improved Metrics Needed to Measure Effectiveness. GAO-13-776. September 26, 2013. Communications Networks: Outcome-Based Measures Would Assist DHS in Assessing Effectiveness of Cybersecurity Efforts. GAO-13-275. April 10, 2013. Information Security: IRS Has Improved Controls but Needs to Resolve Weaknesses. GAO-13-350. March 15, 2013. Cybersecurity: A Better Defined and Implemented National Strategy is Needed to Address Persistent Challenges. GAO-13-462T. March 7, 2013. Cybersecurity: National Strategy, Roles, and Responsibilities Need to Be Better Defined and More Effectively Implemented. GAO-13-187. February 14, 2013. Information Security: Federal Communications Commission Needs to Strengthen Controls over Enhanced Secured Network Project. GAO-13-155. January 25, 2013. Information Security: Actions Needed by Census Bureau to Address Weaknesses. GAO-13-63. January 22, 2013. Information Security: Better Implementation of Controls for Mobile Devices Should Be Encouraged. GAO-12-757. September 18, 2012. Mobile Device Location Data: Additional Federal Actions Could Help Protect Consumer Privacy. GAO-12-903. September 11, 2012. Medical Devices: FDA Should Expand Its Consideration of Information Security for Certain Types of Devices. GAO-12-816. August 31, 2012. Privacy: Federal Law Should Be Updated to Address Changing Technology Landscape. GAO-12-961T. July 31, 2012. Information Security: Environmental Protection Agency Needs to Resolve Weaknesses. GAO-12-696. July 19, 2012. Cybersecurity: Challenges in Securing the Electricity Grid. GAO-12-926T. July 17, 2012. Electronic Warfare: DOD Actions Needed to Strengthen Management and Oversight. GAO-12-479. July 9, 2012. Information Security: Cyber Threats Facilitate Ability to Commit Economic Espionage. GAO-12-876T. June 28, 2012. Prescription Drug Data: HHS Has Issued Health Privacy and Security Regulations but Needs to Improve Guidance and Oversight. GAO-12-605. June 22, 2012. Cybersecurity: Threats Impacting the Nation. GAO-12-666T. April 24, 2012. Management Report: Improvements Needed in SEC's Internal Control and Accounting Procedure. GAO-12-424R. April 13, 2012. IT Supply Chain: National Security-Related Agencies Need to Better Address Risks. GAO-12-361. March 23, 2012. Information Security: IRS Needs to Further Enhance Internal Control over Financial Reporting and Taxpayer Data. GAO-12-393. March 16, 2012. Cybersecurity: Challenges in Securing the Modernized Electricity Grid. GAO-12-507T. February 28, 2012. Critical Infrastructure Protection: Cybersecurity Guidance is Available, but More Can Be Done to Promote Its Use. GAO-12-92. December 9, 2011. Cybersecurity Human Capital: Initiatives Need Better Planning and Coordination. GAO-12-8. November 29, 2011. Information Security: Additional Guidance Needed to Address Cloud Computing Concerns. GAO-12-130T. October 6, 2011. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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Effective cybersecurity for federal information systems is essential to preventing the loss of resources, the compromise of sensitive information, and the disruption of government operations. Since 1997, GAO has designated federal information security as a government-wide high-risk area, and in 2003 expanded this area to include computerized systems supporting the nation's critical infrastructure. Earlier this year, in GAO's high-risk update, the area was further expanded to include protecting the privacy of personal information that is collected, maintained, and shared by both federal and nonfederal entities. This statement summarizes (1) cyber threats to federal systems, (2) challenges facing federal agencies in securing their systems and information, and (3) government-wide initiatives aimed at improving cybersecurity. In preparing this statement, GAO relied on its previously published and ongoing work in this area. Federal systems face an evolving array of cyber-based threats. These threats can be unintentional--for example, from equipment failure or careless or poorly trained employees; or intentional--targeted or untargeted attacks from criminals, hackers, adversarial nations, or terrorists, among others. Threat actors use a variety of attack techniques that can adversely affect federal information, computers, software, networks, or operations, potentially resulting in the disclosure, alteration, or loss of sensitive information; destruction or disruption of critical systems; or damage to economic and national security. These concerns are further highlighted by recent incidents involving breaches of sensitive data and the sharp increase in information security incidents reported by federal agencies over the last several years, which have risen from 5,503 in fiscal year 2006 to 67,168 in fiscal year 2014. GAO has identified a number of challenges federal agencies face in addressing threats to their cybersecurity. For example, agencies have been challenged with designing and implementing risk-based cybersecurity programs, as illustrated by 19 of 24 major agencies declaring cybersecurity as a significant deficiency or material weakness for financial reporting purposes. Other challenges include: enhancing oversight of contractors providing IT services, improving security incident response activities, responding to breaches of personal information, and implementing cybersecurity programs at small agencies. Until federal agencies take actions to address these challenges--including implementing the hundreds of recommendations GAO and agency inspectors general have made--federal systems and information will be at an increased risk of compromise from cyber-based attacks and other threats. Several government-wide initiatives are under way to bolster cybersecurity. Personal Identity Verification: The President and the Office of Management and Budget (OMB) directed agencies to issue credentials with enhanced security features to control access to federal facilities and systems. OMB recently reported that only 41 percent of user accounts at 23 civilian agencies had required these credentials to access agency systems. Continuous Diagnostics and Mitigation: This program is to provide agencies with tools for continuously monitoring cybersecurity risks. The Department of State adopted a continuous monitoring program, and GAO reported on the benefits and challenges in implementing the program. National Cybersecurity Protection System: This system is to provide capabilities for monitoring network traffic and detecting and preventing intrusions. GAO has ongoing work reviewing the system's implementation. Preliminary observations indicate that implementation of the intrusion detection and prevention capabilities may be limited and requirements for future capabilities appear to have not been fully defined. While these initiatives are intended to improve security, no single technology or tool is sufficient to protect against all cyber threats. Rather, agencies need to employ a multi-layered approach to security that includes well-trained personnel, effective and consistently applied processes, and appropriate technologies. In previous work, GAO and agency inspectors general have made hundreds of recommendations to assist agencies in addressing cybersecurity challenges. GAO has also made recommendations to improve government-wide initiatives.
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Generally, DOD's S&T community (which includes DOD laboratories and testing facilities as well as contractors and academic institutions that support these facilities) conducts research and develops technologies to support military applications, such as satellites or weapon systems. Like the acquisition community in DOD, the S&T community uses RDT&E funds, but the S&T community's work precedes the acquisition cycle. Weapon system program managers, who receive most of DOD's RDT&E budget, apply generic technologies to specific systems. Figure 1 highlights activities the S&T community is involved in along with the RDT&E budget categories, or "activities," which are used to fund these efforts. More details on both are provided in appendixes I and II. The S&T community carries out its work within the first three categories of research and development listed above. DOD has specified that the work within the fourth category--testing and evaluation of prototypes of systems or subsystems in a high fidelity or realistic environment--involves efforts before an acquisition program starts product development. However, according to DOD officials, it is assumed that either the S&T community or an acquisition program may carry out this work, and traditionally, weapon system acquisition programs have taken on technology development within this stage. After this point, any additional development is to be completed as part of a formal acquisition or product development phase under the authority of the weapon system manager and apart from the S&T community. The DOD DDR&E is responsible for the overall direction, quality, and content of the agency's S&T efforts. Each of the military departments-- Army, Air Force, and Navy--has its own S&T programs, as do DOD organizations such as DARPA, Defense Threat Reduction Agency, MDA, and the National Reconnaissance Office (NRO). The DOD Executive Agent for Space--who is also the space milestone decision authority for all space major defense acquisition programs, the Under Secretary of the Air Force, and the Director of the NRO--also influences S&T efforts for space since he decides whether significant investments in space systems are to move forward in the development process. There are mechanisms within the space community and DOD designed to ensure S&T efforts are coordinated and are focused on achieving broader goals and that redundancy is minimized. Within the space community, a forum called the Space Technology Alliance was established in 1997 to coordinate the development of space technologies with an eye toward achieving the greatest return on investment. Its membership includes the Air Force, the Army, the Navy, MDA, DARPA, and NRO. At the DOD-wide level, there is a Defense Science and Technology Strategy, which lays out goals for DOD-wide S&T efforts based on goals set by higher-level documents, such as the Quadrennial Defense Review. This strategy is used, in turn, to develop a DOD-wide basic research plan, which reflects DOD's objectives and planned investments for basic research conducted by universities, industry, and laboratories and a DOD-wide technology area plan, which does the same for applied research and advanced technology development. There is also a Joint Warfighting S&T Plan, which ties S&T projects to priority future joint warfighting capabilities identified by higher-level documents. These overall plans, in turn, are used by DOD laboratories to direct investments in S&T. They are also used by the Office of the Secretary of Defense to provide guidance to the military departments and the defense agencies as they develop and vet their proposed budgets. In addition, DOD puts together teams of outside experts in 12 technology areas to assess whether particular investments across DOD's S&T community are redundant or unnecessary. These are known as Technology Area Reviews and Assessments. The teams make recommendations to a board comprised of senior DOD S&T officials and chaired by the DDR&E for action to terminate, adjust, and/or enhance investments to better align the S&T program to comply with the planning document guidance. The DDR&E, which reports to the Under Secretary of Defense (Acquisition, Technology and Logistics), has oversight of the RDT&E budget activities used to research and develop new technologies, specifically, RDT&E budget activities 1 (basic research), 2 (applied research), and 3 (advanced technology development). Recently, the DDR&E was given oversight of RDT&E budget activity 4 (advanced component development and prototypes) in an effort to ensure this development had sufficient oversight from the S&T community. The act required DOD to develop a strategy for its space S&T efforts that identified short- and long-term space S&T goals; a process for achieving the goals, including an implementation plan; and a process for assessing progress made toward achieving the goals. The act also required DOD to coordinate its strategy development efforts. The strategy, yet to be delivered to the Congress at the time of our review, met four of nine requirements, and plans are in place to meet the remaining five. We found that the strategy provides a foundation for enhancing coordination among space S&T efforts since it does specify overall goals and that it establishes several mechanisms to help senior leaders gauge whether investments are focusing on those goals. However, since the strategy has only recently been issued, it is too early to assess whether the direction and processes outlined in the strategy will be effective in supporting and guiding future space S&T efforts. The strategy identified goals for space S&T along six main areas--assured access to space, responsive space capability, assured space operations, spacecraft technology, information superiority, and S&T workforce. Except for the goal of enhancing the workforce, the strategy laid out short- term goals (within 5 years) and long-term goals (in the year 2020 or beyond). Under spacecraft technology, for example, the strategy identified a short-term goal of on-orbit assessment of satellite servicing and repair and long-term goals of on-orbit assembly, deployment, repair, and upgrades. Under assured space operations, the strategy identified a short- term goal of detecting, identifying, and characterizing natural and man- made objects in space and a long-term goal of complete space situational awareness. According to S&T community officials we spoke with, the mere identification of goals should be useful in helping DOD laboratories and other S&T facilities to direct their investment as this type of guidance had not been provided for space previously. The strategy also establishes several mechanisms for implementation. Primarily, it calls for semiannual space S&T summit meetings to coordinate user expectations, highlight technologies, provide guidance, and establish priorities. DDR&E officials, agency S&T executives as well as Service Program Executive Officers for Space who will ultimately transition new capabilities, and major command leadership will attend these meetings. The strategy also implements an Industry Independent Research and Development coordination conference, where industry and government officials can come together to collaborate in their S&T planning activities. Details on both of these mechanisms are still being worked out, according to the developers of the strategy. The strategy also identifies some tools and measures that will be used to track progress in meeting goals. These tools and measures include "technology roadmaps," which identify timelines, milestones, and transition dates for specific projects as well as interdependencies with other projects and "technology readiness level" (TRL), an analytical tool that assesses the maturity level of technology. Our prior work has found TRLs to be a valuable decision-making tool since it can presage the likely consequences of incorporating a technology at a given level of maturity into a product development. Appendix III details criteria for each TRL. In addition, DOD has plans in place to ensure that the strategy is reviewed and revised, as necessary, annually and that it be made publicly available for review by congressional defense committees. Other DOD S&T entities will be provided the strategy to support the planning, programming, and budgeting processes. DOD also plans to include the strategy as an annex to the National Security Space Plan, even though the plan is thought to be a lower-level tactical document and not a strategic document. The developers of the strategy worked with a wide range of organizations in establishing goals, measures, and implementation plans. These include military department laboratories, DARPA, intelligence agencies, MDA, the Air Force Space Command, NASA, the Space and Missile Systems Center, the U.S. Strategic Command, the National Security Space Office, and others. Officials within the space community we spoke with commented that it has historically been difficult to gain agreement from these organizations. Even though they all have ties to space, these organizations have different views as to what overall goals the space community should strive for and how they should be achieved. According to officials within the space community we spoke with, just getting these organizations to work together and to gain agreement was a significant benefit to the community at large since it helped foster more collaborative working relationships and greater knowledge sharing. In addition to the requirements specified by the act, we found that optimizing space S&T efforts also depends on whether (1) the strategy is clearly linked to other strategies and plans; (2) all DOD space S&T efforts are covered by the strategy; and (3) the strategy identifies metrics beyond TRLs that focus on success. Linkage to other strategies and plans is important to providing clear guidance to S&T laboratories and other organizations making investments since there are a number of DOD-wide "strategies" for S&T as well as a number of space-related higher level strategic plans as well as tactical plans relating to S&T. Coverage of all space S&T efforts is important since S&T is carried out not only by DOD laboratories but also by large acquisition programs and other agencies that have a large stake or investment in space S&T. For example, NRO develops new satellites for the intelligence community and could potentially leverage its S&T efforts with DOD's. Lastly, having additional measures beyond TRLs is important to gauging the success of the implementation of the strategy as well as the relevancy and feasibility of specific progress toward achieving DOD's overall goals for space. We found that the strategy clearly identified linkages to some, but not all, key plans and strategies, and it did not provide coverage over all S&T efforts or establish additional measures. The space S&T strategy identifies links to higher-level documents, such as the National Security Space Strategy, which sets overall strategic goals for DOD space and identifies capabilities to be pursued, and the Defense S&T Strategy, which provides overall goals for DOD S&T based on higher-level strategic documents. The strategy also references lower-level plans including the National Security Space Plan discussed earlier and DOD- wide S&T plans, such as the Basic Research Plan, the Defense Technology Area Plan, and the Joint Warfighting S&T Plan. However, the strategy did not provide links to other documents and assessments that impact the space S&T community. For example, it is unclear how the document will link to DOD's Space Technology Guide, which describes the current state of space and space-related technology activities underway, including key enabling technologies, that is, those that "must be done right" since they play a pivotal role in making revolutionary advancements in space applications. The guide is being revised and could serve as a useful implementation tool for the new space S&T strategy. It is also unclear how the strategy links to architectures in areas such as responsive space operations, protection for space mission assurance, and integrated intelligence, surveillance and reconnaissance being developed by the National Security Space Office. These architectures are to define the future desired state for DOD's space assets. It is important that DOD reflect these other documents in the new space S&T strategy so that the space community clearly understands where the strategy fits in relation to other plans and guides and can ensure decision making is consistent. Moreover, by establishing closer links with the Space Technology Guide and architectures under development, DOD may have more avenues to implement its short- and long-term goals. In addition, the Joint Chiefs of Staff did not participate in the development of the strategy, including offices responsible for DOD's new Joint Capabilities Integration and Development System (JCIDS). JCIDS is replacing DOD's requirements generation process for major acquisitions in an effort to shift the focus to a more capabilities-based approach for determining joint warfighting needs rather than a threat-based approach focused on individual systems and platforms. Under JCIDS, boards comprised of high-level DOD civilians and military officials are to identify future capabilities needed around key functional concepts and areas, such as command and control, force application, and battlespace awareness, and to make trade-offs among air, space, land, and sea platforms in doing so. Although the JCIDS officials were not required to participate in developing the strategy, it is important that they do so in the future since their work could have a significant impact on the direction of investments for space S&T projects. The space S&T strategy does not explicitly address technology development efforts within DOD acquisition programs. According to DOD officials, space acquisition programs are typically using RDT&E funds from budget activity 4 to mature technology and build the first two satellites. Our analysis showed that space acquisition programs plan to spend as much as $16 billion from fiscal years 2004 through 2009 on budget activity 4. Our annual assessments of space systems have shown that the portion of the $16 billion that is to be spent on maturing technology (which we could not readily separate from the portion spent building the first two satellites) is often being used to carry out activities that should be carried out in an S&T environment. For example, the Transformational Satellite program, which is focused on building advanced communication satellites, entered system development in early 2004 with only one of seven critical technologies matured to a point of being tested in a relevant environment. Most of the technologies were at a TRL 3, meaning analytical studies and some laboratory tests had been conducted, but components had not yet been demonstrated to work together. If DOD does not explicitly include acquisition programs in the space S&T strategy, it will not be able to ensure the S&T community has oversight over a considerable amount of ongoing technology development. We were not provided access to NRO to discuss how it collaborated with the DDR&E and the Executive Agent for Space in developing the space S&T strategy and how they intended to work with the DDR&E and the Executive Agent for Space in implementing the strategy. However, DOD officials stated that NRO had participated in the development of the strategy and would participate in all S&T coordination activities identified by the space S&T strategy. Moreover, according to DOD officials, NRO and other intelligence agencies already participate in some DOD space S&T coordination and review efforts, such as the Space Technology Alliance. In addition, the DDR&E and the DOD Executive Agent for Space are continuing to work on increasing coordination between DOD and the intelligence community. DOD officials also noted that the current Executive Agent for Space also serves as the Director of NRO, which has helped to increase coordination between the intelligence community and DOD. While these efforts may be helping to increase coordination between DOD and the intelligence S&T communities, it is still important to specifically include the DOD intelligence agencies in the strategy itself and to identify protocols that can help foster greater knowledge sharing between both communities. While the strategy identifies TRLs as a measure for tracking progress, it does not prescribe metrics that focus on the value of S&T projects relative to specific goals or knowledge being gained from projects. Such metrics would help provide a foundation for assessing progress in achieving strategic goals. Strategy developers stated that technology development organizations are better suited to develop and use their own specific metrics to measure success because different technologies may require different types of metrics. The developers stated that by design, the strategy sets the direction but leaves it up to the laboratories and other S&T entities to establish their own metrics. However, they acknowledged that some of the organizations they worked with did not have adequate metrics. It is important that DOD attempt to identify and use metrics that help assess progress, since these will enable DOD to evaluate investments against its short- and long-term goals and make informed investment decisions. Though the new space S&T strategy takes important first steps toward optimizing investments, there are significant barriers that will make it difficult to make advancements in the way S&T efforts are planned, managed, and transitioned into acquisition programs. Some barriers relate specifically to the space community--principally, incomplete RDT&E funding visibility, inadequate testing resources, and workforce deficiencies. These can potentially be addressed through further study, resource shifts, increased management attention, and/or changes to how funding is captured. Other barriers are more systemic and require more difficult management and cultural changes to be made throughout DOD. Nevertheless, until barriers are largely removed, the impact of a new strategy for space S&T may be limited. The developers of the strategy agreed that the barriers we identified were important and needed to be addressed through efforts beyond the development of the strategy. The current budget process does not readily capture all RDT&E funding for space S&T efforts. In 2001, DOD established a "virtual" Major Force Program for space to increase the visibility of resources allocated for space activities. This is a programming mechanism that aggregates most space-unique funding by military department and function. However, the mechanism does not align funding with RDT&E budget activities, making it more difficult for DOD to assess the balance of funding among basic research, applied research, and advanced technology development. In working with DOD officials to categorize the virtual Major Force Program by RDT&E budget activity, we identified about $3.8 billion from fiscal years 2004 through 2009 for budget activities 2 (applied research) and 3 (advanced technology development). However, funding for budget activity 1 (basic research) cannot be specifically associated to either space or terrestrial platforms, and therefore does not appear in the virtual Major Force Program, which is focused on space-unique funding. Funding in RDT&E budget activities 2 and 3 that is not space unique is also not captured. In addition, some DOD agencies develop space assets but have primary missions that are not associated with space and are therefore, not included in the virtual Major Force Program. For example, MDA's space efforts are not included in the virtual Major Force Program for space even though MDA is developing a new generation of missile tracking satellite systems using advanced infrared sensors. MDA plans to spend about $4.12 billion on this system from fiscal years 2004-2009, and a considerable portion of this funding is expected to be used to mature technologies for future satellites. Moreover, DARPA reports its space funding by project so space S&T efforts cannot be readily identified without additional knowledge of whether these projects are space related. Currently, DARPA has funded about $200 million annually on projects that are space unique and considerably more on projects that have both space and terrestrial applications. Until the virtual Major Force Program or some other tool can capture and categorize the total amount of RDT&E dollars supporting space-unique S&T projects at a minimum, DOD will be limited in guiding and directing all space investments. Testing resources for space technologies are on the decline. In particular, funding for testing has decreased, costs to launch experiments have increased, and opportunities have been reduced with the loss of the space shuttle, which had been partially used for DOD-related technology experiments. DOD's Space Test Program, which is designed to help the S&T community find opportunities to test in space relatively cost- effectively, was funded at $62.3 million in fiscal year 1990 but only $38.6 million in fiscal year 2004 (see fig. 2). And because the cost to launch experiments has increased, the program has only been able to launch an average of seven experiments annually in the past 4 years (see fig. 3). According to Space Test Program officials, demand for testing has not diminished. S&T officials cited dwindling testing resources as a barrier to their efforts. While the strategy states that appropriate resources need to be allocated for on-orbit testing, it does not address how this can or will be done. The workforce needed to carry out S&T for space is facing shortages. DOD officials cited staff shortages with science and engineering backgrounds and had more concerns about the future since their workforces were reaching retirement age. These concerns were echoed by DOD and industry studies. A 2002 study on the space research and development industrial base conducted by Booz Allen Hamilton, for example, found that over half of the current space R&D workforce is over 45 years old and that departure of key talent could be especially worrisome in 10 years, as scientists and engineers now in the 45- to 49-year-old group begin to retire from the workforce and are replaced by a smaller pool of less experienced personnel. In its report, the Space Commission noted that both industry and the U.S. government face substantial shortages of scientists and engineers and that recruitment of new personnel is difficult since the space industry is one of many sectors competing for the limited number of trained scientists and engineers. Booz Allen noted that areas in which either recruitment efforts are difficult or a critical mass is lacking include systems engineering and software engineering. The 2004 National Defense Authorization Act directed the Secretary of Defense to promote the development of space personnel career fields within each of the military departments. However, we recently reported that the military services vary in the extent to which they have identified and implemented initiatives to develop and manage their space cadres. Moreover, the space S&T strategy itself merely lays out goals for workforce without identifying actions or resources needed to achieve those goals. In recognizing that more needs to be done to develop, attract, and retain staff with critical skills, the Defense Authorization Act for Fiscal Year 2005 Conference Report directed DOD to develop detailed implementation plans for enhancing the space cadre and to study the ability of academia, industry, and government to educate and train a community of space professionals and to address the definition and development of key competencies and skill levels in the areas of systems engineering, program management, financial management, operations, and tactics. We believe that S&T skill areas should also be included in the strategy given the importance of advancing space technologies and potential future workforce shortages. DOD does not yet have a departmentwide investment strategy that could provide a good foundation for space S&T planning. While desired capabilities are regularly identified by military commanders and are vetted through strategic reviews, such as the Quadrennial Defense Review, DOD has limited ability to make trades among space, air, land, and sea platforms in deciding how best to meet those capabilities, document those decisions, and follow through on those decisions. For example, DOD would like to achieve persistent surveillance to enhance military operations. But it has not been decided how much of the earth needs to be covered and the extent to which air-based assets, such as unmanned reconnaissance aircraft, can achieve this capability versus space-based assets, such as the planned space-based radar system. If DOD conducted thorough and independent analyses of alternatives weighing the pros and cons of using different combinations of both assets and made trade-off decisions that could be enforced across the military services, the S&T community could have a better basis for deciding how much S&T dollars should go toward space-based radar technologies versus technologies supporting air platforms. The need for an investment strategy DOD-wide or for particular functional areas has been cited in a variety of recent studies, including a 1999 Defense Science Board study on tactical battlefield communications and a 2004 study by the Center for Strategic and International Studies. The recently established JCIDS process is designed to identify future capabilities by functional areas and to make trades between space and other platforms. However, it is unknown as to how this work will translate into an investment strategy that could be used to enhance S&T planning. And it is unknown how effectively decisions made through JCIDS will be enforced. DOD has also made changes to its Planning, Programming, Budgeting, and Execution process to provide higher-level guidance to the budgeting process. However, it is also unclear as to how effectively these changes will be implemented over time and whether they can serve as a foundation for directing science and technology investments. We have previously reported that an S&T environment is more forgiving and less costly than a delivery-oriented acquisition program environment. Events such as test "failures," new discoveries, and time spent in attaining knowledge are considered normal in this environment, while they are seen as a negative event in an acquisition program. Moreover, separating technology development and product development enables organizations to align customer expectations with resources, and therefore minimize problems that could hurt a program in its design and production phases. Budget realities within DOD, however, make it more advantageous to fund technology development in an acquisition program. Historically, S&T organizations receive about 20 percent of DOD's research and development budget, while weapon system programs receive about 80 percent. The money going toward S&T is spread over several thousand projects, while the money going toward weapons systems is spread out over considerably fewer projects. This "distribution of wealth" makes it easier to finance technology development within an acquisition program. In addition, even though more money is distributed to weapon systems, there is still considerable competition for funding. Such competition makes it advantageous for programs to include in their design immature technologies that offer significant performance gains. Within the space community, there is also a perception that the length of time it takes to develop space systems (which have only "one shot" at incorporating technologies) demands that DOD push for continual advancement of technologies, even after starting an acquisition program. The impact of acquisition programs taking on technology development that should be done in an S&T environment is considerable. Our work over the past several decades has shown that this practice invariably leads to unanticipated cost and schedule increases for space and other weapon system programs since technical problems occurring within acquisition require more time and money to fix. For some large programs for space, cost increases have amounted to billions of dollars and delayed schedules by years. Aside from removing technology development from a more protective environment and from S&T oversight processes, problematic acquisitions may also rob the S&T community and other acquisition programs of investment dollars. Some actions have been taken recently to address this dilemma. In particular, DOD issued a revised directive in November 2003 expanding the DDR&E's oversight authority to include efforts to develop advanced components and prototypes--RDT&E budget activity 4. According to DDR&E officials, this authority was intended to keep technology development out of the acquisition programs and within the S&T community, but it will take at least 2 years to determine its success. In addition, DOD's revised acquisition policy for weapon systems encourages programs not to commit to undertaking product development until technologies are matured, that is, at a minimum tested in a relevant environment (TRL 6) and preferably in an operational environment (TRL 7). However, in October 2003, DOD also issued a separate acquisition policy for space, which allows technology development to continue into product development up until a decision is made to build the first product. At the time of our review, DOD was revising the space acquisition policy and reexamining how long technology development should continue within an acquisition program. DOD has taken an initial positive step in optimizing investments in space S&T projects by establishing short- and long-term goals, which can be used to direct spending by S&T organizations, and by establishing a forum by which senior leaders can assess whether spending is going in the right direction. However, there will be significant challenges ahead for DOD in implementing the strategy. Namely, DOD must maintain momentum toward greater collaboration, which began under this effort. This will not be an easy task, given the varied and competing interests of organizations with a stake in DOD's space S&T investment and the fact that the strategy does not explicitly cover organizations that fall outside the realm of traditional DOD S&T oversight. Moreover, there are formidable barriers that stand in the way of achieving and measuring progress, including inadequate funding visibility, decreased testing resources, workforce deficiencies, and long-standing incentives that encourage technology development to take place within acquisition programs rather than the S&T community. By using the strategy as a tool for assessing and addressing these challenges, DOD can better position itself for achieving its goals and also strengthen the S&T base supporting space. We recommend that the Secretary of Defense direct the (1) Executive Agent for Space and (2) the Under Secretary of Defense (Acquisition, Technology and Logistics) (to whom the DDR&E reports) to make the following improvements to space S&T strategic planning. Establish protocols and mechanisms for enhancing coordination and knowledge sharing between the DOD S&T community, acquisition programs involved in space, and DOD intelligence agencies. Ensure that the space S&T strategy fully reflects warfighter needs by establishing links between space S&T strategic planning and DOD's new JCIDS. In addition, establish links to architectural development processes to assure that S&T projects align with future technology requirements identified in space-related architectures. Continue to ensure that DOD has the right tools for measuring progress in achieving its goals for space by identifying metrics that could be used for assessing the value of S&T projects relative to strategic goals and knowledge being gained relative to goals. Develop plans for addressing barriers to achieving strategic goals for S&T, including deficiencies in RDT&E funding visibility, testing resources, and workforce. A first step would be to include skills critical to S&T in the workforce study identified in the Fiscal Year 2005 Defense Authorization Act Conference Report. In commenting on a draft of this report, DOD concurred with our recommendations and identified actions being taken to address them. (See app. V for DOD's comments.) We are sending copies of this report to the Secretaries of Defense and the Air Force and interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (937) 258-7915. Key contributors to this report were Cristina Chaplain, Maricela Cherveny, Jean Harker, and Rich Horiuchi. Basic research is systematic study directed toward greater knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications towards processes or products in mind. It includes all scientific study and experimentation directed towards increasing fundamental knowledge and understanding in those fields of the physical, engineering, environmental, and life sciences related to long-term national security needs. It is farsighted high-payoff research that provides the basis for technological progress. Applied research is systematic study to understand the means to meet a recognized and specific need. It is a systematic expansion and application of knowledge to develop useful materials, devices, and systems or methods. Applied research may translate promising basic research into solutions for broadly defined military needs, short of system development. Applied research precedes system- specific technology investigations or development. Advanced technology development includes development of subsystems and components and efforts to integrate them into system prototypes for field experiments and/or tests in a simulated environment. The results of this type of effort are proof of technological feasibility and assessment of subsystem and component operability and producibility rather than the development of hardware for service use. Projects in this category have a direct relevance to identified military needs. Program elements in this category involve pre-acquisition efforts, such as system concept demonstration, joint and service-specific experiments, or technology demonstrations, and generally have technology readiness levels (TRLs) of 4, 5, or 6. Projects in this category do not necessarily lead to subsequent development or procurement phases, but should have the goal of moving out of space science and technology (S&T) and into the acquisition process within the future years defense program. Advanced component development and prototypes consists of efforts necessary to evaluate integrated technologies or prototype systems in a high fidelity and realistic operating environment. These activities include system-specific efforts that help expedite technology transition from the laboratory to operational use. Emphasis is on proving component and subsystem maturity prior to integration in major and complex systems and may involve risk reduction initiatives. Advanced component development and prototypes efforts are to occur before an acquisition program starts product development. System development and demonstration consists of newly initiated acquisition programs and includes engineering and manufacturing development tasks aimed at meeting validated requirements prior to full-rate production. Characteristics of this activity involve mature system development, integration, and demonstration to support a production decision. RDT&E management support includes efforts to sustain and/or modernize the installations or operations required for general RDT&E. Such efforts may relate to test ranges, military construction, maintenance support of laboratories, operation and maintenance of test aircraft and ships, and studies and analyses in support of the RDT&E program. Operational system development includes development efforts to upgrade systems that have been fielded or have received approval for full-rate production and anticipate production funding in the current or subsequent fiscal year. Appendix II: Funding on Technology Development within Science and Technology and Acquisition Communities Funding going toward a variety of projects and sources. Lowest level of technology readiness. Scientific research begins to be translated into applied research and development. Examples might include paper studies of a technology's basic properties. Invention begins. Once basic principles are observed, practical applications can be invented. Active research and development is initiated. This includes analytical studies and laboratory studies to physically validate analytical predictions of separate elements of the technology. Examples include components that are not yet integrated or representative. Basic technological components are integrated to establish that the pieces will work together. This is relatively "low fidelity" compared to the eventual system. Examples include integration of "ad hoc" hardware in a laboratory. Fidelity of breadboard technology increases significantly. The basic technological components are integrated with reasonably realistic supporting elements so that the technology can be tested in a simulated environment. Examples include "high fidelity" laboratory integration of components. Representative model or prototype system, which is well beyond the breadboard tested for TRL 5, is tested in a relevant environment. Represents a major step up in a technology's demonstrated readiness. Examples include testing a prototype in a high fidelity laboratory environment or in simulated operational environment. Prototype near or at planned operational system. Represents a major step up from TRL 6, requiring the demonstration of an actual system prototype in an operational environment, such as in an aircraft, vehicle, or space. Technology has been proven to work in its final form and under expected conditions. In almost all cases, this TRL represents the end of true system development. Examples include developmental test and evaluation of the system in its intended weapon system to determine if it meets design specifications. Actual application of the technology in its final form and under mission conditions, such as those encountered in operational test and evaluation. Examples include using the system under operational mission conditions.
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The Department of Defense (DOD) is depending heavily on new space-based technologies to support and transform future military operations. Yet there are concerns that efforts to develop technologies for space systems are not tied to strategic goals for space and are not well planned or coordinated. In the National Defense Authorization Act for 2004, the Congress required DOD to develop a space science and technology (S&T) strategy that sets out goals and a process for achieving those goals. The Congress also required GAO to assess this strategy as well as the required coordination process. DOD's new strategy for space S&T met four of the nine requirements set out by the Congress and plans are in place to meet the remaining requirements. These included requirements for setting short- and long-term goals and a process for achieving those goals as well as requirements that focused on ensuring the strategy was developed with laboratories, research components, and other organizations involved in space S&T and ensuring the strategy would be reviewed by appropriate entities and revised periodically. In addition to meeting these requirements, GAO found that development of the strategy itself helped spur collaboration within the DOD space S&T community since it required diverse organizations to come together, share knowledge, and establish agreement on basic goals. Since the strategy has only recently been issued, it is too early to assess whether the direction and processes outlined in the strategy will be effective in supporting and guiding future space S&T efforts. Moreover, DOD officials are still working out the details of some implementation mechanisms. However, in order to better position DOD for successful implementation, GAO believes that the plan should contain stronger linkages to DOD's requirements setting process, identify additional measures for assessing progress in achieving strategic goals, and explicitly cover all efforts related to space S&T. Moreover, there are formidable barriers that stand in the way of optimizing DOD's investment in space S&T. DOD does not have complete visibility over all spending related to space S&T, including spending occurring within some S&T organizations and acquisition programs. Without a means to see where funding is being targeted, DOD may not be able to assure all spending on technology development is focused on achieving its goals. The S&T community itself may not have resources critical to achieving DOD's goals. In recent years, funding and opportunities for testing for the space S&T community have decreased. And, concerns have grown about the adequacy of the space S&T workforce. DOD acquisition programs continue to undertake technology development that should be occurring within an S&T environment, which is more forgiving and less costly than a delivery-oriented acquisition program environment. Until this is done, cost increases resulting from technology problems within acquisitions may keep resources away from the S&T community. By using the strategy as a tool for assessing and addressing these challenges, DOD can better position itself for achieving its goals and also strengthen the S&T base supporting space.
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In 1986, IRCA established the employment verification process based on employers' review of documents presented by employees to prove identity and work eligibility. On the Form I-9, employees must attest that they are U.S. citizens, lawfully admitted permanent residents, or aliens authorized to work in the United States. Employers must then certify that they have reviewed the documents presented by their employees to establish identity and work eligibility and that the documents appear genuine and relate to the individual presenting them. In making their certifications, employers are expected to judge whether the documents presented are obviously counterfeit or fraudulent. Employers are required to retain the Form I-9 and provide it, upon request, to officers of the Departments of Homeland Security and Labor and the Department of Justice's Office of Special Counsel for Immigration Related Unfair Employment Practices for inspection. Employers generally are deemed in compliance with IRCA if they have followed the Form I-9 process, including when an unauthorized alien presents fraudulent documents that appear genuine. Following the passage of IRCA in 1986, employees could present 29 different documents to establish their identity and/or work eligibility. In a 1997 interim rule, the former U.S. Immigration and Naturalization Service (INS) reduced the number of acceptable work eligibility documents from 29 to 27. The Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 required the former INS and SSA to operate three voluntary pilot programs to test electronic means for employers to verify an employee's eligibility to work, one of which was the Basic Pilot Program. The Basic Pilot Program was designed to test whether pilot verification procedures could improve the existing employment verification process by reducing (1) false claims of U.S. citizenship and document fraud, (2) discrimination against employees, (3) violations of civil liberties and privacy, and (4) the burden on employers to verify employees' work eligibility. In 2007, USCIS renamed the Basic Pilot Program the Employment Eligibility Verification program and later in the year changed the name to E-Verify. E-Verify provides participating employers with an electronic method to verify their employees' work eligibility. Regardless of whether employers participate voluntarily in E-Verify, they are still required to complete Forms I-9 for all newly hired employees in accordance with IRCA. After completing the forms, those employers participating in the program query E-Verify's automated system by entering employee information provided on the forms, such as name and social security number, into the E-Verify Web site within 3 days of the employee's start date. The program then electronically matches that information against information in SSA's Numident database and, if necessary, DHS databases to determine whether the employee is eligible to work. E-Verify electronically notifies employers whether their employees' work authorization was confirmed. Those queries that the DHS automated check cannot confirm are referred to USCIS staff, called immigration status verifiers, who check employee information against information in other DHS databases. The E-Verify program process is shown in figure 1. In cases when E-Verify cannot confirm an employee's work authorization status either through the automatic check or the check by an immigration status verifier, the system issues the employer a tentative nonconfirmation of the employee's work authorization status. In this case, the employers must notify the affected employees of the finding, and the employees have the right to contest their tentative nonconfirmations by contacting SSA or USCIS to resolve any inaccuracies in their records within 8 federal working days. During this time, employers may not take any adverse actions against those employees, such as limiting their work assignments or pay. After 8 days, employers are required to either immediately terminate the employment, or notify DHS of the continued employment, of workers who do not successfully contest the tentative nonconfirmation and those whom the program finds are not work-authorized. The E-Verify program uses the same system as USCIS's Systematic Alien Verification for Entitlements Program, which provides a variety of verification services for federal, state, and local government agencies. USCIS estimates that more than 150,000 federal, state, and local agency users verify immigration status through the Systematic Alien Verification for Entitlements Program. SSA also operates the Web-based Social Security Number Verification Service, which employers can use to assure that employees' names and social security numbers match SSA's records. This service, designed to ensure accurate employer wage reporting, is offered free of charge. Employer use is voluntary, and approximately 12,000 employers requested more than 25.7 million verifications in 2005, according to the SSA Office of the Inspector General. USCIS contracted for an independent evaluation of the E-Verify program. Westat, the organization that conducted the evaluation, issued a report on its evaluation findings in September 2007. According to this report, the Westat evaluation examined how well the federal government implemented modifications made to the original Basic Pilot Program and the extent to which the program met its goals to (1) reduce employment of unauthorized workers, (2) reduce discrimination, (3) protect employee civil liberties and privacy, and (4) prevent undue burden on employers. Based on its findings, Westat made recommendations to USCIS and SSA intended to help improve the program. Mandatory electronic employment verification would substantially increase the number of employers using the E-Verify program, which would place greater demands on USCIS and SSA resources. As of April 2008, more than 61,000 employers have registered to use the program, about 28,000 of whom were active users, according to USCIS. USCIS has estimated that approximately 4,000 employers are registering per month. In fiscal year 2007, USCIS processed about 3.2 million employer queries and for the first 6 months of fiscal year 2008, processed about 2.6 million queries. If participation in the E-Verify program were made mandatory, the program would have to accommodate all of the estimated 7.4 million employers in the United States. USCIS has projected that employers would submit an average of 63 million queries on newly hired employees per year under a mandatory E-Verify program. USCIS officials stated that they have tested the capacity of the E-Verify computer system to handle about four times the projected load of queries that would occur if E-Verify participation were made mandatory for all employers. These tests showed that the E-Verify system can process up to 240 million queries per year, with the purchase of 5 additional servers, exceeding USCIS's projection of an average of 63 million queries per year under a mandatory E-Verify program. USCIS has developed cost and staffing estimates for operating a mandatory E-Verify program. Although DHS has not prepared official cost figures, USCIS officials estimated that a mandatory E-Verify program could cost a total of about $765 million for fiscal years 2009 through 2012 if only newly hired employees are queried through the program and about $838 million over the same 4-year period if both newly hired and current employees are queried. Mandatory implementation of E-Verify would also require additional USCIS staff to administer the program, but USCIS was not yet able to provide estimates for its staffing needs. Under the voluntary program, USCIS operated E-Verify with 12 headquarters staff members in 2005, which has grown to about 121 full-time employees nationwide, with 21 staff members for monitoring and compliance and 11 for status verification operations. According to USCIS, the agency would increase its staffing level based on a formula that considers monitoring and compliance and status verification staffing needs as the number of employers using E-Verify increases. A mandatory E-Verify program would also require an increase in SSA's resource and staffing requirements. SSA has estimated that implementation of a mandatory E-Verify program would cost a total of about $281 million for fiscal years 2009 through 2013 and require hiring 700 new employees for a total of 2,325 additional workyears over the same 5-year period. According to SSA, these estimates represent costs if the current E-Verify system is expanded, and any changes to the current process could have significant additional costs to the agency. The estimates include costs for start-up, such as system upgrades, training for current SSA employees, and training, space, and workstations for new employees, and ongoing activities, such as field office visits and system maintenance. SSA's estimates assume that under a mandatory expansion of the current E-Verify program, for every 100 E-Verify queries, about 1.4 individuals will contact SSA regarding a tentative nonconfirmation. According to SSA officials, the cost of mandatory E-Verify would be driven by the increased workload of its field office staff due to resolving SSA tentative nonconfirmations, as well as some of the computer systems improvements and upgrades that SSA would need to implement to address the capacity of a federal mandatory program. Moreover, the final number of new full-time staff required would depend on both the legislative requirements for implementing mandatory E-Verify and the effectiveness of efforts USCIS has underway to decrease the need for individuals to visit SSA field offices. SSA officials told us that SSA would need time and a phased-in approach for implementation of a mandatory E-Verify program in order to handle the increased workload for SSA field offices. In prior work, we reported that secondary verifications lengthen the time needed to complete the employment verification process. The majority of E-Verify queries entered by employers--about 92 percent--confirm the employee is authorized to work within seconds. About 7 percent of queries are not confirmed by the initial automated check and result in SSA tentative nonconfirmations, while about 1 percent result in DHS tentative nonconfirmations. With regard to the SSA tentative nonconfirmations, USCIS officials told us that the majority of erroneous tentative nonconfirmations occur because employees' citizenship status or other information, such as name changes, is not up to date in the SSA database, generally because individuals have not notified SSA of information changes that occurred. SSA updates its records to reflect changes in individuals' information, such as citizenship status or name, when individuals request that SSA make such updates. USCIS officials stated that, for example, when aliens become naturalized citizens, their citizenship status, updated in DHS databases, is not automatically updated in the SSA database. When these individuals' information is queried through E-Verify, a tentative nonconfirmation would be issued because under the current E-Verify process, those queries would only check against SSA's database; they would not automatically check against DHS's databases. Therefore, these individuals would have to go to an SSA field office to correct their records in SSA's database. USCIS and SSA are planning to implement initiatives to help address SSA tentative nonconfirmations, particularly those issued for naturalized citizens, with a goal of reducing the need for employees to visit SSA field offices. For example, in May 2008 USCIS launched an initiative to modify the electronic verification process so that employees whose naturalized citizenship status cannot be confirmed by SSA will also be checked against DHS's databases. A query that could not be confirmed by SSA would be automatically checked against DHS's databases. If the employee's information matched information in DHS's databases and the databases showed that the person was a naturalized U.S. citizen, E-Verify would confirm the employee as work authorized. USCIS and SSA intend for this modification to enable USCIS to check naturalization status before an SSA tentative nonconfirmation is issued as a result of the naturalized citizen's information not matching citizenship information in SSA's database. According to USCIS, this should help eliminate the need for the employee who is a naturalized citizen to travel to an SSA field office before being confirmed as work authorized. USCIS has projected that as it implements this modification, the number of tentative nonconfirmations should also be reduced. It remains to be seen by how much the number of tentative nonconfirmations will be reduced as a result of this modification. Furthermore, in May 2008 USCIS modified the E-Verify process so that naturalized citizens who receive a citizenship-related mismatch can call DHS directly to resolve this mismatch rather than having to visit an SSA field office in-person to resolve the mismatch. In addition USCIS and SSA are exploring options for updating SSA records with naturalization information from DHS records. Although this could help to further reduce the number of SSA tentative nonconfirmations, USCIS and SSA are still in the planning stages, and implementation of this initiative may require significant policy and technical considerations, such as how to link records in SSA and DHS databases that are stored according to different identifiers. USCIS and SSA are also implementing additional options to reduce delays and improve the efficiency of the verification process. USCIS stated that it is adding databases to the E-Verify program, increasing the number of databases against which queries of employees' information are checked. For example, USCIS stated that it is incorporating real-time arrival data for noncitizens from the Inter-Agency Border Inspection System (IBIS) database, which tracks individuals, to help reduce the number of tentative nonconfirmations issued for newly arrived noncitizens queried through E- Verify. SSA has also coordinated with USCIS to develop an automated notification capability, known as the Employment Verification SSA Tentative Nonconfirmation Automated Response (EV-STAR) system. This system, available in all SSA field offices, became operational in October 2007 and allows SSA field office staff to view the same information that is provided to employers through E-Verify. In addition, SSA field office staff can notify the employer of the status of and any actions taken on the employee's record to resolve the tentative nonconfirmation and, through EV-STAR, this information is directly updated in E-Verify. USCIS and SSA officials stated that EV-STAR has helped to reduce the burden on SSA, employers, and employees in resolving SSA tentative nonconfirmations. These efforts may help improve the efficiency of the verification process. However, they will not entirely eliminate the need for some individuals to visit SSA field offices to update their records, as USCIS and SSA efforts do not address all types of changes that may occur in individuals' information and result in the issuance of tentative nonconfirmations, such as individuals' name changes. In our prior work, we reported that E-Verify enhances the ability of participating employers to reliably verify their employees' work eligibility. The program also assists participating employers with identification of false documents used to attempt to obtain employment. When newly hired employees present false information, E-Verify will not confirm the employees' work eligibility because their information, such as a false name or social security number, would not match SSA and DHS databases. However, the current E-Verify program cannot help employers detect forms of identity fraud, such as cases in which an individual presents genuine documents that are borrowed or stolen because the system will verify an employee when the information entered matches DHS and SSA records, even if the information belongs to another person. USCIS has taken steps to reduce fraud associated with the use of genuine documents in which the original photograph is substituted for another. A photograph screening tool was incorporated into E-Verify in September 2007 and is accessible for most employers registered to use E-Verify. According to USCIS officials, the photograph screening tool is intended to allow an employer to verify the authenticity of a lawful permanent resident card ("green card") or an employment authorization document, both of which contain photographs of the document holder. As a part of the E- Verify program, the photograph screening tool is used in cases when an employee presents a green card or employment authorization document to prove his or her work eligibility. The employer then inputs the card number into E-Verify, and the system then retrieves a copy of the employee's photograph that is stored in DHS databases through the photograph screening tool. The employer is then supposed to match the photograph shown on the computer screen with the photograph on the original or photocopy of the employee's lawful permanent resident card or employment authorization document and make a determination as to whether the photographs match. In completing the Form I-9, the employer is required to review the documents presented by an employee to prove identity and work eligibility and to certify that the documents appear genuine and relate to the individual presenting them. According to USCIS, for about 5 percent of employee queries that are run through E- Verify, employees present a green card or employment authorization document as identification. The use of the photograph screening tool is currently limited because newly hired employees who are queried through the E-Verify system and present documentation other than green cards or employment authorization documents to verify work eligibility--about 95 percent of E- Verify queries--are not subject to the tool. Expansion of the photograph screening tool would require incorporating other forms of documentation with related databases that store photographic information, such as passports issued by the Department of State and driver's licenses issued by states. Efforts to expand the tool have been initiated, but are still in the early planning stages. For example, according to USCIS officials, USCIS and the Department of State have begun exploring ways to include visa and U.S. passport documents in the tool, but these agencies have not yet reached agreement regarding the use of these documents. The Department of State is working with DHS to determine the business processes and system requirements of linking passport and visa databases to E-Verify. Additionally, USCIS is negotiating with state motor vehicle associations to incorporate driver's license photographs into E-Verify, and is seeking state motor vehicle agencies that are willing to participate in an image-sharing pilot program. As of April 2008, no motor vehicle agencies have yet officially agreed to participate in the pilot program. As USCIS works to address fraud through data sharing with other agencies, privacy issues--particularly in regards to sharing employee information with employers--may be a challenge. In its 2007 evaluation of E-Verify, Westat reported that some employers joining the Web Basic Pilot were not appropriately handling their employees' personal information. For example, some employers did not privately inform employees that queries of the employees' information through E-Verify resulted in tentative nonconfirmations. The report also pointed out that anyone wanting access to the system could pose as an employer and obtain access by signing a MOU with the E-Verify program. USCIS officials told us that taking actions to ensure that employers are legitimate when they register for E-Verify is a long term goal for the program. However, according to USCIS officials, implementing such controls to verify employer authenticity may require access to information from other agencies, such as Internal Revenue Service-issued employer identification numbers, to which USCIS currently does not have access. Additionally, some states and agencies have raised the issue of employee privacy. Representatives of motor vehicle agencies have expressed concerns in regards to the potential threats to customer privacy should their digital images be accessible to employers. USCIS is working to address these privacy concerns. However, it remains to be seen whether USCIS will be able to fully address all privacy concerns related to data and photograph sharing and use among agencies and employers. E-Verify is vulnerable to acts of employer fraud, such as when the employer enters the same identity information to authorize multiple workers. Moreover, although Westat has found that most participating employers comply with E-Verify program procedures, some employers have not complied or have misused the program, which may adversely affect employees. The findings from the Westat report showed that while changes to the E-Verify program appear to have increased employer compliance with program procedures compared to the previous version of the program, employer noncompliance still occurred. For example, Westat reported that some employers used E-Verify to screen job applicants before they were hired, an activity that is prohibited under E- Verify procedures. Additionally, some employers took prohibited adverse actions against employees--such as restricting work assignments, reducing pay, or requiring employees to work longer hours or in poor conditions--while they were contesting tentative nonconfirmations. Finally, Westat found that some employers did not always promptly terminate employees after receiving confirmation that the employees were not authorized to work in the United States. USCIS reported that it is working to address these issues by, for example, conducting education and outreach activities about the E-Verify program. In 2005, we reported that E-Verify provided a variety of reports that could help USCIS determine whether employers followed program requirements intended to safeguard employees--such as informing employees of tentative nonconfirmation results and referring employees contesting tentative nonconfirmations to SSA or DHS--but that USCIS lacked sufficient staff to review employers' use of the program. Since then, USCIS has added staff to its Verification Office, created a Monitoring and Compliance branch to review employers' use of the E-Verify system, and identified planned activities for the branch. As of April 2008, the Monitoring and Compliance branch had 21 staff and planned to hire 32 additional staff in fiscal years 2008 and 2009. Additionally, by January 2009, USCIS plans to establish a regional verification office with 135 staff members to conduct status verification and monitoring and compliance activities. With regard to compliance and monitoring activities, USCIS has identified 53 employer and employee behaviors of noncompliance and monitors the program for some of these behaviors. These behaviors include, among others, the use of counterfeit documents or substituted identities; use of the E-Verify system that does not follow procedures identified in the MOU between employers and DHS, such as failures to complete training or perform verifications within specific time frames; misuse of E-Verify to discriminate and/or adversely affect employees such as verifying existing employees, prescreening, firing employees who received tentative nonconfirmations, or not firing unauthorized employees; and detecting instances where privacy information is compromised, such as by sharing of passwords or nonemployer access of the system. Using some of these behaviors, among other things, to monitor employers' use of E-Verify, USCIS plans to interact with employers who might not be complying with program procedures in four main ways: (1) sending letters or e-mails to advise employers of misuse of the system and to provide appropriate remedies, (2) follow-up phone calls when employers fail to respond to the initial letters or e-mails, (3) audits through which USCIS requests documents and information be sent to the agency from potentially noncompliant employers, and (4) site visits for in-person interviews and document inspection when desk audits reveal cause for further investigation. Under the current voluntary program, USCIS plans to contact about 6 percent of participating employers regarding employer noncompliance. USCIS estimates that under a mandatory E-Verify program, the percentage of employers the agency would contact regarding employer noncompliance would decrease to about 1 to 3 percent. If, as a result of its monitoring activities, USCIS found that it needed to contact more than 3 percent of employers, USCIS officials stated that the agency plans to modify its approach for addressing employers' noncompliance. As of April 2008, USCIS plans to allocate its monitoring and compliance efforts as follows: 45 percent of its activities would involve sending letters and e-mails to employers; 45 percent would involve follow-up phone calls; 9 percent would involve desk audits; and 1 percent would involve site visits. As part of a mandatory program, USCIS would modify this distribution of monitoring activities by, for example, using letters, e-mails, and phone calls for a larger percentage of interactions with employers. However, USCIS is still in the early stages of implementing its monitoring and compliance activities. Therefore, it is too early to tell whether these activities will ensure that all employers fully follow program requirements and properly use E-Verify under a mandatory program, especially since such controls cannot be expected to provide absolute assurance. The Monitoring and Compliance branch could help ICE better target its worksite enforcement efforts by providing information that indicates cases of employers' egregious misuse of the system. Although ICE has no direct role in monitoring employer use of E-Verify and does not have access to program information that is maintained by USCIS unless it requests such information from USCIS, ICE officials told us that program data could indicate cases in which employers or employees may be fraudulently using the system and therefore should help the agency better target its worksite enforcement resources toward those employers. ICE officials noted that, in a few cases, they have requested and received E-Verify data from USCIS on specific employers who participate in the program and are under ICE investigation. For example, USCIS told us that by monitoring use of the E- Verify program to date, staff were able to identify instances of fraudulent use of social security numbers and referred such egregious examples of fraud to ICE. However, USCIS and ICE officials told us that case referrals or requests for information between the two agencies have been infrequent, and information on the resolution of these referrals is not formally maintained by ICE. USCIS expects to complete and implement a compliance tracking system to track referrals to and responses to requests from ICE on compliance cases in fiscal year 2009. USCIS and ICE are also negotiating an MOU to define roles, responsibilities, and mechanisms for sharing and using E-Verify information. Outstanding issues that need to be resolved for the MOU include the type of information that USCIS will provide to ICE through the referral process and the purposes for which ICE will use this information. While the MOU between USCIS and ICE is incomplete, ICE officials anticipate that, if the E-Verify program is made mandatory, they would receive an increased number of referrals for investigation from USCIS. Therefore, ICE officials told us that they plan to require additional resources to follow-up on USCIS referrals. ICE also hopes to be able to use elements of the E-Verify program to detect and track large-scale instances of employer or employee fraud. For further information about this testimony, please contact Richard Stana at 202-512-8777. Other key contributors to this statement were Jonah Blumstein, Burns Chamberlain, Frances Cook, Josh A. Diosomito, Rebecca Gambler, Danielle Pakdaman, Evi Rezmovic, Julie E. Silvers, Rebekah Temple, and Adam Vogt. 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In 1996, the former U.S. Immigration and Naturalization Service, now within the Department of Homeland Security (DHS), and the Social Security Administration (SSA) began operating a voluntary pilot program, recently named the E-Verify program, to provide participating employers with a means for electronically verifying employees' work eligibility. Legislation has been introduced in Congress to require all employers to electronically verify the work authorization status of their employees. In this statement GAO provides observations on the E-Verify system's capacity and costs, options for reducing delays and improving efficiency in the verification process, ability to detect fraudulent documents and identity theft, and vulnerability to employer fraud and misuse. This statement is based on GAO's products issued from August 2005 through June 2007 and updated information obtained from DHS and SSA in April 2008. We analyzed data on employer use, E-Verify guidance, and other reports on the employment verification process, as well as legislative proposals and regulations. A mandatory E-Verify program would necessitate an increased capacity at both U.S. Citizenship and Immigration Services (USCIS) and SSA to accommodate the estimated 7.4 million employers in the United States. According to USCIS, as of April 2008, more than 61,000 employers have registered for E-Verify, and about half are active users. Although DHS has not prepared official cost figures, USCIS officials estimated that a mandatory E-Verify program could cost a total of about $765 million for fiscal years 2009 through 2012 if only newly hired employees are queried through the program and about $838 million over the same 4-year period if both newly hired and current employees are queried. USCIS has estimated that it would need additional staff for a mandatory E-Verify program, but was not yet able to provide estimates for its staffing needs. SSA has estimated that implementation of a mandatory E-Verify program would cost a total of about $281 million and require hiring 700 new employees for a total of 2,325 additional workyears for fiscal years 2009 through 2013. USCIS and SSA are exploring options to reduce delays and improve efficiency in the E-Verify process. The majority of E-Verify queries entered by employers--about 92 percent--confirm within seconds that the employee is work-authorized. About 7 percent of the queries cannot be immediately confirmed as work authorized by SSA, and about 1 percent cannot be immediately confirmed as work authorized by USCIS because employees' information queried through the system does not match information in SSA or DHS databases. The majority of SSA erroneous tentative nonconfirmations occur because employees' citizenship or other information, such as name changes, is not up to date in the SSA database, generally because individuals do not request that SSA make these updates. USCIS and SSA are planning to implement initiatives to help address these weaknesses and reduce delays. E-Verify may help employers detect fraudulent documents thereby reducing such fraud, but it cannot yet fully address identity fraud issues, for example when employees present genuine documents that may be stolen. USCIS has added a photograph screening tool to E-Verify through which an employer verifies the authenticity of certain documents, such as an employment authorization document, by matching the photograph on the document with the photograph in DHS databases. USCIS is exploring options to expand this tool to include other forms of documentation, such as passports, with databases that store photographic information, but these efforts are in the planning stages and require decisions about data sharing and privacy issues. E-Verify is vulnerable to acts of employer fraud and misuse, such as employers limiting employees' pay during the E-Verify process. USCIS has established a branch to review employers' use of E-Verify. In addition, information suggesting employers' fraud or misuse can be useful to U.S. Immigration and Customs Enforcement (ICE) in targeting worksite enforcement resources. USCIS and ICE are negotiating a memorandum of understanding to define roles and responsibilities for sharing information.
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After volunteers separate from the Peace Corps they typically return to the United States, and may transition into new employment. As they make this employment transition, the Peace Corps offers various health care services and benefits to returned volunteers. First, each volunteer receives a close-of-service medical evaluation that assesses their health status as they complete their service. The Peace Corps also has a contract with an insurance company to make a health insurance policy-- AfterCorps--available for volunteers to purchase. This policy covers non-service-connected illnesses or injuries. The Peace Corps also pays for certain health examinations for 6 months after a volunteer's service is completed. Finally, volunteers may also be eligible for reimbursements under the FECA program for medical expenses associated with service- connected illnesses or injuries, such as those identified during the physical conducted at the close-of-service medical evaluation. The FECA program provides health benefits--reimbursement for medical expenses related to illnesses or injuries that DOL determines are service connected--as well as other benefits, such as wage-loss (death and disability) compensation. To receive benefits through FECA, a volunteer must establish that, among other things, he or she was in the performance of duty at the time the illness or injury occurred. Under the FECA program, volunteers are considered to be in the performance of duty 24 hours a day while abroad during the period of their Peace Corps service. DOL requires that if an illness or injury is first discovered after a volunteer has returned from service, then the medical evidence must show that the injury or illness was sustained while overseas or in the performance of duty. In order to be eligible for FECA health care benefits for preexisting illnesses or injuries--a condition that existed prior to service--the volunteer's medical evidence must demonstrate that the volunteer's service was the proximate cause of or aggravated, accelerated, or precipitated the illness or injury. Further, volunteers must apply for FECA benefits within 3 years of the date of injury or illness, or within 3 years after they recognize that a health condition is service- connected. In 2010, the FECA program provided about $2.8 billion in health and other benefits to about 251,000 federal and postal employees--including volunteers--who suffered a service related illness or injury. Volunteers who apply for FECA benefits typically go through the following steps: 1. Each volunteer is informed of the availability of FECA benefits at the close-of-service medical evaluation. a. Each volunteer is expected to receive a close-of-service medical evaluation that assesses his or her health status prior to leaving service to document any service-connected illnesses or injuries. Should a volunteer terminate service early--before completing his or her assignment--the volunteer will also undergo a complete medical and dental exam to identify any unmet health care needs and potential medical issues. 2. Volunteers complete a FECA application and submit it to DOL through the Peace Corps' Post-Service Unit.a. The Peace Corps--through its Post-Service Unit--assists volunteers applying for benefits by helping them to complete the appropriate forms and providing the appropriate medical evidence from volunteers' Peace Corps medical records. b. The Peace Corps' Post-Service Unit sends all FECA applications--which includes information on the injury or illness reported by the volunteer--to DOL for review and eligibility determination. 3. FECA applications submitted for volunteers are reviewed by DOL, and the agency then makes an eligibility determination. a. For those applications that do not include sufficient information and require further development, volunteers are given approximately 30 days to submit additional information to support their request for FECA benefits. If the additional information submitted is sufficient, the application is approved. If the additional information is not sufficient, the FECA application is denied and medical treatment is not authorized. b. For those applications that are approved, DOL assigns a medical diagnosis on the basis of medical evidence submitted in the FECA application. This assigned medical diagnosis defines the medical treatment and services for which the volunteer is eligible for FECA reimbursement. 4. Typically, after benefits are approved by DOL, a volunteer obtains health care services through a medical provider. After receiving these services, the volunteer or the volunteer's medical provider submits a bill to DOL for reimbursement. DOL provides reimbursement for medical expenses. 5. On an annual basis, DOL requires the Peace Corps to pay DOL back for these reimbursements. From 2009 through 2011, DOL provided a total of about $36 million in FECA benefits for volunteers, providing about $22 million in health care benefits--reimbursements for medical expenses to treat service- connected injuries and illnesses for Peace Corps volunteers--and $13.8 million in other benefits. During this period, almost 1,400 volunteers each year received health care benefits. The average reimbursement for medical expenses per volunteer was about $5,000 in 2009, and about $5,600 in 2011. The most-common medical conditions for which DOL provided health care benefits--reimbursements for medical services-- were mental, emotional, and nervous conditions; dental; other/nonclassified diseases; and infectious or parasitic diseases.These four medical conditions represented about 40 percent of all medical conditions and accounted for about $5.9 million--or more than a quarter--of all medical reimbursements for volunteers under FECA between 2009 and 2011. See table 1 for the medical conditions for which DOL provided reimbursements for volunteers under FECA. In addition to health care benefits, volunteers also received other benefits--such as wage-loss compensation and reimbursement for travel to receive medical treatment. Specifically, from 2009 through 2011, these other benefits received by volunteers totaled about $13.8 million. In 2011, the total reimbursements for both health care and other benefits were about $12 million, which represents about 3.3 percent of the Peace Corps' 2012 appropriation of $375 million. According to Peace Corps officials, these health care and other expenses represent a growing portion of its annual budget. These officials explained that from 2009 through 2011 these expenses have increased a total of approximately 7.2 percent. Volunteers who received FECA benefits from 2009 through 2011 are unique in several ways when compared to other recipients of these benefits. Specifically, our analysis of DOL's FECA program claims data found that the volunteers were generally younger and more likely to be female when compared to others who received benefits under the FECA program. Volunteers were, on average, 12 years younger than others who received FECA benefits. About two-thirds of volunteers receiving FECA benefits were female, whereas less than half of others receiving FECA benefits were female. These differences in age and gender are consistent with the overall demographics of these two populations--the volunteers and federal workers. In addition, the medical conditions for which volunteers received FECA benefits were different than those for others who received FECA benefits. For example, volunteers were more likely than others to receive FECA benefits for mental, emotional, or nervous conditions; dental conditions; other/nonclassified diseases; and infectious or parasitic diseases. While these four medical conditions represented 40 percent of the conditions for volunteers, they represented less than 2 percent for the others receiving FECA benefits. The Peace Corps uses information it has to monitor volunteers' awareness of the FECA program; however, in general, neither DOL nor the Peace Corps use information in the remaining three areas in our review to monitor the accessibility and quality of FECA benefits for volunteers. These areas are (1) information on volunteers' knowledge of FECA program and application requirements, such as medical documentation that is required to be submitted with an application; (2) information on DOL's timeliness in reviewing FECA applications and reimbursing medical expenses, and on the level of customer satisfaction with the FECA program; and (3) information on the availability of FECA- Table 2 summarizes the extent to which registered medical providers.DOL and the Peace Corps use information available in the four key areas to monitor the accessibility and quality of FECA benefits for volunteers. As shown in table 2, the Peace Corps uses information related to volunteers' awareness of the FECA program. Specifically, to monitor volunteers' awareness, the Peace Corps currently documents that volunteers have acknowledged that they have been informed of their potential eligibility for FECA during their close-of-service evaluation. Peace Corps officials told us the agency uses this information to help ensure all volunteers are made aware of their possible eligibility for FECA benefits. While the Peace Corps uses information on volunteer awareness, neither DOL nor the Peace Corps use available information related to the remaining three areas of our review to monitor the accessibility and quality of FECA benefits for volunteers. Volunteers' knowledge of FECA program and application requirements. As table 2 shows, neither DOL nor the Peace Corps use available information, such as data on FECA application denial rates, and information on reasons for denials, in order to monitor the accessibility and quality of FECA benefits for volunteers. DOL officials told us that it is not their responsibility to use this information for this type of monitoring. However, by not using this available information to review volunteers' level of knowledge of the FECA requirements, DOL and the Peace Corps may be unaware, for example, of the extent to which volunteers experience difficulties accessing FECA benefits because of limited understanding of certain application requirements, such as in (a) providing appropriate and sufficient medical evidence and (b) establishing a service connection for the illness or injury for which the volunteer is seeking FECA benefits. According to volunteer advocates, volunteers and their physicians may lack knowledge of certain FECA documentation requirements, such as the need to include a medical diagnosis rather than just the symptoms of an injury or illness in the FECA application. Furthermore, our examination of a limited number of FECA denial letters confirms that these difficulties are often a contributing factor in the FECA applications that were not approved from 2009 through 2011. For example, our review of denial letters showed that the most-common reasons for denial were lack of sufficient medical documentation and inability to establish a service connection. Further, DOL and the Peace Corps also do not work together to use the information available to them on volunteers' knowledge of program and application requirements. DOL maintains metrics for measuring performance for the overall FECA program, including those that are part of the Protecting Our Workers and Ensuring Reemployment (POWER) Initiative, the Government Performance and Results Act of 1993 (GPRA), as amended, and measures outlined in DOL's Operational Plan. The POWER Initiative established goals related to FECA--such as the timeliness of filing a FECA application. Under GPRA, DOL established customer satisfaction measures for the FECA program. Under its Operational Plan, DOL established additional timeliness and customer satisfaction measures, such as those to monitor the timeliness of the FECA application review process. of the overall FECA population. Instead, DOL's focus has been on using the data in order to monitor FECA program timeliness and customer satisfaction for all individuals who receive FECA benefits. While it is reasonable that DOL focus on the entire FECA program, DOL and the Peace Corps also do not work together to use the timeliness and customer satisfaction information to help the Peace Corps gauge whether volunteers are receiving FECA benefits in a timely and satisfactory manner. For example, Peace Corps officials told us that a survey of former volunteers specifically about access and satisfaction issues would be useful. According to Peace Corps officials, the results of such a survey could help clarify whether volunteers have access to the care they need and what the volunteers think about the quality of the care they receive. Without this information, DOL and the Peace Corps may be unable to determine volunteers' level of satisfaction with the FECA program. Our review of DOL timeliness data suggests that between 2009 and 2011, the agency met its timeliness benchmarks related to review of FECA applications for volunteers. these data to determine the timeliness in reviewing volunteers' FECA applications, DOL may not be able to determine whether or to what extent its performance on timeliness is sustained in the future. Furthermore, a lack of ongoing examinations of timeliness may make it difficult for DOL to identify problems if they should arise in the future or to provide information to alleviate the concerns of advocates and Peace Corps officials regarding the timeliness of the review of FECA applications. For example, our review of information showed that DOL reviewed about 97 percent of all volunteers' applications related to traumatic cases within 45 days of receiving the application--meeting its benchmark to review 90 percent within that time frame. geographic areas and for certain medical specialties.information DOL has on the geographic location and medical specialty of FECA-registered providers, DOL and the Peace Corps cannot determine the extent to which there are limitations in the availability of FECA- registered providers in certain geographic areas and for certain medical specialties. DOL's available information on FECA-registered providers suggests that volunteers may face some challenges accessing registered providers. Officials stated that although it is the responsibility of the volunteer to find a FECA-registered provider, DOL publishes an online search tool that contains a partial listing of the available FECA-registered providers as a service to FECA beneficiaries, including volunteers, to help locate providers. Officials also noted the agency does not actively manage or Although the online search tool is recognized by DOL as update the list. incomplete, it does provide some partial information about the availability of FECA-registered providers. We reviewed this online search tool and found, for example, that as of June 2012 there were no FECA-registered providers in the online search tool listed as mental health specialists in Peace any of the 10 states with the largest population of volunteers.Corps officials and volunteer advocates also noted there are a limited number of FECA-registered providers in some geographic locations and medical specialties. In addition, Peace Corps officials told us that they have assisted volunteers in finding and enrolling providers, and have had difficulty in doing so. Although the information on FECA-registered providers in the online search tool that DOL provides as a resource to volunteers may be incomplete, it includes information that could be used to help identify potential access issues and areas for monitoring the accessibility of FECA benefits for volunteers. The Peace Corps and DOL both have certain responsibilities related to the provision of FECA benefits for eligible volunteers who return from service abroad. Specifically, DOL administers the FECA program and the Peace Corps pays for the expenses incurred by volunteers in the program. From DOL's perspective, volunteers do not represent a large proportion of the overall FECA population. However, FECA is a relatively larger issue from the Peace Corps' perspective. The volunteers are a unique population compared to others who receive benefits under FECA--for example, they are more likely to have mental, emotional, or nervous conditions that are service-connected--and, according to Peace Corps officials, the amount the Peace Corps pays DOL for FECA reimbursements represents an increasing portion of the Peace Corps' annual budget. Because both of the agencies have certain responsibilities related to the provision of FECA benefits for eligible volunteers who return from service abroad, it is especially important that the Peace Corps and DOL jointly monitor the accessibility and quality of the FECA program to ensure that the FECA program is achieving its intended objectives-- including ensuring that eligible volunteers receive needed FECA health care benefits. The Peace Corps and DOL have information available to them in the four key areas we reviewed that could be used to monitor the accessibility and quality of FECA benefits for volunteers: (1) volunteers' awareness of FECA; (2) volunteers' knowledge of program and application requirements; (3) DOL's timeliness in reviewing FECA applications and reimbursing medical expenses, and the level of customer satisfaction with the FECA program; and (4) availability of FECA-registered medical providers. However, in general, the two agencies are not using this information for such monitoring. For example, the agencies do not use the information they have to determine whether there is a gap in the number and geographic location of FECA-registered providers, such as the potential gap we identified in the number and geographic location of FECA-registered providers who treat mental health conditions--the most common medical condition for which volunteers received reimbursement. While information is available to DOL and the Peace Corps that could be used for monitoring, the agencies are generally not working together to use the available information to monitor the accessibility and quality of FECA benefits for volunteers. Working together is important because neither agency has all the information to monitor the program on its own. Finally, because the information we identified under the four areas is not a comprehensive list of all the information the agencies could use to monitor FECA benefits for volunteers, the Peace Corps and DOL may be able to identify other information that could be used for this purpose. Unless the two agencies work together on monitoring, they will miss the opportunity to make use of the available information to help ensure the accessibility and quality of FECA benefits for volunteers. We recommend that the Secretary of Labor and the Director of the Peace Corps jointly develop and implement an approach for working together to use available information to monitor the access to and quality of FECA benefits provided to returned volunteers. We provided a draft of this report to the Department of Labor (DOL) and the Peace Corps for review. Peace Corps provided written comments (reprinted in app. I), and both provided technical comments, which we incorporated as appropriate. Neither DOL nor the Peace Corps indicated whether or not they agreed with our recommendation. Instead, among other things, DOL's technical comments identified examples of the agency's collaboration with the Peace Corps to provide benefits under the FECA program. For example, DOL noted that officials from both agencies have met multiple times over the last 2 years to try to improve the handling of volunteers' claims, and that DOL officials are available to work with the Peace Corps to improve the process of providing benefits to volunteers. In contrast, the Peace Corps noted specific improvements that it believes could assist returned volunteers, but stated that it cannot make these reforms on its own and needs action from DOL. DOL's and the Peace Corps' comments further underscore that the two agencies do not have a joint approach for monitoring the quality and accessibility of benefits for returned volunteers under the FECA program. As a result, we are concerned that the two agencies are missing opportunities to collaborate. We also remain convinced that DOL and the Peace Corps should, as we recommended, work together and develop an approach for using available agency information to monitor the accessibility and quality of FECA benefits for returned volunteers. We are sending copies of this report to the Secretary of Labor, the Director of the Peace Corps, and other interested parties. In addition, the report will be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or at [email protected]. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix II. In addition to the contact named above, Will Simerl and Cynthia Grant, Assistant Directors; N. Rotimi Adebonojo; Melinda Cordero; Carolyn Fitzgerald; Krister Friday; Marina Klimenko; Amy Leone; and Jennifer Whitworth made key contributions to this report.
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Peace Corps volunteers who suffer a service-connected illness or injury are eligible to receive certain health care and other benefits under FECA--a workers' compensation program administered by DOL. FECA provides health care benefits--reimbursements for medical expenses--to federal employees and volunteers for illnesses or injuries that DOL determines are service-connected. GAO was mandated to report on the access and quality of health care benefits for Peace Corps volunteers. This report (1) identifies the health care and other benefits provided to volunteers from 2009 through 2011 under the FECA program, and (2) examines the extent to which DOL and the Peace Corps use available agency information to monitor the accessibility and quality of FECA health care benefits provided to volunteers. GAO reviewed agency documents, interviewed agency officials, and analyzed DOL data. GAO developed a framework with four areas to define access and quality and examined available information in these areas that could be used for monitoring. From 2009 through 2011, the Department of Labor (DOL) provided a total of about $36 million in Federal Employees' Compensation Act (FECA) benefits--health and other benefits--for Peace Corps volunteers who have returned from service abroad (volunteers). Specifically, DOL provided about $22 million in health care benefits for these volunteers in the form of reimbursements for medical expenses related to service-connected injuries and illnesses, and $13.8 million in other benefits, such as reimbursement for travel expenses incurred when seeking medical care. During this period, approximately 1,400 volunteers each year received these health care benefits under the FECA program. The most common types of medical conditions for which DOL provided reimbursements were mental, emotional, and nervous conditions; dental; other/nonclassified diseases; and infectious or parasitic diseases. These four medical conditions accounted for more than a quarter of all medical reimbursements for volunteers under FECA from 2009 through 2011. In general, neither DOL nor the Peace Corps use all available information in the four areas GAO reviewed to monitor access and quality of FECA benefits for volunteers. GAO found that the Peace Corps uses information in just one of the areas--volunteers' awareness of the FECA program; however, in general, neither agency uses information in the remaining three areas. These areas are (1) information on volunteers' knowledge of FECA program and application requirements, such as required medical documentation; (2) information on DOL's timeliness in reviewing FECA applications and reimbursing medical expenses, and on the level of customer satisfaction; and (3) availability of FECA-registered medical providers. By not using information available to the agencies, DOL and the Peace Corps are missing an opportunity to determine whether, or to what extent, volunteers face access and quality issues in the FECA program. For example, DOL and the Peace Corps may not be able to determine the extent to which there are limitations in the availability of FECA-registered providers for certain medical specialties. DOL and the Peace Corps each have certain responsibilities related to the provision of FECA benefits for eligible volunteers, and each has information that could be used for monitoring. From DOL's perspective, volunteers do not represent a large proportion of the overall FECA population. However, FECA is a relatively larger issue from the Peace Corps' perspective. The volunteers are a unique population compared to others who receive benefits under FECA, and the FECA costs associated with volunteers represent a growing portion of the Peace Corps' annual budget. Neither agency has all the information GAO reviewed, and the agencies generally do not work together to use available information to monitor the accessibility and quality of FECA benefits for volunteers. As a result, DOL and the Peace Corps are missing an opportunity to make use of the available information to help ensure the accessibility and quality of FECA benefits for volunteers. GAO recommends that the Secretary of Labor and the Director of the Peace Corps jointly develop and implement an approach for working together to use available agency information to monitor the access to and quality of FECA benefits provided to volunteers. Neither DOL nor the Peace Corps indicated whether or not they agreed with GAO's recommendation. Instead, the agencies provided additional context related to the provision of FECA benefits. GAO recommends that the Secretary of Labor and the Director of the Peace Corps jointly develop and implement an approach for working together to use available agency information to monitor the access to and quality of FECA benefits provided to volunteers. Neither DOL nor the Peace Corps indicated whether or not they agreed with GAO's recommendation. Instead, the agencies provided additional context related to the provision of FECA benefits.
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The authorizing legislation for the federal crop insurance program states that the purpose of the program is to promote the national welfare by improving the economic stability of agriculture. According to RMA's mission statement, the agency provides risk-management tools, such as crop insurance, to strengthen the economic stability of agricultural producers and rural communities. Specifically, RMA's fiscal years 2011 to 2015 strategic plan states that the agency's goal for the federal crop insurance program is that it will provide a broad-based financial safety net for producers. The fiscal years 2011 to 2015 strategic plan includes the agency's strategic goals and core values in support of its mission. These goals are, among other things, to continue to expand participation, ensure actuarially sound products, safeguard the integrity of the program, and to do so as responsible stewards of taxpayer dollars and with transparency. Through the federal crop insurance program, farmers insure against losses on more than 100 crops. These crops include the five major crops (corn, soybeans, wheat, cotton, and grain sorghum), as well as nursery crops and certain fruits and vegetables. According to an RMA document, the amount of federal crop insurance purchased based on planted acres is relatively high in comparison with the past for the five major crops. In 2012, corn acreage was 84 percent insured, soybean acreage was 84 percent insured, wheat acreage was 83 percent insured, cotton acreage was 94 percent insured, and grain sorghum acreage was 74 percent insured. As shown in table 1, the federal government's crop insurance costs generally increased for fiscal years 2003 through 2013. A widespread drought and crop losses in crop year 2012 contributed to the spike in government costs to $14.1 billion in fiscal year 2012.weather conditions were more favorable, so government costs were lower than in fiscal year 2012. According to an April 2014 CBO estimate, for fiscal years 2014 through 2023, program costs are expected to average $8.9 billion annually. In crop year 2013, The 2014 farm bill included a provision that affects the dollar value that a farmer can insure when the farmer's county has experienced substantial crop losses in previous years. RMA uses the actual production history (APH)--4 to 10 years of historical crop yields-- to establish a farmer's insurance guarantee. Existing law before the 2014 farm bill allowed a farmer to replace a low actual yield in the APH with a yield equal to 60 percent of the historical county crop yield. The 2014 farm bill enhanced this provision by allowing farmers to exclude without replacement any recorded or appraised yield from the APH calculation if the average crop yield in the county for any particular year is less than 50 percent of the 10-year county average. According to a USDA document, this provision will provide relief to farmers affected by severe weather, including drought, by allowing them to have a higher approved crop yield. In general, RMA will set increased premium rates for farmers who choose to use this option, meaning the subsidy provided by the federal government will increase. CBO estimated that this provision change will cost $357 million over the 10 years from fiscal year 2014 through fiscal year 2023. The government's crop insurance costs are substantially higher in areas with higher crop production risks than in other areas. From 2005 through 2013, government costs per dollar of crop value in areas with higher crop production risks were over two and a half times the costs in other areas. However, RMA does not monitor and report on the government's crop insurance costs in these higher risk areas. According to an RMA official, RMA's county target premium rates are the best available measure of crop production risks. In the 20 percent (510) of U.S. counties with the highest average county target premium rates, these rates ranged from 20 percent to 83 percent, with a median rate of 25 percent. In comparison with other types of property and casualty insurance, 25 percent is a relatively high premium rate. For example, at 25 percent, the annual homeowner's insurance premium on a house valued at $400,000 would be $100,000. The remaining 80 percent (2,044) of U.S. counties had lower average county target premium rates. Those rates ranged from 0.6 percent to nearly 20 percent, with the median rate of 9 percent. Figure 1 shows counties organized in groups of 20 percent based on average county target premium rates, with the darker areas representing counties with higher average county target premium rates. The color- shaded counties represent all 2,554 counties that had county target premium rates for at least one of the five major crops. Figure 2 shows the riskiest 20 percent of counties (510) in terms of average county target premium rates. These 510 higher risk counties are color-shaded on the basis of their 2013 premium dollars to show which counties purchased the most crop insurance. The Great Plains, which has areas with relatively high drought risk, had a large portion of the higher risk counties' premium dollars. Figure 3 compares the estimated government crop insurance costs per dollar of expected crop value for the five major crops in the 510 higher risk counties with the costs in the 2,044 other U.S. counties from 2005 through 2013.year depending on weather-caused crop losses, crop prices, and farmers' decisions about how much insurance coverage to purchase. To control for variations in crop prices and farmers' purchase decisions, and to normalize the costs for higher risk counties and lower risk counties while still reflecting weather-caused crop losses, we expressed the estimated government costs in relation to expected crop value. As shown in figure 3, the costs in higher risk counties were substantially greater. Over the 9- year time frame, government costs averaged 14 cents per dollar of expected crop value in the higher risk counties and 5 cents per dollar in the other counties. For example, if two farms each had an expected crop value of $1 million, the higher risk farm would have had an average annual government cost of $140,000, and the lower risk farm would have had an average annual government cost of $50,000. In 2013, the higher risk counties had a government cost of 17 cents per $1 of expected crop value, 3 cents higher than the average during the time frame, and the other counties had a government cost of 5 cents per $1 of expected crop value, the same as the time frame average. RMA implemented changes to premium rates in 2014, decreasing some rates and increasing others, but our analysis of RMA data shows that, for some crops, RMA's higher risk premium rates may not cover expected losses. RMA made changes to premium rates from 2013 to 2014, but its practice of phasing in changes to premium rates over time could have implications for actuarial soundness. Further, many premium rates in areas with higher production risks were lower than they should have been to cover expected losses and RMA's increases to these premium rates were not as high as they could have been under the law to fully cover expected losses. We found that RMA adjusted higher risk county base premium rates and county target premium rates from 2013 to 2014 for the five major crops. The revisions in premium rates were in response to a 2010 study of its methodology and its periodic reviews of crop loss history. The changes included increases and decreases of higher risk county base premium rates and county target premium rates for each of the five major crops. On average, RMA's various changes to premium rates from 2013 to 2014 resulted in decreases to county base premium rates and county target premium rates for corn and soybeans and increases for grain sorghum.These changes also represented an increase in the percentage of county base premium rates that were aligned with county target premium rates for corn, soybeans, cotton, and grain sorghum, but not for wheat. RMA has indicated in agency documents that it phases in new rates, especially those that require an increase, to keep premiums stable and provide farmers with predictable rates. For example, in a 2013 document, the agency reported that it planned to slowly phase in changes to county base premium rates to mitigate the impact of a 2012 drought. However, phasing in changes to premium rates can have implications for improving actuarial soundness. For example, USDA's Office of Inspector General (OIG) reported in 2005 that, from crop years 2000 through 2003, when cotton crop losses were high relative to premiums, premium rates for cotton were decreased, unchanged, or increased only moderately and, in these same 4 years, premiums were not sufficient to cover losses. An RMA official told us that RMA uses judgment when changing county base premium rates, factoring in the agency's goal of maintaining stability for farmers in its decisions. When county base premium rates are lower than county target premium rates, RMA is required by statute to limit annual increases in premium rates to 20 percent of what the farmer paid for the same coverage in the previous year. However, RMA uses discretion in deciding whether to raise rates by the full 20 percent or by a lesser amount (as indicated by its practice of phasing in rate changes). Based on our analysis, for the higher risk premium rates, half of county base premium rates for corn, cotton, and grain sorghum, and nearly half of county base premium rates for wheat are lower than the county target premium rates.the lower risk premium rates, most of the county base premium rates for In contrast, for corn, cotton, grain sorghum, and wheat meet or exceed county target premium rates. Figure 7 shows the percentage of county base premium rates that meet, exceed, or are lower than county target premium rates in 2014. We calculated percentage differences between county base premium rates and county target premium rates. This provided a measure of the gap between the premium rate RMA charges a farmer (the county base premium rate) and the premium rate RMA should charge a farmer (the county target premium rate). For example, for nonirrigated cotton, one county had a county base premium rate of 26 percent and a county target premium rate of 32 percent. Thus, the county base premium rate was 6 percentage points less than the county target premium rate; however, the percentage difference was 23 percent. For most higher risk premium rates where the county base premium rates were lower than the county target premium rates, the higher risk county base premium rates were within 20 percent of the county target premium rates in 2014, meaning RMA could fully align the rates in a single year. As shown in table 2, across the major crops, a larger percentage of county base premium rates are lower than county target premium rates by 20 percent or more for higher risk premium rates as compared to the lower risk premium rates. Based on our analysis, from 2013 to 2014, RMA changed some county base premium rates by the full 20 percent allowed by the law. However, we also found that from 2013 to 2014, RMA did not raise county base premium rates as high as the law allows for many of the higher risk premium rates. For example, as shown in table 3, RMA made a lesser adjustment in about half of the county base premium rates for corn and cotton, and nearly half for grain sorghum that required a change of 20 percent or more to either meet or move closer to the county target premium rate. Table 3 shows the percentage of premium rates where a change of at least 20 percent was necessary to move the county base premium rate closer to the county target premium rate and where RMA did not use the full 20 percent authorized in statute. An RMA official told us that the agency strives for actuarial soundness not only nationwide, but also, at the county and crop level. Without sufficient increases to premium rates, where such increases are necessary, RMA's premium rates may not cover expected losses and may not be as high as they could be under the law, which may have implications for the actuarial soundness of the program. Among the higher risk premium rates, if the county base premium rates and the county target premium rates were identical, the federal government's total program costs in these areas would be lower because more premium dollars would be collected. For example, in analyzing data on premium dollars for 2013, our analysis showed that had the county base premium rates been aligned with the county target premium rates in higher risk counties, the federal government could have potentially collected tens of millions of dollars in additional premiums. However, the federal government's total program costs would not be reduced by the same amount as the additional premiums. The amount of the premium that the federal government provides on behalf of farmers (premium subsidy), about 62 percent, on average, would increase, but the portion of the premium that farmers pay would also increase. Thus, the additional premiums would reduce the government's costs. Also, when county base premium rates are lower than county target premium rates, farmers' production decisions may not be based on the true cost of their risk of loss due to weather-related events, such as drought; and, the federal government does not have information about the full amount of premium dollars the federal government should collect from farmers. Ensuring that the federal government has information about the full amount of premium dollars it should collect from farmers would be an activity consistent with RMA's core values. Federal crop insurance plays an important role in protecting farmers from losses from natural disasters and price declines, and the federal crop insurance program has become one of the most important programs in the farm safety net. RMA has overall responsibility for administering the program, including controlling costs. With increasing budgetary pressures, it is critical that federal resources are targeted as effectively as possible. One of USDA's strategic objectives is to maximize the return on taxpayer investment in the department through enhanced stewardship activities of resources and focused program evaluations. Such evaluations could include an analysis of the government's crop insurance costs in higher risk areas, where, as our analysis found, government costs are substantially higher than in other areas. However, RMA does not monitor and report on the government's crop insurance costs in higher risk areas to identify potential cost savings, which would be consistent with USDA's strategic objective. Without additional information from RMA on the government's crop insurance costs in higher risk areas, Congress may not have all the information it needs to make future assessments of the crop insurance program's design and costs. In implementing premium rates, RMA seeks to balance its goals for participation and ensuring stability for farmers with maintaining an actuarially sound program. RMA updates its premium rates periodically, but there are continuing gaps between county base premium rates and county target premium rates. RMA has the ability to make changes to more quickly achieve greater actuarial soundness at the county and crop level but is not always doing so for areas with higher production risks. Without sufficient increases to premium rates, where applicable, RMA may not be taking all the actions available to achieve greater actuarial soundness. Additionally, moving to ensure that more county base premium rates meet county target premium rates will provide more information about the full costs to the federal government for insuring farmers in higher risk areas, consistent with the core value in RMA's fiscal years 2011 to 2015 strategic plan, and could also save federal funds. To better inform Congress in the future about crop insurance program costs, reduce present costs, and ensure greater actuarial soundness, we recommend that the Administrator of the U.S. Department of Agriculture's Risk Management Agency take the following two actions: Monitor and report on crop insurance costs in areas that have higher crop production risks. As appropriate, increase its adjustments of premium rates in areas with higher crop production risks by as much as the full 20 percent annually that is allowed by law. We provided USDA with a draft of this report for review and comment. We received written comments from the RMA Administrator. These comments are summarized below and reproduced in appendix III. In these comments, RMA disagreed with our first recommendation and agreed with our second recommendation. RMA stated that, consistent with the second recommendation, it will continue to revise premium rates in an appropriate, prudent, and actuarially sound manner, taking proper account of current rates and premium rate targets consistent with generally accepted actuarial practices. In its written comments, RMA disagreed with our first recommendation to monitor and report on crop insurance costs in areas that have higher crop production risks and said it currently provides crop insurance data that have all the information necessary to determine crop insurance costs in all areas. RMA's website provides some information--such as county- level data on premiums, premium subsidies, loss claim payments, and loss ratios--that enables others to do some analysis of crop insurance costs. However, that information is not complete for the purpose of analyzing the government's costs and is not organized in a way that facilitates an understanding of the government's costs in higher risk areas. For example, regarding data on loss ratios (i.e., loss claim payments divided by premiums) that is on RMA's website, a recent article by an agricultural economist from the University of California notes that this loss ratio information for crop insurance (1) is not informative about and misrepresents the actuarial exposure borne by the program and (2) by excluding administrative expenses, understates the extent of public expenditure on the program. We agree with this assessment. Furthermore, placing data on a website does not constitute the monitoring of crop insurance costs. We continue to believe RMA can and should do more to monitor and report on crop insurance costs in higher risk areas, where we found government costs to be substantially higher than in other areas. As we said in this report, without additional information from RMA on the government's crop insurance costs in higher risk areas, Congress may not have all the information it needs to make future assessments of the crop insurance program's design and costs. In addition, RMA commented on our analysis of the government's cost of the crop insurance program in higher risk areas. RMA said it has developed a definition of high-risk land, mapped out these areas, and applied significant premium surcharges. RMA said our definition of what we deem to be "higher risk areas" is much broader. RMA defines "high- risk land" as acreage with identifiable physical limitations, such as floodplains and high sand content soils. Our identification of higher risk areas (i.e., the 20 percent of counties that had the highest weighted average county target premium rates) enabled us to broadly assess crop insurance costs, and we believe this approach, which we discussed with RMA officials, was consistent with our purpose. In its comment letter, RMA said our use of crop insurance costs (or benefits to farmers) per dollar of expected crop value "appears to exaggerate the difference in program costs in higher-risk areas versus other areas, or at least masks some important details." To present another perspective, RMA compared corn premium subsidies per acre for two states that had a large number of higher risk counties with two states that had no higher risk counties and stated that the premium subsidies per acre were similar amounts. We believe our use of a dollar-based measure (i.e., premium subsidies per dollar of expected crop value) is more appropriate than a physical measure (i.e., acres) for comparisons between costs and farmer benefits in higher risk areas and other areas. This is consistent with the methodology of a 2013 article by agricultural economists from The Ohio State University and the University of Illinois that compared net farm insurance payments using a dollar-based measure. Moreover, the use of a dollar-based measure is consistent with property insurance methods, which are based on the value of the property being insured. RMA stated that coverage levels were another offsetting effect, noting that growers in higher risk areas tend to choose lower coverage levels than in other areas, because higher premium rates make higher coverage less affordable. RMA appears to be suggesting that our analysis overlooks this difference, which is not true. As explained in our report, one of the reasons that we expressed estimated government costs in relation to expected crop value was to control for variations in farmers' purchase decisions. Farmers' decisions in selecting coverage levels vary between higher risk areas and other areas. According to our analysis, in 2013, farmers in higher risk counties chose to insure, on average, 67 percent of their expected crop value, while farmers in the other counties chose to insure, on average, 76 percent of their expected crop value. Thus, we used expected crop value--which is not affected by coverage levels--rather than insured crop value so that our analysis would not be distorted by differences in coverage levels. RMA agreed with our second recommendation that, as appropriate, RMA increase its adjustments of premium rates in areas with higher crop production risks by as much as the full 20 percent annually that is allowed by law, saying it mirrors how premium rate adjustments are currently administered. However, RMA stated it disagreed with our assessment of the extent to which premium rates need to be adjusted to the full amount allowed by statute and that adjusting premium rates fully to changes in premium rate targets would undercut the basic purpose of insurance--to provide financial stability. We continue to believe RMA's adjustment of premium rates should be consistent with insurance principles and the statutory directive to set premium rates that improve actuarial soundness. Furthermore, in its discussion of premium rates in "higher-risk" areas, RMA states that the report makes certain assumptions about premium rate targets in high risk areas that are not completely accurate and do not necessarily result in improved actuarial soundness. RMA further states that following each random variation to its fullest can subject growers to a roller-coaster ride of ups and downs in their premiums. RMA presented a simulation of yields and losses, showing that adjusting premium rates by less than needed to meet the premium rate target leads to a smaller variation in rates. RMA's simulation suggested that the agency's current method of adjusting premium rates will yield an average premium rate that is actuarially sound at the national level. We agree that RMA's average premium rate, nationwide, may allow the program to be considered actuarially sound. However, our analysis focused on RMA's practices in charging premium rates in areas with higher production risks that may be lower or higher than the actuarially sound premium rate. In addition, RMA's simulation did not account for systematic variation in risk at the county and crop level. As we concluded, RMA could more quickly achieve actuarial soundness at the county and crop level. Moreover, as we stated, charging premium rates that are less than the actuarially sound premium rates could also have implications for total costs to the federal government in areas with higher production risks. Thus, we continue to believe that increasing the adjustments of premiums rates in areas with higher crop production risk by as much as the full 20 percent annually that is allowed by law is prudent and in keeping with sound fiscal practices. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees; the Secretary of Agriculture; the Administrator of USDA's Risk Management Agency; the Director, Office of Management and Budget; and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. Our objectives were to determine, for areas with higher crop production risks, (1) the government's cost of the crop insurance program and (2) the extent to which RMA's premium rates, as implemented, cover expected losses. To address these objectives, we reviewed relevant provisions of the Food, Conservation, and Energy Act of 2008 (2008 farm bill) and the Agricultural Act of 2014 (2014 farm bill); other statutes; and U.S. Department of Agriculture (USDA), regulations; and we analyzed crop insurance program data from RMA. We interviewed USDA officials, including officials from RMA, and reviewed documents they provided, such as, descriptions of the agency's methodology for calculating premium rates. We selected 2013 because it was the most recent year for which complete RMA data on program costs was available at the time we performed this analysis. We recognize that an area or location may be high risk for one crop or crop type or practice type but not for a different crop. However, by using 2013 premium dollars to weight the average of the different target rates used in a given county, we maintain that such a calculation allows a reasonable average approximation of a location's production risk. practice, and crop-type combinations RMA used for premium calculations in 2013. Additionally, the use of a weighted-average county target premium rate allowed us to calculate a single measure for each county by which we could examine government costs in specific geographic areas. We then ranked the counties from the highest to lowest weighted average target rate. We defined those counties ranked in the top 20 percent as "higher risk counties" and the remaining 80 percent of counties as "lower risk counties." To calculate total government costs in these higher risk counties, we analyzed RMA data for 2005 through 2013. We used the expected crop value to compare the costs in areas with higher production risks to the costs in other areas. Expected crop value is equal to the expected crop production multiplied by the expected (or elected) crop price. However, we did not have information on expected crop prices, so we calculated expected crop value by dividing the liability dollars by the coverage rate. Finally, to address the first objective we interviewed RMA officials, reviewed USDA's and other studies that examined the costs of the crop insurance program and the role of premium subsidies, and consulted documents from other stakeholders, including farm industry groups. To address the second objective, we analyzed RMA data on production- based (or yield) premium rates for the five major crops (corn, cotton, grain sorghum, soybeans, and wheat) for crop years 2013 and 2014. Production-based premium rates are RMA's premium rates for production-based policies and are used to determine the premium rates for revenue policies.and crop-type combination, on the county base premium rate and the county target premium rate. We used the same 2013 data on county target premium rates to identify higher risk counties in our first objective. Using the 2013 premium rate data, we ranked the county target premium rates from highest to lowest and identified the highest 20 percent of county target premium rates for each crop, practice, and crop-type combination. For a given crop, a single county may have multiple county target premium rates, depending on the number of combinations of practices (e.g., irrigated and nonirrigated) and crop types (e.g., winter wheat and spring wheat) insured in the county. For example, for wheat, a county may have county target premium rates for two practice and crop- type combinations--nonirrigated winter wheat and nonirrigated spring wheat--in which one or both of the premium rates may fall in the highest 20 percent in 2014. For example, for wheat, County A in state B had county target premium rates for two practice and crop-type combinations--nonirrigated winter wheat and nonirrigated spring wheat-- that were in the highest 20 percent in 2014. In total, there were 40 combinations or rankings of crops, practices, and crop types. Thus, if a county target premium rate fell into the top 20 percent in its ranking, that county target premium rate was placed in the "higher risk premium rate" category. The remaining 80 percent were placed in the "lower risk premium rate" category. We compared each county base premium rate with the applicable county target premium rate identified above. In each instance, we compared the county base premium rate with the county target premium rate for a single practice, and crop-type combination, and calculated the percentage difference. We calculated the percentage difference by subtracting the county base premium rate from the county target premium rate and dividing the result by the county base premium rate. If the percentage difference between the county base premium rate and the county target premium rate was zero, we considered the county base premium rate as having met the county target premium rate. If the percentage difference was greater than zero, we placed the county base premium rate in the "lower than" category; and, if the percentage difference was less than zero, we placed the county base rate in the "higher than" category. Table 4 provides details on the crop-type and RMA provided us with data, for each crop, practice, practice combinations included in this review. Finally, we interviewed RMA officials in headquarters and two field offices regarding the agency's method for setting and implementing changes to county premium rates. We judgmentally selected the field offices based on the offices having had experience implementing premium rates in areas with higher production risks. We also reviewed studies that examined the agency's methodology for assigning premium rates and reviewed relevant audits by USDA's Office of the Inspector General. For the various data used in our analyses, as discussed, we generally reviewed related documentation, interviewed knowledgeable officials, and reviewed related internal controls information to evaluate the reliability of these data. In each case, we concluded that the data were sufficiently reliable for the purposes of this report. We conducted this performance audit from December 2013 to February 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our objectives. Figure 8 shows the 255 counties that were the riskiest 10 percent of counties in terms of average county target premium rates. These counties are shaded on the basis of their 2013 premium dollars to show which risky counties had the most crop insurance. In addition to the individual named above, Thomas M. Cook, Assistant Director; Kevin S. Bray; Mark Braza; Gary Brown; Michael Kendix; Tahra Nichols; Susan Offutt; Ruth Solomon; and Frank Todisco made key contributions to this report. In addition, Cheryl Arvidson, and Kiki Theodoropoulos made important contributions to this report. Climate Change: Better Management of Exposure to Potential Future Losses Is Needed for Federal Flood and Crop Insurance. GAO-15-28. Washington, D.C.: October 29, 2014. Crop Insurance: Considerations in Reducing Federal Premium Subsidies. GAO-14-700. Washington, D.C.: August 8, 2014. Extreme Weather Events: Limiting Federal Fiscal Exposure and Increasing the Nation's Resilience. GAO-14-364T. Washington, D.C.: February 12, 2014. Fiscal Exposures: Improving Cost Recognition in the Federal Budget. GAO-14-28. Washington, D.C.: October 29, 2013. 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-13-279SP. Washington, D.C.: April 9, 2013. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 2013. Crop Insurance: Savings Would Result from Program Changes and Greater Use of Data Mining. GAO-12-256. Washington, D.C.: March 13, 2012. Crop Insurance: Opportunities Exist to Reduce the Costs of Administering the Program. GAO-09-445. Washington, D.C.: April 29, 2009. Crop Insurance: Continuing Efforts Are Needed to Improve Program Integrity and Ensure Program Costs Are Reasonable. GAO-07-944T. Washington, D.C.: June 7, 2007. Crop Insurance: Continuing Efforts Are Needed to Improve Program Integrity and Ensure Program Costs Are Reasonable. GAO-07-819T. Washington, D.C.: May 3, 2007. Climate Change: Financial Risks to Federal and Private Insurers in Coming Decades Are Potentially Significant. GAO-07-760T. Washington, D.C.: April 19, 2007. Climate Change: Financial Risks to Federal and Private Insurers in Coming Decades Are Potentially Significant. GAO-07-285. Washington, D.C.: March 16, 2007. Suggested Areas for Oversight for the 110th Congress. GAO-07-235R. Washington, D.C.: November 17, 2006.
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The federally subsidized crop insurance program, which helps farmers manage the risk inherent in farming, has become one of the most important programs in the farm safety net. Since 2000, the government's costs for the crop insurance program have increased substantially. The program's cost has come under scrutiny as the nation's budgetary pressures have been increasing. GAO was asked to identify the costs to the federal government for insuring crops in areas with higher production risks. This report examines, for these areas, (1) the government's cost of the crop insurance program and (2) the extent to which RMA's premium rates, as implemented, cover expected losses. GAO analyzed RMA crop insurance program data from 1994 through 2013 (the most recent year with complete program data) and premium rate data for 2013 and 2014; reviewed relevant studies, RMA documents, and documents from stakeholders including farm industry groups; and interviewed RMA officials. The federal government's crop insurance costs are substantially higher in areas with higher crop production risks (e.g., drought risk) than in other areas. In the higher risk areas, government costs per dollar of crop value for 2005 through 2013 were over two and a half times the costs in other areas. The figure below shows the costs during this period. However, the U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA)--the agency that administers the crop insurance program--does not monitor and report on the government's crop insurance costs in the higher risk areas. RMA implemented changes to premium rates in 2014, decreasing some rates and increasing others, but GAO's analysis of RMA data shows that, for some crops, RMA's higher risk premium rates may not cover expected losses. RMA made changes to premium rates from 2013 to 2014, but its plans to phase in changes to premium rates over time could have implications for improving actuarial soundness. USDA is required by statute to limit annual increases in premium rates to 20 percent of what the farmer paid for the same coverage in the previous year. However, GAO found that, for higher risk premium rates that required an increase of at least 20 percent to cover expected losses, RMA did not raise these premium rates as high as the law allows to make the rates more actuarially sound. Without sufficient increases to premium rates, where applicable, RMA may not fully cover expected losses and make the rates more actuarially sound. Furthermore, in analyzing data on premium dollars for 2013, GAO found that had RMA's higher risk premium rates been more actuarially sound, the federal government could have potentially collected tens of millions of dollars in additional premiums. GAO recommends that RMA (1) monitor and report on crop insurance costs in areas that have higher crop production risks and (2), as appropriate, increase its adjustments of premium rates in these areas by as much as the full 20 percent annually that is allowed by law. RMA disagreed with GAO's first recommendation and agreed with the second. GAO continues to believe that RMA can and should do more to monitor and report on crop insurance costs in higher risk areas, where government costs were found to be substantially higher.
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